GRI

American Jobs Creation Act of 2004

Law Employment & labor Law
Date: 23rd Nov, 2024 Source: Congress.gov Country: USA Original Source

Brief

The document discusses tax-related laws and regulations in the United States, primarily focusing on the taxation of businesses, individuals, and investments. The amendments made by this section apply to taxable years beginning after December 31, 2003, or after a specified date for certain provisions. The document outlines rules for various aspects of taxation, including deferred compensation plans, partnerships, foreign source income, overall foreign losses, and recapture of such losses. It also touches upon topics like exemptions from regulations, modifications to existing rules governing controlled groups of corporations, reporting requirements for vendors of goods or services sold to the Federal Government, and amendments related to the taxation of utilities. The document aims to simplify and clarify tax laws, reducing complexity and ensuring compliance with regulatory requirements.

118 STAT. 1418 PUBLIC LAW 108–357—OCT. 22, 2004
Public Law 108–357
108th Congress
An Act
To amend the Internal Revenue Code of 1986 to remove impediments in such
Code and make our manufacturing, service, and high-technology businesses andworkers more competitive and productive both at home and abroad.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled ,
SECTION 1. SHORT TITLE; ETC.
(a) S HORT TITLE.—This Act may be cited as the ‘‘American
Jobs Creation Act of 2004’’.
(b) A MENDMENT OF 1986 C ODE.—Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressedin terms of an amendment to, or repeal of, a section or otherprovision, the reference shall be considered to be made to a sectionor other provision of the Internal Revenue Code of 1986.
(c) T
ABLE OF CONTENTS .—The table of contents of this Act
is as follows:
Sec. 1. Short title; etc.
TITLE I—PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic production activi-
ties.
TITLE II—BUSINESS TAX INCENTIVES
Subtitle A—Small Business Expensing
Sec. 201. 2-year extension of increased expensing for small business.
Subtitle B—Depreciation
Sec. 211. Recovery period for depreciation of certain leasehold improvements and
restaurant property.
Subtitle C—Community Revitalization
Sec. 221. Modification of targeted areas and low-income communities for new mar-
kets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000 census
data.
Sec. 223. Modification of income requirement for census tracts within high migra-
tion rural counties.
Subtitle D—S Corporation Reform and Simplification
Sec. 231. Members of family treated as 1 shareholder.
Sec. 232. Increase in number of eligible shareholders to 100.Sec. 233. Expansion of bank S corporation eligible shareholders to include IRAs.Sec. 234. Disregard of unexercised powers of appointment in determining potential
current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.Sec. 236. Use of passive activity loss and at-risk amounts by qualified subchapter
S trust income beneficiaries.26 USC 1 note.American Jobs
Creation Act of2004.Oct. 22, 2004
[H.R. 4520]
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Sec. 237. Exclusion of investment securities income from passive income test for
bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S subsidiary elec-
tions and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.Sec. 240. Repayment of loans for qualifying employer securities.
Subtitle E—Other Business Incentives
Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of depreciation.Sec. 243. Improvements related to real estate investment trusts.Sec. 244. Special rules for certain film and television productions.Sec. 245. Credit for maintenance of railroad track.Sec. 246. Suspension of occupational taxes relating to distilled spirits, wine, and
beer.
Sec. 247. Modification of unrelated business income limitation on investment in
certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international shipping ac-
tivities using per ton rate.
Subtitle F—Stock Options and Employee Stock Purchase Plan Stock Options
Sec. 251. Exclusion of incentive stock options and employee stock purchase plan
stock options from wages.
TITLE III—TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A—Volumetric Ethanol Excise Tax Credit
Sec. 301. Alcohol and biodiesel excise tax credit and extension of alcohol fuels in-
come tax credit.
Sec. 302. Biodiesel income tax credit.Sec. 303. Information reporting for persons claiming certain tax benefits.
Subtitle B—Agricultural Incentives
Sec. 311. Special rules for livestock sold on account of weather-related conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing patronage
dividends.
Sec. 313. Apportionment of small ethanol producer credit.Sec. 314. Coordinate farmers and fishermen income averaging and the alternative
minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to outright sales by
landowners.
Sec. 316. Modification to cooperative marketing rules to include value added proc-
essing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers’ cooperative or-
ganizations.
Sec. 318. Certain expenses of rural letter carriers.Sec. 319. Treatment of certain income of cooperatives.Sec. 320. Exclusion for payments to individuals under National Health Service
Corps loan repayment program and certain State loan repayment pro-grams.
Sec. 321. Modification of safe harbor rules for timber REITs.Sec. 322. Expensing of certain reforestation expenditures.
Subtitle C—Incentives for Small Manufacturers
Sec. 331. Net income from publicly traded partnerships treated as qualifying in-
come of regulated investment companies.
Sec. 332. Simplification of excise tax imposed on bows and arrows.Sec. 333. Reduction of excise tax on fishing tackle boxes.Sec. 334. Sonar devices suitable for finding fish.Sec. 335. Charitable contribution deduction for certain expenses incurred in sup-
port of Native Alaskan subsistence whaling.
Sec. 336. Modification of depreciation allowance for aircraft.Sec. 337. Modification of placed in service rule for bonus depreciation property.Sec. 338. Expensing of capital costs incurred in complying with Environmental Pro-
tection Agency sulfur regulations.
Sec. 339. Credit for production of low sulfur diesel fuel.Sec. 340. Expansion of qualified small-issue bond program.Sec. 341. Oil and gas from marginal wells.
TITLE IV—TAX REFORM AND SIMPLIFICATION FOR UNITED STATES
BUSINESSES
Sec. 401. Interest expense allocation rules.
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Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled section 902 cor-
porations.
Sec. 404. Reduction to 2 foreign tax credit baskets.Sec. 405. Attribution of stock ownership through partnerships to apply in deter-
mining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible property.Sec. 407. United States property not to include certain assets of controlled foreign
corporation.
Sec. 408. Translation of foreign taxes.Sec. 409. Repeal of withholding tax on dividends from certain foreign corporations.Sec. 410. Equal treatment of interest paid by foreign partnerships and foreign cor-
porations.
Sec. 411. Treatment of certain dividends of regulated investment companies.Sec. 412. Look-thru treatment for sales of partnership interests.Sec. 413. Repeal of foreign personal holding company rules and foreign investment
company rules.
Sec. 414. Determination of foreign personal holding company income with respect
to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping income.Sec. 416. Modification of exceptions under subpart F for active financing.Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax credit carryback.Sec. 418. Modification of the treatment of certain REIT distributions attributable
to gain from sales or exchanges of United States real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races and dog
races from gross income of nonresident alien individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.Sec. 421. Foreign tax credit under alternative minimum tax.Sec. 422. Incentives to reinvest foreign earnings in United States.Sec. 423. Delay in effective date of final regulations governing exclusion of income
from international operation of ships or aircraft.
Sec. 424. Study of earnings stripping provisions.
TITLE V—DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
Sec. 501. Deduction of State and local general sales taxes in lieu of State and local
income taxes.
TITLE VI—FAIR AND EQUITABLE TOBACCO REFORM
Sec. 601. Short title.
Subtitle A—Termination of Federal Tobacco Quota and Price Support Programs
Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related provisions.Sec. 613. Conforming amendments.Sec. 614. Continuation of liability for 2004 and earlier crop years.
Subtitle B—Transitional Payments to Tobacco Quota Holders and Producers of
Tobacco
Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.Sec. 623. Contract payments for producers of quota tobacco.Sec. 624. Administration.Sec. 625. Use of assessments as source of funds for payments.Sec. 626. Tobacco Trust Fund.Sec. 627. Limitation on total expenditures.
Subtitle C—Implementation and Transition
Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan costs.
Sec. 642. Regulations.Sec. 643. Effective date.
TITLE VII—MISCELLANEOUS PROVISIONS
Sec. 701. Brownfields demonstration program for qualified green building and sus-
tainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain brownfield sites
from unrelated business taxable income.
Sec. 703. Civil rights tax relief.Sec. 704. Modification of class life for certain track facilities.Sec. 705. Suspension of policyholders surplus account provisions.Sec. 706. Certain Alaska natural gas pipeline property treated as 7-year property.
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Sec. 707. Extension of enhanced oil recovery credit to certain Alaska facilities.
Sec. 708. Method of accounting for naval shipbuilders.Sec. 709. Modification of minimum cost requirement for transfer of excess pension
assets.
Sec. 710. Expansion of credit for electricity produced from certain renewable re-
sources.
Sec. 711. Certain business credits allowed against regular and minimum tax.Sec. 712. Inclusion of primary and secondary medical strategies for children and
adults with sickle cell disease as medical assistance under the Medicaidprogram.
Sec. 713. Ceiling fans.Sec. 714. Certain steam generators, and certain reactor vessel heads and pressur-
izers, used in nuclear facilities.
TITLE VIII—REVENUE PROVISIONS
Subtitle A—Provisions to Reduce Tax Avoidance Through Individual and Corporate
Expatriation
Sec. 801. Tax treatment of expatriated entities and their foreign parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated corporations.Sec. 803. Reinsurance of United States risks in foreign jurisdictions.Sec. 804. Revision of tax rules on expatriation of individuals.Sec. 805. Reporting of taxable mergers and acquisitions.Sec. 806. Studies.
Subtitle B—Provisions Relating to Tax Shelters
P
ARTI—T AXPAYER -RELATED PROVISIONS
Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other reportable trans-
actions having a significant tax avoidance purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating to taxpayer
communications.
Sec. 814. Statute of limitations for taxable years for which required listed trans-
actions not reported.
Sec. 815. Disclosure of reportable transactions.Sec. 816. Failure to furnish information regarding reportable transactions.Sec. 817. Modification of penalty for failure to maintain lists of investors.Sec. 818. Penalty on promoters of tax shelters.Sec. 819. Modifications of substantial understatement penalty for nonreportable
transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to tax shelters
and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial accounts.Sec. 822. Regulation of individuals practicing before the Department of the Treas-
ury.
P
ARTII—O THER PROVISIONS
Sec. 831. Treatment of stripped interests in bond and preferred stock funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding taxes on in-
come other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.Sec. 834. No reduction of basis under section 734 in stock held by partnership in
corporate partner.
Sec. 835. Repeal of special rules for FASITS.Sec. 836. Limitation on transfer or importation of built-in losses.Sec. 837. Clarification of banking business for purposes of determining investment
of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable to nondis-
closed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for certain deemed
asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence acquired in a
like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue discount deduc-
tions and income inclusions in transactions with related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential underpay-
ments.
Sec. 843. Partial payment of tax liability in installment agreements.Sec. 844. Affirmation of consolidated return regulation authority.Sec. 845. Expanded disallowance of deduction for interest on convertible debt.
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PARTIII—L EASING
Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by governments or
other tax-exempt entities.
Sec. 849. Effective date.
Subtitle C—Reduction of Fuel Tax Evasion
Sec. 851. Exemption from certain excise taxes for mobile machinery.
Sec. 852. Modification of definition of off-highway vehicle.Sec. 853. Taxation of aviation-grade kerosene.Sec. 854. Dye injection equipment.Sec. 855. Elimination of administrative review for taxable use of dyed fuel.Sec. 856. Penalty on untaxed chemically altered dyed fuel mixtures.Sec. 857. Termination of dyed diesel use by intercity buses.Sec. 858. Authority to inspect on-site records.Sec. 859. Assessable penalty for refusal of entry.Sec. 860. Registration of pipeline or vessel operators required for exemption of bulk
transfers to registered terminals or refineries.
Sec. 861. Display of registration.Sec. 862. Registration of persons within foreign trade zones, etc.Sec. 863. Penalties for failure to register and failure to report.Sec. 864. Electronic filing of required information reports.Sec. 865. Taxable fuel refunds for certain ultimate vendors.Sec. 866. Two-party exchanges.Sec. 867. Modifications of tax on use of certain vehicles.Sec. 868. Dedication of revenues from certain penalties to the Highway Trust Fund.Sec. 869. Simplification of tax on tires.Sec. 870. Transmix and diesel fuel blend stocks treated as taxable fuel.Sec. 871. Study regarding fuel tax compliance.
Subtitle D—Other Revenue Provisions
Sec. 881. Qualified tax collection contracts.
Sec. 882. Treatment of charitable contributions of patents and similar property.Sec. 883. Increased reporting for noncash charitable contributions.Sec. 884. Donations of motor vehicles, boats, and airplanes.Sec. 885. Treatment of nonqualified deferred compensation plans.Sec. 886. Extension of amortization of intangibles to sports franchises.Sec. 887. Modification of continuing levy on payments to Federal vendors.Sec. 888. Modification of straddle rules.Sec. 889. Addition of vaccines against hepatitis A to list of taxable vaccines.Sec. 890. Addition of vaccines against influenza to list of taxable vaccines.Sec. 891. Extension of IRS user fees.Sec. 892. COBRA fees.Sec. 893. Prohibition on nonrecognition of gain through complete liquidation of
holding company.
Sec. 894. Effectively connected income to include certain foreign source income.Sec. 895. Recapture of overall foreign losses on sale of controlled foreign corpora-
tion.
Sec. 896. Recognition of cancellation of indebtedness income realized on satisfaction
of debt with partnership interest.
Sec. 897. Denial of installment sale treatment for all readily tradable debt.Sec. 898. Modification of treatment of transfers to creditors in divisive reorganiza-
tions.
Sec. 899. Clarification of definition of nonqualified preferred stock.Sec. 900. Modification of definition of controlled group of corporations.Sec. 901. Class lives for utility grading costs.Sec. 902. Consistent amortization of periods for intangibles.Sec. 903. Freeze of provisions regarding suspension of interest where Secretary
fails to contact taxpayer.
Sec. 904. Increase in withholding from supplemental wage payments in excess of
$1,000,000.
Sec. 905. Treatment of sale of stock acquired pursuant to exercise of stock options
to comply with conflict-of-interest requirements.
Sec. 906. Application of basis rules to nonresident aliens.Sec. 907. Limitation of employer deduction for certain entertainment expenses.Sec. 908. Residence and source rules relating to United States possessions.Sec. 909. Sales or dispositions to implement Federal Energy Regulatory Commis-
sion or State electric restructuring policy.
Sec. 910. Expansion of limitation on depreciation of certain passenger automobiles.
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TITLE I—PROVISIONS RELATING TO RE-
PEAL OF EXCLUSION FOREXTRATERRITORIAL INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) I NGENERAL .—Section 114 is hereby repealed.
(b) C ONFORMING AMENDMENTS .—
(1) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby repealed.
(2) The table of subparts for such part III is amended
by striking the item relating to subpart E.
(3) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section114.
(4) The second sentence of section 56(g)(4)(B)(i) is amended
by striking ‘‘114 or’’.
(5) Section 275(a) is amended—
(A) by inserting ‘‘or’’ at the end of paragraph (4)(A),
by striking ‘‘or’’ at the end of paragraph (4)(B) and insertinga period, and by striking subparagraph (C), and
(B) by striking the last sentence.
(6) Paragraph (3) of section 864(e) is amended—
(A) by striking:
‘‘(3) T
AX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT .—
‘‘(A) I N GENERAL .—For purposes of’’; and inserting:
‘‘(3) T AX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT .—For
purposes of’’, and
(B) by striking subparagraph (B).
(7) Section 903 is amended by striking ‘‘114, 164(a),’’ and
inserting ‘‘164(a)’’.
(8) Section 999(c)(1) is amended by striking ‘‘941(a)(5),’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to transactions after December 31, 2004.
(d) T RANSITIONAL RULE FOR 2005 AND 2006.—
(1) I N GENERAL .—In the case of transactions during 2005
or 2006, the amount includible in gross income by reason ofthe amendments made by this section shall not exceed theapplicable percentage of the amount which would have beenso included but for this subsection.
(2) A
PPLICABLE PERCENTAGE .—For purposes of paragraph
(1), the applicable percentage shall be as follows:
(A) For 2005, the applicable percentage shall be 20
percent.
(B) For 2006, the applicable percentage shall be 40
percent.
(e) R EVOCATION OF ELECTION TOBETREATED AS DOMESTIC
CORPORATION .—If, during the 1-year period beginning on the date
of the enactment of this Act, a corporation for which an electionis in effect under section 943(e) of the Internal Revenue Codeof 1986 revokes such election, no gain or loss shall be recognizedwith respect to property treated as transferred under clause (ii)
of section 943(e)(4)(B) of such Code to the extent such property—
(1) was treated as transferred under clause (i) thereof,
or26 USC 114 note.26 USC 56 note.26 USC 941–943.
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(2) was acquired during a taxable year to which such
election applies and before May 1, 2003, in the ordinary courseof its trade or business.
The Secretary of the Treasury (or such Secretary’s delegate) mayprescribe such regulations as may be necessary to prevent the
abuse of the purposes of this subsection.
(f) B
INDING CONTRACTS .—The amendments made by this section
shall not apply to any transaction in the ordinary course of atrade or business which occurs pursuant to a binding contract—
(1) which is between the taxpayer and a person who is
not a related person (as defined in section 943(b)(3) of suchCode, as in effect on the day before the date of the enactmentof this Act), and
(2) which is in effect on September 17, 2003, and at all
times thereafter.
For purposes of this subsection, a binding contract shall includea purchase option, renewal option, or replacement option whichis included in such contract and which is enforceable against theseller or lessor.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO
DOMESTIC PRODUCTION ACTIVITIES.
(a) I NGENERAL .—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amendedby adding at the end the following new section:
‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION
ACTIVITIES.
‘‘(a) A LLOWANCE OF DEDUCTION .—
‘‘(1) I N GENERAL .—There shall be allowed as a deduction
an amount equal to 9 percent of the lesser of—
‘‘(A) the qualified production activities income of the
taxpayer for the taxable year, or
‘‘(B) taxable income (determined without regard to this
section) for the taxable year.‘‘(2) P
HASEIN .—In the case of any taxable year beginning
after 2004 and before 2010, paragraph (1) and subsections(d)(1) and (d)(6) shall be applied by substituting for the percent-age contained therein the transition percentage determinedunder the following table:
‘‘For taxable years The
transition
beginning in: percentage is:
2005 or 2006 …………………………………………………………………………. 32007, 2008, or 2009 ……………………………………………………………….. 6.
‘‘(b) D EDUCTION LIMITED TO WAGES PAID.—
‘‘(1) I N GENERAL .—The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed50 percent of the W–2 wages of the employer for the taxableyear.
‘‘(2) W–2
WAGES .—For purposes of paragraph (1), the term
‘W–2 wages’ means the sum of the aggregate amounts thetaxpayer is required to include on statements under paragraphs(3) and (8) of section 6051(a) with respect to employment ofemployees of the taxpayer during the calendar year endingduring the taxpayer’s taxable year.
‘‘(3) A
CQUISITIONS AND DISPOSITIONS .—The Secretary shall
provide for the application of this subsection in cases whereApplicability.
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the taxpayer acquires, or disposes of, the major portion of
a trade or business or the major portion of a separate unitof a trade or business during the taxable year.‘‘(c) Q
UALIFIED PRODUCTION ACTIVITIES INCOME .—For purposes
of this section—
‘‘(1) I N GENERAL .—The term ‘qualified production activities
income’ for any taxable year means an amount equal to theexcess (if any) of—
‘‘(A) the taxpayer’s domestic production gross receipts
for such taxable year, over
‘‘(B) the sum of—
‘‘(i) the cost of goods sold that are allocable to
such receipts,
‘‘(ii) other deductions, expenses, or losses directly
allocable to such receipts, and
‘‘(iii) a ratable portion of other deductions,
expenses, and losses that are not directly allocableto such receipts or another class of income.
‘‘(2) A
LLOCATION METHOD .—The Secretary shall prescribe
rules for the proper allocation of items of income, deduction,expense, and loss for purposes of determining income attrib-utable to domestic production activities.
‘‘(3) S
PECIAL RULES FOR DETERMINING COSTS .—
‘‘(A) I N GENERAL .—For purposes of determining costs
under clause (i) of paragraph (1)(B), any item or servicebrought into the United States shall be treated as acquiredby purchase, and its cost shall be treated as not lessthan its value immediately after it entered the UnitedStates. A similar rule shall apply in determining theadjusted basis of leased or rented property where the leaseor rental gives rise to domestic production gross receipts.
‘‘(B) E
XPORTS FOR FURTHER MANUFACTURE .—In the case
of any property described in subparagraph (A) that hadbeen exported by the taxpayer for further manufacture,the increase in cost or adjusted basis under subparagraph(A) shall not exceed the difference between the value ofthe property when exported and the value of the propertywhen brought back into the United States after the furthermanufacture.
‘‘(4) D
OMESTIC PRODUCTION GROSS RECEIPTS .—
‘‘(A) I N GENERAL .—The term ‘domestic production gross
receipts’ means the gross receipts of the taxpayer whichare derived from—
‘‘(i) any lease, rental, license, sale, exchange, or
other disposition of—
‘‘(I) qualifying production property which was
manufactured, produced, grown, or extracted bythe taxpayer in whole or in significant part withinthe United States,
‘‘(II) any qualified film produced by the tax-
payer, or
‘‘(III) electricity, natural gas, or potable water
produced by the taxpayer in the United States,‘‘(ii) construction performed in the United States,
orApplicability.Regulations.
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‘‘(iii) engineering or architectural services per-
formed in the United States for construction projectsin the United States.‘‘(B) E
XCEPTIONS .—Such term shall not include gross
receipts of the taxpayer which are derived from—
‘‘(i) the sale of food and beverages prepared by
the taxpayer at a retail establishment, and
‘‘(ii) the transmission or distribution of electricity,
natural gas, or potable water.
‘‘(5) Q UALIFYING PRODUCTION PROPERTY .—The term ‘quali-
fying production property’ means—
‘‘(A) tangible personal property,‘‘(B) any computer software, and‘‘(C) any property described in section 168(f)(4).
‘‘(6) Q
UALIFIED FILM .—The term ‘qualified film’ means any
property described in section 168(f)(3) if not less than 50 percentof the total compensation relating to the production of suchproperty is compensation for services performed in the UnitedStates by actors, production personnel, directors, and producers.Such term does not include property with respect to whichrecords are required to be maintained under section 2257 oftitle 18, United States Code.
‘‘(7) R
ELATED PERSONS .—
‘‘(A) I N GENERAL .—The term ‘domestic production gross
receipts’ shall not include any gross receipts of the taxpayerderived from property leased, licensed, or rented by thetaxpayer for use by any related person.
‘‘(B) R
ELATED PERSON .—For purposes of subparagraph
(A), a person shall be treated as related to another personif such persons are treated as a single employer undersubsection (a) or (b) of section 52 or subsection (m) or(o) of section 414, except that determinations under sub-sections (a) and (b) of section 52 shall be made withoutregard to section 1563(b).
‘‘(d) D
EFINITIONS AND SPECIAL RULES .—
‘‘(1) A PPLICATION OF SECTION TO PASS -THRU ENTITIES .—
‘‘(A) I N GENERAL .—In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity—
‘‘(i) subject to the provisions of paragraphs (2) and
(3), this section shall be applied at the shareholder,partner, or similar level, and
‘‘(ii) the Secretary shall prescribe rules for the
application of this section, including rules relating to—
‘‘(I) restrictions on the allocation of the deduc-
tion to taxpayers at the partner or similar level,and
‘‘(II) additional reporting requirements.
‘‘(B) A
PPLICATION OF WAGE LIMITATION .—Notwith-
standing subparagraph (A)(i), for purposes of applying sub-section (b), a shareholder, partner, or similar person whichis allocated qualified production activities income from anS corporation, partnership, estate, trust, or other pass-thru entity shall also be treated as having been allocatedW–2 wages from such entity in an amount equal to thelesser of—
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‘‘(i) such person’s allocable share of such wages
(without regard to this subparagraph), as determinedunder regulations prescribed by the Secretary, or
‘‘(ii) 2 times 9 percent of the qualified production
activities income allocated to such person for the tax-able year.
‘‘(2) A
PPLICATION TO INDIVIDUALS .—In the case of an indi-
vidual, subsection (a)(1)(B) shall be applied by substituting‘adjusted gross income’ for ‘taxable income’. For purposes ofthe preceding sentence, adjusted gross income shall bedetermined—
‘‘(A) after application of sections 86, 135, 137, 219,
221, 222, and 469, and
‘‘(B) without regard to this section.
‘‘(3) P
ATRONS OF AGRICULTURAL AND HORTICULTURAL
COOPERATIVES .—
‘‘(A) I N GENERAL .—If any amount described in para-
graph (1) or (3) of section 1385(a)—
‘‘(i) is received by a person from an organization
to which part I of subchapter T applies which isengaged—
‘‘(I) in the manufacturing, production, growth,
or extraction in whole or significant part of anyagricultural or horticultural product, or
‘‘(II) in the marketing of agricultural or horti-
cultural products, and‘‘(ii) is allocable to the portion of the qualified
production activities income of the organization which,but for this paragraph, would be deductible under sub-section (a) by the organization and is designated assuch by the organization in a written notice mailedto its patrons during the payment period describedin section 1382(d),
then such person shall be allowed a deduction under sub-section (a) with respect to such amount. The taxable incomeof the organization shall not be reduced under section1382 by reason of any amount to which the precedingsentence applies.
‘‘(B) S
PECIAL RULES .—For purposes of applying
subparagraph (A), in determining the qualified productionactivities income which would be deductible by theorganization under subsection (a)—
‘‘(i) there shall not be taken into account in com-
puting the organization’s taxable income any deductionallowable under subsection (b) or (c) of section 1382(relating to patronage dividends, per-unit retain alloca-tions, and nonpatronage distributions), and
‘‘(ii) in the case of an organization described in
subparagraph (A)(i)(II), the organization shall betreated as having manufactured, produced, grown, orextracted in whole or significant part any qualifyingproduction property marketed by the organizationwhich its patrons have so manufactured, produced,grown, or extracted.
‘‘(4) S
PECIAL RULE FOR AFFILIATED GROUPS .—
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‘‘(A) I N GENERAL .—All members of an expanded affili-
ated group shall be treated as a single corporation forpurposes of this section.
‘‘(B) E
XPANDED AFFILIATED GROUP .—For purposes of
this section, the term ‘expanded affiliated group’ meansan affiliated group as defined in section 1504(a),determined—
‘‘(i) by substituting ‘50 percent’ for ‘80 percent’
each place it appears, and
‘‘(ii) without regard to paragraphs (2) and (4) of
section 1504(b).‘‘(C) A
LLOCATION OF DEDUCTION .—Except as provided
in regulations, the deduction under subsection (a) shallbe allocated among the members of the expanded affiliatedgroup in proportion to each member’s respective amount(if any) of qualified production activities income.‘‘(5) T
RADE OR BUSINESS REQUIREMENT .—This section shall
be applied by only taking into account items which are attrib-utable to the actual conduct of a trade or business.
‘‘(6) C
OORDINATION WITH MINIMUM TAX .—The deduction
under this section shall be allowed for purposes of the taximposed by section 55; except that for purposes of section55, the deduction under subsection (a) shall be 9 percent ofthe lesser of—
‘‘(A) qualified production activities income (determined
without regard to part IV of subchapter A), or
‘‘(B) alternative minimum taxable income (determined
without regard to this section) for the taxable year.
In the case of an individual, subparagraph (B) shall be appliedby substituting ‘adjusted gross income’ for ‘alternative min-imum taxable income’. For purposes of the preceding sentence,adjusted gross income shall be determined in the same manneras provided in paragraph (2).
‘‘(7) R
EGULATIONS .—The Secretary shall prescribe such
regulations as are necessary to carry out the purposes of thissection.’’.(b) M
INIMUM TAX.—Section 56(g)(4)(C) (relating to disallowance
of items not deductible in computing earnings and profits) isamended by adding at the end the following new clause:
‘‘(v) D
EDUCTION FOR DOMESTIC PRODUCTION .—
Clause (i) shall not apply to any amount allowableas a deduction under section 199.’’.
(c) S
PECIAL RULE RELATING TO ELECTION TOTREAT CUTTING
OFTIMBER AS A SALE OR EXCHANGE .—Any election under section
631(a) of the Internal Revenue Code of 1986 made for a taxableyear ending on or before the date of the enactment of this Actmay be revoked by the taxpayer for any taxable year ending aftersuch date. For purposes of determining whether such taxpayermay make a further election under such section, such election(and any revocation under this section) shall not be taken intoaccount.
(d) T
ECHNICAL AMENDMENTS .—
(1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and
219(g)(3)(A)(ii) are each amended by inserting ‘‘199,’’ before‘‘221’’.
(2) Clause (i) of section 221(b)(2)(C) is amended by inserting
by inserting ‘‘199,’’ before ‘‘222’’.26 USC 631 note.
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(3) Clause (i) of section 222(b)(2)(C) is amended by inserting
‘‘199,’’ before ‘‘911’’.
(4) Paragraph (1) of section 246(b) is amended by inserting
‘‘199,’’ after ‘‘172,’’.
(5) Clause (iii) of section 469(i)(3)(F) is amended by
inserting ‘‘199,’’ before ‘‘219,’’.
(6) Subsection (a) of section 613 is amended by inserting
‘‘and without the deduction under section 199’’ after ‘‘withoutallowances for depletion’’.
(7) Subsection (a) of section 1402 is amended by striking
‘‘and’’ at the end of paragraph (14), by striking the periodat the end of paragraph (15) and inserting ‘‘, and’’, and byinserting after paragraph (15) the following new paragraph:
‘‘(16) the deduction provided by section 199 shall not be
allowed.’’.
(8) The table of sections for part VI of subchapter B of
chapter 1 is amended by adding at the end the following newitem:
‘‘Sec. 199. Income attributable to domestic production activities.’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
TITLE II—BUSINESS TAX INCENTIVES
Subtitle A—Small Business Expensing
SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL
BUSINESS.
Subsections (b), (c), and (d) of section 179 are each amended
by striking ‘‘2006’’ each place it appears and inserting ‘‘2008’’.
Subtitle B—Depreciation
SEC. 211. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASE-
HOLD IMPROVEMENTS AND RESTAURANT PROPERTY.
(a) 15-Y EAR RECOVERY PERIOD .—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is amendedby striking ‘‘and’’ at the end of clause (ii), by striking the periodat the end of clause (iii) and inserting a comma, and by addingat the end the following new clauses:
‘‘(iv) any qualified leasehold improvement property
placed in service before January 1, 2006, and
‘‘(v) any qualified restaurant property placed in
service before January 1, 2006.’’.
(b) Q
UALIFIED LEASEHOLD IMPROVEMENT PROPERTY .—Sub-
section (e) of section 168 is amended by adding at the end thefollowing new paragraph:
‘‘(6) Q
UALIFIED LEASEHOLD IMPROVEMENT PROPERTY .—The
term ‘qualified leasehold improvement property’ has themeaning given such term in section 168(k)(3) except that thefollowing special rules shall apply:
‘‘(A) I
MPROVEMENTS MADE BY LESSOR .—In the case of
an improvement made by the person who was the lessorof such improvement when such improvement was placed26 USC 56 note.
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in service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as suchimprovement is held by such person.
‘‘(B) E
XCEPTION FOR CHANGES IN FORM OF BUSINESS .—
Property shall not cease to be qualified leasehold improve-ment property under subparagraph (A) by reason of—
‘‘(i) death,‘‘(ii) a transaction to which section 381(a) applies,‘‘(iii) a mere change in the form of conducting
the trade or business so long as the property is retainedin such trade or business as qualified leaseholdimprovement property and the taxpayer retains asubstantial interest in such trade or business,
‘‘(iv) the acquisition of such property in an
exchange described in section 1031, 1033, or 1038 tothe extent that the basis of such property includesan amount representing the adjusted basis of otherproperty owned by the taxpayer or a related person,or
‘‘(v) the acquisition of such property by the tax-
payer in a transaction described in section 332, 351,361, 721, or 731 (or the acquisition of such propertyby the taxpayer from the transferee or acquiring cor-poration in a transaction described in such section),to the extent that the basis of the property in thehands of the taxpayer is determined by reference to
its basis in the hands of the transferor or distributor.’’.
(c) Q
UALIFIED RESTAURANT PROPERTY .—Subsection (e) of section
168 (as amended by subsection (b)) is further amended by addingat the end the following new paragraph:
‘‘(7) Q
UALIFIED RESTAURANT PROPERTY .—The term ‘qualified
restaurant property’ means any section 1250 property whichis an improvement to a building if—
‘‘(A) such improvement is placed in service more than
3 years after the date such building was first placed inservice, and
‘‘(B) more than 50 percent of the building’s square
footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.’’.
(d) R
EQUIREMENT TOUSESTRAIGHT LINEMETHOD .—
(1) Paragraph (3) of section 168(b) is amended by adding
at the end the following new subparagraphs:
‘‘(G) Qualified leasehold improvement property
described in subsection (e)(6).
‘‘(H) Qualified restaurant property described in sub-
section (e)(7).’’.(2) Subparagraph (A) of section 168(b)(2) is amended by
inserting before the comma ‘‘not referred to in paragraph (3)’’.(e) A
LTERNATIVE SYSTEM .—The table contained in section
168(g)(3)(B) is amended by adding at the end the following newitems:
‘‘(E)(iv) ……………………………………………………………………….. 39
‘‘(E)(v) ………………………………………………………………………… 39’’.
(f) E FFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of theenactment of this Act.26 USC 168 note.
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Subtitle C—Community Revitalization
SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME
COMMUNITIES FOR NEW MARKETS TAX CREDIT.
(a) T ARGETED AREAS .—Paragraph (2) of section 45D(e) (relating
to targeted areas) is amended to read as follows:
‘‘(2) T ARGETED POPULATIONS .—The Secretary shall pre-
scribe regulations under which 1 or more targeted populations(within the meaning of section 103(20) of the Riegle CommunityDevelopment and Regulatory Improvement Act of 1994 (12U.S.C. 4702(20))) may be treated as low-income communities.Such regulations shall include procedures for determining
which entities are qualified active low-income communitybusinesses with respect to such populations.’’.(b) T
RACTS WITH LOWPOPULATION .—Subsection (e) of section
45D (defining low-income community) is amended by adding atthe end the following:
‘‘(4) T
RACTS WITH LOW POPULATION .—A population census
tract with a population of less than 2,000 shall be treatedas a low-income community for purposes of this section if suchtract—
‘‘(A) is within an empowerment zone the designation
of which is in effect under section 1391, and
‘‘(B) is contiguous to 1 or more low-income communities
(determined without regard to this paragraph).’’.
(c) E
FFECTIVE DATES .—
(1) T ARGETED AREAS .—The amendment made by subsection
(a) shall apply to designations made by the Secretary of theTreasury after the date of the enactment of this Act.
(2) T
RACTS WITH LOW POPULATION .—The amendment made
by subsection (b) shall apply to investments made after thedate of the enactment of this Act.
SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA
BASED ON 2000 CENSUS DATA.
(a) I NGENERAL .—Section 1400E (relating to designation of
renewal communities) is amended by adding at the end the followingnew subsection:
‘‘(g) E
XPANSION OF DESIGNATED AREABASED ON 2000 C ENSUS .—
‘‘(1) I N GENERAL .—At the request of all governments which
nominated an area as a renewal community, the Secretaryof Housing and Urban Development may expand the area ofsuch community to include any census tract if—
‘‘(A)(i) at the time such community was nominated,
such community would have met the requirements of thissection using 1990 census data even if such tract hadbeen included in such community, and
‘‘(ii) such tract has a poverty rate using 2000 census
data which exceeds the poverty rate for such tract using1990 census data, or
‘‘(B)(i) such community would be described in subpara-
graph (A)(i) but for the failure to meet one or more ofthe requirements of paragraphs (2)(C)(i), (3)(C), and (3)(D)of subsection (c) using 1990 census data,26 USC 45D
note.Regulations.
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‘‘(ii) such community, including such tract, has a popu-
lation of not more than 200,000 using either 1990 censusdata or 2000 census data,
‘‘(iii) such tract meets the requirement of subsection
(c)(3)(C) using 2000 census data, and
‘‘(iv) such tract meets the requirement of subparagraph
(A)(ii).‘‘(2) E
XCEPTION FOR CERTAIN CENSUS TRACTS WITH LOW
POPULATION IN 1990 .—In the case of any census tract which
did not have a poverty rate determined by the Bureau ofthe Census using 1990 census data, paragraph (1)(B) shallbe applied without regard to clause (iv) thereof.
‘‘(3) S
PECIAL RULE FOR CERTAIN CENSUS TRACTS WITH LOW
POPULATION IN 2000 .—At the request of all governments which
nominated an area as a renewal community, the Secretaryof Housing and Urban Development may expand the area ofsuch community to include any census tract if—
‘‘(A) either—
‘‘(i) such tract has no population using 2000 census
data, or
‘‘(ii) no poverty rate for such tract is determined
by the Bureau of the Census using 2000 census data,‘‘(B) such tract is one of general distress, and‘‘(C) such community, including such tract, meets the
requirements of subparagraphs (A) and (B) of subsection(c)(2).‘‘(4) P
ERIOD IN EFFECT .—Any expansion under this sub-
section shall take effect as provided in subsection (b).’’.(b) E
FFECTIVE DATE.—The amendment made by subsection (a)
shall take effect as if included in the amendments made by section101 of the Community Renewal Tax Relief Act of 2000.
SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES.
(a) I N GENERAL .—Section 45D(e) (relating to low-income commu-
nity), as amended by this Act, is amended by inserting after para-graph (4) the following new paragraph:
‘‘(5) M
ODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES .—
‘‘(A) I N GENERAL .—In the case of a population census
tract located within a high migration rural county, para-graph (1)(B)(i) shall be applied by substituting ‘85 percent’for ‘80 percent’.
‘‘(B) H
IGH MIGRATION RURAL COUNTY .—For purposes
of this paragraph, the term ‘high migration rural county’means any county which, during the 20-year period endingwith the year in which the most recent census was con-ducted, has a net out-migration of inhabitants from thecounty of at least 10 percent of the population of thecounty at the beginning of such period.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendment made by section121(a) of the Community Renewal Tax Relief Act of 2000.26 USC 45D
note.26 USC 1400E
note.
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Subtitle D—S Corporation Reform and
Simplification
SEC. 231. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) I NGENERAL .—Paragraph (1) of section 1361(c) (relating
to special rules for applying subsection (b)) is amended to readas follows:
‘‘(1) M
EMBERS OF FAMILY TREATED AS 1 SHAREHOLDER .—
‘‘(A) I N GENERAL .—For purpose of subsection (b)(1)(A)—
‘‘(i) except as provided in clause (ii), a husband
and wife (and their estates) shall be treated as 1 share-holder, and
‘‘(ii) in the case of a family with respect to which
an election is in effect under subparagraph (D), allmembers of the family shall be treated as 1 share-holder.‘‘(B) M
EMBERS OF THE FAMILY .—For purpose of
subparagraph (A)(ii)—
‘‘(i) I N GENERAL .—The term ‘members of the family’
means the common ancestor, lineal descendants of thecommon ancestor, and the spouses (or former spouses)of such lineal descendants or common ancestor.
‘‘(ii) C
OMMON ANCESTOR —For purposes of this
paragraph, an individual shall not be considered acommon ancestor if, as of the later of the effectivedate of this paragraph or the time the election undersection 1362(a) is made, the individual is more than6 generations removed from the youngest generationof shareholders who would (but for this clause) bemembers of the family. For purposes of the precedingsentence, a spouse (or former spouse) shall be treatedas being of the same generation as the individual towhich such spouse is (or was) married.‘‘(C) E
FFECT OF ADOPTION , ETC.—In determining
whether any relationship specified in subparagraph (B)exists, the rules of section 152(b)(2) shall apply.
‘‘(D) E
LECTION .—An election under subparagraph
(A)(ii)—
‘‘(i) may, except as otherwise provided in regula-
tions prescribed by the Secretary, be made by anymember of the family, and
‘‘(ii) shall remain in effect until terminated as pro-
vided in regulations prescribed by the Secretary.’’.
(b) R
ELIEF FROM INADVERTENT INVALID ELECTION OR TERMI –
NATION .—Section 1362(f) (relating to inadvertent invalid elections
or terminations), as amended by this Act, is amended—
(1) by inserting ‘‘or section 1361(c)(1)(A)(ii)’’ after ‘‘section
1361(b)(3)(B)(ii),’’ in paragraph (1), and
(2) by inserting ‘‘or section 1361(c)(1)(D)(iii)’’ after ‘‘section
1361(b)(3)(C),’’ in paragraph (1)(B).(c) E
FFECTIVE DATES .—
(1) S UBSECTION (a).—The amendment made by subsection
(a) shall apply to taxable years beginning after December 31,2004.26 USC 1361
note.Regulations.Applicability.
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(2) S UBSECTION (b).—The amendments made by subsection
(b) shall apply to elections and terminations made afterDecember 31, 2004.
SEC. 232. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO
100.
(a) I NGENERAL .—Section 1361(b)(1)(A) (defining small business
corporation) is amended by striking ‘‘75’’ and inserting ‘‘100’’.
(b) E FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 233. EXPANSION OF BANK S CORPORATION ELIGIBLE SHARE-
HOLDERS TO INCLUDE IRAS.
(a) I NGENERAL .—Section 1361(c)(2)(A) (relating to certain
trusts permitted as shareholders) is amended by inserting afterclause (v) the following new clause:
‘‘(vi) In the case of a corporation which is a bank
(as defined in section 581), a trust which constitutesan individual retirement account under section 408(a),including one designated as a Roth IRA under section408A, but only to the extent of the stock held bysuch trust in such bank as of the date of the enactmentof this clause.’’.
(b) T
REATMENT AS SHAREHOLDER .—Section 1361(c)(2)(B)
(relating to treatment as shareholders) is amended by adding atthe end the following new clause:
‘‘(vi) In the case of a trust described in clause
(vi) of subparagraph (A), the individual for whose ben-efit the trust was created shall be treated as a share-holder.’’.
(c) S
ALE OF BANK STOCK IN IRA R ELATING TO S C ORPORATION
ELECTION EXEMPT FROM PROHIBITED TRANSACTION RULES .—Section
4975(d) (relating to exemptions) is amended by striking ‘‘or’’ atthe end of paragraph (14), by striking the period at the end ofparagraph (15) and inserting ‘‘; or’’, and by adding at the endthe following new paragraph:
‘‘(16) a sale of stock held by a trust which constitutes
an individual retirement account under section 408(a) to theindividual for whose benefit such account is established if—
‘‘(A) such stock is in a bank (as defined in section
581),
‘‘(B) such stock is held by such trust as of the date
of the enactment of this paragraph,
‘‘(C) such sale is pursuant to an election under section
1362(a) by such bank,
‘‘(D) such sale is for fair market value at the time
of sale (as established by an independent appraiser) andthe terms of the sale are otherwise at least as favorableto such trust as the terms that would apply on a saleto an unrelated party,
‘‘(E) such trust does not pay any commissions, costs,
or other expenses in connection with the sale, and
‘‘(F) the stock is sold in a single transaction for cash
not later than 120 days after the S corporation electionis made.’’.
(d) C
ONFORMING AMENDMENT .—Section 512(e)(1) is amended
by inserting ‘‘1361(c)(2)(A)(vi) or’’ before ‘‘1361(c)(6)’’.26 USC 1361note.26 USC 1362
note.
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(e) E FFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 234. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT
IN DETERMINING POTENTIAL CURRENT BENEFICIARIESOF ESBT.
(a) I NGENERAL .—Section 1361(e)(2) (defining potential current
beneficiary) is amended—
(1) by inserting ‘‘(determined without regard to any power
of appointment to the extent such power remains unexercisedat the end of such period)’’ after ‘‘of the trust’’ in the firstsentence, and
(2) by striking ‘‘60-day’’ in the second sentence and
inserting ‘‘1-year’’.(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 235. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE,
ETC.
(a) I NGENERAL .—Section 1366(d)(2) (relating to indefinite
carryover of disallowed losses and deductions) is amended to readas follows:
‘‘(2) I
NDEFINITE CARRYOVER OF DISALLOWED LOSSES AND
DEDUCTIONS .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), any loss or deduction which is disallowed for anytaxable year by reason of paragraph (1) shall be treatedas incurred by the corporation in the succeeding taxableyear with respect to that shareholder.
‘‘(B) T
RANSFERS OF STOCK BETWEEN SPOUSES OR
INCIDENT TO DIVORCE .—In the case of any transfer
described in section 1041(a) of stock of an S corporation,any loss or deduction described in subparagraph (A) withrespect such stock shall be treated as incurred by thecorporation in the succeeding taxable year with respectto the transferee.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 236. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS
BY QUALIFIED SUBCHAPTER S TRUST INCOME BENE-FICIARIES.
(a) I NGENERAL .—Section 1361(d)(1) (relating to special rule
for qualified subchapter S trust) is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (A),(2) by striking the period at the end of subparagraph (B)
and inserting ‘‘, and’’, and
(3) by adding at the end the following new subparagraph:
‘‘(C) for purposes of applying sections 465 and 469
to the beneficiary of the trust, the disposition of the Scorporation stock by the trust shall be treated as a disposi-tion by such beneficiary.’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to transfers made after December 31, 2004.26 USC 1361
note.26 USC 1366
note.26 USC 1361
note.26 USC 512 note.
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SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PAS-
SIVE INCOME TEST FOR BANK S CORPORATIONS.
(a) I NGENERAL .—Section 1362(d)(3) (relating to where passive
investment income exceeds 25 percent of gross receipts for 3consecutive taxable years and corporation has accumulated earningsand profits) is amended by adding at the end the following newsubparagraph:
‘‘(F) E
XCEPTION FOR BANKS ; ETC.—In the case of a
bank (as defined in section 581), a bank holding company(within the meaning of section 2(a) of the Bank HoldingCompany Act of 1956 (12 U.S.C. 1841(a))), or a financialholding company (within the meaning of section 2(p) ofsuch Act), the term ‘passive investment income’ shall notinclude—
‘‘(i) interest income earned by such bank or com-
pany, or
‘‘(ii) dividends on assets required to be held by
such bank or company, including stock in the FederalReserve Bank, the Federal Home Loan Bank, or theFederal Agricultural Mortgage Bank or participationcertificates issued by a Federal Intermediate CreditBank.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUB-
CHAPTER S SUBSIDIARY ELECTIONS AND TERMI-NATIONS.
(a) I NGENERAL .—Section 1362(f) (relating to inadvertent
invalid elections or terminations) is amended—
(1) by inserting ‘‘, section 1361(b)(3)(B)(ii),’’ after ‘‘sub-
section (a)’’ in paragraph (1),
(2) by inserting ‘‘, section 1361(b)(3)(C),’’ after ‘‘subsection
(d)’’ in paragraph (1)(B),
(3) by amending paragraph (3)(A) to read as follows:
‘‘(A) so that the corporation for which the election
was made or the termination occurred is a small businesscorporation or a qualified subchapter S subsidiary, as thecase may be, or’’,(4) by amending paragraph (4) to read as follows:‘‘(4) the corporation for which the election was made or
the termination occurred, and each person who was a share-holder in such corporation at any time during the period speci-fied pursuant to this subsection, agrees to make such adjust-ments (consistent with the treatment of such corporation asan S corporation or a qualified subchapter S subsidiary, asthe case may be) as may be required by the Secretary withrespect to such period,’’, and
(5) by inserting ‘‘or a qualified subchapter S subsidiary,
as the case may be’’ after ‘‘S corporation’’ in the matter followingparagraph (4).(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to elections made and terminations made after December31, 2004.26 USC 1362
note.26 USC 1362
note.
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SEC. 239. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S
SUBSIDIARIES.
(a) I NGENERAL .—Section 1361(b)(3)(A) (relating to treatment
of certain wholly owned subsidiaries) is amended by inserting ‘‘andin the case of information returns required under part III of sub-chapter A of chapter 61’’ after ‘‘Secretary’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 240. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURI-
TIES.
(a) I NGENERAL .—Subsection (f) of section 4975 (relating to
other definitions and special rules) is amended by adding at theend the following new paragraph:
‘‘(7) S
CORPORATION REPAYMENT OF LOANS FOR QUALIFYING
EMPLOYER SECURITIES .—A plan shall not be treated as violating
the requirements of section 401 or 409 or subsection (e)(7),or as engaging in a prohibited transaction for purposes ofsubsection (d)(3), merely by reason of any distribution (asdescribed in section 1368(a)) with respect to S corporation stockthat constitutes qualifying employer securities, which in accord-ance with the plan provisions is used to make payments ona loan described in subsection (d)(3) the proceeds of whichwere used to acquire such qualifying employer securities(whether or not allocated to participants). The preceding sen-tence shall not apply in the case of a distribution which ispaid with respect to any employer security which is allocatedto a participant unless the plan provides that employer securi-ties with a fair market value of not less than the amountof such distribution are allocated to such participant for theyear which (but for the preceding sentence) such distributionwould have been allocated to such participant.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to distributions with respect to S corporation stockmade after December 31, 1997.
Subtitle E—Other Business Incentives
SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAIL-
ROADS AND INLAND WATERWAY TRANSPORTATIONWHICH REMAIN IN GENERAL FUND.
(a) T AXES ON TRAINS .—
(1) I N GENERAL .—Clause (ii) of section 4041(a)(1)(C) is
amended by striking subclauses (I), (II), and (III) and insertingthe following new subclauses:
‘‘(I) 3.3 cents per gallon after December 31,
2004, and before July 1, 2005,
‘‘(II) 2.3 cents per gallon after June 30, 2005,
and before January 1, 2007, and
‘‘(III) 0 after December 31, 2006.’’.
(2) C
ONFORMING AMENDMENTS .—
(A) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and byinserting after paragraph (2) the following new paragraph:‘‘(3) D
IESEL FUEL USED IN TRAINS .—In the case of any
sale for use or use after December 31, 2006, there is hereby26 USC 4975note.26 USC 1361
note.
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imposed a tax of 0.1 cent per gallon on any liquid other than
gasoline (as defined in section 4083)—
‘‘(A) sold by any person to an owner, lessee, or other
operator of a diesel-powered train for use as a fuel insuch train, or
‘‘(B) used by any person as a fuel in a diesel-powered
train unless there was a taxable sale of such fuel undersubparagraph (A).
No tax shall be imposed by this paragraph on the sale oruse of any liquid if tax was imposed on such liquid undersection 4081.’’.
(B) Subsection (f) of section 4082 is amended by
striking ‘‘section 4041(a)(1)’’ and inserting ‘‘subsections(a)(1) and (d)(3) of section 4041’’.
(C) Subparagraph (B) of section 6421(f)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable undersection 4041(a)(1)(C)(ii).’’.
(D) Subparagraph (B) of section 6427(l)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable undersection 4041(a)(1)(C)(ii).’’.
(b) F
UEL USED ON INLAND WATERWAYS .—Subparagraph (C)
of section 4042(b)(2) is amended to read as follows:
‘‘(C) The deficit reduction rate is—
‘‘(i) 3.3 cents per gallon after December 31, 2004,
and before July 1, 2005,
‘‘(ii) 2.3 cents per gallon after June 30, 2005, and
before January 1, 2007, and
‘‘(iii) 0 after December 31, 2006.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST
METHOD OF DEPRECIATION.
(a) I NGENERAL .—Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end thefollowing new paragraph:
‘‘(7) T
REATMENT OF PARTICIPATIONS AND RESIDUALS .—
‘‘(A) I N GENERAL .—For purposes of determining the
depreciation deduction allowable with respect to a propertyunder this subsection, the taxpayer may include participa-tions and residuals with respect to such property in theadjusted basis of such property for the taxable year inwhich the property is placed in service, but only to theextent that such participations and residuals relate toincome estimated (for purposes of this subsection) to beearned in connection with the property before the closeof the 10th taxable year referred to in paragraph (1)(A).
‘‘(B) P
ARTICIPATIONS AND RESIDUALS .—For purposes of
this paragraph, the term ‘participations and residuals’means, with respect to any property, costs the amountof which by contract varies with the amount of incomeearned in connection with such property.26 USC 4041
note.
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‘‘(C) S PECIAL RULES RELATING TO RECOMPUTATION
YEARS .—If the adjusted basis of any property is determined
under this paragraph, paragraph (4) shall be applied bysubstituting ‘for each taxable year in such period’ for ‘forsuch period’.
‘‘(D) O
THER SPECIAL RULES .—
‘‘(i) P ARTICIPATIONS AND RESIDUALS .—Notwith-
standing subparagraph (A), the taxpayer may excludeparticipations and residuals from the adjusted basisof such property and deduct such participations andresiduals in the taxable year that such participationsand residuals are paid.
‘‘(ii) C
OORDINATION WITH OTHER RULES .—Deduc-
tions computed in accordance with this paragraph shallbe allowable notwithstanding paragraph (1)(B), section263, 263A, 404, 419, or 461(h).‘‘(E) A
UTHORITY TO MAKE ADJUSTMENTS .—The Sec-
retary shall prescribe appropriate adjustments to the basisof property and to the look-back method for the additionalamounts allowable as a deduction solely by reason of thisparagraph.’’.
(b) D
ETERMINATION OF INCOME .—Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and(F) as subparagraphs (F) and (G), respectively, and inserting aftersubparagraph (D) the following new subparagraph:
‘‘(E) T
REATMENT OF DISTRIBUTION COSTS .—For purposes
of this subsection, the income with respect to any propertyshall be the taxpayer’s gross income from such property.’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of theenactment of this Act.
SEC. 243. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT
TRUSTS.
(a) E XPANSION OF STRAIGHT DEBT SAFE HARBOR .—Section 856
(defining real estate investment trust) is amended—
(1) in subsection (c) by striking paragraph (7), and(2) by adding at the end the following new subsection:
‘‘(m) S
AFEHARBOR IN APPLYING SUBSECTION (c)(4).—
‘‘(1) I N GENERAL .—In applying subclause (III) of subsection
(c)(4)(B)(iii), except as otherwise determined by the Secretaryin regulations, the following shall not be considered securitiesheld by the trust:
‘‘(A) Straight debt securities of an issuer which meet
the requirements of paragraph (2).
‘‘(B) Any loan to an individual or an estate.‘‘(C) Any section 467 rental agreement (as defined in
section 467(d)), other than with a person described in sub-section (d)(2)(B).
‘‘(D) Any obligation to pay rents from real property
(as defined in subsection (d)(1)).
‘‘(E) Any security issued by a State or any political
subdivision thereof, the District of Columbia, a foreigngovernment or any political subdivision thereof, or theCommonwealth of Puerto Rico, but only if the determina-tion of any payment received or accrued under such securitydoes not depend in whole or in part on the profits of26 USC 167 note.
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any entity not described in this subparagraph or payments
on any obligation issued by such an entity,
‘‘(F) Any security issued by a real estate investment
trust.
‘‘(G) Any other arrangement as determined by the Sec-
retary.‘‘(2) S
PECIAL RULES RELATING TO STRAIGHT DEBT SECURI –
TIES.—
‘‘(A) I N GENERAL .—For purposes of paragraph (1)(A),
securities meet the requirements of this paragraph if suchsecurities are straight debt, as defined in section 1361(c)(5)(without regard to subparagraph (B)(iii) thereof).
‘‘(B) S
PECIAL RULES RELATING TO CERTAIN CONTIN –
GENCIES .—For purposes of subparagraph (A), any interest
or principal shall not be treated as failing to satisfy section1361(c)(5)(B)(i) solely by reason of the fact that—
‘‘(i) the time of payment of such interest or prin-
cipal is subject to a contingency, but only if—
‘‘(I) any such contingency does not have the
effect of changing the effective yield to maturity,as determined under section 1272, other than achange in the annual yield to maturity which doesnot exceed the greater of
1⁄4of 1 percent or 5
percent of the annual yield to maturity, or
‘‘(II) neither the aggregate issue price nor the
aggregate face amount of the issuer’s debtinstruments held by the trust exceeds $1,000,000and not more than 12 months of unaccrued interestcan be required to be prepaid thereunder, or‘‘(ii) the time or amount of payment is subject
to a contingency upon a default or the exercise ofa prepayment right by the issuer of the debt, butonly if such contingency is consistent with customarycommercial practice.‘‘(C) S
PECIAL RULES RELATING TO CORPORATE OR PART –
NERSHIP ISSUERS .—In the case of an issuer which is a
corporation or a partnership, securities that otherwisewould be described in paragraph (1)(A) shall be considerednot to be so described if the trust holding such securitiesand any of its controlled taxable REIT subsidiaries (asdefined in subsection (d)(8)(A)(iv)) hold any securities ofthe issuer which—
‘‘(i) are not described in paragraph (1) (prior to
the application of this subparagraph), and
‘‘(ii) have an aggregate value greater than 1 per-
cent of the issuer’s outstanding securities determinedwithout regard to paragraph (3)(A)(i).
‘‘(3) L
OOK-THROUGH RULE FOR PARTNERSHIP SECURITIES .—
‘‘(A) I N GENERAL .—For purposes of applying subclause
(III) of subsection (c)(4)(B)(iii)—
‘‘(i) a trust’s interest as a partner in a partnership
(as defined in section 7701(a)(2)) shall not be consid-ered a security, and
‘‘(ii) the trust shall be deemed to own its propor-
tionate share of each of the assets of the partnership.‘‘(B) D
ETERMINATION OF TRUST ’S INTEREST IN PARTNER –
SHIP ASSETS .—For purposes of subparagraph (A), with
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respect to any taxable year beginning after the date of
the enactment of this subparagraph—
‘‘(i) the trust’s interest in the partnership assets
shall be the trust’s proportionate interest in any securi-ties issued by the partnership (determined withoutregard to subparagraph (A)(i) and paragraph (4), butnot including securities described in paragraph (1)),and
‘‘(ii) the value of any debt instrument shall be
the adjusted issue price thereof, as defined in section1272(a)(4).
‘‘(4) C
ERTAIN PARTNERSHIP DEBT INSTRUMENTS NOT TREATED
AS A SECURITY .—For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)—
‘‘(A) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considereda security to the extent of the trust’s interest as a partnerin the partnership, and
‘‘(B) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considereda security if at least 75 percent of the partnership’s grossincome (excluding gross income from prohibited trans-actions) is derived from sources referred to in subsection(c)(3).‘‘(5) S
ECRETARIAL GUIDANCE .—The Secretary is authorized
to provide guidance (including through the issuance of a writtendetermination, as defined in section 6110(b)) that an arrange-ment shall not be considered a security held by the trustfor purposes of applying subclause (III) of subsection(c)(4)(B)(iii) notwithstanding that such arrangement otherwisecould be considered a security under subparagraph (F) of sub-section (c)(5).’’.(b) C
LARIFICATION OF APPLICATION OF LIMITED RENTAL EXCEP –
TION .—Subparagraph (A) of section 856(d)(8) (relating to special
rules for taxable REIT subsidiaries) is amended to read as follows:
‘‘(A) L IMITED RENTAL EXCEPTION .—
‘‘(i) I N GENERAL .—The requirements of this
subparagraph are met with respect to any propertyif at least 90 percent of the leased space of the property
is rented to persons other than taxable REIT subsidi-aries of such trust and other than persons describedin paragraph (2)(B).
‘‘(ii) R
ENTS MUST BE SUBSTANTIALLY COM –
PARABLE .—Clause (i) shall apply only to the extent
that the amounts paid to the trust as rents from realproperty (as defined in paragraph (1) without regardto paragraph (2)(B)) from such property are substan-tially comparable to such rents paid by the other ten-ants of the trust’s property for comparable space.
‘‘(iii) T
IMES FOR TESTING RENT COMPARABILITY .—
The substantial comparability requirement of clause(ii) shall be treated as met with respect to a leaseto a taxable REIT subsidiary of the trust if suchrequirement is met under the terms of the lease—
‘‘(I) at the time such lease is entered into,
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‘‘(II) at the time of each extension of the lease,
including a failure to exercise a right to terminate,and
‘‘(III) at the time of any modification of the
lease between the trust and the taxable REIT sub-sidiary if the rent under such lease is effectivelyincreased pursuant to such modification.
With respect to subclause (III), if the taxable REITsubsidiary of the trust is a controlled taxable REITsubsidiary of the trust, the term ‘rents from real prop-erty’ shall not in any event include rent under suchlease to the extent of the increase in such rent onaccount of such modification.
‘‘(iv) C
ONTROLLED TAXABLE REIT SUBSIDIARY .—For
purposes of clause (iii), the term ‘controlled taxableREIT subsidiary’ means, with respect to any real estateinvestment trust, any taxable REIT subsidiary of suchtrust if such trust owns directly or indirectly—
‘‘(I) stock possessing more than 50 percent of
the total voting power of the outstanding stockof such subsidiary, or
‘‘(II) stock having a value of more than 50
percent of the total value of the outstanding stockof such subsidiary.‘‘(v) C
ONTINUING QUALIFICATION BASED ON THIRD
PARTY ACTIONS .—If the requirements of clause (i) are
met at a time referred to in clause (iii), such require-ments shall continue to be treated as met so longas there is no increase in the space leased to anytaxable REIT subsidiary of such trust or to any persondescribed in paragraph (2)(B).
‘‘(vi) C
ORRECTION PERIOD .—If there is an increase
referred to in clause (v) during any calendar quarterwith respect to any property, the requirements ofclause (iii) shall be treated as met during the quarterand the succeeding quarter if such requirements aremet at the close of such succeeding quarter.’’.
(c) D
ELETION OF CUSTOMARY SERVICES EXCEPTION .—Subpara-
graph (B) of section 857(b)(7) (relating to redetermined rents) isamended by striking clause (ii) and by redesignating clauses (iii),(iv), (v), (vi), and (vii) as clauses (ii), (iii), (iv), (v), and (vi), respec-tively.
(d) C
ONFORMITY WITH GENERAL HEDGING DEFINITION .—
Subparagraph (G) of section 856(c)(5) (relating to treatment ofcertain hedging instruments) is amended to read as follows:
‘‘(G) T
REATMENT OF CERTAIN HEDGING INSTRUMENTS .—
Except to the extent provided by regulations, any incomeof a real estate investment trust from a hedging transaction(as defined in clause (ii) or (iii) of section 1221(b)(2)(A))which is clearly identified pursuant to section 1221(a)(7),including gain from the sale or disposition of such a trans-action, shall not constitute gross income under paragraph(2) to the extent that the transaction hedges any indebted-ness incurred or to be incurred by the trust to acquireor carry real estate assets.’’.
(e) C
ONFORMITY WITH REGULATED INVESTMENT COMPANY
RULES .—Clause (i) of section 857(b)(5)(A) (relating to imposition
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of tax in case of failure to meet certain requirements) is amended
by striking ‘‘90 percent’’ and inserting ‘‘95 percent’’.
(f) S AVINGS PROVISIONS .—
(1) R ULES OF APPLICATION FOR FAILURE TO SATISFY SECTION
856(c)(4).—Section 856(c) (relating to definition of real estateinvestment trust) is amended by inserting after paragraph (6)the following new paragraph:
‘‘(7) R
ULES OF APPLICATION FOR FAILURE TO SATISFY PARA –
GRAPH (4) .—
‘‘(A) D E MINIMIS FAILURE .—A corporation, trust, or
association that fails to meet the requirements of para-graph (4)(B)(iii) for a particular quarter shall neverthelessbe considered to have satisfied the requirements of suchparagraph for such quarter if—
‘‘(i) such failure is due to the ownership of assets
the total value of which does not exceed the lesserof—
‘‘(I) 1 percent of the total value of the trust’s
assets at the end of the quarter for which suchmeasurement is done, and
‘‘(II) $10,000,000, and
‘‘(ii)(I) the corporation, trust, or association, fol-
lowing the identification of such failure, disposes ofassets in order to meet the requirements of such para-graph within 6 months after the last day of the quarterin which the corporation, trust or association’s identi-fication of the failure to satisfy the requirements ofsuch paragraph occurred or such other time periodprescribed by the Secretary and in the manner pre-scribed by the Secretary, or
‘‘(II) the requirements of such paragraph are other-
wise met within the time period specified in subclause(I).‘‘(B) F
AILURES EXCEEDING DE MINIMIS AMOUNT .—A cor-
poration, trust, or association that fails to meet the require-ments of paragraph (4) for a particular quarter shall never-theless be considered to have satisfied the requirementsof such paragraph for such quarter if—
‘‘(i) such failure involves the ownership of assets
the total value of which exceeds the de minimisstandard described in subparagraph (A)(i) at the endof the quarter for which such measurement is done,
‘‘(ii) following the corporation, trust, or associa-
tion’s identification of the failure to satisfy the require-ments of such paragraph for a particular quarter, adescription of each asset that causes the corporation,
trust, or association to fail to satisfy the requirementsof such paragraph at the close of such quarter of anytaxable year is set forth in a schedule for such quarterfiled in accordance with regulations prescribed by theSecretary,
‘‘(iii) the failure to meet the requirements of such
paragraph for a particular quarter is due to reasonablecause and not due to willful neglect,
‘‘(iv) the corporation, trust, or association pays a
tax computed under subparagraph (C), and
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‘‘(v)(I) the corporation, trust, or association dis-
poses of the assets set forth on the schedule specifiedin clause (ii) within 6 months after the last day ofthe quarter in which the corporation, trust or associa-tion’s identification of the failure to satisfy the require-ments of such paragraph occurred or such other timeperiod prescribed by the Secretary and in the mannerprescribed by the Secretary, or
‘‘(II) the requirements of such paragraph are other-
wise met within the time period specified in subclause(I).‘‘(C) T
AX.—For purposes of subparagraph (B)(iv)—
‘‘(i) T AX IMPOSED .—If a corporation, trust, or
association elects the application of this subparagraph,there is hereby imposed a tax on the failure describedin subparagraph (B) of such corporation, trust, orassociation. Such tax shall be paid by the corporation,trust, or association.
‘‘(ii) T
AX COMPUTED .—The amount of the tax
imposed by clause (i) shall be the greater of—
‘‘(I) $50,000, or‘‘(II) the amount determined (pursuant to regu-
lations promulgated by the Secretary) by multi-plying the net income generated by the assetsdescribed in the schedule specified in subpara-graph (B)(ii) for the period specified in clause (iii)by the highest rate of tax specified in section 11.‘‘(iii) P
ERIOD .—For purposes of clause (ii)(II), the
period described in this clause is the period beginningon the first date that the failure to satisfy the require-ments of such paragraph (4) occurs as a result ofthe ownership of such assets and ending on the earlierof the date on which the trust disposes of such assetsor the end of the first quarter when there is no longera failure to satisfy such paragraph (4).
‘‘(iv) A
DMINISTRATIVE PROVISIONS .—For purposes of
subtitle F, the taxes imposed by this subparagraphshall be treated as excise taxes with respect to whichthe deficiency procedures of such subtitle apply.’’.
(2) M
ODIFICATION OF RULES OF APPLICATION FOR FAILURE
TO SATISFY SECTIONS 856(c)(2) OR856(c)(3).—Paragraph (6) of
section 856(c) (relating to definition of real estate investmenttrust) is amended by striking subparagraphs (A) and (B), byredesignating subparagraph (C) as subparagraph (B), and byinserting before subparagraph (B) (as so redesignated) the fol-lowing new subparagraph:
‘‘(A) following the corporation, trust, or association’s
identification of the failure to meet the requirements ofparagraph (2) or (3), or of both such paragraphs, for anytaxable year, a description of each item of its gross incomedescribed in such paragraphs is set forth in a schedulefor such taxable year filed in accordance with regulationsprescribed by the Secretary, and’’.(3) R
EASONABLE CAUSE EXCEPTION TO LOSS OF REIT STATUS
IF FAILURE TO SATISFY REQUIREMENTS .—Subsection (g) of section
856 (relating to termination of election) is amended—
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(A) in paragraph (1) by inserting before the period
at the end of the first sentence the following: ‘‘unless para-graph (5) applies’’, and
(B) by adding at the end the following new paragraph:
‘‘(5) E
NTITIES TO WHICH PARAGRAPH APPLIES .—This para-
graph applies to a corporation, trust, or association—
‘‘(A) which is not a real estate investment trust to
which the provisions of this part apply for the taxableyear due to one or more failures to comply with one ormore of the provisions of this part (other than subsection(c)(6) or (c)(7) of section 856),
‘‘(B) such failures are due to reasonable cause and
not due to willful neglect, and
‘‘(C) if such corporation, trust, or association pays (as
prescribed by the Secretary in regulations and in the samemanner as tax) a penalty of $50,000 for each failure tosatisfy a provision of this part due to reasonable causeand not willful neglect.’’.(4) D
EDUCTION OF TAX PAID FROM AMOUNT REQUIRED TO
BE DISTRIBUTED .—Subparagraph (E) of section 857(b)(2) is
amended by striking ‘‘(7)’’ and inserting ‘‘(7) of this subsection,section 856(c)(7)(B)(iii), and section 856(g)(1).’’.
(5) E
XPANSION OF DEFICIENCY DIVIDEND PROCEDURE .—Sub-
section (e) of section 860 is amended by striking ‘‘or’’ at theend of paragraph (2), by striking the period at the end ofparagraph (3) and inserting ‘‘; or’’, and by adding at the endthe following new paragraph:
‘‘(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.’’.(g) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable yearsbeginning after December 31, 2000.
(2) S
UBSECTIONS (c) THROUGH (f).—The amendments made
by subsections (c), (d), (e), and (f) shall apply to taxable yearsbeginning after the date of the enactment of this Act.
SEC. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION
PRODUCTIONS.
(a) I NGENERAL .—Part VI of subchapter B of chapter 1 is
amended by inserting after section 180 the following new section:
‘‘SEC. 181. TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION
PRODUCTIONS.
‘‘(a) E LECTION TOTREAT COSTS AS EXPENSES .—
‘‘(1) I N GENERAL .—A taxpayer may elect to treat the cost
of any qualified film or television production as an expensewhich is not chargeable to capital account. Any cost so treatedshall be allowed as a deduction.
‘‘(2) D
OLLAR LIMITATION .—
‘‘(A) I N GENERAL .—Paragraph (1) shall not apply to
any qualified film or television production the aggregatecost of which exceeds $15,000,000.
‘‘(B) H
IGHER DOLLAR LIMITATION FOR PRODUCTIONS IN
CERTAIN AREAS .—In the case of any qualified film or tele-
vision production the aggregate cost of which is signifi-cantly incurred in an area eligible for designation as—26 USC 856 note.
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‘‘(i) a low-income community under section 45D,
or
‘‘(ii) a distressed county or isolated area of distress
by the Delta Regional Authority established under sec-tion 2009aa–1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting‘$20,000,000’ for ‘$15,000,000’.
‘‘(b) N
OOTHER DEDUCTION OR AMORTIZATION DEDUCTION
ALLOWABLE .—With respect to the basis of any qualified film or
television production to which an election is made under subsection(a), no other depreciation or amortization deduction shall be allow-able.
‘‘(c) E
LECTION .—
‘‘(1) I N GENERAL .—An election under this section with
respect to any qualified film or television production shall bemade in such manner as prescribed by the Secretary and bythe due date (including extensions) for filing the taxpayer’sreturn of tax under this chapter for the taxable year in whichcosts of the production are first incurred.
‘‘(2) R
EVOCATION OF ELECTION .—Any election made under
this section may not be revoked without the consent of theSecretary.‘‘(d) Q
UALIFIED FILM OR TELEVISION PRODUCTION .—For pur-
poses of this section—
‘‘(1) I N GENERAL .—The term ‘qualified film or television
production’ means any production described in paragraph (2)if 75 percent of the total compensation of the production isqualified compensation.
‘‘(2) P
RODUCTION .—
‘‘(A) I N GENERAL .—A production is described in this
paragraph if such production is property described in sec-tion 168(f)(3). For purposes of a television series, only thefirst 44 episodes of such series may be taken into account.
‘‘(B) E
XCEPTION .—A production is not described in this
paragraph if records are required under section 2257 oftitle 18, United States Code, to be maintained with respectto any performer in such production.‘‘(3) Q
UALIFIED COMPENSATION .—For purposes of paragraph
(1)—
‘‘(A) I N GENERAL .—The term ‘qualified compensation’
means compensation for services performed in the UnitedStates by actors, directors, producers, and other relevantproduction personnel.
‘‘(B) P
ARTICIPATIONS AND RESIDUALS EXCLUDED .—The
term ‘compensation’ does not include participations andresiduals (as defined in section 167(g)(7)(B)).
‘‘(e) A
PPLICATION OF CERTAIN OTHER RULES .—For purposes of
this section, rules similar to the rules of subsections (b)(2) and(c)(4) of section 194 shall apply.
‘‘(f) T
ERMINATION .—This section shall not apply to qualified
film and television productions commencing after December 31,2008.’’.
(b) C
ONFORMING AMENDMENT .—The table of sections for part
VI of subchapter B of chapter 1 is amended by inserting afterthe item relating to section 180 the following new item:
‘‘Sec. 181. Treatment of certain qualified film and television productions.’’.
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(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to qualified film and television productions (as definedin section 181(d)(1) of the Internal Revenue Code of 1986, as addedby this section) commencing after the date of the enactment ofthis Act.
SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) I NGENERAL .—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits) is amended by addingat the end the following new section:
‘‘SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.
‘‘(a) G ENERAL RULE.—For purposes of section 38, the railroad
track maintenance credit determined under this section for thetaxable year is an amount equal to 50 percent of the qualifiedrailroad track maintenance expenditures paid or incurred by aneligible taxpayer during the taxable year.
‘‘(b) L
IMITATION .—The credit allowed under subsection (a) for
any taxable year shall not exceed the product of—
‘‘(1) $3,500, and‘‘(2) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year.
A mile of railroad track may be taken into account by a personother than the owner only if such mile is assigned to such personby the owner for purposes of this subsection. Any mile whichis so assigned may not be taken into account by the owner forpurposes of this subsection.
‘‘(c) E
LIGIBLE TAXPAYER .—For purposes of this section, the term
‘eligible taxpayer’ means—
‘‘(1) any Class II or Class III railroad, and‘‘(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who furnishesrailroad-related property or services to such a person.‘‘(d) Q
UALIFIED RAILROAD TRACK MAINTENANCE EXPENDI –
TURES .—For purposes of this section, the term ‘qualified railroad
track maintenance expenditures’ means expenditures (whether ornot otherwise chargeable to capital account) for maintaining rail-road track (including roadbed, bridges, and related track structures)owned or leased as of January 1, 2005, by a Class II or ClassIII railroad.
‘‘(e) O
THER DEFINITIONS AND SPECIAL RULES .—
‘‘(1) C LASS II OR CLASS III RAILROAD .—For purposes of this
section, the terms ‘Class II railroad’ and ‘Class III railroad’have the respective meanings given such terms by the SurfaceTransportation Board.
‘‘(2) C
ONTROLLED GROUPS .—Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of thissection.
‘‘(3) B
ASIS ADJUSTMENT .—For purposes of this subtitle, if
a credit is allowed under this section with respect to anyrailroad track, the basis of such track shall be reduced bythe amount of the credit so allowed.‘‘(f) A
PPLICATION OF SECTION .—This section shall apply to quali-
fied railroad track maintenance expenditures paid or incurredduring taxable years beginning after December 31, 2004, and beforeJanuary 1, 2008.’’.
(b) L
IMITATION ON CARRYBACK .—26 USC 181 note.
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(1) I N GENERAL .—Subsection (d) of section 39 is amended
to read as follows:‘‘(d) T
RANSITIONAL RULE.—No portion of the unused business
credit for any taxable year which is attributable to a credit specifiedin section 38(b) or any portion thereof may be carried back toany taxable year before the first taxable year for which such speci-fied credit or such portion is allowable (without regard to subsection(a)).’’.
(2) E
FFECTIVE DATE .—The amendment made by paragraph
(1) shall apply with respect to taxable years ending afterDecember 31, 2003.(c) C
ONFORMING AMENDMENTS .—
(1) Section 38(b) (relating to general business credit) is
amended by striking ‘‘plus’’ at the end of paragraph (14), bystriking the period at the end of paragraph (15) and inserting‘‘, plus’’, and by adding at the end the following new paragraph:
‘‘(16) the railroad track maintenance credit determined
under section 45G(a).’’.
(2) Subsection (a) of section 1016 is amended by striking
‘‘and’’ at the end of paragraph (27), by striking the periodat the end of paragraph (28) and inserting ‘‘, and’’, and byinserting after paragraph (28) the following new paragraph:
‘‘(29) in the case of railroad track with respect to which
a credit was allowed under section 45G, to the extent providedin section 45G(e)(3).’’.(d) C
LERICAL AMENDMENT .—The table of sections for subpart
D of part IV of subchapter A of chapter 1 is amended by insertingafter the item relating to section 45F the following new item:
‘‘Sec. 45G. Railroad track maintenance credit.’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 246. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DIS-
TILLED SPIRITS, WINE, AND BEER.
(a) I NGENERAL .—Subpart G of part II of subchapter A of
chapter 51 is amended by redesignating section 5148 as section5149 and by inserting after section 5147 the following new section:
‘‘SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.
‘‘(a) I NGENERAL .—Notwithstanding sections 5081, 5091, 5111,
5121, and 5131, the rate of tax imposed under such sections forthe suspension period shall be zero. During such period, personsengaged in or carrying on a trade or business covered by suchsections shall register under section 5141 and shall comply withthe recordkeeping requirements under this part.
‘‘(b) S
USPENSION PERIOD .—For purposes of subsection (a), the
suspension period is the period beginning on July 1, 2005, andending on June 30, 2008.’’.
(b) C
ONFORMING AMENDMENT .—Section 5117 is amended by
adding at the end the following new subsection:
‘‘(d) S PECIAL RULE DURING SUSPENSION PERIOD .—Except as
provided in subsection (b) or by the Secretary, during the suspensionperiod (as defined in section 5148) it shall be unlawful for anydealer to purchase distilled spirits for resale from any person otherthan a wholesale dealer in liquors who is required to keep recordsunder section 5114.’’.26 USC 38 note.26 USC 39 note.
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(c) C LERICAL AMENDMENT .—The table of sections for subpart
G of part II of subchapter A of chapter 51 is amended by strikingthe last item and inserting the following new items:
‘‘Sec. 5148. Suspension of occupational tax.
‘‘Sec. 5149. Cross references.’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 247. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITA-
TION ON INVESTMENT IN CERTAIN SMALL BUSINESSINVESTMENT COMPANIES.
(a) I NGENERAL .—Paragraph (6) of section 514(c) (relating to
acquisition indebtedness) is amended to read as follows:
‘‘(6) C ERTAIN FEDERAL FINANCING .—
‘‘(A) I N GENERAL .—For purposes of this section, the
term ‘acquisition indebtedness’ does not include—
‘‘(i) an obligation, to the extent that it is insured
by the Federal Housing Administration, to finance thepurchase, rehabilitation, or construction of housing forlow and moderate income persons, or
‘‘(ii) indebtedness incurred by a small business
investment company licensed after the date of theenactment of the American Jobs Creation Act of 2004under the Small Business Investment Act of 1958 ifsuch indebtedness is evidenced by a debenture—
‘‘(I) issued by such company under section
303(a) of such Act, and
‘‘(II) held or guaranteed by the Small Business
Administration.
‘‘(B) L
IMITATION .—Subparagraph (A)(ii) shall not apply
with respect to any small business investment companyduring any period that—
‘‘(i) any organization which is exempt from tax
under this title (other than a governmental unit) ownsmore than 25 percent of the capital or profits interestin such company, or
‘‘(ii) organizations which are exempt from tax
under this title (including governmental units otherthan any agency or instrumentality of the UnitedStates) own, in the aggregate, 50 percent or moreof the capital or profits interest in such company.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to indebtedness incurred after the date of the enactmentof this Act by a small business investment company licensed afterthe date of the enactment of this Act.
SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN
INTERNATIONAL SHIPPING ACTIVITIES USING PER TONRATE.
(a) I NGENERAL .—Chapter 1 is amended by inserting after
subchapter Q the following new subchapter:26 USC 514 note.26 USC 5117
note.
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‘‘Subchapter R—Election To Determine Corporate Tax on
Certain International Shipping Activities Using Per TonRate
‘‘Sec. 1352. Alternative tax on qualifying shipping activities.
‘‘Sec. 1353. Notional shipping income.‘‘Sec. 1354. Alternative tax election; revocation; termination.‘‘Sec. 1355. Definitions and special rules.‘‘Sec. 1356. Qualifying shipping activities.‘‘Sec. 1357. Items not subject to regular tax; depreciation; interest.‘‘Sec. 1358. Allocation of credits, income, and deductions.‘‘Sec. 1359. Disposition of qualifying vessels.
‘‘SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.
‘‘In the case of an electing corporation, the tax imposed by
section 11 shall be the amount equal to the sum of—
‘‘(1) the tax imposed by section 11 determined after the
application of this subchapter, and
‘‘(2) a tax equal to—
‘‘(A) the highest rate of tax specified in section 11,
multiplied by
‘‘(B) the notional shipping income for the taxable year.
‘‘SEC. 1353. NOTIONAL SHIPPING INCOME.
‘‘(a) I NGENERAL .—For purposes of this subchapter, the notional
shipping income of an electing corporation shall be the sum ofthe amounts determined under subsection (b) for each qualifyingvessel operated by such electing corporation.
‘‘(b) A
MOUNTS .—
‘‘(1) I N GENERAL .—For purposes of subsection (a), the
amount of notional shipping income of an electing corporationfor each qualifying vessel for the taxable year shall equalthe product of—
‘‘(A) the daily notional shipping income, and‘‘(B) the number of days during the taxable year that
the electing corporation operated such vessel as a qualifyingvessel in United States foreign trade.‘‘(2) T
REATMENT OF VESSELS THE INCOME FROM WHICH IS
NOT OTHERWISE SUBJECT TO TAX .—In the case of a qualifying
vessel any of the income from which is not included in grossincome by reason of section 883 or otherwise, the amountof notional shipping income from such vessel for the taxableyear shall be the amount which bears the same ratio to suchshipping income (determined without regard to this paragraph)as the gross income from the operation of such vessel in theUnited States foreign trade bears to the sum of such grossincome and the income so excluded.‘‘(c) D
AILY NOTIONAL SHIPPING INCOME .—For purposes of sub-
section (b), the daily notional shipping income from the operationof a qualifying vessel is—
‘‘(1) 40 cents for each 100 tons of so much of the net
tonnage of the vessel as does not exceed 25,000 net tons,and
‘‘(2) 20 cents for each 100 tons of so much of the net
tonnage of the vessel as exceeds 25,000 net tons.‘‘(d) M
ULTIPLE OPERATORS OF VESSEL .—If for any period 2
or more persons are operators of a qualifying vessel, the notionalshipping income from the operation of such vessel for such period
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shall be allocated among such persons on the basis of their respec-
tive ownership and charter interests in such vessel or on suchother basis as the Secretary may prescribe by regulations.
‘‘SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMI-
NATION.
‘‘(a) I NGENERAL .—A qualifying vessel operator may elect the
application of this subchapter.
‘‘(b) T IME AND MANNER ; YEARS FOR WHICH EFFECTIVE .—An
election under this subchapter—
‘‘(1) shall be made in such form as prescribed by the Sec-
retary, and
‘‘(2) shall be effective for the taxable year for which made
and all succeeding taxable years until terminated under sub-section (d).
Such election may be effective for any taxable year only if madebefore the due date (including extensions) for filing the corporation’sreturn for such taxable year.
‘‘(c) C
ONSISTENT ELECTIONS BYMEMBERS OF CONTROLLED
GROUPS .—An election under subsection (a) by a member of a con-
trolled group shall apply to all qualifying vessel operators thatare members of such group.
‘‘(d) T
ERMINATION .—
‘‘(1) B Y REVOCATION .—
‘‘(A) I N GENERAL .—An election under subsection (a)
may be terminated by revocation.
‘‘(B) W HEN EFFECTIVE .—Except as provided in subpara-
graph (C)—
‘‘(i) a revocation made during the taxable year
and on or before the 15th day of the 3d month thereofshall be effective on the 1st day of such taxable year,and
‘‘(ii) a revocation made during the taxable year
but after such 15th day shall be effective on the 1stday of the following taxable year.‘‘(C) R
EVOCATION MAY SPECIFY PROSPECTIVE DATE .—
If the revocation specifies a date for revocation which ison or after the day on which the revocation is made, therevocation shall be effective for taxable years beginningon and after the date so specified.‘‘(2) B
Y PERSON CEASING TO BE QUALIFYING VESSEL OPER –
ATOR .—
‘‘(A) I N GENERAL .—An election under subsection (a)
shall be terminated whenever (at any time on or afterthe 1st day of the 1st taxable year for which the corporationis an electing corporation) such corporation ceases to bea qualifying vessel operator.
‘‘(B) W
HEN EFFECTIVE .—Any termination under this
paragraph shall be effective on and after the date of ces-sation.
‘‘(C) A
NNUALIZATION .—The Secretary shall prescribe
such annualization and other rules as are appropriate inthe case of a termination under this paragraph.
‘‘(e) E
LECTION AFTER TERMINATION .—If a qualifying vessel oper-
ator has made an election under subsection (a) and if such electionhas been terminated under subsection (d), such operator (and anysuccessor operator) shall not be eligible to make an election underApplicability.
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subsection (a) for any taxable year before its 5th taxable year
which begins after the 1st taxable year for which such terminationis effective, unless the Secretary consents to such election.
‘‘SEC. 1355. DEFINITIONS AND SPECIAL RULES.
‘‘(a) D EFINITIONS .—For purposes of this subchapter—
‘‘(1) E LECTING CORPORATION .—The term ‘electing corpora-
tion’ means any corporation for which an election is in effectunder this subchapter.
‘‘(2) E
LECTING GROUP ; CONTROLLED GROUP .—
‘‘(A) E LECTING GROUP .—The term ‘electing group’
means a controlled group of which one or more membersis an electing corporation.
‘‘(B) C
ONTROLLED GROUP .—The term ‘controlled group’
means any group which would be treated as a singleemployer under subsection (a) or (b) of section 52 if para-graphs (1) and (2) of section 52(a) did not apply.‘‘(3) Q
UALIFYING VESSEL OPERATOR .—The term ‘qualifying
vessel operator’ means any corporation—
‘‘(A) who operates one or more qualifying vessels, and‘‘(B) who meets the shipping activity requirement in
subsection (c).‘‘(4) Q
UALIFYING VESSEL .—The term ‘qualifying vessel’
means a self-propelled (or a combination self-propelled andnon-self-propelled) United States flag vessel of not less than10,000 deadweight tons used exclusively in the United Statesforeign trade during the period that the election under thissubchapter is in effect.
‘‘(5) U
NITED STATES FLAG VESSEL .—The term ‘United States
flag vessel’ means any vessel documented under the laws ofthe United States.
‘‘(6) U
NITED STATES DOMESTIC TRADE .—The term ‘United
States domestic trade’ means the transportation of goods orpassengers between places in the United States.
‘‘(7) U
NITED STATES FOREIGN TRADE .—The term ‘United
States foreign trade’ means the transportation of goods or pas-sengers between a place in the United States and a foreignplace or between foreign places.
‘‘(8) C
HARTER .—The term ‘charter’ includes an operating
agreement.‘‘(b) O
PERATING A VESSEL .—For purposes of this subchapter—
‘‘(1) I N GENERAL .—Except as provided in paragraph (2),
a person is treated as operating any vessel during any periodif such vessel is—
‘‘(A) owned by, or chartered (including a time charter)
to, the person, and
‘‘(B) is in use as a qualifying vessel during such period.
‘‘(2) B
AREBOAT CHARTERS .—A person is treated as operating
and using a vessel that it has chartered out on bareboat charterterms only if—
‘‘(A)(i) the vessel is temporarily surplus to the person’s
requirements and the term of the charter does not exceed3 years, or
‘‘(ii) the vessel is bareboat chartered to a member of
a controlled group which includes such person or to anunrelated person who sub-bareboats or time charters the
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vessel to such a member (including the owner of the vessel),
and
‘‘(B) the vessel is used as a qualifying vessel by the
person to whom ultimately chartered.
‘‘(c) S HIPPING ACTIVITY REQUIREMENT .—For purposes of this
section—
‘‘(1) I N GENERAL .—Except as otherwise provided in this
subsection, a corporation meets the shipping activity require-ment of this subsection for any taxable year only if the require-ment of paragraph (4) is met for each of the 2 precedingtaxable years.
‘‘(2) S
PECIAL RULE FOR 1ST YEAR OF ELECTION .—A corpora-
tion meets the shipping activity requirement of this subsectionfor the first taxable year for which the election under section1354(a) is in effect only if the requirement of paragraph (4)is met for the preceding taxable year.
‘‘(3) C
ONTROLLED GROUPS .—A corporation who is a member
of a controlled group meets the shipping activity requirementof this subsection only if such requirement is met determined—
‘‘(A) by treating all members of such group as 1 person,
and
‘‘(B) by disregarding vessel charters between members
of such group.‘‘(4) R
EQUIREMENT .—The requirement of this paragraph is
met for any taxable year if, on average during such year,at least 25 percent of the aggregate tonnage of qualifying ves-sels used by the corporation were owned by such corporationor chartered to such corporation on bareboat charter terms.‘‘(d) A
CTIVITIES CARRIED ON PARTNERSHIPS , ETC.—In applying
this subchapter to a partner in a partnership—
‘‘(1) each partner shall be treated as operating vessels
operated by the partnership,
‘‘(2) each partner shall be treated as conducting the activi-
ties conducted by the partnership, and
‘‘(3) the extent of a partner’s ownership or charter interest
in any vessel owned by or chartered to the partnership shallbe determined on the basis of the partner’s interest in thepartnership.
A similar rule shall apply with respect to other pass-thru entities.
‘‘(e) E
FFECT OF TEMPORARILY CEASING TOOPERATE A QUALI –
FYING VESSEL .—
‘‘(1) I N GENERAL .—For purposes of subsections (b) and (c),
an electing corporation shall be treated as continuing to usea qualifying vessel during any period of temporary cessationif the electing corporation gives timely notice to the Secretarystating—
‘‘(A) that it has temporarily ceased to operate the quali-
fying vessel, and
‘‘(B) its intention to resume operating the qualifying
vessel.‘‘(2) N
OTICE .—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corpora-tion’s tax return for the taxable year in which the temporarycessation begins.
‘‘(3) P
ERIOD DISREGARD IN EFFECT .—The period of tem-
porary cessation under paragraph (1) shall continue until theearlier of the date on which—Applicability.
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‘‘(A) the electing corporation abandons its intention
to resume operation of the qualifying vessel, or
‘‘(B) the electing corporation resumes operation of the
qualifying vessel.
‘‘(f) E FFECT OF TEMPORARILY OPERATING A QUALIFYING VESSEL
IN THE UNITED STATES DOMESTIC TRADE .—
‘‘(1) I N GENERAL .—For purposes of this subchapter, an
electing corporation shall be treated as continuing to use aqualifying vessel in the United States foreign trade duringany period of temporary use in the United States domestictrade if the electing corporation gives timely notice to theSecretary stating—
‘‘(A) that it temporarily operates or has operated in
the United States domestic trade a qualifying vessel whichhad been used in the United States foreign trade, and
‘‘(B) its intention to resume operation of the vessel
in the United States foreign trade.‘‘(2) N
OTICE .—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corpora-tion’s tax return for the taxable year in which the temporarycessation begins.
‘‘(3) P
ERIOD DISREGARD IN EFFECT .—The period of tem-
porary use under paragraph (1) continues until the earlierof the date of which—
‘‘(A) the electing corporation abandons its intention
to resume operations of the vessel in the United Statesforeign trade, or
‘‘(B) the electing corporation resumes operation of the
vessel in the United States foreign trade.‘‘(4) N
O DISREGARD IF DOMESTIC TRADE USE EXCEEDS 30
DAYS .—Paragraph (1) shall not apply to any qualifying vessel
which is operated in the United States domestic trade formore than 30 days during the taxable year.‘‘(g) R
EGULATIONS .—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposesof this section.
‘‘SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
‘‘(a) Q UALIFYING SHIPPING ACTIVITIES .—For purposes of this
subchapter, the term ‘qualifying shipping activities’ means—
‘‘(1) core qualifying activities,‘‘(2) qualifying secondary activities, and‘‘(3) qualifying incidental activities.
‘‘(b) C
ORE QUALIFYING ACTIVITIES .—For purposes of this sub-
chapter, the term ‘core qualifying activities’ means activities inoperating qualifying vessels in United States foreign trade.
‘‘(c) Q
UALIFYING SECONDARY ACTIVITIES .—For purposes of this
section—
‘‘(1) I N GENERAL .—The term ‘qualifying secondary activities’
means secondary activities but only to the extent that, withoutregard to this subchapter, the gross income derived by suchcorporation from such activities does not exceed 20 percentof the gross income derived by the corporation from its corequalifying activities.
‘‘(2) S
ECONDARY ACTIVITIES .—The term ‘secondary activities’
means—
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‘‘(A) the active management or operation of vessels
other than qualifying vessels in the United States foreigntrade,
‘‘(B) the provision of vessel, barge, container, or cargo-
related facilities or services to any person,
‘‘(C) other activities of the electing corporation and
other members of its electing group that are an integralpart of its business of operating qualifying vessels in UnitedStates foreign trade, including—
‘‘(i) ownership or operation of barges, containers,
chassis, and other equipment that are the complementof, or used in connection with, a qualifying vessel inUnited States foreign trade,
‘‘(ii) the inland haulage of cargo shipped, or to
be shipped, on qualifying vessels in United States for-eign trade, and
‘‘(iii) the provision of terminal, maintenance,
repair, logistical, or other vessel, barge, container, orcargo-related services that are an integral part of oper-ating qualifying vessels in United States foreign trade,and‘‘(D) such other activities as may be prescribed by
the Secretary pursuant to regulations.‘‘(3) C
OORDINATION WITH CORE ACTIVITIES .—
‘‘(A) I N GENERAL .—Such term shall not include any
core qualifying activities.
‘‘(B) N ONELECTING CORPORATIONS .—In the case of a
corporation (other than an electing corporation) which isa member of an electing group, any core qualifying activi-ties of the corporation shall be treated as qualifying sec-ondary activities (and not as core qualifying activities).
‘‘(d) Q
UALIFYING INCIDENTAL ACTIVITIES .—For purposes of this
section, the term ‘qualified incidental activities’ means shipping-related activities if—
‘‘(1) they are incidental to the corporation’s core qualifying
activities,
‘‘(2) they are not qualifying secondary activities, and‘‘(3) without regard to this subchapter, the gross income
derived by such corporation from such activities does not exceed0.1 percent of the corporation’s gross income from its corequalifying activities.‘‘(e) A
PPLICATION OF GROSS INCOME TESTS IN CASE OF ELECTING
GROUP .—In the case of an electing group, subsections (c)(1) and
(d)(3) shall be applied as if such group were 1 entity, and thelimitations under such subsections shall be allocated among thecorporations in such group.
‘‘SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION;
INTEREST.
‘‘(a) E XCLUSION FROM GROSS INCOME .—Gross income of an
electing corporation shall not include its income from qualifyingshipping activities.
‘‘(b) E
LECTING GROUP MEMBER .—Gross income of a corporation
(other than an electing corporation) which is a member of anelecting group shall not include its income from qualifying shippingactivities conducted by such member.
‘‘(c) D
ENIAL OF LOSSES , DEDUCTIONS , AND CREDITS .—
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‘‘(1) G ENERAL RULE .—Subject to paragraph (2), each item
of loss, deduction (other than for interest expense), or creditof any taxpayer with respect to any activity the income fromwhich is excluded from gross income under this section shallbe disallowed.
‘‘(2) D
EPRECIATION .—
‘‘(A) I N GENERAL .—Notwithstanding paragraph (1), the
adjusted basis (for purposes of determining gain) of anyqualifying vessel shall be determined as if the deductionfor depreciation had been allowed.
‘‘(B) M
ETHOD .—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), the straight-line method of depreciation shall applyto qualifying vessels the income from operation ofwhich is excluded from gross income under this section.
‘‘(ii) E
XCEPTION .—Clause (i) shall not apply to any
qualifying vessel which is subject to a charter enteredinto before the date of the enactment of this sub-chapter.
‘‘(3) I
NTEREST .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), the interest expense of an electing corporation shallbe disallowed in the ratio that the fair market value ofsuch corporation’s qualifying vessels bears to the fairmarket value of such corporation’s total assets.
‘‘(B) E
LECTING GROUP .—In the case of a corporation
which is a member of an electing group, the interestexpense of such corporation shall be disallowed in theratio that the fair market value of such corporation’s quali-fying vessels bears to the fair market value of the electinggroups total assets.
‘‘SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
‘‘(a) Q UALIFYING SHIPPING ACTIVITIES .—For purposes of this
chapter, the qualifying shipping activities of an electing corporationshall be treated as a separate trade or business activity distinctfrom all other activities conducted by such corporation.
‘‘(b) E
XCLUSION OF CREDITS OR DEDUCTIONS .—
‘‘(1) No deduction shall be allowed against the notional
shipping income of an electing corporation, and no credit shallbe allowed against the tax imposed by section 1352(a)(2).
‘‘(2) No deduction shall be allowed for any net operating
loss attributable to the qualifying shipping activities of anyperson to the extent that such loss is carried forward by suchperson from a taxable year preceding the first taxable yearfor which such person was an electing corporation.‘‘(c) T
RANSACTIONS NOT AT ARM’SLENGTH .—Section 482 applies
in accordance with this subsection to a transaction or series oftransactions—
‘‘(1) as between an electing corporation and another person,
or
‘‘(2) as between an person’s qualifying shipping activities
and other activities carried on by it.
‘‘SEC. 1359. DISPOSITION OF QUALIFYING VESSELS.
‘‘(a) I NGENERAL .—If any qualifying vessel operator sells or
disposes of any qualifying vessel in an otherwise taxable trans-action, at the election of such operator, no gain shall be recognizedApplicability.
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if any replacement qualifying vessel is acquired during the period
specified in subsection (b), except to the extent that the amountrealized upon such sale or disposition exceeds the cost of the replace-ment qualifying vessel.
‘‘(b) P
ERIOD WITHIN WHICH PROPERTY MUST BEREPLACED .—
The period referred to in subsection (a) shall be the period beginningone year prior to the disposition of the qualifying vessel andending—
‘‘(1) 3 years after the close of the first taxable year in
which the gain is realized, or
‘‘(2) subject to such terms and conditions as may be speci-
fied by the Secretary, on such later date as the Secretarymay designate on application by the taxpayer.
Such application shall be made at such time and in such manneras the Secretary may by regulations prescribe.
‘‘(c) A
PPLICATION OF SECTION TO NONCORPORATE OPERATORS .—
For purposes of this section, the term ‘qualifying vessel operator’includes any person who would be a qualifying vessel operatorwere such person a corporation.
‘‘(d) T
IME FOR ASSESSMENT OF DEFICIENCY ATTRIBUTABLE TO
GAIN.—If a qualifying vessel operator has made the election pro-
vided in subsection (a), then—
‘‘(1) the statutory period for the assessment of any defi-
ciency, for any taxable year in which any part of the gainis realized, attributable to such gain shall not expire priorto the expiration of 3 years from the date the Secretary isnotified by such operator (in such manner as the Secretarymay by regulations prescribe) of the replacement qualifyingvessel or of an intention not to replace, and
‘‘(2) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of section6212(c) or the provisions of any other law or rule of law whichwould otherwise prevent such assessment.‘‘(e) B
ASIS OF REPLACEMENT QUALIFYING VESSEL .—In the case
of any replacement qualifying vessel purchased by the qualifyingvessel operator which resulted in the nonrecognition of any partof the gain realized as the result of a sale or other dispositionof a qualifying vessel, the basis shall be the cost of the replacementqualifying vessel decreased in the amount of the gain not so recog-nized; and if the property purchased consists of more than onepiece of property, the basis determined under this sentence shallbe allocated to the purchased properties in proportion to theirrespective costs.’’.
(b) T
ECHNICAL AMENDMENTS .—
(1) The second sentence of section 56(g)(4)(B)(i), as amended
by this Act, is further amended by inserting ‘‘or 1357’’ after‘‘section 139A’’.
(2) The table of subchapters for chapter 1 is amended
by inserting after the item relating to subchapter S the fol-lowing new item:
‘‘Subchapter R. Election to determine corporate tax on certain international
shipping activities using per ton rate.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.26 USC 56 note.
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Subtitle F—Stock Options and Employee
Stock Purchase Plan Stock Options
SEC. 251. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE
STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES.
(a) E XCLUSION FROM EMPLOYMENT TAXES .—
(1) S OCIAL SECURITY TAXES .—
(A) Section 3121(a) (relating to definition of wages)
is amended by striking ‘‘or’’ at the end of paragraph (20),by striking the period at the end of paragraph (21) andinserting ‘‘; or’’, and by inserting after paragraph (21) the
following new paragraph:‘‘(22) remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (asdefined in section 422(b)) or under an employee stock pur-chase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.(B) Section 209(a) of the Social Security Act is amended
by striking ‘‘or’’ at the end of paragraph (17), by strikingthe period at the end of paragraph (18) and inserting‘‘; or’’, and by inserting after paragraph (18) the followingnew paragraph:‘‘(19) Remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (asdefined in section 422(b) of the Internal Revenue Codeof 1986) or under an employee stock purchase plan (asdefined in section 423(b) of such Code), or
‘‘(B) any disposition by the individual of such stock.’’.
(2) R
AILROAD RETIREMENT TAXES .—Subsection (e) of section
3231 is amended by adding at the end the following new para-graph:
‘‘(12) Q
UALIFIED STOCK OPTIONS .—The term ‘compensation’
shall not include any remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (asdefined in section 422(b)) or under an employee stock pur-chase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(3) U
NEMPLOYMENT TAXES .—Section 3306(b) (relating to
definition of wages) is amended by striking ‘‘or’’ at the endof paragraph (17), by striking the period at the end of paragraph(18) and inserting ‘‘; or’’, and by inserting after paragraph(18) the following new paragraph:
‘‘(19) remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (asdefined in section 422(b)) or under an employee stock pur-chase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(b) W
AGE WITHHOLDING NOTREQUIRED ON DISQUALIFYING DIS-
POSITIONS .—Section 421(b) (relating to effect of disqualifying dis-
positions) is amended by adding at the end the following newsentence: ‘‘No amount shall be required to be deducted and withheld42 USC 409.
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under chapter 24 with respect to any increase in income attributable
to a disposition described in the preceding sentence.’’.
(c) W AGE WITHHOLDING NOTREQUIRED ON COMPENSATION
WHERE OPTION PRICE ISBETWEEN 85 P ERCENT AND 100 P ERCENT
OFVALUE OF STOCK .—Section 423(c) (relating to special rule where
option price is between 85 percent and 100 percent of value ofstock) is amended by adding at the end the following new sentence:‘‘No amount shall be required to be deducted and withheld underchapter 24 with respect to any amount treated as compensationunder this subsection.’’.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to stock acquired pursuant to options exercised afterthe date of the enactment of this Act.
TITLE III—TAX RELIEF FOR AGRI-
CULTURE AND SMALL MANUFACTUR-ERS
Subtitle A—Volumetric Ethanol Excise Tax
Credit
SEC. 301. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTEN-
SION OF ALCOHOL FUELS INCOME TAX CREDIT.
(a) I NGENERAL .—Subchapter B of chapter 65 (relating to rules
of special application) is amended by inserting after section 6425the following new section:
‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
‘‘(a) A LLOWANCE OF CREDITS .—There shall be allowed as a
credit against the tax imposed by section 4081 an amount equalto the sum of—
‘‘(1) the alcohol fuel mixture credit, plus‘‘(2) the biodiesel mixture credit.
‘‘(b) A
LCOHOL FUELMIXTURE CREDIT .—
‘‘(1) I N GENERAL .—For purposes of this section, the alcohol
fuel mixture credit is the product of the applicable amountand the number of gallons of alcohol used by the taxpayerin producing any alcohol fuel mixture for sale or use in atrade or business of the taxpayer.
‘‘(2) A
PPLICABLE AMOUNT .—For purposes of this
subsection—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), the applicable amount is 51 cents.
‘‘(B) M IXTURES NOT CONTAINING ETHANOL .—In the case
of an alcohol fuel mixture in which none of the alcoholconsists of ethanol, the applicable amount is 60 cents.‘‘(3) A
LCOHOL FUEL MIXTURE .—For purposes of this sub-
section, the term ‘alcohol fuel mixture’ means a mixture ofalcohol and a taxable fuel which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.26 USC 421 note.
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For purposes of subparagraph (A), a mixture produced by any
person at a refinery prior to a taxable event which includesethyl tertiary butyl ether or other ethers produced from alcoholshall be treated as sold at the time of its removal from therefinery (and only at such time) to another person for useas a fuel.
‘‘(4) O
THER DEFINITIONS .—For purposes of this subsection—
‘‘(A) A LCOHOL .—The term ‘alcohol’ includes methanol
and ethanol but does not include—
‘‘(i) alcohol produced from petroleum, natural gas,
or coal (including peat), or
‘‘(ii) alcohol with a proof of less than 190 (deter-
mined without regard to any added denaturants).
Such term also includes an alcohol gallon equivalent ofethyl tertiary butyl ether or other ethers produced fromsuch alcohol.
‘‘(B) T
AXABLE FUEL .—The term ‘taxable fuel’ has the
meaning given such term by section 4083(a)(1).‘‘(5) T
ERMINATION .—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.‘‘(c) B
IODIESEL MIXTURE CREDIT .—
‘‘(1) I N GENERAL .—For purposes of this section, the biodiesel
mixture credit is the product of the applicable amount andthe number of gallons of biodiesel used by the taxpayer inproducing any biodiesel mixture for sale or use in a tradeor business of the taxpayer.
‘‘(2) A
PPLICABLE AMOUNT .—For purposes of this
subsection—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), the applicable amount is 50 cents.
‘‘(B) A MOUNT FOR AGRI -BIODIESEL .—In the case of any
biodiesel which is agri-biodiesel, the applicable amount is$1.00.‘‘(3) B
IODIESEL MIXTURE .—For purposes of this section, the
term ‘biodiesel mixture’ means a mixture of biodiesel and dieselfuel (as defined in section 4083(a)(3)), determined withoutregard to any use of kerosene, which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.‘‘(4) C
ERTIFICATION FOR BIODIESEL .—No credit shall be
allowed under this subsection unless the taxpayer obtains acertification (in such form and manner as prescribed by theSecretary) from the producer of the biodiesel which identifiesthe product produced and the percentage of biodiesel and agri-
biodiesel in the product.
‘‘(5) O
THER DEFINITIONS .—Any term used in this subsection
which is also used in section 40A shall have the meaninggiven such term by section 40A.
‘‘(6) T
ERMINATION .—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.‘‘(d) M
IXTURE NOTUSEDASAFUEL, ETC.—
‘‘(1) I MPOSITION OF TAX .—If—
‘‘(A) any credit was determined under this section with
respect to alcohol or biodiesel used in the production of
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any alcohol fuel mixture or biodiesel mixture, respectively,
and
‘‘(B) any person—
‘‘(i) separates the alcohol or biodiesel from the
mixture, or
‘‘(ii) without separation, uses the mixture other
than as a fuel,
then there is hereby imposed on such person a tax equalto the product of the applicable amount and the numberof gallons of such alcohol or biodiesel.‘‘(2) A
PPLICABLE LAWS .—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent withthis section, apply in respect of any tax imposed under para-graph (1) as if such tax were imposed by section 4081 andnot by this section.‘‘(e) C
OORDINATION WITHEXEMPTION FROM EXCISE TAX.—Rules
similar to the rules under section 40(c) shall apply for purposesof this section.’’.
(b) R
EGISTRATION REQUIREMENT .—Section 4101(a)(1) (relating
to registration), as amended by section 861, is amended by inserting‘‘and every person producing or importing biodiesel (as definedin section 40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))’’before ‘‘shall register with the Secretary’’.
(c) A
DDITIONAL AMENDMENTS .—
(1) Section 40(c) is amended by striking ‘‘subsection (b)(2),
(k), or (m) of section 4041, section 4081(c), or section 4091(c)’’and inserting ‘‘section 4041(b)(2), section 6426, or section6427(e)’’.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
‘‘(4) V
OLUME OF ALCOHOL .—For purposes of determining
under subsection (a) the number of gallons of alcohol withrespect to which a credit is allowable under subsection (a),the volume of alcohol shall include the volume of any dena-turant (including gasoline) which is added under any formulasapproved by the Secretary to the extent that such denaturantsdo not exceed 5 percent of the volume of such alcohol (includingdenaturants).’’.
(3) Section 40(e)(1) is amended—
(A) by striking ‘‘2007’’ in subparagraph (A) and
inserting ‘‘2010’’, and
(B) by striking ‘‘2008’’ in subparagraph (B) and
inserting ‘‘2011’’.(4) Section 40(h) is amended—
(A) by striking ‘‘2007’’ in paragraph (1) and inserting
‘‘2010’’, and
(B) by striking ‘‘, 2006, or 2007’’ in the table contained
in paragraph (2) and inserting ‘‘through 2010’’.(5) Section 4041(b)(2)(B) is amended by striking ‘‘a sub-
stance other than petroleum or natural gas’’ and inserting‘‘coal (including peat)’’.
(6) Section 4041 is amended by striking subsection (k).(7) Section 4081 is amended by striking subsection (c).(8) Paragraph (2) of section 4083(a) is amended to read
as follows:
‘‘(2) G
ASOLINE .—The term ‘gasoline’—
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‘‘(A) includes any gasoline blend, other than qualified
methanol or ethanol fuel (as defined in section4041(b)(2)(B)), partially exempt methanol or ethanol fuel(as defined in section 4041(m)(2)), or a denatured alcohol,and
‘‘(B) includes, to the extent prescribed in regulations—
‘‘(i) any gasoline blend stock, and‘‘(ii) any product commonly used as an additive
in gasoline (other than alcohol).
For purposes of subparagraph (B)(i), the term ‘gasoline blendstock’ means any petroleum product component of gasoline.’’.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:‘‘(e) A
LCOHOL OR BIODIESEL USED TOPRODUCE ALCOHOL FUEL
AND BIODIESEL MIXTURES .—Except as provided in subsection (k)—
‘‘(1) U SED TO PRODUCE A MIXTURE .—If any person produces
a mixture described in section 6426 in such person’s tradeor business, the Secretary shall pay (without interest) to suchperson an amount equal to the alcohol fuel mixture creditor the biodiesel mixture credit with respect to such mixture.
‘‘(2) C
OORDINATION WITH OTHER REPAYMENT PROVISIONS .—
No amount shall be payable under paragraph (1) with respectto any mixture with respect to which an amount is allowedas a credit under section 6426.
‘‘(3) T
ERMINATION .—This subsection shall not apply with
respect to—
‘‘(A) any alcohol fuel mixture (as defined in section
6426(b)(3)) sold or used after December 31, 2010, and
‘‘(B) any biodiesel mixture (as defined in section
6426(c)(3)) sold or used after December 31, 2006.’’.(10) Section 6427(i)(3) is amended—
(A) by striking ‘‘subsection (f)’’ both places it appears
in subparagraph (A) and inserting ‘‘subsection (e)(1)’’,
(B) by striking ‘‘gasoline, diesel fuel, or kerosene used
to produce a qualified alcohol mixture (as defined in section4081(c)(3))’’ in subparagraph (A) and inserting ‘‘a mixturedescribed in section 6426’’,
(C) by adding at the end of subparagraph (A) the
following new flush sentence:‘‘In the case of an electronic claim, this subparagraph shallbe applied without regard to clause (i).’’,
(D) by striking ‘‘subsection (f)(1)’’ in subparagraph (B)
and inserting ‘‘subsection (e)(1)’’,
(E) by striking ‘‘20 days of the date of the filing of
such claim’’ in subparagraph (B) and inserting ‘‘45 daysof the date of the filing of such claim (20 days in the
case of an electronic claim)’’, and
(F) by striking ‘‘
ALCOHOL MIXTURE ’’ in the heading and
inserting ‘‘ ALCOHOL FUEL AND BIODIESEL MIXTURE ’’.
(11) Section 9503(b)(1) is amended by adding at the end
the following new flush sentence:‘‘For purposes of this paragraph, taxes received under sections4041 and 4081 shall be determined without reduction for creditsunder section 6426.’’.
(12) Section 9503(b)(4) is amended—
(A) by adding ‘‘or’’ at the end of subparagraph (C),
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(B) by striking the comma at the end of subparagraph
(D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(13) Section 9503(c)(2)(A) is amended by adding at the
end the following: ‘‘Clauses (i)(III) and (ii) shall not applyto claims under section 6427(e).’’.
(14) The table of sections for subchapter B of chapter
65 is amended by inserting after the item relating to section6425 the following new item:
‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’.
(d) E FFECTIVE DATES .—
(1) I N GENERAL .—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply tofuel sold or used after December 31, 2004.
(2) R
EGISTRATION REQUIREMENT .—The amendment made
by subsection (b) shall take effect on April 1, 2005.
(3) E XTENSION OF ALCOHOL FUELS CREDIT .—The amend-
ments made by paragraphs (3), (4), and (14) of subsection
(c) shall take effect on the date of the enactment of this Act.
(4) R EPEAL OF GENERAL FUND RETENTION OF CERTAIN
ALCOHOL FUELS TAXES .—The amendments made by subsection
(c)(12) shall apply to fuel sold or used after September 30,2004.(e) F
ORMAT FOR FILING .—The Secretary of the Treasury shall
describe the electronic format for filing claims described in section6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amendedby subsection (c)(10)(C)) not later than December 31, 2004.
SEC. 302. BIODIESEL INCOME TAX CREDIT.
(a) I NGENERAL .—Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended byinserting after section 40 the following new section:
‘‘SEC. 40A. BIODIESEL USED AS FUEL.
‘‘(a) G ENERAL RULE.—For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable yearis an amount equal to the sum of—
‘‘(1) the biodiesel mixture credit, plus‘‘(2) the biodiesel credit.
‘‘(b) D
EFINITION OF BIODIESEL MIXTURE CREDIT AND BIODIESEL
CREDIT .—For purposes of this section—
‘‘(1) B IODIESEL MIXTURE CREDIT .—
‘‘(A) I N GENERAL .—The biodiesel mixture credit of any
taxpayer for any taxable year is 50 cents for each gallonof biodiesel used by the taxpayer in the production ofa qualified biodiesel mixture.
‘‘(B) Q
UALIFIED BIODIESEL MIXTURE .—The term ‘quali-
fied biodiesel mixture’ means a mixture of biodiesel anddiesel fuel (as defined in section 4083(a)(3)), determinedwithout regard to any use of kerosene, which—
‘‘(i) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(ii) is used as a fuel by the taxpayer producing
such mixture.‘‘(C) S
ALE OR USE MUST BE IN TRADE OR BUSINESS ,
ETC.—Biodiesel used in the production of a qualified bio-
diesel mixture shall be taken into account—Deadline.26 USC 6427note.Applicability.26 USC 40 note.
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‘‘(i) only if the sale or use described in subpara-
graph (B) is in a trade or business of the taxpayer,and
‘‘(ii) for the taxable year in which such sale or
use occurs.‘‘(D) C
ASUAL OFF -FARM PRODUCTION NOT ELIGIBLE .—
No credit shall be allowed under this section with respectto any casual off-farm production of a qualified biodieselmixture.‘‘(2) B
IODIESEL CREDIT .—
‘‘(A) I N GENERAL .—The biodiesel credit of any taxpayer
for any taxable year is 50 cents for each gallon of biodieselwhich is not in a mixture with diesel fuel and whichduring the taxable year—
‘‘(i) is used by the taxpayer as a fuel in a trade
or business, or
‘‘(ii) is sold by the taxpayer at retail to a person
and placed in the fuel tank of such person’s vehicle.‘‘(B) U
SER CREDIT NOT TO APPLY TO BIODIESEL SOLD
AT RETAIL .—No credit shall be allowed under subparagraph
(A)(i) with respect to any biodiesel which was sold in aretail sale described in subparagraph (A)(ii).‘‘(3) C
REDIT FOR AGRI -BIODIESEL .—In the case of any bio-
diesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shallbe applied by substituting ‘$1.00’ for ‘50 cents’.
‘‘(4) C
ERTIFICATION FOR BIODIESEL .—No credit shall be
allowed under this section unless the taxpayer obtains a certifi-cation (in such form and manner as prescribed by the Secretary)from the producer or importer of the biodiesel which identifiesthe product produced and the percentage of biodiesel and agri-biodiesel in the product.‘‘(c) C
OORDINATION WITH CREDIT AGAINST EXCISE TAX.—The
amount of the credit determined under this section with respectto any biodiesel shall be properly reduced to take into accountany benefit provided with respect to such biodiesel solely by reasonof the application of section 6426 or 6427(e).
‘‘(d) D
EFINITIONS AND SPECIAL RULES .—For purposes of this
section—
‘‘(1) B IODIESEL .—The term ‘biodiesel’ means the monoalkyl
esters of long chain fatty acids derived from plant or animalmatter which meet—
‘‘(A) the registration requirements for fuels and fuel
additives established by the Environmental ProtectionAgency under section 211 of the Clean Air Act (42 U.S.C.7545), and
‘‘(B) the requirements of the American Society of
Testing and Materials D6751.‘‘(2) A
GRI-BIODIESEL .—The term ‘agri-biodiesel’ means bio-
diesel derived solely from virgin oils, including esters derivedfrom virgin vegetable oils from corn, soybeans, sunflower seeds,cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds,rice bran, and mustard seeds, and from animal fats.
‘‘(3) M
IXTURE OR BIODIESEL NOT USED AS A FUEL , ETC.—
‘‘(A) M IXTURES .—If—
‘‘(i) any credit was determined under this section
with respect to biodiesel used in the production ofany qualified biodiesel mixture, andApplicability.
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‘‘(ii) any person—
‘‘(I) separates the biodiesel from the mixture,
or
‘‘(II) without separation, uses the mixture
other than as a fuel,
then there is hereby imposed on such person a tax equalto the product of the rate applicable under subsection(b)(1)(A) and the number of gallons of such biodiesel insuch mixture.
‘‘(B) B
IODIESEL .—If—
‘‘(i) any credit was determined under this section
with respect to the retail sale of any biodiesel, and
‘‘(ii) any person mixes such biodiesel or uses such
biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equalto the product of the rate applicable under subsection(b)(2)(A) and the number of gallons of such biodiesel.
‘‘(C) A
PPLICABLE LAWS .—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistentwith this section, apply in respect of any tax imposedunder subparagraph (A) or (B) as if such tax were imposedby section 4081 and not by this chapter.‘‘(4) P
ASS-THRU IN THE CASE OF ESTATES AND TRUSTS .—
Under regulations prescribed by the Secretary, rules similarto the rules of subsection (d) of section 52 shall apply.‘‘(e) T
ERMINATION .—This section shall not apply to any sale
or use after December 31, 2006.’’.
(b) C REDIT TREATED AS PART OF GENERAL BUSINESS CREDIT .—
Section 38(b) (relating to current year business credit), as amendedby this Act, is amended by striking ‘‘plus’’ at the end of paragraph(15), by striking the period at the end of paragraph (16) andinserting ‘‘, plus’’, and by inserting after paragraph (16) the fol-lowing new paragraph:
‘‘(17) the biodiesel fuels credit determined under section
40A(a).’’.(c) C
ONFORMING AMENDMENTS .—
(1)(A) Section 87 is amended to read as follows:
‘‘SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.
‘‘Gross income includes—
‘‘(1) the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section40(a), and
‘‘(2) the biodiesel fuels credit determined with respect to
the taxpayer for the taxable year under section 40A(a).’’.
(B) The item relating to section 87 in the table of sections
for part II of subchapter B of chapter 1 is amended by striking‘‘fuel credit’’ and inserting ‘‘and biodiesel fuels credits’’.
(2) Section 196(c) is amended by striking ‘‘and’’ at the
end of paragraph (9), by striking the period at the end ofparagraph (10) and inserting ‘‘, and’’, and by adding at theend the following new paragraph:
‘‘(11) the biodiesel fuels credit determined under section
40A(a).’’.Regulations.
Applicability.
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(3) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding after the itemrelating to section 40 the following new item:
‘‘Sec. 40A. Biodiesel used as fuel.’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to fuel produced, and sold or used, after December31, 2004, in taxable years ending after such date.
SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CER-
TAIN TAX BENEFITS.
(a) I NGENERAL .—Subpart C of part III of subchapter A of
chapter 32 is amended by adding at the end the following newsection:
‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CER-
TAIN TAX BENEFITS.
‘‘(a) I NGENERAL .—The Secretary shall require any person
claiming tax benefits—
‘‘(1) under the provisions of section 34, 40, and 40A, to
file a return at the time such person claims such benefits(in such manner as the Secretary may prescribe), and
‘‘(2) under the provisions of section 4041(b)(2), 6426, or
6427(e) to file a quarterly return (in such manner as the Sec-retary may prescribe).‘‘(b) C
ONTENTS OF RETURN .—Any return filed under this section
shall provide such information relating to such benefits and thecoordination of such benefits as the Secretary may require to ensurethe proper administration and use of such benefits.
‘‘(c) E
NFORCEMENT .—With respect to any person described in
subsection (a) and subject to registration requirements under thistitle, rules similar to rules of section 4222(c) shall apply withrespect to any requirement under this section.’’.
(b) C
ONFORMING AMENDMENT .—The table of sections for sub-
part C of part III of subchapter A of chapter 32 is amended byadding at the end the following new item:
‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
Subtitle B—Agricultural Incentives
SEC. 311. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF
WEATHER-RELATED CONDITIONS.
(a) R EPLACEMENT OF LIVESTOCK WITH OTHER FARM PROP-
ERTY .—Subsection (f) of section 1033 (relating to involuntary conver-
sions) is amended—
(1) by inserting ‘‘drought, flood, or other weather-related
conditions, or’’ after ‘‘because of’’,
(2) by inserting ‘‘in the case of soil contamination or other
environmental contamination’’ after ‘‘including real property’’,and
(3) by striking ‘‘W
HERE THERE HASBEEN ENVIRONMENTAL
CONTAMINATION ’’ in the heading and inserting ‘‘ INCERTAIN
CASES ’’.26 USC 4104note.Applicability.26 USC 38 note.
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(b) E XTENSION OF REPLACEMENT PERIOD OF INVOLUNTARILY
CONVERTED LIVESTOCK .—Subsection (e) of section 1033 (relating
to involuntary conversions) is amended—
(1) by striking ‘‘C ONDITIONS .—For purposes’’ and inserting
‘‘CONDITIONS .—
‘‘(1) I N GENERAL .—For purposes’’, and
(2) by adding at the end the following new paragraph:‘‘(2) E
XTENSION OF REPLACEMENT PERIOD .—
‘‘(A) I N GENERAL .—In the case of drought, flood, or
other weather-related conditions described in paragraph(1) which result in the area being designated as eligiblefor assistance by the Federal Government, subsection(a)(2)(B) shall be applied with respect to any convertedproperty by substituting ‘4 years’ for ‘2 years’.
‘‘(B) F
URTHER EXTENSION BY SECRETARY .—The Sec-
retary may extend on a regional basis the period forreplacement under this section (after the application ofsubparagraph (A)) for such additional time as the Secretarydetermines appropriate if the weather-related conditionswhich resulted in such application continue for more than3 years.’’.
(c) I
NCOME INCLUSION RULES .—Section 451(e) (relating to spe-
cial rule for proceeds from livestock sold on account of drought,flood, or other weather-related conditions) is amended by addingat the end the following new paragraph:
‘‘(3) S
PECIAL ELECTION RULES .—If section 1033(e)(2) applies
to a sale or exchange of livestock described in paragraph (1),the election under paragraph (1) shall be deemed valid if madeduring the replacement period described in such section.’’.(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to any taxable year with respect to which the duedate (without regard to extensions) for the return is after December31, 2002.
SEC. 312. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITH-
OUT REDUCING PATRONAGE DIVIDENDS.
(a) I NGENERAL .—Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end thefollowing: ‘‘For purposes of paragraph (3), net earnings shall notbe reduced by amounts paid during the year as dividends on capitalstock or other proprietary capital interests of the organization tothe extent that the articles of incorporation or bylaws of suchorganization or other contract with patrons provide that such divi-dends are in addition to amounts otherwise payable to patronswhich are derived from business done with or for patrons duringthe taxable year.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to distributions in taxable years beginning after thedate of the enactment of this Act.
SEC. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.
(a) A LLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF
ACOOPERATIVE .—Section 40(g) (relating to definitions and special
rules for eligible small ethanol producer credit) is amended byadding at the end the following new paragraph:
‘‘(6) A
LLOCATION OF SMALL ETHANOL PRODUCER CREDIT TO
PATRONS OF COOPERATIVE .—
‘‘(A) E LECTION TO ALLOCATE .—26 USC 1388note.26 USC 451 note.
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‘‘(i) I N GENERAL .—In the case of a cooperative
organization described in section 1381(a), any portionof the credit determined under subsection (a)(3) forthe taxable year may, at the election of the organiza-tion, be apportioned pro rata among patrons of theorganization on the basis of the quantity or valueof business done with or for such patrons for the tax-able year.
‘‘(ii) F
ORM AND EFFECT OF ELECTION .—An election
under clause (i) for any taxable year shall be madeon a timely filed return for such year. Such election,once made, shall be irrevocable for such taxable year.‘‘(B) T
REATMENT OF ORGANIZATIONS AND PATRONS .—
‘‘(i) O RGANIZATIONS .—The amount of the credit not
apportioned to patrons pursuant to subparagraph (A)shall be included in the amount determined undersubsection (a)(3) for the taxable year of the organiza-tion.
‘‘(ii) P
ATRONS .—The amount of the credit appor-
tioned to patrons pursuant to subparagraph (A) shallbe included in the amount determined under such sub-section for the first taxable year of each patron endingon or after the last day of the payment period (asdefined in section 1382(d)) for the taxable year of theorganization or, if earlier, for the taxable year of eachpatron ending on or after the date on which the patronreceives notice from the cooperative of the apportion-ment.
‘‘(iii) S
PECIAL RULES FOR DECREASE IN CREDITS FOR
TAXABLE YEAR .—If the amount of the credit of the
organization determined under such subsection for ataxable year is less than the amount of such creditshown on the return of the organization for such year,an amount equal to the excess of—
‘‘(I) such reduction, over‘‘(II) the amount not apportioned to such
patrons under subparagraph (A) for the taxableyear,
shall be treated as an increase in tax imposed bythis chapter on the organization. Such increase shallnot be treated as tax imposed by this chapter forpurposes of determining the amount of any creditunder this chapter or for purposes of section 55.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years ending after the date of the enactmentof this Act.
SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVER-
AGING AND THE ALTERNATIVE MINIMUM TAX.
(a) I NGENERAL .—Section 55(c) (defining regular tax) is
amended by redesignating paragraph (2) as paragraph (3) andby inserting after paragraph (1) the following new paragraph:
‘‘(2) C
OORDINATION WITH INCOME AVERAGING FOR FARMERS
AND FISHERMEN .—Solely for purposes of this section, section
1301 (relating to averaging of farm and fishing income) shallnot apply in computing the regular tax.’’.(b) A
LLOWING INCOME AVERAGING FOR FISHERMEN .—26 USC 40 note.
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(1) I N GENERAL .—Section 1301(a) is amended by striking
‘‘farming business’’ and inserting ‘‘farming business or fishingbusiness’’.
(2) D
EFINITION OF ELECTED FARM INCOME .—
(A) I N GENERAL .—Clause (i) of section 1301(b)(1)(A)
is amended by inserting ‘‘or fishing business’’ before thesemicolon.
(B) C
ONFORMING AMENDMENT .—Subparagraph (B) of
section 1301(b)(1) is amended by inserting ‘‘or fishing busi-ness’’ after ‘‘farming business’’ both places it occurs.(3) D
EFINITION OF FISHING BUSINESS .—Section 1301(b) is
amended by adding at the end the following new paragraph:
‘‘(4) F ISHING BUSINESS .—The term ‘fishing business’ means
the conduct of commercial fishing as defined in section 3 ofthe Magnuson-Stevens Fishery Conservation and ManagementAct (16 U.S.C. 1802).’’.(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 315. CAPITAL GAIN TREATMENT UNDER SECTION 631(b) TO APPLY
TO OUTRIGHT SALES BY LANDOWNERS.
(a) I NGENERAL .—The first sentence of section 631(b) (relating
to disposal of timber with a retained economic interest) is amendedby striking ‘‘retains an economic interest in such timber’’ andinserting ‘‘either retains an economic interest in such timber ormakes an outright sale of such timber’’.
(b) C
ONFORMING AMENDMENTS .—
(1) The third sentence of section 631(b) is amended by
striking ‘‘The date of disposal’’ and inserting ‘‘In the case ofdisposal of timber with a retained economic interest, the dateof disposal’’.
(2) The heading for section 631(b) is amended by striking
‘‘W
ITH A RETAINED ECONOMIC INTEREST ’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to sales after December 31, 2004.
SEC. 316. MODIFICATION TO COOPERATIVE MARKETING RULES TO
INCLUDE VALUE ADDED PROCESSING INVOLVING ANI-MALS.
(a) I NGENERAL .—Section 1388 (relating to definitions and spe-
cial rules) is amended by adding at the end the following newsubsection:
‘‘(k) C
OOPERATIVE MARKETING INCLUDES VALUE -ADDED PROC-
ESSING INVOLVING ANIMALS .—For purposes of section 521 and this
subchapter, the marketing of the products of members or otherproducers shall include the feeding of such products to cattle, hogs,fish, chickens, or other animals and the sale of the resulting animalsor animal products.’’.
(b) C
ONFORMING AMENDMENT .—Section 521(b) is amended by
adding at the end the following new paragraph:
‘‘(7) C ROSS REFERENCE .—
‘‘For treatment of value-added processing involving animals, see
section 1388(k).’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.26 USC 521 note.26 USC 631 note.26 USC 55 note.
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SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO
FARMERS’ COOPERATIVE ORGANIZATIONS.
(a) I NGENERAL .—Section 7428(a)(1) (relating to declaratory
judgments of tax exempt organizations) is amended by striking‘‘or’’ at the end of subparagraph (B) and by adding at the endthe following new subparagraph:
‘‘(D) with respect to the initial classification or con-
tinuing classification of a cooperative as an organizationdescribed in section 521(b) which is exempt from tax undersection 521(a), or’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply with respect to pleadings filed after the date of theenactment of this Act.
SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) I NGENERAL .—Section 162(o) (relating to treatment of cer-
tain reimbursed expenses of rural mail carriers) is amended byredesignating paragraph (2) as paragraph (3) and by insertingafter paragraph (1) the following:
‘‘(2) S
PECIAL RULE WHERE EXPENSES EXCEED REIMBURSE –
MENTS .—Notwithstanding paragraph (1)(A), if the expenses
incurred by an employee for the use of a vehicle in performingservices described in paragraph (1) exceed the qualifiedreimbursements for such expenses, such excess shall be takeninto account in computing the miscellaneous itemized deduc-tions of the employee under section 67.’’.(b) C
ONFORMING AMENDMENT .—The heading for section 162(o)
is amended by striking ‘‘R EIMBURSED ’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) I NCOME FROM OPEN ACCESS AND NUCLEAR DECOMMIS –
SIONING TRANSACTIONS .—
(1) I N GENERAL .—Subparagraph (C) of section 501(c)(12)
is amended by striking clause (ii) and adding at the end thefollowing:
‘‘(ii) from any provision or sale of electric energy
transmission services or ancillary services if such serv-ices are provided on a nondiscriminatory open accessbasis under an open access transmission tariffapproved or accepted by FERC or under an inde-pendent transmission provider agreement approved oraccepted by FERC (other than income received oraccrued directly or indirectly from a member),
‘‘(iii) from the provision or sale of electric energy
distribution services or ancillary services if such serv-ices are provided on a nondiscriminatory open accessbasis to distribute electric energy not owned by themutual or electric cooperative company—
‘‘(I) to end-users who are served by distribution
facilities not owned by such company or any ofits members (other than income received oraccrued directly or indirectly from a member), or
‘‘(II) generated by a generation facility not
owned or leased by such company or any of its26 USC 162 note.26 USC 7428
note.
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members and which is directly connected to dis-
tribution facilities owned by such company or anyof its members (other than income received oraccrued directly or indirectly from a member),‘‘(iv) from any nuclear decommissioning trans-
action, or
‘‘(v) from any asset exchange or conversion trans-
action.
Clauses (ii) through (v) shall not apply to taxable yearsbeginning after December 31, 2006.’’.(2) D
EFINITIONS AND SPECIAL RULES .—Paragraph (12) of
section 501(c) is amended by adding at the end the followingnew subparagraphs:
‘‘(E) For purposes of subparagraph (C)(ii), the term
‘FERC’ means the Federal Energy Regulatory Commissionand references to such term shall be treated as includingthe Public Utility Commission of Texas with respect toany ERCOT utility (as defined in section 212(k)(2)(B) ofthe Federal Power Act (16 U.S.C. 824k(k)(2)(B))).
‘‘(F) For purposes of subparagraph (C)(iii), the term
‘nuclear decommissioning transaction’ means—
‘‘(i) any transfer into a trust, fund, or instrument
established to pay any nuclear decommissioning costsif the transfer is in connection with the transfer ofthe mutual or cooperative electric company’s interestin a nuclear power plant or nuclear power plant unit,
‘‘(ii) any distribution from any trust, fund, or
instrument established to pay any nuclear decommis-sioning costs, or
‘‘(iii) any earnings from any trust, fund, or
instrument established to pay any nuclear decommis-sioning costs.‘‘(G) For purposes of subparagraph (C)(iv), the term
‘asset exchange or conversion transaction’ means any vol-untary exchange or involuntary conversion of any propertyrelated to generating, transmitting, distributing, or sellingelectric energy by a mutual or cooperative electric company,the gain from which qualifies for deferred recognition undersection 1031 or 1033, but only if the replacement propertyacquired by such company pursuant to such section con-stitutes property which is used, or to be used, for—
‘‘(i) generating, transmitting, distributing, or
selling electric energy, or
‘‘(ii) producing, transmitting, distributing, or
selling natural gas.’’.
(b) T
REATMENT OF INCOME FROM LOAD LOSS TRANSACTIONS ,
ETC.—Paragraph (12) of section 501(c), as amended by subsection
(a)(2), is amended by adding after subparagraph (G) the followingnew subparagraph:
‘‘(H)(i) In the case of a mutual or cooperative electric
company described in this paragraph or an organizationdescribed in section 1381(a)(2)(C), income received oraccrued from a load loss transaction shall be treated asan amount collected from members for the sole purposeof meeting losses and expenses.
‘‘(ii) For purposes of clause (i), the term ‘load loss
transaction’ means any wholesale or retail sale of electric
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energy (other than to members) to the extent that the
aggregate sales during the recovery period do not exceedthe load loss mitigation sales limit for such period.
‘‘(iii) For purposes of clause (ii), the load loss mitigation
sales limit for the recovery period is the sum of the annualload losses for each year of such period.
‘‘(iv) For purposes of clause (iii), a mutual or coopera-
tive electric company’s annual load loss for each year ofthe recovery period is the amount (if any) by which—
‘‘(I) the megawatt hours of electric energy sold
during such year to members of such electric companyare less than
‘‘(II) the megawatt hours of electric energy sold
during the base year to such members.‘‘(v) For purposes of clause (iv)(II), the term ‘base year’
means—
‘‘(I) the calendar year preceding the start-up year,
or
‘‘(II) at the election of the mutual or cooperative
electric company, the second or third calendar yearspreceding the start-up year.‘‘(vi) For purposes of this subparagraph, the recovery
period is the 7-year period beginning with the start-upyear.
‘‘(vii) For purposes of this subparagraph, the start-
up year is the first year that the mutual or cooperativeelectric company offers nondiscriminatory open access orthe calendar year which includes the date of the enactmentof this subparagraph, if later, at the election of such com-pany.
‘‘(viii) A company shall not fail to be treated as a
mutual or cooperative electric company for purposes ofthis paragraph or as a corporation operating on a coopera-tive basis for purposes of section 1381(a)(2)(C) by reasonof the treatment under clause (i).
‘‘(ix) For purposes of subparagraph (A), in the case
of a mutual or cooperative electric company, incomereceived, or accrued, indirectly from a member shall betreated as an amount collected from members for the solepurpose of meeting losses and expenses.
‘‘(x) This subparagraph shall not apply to taxable years
beginning after December 31, 2006.’’.
(c) E
XCEPTION FROM UNRELATED BUSINESS TAXABLE INCOME .—
Subsection (b) of section 512 (relating to modifications) is amendedby adding at the end the following new paragraph:
‘‘(18) T
REATMENT OF MUTUAL OR COOPERATIVE ELECTRIC
COMPANIES .—In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be excludedincome which is treated as member income under subparagraph(H) thereof.’’.(d) C
ROSS REFERENCE .—Section 1381 is amended by adding
at the end the following new subsection:
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‘‘(c) C ROSS REFERENCE .—
‘‘For treatment of income from load loss transactions of organiza-
tions described in subsection (a)(2)(C), see section 501(c)(12)(H).’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER
NATIONAL HEALTH SERVICE CORPS LOAN REPAYMENTPROGRAM AND CERTAIN STATE LOAN REPAYMENT PRO-GRAMS.
(a) I NGENERAL .—Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
‘‘(4) P AYMENTS UNDER NATIONAL HEALTH SERVICE CORPS
LOAN REPAYMENT PROGRAM AND CERTAIN STATE LOAN REPAY –
MENT PROGRAMS .—In the case of an individual, gross income
shall not include any amount received under section 338B(g)of the Public Health Service Act or under a State programdescribed in section 338I of such Act.’’.(b) T
REATMENT FOR PURPOSES OF EMPLOYMENT TAXES .—Each
of the following provisions is amended by inserting ‘‘108(f)(4),’’ after‘‘74(c),’’:
(1) Section 3121(a)(20).(2) Section 3231(e)(5).(3) Section 3306(b)(16).(4) Section 3401(a)(19).(5) Section 209(a)(17) of the Social Security Act.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to amounts received by an individual in taxable yearsbeginning after December 31, 2003.
SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.
(a) E XPANSION OF PROHIBITED TRANSACTION SAFE HARBOR .—
Section 857(b)(6) (relating to income from prohibited transactions)is amended by redesignating subparagraphs (D) and (E) as subpara-graphs (E) and (F), respectively, and by inserting after subpara-graph (C) the following new subparagraph:
‘‘(D) C
ERTAIN SALES NOT TO CONSTITUTE PROHIBITED
TRANSACTIONS .—For purposes of this part, the term ‘prohib-
ited transaction’ does not include a sale of property whichis a real estate asset (as defined in section 856(c)(5)(B))if—
‘‘(i) the trust held the property for not less than
4 years in connection with the trade or business ofproducing timber,
‘‘(ii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year periodpreceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),and
‘‘(II) are directly related to operation of the
property for the production of timber or for thepreservation of the property for use as timberland,
do not exceed 30 percent of the net selling price ofthe property,26 USC 108 note.42 USC 409.26 USC 501 note.
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‘‘(iii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year periodpreceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),and
‘‘(II) are not directly related to operation of
the property for the production of timber, or forthe preservation of the property for use astimberland,
do not exceed 5 percent of the net selling price ofthe property,
‘‘(iv)(I) during the taxable year the trust does not
make more than 7 sales of property (other than salesof foreclosure property or sales to which section 1033applies), or
‘‘(II) the aggregate adjusted bases (as determined
for purposes of computing earnings and profits) of prop-erty (other than sales of foreclosure property or salesto which section 1033 applies) sold during the taxableyear does not exceed 10 percent of the aggregate bases(as so determined) of all of the assets of the trustas of the beginning of the taxable year,
‘‘(v) in the case that the requirement of clause
(iv)(I) is not satisfied, substantially all of the marketingexpenditures with respect to the property were madethrough an independent contractor (as defined in sec-tion 856(d)(3)) from whom the trust itself does notderive or receive any income, and
‘‘(vi) the sales price of the property sold by the
trust is not based in whole or in part on income orprofits, including income or profits derived from thesale or operation of such property.’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) I NGENERAL .—So much of subsection (b) of section 194
(relating to amortization of reforestation expenditures) as precedesparagraph (2) is amended to read as follows:
‘‘(b) T
REATMENT AS EXPENSES .—
‘‘(1) E LECTION TO TREAT CERTAIN REFORESTATION EXPENDI –
TURES AS EXPENSES .—
‘‘(A) I N GENERAL .—In the case of any qualified timber
property with respect to which the taxpayer has made(in accordance with regulations prescribed by the Secretary)an election under this subsection, the taxpayer shall treatreforestation expenditures which are paid or incurredduring the taxable year with respect to such property asan expense which is not chargeable to capital account.The reforestation expenditures so treated shall be allowedas a deduction.
‘‘(B) D
OLLAR LIMITATION .—The aggregate amount of
reforestation expenditures which may be taken into accountunder subparagraph (A) with respect to each qualifiedtimber property for any taxable year shall not exceed26 USC 857 note.
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$10,000 ($5,000 in the case of a separate return by a
married individual (as defined in section 7703)).’’.
(b) N ET AMORTIZABLE BASIS.—Section 194(c)(2) (defining
amortizable basis) is amended by inserting ‘‘which have not beentaken into account under subsection (b)’’ after ‘‘expenditures’’.
(c) C
ONFORMING AMENDMENTS .—
(1) Section 194(b) is amended by striking paragraphs (3)
and (4).
(2) Section 194(b)(2) is amended by striking ‘‘paragraph
(1)’’ both places it appears and inserting ‘‘paragraph (1)(B)’’.
(3) Section 194(c) is amended by striking paragraph (4)
and inserting the following new paragraphs:
‘‘(4) T REATMENT OF TRUSTS AND ESTATES .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), this section shall not apply to trusts and estates.
‘‘(B) A MORTIZATION DEDUCTION ALLOWED TO ESTATES .—
The benefit of the deduction for amortization provided bysubsection (a) shall be allowed to estates in the samemanner as in the case of an individual. The allowablededuction shall be apportioned between the income bene-ficiary and the fiduciary under regulations prescribed bythe Secretary. Any amount so apportioned to a beneficiaryshall be taken into account for purposes of determiningthe amount allowable as a deduction under subsection (a)to such beneficiary.‘‘(5) A
PPLICATION WITH OTHER DEDUCTIONS .—No deduction
shall be allowed under any other provision of this chapterwith respect to any expenditure with respect to which a deduc-tion is allowed or allowable under this section to the taxpayer.’’.
(4) The heading for section 194 is amended by striking
‘‘
AMORTIZATION ’’ and inserting ‘‘ TREATMENT ’’.
(5) The item relating to section 194 in the table of sections
for part VI of subchapter B of chapter 1 is amended by striking‘‘Amortization’’ and inserting ‘‘Treatment’’.(d) R
EPEAL OF REFORESTATION CREDIT .—
(1) I N GENERAL .—Section 46 (relating to amount of credit)
is amended—
(A) by adding ‘‘and’’ at the end of paragraph (1),(B) by striking ‘‘, and’’ at the end of paragraph (2)
and inserting a period, and
(C) by striking paragraph (3).
(2) C
ONFORMING AMENDMENTS .—
(A) Section 48 is amended—
(i) by striking subsection (b),(ii) by striking ‘‘this subsection’’ in paragraph (5)
of subsection (a) and inserting ‘‘subsection (a)’’, and
(iii) by redesignating such paragraph (5) as sub-
section (b).(B) The heading for section 48 is amended by striking
‘‘;
REFORESTATION CREDIT ’’.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of chapter1 is amended by striking ‘‘, reforestation credit’’.
(D) Section 50(c)(3) is amended by striking ‘‘or reforest-
ation credit’’.
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(e) E FFECTIVE DATE.—The amendments made by this section
shall apply with respect to expenditures paid or incurred afterthe date of the enactment of this Act.
Subtitle C—Incentives for Small
Manufacturers
SEC. 331. NET INCOME FROM PUBLICLY TRADED PARTNERSHIPS
TREATED AS QUALIFYING INCOME OF REGULATEDINVESTMENT COMPANIES.
(a) I NGENERAL .—Paragraph (2) of section 851(b) (defining regu-
lated investment company) is amended to read as follows:
‘‘(2) at least 90 percent of its gross income is derived
from—
‘‘(A) dividends, interest, payments with respect to secu-
rities loans (as defined in section 512(a)(5)), and gainsfrom the sale or other disposition of stock or securities(as defined in section 2(a)(36) of the Investment CompanyAct of 1940, as amended) or foreign currencies, or otherincome (including but not limited to gains from options,futures or forward contracts) derived with respect to itsbusiness of investing in such stock, securities, or currencies,and
‘‘(B) net income derived from an interest in a qualified
publicly traded partnership (as defined in subsection (h));and’’.
(b) S
OURCE FLOW-THROUGH RULE NOTTOAPPLY .—The last
sentence of section 851(b) is amended by inserting ‘‘(other thana qualified publicly traded partnership as defined in subsection(h))’’ after ‘‘derived from a partnership’’.
(c) L
IMITATION ON OWNERSHIP .—Subsection (c) of section 851
is amended by redesignating paragraph (5) as paragraph (6) andinserting after paragraph (4) the following new paragraph:
‘‘(5) The term ‘outstanding voting securities of such issuer’
shall include the equity securities of a qualified publicly tradedpartnership (as defined in subsection (h)).’’.(d) D
EFINITION OF QUALIFIED PUBLICLY TRADED PARTNER –
SHIP.—Section 851 is amended by adding at the end the following
new subsection:
‘‘(h) Q UALIFIED PUBLICLY TRADED PARTNERSHIP .—For purposes
of this section, the term ‘qualified publicly traded partnership’means a publicly traded partnership described in section 7704(b)other than a partnership which would satisfy the gross incomerequirements of section 7704(c)(2) if qualifying income includedonly income described in subsection (b)(2)(A).’’.
(e) D
EFINITION OF QUALIFYING INCOME .—Section 7704(d)(4) is
amended by striking ‘‘section 851(b)(2)’’ and inserting ‘‘section851(b)(2)(A)’’.
(f) L
IMITATION ON COMPOSITION OF ASSETS .—Subparagraph (B)
of section 851(b)(3) is amended to read as follows:
‘‘(B) not more than 25 percent of the value of its
total assets is invested in—
‘‘(i) the securities (other than Government securi-
ties or the securities of other regulated investmentcompanies) of any one issuer,
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‘‘(ii) the securities (other than the securities of
other regulated investment companies) of two or moreissuers which the taxpayer controls and which aredetermined, under regulations prescribed by the Sec-retary, to be engaged in the same or similar tradesor businesses or related trades or businesses, or
‘‘(iii) the securities of one or more qualified publicly
traded partnerships (as defined in subsection (h)).’’.
(g) A
PPLICATION OF SPECIAL PASSIVE ACTIVITY RULE TO REGU-
LATED INVESTMENT COMPANIES .—Subsection (k) of section 469
(relating to separate application of section in case of publicly tradedpartnerships) is amended by adding at the end the following newparagraph:
‘‘(4) A
PPLICATION TO REGULATED INVESTMENT COMPANIES .—
For purposes of this section, a regulated investment company(as defined in section 851) holding an interest in a qualifiedpublicly traded partnership (as defined in section 851(h)) shallbe treated as a taxpayer described in subsection (a)(2) withrespect to items attributable to such interest.’’.(h) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 332. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND
ARROWS.
(a) B OWS.—Paragraph (1) of section 4161(b) (relating to bows)
is amended to read as follows:
‘‘(1) B OWS.—
‘‘(A) I N GENERAL .—There is hereby imposed on the
sale by the manufacturer, producer, or importer of anybow which has a peak draw weight of 30 pounds or more,a tax equal to 11 percent of the price for which so sold.
‘‘(B) A
RCHERY EQUIPMENT .—There is hereby imposed
on the sale by the manufacturer, producer, or importer—
‘‘(i) of any part or accessory suitable for inclusion
in or attachment to a bow described in subparagraph(A), and
‘‘(ii) of any quiver or broadhead suitable for use
with an arrow described in paragraph (2),
a tax equal to 11 percent of the price for which so sold.’’.
(b) A
RROWS .—Subsection (b) of section 4161 (relating to bows
and arrows, etc.) is amended by redesignating paragraph (3) asparagraph (4) and inserting after paragraph (2) the following:
‘‘(3) A
RROWS .—
‘‘(A) I N GENERAL .—There is hereby imposed on the
sale by the manufacturer, producer, or importer of anyarrow, a tax equal to 12 percent of the price for whichso sold.
‘‘(B) E
XCEPTION .—In the case of any arrow of which
the shaft or any other component has been previouslytaxed under paragraph (1) or (2)—
‘‘(i) section 6416(b)(3) shall not apply, and‘‘(ii) the tax imposed by subparagraph (A) shall
be an amount equal to the excess (if any) of—
‘‘(I) the amount of tax imposed by this para-
graph (determined without regard to this subpara-graph), over26 USC 469 note.
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‘‘(II) the amount of tax paid with respect to
the tax imposed under paragraph (1) or (2) onsuch shaft or component.
‘‘(C) A
RROW .—For purposes of this paragraph, the term
‘arrow’ means any shaft described in paragraph (2) to whichadditional components are attached.’’.
(c) C
ONFORMING AMENDMENTS .—Section 4161(b)(2) is
amended—
(1) by inserting ‘‘(other than broadheads)’’ after ‘‘point’’,
and
(2) by striking ‘‘A RROWS .—’’ in the heading and inserting
‘‘ARROW COMPONENTS .—’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to articles sold by the manufacturer, producer, orimporter after the date which is 30 days after the date of theenactment of this Act.
SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.
(a) I NGENERAL .—Subsection (a) of section 4161 (relating to
sport fishing equipment) is amended by redesignating paragraph(3) as paragraph (4) and by inserting after paragraph (2) the fol-lowing new paragraph:
‘‘(3) 3
PERCENT RATE OF TAX FOR TACKLE BOXES .—In the
case of fishing tackle boxes, paragraph (1) shall be appliedby substituting ‘3 percent’ for ‘10 percent’.’’.(b) E
FFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importerafter December 31, 2004.
SEC. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.
(a) N OTTREATED AS SPORT FISHING EQUIPMENT .—Subsection
(a) of section 4162 (relating to sport fishing equipment defined)is amended by inserting ‘‘and’’ at the end of paragraph (8), bystriking ‘‘, and’’ at the end of paragraph (9) and inserting a period,and by striking paragraph (10).
(b) C
ONFORMING AMENDMENT .—Section 4162 is amended by
striking subsection (b) and by redesignating subsection (c) as sub-section (b).
(c) E
FFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importerafter December 31, 2004.
SEC. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN
EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKANSUBSISTENCE WHALING.
(a) I NGENERAL .—Section 170 (relating to charitable, etc., con-
tributions and gifts), as amended by this Act, is amended by redesig-nating subsection (n) as subsection (o) and by inserting after sub-section (m) the following new subsection:
‘‘(n) E
XPENSES PAID BY CERTAIN WHALING CAPTAINS IN SUPPORT
OFNATIVE ALASKAN SUBSISTENCE WHALING .—
‘‘(1) I N GENERAL .—In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as awhaling captain charged with the responsibility of maintainingand carrying out sanctioned whaling activities and who engagesin such activities during the taxable year, the amount describedin paragraph (2) (to the extent such amount does not exceed26 USC 4162note.26 USC 4161
note.Applicability.26 USC 4161
note.
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$10,000 for the taxable year) shall be treated for purposes
of this section as a charitable contribution.
‘‘(2) A MOUNT DESCRIBED .—
‘‘(A) I N GENERAL .—The amount described in this para-
graph is the aggregate of the reasonable and necessarywhaling expenses paid by the taxpayer during the taxableyear in carrying out sanctioned whaling activities.
‘‘(B) W
HALING EXPENSES .—For purposes of subpara-
graph (A), the term ‘whaling expenses’ includes expensesfor—
‘‘(i) the acquisition and maintenance of whaling
boats, weapons, and gear used in sanctioned whalingactivities,
‘‘(ii) the supplying of food for the crew and other
provisions for carrying out such activities, and
‘‘(iii) storage and distribution of the catch from
such activities.
‘‘(3) S
ANCTIONED WHALING ACTIVITIES .—For purposes of this
subsection, the term ‘sanctioned whaling activities’ meanssubsistence bowhead whale hunting activities conducted pursu-ant to the management plan of the Alaska Eskimo WhalingCommission.
‘‘(4) S
UBSTANTIATION OF EXPENSES .—The Secretary shall
issue guidance requiring that the taxpayer substantiate thewhaling expenses for which a deduction is claimed under thissubsection, including by maintaining appropriate writtenrecords with respect to the time, place, date, amount, andnature of the expense, as well as the taxpayer’s eligibilityfor such deduction, and that (to the extent provided by theSecretary) such substantiation be provided as part of the tax-payer’s return of tax.’’.(b) E
FFECTIVE DATE.—The amendments made by subsection
(a) shall apply to contributions made after December 31, 2004.
SEC. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIR-
CRAFT.
(a) A IRCRAFT TREATED AS QUALIFIED PROPERTY .—
(1) I N GENERAL .—Paragraph (2) of section 168(k) is
amended by redesignating subparagraphs (C) through (F) assubparagraphs (D) through (G), respectively, and by insertingafter subparagraph (B) the following new subparagraph:
‘‘(C) C
ERTAIN AIRCRAFT .—The term ‘qualified property’
includes property—
‘‘(i) which meets the requirements of clauses (ii)
and (iii) of subparagraph (A),
‘‘(ii) which is an aircraft which is not a transpor-
tation property (as defined in subparagraph (B)(iii))other than for agricultural or firefighting purposes,
‘‘(iii) which is purchased and on which such pur-
chaser, at the time of the contract for purchase, hasmade a nonrefundable deposit of the lesser of—
‘‘(I) 10 percent of the cost, or‘‘(II) $100,000, and
‘‘(iv) which has—
‘‘(I) an estimated production period exceeding
4 months, and
‘‘(II) a cost exceeding $200,000.’’.26 USC 170 note.Regulations.
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(2) P LACED IN SERVICE DATE .—Clause (iv) of section
168(k)(2)(A) is amended by striking ‘‘subparagraph (B)’’ andinserting ‘‘subparagraphs (B) and (C)’’.(b) C
ONFORMING AMENDMENTS .—
(1) Section 168(k)(2)(B) is amended by adding at the end
the following new clause:
‘‘(iv) A PPLICATION OF SUBPARAGRAPH .—This
subparagraph shall not apply to any property whichis described in subparagraph (C).’’.
(2) Section 168(k)(4)(A)(ii) is amended by striking ‘‘para-
graph (2)(C)’’ and inserting ‘‘paragraph (2)(D)’’.
(3) Section 168(k)(4)(B)(iii) is amended by inserting ‘‘and
paragraph (2)(C)’’ after ‘‘of this paragraph)’’.
(4) Section 168(k)(4)(C) is amended by striking ‘‘subpara-
graphs (B) and (D)’’ and inserting ‘‘subparagraphs (B), (C),and (E)’’.
(5) Section 168(k)(4)(D) is amended by striking ‘‘Paragraph
(2)(E)’’ and inserting ‘‘Paragraph (2)(F)’’.(c) E
FFECTIVE DATE.—The amendments made by this section
shall take effect as if included in the amendments made by section101 of the Job Creation and Worker Assistance Act of 2002.
SEC. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS
DEPRECIATION PROPERTY.
(a) I NGENERAL .—Subclause (II) of section 168(k)(2)(E)(iii)
(relating to syndication), as amended by the Working FamiliesTax Relief Act of 2004 and as redesignated by this Act, is amendedby inserting before the comma at the end the following: ‘‘(or, inthe case of multiple units of property subject to the same lease,within 3 months after the date the final unit is placed in service,so long as the period between the time the first unit is placedin service and the time the last unit is placed in service doesnot exceed 12 months)’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to property sold after June 4, 2004.
SEC. 338. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING
WITH ENVIRONMENTAL PROTECTION AGENCY SULFURREGULATIONS.
(a) I NGENERAL .—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amendedby inserting after section 179A the following new section:
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COM-
PLYING WITH ENVIRONMENTAL PROTECTION AGENCYSULFUR REGULATIONS.
‘‘(a) A LLOWANCE OF DEDUCTION .—In the case of a small busi-
ness refiner (as defined in section 45H(c)(1)) which elects theapplication of this section, there shall be allowed as a deductionan amount equal to 75 percent of qualified capital costs (as definedin section 45H(c)(2)) which are paid or incurred by the taxpayerduring the taxable year.
‘‘(b) R
EDUCED PERCENTAGE .—In the case of a small business
refiner with average daily domestic refinery runs for the 1-yearperiod ending on December 31, 2002, in excess of 155,000 barrels,the number of percentage points described in subsection (a) shallbe reduced (not below zero) by the product of such number (before26 USC 168 note.26 USC 168 note.
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the application of this subsection) and the ratio of such excess
to 50,000 barrels.
‘‘(c) B ASIS REDUCTION .—
‘‘(1) I N GENERAL .—For purposes of this title, the basis of
any property shall be reduced by the portion of the cost ofsuch property taken into account under subsection (a).
‘‘(2) O
RDINARY INCOME RECAPTURE .—For purposes of section
1245, the amount of the deduction allowable under subsection(a) with respect to any property which is of a character subjectto the allowance for depreciation shall be treated as a deductionallowed for depreciation under section 167.’’.‘‘(d) C
OORDINATION WITH OTHER PROVISIONS .—Section 280B
shall not apply to amounts which are treated as expenses underthis section.’’.
(b) C
ONFORMING AMENDMENTS .—
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ‘‘or’’ at the end of subparagraph (G), by strikingthe period at the end of subparagraph (H) and inserting ‘‘,or’’, and by adding at the end the following new subparagraph:
‘‘(I) expenditures for which a deduction is allowed
under section 179B.’’.(2) Section 263A(c)(3) is amended by inserting ‘‘179B,’’ after
‘‘section’’.
(3) Section 312(k)(3)(B) is amended by striking ‘‘or 179A’’
each place it appears in the heading and text and inserting‘‘179A, or 179B’’.
(4) Section 1016(a) is amended by striking ‘‘and’’ at the
end of paragraph (28), by striking the period at the end ofparagraph (29) and inserting ‘‘, and’’, and by inserting afterparagraph (29) the following new paragraph:
‘‘(30) to the extent provided in section 179B(c).’’.(5) Paragraphs (2)(C) and (3)(C) of section 1245(a) are
each amended by inserting ‘‘179B,’’ after ‘‘179A,’’.
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by insertingafter the item relating to section 179A the following new item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying with Envi-
ronmental Protection Agency sulfur regulations.’’.
(c) E FFECTIVE DATE.—The amendment made by this section
shall apply to expenses paid or incurred after December 31, 2002,in taxable years ending after such date.
SEC. 339. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) I NGENERAL .—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended bythis Act, is amended by inserting after section 45G the followingnew section:
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
‘‘(a) I NGENERAL .—For purposes of section 38, the amount of
the low sulfur diesel fuel production credit determined under thissection with respect to any facility of a small business refineris an amount equal to 5 cents for each gallon of low sulfur dieselfuel produced during the taxable year by such small business refinerat such facility.
‘‘(b) M
AXIMUM CREDIT .—26 USC 179Bnote.
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‘‘(1) I N GENERAL .—The aggregate credit determined under
subsection (a) for any taxable year with respect to any facilityshall not exceed—
‘‘(A) 25 percent of the qualified capital costs incurred
by the small business refiner with respect to such facility,reduced by
‘‘(B) the aggregate credits determined under this sec-
tion for all prior taxable years with respect to such facility.‘‘(2) R
EDUCED PERCENTAGE .—In the case of a small business
refiner with average daily domestic refinery runs for the 1-year period ending on December 31, 2002, in excess of 155,000barrels, the number of percentage points described in paragraph(1) shall be reduced (not below zero) by the product of suchnumber (before the application of this paragraph) and the ratioof such excess to 50,000 barrels.‘‘(c) D
EFINITIONS AND SPECIAL RULE.—For purposes of this
section—
‘‘(1) S MALL BUSINESS REFINER .—The term ‘small business
refiner’ means, with respect to any taxable year, a refinerof crude oil—
‘‘(A) with respect to which not more than 1,500 individ-
uals are engaged in the refinery operations of the businesson any day during such taxable year, and
‘‘(B) the average daily domestic refinery run or average
retained production of which for all facilities of the taxpayerfor the 1-year period ending on December 31, 2002, didnot exceed 205,000 barrels.‘‘(2) Q
UALIFIED CAPITAL COSTS .—The term ‘qualified capital
costs’ means, with respect to any facility, those costs paidor incurred during the applicable period for compliance withthe applicable EPA regulations with respect to such facility,including expenditures for the construction of new process oper-ation units or the dismantling and reconstruction of existingprocess units to be used in the production of low sulfur dieselfuel, associated adjacent or offsite equipment (including tank-age, catalyst, and power supply), engineering, constructionperiod interest, and sitework.
‘‘(3) A
PPLICABLE EPA REGULATIONS .—The term ‘applicable
EPA regulations’ means the Highway Diesel Fuel Sulfur Con-trol Requirements of the Environmental Protection Agency.
‘‘(4) A
PPLICABLE PERIOD .—The term ‘applicable period’
means, with respect to any facility, the period beginning onJanuary 1, 2003, and ending on the earlier of the date whichis 1 year after the date on which the taxpayer must complywith the applicable EPA regulations with respect to such facilityor December 31, 2009.
‘‘(5) L
OW SULFUR DIESEL FUEL .—The term ‘low sulfur diesel
fuel’ means diesel fuel with a sulfur content of 15 parts permillion or less.‘‘(d) R
EDUCTION IN BASIS.—For purposes of this subtitle, if
a credit is determined under this section for any expenditure withrespect to any property, the increase in basis of such propertywhich would (but for this subsection) result from such expenditureshall be reduced by the amount of the credit so determined.
‘‘(e) S
PECIAL RULE FOR DETERMINATION OF REFINERY RUNS.—
For purposes this section and section 179B(b), in the calculationof average daily domestic refinery run or retained production, only
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refineries which on April 1, 2003, were refineries of the refiner
or a related person (within the meaning of section 613A(d)(3)),shall be taken into account.
‘‘(f) C
ERTIFICATION .—
‘‘(1) R EQUIRED .—No credit shall be allowed unless, not later
than the date which is 30 months after the first day of thefirst taxable year in which the low sulfur diesel fuel productioncredit is determined with respect to a facility, the small busi-ness refiner obtains certification from the Secretary, after con-sultation with the Administrator of the Environmental Protec-tion Agency, that the taxpayer’s qualified capital costs withrespect to such facility will result in compliance with theapplicable EPA regulations.
‘‘(2) C
ONTENTS OF APPLICATION .—An application for certifi-
cation shall include relevant information regarding unit capac-ities and operating characteristics sufficient for the Secretary,after consultation with the Administrator of the EnvironmentalProtection Agency, to determine that such qualified capitalcosts are necessary for compliance with the applicable EPAregulations.
‘‘(3) R
EVIEW PERIOD .—Any application shall be reviewed
and notice of certification, if applicable, shall be made within60 days of receipt of such application. In the event the Secretarydoes not notify the taxpayer of the results of such certificationwithin such period, the taxpayer may presume the certificationto be issued until so notified.
‘‘(4) S
TATUTE OF LIMITATIONS .—With respect to the credit
allowed under this section—
‘‘(A) the statutory period for the assessment of any
deficiency attributable to such credit shall not expire beforethe end of the 3-year period ending on the date that thereview period described in paragraph (3) ends with respectto the taxpayer, and
‘‘(B) such deficiency may be assessed before the expira-
tion of such 3-year period notwithstanding the provisionsof any other law or rule of law which would otherwiseprevent such assessment.
‘‘(g) C
OOPERATIVE ORGANIZATIONS .—
‘‘(1) A PPORTIONMENT OF CREDIT .—
‘‘(A) I N GENERAL .—In the case of a cooperative
organization described in section 1381(a), any portion ofthe credit determined under subsection (a) for the taxableyear may, at the election of the organization, be apportionedamong patrons eligible to share in patronage dividendson the basis of the quantity or value of business donewith or for such patrons for the taxable year.
‘‘(B) F
ORM AND EFFECT OF ELECTION .—An election
under subparagraph (A) for any taxable year shall be madeon a timely filed return for such year. Such election, oncemade, shall be irrevocable for such taxable year.‘‘(2) T
REATMENT OF ORGANIZATIONS AND PATRONS .—
‘‘(A) O RGANIZATIONS .—The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shallbe included in the amount determined under subsection(a) for the taxable year of the organization.
‘‘(B) P
ATRONS .—The amount of the credit apportioned
to patrons pursuant to paragraph (1) shall be includedDeadline.Deadline.
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in the amount determined under subsection (a) for the
first taxable year of each patron ending on or after thelast day of the payment period (as defined in section1382(d)) for the taxable year of the organization or, ifearlier, for the taxable year of each patron ending on orafter the date on which the patron receives notice fromthe cooperative of the apportionment.‘‘(3) S
PECIAL RULE .—If the amount of a credit which has
been apportioned to any patron under this subsection isdecreased for any reason—
‘‘(A) such amount shall not increase the tax imposed
on such patron, and
‘‘(B) the tax imposed by this chapter on such organiza-
tion shall be increased by such amount.
The increase under subparagraph (B) shall not be treated astax imposed by this chapter for purposes of determining theamount of any credit under this chapter or for purposes ofsection 55.’’.(b) C
REDIT MADE PART OF GENERAL BUSINESS CREDIT .—Sub-
section (b) of section 38 (relating to general business credit), asamended by this Act, is amended by striking ‘‘plus’’ at the endof paragraph (16), by striking the period at the end of paragraph(17) and inserting ‘‘, plus’’, and by inserting after paragraph (17)the following new paragraph:
‘‘(18) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.(c) D
ENIAL OF DOUBLE BENEFIT .—Section 280C (relating to
certain expenses for which credits are allowable) is amended byadding at the end the following new subsection:
‘‘(d) L
OWSULFUR DIESEL FUELPRODUCTION CREDIT .—No deduc-
tion shall be allowed for that portion of the expenses otherwiseallowable as a deduction for the taxable year which is equal tothe amount of the credit determined for the taxable year undersection 45H(a).’’.
(d) B
ASIS ADJUSTMENT .—Section 1016(a) (relating to adjust-
ments to basis), as amended by this Act, is amended by striking‘‘and’’ at the end of paragraph (29), by striking the period at theend of paragraph (30) and inserting ‘‘, and’’, and by inserting afterparagraph (30) the following new paragraph:
‘‘(31) in the case of a facility with respect to which a
credit was allowed under section 45H, to the extent providedin section 45H(d).’’.(e) D
EDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS .—Sec-
tion 196(c) (defining qualified business credits), as amended bythis Act, is amended by striking ‘‘and’’ at the end of paragraph(10), by striking the period at the end of paragraph (11) andinserting ‘‘, and’’, and by adding after paragraph (11) the followingnew paragraph:
‘‘(12) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.(e) C
LERICAL AMENDMENT .—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by thisAct, is amended by inserting after the item relating to section45G the following new item:
‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.
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(f) E FFECTIVE DATE.—The amendments made by this section
shall apply to expenses paid or incurred after December 31, 2002,in taxable years ending after such date.
SEC. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) I NGENERAL .—Section 144(a)(4) (relating to $10,000,000
limit in certain cases) is amended by adding at the end the followingnew subparagraph:
‘‘(G) A
DDITIONAL CAPITAL EXPENDITURES NOT TAKEN
INTO ACCOUNT .—With respect to bonds issued after Sep-
tember 30, 2009, in addition to any capital expendituredescribed in subparagraph (C), capital expenditures of notto exceed $10,000,000 shall not be taken into account forpurposes of applying subparagraph (A)(ii).’’.
(b) C
ONFORMING AMENDMENT .—Subparagraph (F) of section
144(a)(4) is amended by adding at the end the following new sen-tence: ‘‘This subparagraph shall not apply to bonds issued afterSeptember 30, 2009.’’.
SEC. 341. OIL AND GAS FROM MARGINAL WELLS.
(a) I NGENERAL .—Subpart D of part IV of subchapter A of
chapter 1 (relating to business credits), as amended by this Act,is amended by inserting after section 45H the following:
‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL
WELLS.
‘‘(a) G ENERAL RULE.—For purposes of section 38, the marginal
well production credit for any taxable year is an amount equalto the product of—
‘‘(1) the credit amount, and‘‘(2) the qualified credit oil production and the qualified
natural gas production which is attributable to the taxpayer.‘‘(b) C
REDIT AMOUNT .—For purposes of this section—
‘‘(1) I N GENERAL .—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil production,
and
‘‘(B) 50 cents per 1,000 cubic feet of qualified natural
gas production.‘‘(2) R
EDUCTION AS OIL AND GAS PRICES INCREASE .—
‘‘(A) I N GENERAL .—The $3 and 50 cents amounts under
paragraph (1) shall each be reduced (but not below zero)by an amount which bears the same ratio to such amount(determined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applicable reference
price over $15 ($1.67 for qualified natural gas produc-tion), bears to
‘‘(ii) $3 ($0.33 for qualified natural gas production).
The applicable reference price for a taxable year is thereference price of the calendar year preceding the calendaryear in which the taxable year begins.
‘‘(B) I
NFLATION ADJUSTMENT .—In the case of any tax-
able year beginning in a calendar year after 2005, eachof the dollar amounts contained in subparagraph (A) shallbe increased to an amount equal to such dollar amountmultiplied by the inflation adjustment factor for such cal-endar year (determined under section 43(b)(3)(B) by sub-stituting ‘2004’ for ‘1990’).26 USC 38 note.
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‘‘(C) R EFERENCE PRICE .—For purposes of this para-
graph, the term ‘reference price’ means, with respect toany calendar year—
‘‘(i) in the case of qualified crude oil production,
the reference price determined under section29(d)(2)(C), and
‘‘(ii) in the case of qualified natural gas production,
the Secretary’s estimate of the annual average well-head price per 1,000 cubic feet for all domestic naturalgas.
‘‘(c) Q
UALIFIED CRUDE OIL AND NATURAL GASPRODUCTION .—
For purposes of this section—
‘‘(1) I N GENERAL .—The terms ‘qualified crude oil production’
and ‘qualified natural gas production’ mean domestic crudeoil or natural gas which is produced from a qualified marginalwell.
‘‘(2) L
IMITATION ON AMOUNT OF PRODUCTION WHICH MAY
QUALIFY .—
‘‘(A) I N GENERAL .—Crude oil or natural gas produced
during any taxable year from any well shall not be treatedas qualified crude oil production or qualified natural gasproduction to the extent production from the well duringthe taxable year exceeds 1,095 barrels or barrel-of-oilequivalents (as defined in section 29(d)(5)).
‘‘(B) P
ROPORTIONATE REDUCTIONS .—
‘‘(i) S HORT TAXABLE YEARS .—In the case of a short
taxable year, the limitations under this paragraphshall be proportionately reduced to reflect the ratiowhich the number of days in such taxable year bearsto 365.
‘‘(ii) W
ELLS NOT IN PRODUCTION ENTIRE YEAR .—
In the case of a well which is not capable of productionduring each day of a taxable year, the limitationsunder this paragraph applicable to the well shall beproportionately reduced to reflect the ratio which thenumber of days of production bears to the total numberof days in the taxable year.
‘‘(3) D
EFINITIONS .—
‘‘(A) Q UALIFIED MARGINAL WELL .—The term ‘qualified
marginal well’ means a domestic well—
‘‘(i) the production from which during the taxable
year is treated as marginal production under section613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production of not more
than 25 barrel-of-oil equivalents (as so defined),
and
‘‘(II) produces water at a rate not less than
95 percent of total well effluent.
‘‘(B) C
RUDE OIL , ETC.—The terms ‘crude oil’, ‘natural
gas’, ‘domestic’, and ‘barrel’ have the meanings given suchterms by section 613A(e).
‘‘(d) O
THER RULES .—
‘‘(1) P RODUCTION ATTRIBUTABLE TO THE TAXPAYER .—In the
case of a qualified marginal well in which there is more thanone owner of operating interests in the well and the crude
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oil or natural gas production exceeds the limitation under sub-
section (c)(2), qualifying crude oil production or qualifying nat-ural gas production attributable to the taxpayer shall be deter-mined on the basis of the ratio which taxpayer’s revenueinterest in the production bears to the aggregate of the revenueinterests of all operating interest owners in the production.
‘‘(2) O
PERATING INTEREST REQUIRED .—Any credit under this
section may be claimed only on production which is attributableto the holder of an operating interest.
‘‘(3) P
RODUCTION FROM NONCONVENTIONAL SOURCES
EXCLUDED .—In the case of production from a qualified marginal
well which is eligible for the credit allowed under section 29for the taxable year, no credit shall be allowable under thissection unless the taxpayer elects not to claim the credit undersection 29 with respect to the well.’’.(b) C
REDIT TREATED AS BUSINESS CREDIT .—Section 38(b), as
amended by this Act, is amended by striking ‘‘plus’’ at the endof paragraph (17), by striking the period at the end of paragraph(18) and inserting ‘‘, plus’’, and by inserting after paragraph (18)the following:
‘‘(19) the marginal oil and gas well production credit deter-
mined under section 45I(a).’’.(c) C
ARRYBACK .—Subsection (a) of section 39 (relating to
carryback and carryforward of unused credits generally) is amendedby adding at the end the following:
‘‘(3) 5-
YEAR CARRYBACK FOR MARGINAL OIL AND GAS WELL
PRODUCTION CREDIT .—Notwithstanding subsection (d), in the
case of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied separately from the
business credit (other than the marginal oil and gas wellproduction credit),
‘‘(B) paragraph (1) shall be applied by substituting
‘5 taxable years’ for ‘1 taxable years’ in subparagraph (A)thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘25 taxable years’ for ‘21 taxable
years’ in subparagraph (A) thereof, and
‘‘(ii) by substituting ‘24 taxable years’ for ‘20 tax-
able years’ in subparagraph (B) thereof.’’.
(d) C
LERICAL AMENDMENT .—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by thisAct, is amended by inserting after section 45H the following:
‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to production in taxable years beginning after December31, 2004.26 USC 38 note.Applicability.
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TITLE IV—TAX REFORM AND SIM-
PLIFICATION FOR UNITED STATESBUSINESSES
SEC. 401. INTEREST EXPENSE ALLOCATION RULES.
(a) E LECTION TOALLOCATE ON WORLDWIDE BASIS.—Section
864 is amended by redesignating subsection (f) as subsection (g)and by inserting after subsection (e) the following new subsection:
‘‘(f) E
LECTION TOALLOCATE INTEREST , ETC. ONWORLDWIDE
BASIS.—For purposes of this subchapter, at the election of the
worldwide affiliated group—
‘‘(1) A LLOCATION AND APPORTIONMENT OF INTEREST
EXPENSE .—
‘‘(A) I N GENERAL .—The taxable income of each domestic
corporation which is a member of a worldwide affiliated
group shall be determined by allocating and apportioninginterest expense of each member as if all members ofsuch group were a single corporation.
‘‘(B) T
REATMENT OF WORLDWIDE AFFILIATED GROUP .—
The taxable income of the domestic members of a worldwideaffiliated group from sources outside the United Statesshall be determined by allocating and apportioning theinterest expense of such domestic members to such incomein an amount equal to the excess (if any) of—
‘‘(i) the total interest expense of the worldwide
affiliated group multiplied by the ratio which the for-eign assets of the worldwide affiliated group bearsto all the assets of the worldwide affiliated group,over
‘‘(ii) the interest expense of all foreign corporations
which are members of the worldwide affiliated groupto the extent such interest expense of such foreigncorporations would have been allocated and appor-tioned to foreign source income if this subsection wereapplied to a group consisting of all the foreign corpora-tions in such worldwide affiliated group.‘‘(C) W
ORLDWIDE AFFILIATED GROUP .—For purposes of
this paragraph, the term ‘worldwide affiliated group’ meansa group consisting of—
‘‘(i) the includible members of an affiliated group
(as defined in section 1504(a), determined withoutregard to paragraphs (2) and (4) of section 1504(b)),and
‘‘(ii) all controlled foreign corporations in which
such members in the aggregate meet the ownershiprequirements of section 1504(a)(2) either directly orindirectly through applying paragraph (2) of section958(a) or through applying rules similar to the rulesof such paragraph to stock owned directly or indirectlyby domestic partnerships, trusts, or estates.
‘‘(2) A
LLOCATION AND APPORTIONMENT OF OTHER
EXPENSES .—Expenses other than interest which are not directly
allocable or apportioned to any specific income producingactivity shall be allocated and apportioned as if all membersof the affiliated group were a single corporation. For purposes
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of the preceding sentence, the term ‘affiliated group’ has the
meaning given such term by section 1504 (determined withoutregard to paragraph (4) of section 1504(b)).
‘‘(3) T
REATMENT OF TAX -EXEMPT ASSETS ; BASIS OF STOCK
IN NONAFFILIATED 10 -PERCENT OWNED CORPORATIONS .—The
rules of paragraphs (3) and (4) of subsection (e) shall applyfor purposes of this subsection, except that paragraph (4) shallbe applied on a worldwide affiliated group basis.
‘‘(4) T
REATMENT OF CERTAIN FINANCIAL INSTITUTIONS .—
‘‘(A) I N GENERAL .—For purposes of paragraph (1), any
corporation described in subparagraph (B) shall be treatedas an includible corporation for purposes of section 1504only for purposes of applying this subsection separatelyto corporations so described.
‘‘(B) D
ESCRIPTION .—A corporation is described in this
subparagraph if—
‘‘(i) such corporation is a financial institution
described in section 581 or 591,
‘‘(ii) the business of such financial institution is
predominantly with persons other than related persons(within the meaning of subsection (d)(4)) or their cus-tomers, and
‘‘(iii) such financial institution is required by State
or Federal law to be operated separately from anyother entity which is not such an institution.‘‘(C) T
REATMENT OF BANK AND FINANCIAL HOLDING
COMPANIES .—To the extent provided in regulations—
‘‘(i) a bank holding company (within the meaning
of section 2(a) of the Bank Holding Company Act of1956 (12 U.S.C. 1841(a)),
‘‘(ii) a financial holding company (within the
meaning of section 2(p) of the Bank Holding CompanyAct of 1956 (12 U.S.C. 1841(p)), and
‘‘(iii) any subsidiary of a financial institution
described in section 581 or 591, or of any such bankor financial holding company, if such subsidiary ispredominantly engaged (directly or indirectly) in theactive conduct of a banking, financing, or similar busi-ness,
shall be treated as a corporation described in subparagraph(B).‘‘(5) E
LECTION TO EXPAND FINANCIAL INSTITUTION GROUP
OF WORLDWIDE GROUP .—
‘‘(A) I N GENERAL .—If a worldwide affiliated group elects
the application of this subsection, all financial corporationswhich—
‘‘(i) are members of such worldwide affiliated
group, but
‘‘(ii) are not corporations described in paragraph
(4)(B),
shall be treated as described in paragraph (4)(B) for pur-poses of applying paragraph (4)(A). This subsection (otherthan this paragraph) shall apply to any such group inthe same manner as this subsection (other than this para-graph) applies to the pre-election worldwide affiliated groupof which such group is a part.
Applicability.Applicability.
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‘‘(B) F INANCIAL CORPORATION .—For purposes of this
paragraph, the term ‘financial corporation’ means any cor-poration if at least 80 percent of its gross income is incomedescribed in section 904(d)(2)(D)(ii) and the regulationsthereunder which is derived from transactions with personswho are not related (within the meaning of section 267(b)or 707(b)(1)) to the corporation. For purposes of the pre-ceding sentence, there shall be disregarded any item ofincome or gain from a transaction or series of transactionsa principal purpose of which is the qualification of anycorporation as a financial corporation.
‘‘(C) A
NTI-ABUSE RULES .—In the case of a corporation
which is a member of an electing financial institutiongroup, to the extent that such corporation—
‘‘(i) distributes dividends or makes other distribu-
tions with respect to its stock after the date of theenactment of this paragraph to any member of thepre-election worldwide affiliated group (other than toa member of the electing financial institution group)in excess of the greater of—
‘‘(I) its average annual dividend (expressed as
a percentage of current earnings and profits)during the 5-taxable-year period ending with thetaxable year preceding the taxable year, or
‘‘(II) 25 percent of its average annual earnings
and profits for such 5-taxable-year period, or‘‘(ii) deals with any person in any manner not
clearly reflecting the income of the corporation (asdetermined under principles similar to the principlesof section 482),
an amount of indebtedness of the electing financial institu-tion group equal to the excess distribution or the under-statement or overstatement of income, as the case maybe, shall be recharacterized (for the taxable year and subse-quent taxable years) for purposes of this paragraph asindebtedness of the worldwide affiliated group (excludingthe electing financial institution group). If a corporationhas not been in existence for 5 taxable years, this subpara-graph shall be applied with respect to the period it wasin existence.
‘‘(D) E
LECTION .—An election under this paragraph with
respect to any financial institution group may be madeonly by the common parent of the pre-election worldwideaffiliated group and may be made only for the first taxableyear beginning after December 31, 2008, in which suchaffiliated group includes 1 or more financial corporations.
Such an election, once made, shall apply to all financialcorporations which are members of the electing financialinstitution group for such taxable year and all subsequentyears unless revoked with the consent of the Secretary.
‘‘(E) D
EFINITIONS RELATING TO GROUPS .—For purposes
of this paragraph—
‘‘(i) P RE-ELECTION WORLDWIDE AFFILIATED
GROUP .—The term ‘pre-election worldwide affiliated
group’ means, with respect to a corporation, the world-wide affiliated group of which such corporation wouldApplicability.
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(but for an election under this paragraph) be a member
for purposes of applying paragraph (1).
‘‘(ii) E LECTING FINANCIAL INSTITUTION GROUP .—
The term ‘electing financial institution group’ meansthe group of corporations to which this subsectionapplies separately by reason of the application of para-graph (4)(A) and which includes financial corporationsby reason of an election under subparagraph (A).‘‘(F) R
EGULATIONS .—The Secretary shall prescribe such
regulations as may be appropriate to carry out this sub-section, including regulations—
‘‘(i) providing for the direct allocation of interest
expense in other circumstances where such allocationwould be appropriate to carry out the purposes ofthis subsection,
‘‘(ii) preventing assets or interest expense from
being taken into account more than once, and
‘‘(iii) dealing with changes in members of any group
(through acquisitions or otherwise) treated under thisparagraph as an affiliated group for purposes of thissubsection.
‘‘(6) E
LECTION .—An election to have this subsection apply
with respect to any worldwide affiliated group may be madeonly by the common parent of the domestic affiliated groupreferred to in paragraph (1)(C) and may be made only forthe first taxable year beginning after December 31, 2008, inwhich a worldwide affiliated group exists which includes suchaffiliated group and at least 1 foreign corporation. Such anelection, once made, shall apply to such common parent andall other corporations which are members of such worldwideaffiliated group for such taxable year and all subsequent yearsunless revoked with the consent of the Secretary.’’.(b) E
XPANSION OF REGULATORY AUTHORITY .—Paragraph (7) of
section 864(e) is amended—
(1) by inserting before the comma at the end of subpara-
graph (B) ‘‘and in other circumstances where such allocationwould be appropriate to carry out the purposes of this sub-section’’, and
(2) by striking ‘‘and’’ at the end of subparagraph (E), by
redesignating subparagraph (F) as subparagraph (G), and byinserting after subparagraph (E) the following new subpara-graph:
‘‘(F) preventing assets or interest expense from being
taken into account more than once, and’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2008.
SEC. 402. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) G ENERAL RULE.—Section 904 is amended by redesignating
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), (k),and (l) respectively, and by inserting after subsection (f) the fol-lowing new subsection:
‘‘(g) R
ECHARACTERIZATION OF OVERALL DOMESTIC LOSS.—
‘‘(1) G ENERAL RULE .—For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an overalldomestic loss for any taxable year beginning after December31, 2006, that portion of the taxpayer’s taxable income from26 USC 864 note.Applicability.
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sources within the United States for each succeeding taxable
year which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent not used
under this paragraph in prior taxable years), or
‘‘(B) 50 percent of the taxpayer’s taxable income from
sources within the United States for such succeeding tax-able year,
shall be treated as income from sources without the UnitedStates (and not as income from sources within the UnitedStates).
‘‘(2) O
VERALL DOMESTIC LOSS DEFINED .—For purposes of
this subsection—
‘‘(A) I N GENERAL .—The term ‘overall domestic loss’
means any domestic loss to the extent such loss offsetstaxable income from sources without the United Statesfor the taxable year or for any preceding taxable yearby reason of a carryback. For purposes of the precedingsentence, the term ‘domestic loss’ means the amount bywhich the gross income for the taxable year from sourceswithin the United States is exceeded by the sum of thedeductions properly apportioned or allocated thereto (deter-mined without regard to any carryback from a subsequenttaxable year).
‘‘(B) T
AXPAYER MUST HAVE ELECTED FOREIGN TAX
CREDIT FOR YEAR OF LOSS .—The term ‘overall domestic
loss’ shall not include any loss for any taxable year unlessthe taxpayer chose the benefits of this subpart for suchtaxable year.‘‘(3) C
HARACTERIZATION OF SUBSEQUENT INCOME .—
‘‘(A) I N GENERAL .—Any income from sources within
the United States that is treated as income from sourceswithout the United States under paragraph (1) shall beallocated among and increase the income categories inproportion to the loss from sources within the United Statespreviously allocated to those income categories.
‘‘(B) I
NCOME CATEGORY .—For purposes of this para-
graph, the term ‘income category’ has the meaning givensuch term by subsection (f)(5)(E)(i).‘‘(4) C
OORDINATION WITH SUBSECTION (f).—The Secretary
shall prescribe such regulations as may be necessary to coordi-nate the provisions of this subsection with the provisions ofsubsection (f).’’.(b) C
ONFORMING AMENDMENTS .—
(1) Section 535(d)(2) is amended by striking ‘‘section
904(g)(6)’’ and inserting ‘‘section 904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is amended by
striking ‘‘section 904(f)’’ and inserting ‘‘subsections (f) and (g)of section 904’’.(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to losses for taxable years beginning after December31, 2006.
SEC. 403. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCON-
TROLLED SECTION 902 CORPORATIONS.
(a) I NGENERAL .—Section 904(d)(4) (relating to look-thru rules
apply to dividends from noncontrolled section 902 corporations)is amended to read as follows:26 USC 535 note.Regulations.
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‘‘(4) L OOK-THRU APPLIES TO DIVIDENDS FROM NONCON –
TROLLED SECTION 902 CORPORATIONS .—
‘‘(A) I N GENERAL .—For purposes of this subsection, any
dividend from a noncontrolled section 902 corporation withrespect to the taxpayer shall be treated as income describedin a subparagraph of paragraph (1) in proportion to theratio of—
‘‘(i) the portion of earnings and profits attributable
to income described in such subparagraph, to
‘‘(ii) the total amount of earnings and profits.
‘‘(B) E
ARNINGS AND PROFITS OF CONTROLLED FOREIGN
CORPORATIONS .—In the case of any distribution from a
controlled foreign corporation to a United States share-holder, rules similar to the rules of subparagraph (A) shallapply in determining the extent to which earnings andprofits of the controlled foreign corporation which areattributable to dividends received from a noncontrolled sec-tion 902 corporation may be treated as income in a separatecategory.
‘‘(C) S
PECIAL RULES .—For purposes of this paragraph—
‘‘(i) E ARNINGS AND PROFITS .—
‘‘(I) I N GENERAL .—The rules of section 316
shall apply.
‘‘(II) R EGULATIONS .—The Secretary may pre-
scribe regulations regarding the treatment of dis-tributions out of earnings and profits for periodsbefore the taxpayer’s acquisition of the stock towhich the distributions relate.‘‘(ii) I
NADEQUATE SUBSTANTIATION .—If the Sec-
retary determines that the proper subparagraph ofparagraph (1) in which a dividend is described hasnot been substantiated, such dividend shall be treatedas income described in paragraph (1)(A).
‘‘(iii) C
OORDINATION WITH HIGH -TAXED INCOME
PROVISIONS .—Rules similar to the rules of paragraph
(3)(F) shall apply for purposes of this paragraph.
‘‘(iv) L OOK-THRU WITH RESPECT TO CARRYOVER OF
CREDIT .—Rules similar to subparagraph (A) also shall
apply to any carryforward under subsection (c) froma taxable year beginning before January 1, 2003, oftax allocable to a dividend from a noncontrolled section902 corporation with respect to the taxpayer. The Sec-retary may by regulations provide for the allocationof any carryback of tax allocable to a dividend froma noncontrolled section 902 corporation from a taxableyear beginning on or after January 1, 2003, to a taxableyear beginning before such date for purposes of allo-cating such dividend among the separate categoriesin effect for the taxable year to which carried.’’.
(b) C
ONFORMING AMENDMENTS .—
(1) Subparagraph (E) of section 904(d)(1) is hereby repealed.(2) Section 904(d)(2)(C)(iii) is amended by adding ‘‘and’’
at the end of subclause (I), by striking subclause (II), andby redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is amended
to read as follows: ‘‘Such term does not include any financialservices income.’’.
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(4) Section 904(d)(2)(E) is amended—
(A) by inserting ‘‘or (4)’’ after ‘‘paragraph (3)’’ in clause
(i), and
(B) by striking clauses (ii) and (iv) and by redesignating
clause (iii) as clause (ii).(5) Section 904(d)(3)(F) is amended by striking ‘‘(D), or
(E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by striking
‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 404. REDUCTION TO 2 FOREIGN TAX CREDIT BASKETS.
(a) I NGENERAL .—Paragraph (1) of section 904(d) (relating to
separate application of section with respect to certain categoriesof income) is amended to read as follows:
‘‘(1) I
N GENERAL .—The provisions of subsections (a), (b),
and (c) and sections 902, 907, and 960 shall be applied sepa-rately with respect to—
‘‘(A) passive category income, and‘‘(B) general category income.’’.
(b) C
ATEGORIES .—Paragraph (2) of section 904(d) is amended
by striking subparagraph (B), by redesignating subparagraph (A)as subparagraph (B), and by inserting before subparagraph (B)(as so redesignated) the following new subparagraph:
‘‘(A) C
ATEGORIES .—
‘‘(i) P ASSIVE CATEGORY INCOME .—The term ‘passive
category income’ means passive income and specifiedpassive category income.
‘‘(ii) G
ENERAL CATEGORY INCOME .—The term ‘gen-
eral category income’ means income other than passivecategory income.’’.
(c) S
PECIFIED PASSIVE CATEGORY INCOME .—Subparagraph (B)
of section 904(d)(2), as so redesignated, is amended by addingat the end the following new clause:
‘‘(v) S
PECIFIED PASSIVE CATEGORY INCOME .—The
term ‘specified passive category income’ means—
‘‘(I) dividends from a DISC or former DISC
(as defined in section 992(a)) to the extent suchdividends are treated as income from sources with-out the United States,
‘‘(II) taxable income attributable to foreign
trade income (within the meaning of section923(b)), and
‘‘(III) distributions from a FSC (or a former
FSC) out of earnings and profits attributable toforeign trade income (within the meaning of sec-tion 923(b)) or interest or carrying charges (asdefined in section 927(d)(1)) derived from a trans-action which results in foreign trade income (asdefined in section 923(b)).’’.
(d) T
REATMENT OF FINANCIAL SERVICES .—Paragraph (2) of sec-
tion 904(d), as amended by section 403(b)(3), is amended by strikingsubparagraph (D), by redesignating subparagraph (C) as subpara-graph (D), and by inserting before subparagraph (D) (as so redesig-nated) the following new subparagraph:Applicability.26 USC 864 note.
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‘‘(C) T REATMENT OF FINANCIAL SERVICES INCOME AND
COMPANIES .—
‘‘(i) I N GENERAL .—Financial services income shall
be treated as general category income in the case of—
‘‘(I) a member of a financial services group,
and
‘‘(II) any other person if such person is
predominantly engaged in the active conduct ofa banking, insurance, financing, or similar busi-ness.‘‘(ii) F
INANCIAL SERVICES GROUP .—The term ‘finan-
cial services group’ means any affiliated group (asdefined in section 1504(a) without regard to paragraphs(2) and (3) of section 1504(b)) which is predominantlyengaged in the active conduct of a banking, insurance,financing, or similar business. In determining whethersuch a group is so engaged, there shall be taken intoaccount only the income of members of the group thatare—
‘‘(I) United States corporations, or‘‘(II) controlled foreign corporations in which
such United States corporations own, directly orindirectly, at least 80 percent of the total votingpower and value of the stock.‘‘(iii) P
ASS-THRU ENTITIES .—The Secretary shall by
regulation specify for purposes of this subparagraphthe treatment of financial services income received oraccrued by partnerships and by other pass-thru entitieswhich are not members of a financial services group.’’.
(e) T
REATMENT OF INCOME TAXBASEDIFFERENCES .—Paragraph
(2) of section 904(d) is amended by redesignating subparagraphs(H) and (I) as subparagraphs (I) and (J), respectively, and byinserting after subparagraph (G) the following new subparagraph:
‘‘(H) T
REATMENT OF INCOME TAX BASE DIFFERENCES .—
‘‘(i) I N GENERAL .—In the case of taxable years
beginning after December 31, 2006, tax imposed underthe law of a foreign country or possession of the UnitedStates on an amount which does not constitute incomeunder United States tax principles shall be treatedas imposed on income described in paragraph (1)(B).
‘‘(ii) S
PECIAL RULE FOR YEARS BEFORE 2007 .—
‘‘(I) I N GENERAL .—In the case of taxes paid
or accrued in taxable years beginning afterDecember 31, 2004, and before January 1, 2007,a taxpayer may elect to treat tax imposed underthe law of a foreign country or possession of the
United States on an amount which does not con-stitute income under United States tax principlesas tax imposed on income described in subpara-graph (C) or (I) of paragraph (1).
‘‘(II) E
LECTION IRREVOCABLE .—Any such elec-
tion shall apply to the taxable year for which madeand all subsequent taxable years described in sub-clause (I) unless revoked with the consent of theSecretary.’’.
(f) C
ONFORMING AMENDMENTS .—Applicability.Regulations.
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(1) Clause (iii) of section 904(d)(2)(B) (relating to exceptions
from passive income), as so redesignated, is amended bystriking subclause (I) and by redesignating subclauses (II) and(III) as subclauses (I) and (II), respectively.
(2) Clause (i) of section 904(d)(2)(D) (defining financial
services income), as so redesignated, is amended by adding‘‘or’’ at the end of subclause (I) and by striking subclauses(II) and (III) and inserting the following new subclause:
‘‘(II) passive income (determined without
regard to subparagraph (B)(iii)(II)).’’.
(3) Section 904(d)(2)(D) (defining financial services income),
as so redesignated and amended by section 404(b)(3), isamended by striking clause (iii).
(4) Paragraph (3) of section 904(d) is amended to read
as follows:
‘‘(3) L
OOK-THRU IN CASE OF CONTROLLED FOREIGN CORPORA –
TIONS .—
‘‘(A) I N GENERAL .—Except as otherwise provided in
this paragraph, dividends, interest, rents, and royaltiesreceived or accrued by the taxpayer from a controlled for-eign corporation in which the taxpayer is a United Statesshareholder shall not be treated as passive category income.
‘‘(B) S
UBPART F INCLUSIONS .—Any amount included in
gross income under section 951(a)(1)(A) shall be treatedas passive category income to the extent the amount soincluded is attributable to passive category income.
‘‘(C) I
NTEREST , RENTS , AND ROYALTIES .—Any interest,
rent, or royalty which is received or accrued from a con-trolled foreign corporation in which the taxpayer is aUnited States shareholder shall be treated as passive cat-egory income to the extent it is properly allocable (underregulations prescribed by the Secretary) to passive categoryincome of the controlled foreign corporation.
‘‘(D) D
IVIDENDS .—Any dividend paid out of the earnings
and profits of any controlled foreign corporation in whichthe taxpayer is a United States shareholder shall be treatedas passive category income in proportion to the ratio of—
‘‘(i) the portion of the earnings and profits attrib-
utable to passive category income, to
‘‘(ii) the total amount of earnings and profits.
‘‘(E) L
OOK-THRU APPLIES ONLY WHERE SUBPART F
APPLIES .—If a controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de minimisrule) for any taxable year, for purposes of this paragraph,none of its foreign base company income (as defined insection 954(a) without regard to section 954(b)(5)) and noneof its gross insurance income (as defined in section954(b)(3)(C)) for such taxable year shall be treated as pas-sive category income, except that this sentence shall notapply to any income which (without regard to this sentence)would be treated as financial services income. Solely forpurposes of applying subparagraph (D), passive incomeof a controlled foreign corporation shall not be treatedas passive category income if the requirements of section954(b)(4) are met with respect to such income.
‘‘(F) C
OORDINATION WITH HIGH -TAXED INCOME PROVI –
SIONS .—Regulations.
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‘‘(i) In determining whether any income of a con-
trolled foreign corporation is passive category income,subclause (II) of paragraph (2)(B)(iii) shall not apply.
‘‘(ii) Any income of the taxpayer which is treated
as passive category income under this paragraph shallbe so treated notwithstanding any provision of para-graph (2); except that the determination of whetherany amount is high-taxed income shall be made afterthe application of this paragraph.‘‘(G) D
IVIDEND .—For purposes of this paragraph, the
term ‘dividend’ includes any amount included in grossincome in section 951(a)(1)(B). Any amount included ingross income under section 78 to the extent attributableto amounts included in gross income in section 951(a)(1)(A)shall not be treated as a dividend but shall be treatedas included in gross income under section 951(a)(1)(A).
‘‘(H) L
OOK-THRU APPLIES TO PASSIVE FOREIGN INVEST –
MENT COMPANY INCLUSION .—If—
‘‘(i) a passive foreign investment company is a
controlled foreign corporation, and
‘‘(ii) the taxpayer is a United States shareholder
in such controlled foreign corporation,
any amount included in gross income under section 1293shall be treated as income in a separate category to theextent such amount is attributable to income in such cat-egory.’’.(5) Paragraph (2) of section 904(d) is amended by adding
at the end the following new subparagraph:
‘‘(K) T
RANSITIONAL RULES FOR 2007 CHANGES .—For pur-
poses of paragraph (1)—
‘‘(i) taxes carried from any taxable year beginning
before January 1, 2007, to any taxable year beginningon or after such date, with respect to any item ofincome, shall be treated as described in the subpara-graph of paragraph (1) in which such income wouldbe described were such taxes paid or accrued in ataxable year beginning on or after such date, and
‘‘(ii) the Secretary may by regulations provide for
the allocation of any carryback of taxes with respectto income from a taxable year beginning on or afterJanuary 1, 2007, to a taxable year beginning beforesuch date for purposes of allocating such income amongthe separate categories in effect for the taxable yearto which carried.’’.
(6) Section 904(j)(3)(A)(i) is amended by striking ‘‘subsection
(d)(2)(A)’’ and inserting ‘‘subsection (d)(2)(B)’’.(g) E
FFECTIVE DATES .—
(1) I N GENERAL .—The amendments made by this section
shall apply to taxable years beginning after December 31, 2006.
(2) T RANSITIONAL RULE RELATING TO INCOME TAX BASE DIF –
FERENCE .—Section 904(d)(2)(H)(ii) of the Internal Revenue Code
of 1986, as added by subsection (e), shall apply to taxableyears beginning after December 31, 2004.26 USC 904 note.
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SEC. 405. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNER-
SHIPS TO APPLY IN DETERMINING SECTION 902 AND 960CREDITS.
(a) I NGENERAL .—Subsection (c) of section 902 is amended
by redesignating paragraph (7) as paragraph (8) and by insertingafter paragraph (6) the following new paragraph:
‘‘(7) C
ONSTRUCTIVE OWNERSHIP THROUGH PARTNERSHIPS .—
Stock owned, directly or indirectly, by or for a partnershipshall be considered as being owned proportionately by its part-ners. Stock considered to be owned by a person by reasonof the preceding sentence shall, for purposes of applying suchsentence, be treated as actually owned by such person. TheSecretary may prescribe such regulations as may be necessaryto carry out the purposes of this paragraph, including rulesto account for special partnership allocations of dividends,credits, and other incidents of ownership of stock in determiningproportionate ownership.’’.(b) C
LARIFICATION OF COMPARABLE ATTRIBUTION UNDER SEC-
TION 901(b)(5).—Paragraph (5) of section 901(b) is amended by
striking ‘‘any individual’’ and inserting ‘‘any person’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxes of foreign corporations for taxable years ofsuch corporations beginning after the date of the enactment ofthis Act.
SEC. 406. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS
OF INTANGIBLE PROPERTY.
(a) I NGENERAL .—Subparagraph (C) of section 367(d)(2) is
amended by adding at the end the following new sentence: ‘‘Forpurposes of applying section 904(d), any such amount shall betreated in the same manner as if such amount were a royalty.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to amounts treated as received pursuant to section367(d)(2) of the Internal Revenue Code of 1986 on or after August5, 1997.
SEC. 407. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN
ASSETS OF CONTROLLED FOREIGN CORPORATION.
(a) I NGENERAL .—Section 956(c)(2) (relating to exceptions from
property treated as United States property) is amended by striking‘‘and’’ at the end of subparagraph (J), by striking the period atthe end of subparagraph (K) and inserting a semicolon, and byadding at the end the following new subparagraphs:
‘‘(L) securities acquired and held by a controlled foreign
corporation in the ordinary course of its business as adealer in securities if—
‘‘(i) the dealer accounts for the securities as securi-
ties held primarily for sale to customers in the ordinarycourse of business, and
‘‘(ii) the dealer disposes of the securities (or such
securities mature while held by the dealer) withina period consistent with the holding of securities forsale to customers in the ordinary course of business;and‘‘(M) an obligation of a United States person which—
‘‘(i) is not a domestic corporation, and‘‘(ii) is not—26 USC 367 note.26 USC 901 note.
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‘‘(I) a United States shareholder (as defined
in section 951(b)) of the controlled foreign corpora-tion, or
‘‘(II) a partnership, estate, or trust in which
the controlled foreign corporation, or any relatedperson (as defined in section 954(d)(3)), is apartner, beneficiary, or trustee immediately afterthe acquisition of any obligation of such partner-ship, estate, or trust by the controlled foreign cor-poration.’’.
(b) C
ONFORMING AMENDMENT .—Section 956(c)(2) is amended
by striking ‘‘and (K)’’ in the last sentence and inserting ‘‘, (K),and (L)’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning afterDecember 31, 2004, and to taxable years of United States share-holders with or within which such taxable years of foreign corpora-tions end.
SEC. 408. TRANSLATION OF FOREIGN TAXES.
(a) E LECTIVE EXCEPTION FOR TAXES PAIDOTHER THAN IN FUNC-
TIONAL CURRENCY .—Paragraph (1) of section 986(a) (relating to
determination of foreign taxes and foreign corporation’s earningsand profits) is amended by redesignating subparagraph (D) assubparagraph (E) and by inserting after subparagraph (C) the fol-lowing new subparagraph:
‘‘(D) E
LECTIVE EXCEPTION FOR TAXES PAID OTHER THAN
IN FUNCTIONAL CURRENCY .—
‘‘(i) I N GENERAL .—At the election of the taxpayer,
subparagraph (A) shall not apply to any foreign incometaxes the liability for which is denominated in anycurrency other than in the taxpayer’s functional cur-rency.
‘‘(ii) A
PPLICATION TO QUALIFIED BUSINESS UNITS .—
An election under this subparagraph may apply toforeign income taxes attributable to a qualified busi-ness unit in accordance with regulations prescribedby the Secretary.
‘‘(iii) E
LECTION .—Any such election shall apply to
the taxable year for which made and all subsequenttaxable years unless revoked with the consent of theSecretary.’’.
(b) S
PECIAL RULE FOR REGULATED INVESTMENT COMPANIES .—
(1) I N GENERAL .—Section 986(a)(1), as amended by sub-
section (a), is amended by redesignating subparagraph (E) assubparagraph (F) and by inserting after subparagraph (D) thefollowing:
‘‘(E) S
PECIAL RULE FOR REGULATED INVESTMENT COMPA –
NIES.—In the case of a regulated investment company
which takes into account income on an accrual basis, sub-paragraphs (A) through (D) shall not apply and foreignincome taxes paid or accrued with respect to such incomeshall be translated into dollars using the exchange rateas of the date the income accrues.’’.(2) C
ONFORMING AMENDMENT .—Section 986(a)(2) is
amended by inserting ‘‘or (E)’’ after ‘‘subparagraph (A)’’.Applicability.26 USC 956 note.
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(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 409. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CER-
TAIN FOREIGN CORPORATIONS.
(a) I NGENERAL .—Paragraph (2) of section 871(i) (relating to
tax not to apply to certain interest and dividends) is amendedby adding at the end the following new subparagraph:
‘‘(D) Dividends paid by a foreign corporation which
are treated under section 861(a)(2)(B) as income fromsources within the United States.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to payments made after December 31, 2004.
SEC. 410. EQUAL TREATMENT OF INTEREST PAID BY FOREIGN PART-
NERSHIPS AND FOREIGN CORPORATIONS.
(a) I NGENERAL .—Paragraph (1) of section 861(a) is amended
by striking ‘‘and’’ at the end of subparagraph (A), by striking theperiod at the end of subparagraph (B) and inserting ‘‘, and’’, andby adding at the end the following new subparagraph:
‘‘(C) in the case of a foreign partnership, which is
predominantly engaged in the active conduct of a tradeor business outside the United States, any interest notpaid by a trade or business engaged in by the partnershipin the United States and not allocable to income whichis effectively connected (or treated as effectively connected)with the conduct of a trade or business in the UnitedStates.’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 411. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED
INVESTMENT COMPANIES.
(a) T REATMENT OF CERTAIN DIVIDENDS .—
(1) N ONRESIDENT ALIEN INDIVIDUALS .—Section 871 (relating
to tax on nonresident alien individuals) is amended by redesig-nating subsection (k) as subsection (l) and by inserting aftersubsection (j) the following new subsection:‘‘(k) E
XEMPTION FOR CERTAIN DIVIDENDS OF REGULATED INVEST –
MENT COMPANIES .—
‘‘(1) I NTEREST -RELATED DIVIDENDS .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1)(A) ofsubsection (a) on any interest-related dividend receivedfrom a regulated investment company.
‘‘(B) E
XCEPTIONS .—Subparagraph (A) shall not apply—
‘‘(i) to any interest-related dividend received from
a regulated investment company by a person to theextent such dividend is attributable to interest (otherthan interest described in subparagraph (E) (i) or (iii))received by such company on indebtedness issued bysuch person or by any corporation or partnership withrespect to which such person is a 10-percent share-holder,
‘‘(ii) to any interest-related dividend with respect
to stock of a regulated investment company unlessthe person who would otherwise be required to deductand withhold tax from such dividend under chapter26 USC 861 note.26 USC 871 note.26 USC 986 note.
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3 receives a statement (which meets requirements
similar to the requirements of subsection (h)(5)) thatthe beneficial owner of such stock is not a UnitedStates person, and
‘‘(iii) to any interest-related dividend paid to any
person within a foreign country (or any interest-relateddividend payment addressed to, or for the account of,persons within such foreign country) during any perioddescribed in subsection (h)(6) with respect to suchcountry.
Clause (iii) shall not apply to any dividend with respectto any stock which was acquired on or before the dateof the publication of the Secretary’s determination undersubsection (h)(6).
‘‘(C) I
NTEREST -RELATED DIVIDEND .—For purposes of
this paragraph, the term ‘interest-related dividend’ meansany dividend (or part thereof) which is designated by theregulated investment company as an interest-related divi-dend in a written notice mailed to its shareholders notlater than 60 days after the close of its taxable year.If the aggregate amount so designated with respect toa taxable year of the company (including amounts so des-ignated with respect to dividends paid after the close ofthe taxable year described in section 855) is greater thanthe qualified net interest income of the company for suchtaxable year, the portion of each distribution which shallbe an interest-related dividend shall be only that portionof the amounts so designated which such qualified netinterest income bears to the aggregate amount so des-ignated. Such term shall not include any dividend withrespect to any taxable year of the company beginning afterDecember 31, 2007.
‘‘(D) Q
UALIFIED NET INTEREST INCOME .—For purposes
of subparagraph (C), the term ‘qualified net interest income’means the qualified interest income of the regulated invest-ment company reduced by the deductions properly allocableto such income.
‘‘(E) Q
UALIFIED INTEREST INCOME .—For purposes of
subparagraph (D), the term ‘qualified interest income’means the sum of the following amounts derived by theregulated investment company from sources within theUnited States:
‘‘(i) Any amount includible in gross income as
original issue discount (within the meaning of section1273) on an obligation payable 183 days or less fromthe date of original issue (without regard to the period
held by the company).
‘‘(ii) Any interest includible in gross income
(including amounts recognized as ordinary income inrespect of original issue discount or market discountor acquisition discount under part V of subchapterP and such other amounts as regulations may provide)on an obligation which is in registered form; exceptthat this clause shall not apply to—
‘‘(I) any interest on an obligation issued by
a corporation or partnership if the regulatedDeadline.
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investment company is a 10-percent shareholder
in such corporation or partnership, and
‘‘(II) any interest which is treated as not being
portfolio interest under the rules of subsection(h)(4).‘‘(iii) Any interest referred to in subsection (i)(2)(A)
(without regard to the trade or business of the regu-lated investment company).
‘‘(iv) Any interest-related dividend includable in
gross income with respect to stock of another regulatedinvestment company.‘‘(F) 10-
PERCENT SHAREHOLDER .—For purposes of this
paragraph, the term ‘10-percent shareholder’ has themeaning given such term by subsection (h)(3)(B).‘‘(2) S
HORT -TERM CAPITAL GAIN DIVIDENDS .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1)(A) ofsubsection (a) on any short-term capital gain dividendreceived from a regulated investment company.
‘‘(B) E
XCEPTION FOR ALIENS TAXABLE UNDER SUB –
SECTION ( a)(2).—Subparagraph (A) shall not apply in the
case of any nonresident alien individual subject to taxunder subsection (a)(2).
‘‘(C) S
HORT -TERM CAPITAL GAIN DIVIDEND .—For pur-
poses of this paragraph, the term ‘short-term capital gaindividend’ means any dividend (or part thereof) which isdesignated by the regulated investment company as ashort-term capital gain dividend in a written notice mailedto its shareholders not later than 60 days after the closeof its taxable year. If the aggregate amount so designatedwith respect to a taxable year of the company (includingamounts so designated with respect to dividends paid afterthe close of the taxable year described in section 855)is greater than the qualified short-term gain of the companyfor such taxable year, the portion of each distribution whichshall be a short-term capital gain dividend shall be onlythat portion of the amounts so designated which such quali-fied short-term gain bears to the aggregate amount sodesignated. Such term shall not include any dividend withrespect to any taxable year of the company beginning afterDecember 31, 2007.
‘‘(D) Q
UALIFIED SHORT -TERM GAIN .—For purposes of
subparagraph (C), the term ‘qualified short-term gain’means the excess of the net short-term capital gain ofthe regulated investment company for the taxable yearover the net long-term capital loss (if any) of such companyfor such taxable year. For purposes of this subparagraph—
‘‘(i) the net short-term capital gain of the regulated
investment company shall be computed by treatingany short-term capital gain dividend includible in grossincome with respect to stock of another regulatedinvestment company as a short-term capital gain, and
‘‘(ii) the excess of the net short-term capital gain
for a taxable year over the net long-term capital lossfor a taxable year (to which an election under section4982(e)(4) does not apply) shall be determined withoutregard to any net capital loss or net short-term capitalNotice.Deadline.
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loss attributable to transactions after October 31 of
such year, and any such net capital loss or net short-term capital loss shall be treated as arising on the1st day of the next taxable year.
To the extent provided in regulations, clause (ii) shall applyalso for purposes of computing the taxable income of theregulated investment company.’’.(2) F
OREIGN CORPORATIONS .—Section 881 (relating to tax
on income of foreign corporations not connected with UnitedStates business) is amended by redesignating subsection (e)as subsection (f) and by inserting after subsection (d) the fol-lowing new subsection:‘‘(e) T
AXNOTTOAPPLY TO CERTAIN DIVIDENDS OF REGULATED
INVESTMENT COMPANIES .—
‘‘(1) I NTEREST -RELATED DIVIDENDS .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), no tax shall be imposed under paragraph (1) of sub-section (a) on any interest-related dividend (as definedin section 871(k)(1)) received from a regulated investmentcompany.
‘‘(B) E
XCEPTION .—Subparagraph (A) shall not apply—
‘‘(i) to any dividend referred to in section
871(k)(1)(B), and
‘‘(ii) to any interest-related dividend received by
a controlled foreign corporation (within the meaningof section 957(a)) to the extent such dividend is attrib-utable to interest received by the regulated investmentcompany from a person who is a related person (withinthe meaning of section 864(d)(4)) with respect to suchcontrolled foreign corporation.‘‘(C) T
REATMENT OF DIVIDENDS RECEIVED BY CON –
TROLLED FOREIGN CORPORATIONS .—The rules of subsection
(c)(5)(A) shall apply to any (within the meaning of section957(a)) to the extent such dividend is attributable tointerest received by the regulated investment companywhich is described in clause (ii) of section 871(k)(1)(E)(and not described in clause (i) or (iii) of such section).‘‘(2) S
HORT -TERM CAPITAL GAIN DIVIDENDS .—No tax shall
be imposed under paragraph (1) of subsection (a) on any short-term capital gain dividend (as defined in section 871(k)(2))received from a regulated investment company.’’.
(3) W
ITHHOLDING TAXES .—
(A) Section 1441(c) (relating to exceptions) is amended
by adding at the end the following new paragraph:‘‘(12) C
ERTAIN DIVIDENDS RECEIVED FROM REGULATED
INVESTMENT COMPANIES .—
‘‘(A) I N GENERAL .—No tax shall be required to be
deducted and withheld under subsection (a) from anyamount exempt from the tax imposed by section871(a)(1)(A) by reason of section 871(k).
‘‘(B) S
PECIAL RULE .—For purposes of subparagraph (A),
clause (i) of section 871(k)(1)(B) shall not apply to anydividend unless the regulated investment company knowsthat such dividend is a dividend referred to in such clause.A similar rule shall apply with respect to the exceptioncontained in section 871(k)(2)(B).’’.
Applicability.Applicability.
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(B) Section 1442(a) (relating to withholding of tax on
foreign corporations) is amended—
(i) by striking ‘‘and the reference in section
1441(c)(10)’’ and inserting ‘‘the reference in section1441(c)(10)’’, and
(ii) by inserting before the period at the end the
following: ‘‘, and the references in section 1441(c)(12)to sections 871(a) and 871(k) shall be treated as refer-ring to sections 881(a) and 881(e) (except that for pur-poses of applying subparagraph (A) of section1441(c)(12), as so modified, clause (ii) of section881(e)(1)(B) shall not apply to any dividend unlessthe regulated investment company knows that suchdividend is a dividend referred to in such clause)’’.
(b) E
STATE TAXTREATMENT OF INTEREST IN CERTAIN REGU-
LATED INVESTMENT COMPANIES .—Section 2105 (relating to property
without the United States for estate tax purposes) is amendedby adding at the end the following new subsection:
‘‘(d) S
TOCK IN A RIC.—
‘‘(1) I N GENERAL .—For purposes of this subchapter, stock
in a regulated investment company (as defined in section 851)owned by a nonresident not a citizen of the United Statesshall not be deemed property within the United States inthe proportion that, at the end of the quarter of such investmentcompany’s taxable year immediately preceding a decedent’s dateof death (or at such other time as the Secretary may designatein regulations), the assets of the investment company thatwere qualifying assets with respect to the decedent bore tothe total assets of the investment company.
‘‘(2) Q
UALIFYING ASSETS .—For purposes of this subsection,
qualifying assets with respect to a decedent are assets that,if owned directly by the decedent, would have been—
‘‘(A) amounts, deposits, or debt obligations described
in subsection (b) of this section,
‘‘(B) debt obligations described in the last sentence
of section 2104(c), or
‘‘(C) other property not within the United States.
‘‘(3) T
ERMINATION .—This subsection shall not apply to
estates of decedents dying after December 31, 2007.’’.(c) T
REATMENT OF REGULATED INVESTMENT COMPANIES UNDER
SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended by striking
‘‘REIT’’ each place it appears and inserting ‘‘qualified invest-ment entity’’.
(2) Paragraphs (2) and (3) of section 897(h) are amended
to read as follows:
‘‘(2) S
ALE OF STOCK IN DOMESTICALLY CONTROLLED ENTITY
NOT TAXED .—The term ‘United States real property interest’
does not include any interest in a domestically controlled quali-fied investment entity.
‘‘(3) D
ISTRIBUTIONS BY DOMESTICALLY CONTROLLED QUALI –
FIED INVESTMENT ENTITIES .—In the case of a domestically con-
trolled qualified investment entity, rules similar to the rulesof subsection (d) shall apply to the foreign ownership percentageof any gain.’’.
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:Applicability.
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‘‘(A) Q UALIFIED INVESTMENT ENTITY .—
‘‘(i) I N GENERAL .—The term ‘qualified investment
entity’ means—
‘‘(I) any real estate investment trust, and‘‘(II) any regulated investment company.
‘‘(ii) T
ERMINATION .—Clause (i)(II) shall not apply
after December 31, 2007.‘‘(B) D
OMESTICALLY CONTROLLED .—The term ‘domesti-
cally controlled qualified investment entity’ means anyqualified investment entity in which at all times duringthe testing period less than 50 percent in value of thestock was held directly or indirectly by foreign persons.’’.(4) Subparagraphs (C) and (D) of section 897(h)(4) are
each amended by striking ‘‘REIT’’ and inserting ‘‘qualifiedinvestment entity’’.
(5) The subsection heading for subsection (h) of section
897 is amended by striking ‘‘REITS’’ and inserting ‘‘C
ERTAIN
INVESTMENT ENTITIES ’’.
(d) E FFECTIVE DATE.—
(1) I N GENERAL .—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply todividends with respect to taxable years of regulated investmentcompanies beginning after December 31, 2004.
(2) E
STATE TAX TREATMENT .—The amendment made by
subsection (b) shall apply to estates of decedents dying afterDecember 31, 2004.
(3) C
ERTAIN OTHER PROVISIONS .—The amendments made
by subsection (c) (other than paragraph (1) thereof) shall takeeffect after December 31, 2004.
SEC. 412. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP
INTERESTS.
(a) I NGENERAL .—Section 954(c) (defining foreign personal
holding company income) is amended by adding after paragraph(3) the following new paragraph:
‘‘(4) L
OOK-THRU RULE FOR CERTAIN PARTNERSHIP SALES .—
‘‘(A) I N GENERAL .—In the case of any sale by a con-
trolled foreign corporation of an interest in a partnership
with respect to which such corporation is a 25-percentowner, such corporation shall be treated for purposes ofthis subsection as selling the proportionate share of theassets of the partnership attributable to such interest. TheSecretary shall prescribe such regulations as may be appro-priate to prevent abuse of the purposes of this paragraph,including regulations providing for coordination of thisparagraph with the provisions of subchapter K.
‘‘(B) 25-
PERCENT OWNER .—For purposes of this para-
graph, the term ‘25-percent owner’ means a controlled for-eign corporation which owns directly 25 percent or moreof the capital or profits interest in a partnership. Forpurposes of the preceding sentence, if a controlled foreigncorporation is a shareholder or partner of a corporationor partnership, the controlled foreign corporation shall betreated as owning directly its proportionate share of anysuch capital or profits interest held directly or indirectlyby such corporation or partnership.’’.Regulations.26 USC 871 note.
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(b) E FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years of foreign corporations beginning afterDecember 31, 2004, and to taxable years of United States share-holders with or within which such taxable years of foreign corpora-tions end.
SEC. 413. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES
AND FOREIGN INVESTMENT COMPANY RULES.
(a) G ENERAL RULE.—The following provisions are hereby
repealed:
(1) Part III of subchapter G of chapter 1 (relating to foreign
personal holding companies).
(2) Section 1246 (relating to gain on foreign investment
company stock).
(3) Section 1247 (relating to election by foreign investment
companies to distribute income currently).(b) E
XEMPTION OF FOREIGN CORPORATIONS FROM PERSONAL
HOLDING COMPANY RULES .—
(1) I N GENERAL .—Subsection (c) of section 542 (relating
to exceptions) is amended—
(A) by striking paragraph (5) and inserting the fol-
lowing:‘‘(5) a foreign corporation,’’,
(B) by striking paragraphs (7) and (10) and by redesig-
nating paragraphs (8) and (9) as paragraphs (7) and (8),respectively,
(C) by inserting ‘‘and’’ at the end of paragraph (7)
(as so redesignated), and
(D) by striking ‘‘; and’’ at the end of paragraph (8)
(as so redesignated) and inserting a period.(2) T
REATMENT OF INCOME FROM PERSONAL SERVICE CON –
TRACTS .—Paragraph (1) of section 954(c) is amended by adding
at the end the following new subparagraph:
‘‘(I) P ERSONAL SERVICE CONTRACTS .—
‘‘(i) Amounts received under a contract under
which the corporation is to furnish personal servicesif—
‘‘(I) some person other than the corporation
has the right to designate (by name or by descrip-tion) the individual who is to perform the services,or
‘‘(II) the individual who is to perform the serv-
ices is designated (by name or by description) inthe contract, and‘‘(ii) amounts received from the sale or other dis-
position of such a contract.
This subparagraph shall apply with respect to amountsreceived for services under a particular contract only ifat some time during the taxable year 25 percent or morein value of the outstanding stock of the corporation isowned, directly or indirectly, by or for the individual whohas performed, is to perform, or may be designated (byname or by description) as the one to perform, such serv-ices.’’.
(c) C
ONFORMING AMENDMENTS .—
(1) Section 1(h) is amended—Applicability.26 USC 551–558.26 USC 954 note.
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(A) in paragraph (10), by inserting ‘‘and’’ at the end
of subparagraph (F), by striking subparagraph (G), andby redesignating subparagraph (H) as subparagraph (G),and
(B) by striking ‘‘a foreign personal holding company
(as defined in section 552), a foreign investment company(as defined in section 1246(b)), or’’ in paragraph (11)(C)(iii).(2) Paragraph (2) of section 171(c) is amended—
(A) by striking ‘‘, or by a foreign personal holding
company, as defined in section 552’’, and
(B) by striking ‘‘, or foreign personal holding company’’.
(3) Paragraph (2) of section 245(a) is amended by striking
‘‘foreign personal holding company or’’.
(4) Section 312 is amended by striking subsection (j).(5) Subsection (m) of section 312 is amended by striking
‘‘, a foreign investment company (within the meaning of section1246(b)), or a foreign personal holding company (within themeaning of section 552)’’.
(6) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5)as paragraphs (3) and (4), respectively.
(7) Subparagraph (B) of section 465(c)(7) is amended by
adding ‘‘or’’ at the end of clause (i), by striking clause (ii),and by redesignating clause (iii) as clause (ii).
(8) Paragraph (1) of section 543(b) is amended by inserting
‘‘and’’ at the end of subparagraph (A), by striking ‘‘, and’’at the end of subparagraph (B) and inserting a period, andby striking subparagraph (C).
(9) Paragraph (1) of section 562(b) is amended by striking
‘‘or a foreign personal holding company described in section552’’.
(10) Section 563 is amended—
(A) by striking subsection (c),(B) by redesignating subsection (d) as subsection (c),
and
(C) by striking ‘‘subsection (a), (b), or (c)’’ in subsection
(c) (as so redesignated) and inserting ‘‘subsection (a) or(b)’’.(11) Subsection (d) of section 751 is amended by adding
‘‘and’’ at the end of paragraph (2), by striking paragraph (3),by redesignating paragraph (4) as paragraph (3), and bystriking ‘‘paragraph (1), (2), or (3)’’ in paragraph (3) (as soredesignated) and inserting ‘‘paragraph (1) or (2)’’.
(12) Paragraph (2) of section 864(d) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and(C) as subparagraphs (A) and (B), respectively.
(13)(A) Subparagraph (A) of section 898(b)(1) is amended
to read as follows:
‘‘(A) which is treated as a controlled foreign corporation
for any purpose under subpart F of part III of this sub-chapter, and’’.(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ‘‘and sections 551(f) and 554, whichever areapplicable,’’.
(C) Paragraph (3) of section 898(b) is amended to read
as follows:
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‘‘(3) U NITED STATES SHAREHOLDER .—The term ‘United
States shareholder’ has the meaning given to such term bysection 951(b), except that, in the case of a foreign corporationhaving related person insurance income (as defined in section953(c)(2)), the Secretary may treat any person as a UnitedStates shareholder for purposes of this section if such personis treated as a United States shareholder under section953(c)(1).’’.
(D) Subsection (c) of section 898 is amended to read as
follows:‘‘(c) D
ETERMINATION OF REQUIRED YEAR.—
‘‘(1) I N GENERAL .—The required year is—
‘‘(A) the majority U.S. shareholder year, or‘‘(B) if there is no majority U.S. shareholder year,
the taxable year prescribed under regulations.‘‘(2) 1-
MONTH DEFERRAL ALLOWED .—A specified foreign cor-
poration may elect, in lieu of the taxable year under paragraph(1)(A), a taxable year beginning 1 month earlier than themajority U.S. shareholder year.
‘‘(3) M
AJORITY U .S. SHAREHOLDER YEAR .—
‘‘(A) I N GENERAL .—For purposes of this subsection, the
term ‘majority U.S. shareholder year’ means the taxableyear (if any) which, on each testing day, constituted thetaxable year of—
‘‘(i) each United States shareholder described in
subsection (b)(2)(A), and
‘‘(ii) each United States shareholder not described
in clause (i) whose stock was treated as owned undersubsection (b)(2)(B) by any shareholder described insuch clause.‘‘(B) T
ESTING DAY .—The testing days shall be—
‘‘(i) the first day of the corporation’s taxable year
(determined without regard to this section), or
‘‘(ii) the days during such representative period
as the Secretary may prescribe.’’.
(14) Clause (ii) of section 904(d)(2)(A) is amended to read
as follows:
‘‘(ii) C ERTAIN AMOUNTS INCLUDED .—Except as pro-
vided in clause (iii), the term ‘passive income’ includes,except as provided in subparagraph (E)(iii) or para-graph (3)(I), any amount includible in gross incomeunder section 1293 (relating to certain passive foreigninvestment companies).’’.
(15)(A) Subparagraph (A) of section 904(h)(1), as redesig-
nated by this Act, is amended by adding ‘‘or’’ at the end ofclause (i), by striking clause (ii), and by redesignating clause(iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of section
904(h), as so redesignated, is amended by striking ‘‘
FOREIGN
PERSONAL HOLDING OR ’’.
(16) Section 951 is amended by striking subsections (c)
and (d) and by redesignating subsections (e) and (f) as sub-sections (c) and (d), respectively.
(17) Paragraph (3) of section 989(b) is amended by striking
‘‘, 551(a),’’.
(18) Paragraph (5) of section 1014(b) is amended by
inserting ‘‘and before January 1, 2005,’’ after ‘‘August 26, 1937,’’.
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(19) Subsection (a) of section 1016 is amended by striking
paragraph (13).
(20)(A) Paragraph (3) of section 1212(a) is amended to
read as follows:
‘‘(3) S PECIAL RULES ON CARRYBACKS .—A net capital loss
of a corporation shall not be carried back under paragraph(1)(A) to a taxable year—
‘‘(A) for which it is a regulated investment company
(as defined in section 851), or
‘‘(B) for which it is a real estate investment trust
(as defined in section 856).’’.(B) The amendment made by subparagraph (A) shall apply
to taxable years beginning after December 31, 2004.
(21) Section 1223 is amended by striking paragraph (10)
and by redesignating the following paragraphs accordingly.
(22) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7)as paragraphs (5) and (6), respectively.
(23) Paragraph (2) of section 1260(c) is amended by striking
subparagraphs (H) and (I) and by redesignating subparagraph(J) as subparagraph (H).
(24)(A) Subparagraph (F) of section 1291(b)(3) is amended
by striking ‘‘551(d), 959(a),’’ and inserting ‘‘959(a)’’.
(B) Subsection (e) of section 1291 is amended by inserting
‘‘(as in effect on the day before the date of the enactmentof the American Jobs Creation Act of 2004)’’ after ‘‘section1246’’.
(25) Paragraph (2) of section 1294(a) is amended to read
as follows:
‘‘(2) E
LECTION NOT PERMITTED WHERE AMOUNTS OTHERWISE
INCLUDIBLE UNDER SECTION 951 .—The taxpayer may not make
an election under paragraph (1) with respect to the undistrib-uted PFIC earnings tax liability attributable to a qualifiedelecting fund for the taxable year if any amount is includiblein the gross income of the taxpayer under section 951 withrespect to such fund for such taxable year.’’.
(26) Section 6035 is hereby repealed.(27) Subparagraph (D) of section 6103(e)(1) is amended
by striking clause (iv) and redesignating clauses (v) and (vi)as clauses (iv) and (v), respectively.
(28) Subparagraph (B) of section 6501(e)(1) is amended
to read as follows:
‘‘(B) C
ONSTRUCTIVE DIVIDENDS .—If the taxpayer omits
from gross income an amount properly includible thereinunder section 951(a), the tax may be assessed, or a pro-ceeding in court for the collection of such tax may be
done without assessing, at any time within 6 years afterthe return was filed.’’.(29) Subsection (a) of section 6679 is amended—
(A) by striking ‘‘6035, 6046, and 6046A’’ in paragraph
(1) and inserting ‘‘6046 and 6046A’’, and
(B) by striking paragraph (3).
(30) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) are
each amended by striking ‘‘556(b)(2),’’ each place it appears.
(31) The table of parts for subchapter G of chapter 1
is amended by striking the item relating to part III.Applicability.
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(32) The table of sections for part IV of subchapter P
of chapter 1 is amended by striking the items relating tosections 1246 and 1247.
(33) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the itemrelating to section 6035.(d) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable yearsof foreign corporations beginning after December 31, 2004, andto taxable years of United States shareholders with or withinwhich such taxable years of foreign corporations end.
(2) S
UBSECTION ( c)(27).—The amendments made by sub-
section (c)(27) shall apply to disclosures of return or returninformation with respect to taxable years beginning afterDecember 31, 2004.
SEC. 414. DETERMINATION OF FOREIGN PERSONAL HOLDING COM-
PANY INCOME WITH RESPECT TO TRANSACTIONS INCOMMODITIES.
(a) I NGENERAL .—Clauses (i) and (ii) of section 954(c)(1)(C)
(relating to commodity transactions) are amended to read as follows:
‘‘(i) arise out of commodity hedging transactions
(as defined in paragraph (4)(A)),
‘‘(ii) are active business gains or losses from the
sale of commodities, but only if substantially all ofthe controlled foreign corporation’s commodities areproperty described in paragraph (1), (2), or (8) of section1221(a), or’’.
(b) D
EFINITION AND SPECIAL RULES .—Subsection (c) of section
954, as amended by this Act, is amended by adding after paragraph(4) the following new paragraph:
‘‘(5) D
EFINITION AND SPECIAL RULES RELATING TO COM –
MODITY TRANSACTIONS .—
‘‘(A) C OMMODITY HEDGING TRANSACTIONS .—For pur-
poses of paragraph (1)(C)(i), the term ‘commodity hedgingtransaction’ means any transaction with respect to a com-modity if such transaction—
‘‘(i) is a hedging transaction as defined in section
1221(b)(2), determined—
‘‘(I) without regard to subparagraph (A)(ii)
thereof,
‘‘(II) by applying subparagraph (A)(i) thereof
by substituting ‘ordinary property or propertydescribed in section 1231(b)’ for ‘ordinary property’,and
‘‘(III) by substituting ‘controlled foreign cor-
poration’ for ‘taxpayer’ each place it appears, and‘‘(ii) is clearly identified as such in accordance with
section 1221(a)(7).‘‘(B) T
REATMENT OF DEALER ACTIVITIES UNDER PARA –
GRAPH (1)(C).—Commodities with respect to which gains
and losses are not taken into account under paragraph(2)(C) in computing a controlled foreign corporation’s for-eign personal holding company income shall not be takeninto account in applying the substantially all test underparagraph (1)(C)(ii) to such corporation.26 USC 1 note.
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‘‘(C) R EGULATIONS .—The Secretary shall prescribe such
regulations as are appropriate to carry out the purposesof paragraph (1)(C) in the case of transactions involvingrelated parties.’’.
(c) M
ODIFICATION OF EXCEPTION FOR DEALERS .—Clause (i) of
section 954(c)(2)(C) is amended by inserting ‘‘and transactionsinvolving physical settlement’’ after ‘‘(including hedging trans-actions’’.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to transactions entered into after December 31, 2004.
SEC. 415. MODIFICATIONS TO TREATMENT OF AIRCRAFT LEASING AND
SHIPPING INCOME.
(a) E LIMINATION OF FOREIGN BASE COMPANY SHIPPING
INCOME .—Section 954 (relating to foreign base company income)
is amended—
(1) by striking paragraph (4) of subsection (a) (relating
to foreign base company shipping income), and
(2) by striking subsection (f) (relating to foreign base com-
pany shipping income).(b) S
AFEHARBOR FOR CERTAIN LEASING ACTIVITIES .—Subpara-
graph (A) of section 954(c)(2) is amended by adding at the endthe following new sentence: ‘‘For purposes of the preceding sentence,rents derived from leasing an aircraft or vessel in foreign commerceshall not fail to be treated as derived in the active conduct ofa trade or business if, as determined under regulations prescribedby the Secretary, the active leasing expenses are not less than10 percent of the profit on the lease.’’.
(c) C
ONFORMING AMENDMENTS .—
(1) Section 952(c)(1)(B)(iii) is amended by striking subclause
(I) and redesignating subclauses (II) through (VI) as subclauses(I) through (V), respectively.
(2) Subsection (b) of section 954 is amended—
(A) by striking ‘‘the foreign base company shipping
income,’’ in paragraph (5),
(B) by striking paragraphs (6) and (7), and(C) by redesignating paragraph (8) as paragraph (6).
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning afterDecember 31, 2004, and to taxable years of United States share-holders with or within which such taxable years of foreign corpora-tions end.
SEC. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR
ACTIVE FINANCING.
(a) I NGENERAL .—Section 954(h)(3) is amended by adding at
the end the following:
‘‘(E) D IRECT CONDUCT OF ACTIVITIES .—For purposes of
subparagraph (A)(ii)(II), an activity shall be treated asconducted directly by an eligible controlled foreign corpora-tion or qualified business unit in its home country if theactivity is performed by employees of a related personand—
‘‘(i) the related person is an eligible controlled for-
eign corporation the home country of which is thesame as the home country of the corporation or unitto which subparagraph (A)(ii)(II) is being applied,26 USC 952 note.26 USC 954 note.
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‘‘(ii) the activity is performed in the home country
of the related person, and
‘‘(iii) the related person is compensated on an
arm’s-length basis for the performance of the activityby its employees and such compensation is treatedas earned by such person in its home country forpurposes of the home country’s tax laws.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years of such foreign corporations beginningafter December 31, 2004, and to taxable years of United Statesshareholders with or within which such taxable years of such foreigncorporations end.
SEC. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN
TAX CREDIT CARRYBACK.
(a) G ENERAL RULE.—Section 904(c) (relating to carryback and
carryover of excess tax paid) is amended—
(1) by striking ‘‘in the second preceding taxable year,’’,
and
(2) by striking ‘‘, and in the first, second, third, fourth,
or fifth’’ and inserting ‘‘and in any of the first 10’’.(b) E
XCESS EXTRACTION TAXES .—Paragraph (1) of section 907(f)
is amended—
(1) by striking ‘‘in the second preceding taxable year,’’,(2) by striking ‘‘, and in the first, second, third, fourth,
or fifth’’ and inserting ‘‘and in any of the first 10’’, and
(3) by striking the last sentence.
(c) E
FFECTIVE DATE.—
(1) C ARRYBACK .—The amendments made by subsections
(a)(1) and (b)(1) shall apply to excess foreign taxes arisingin taxable years beginning after the date of the enactmentof this Act.
(2) C
ARRYOVER .—The amendments made by subsections
(a)(2) and (b)(2) shall apply to excess foreign taxes which (with-out regard to the amendments made by this section) may becarried to any taxable year ending after the date of the enact-ment of this Act.
SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DIS-
TRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES OREXCHANGES OF UNITED STATES REAL PROPERTYINTERESTS.
(a) I NGENERAL .—Paragraph (1) of section 897(h) (relating to
look-through of distributions) is amended by adding at the endthe following new sentence: ‘‘Notwithstanding the preceding sen-tence, any distribution by a REIT with respect to any class ofstock which is regularly traded on an established securities marketlocated in the United States shall not be treated as gain recognizedfrom the sale or exchange of a United States real property interest
if the shareholder did not own more than 5 percent of such classof stock at any time during the taxable year.’’.
(b) C
ONFORMING AMENDMENT .—Paragraph (3) of section 857(b)
(relating to capital gains) is amended by adding at the end thefollowing new subparagraph:
‘‘(F) C
ERTAIN DISTRIBUTIONS .—In the case of a share-
holder of a real estate investment trust to whom section897 does not apply by reason of the second sentence ofsection 897(h)(1), the amount which would be included26 USC 904 note.26 USC 954 note.
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in computing long-term capital gains for such shareholder
under subparagraph (B) or (D) (without regard to thissubparagraph)—
‘‘(i) shall not be included in computing such share-
holder’s long-term capital gains, and
‘‘(ii) shall be included in such shareholder’s gross
income as a dividend from the real estate investmenttrust.’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS
ON HORSE RACES AND DOG RACES FROM GROSS INCOMEOF NONRESIDENT ALIEN INDIVIDUALS.
(a) I NGENERAL .—Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6), and(7) as paragraphs (6), (7), and (8), respectively, and inserting afterparagraph (4) the following new paragraph:
‘‘(5) I
NCOME DERIVED FROM WAGERING TRANSACTIONS IN
CERTAIN PARIMUTUEL POOLS .—Gross income derived by a non-
resident alien individual from a legal wagering transactioninitiated outside the United States in a parimutuel pool withrespect to a live horse race or dog race in the United States.’’.(b) C
ONFORMING AMENDMENT .—Section 883(a)(4) is amended
by striking ‘‘(5), (6), and (7)’’ and inserting ‘‘(6), (7), and (8)’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to wagers made after the date of the enactment ofthis Act.
SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO COR-
PORATIONS.
(a) I NGENERAL .—Subsection (b) of section 881 is amended
by redesignating paragraph (2) as paragraph (3) and by insertingafter paragraph (1) the following new paragraph:
‘‘(2) C
OMMONWEALTH OF PUERTO RICO .—
‘‘(A) I N GENERAL .—If dividends are received during
a taxable year by a corporation—
‘‘(i) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
‘‘(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) aremet for the taxable year,
subsection (a) shall be applied for such taxable year bysubstituting ‘10 percent’ for ‘30 percent’.
‘‘(B) A
PPLICABILITY .—If, on or after the date of the
enactment of this paragraph, an increase in the rate ofthe Commonwealth of Puerto Rico’s withholding tax whichis generally applicable to dividends paid to United States
corporations not engaged in a trade or business in theCommonwealth to a rate greater than 10 percent takeseffect, this paragraph shall not apply to dividends receivedon or after the effective date of the increase.’’.
(b) W
ITHHOLDING .—Subsection (c) of section 1442 (relating to
withholding of tax on foreign corporations) is amended—
(1) by striking ‘‘For purposes’’ and inserting the following:‘‘(1) G
UAM, AMERICAN SAMOA , THE NORTHERN MARIANA
ISLANDS , AND THE VIRGIN ISLANDS .—For purposes’’, and26 USC 872 note.26 USC 857 note.
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(2) by adding at the end the following new paragraph:
‘‘(2) C OMMONWEALTH OF PUERTO RICO .—
‘‘(A) I N GENERAL .—If dividends are received during
a taxable year by a corporation—
‘‘(i) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
‘‘(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1)are met for the taxable year,
subsection (a) shall be applied for such taxable year bysubstituting ‘10 percent’ for ‘30 percent’.
‘‘(B) A
PPLICABILITY .—If, on or after the date of the
enactment of this paragraph, an increase in the rate ofthe Commonwealth of Puerto Rico’s withholding tax whichis generally applicable to dividends paid to United Statescorporations not engaged in a trade or business in theCommonwealth to a rate greater than 10 percent takes
effect, this paragraph shall not apply to dividends receivedon or after the effective date of the increase.’’.
(c) C
ONFORMING AMENDMENTS .—
(1) Subsection (b) of section 881 is amended by striking
‘‘GUAM AND VIRGIN ISLANDS CORPORATIONS ’’ in the heading
and inserting ‘‘P OSSESSIONS ’’.
(2) Paragraph (1) of section 881(b) is amended by striking
‘‘IN GENERAL ’’ in the heading and inserting ‘‘G UAM, AMERICAN
SAMOA , THE NORTHERN MARIANA ISLANDS , AND THE VIRGIN
ISLANDS ’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to dividends paid after the date of the enactment ofthis Act.
SEC. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
(a) I NGENERAL .—
(1) Subsection (a) of section 59 is amended by striking
paragraph (2) and by redesignating paragraphs (3) and (4)as paragraphs (2) and (3), respectively.
(2) Section 53(d)(1)(B)(i)(II) is amended by striking ‘‘and
if section 59(a)(2) did not apply’’.(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 422. INCENTIVES TO REINVEST FOREIGN EARNINGS IN UNITED
STATES.
(a) I NGENERAL .—Subpart F of part III of subchapter N of
chapter 1 (relating to controlled foreign corporations) is amendedby adding at the end the following new section:
‘‘SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
‘‘(a) D EDUCTION .—
‘‘(1) I N GENERAL .—In the case of a corporation which is
a United States shareholder and for which the election underthis section is in effect for the taxable year, there shall beallowed as a deduction an amount equal to 85 percent of thecash dividends which are received during such taxable yearby such shareholder from controlled foreign corporations.
‘‘(2) D
IVIDENDS PAID INDIRECTLY FROM CONTROLLED FOR –
EIGN CORPORATIONS .—If, within the taxable year for which
the election under this section is in effect, a United States26 USC 53 note.26 USC 881 note.
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shareholder receives a cash distribution from a controlled for-
eign corporation which is excluded from gross income undersection 959(a), such distribution shall be treated for purposesof this section as a cash dividend to the extent of any amountincluded in income by such United States shareholder undersection 951(a)(1)(A) as a result of any cash dividend duringsuch taxable year to—
‘‘(A) such controlled foreign corporation from another
controlled foreign corporation that is in a chain of owner-ship described in section 958(a), or
‘‘(B) any other controlled foreign corporation in such
chain of ownership, but only to the extent of cash distribu-tions described in section 959(b) which are made duringsuch taxable year to the controlled foreign corporation fromwhich such United States shareholder received such dis-tribution.
‘‘(b) L
IMITATIONS .—
‘‘(1) I N GENERAL .—The amount of dividends taken into
account under subsection (a) shall not exceed the greater of—
‘‘(A) $500,000,000,‘‘(B) the amount shown on the applicable financial
statement as earnings permanently reinvested outside theUnited States, or
‘‘(C) in the case of an applicable financial statement
which fails to show a specific amount of earnings perma-nently reinvested outside the United States and whichshows a specific amount of tax liability attributable tosuch earnings, the amount equal to the amount of suchliability divided by 0.35.
The amounts described in subparagraphs (B) and (C) shallbe treated as being zero if there is no such statement orsuch statement fails to show a specific amount of such earningsor liability, as the case may be.
‘‘(2) D
IVIDENDS MUST BE EXTRAORDINARY .—The amount of
dividends taken into account under subsection (a) shall notexceed the excess (if any) of—
‘‘(A) the dividends received during the taxable year
by such shareholder from controlled foreign corporations,over
‘‘(B) the annual average for the base period years of—
‘‘(i) the dividends received during each base period
year by such shareholder from controlled foreign cor-porations,
‘‘(ii) the amounts includible in such shareholder’s
gross income for each base period year under section951(a)(1)(B) with respect to controlled foreign corpora-tions, and
‘‘(iii) the amounts that would have been included
for each base period year but for section 959(a) withrespect to controlled foreign corporations.
The amount taken into account under clause (iii) for anybase period year shall not include any amount which isnot includible in gross income by reason of an amountdescribed in clause (ii) with respect to a prior taxableyear. Amounts described in subparagraph (B) for any baseperiod year shall be such amounts as shown on the mostrecent return filed for such year; except that amended
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returns filed after June 30, 2003, shall not be taken into
account.‘‘(3) R
EDUCTION OF BENEFIT IF INCREASE IN RELATED PARTY
INDEBTEDNESS .—The amount of dividends which would (but
for this paragraph) be taken into account under subsection(a) shall be reduced by the excess (if any) of—
‘‘(A) the amount of indebtedness of the controlled for-
eign corporation to any related person (as defined in section954(d)(3)) as of the close of the taxable year for whichthe election under this section is in effect, over
‘‘(B) the amount of indebtedness of the controlled for-
eign corporation to any related person (as so defined) asof the close of October 3, 2004.
All controlled foreign corporations with respect to which thetaxpayer is a United States shareholder shall be treated as1 controlled foreign corporation for purposes of this paragraph.
‘‘(4) R
EQUIREMENT TO INVEST IN UNITED STATES .—Sub-
section (a) shall not apply to any dividend received by a UnitedStates shareholder unless the amount of the dividend isinvested in the United States pursuant to a domestic reinvest-ment plan which—
‘‘(A) is approved by the taxpayer’s president, chief
executive officer, or comparable official before the paymentof such dividend and subsequently approved by the tax-payer’s board of directors, management committee, execu-tive committee, or similar body, and
‘‘(B) provides for the reinvestment of such dividend
in the United States (other than as payment for executivecompensation), including as a source for the funding ofworker hiring and training, infrastructure, research anddevelopment, capital investments, or the financial stabiliza-tion of the corporation for the purposes of job retentionor creation.
‘‘(c) D
EFINITIONS AND SPECIAL RULES .—For purposes of this
section—
‘‘(1) A PPLICABLE FINANCIAL STATEMENT .—The term
‘applicable financial statement’ means, with respect to a UnitedStates shareholder, the most recently audited financial state-ment (including notes and other documents which accompanysuch statement) which includes such shareholder—
‘‘(A) which is certified on or before June 30, 2003,
as being prepared in accordance with generally acceptedaccounting principles, and
‘‘(B) which is used for the purposes of a statement
or report—
‘‘(i) to creditors,‘‘(ii) to shareholders, or‘‘(iii) for any other substantial nontax purpose.
In the case of a corporation required to file a financial statementwith the Securities and Exchange Commission, such termmeans the most recent such statement filed on or before June30, 2003.
‘‘(2) B
ASE PERIOD YEARS .—
‘‘(A) I N GENERAL .—The base period years are the 3
taxable years—
‘‘(i) which are among the 5 most recent taxable
years ending on or before June 30, 2003, and
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‘‘(ii) which are determined by disregarding—
‘‘(I) 1 taxable year for which the sum of the
amounts described in clauses (i), (ii), and (iii) ofsubsection (b)(2)(B) is the largest, and
‘‘(II) 1 taxable year for which such sum is
the smallest.
‘‘(B) S
HORTER PERIOD .—If the taxpayer has fewer than
5 taxable years ending on or before June 30, 2003, thenin lieu of applying subparagraph (A), the base period yearsshall include all the taxable years of the taxpayer endingon or before June 30, 2003.
‘‘(C) M
ERGERS , ACQUISITIONS , ETC.—
‘‘(i) I N GENERAL .—Rules similar to the rules of
subparagraphs (A) and (B) of section 41(f)(3) shallapply for purposes of this paragraph.
‘‘(ii) S
PIN-OFFS , ETC.—If there is a distribution to
which section 355 (or so much of section 356 as relatesto section 355) applies during the 5-year period referredto in subparagraph (A)(i) and the controlled corporation(within the meaning of section 355) is a United Statesshareholder—
‘‘(I) the controlled corporation shall be treated
as being in existence during the period that thedistributing corporation (within the meaning ofsection 355) is in existence, and
‘‘(II) for purposes of applying subsection (b)(2)
to the controlled corporation and the distributingcorporation, amounts described in subsection(b)(2)(B) which are received or includible by thedistributing corporation or controlled corporation(as the case may be) before the distributionreferred to in subclause (I) from a controlled for-eign corporation shall be allocated between suchcorporations in proportion to their respectiveinterests as United States shareholders of suchcontrolled foreign corporation immediately aftersuch distribution.
Subclause (II) shall not apply if neither the controlledcorporation nor the distributing corporation is a UnitedStates shareholder of such controlled foreign corpora-tion immediately after such distribution.
‘‘(3) D
IVIDEND .—The term ‘dividend’ shall not include
amounts includible in gross income as a dividend under section78, 367, or 1248. In the case of a liquidation under section332 to which section 367(b) applies, the preceding sentenceshall not apply to the extent the United States shareholder
actually receives cash as part of the liquidation.
‘‘(4) C
OORDINATION WITH DIVIDENDS RECEIVED DEDUC –
TION .—No deduction shall be allowed under section 243 or
245 for any dividend for which a deduction is allowed underthis section.
‘‘(5) C
ONTROLLED GROUPS .—
‘‘(A) I N GENERAL .—All United States shareholders
which are members of an affiliated group filing a consoli-dated return under section 1501 shall be treated as oneUnited States shareholder.Applicability.
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‘‘(B) A PPLICATION OF $500 ,000,000 LIMIT .—All corpora-
tions which are treated as a single employer under section52(a) shall be limited to one $500,000,000 amount in sub-section (b)(1)(A), and such amount shall be divided amongsuch corporations under regulations prescribed by the Sec-retary.
‘‘(C) P
ERMANENTLY REINVESTED EARNINGS .—If a finan-
cial statement is an applicable financial statement for morethan 1 United States shareholder, the amount applicableunder subparagraph (B) or (C) of subsection (b)(1) shallbe divided among such shareholders under regulations pre-scribed by the Secretary.
‘‘(d) D
ENIAL OF FOREIGN TAXCREDIT ; D ENIAL OF CERTAIN
EXPENSES .—
‘‘(1) F OREIGN TAX CREDIT .—No credit shall be allowed under
section 901 for any taxes paid or accrued (or treated as paidor accrued) with respect to the deductible portion of—
‘‘(A) any dividend, or‘‘(B) any amount described in subsection (a)(2) which
is included in income under section 951(a)(1)(A).
No deduction shall be allowed under this chapter for any taxfor which credit is not allowable by reason of the precedingsentence.
‘‘(2) E
XPENSES .—No deduction shall be allowed for expenses
properly allocated and apportioned to the deductible portiondescribed in paragraph (1).
‘‘(3) D
EDUCTIBLE PORTION .—For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the deductible portionof any dividend or other amount is the amount which bearsthe same ratio to the amount of such dividend or other amountas the amount allowed as a deduction under subsection (a)for the taxable year bears to the amount described in subsection(b)(2)(A) for such year.‘‘(e) I
NCREASE IN TAX ON INCLUDED AMOUNTS NOTREDUCED
BYCREDITS , ETC.—
‘‘(1) I N GENERAL .—Any tax under this chapter by reason
of nondeductible CFC dividends shall not be treated as taximposed by this chapter for purposes of determining—
‘‘(A) the amount of any credit allowable under this
chapter, or
‘‘(B) the amount of the tax imposed by section 55.
Subparagraph (A) shall not apply to the credit under section53 or to the credit under section 27(a) with respect to taxesattributable to such dividends.
‘‘(2) L
IMITATION ON REDUCTION IN TAXABLE INCOME , ETC.—
‘‘(A) I N GENERAL .—The taxable income of any United
States shareholder for any taxable year shall in no eventbe less than the amount of nondeductible CFC dividendsreceived during such year.
‘‘(B) C
OORDINATION WITH SECTION 172 .—The nondeduct-
ible CFC dividends for any taxable year shall not be takeninto account—
‘‘(i) in determining under section 172 the amount
of any net operating loss for such taxable year, and
‘‘(ii) in determining taxable income for such taxable
year for purposes of the 2nd sentence of section172(b)(2).
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‘‘(3) N ONDEDUCTIBLE CFC DIVIDENDS .—For purposes of this
subsection, the term ‘nondeductible CFC dividends’ means theexcess of the amount of dividends taken into account undersubsection (a) over the deduction allowed under subsection(a) for such dividends.‘‘(f) E
LECTION .—The taxpayer may elect to apply this section
to—
‘‘(1) the taxpayer’s last taxable year which begins before
the date of the enactment of this section, or
‘‘(2) the taxpayer’s first taxable year which begins during
the 1-year period beginning on such date.
Such election may be made for a taxable year only if made beforethe due date (including extensions) for filing the return of taxfor such taxable year.’’.
(b) A
LTERNATIVE MINIMUM TAX.—Subparagraph (C) of section
56(g)(4) is amended by inserting after clause (v) the following newclause:
‘‘(vi) S
PECIAL RULE FOR CERTAIN DISTRIBUTIONS
FROM CONTROLLED FOREIGN CORPORATIONS .—Clause (i)
shall not apply to any deduction allowable under sec-tion 965.’’.
(c) C
LERICAL AMENDMENT .—The table of sections for subpart
F of part III of subchapter N of chapter 1 is amended by addingat the end the following new item:
‘‘Sec. 965. Temporary dividends received deduction.’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending on or after the date of theenactment of this Act.
SEC. 423. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOV-
ERNING EXCLUSION OF INCOME FROM INTERNATIONALOPERATION OF SHIPS OR AIRCRAFT.
Notwithstanding the provisions of Treasury regulation § 1.883–
5, the final regulations issued by the Secretary of the Treasuryrelating to income derived by foreign corporations from the inter-national operation of ships or aircraft (Treasury regulations § 1.883–1 through § 1.883–5) shall apply to taxable years of a foreign cor-poration seeking qualified foreign corporation status beginning afterSeptember 24, 2004.
SEC. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
(a) I NGENERAL .—The Secretary of the Treasury or the Sec-
retary’s delegate shall conduct a study of the effectiveness of theprovisions of the Internal Revenue Code of 1986 applicable toearnings stripping, including a study of—
(1) the effectiveness of section 163(j) of such Code in pre-
venting the shifting of income outside the United States,
(2) whether any deficiencies of such provisions place United
States-based businesses at a competitive disadvantage relativeto foreign-based businesses,
(3) the impact of earnings stripping activities on the United
States tax base,
(4) whether laws of foreign countries facilitate stripping
of earnings out of the United States, and
(5) whether changes to the earning stripping rules would
affect jobs in the United States.26 USC 56 note.
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(b) R EPORT .—Not later than June 30, 2005, the Secretary shall
submit to the Congress a report of the study conducted underthis section, including specific recommendations as to how toimprove the provisions of such Code applicable to earnings strip-ping.
TITLE V—DEDUCTION OF STATE AND
LOCAL GENERAL SALES TAXES
SEC. 501. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
IN LIEU OF STATE AND LOCAL INCOME TAXES.
(a) I NGENERAL .—Subsection (b) of section 164 (relating to
definitions and special rules) is amended by adding at the endthe following:
‘‘(5) G
ENERAL SALES TAXES .—For purposes of subsection
(a)—
‘‘(A) E LECTION TO DEDUCT STATE AND LOCAL SALES
TAXES IN LIEU OF STATE AND LOCAL INCOME TAXES .—
‘‘(i) I N GENERAL .—At the election of the taxpayer
for the taxable year, subsection (a) shall be applied—
‘‘(I) without regard to the reference to State
and local income taxes, and
‘‘(II) as if State and local general sales taxes
were referred to in a paragraph thereof.
‘‘(B) D EFINITION OF GENERAL SALES TAX .—The term
‘general sales tax’ means a tax imposed at one rate withrespect to the sale at retail of a broad range of classesof items.
‘‘(C) S
PECIAL RULES FOR FOOD , ETC.—In the case of
items of food, clothing, medical supplies, and motorvehicles—
‘‘(i) the fact that the tax does not apply with respect
to some or all of such items shall not be taken intoaccount in determining whether the tax applies withrespect to a broad range of classes of items, and
‘‘(ii) the fact that the rate of tax applicable with
respect to some or all of such items is lower thanthe general rate of tax shall not be taken into accountin determining whether the tax is imposed at onerate.‘‘(D) I
TEMS TAXED AT DIFFERENT RATES .—Except in the
case of a lower rate of tax applicable with respect to anitem described in subparagraph (C), no deduction shallbe allowed under this paragraph for any general salestax imposed with respect to an item at a rate other thanthe general rate of tax.
‘‘(E) C
OMPENSATING USE TAXES .—A compensating use
tax with respect to an item shall be treated as a generalsales tax. For purposes of the preceding sentence, the term‘compensating use tax’ means, with respect to any item,a tax which—
‘‘(i) is imposed on the use, storage, or consumption
of such item, and
‘‘(ii) is complementary to a general sales tax, but
only if a deduction is allowable under this paragraph
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with respect to items sold at retail in the taxing juris-
diction which are similar to such item.‘‘(F) S
PECIAL RULE FOR MOTOR VEHICLES .—In the case
of motor vehicles, if the rate of tax exceeds the generalrate, such excess shall be disregarded and the generalrate shall be treated as the rate of tax.
‘‘(G) S
EPARATELY STATED GENERAL SALES TAXES .—If the
amount of any general sales tax is separately stated, then,to the extent that the amount so stated is paid by theconsumer (other than in connection with the consumer’strade or business) to the seller, such amount shall betreated as a tax imposed on, and paid by, such consumer.
‘‘(H) A
MOUNT OF DEDUCTION MAY BE DETERMINED
UNDER TABLES .—
‘‘(i) I N GENERAL .—At the election of the taxpayer
for the taxable year, the amount of the deductionallowed under this paragraph for such year shall be—
‘‘(I) the amount determined under this para-
graph (without regard to this subparagraph) withrespect to motor vehicles, boats, and other itemsspecified by the Secretary, and
‘‘(II) the amount determined under tables pre-
scribed by the Secretary with respect to itemsto which subclause (I) does not apply.‘‘(ii) R
EQUIREMENTS FOR TABLES .—The tables pre-
scribed under clause (i)—
‘‘(I) shall reflect the provisions of this para-
graph,
‘‘(II) shall be based on the average consump-
tion by taxpayers on a State-by-State basis (asdetermined by the Secretary) of items to whichclause (i)(I) does not apply, taking into accountfiling status, number of dependents, adjusted grossincome, and rates of State and local general salestaxation, and
‘‘(III) need only be determined with respect
to adjusted gross incomes up to the applicableamount (as determined under section 68(b)).
‘‘(I) A
PPLICATION OF PARAGRAPH .—This paragraph shall
apply to taxable years beginning after December 31, 2003,and before January 1, 2006.’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
TITLE VI—FAIR AND EQUITABLE
TOBACCO REFORM
SEC. 601. SHORT TITLE.
This title may be cited as the ‘‘Fair and Equitable Tobacco
Reform Act of 2004’’.7 USC 518 note.Fair and
EquitableTobacco ReformAct of 2004.26 USC 164 note.
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Subtitle A—Termination of Federal To-
bacco Quota and Price Support Pro-grams
SEC. 611. TERMINATION OF TOBACCO QUOTA PROGRAM AND RELATED
PROVISIONS.
(a) M ARKETING QUOTAS .—Part I of subtitle B of title III of
the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.)is repealed.
(b) T
OBACCO INSPECTIONS .—Section 213 of the Tobacco Adjust-
ment Act of 1983 (7 U.S.C. 511r) is repealed.
(c) T OBACCO CONTROL .—The Act of April 25, 1936 (commonly
known as the Tobacco Control Act; 7 U.S.C. 515 et seq.), is repealed.
(d) P ROCESSING TAX.—Section 9(b) of the Agricultural Adjust-
ment Act (7 U.S.C. 609(b)), reenacted with amendments by theAgricultural Marketing Agreement Act of 1937, is amended—
(1) in paragraph (2), by striking ‘‘tobacco,’’; and(2) in paragraph (6)(B)(i), by striking ‘‘, or, in the case
of tobacco, is less than the fair exchange value by not morethan 10 per centum,’’.(e) D
ECLARATION OF POLICY .—Section 2 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking‘‘tobacco,’’.
(f) D
EFINITIONS .—Section 301(b) of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1301(b)) is amended—
(1) in paragraph (3)—
(A) by striking subparagraph (C); and(B) by redesignating subparagraph (D) as subpara-
graph (C);(2) in paragraph (6)(A), by striking ‘‘tobacco,’’;(3) in paragraph (10)—
(A) by striking subparagraph (B); and(B) by redesignating subparagraph (C) as subpara-
graph (B);(4) in paragraph (11)(B), by striking ‘‘and tobacco’’;(5) in paragraph (12), by striking ‘‘tobacco,’’;(6) in paragraph (14)—
(A) in subparagraph (A), by striking ‘‘(A)’’; and(B) by striking subparagraphs (B), (C), and (D);
(7) by striking paragraph (15);(8) in paragraph (16)—
(A) by striking subparagraph (B); and(B) by redesignating subparagraph (C) as subpara-
graph (B);(9) by striking paragraph (17); and(10) by redesignating paragraph (16) as paragraph (15).
(g) P
ARITY PAYMENTS .—Section 303 of the Agricultural Adjust-
ment Act of 1938 (7 U.S.C. 1303) is amended in the first sentenceby striking ‘‘rice, or tobacco,’’ and inserting ‘‘or rice,’’.
(h) A
DMINISTRATIVE PROVISIONS .—Section 361 of the Agricul-
tural Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
‘‘tobacco,’’.
(i) A DJUSTMENT OF QUOTAS .—Section 371 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1371) is amended—
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(1) in the first sentence of subsection (a), by striking ‘‘rice,
or tobacco’’ and inserting ‘‘or rice’’; and
(2) in the first sentence of subsection (b), by striking ‘‘rice,
or tobacco’’ and inserting ‘‘or rice’’.(j) R
EPORTS AND RECORDS .—Section 373 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1373) is amended—
(1) by striking ‘‘rice, or tobacco’’ each place it appears
in subsections (a) and (b) and inserting ‘‘or rice’’; and
(2) in subsection (a)—
(A) in the first sentence, by striking ‘‘all persons
engaged in the business of redrying, prizing, or stemmingtobacco for producers,’’; and
(B) in the last sentence, by striking ‘‘$500;’’ and all
that follows through the period at the end of the sentenceand inserting ‘‘$500.’’.
(k) R
EGULATIONS .—Section 375 of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1375) is amended—
(1) in subsection (a), by striking ‘‘peanuts, or tobacco’’ and
inserting ‘‘or peanuts’’; and
(2) by striking subsection (c).
(l) E MINENT DOMAIN .—Section 378 of the Agricultural Adjust-
ment Act of 1938 (7 U.S.C. 1378) is amended—
(1) in the first sentence of subsection (c), by striking ‘‘cotton,
and tobacco’’ and inserting ‘‘and cotton’’; and
(2) by striking subsections (d), (e), and (f).
(m) B URLEY TOBACCO FARM RECONSTITUTION .—Section 379 of
the Agricultural Adjustment Act of 1938 (7 U.S.C. 1379) isamended—
(1) in subsection (a)—
(A) by striking ‘‘(a)’’; and(B) in paragraph (6), by striking ‘‘, but this clause
(6) shall not be applicable in the case of burley tobacco’’;and(2) by striking subsections (b) and (c).
(n) A
CREAGE -POUNDAGE QUOTAS .—Section 4 of the Act of April
16, 1955 (Public Law 89–12; 7 U.S.C. 1314c note), is repealed.
(o) B URLEY TOBACCO ACREAGE ALLOTMENTS .—The Act of July
12, 1952 (7 U.S.C. 1315), is repealed.
(p) T RANSFER OF ALLOTMENTS .—Section 703 of the Food and
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
(q) A DVANCE RECOURSE LOANS .—Section 13(a)(2)(B) of the Food
Security Improvements Act of 1986 (7 U.S.C. 1433c–1(a)(2)(B)) isamended by striking ‘‘tobacco and’’.
(r) T
OBACCO FIELD MEASUREMENT .—Section 1112 of the Omni-
bus Budget Reconciliation Act of 1987 (Public Law 100–203; 101Stat. 1330-8) is amended by striking subsection (c).
(s) B
URLEY TOBACCO IMPORT REVIEW .—Section 3 of Public Law
98–59 (7 U.S.C. 625) is repealed.
SEC. 612. TERMINATION OF TOBACCO PRICE SUPPORT PROGRAM AND
RELATED PROVISIONS.
(a) T ERMINATION OF TOBACCO PRICE SUPPORT AND NONET
COST PROVISIONS .—Sections 106, 106A, and 106B of the Agricul-
tural Act of 1949 (7 U.S.C. 1445, 1445–1, 1445–2) are repealed.
(b) P ARITY PRICE SUPPORT .—Section 101 of the Agricultural
Act of 1949 (7 U.S.C. 1441) is amended—
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(1) in the first sentence of subsection (a), by striking
‘‘tobacco (except as otherwise provided herein), corn,’’ andinserting ‘‘corn’’;
(2) by striking subsections (c), (g), (h), and (i);(3) in subsection (d)(3)—
(A) by striking ‘‘, except tobacco,’’; and(B) by striking ‘‘and no price support shall be made
available for any crop of tobacco for which marketing quotashave been disapproved by producers;’’; and(4) by redesignating subsections (d) and (e) as subsections
(c) and (d), respectively.(c) D
EFINITION OF BASIC AGRICULTURAL COMMODITY .—Section
408(c) of the Agricultural Act of 1949 (7 U.S.C. 1428(c)) is amendedby striking ‘‘tobacco,’’.
(d) P
OWERS OF COMMODITY CREDIT CORPORATION .—Section 5
of the Commodity Credit Corporation Charter Act (15 U.S.C. 714c)is amended by inserting ‘‘(other than tobacco)’’ after ‘‘agriculturalcommodities’’ each place it appears.
SEC. 613. CONFORMING AMENDMENTS.
Section 320B(c)(1) of the Agricultural Adjustment Act of 1938
(7 U.S.C. 1314h(c)(1)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(1)’’;(2) by striking ‘‘by’’ at the end and inserting ‘‘or’’; and(3) by adding at the end the following:‘‘(B) in the case of the 2004 marketing year, the price
support rate for the kind of tobacco involved in effect undersection 106 of the Agricultural Act of 1949 (7 U.S.C. 1445)at the time of the violation; by’’.
SEC. 614. CONTINUATION OF LIABILITY FOR 2004 AND EARLIER CROP
YEARS.
The amendments made by this subtitle shall not affect the
liability of any person under any provision of law so amendedwith respect to the 2004 or an earlier crop of each kind of tobacco.
Subtitle B—Transitional Payments to To-
bacco Quota Holders and Producers ofTobacco
SEC. 621. DEFINITIONS.
In this subtitle and subtitle C:
(1) A GRICULTURAL ACT OF 1949 .—The term ‘‘Agricultural
Act of 1949’’ means the Agricultural Act of 1949 (7 U.S.C.1421 et seq.), as in effect on the day before the date of theenactment of this title.
(2) A
GRICULTURAL ADJUSTMENT ACT OF 1938 .—The term
‘‘Agricultural Adjustment Act of 1938’’ means the AgriculturalAdjustment Act of 1938 (7 U.S.C. 1281 et seq.), as in effecton the day before the date of the enactment of this title.
(3) C
ONSIDERED PLANTED .—The term ‘‘considered planted’’
means tobacco that was planted, but failed to be producedas a result of a natural disaster, as determined by the Secretary.
(4) C
ONTRACT .—The term ‘‘contract’’ means a contract
entered into under section 622 or 623.7 USC 518.7 USC 515 note.
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(5) C ONTRACT PAYMENT .—The term ‘‘contract payment’’
means a payment made under section 622 or 623 pursuantto a contract.
(6) P
RODUCER OF QUOTA TOBACCO .—The term ‘‘producer
of quota tobacco’’ means an owner, operator, landlord, tenant,or sharecropper that shared in the risk of producing tobaccoon a farm where tobacco was produced or considered plantedpursuant to a tobacco farm poundage quota or farm acreageallotment established under part I of subtitle B of title IIIof the Agricultural Adjustment Act of 1938 (7 U.S.C. 1311et seq.).
(7) Q
UOTA TOBACCO .—The term ‘quota tobacco’ means a
kind of tobacco that is subject to a farm marketing quotaor farm acreage allotment for the 2004 tobacco marketing yearunder a marketing quota or allotment program establishedunder part I of subtitle B of title III of the Agricultural Adjust-ment Act of 1938 (7 U.S.C. 1311 et seq.).
(8) T
OBACCO .—The term ‘‘tobacco’’ means each of the fol-
lowing kinds of tobacco:
(A) Flue-cured tobacco, comprising types 11, 12, 13,
and 14.
(B) Fire-cured tobacco, comprising types 22 and 23.(C) Dark air-cured tobacco, comprising types 35 and
36.
(D) Virginia sun-cured tobacco, comprising type 37.(E) Virginia fire-cured tobacco, comprising type 21.(F) Burley tobacco, comprising type 31.(G) Cigar-filler and cigar-binder tobacco, comprising
types 42, 43, 44, 53, 54, and 55.(9) T
OBACCO QUOTA HOLDER .—The term ‘‘tobacco quota
holder’’ means a person that was an owner of a farm, asof the date of enactment of this title, for which a basic tobaccofarm marketing quota or farm acreage allotment for quotatobacco was established for the 2004 tobacco marketing year.
(10) T
OBACCO TRUST FUND .—The term ‘‘Tobacco Trust
Fund’’ means the Tobacco Trust Fund established under section626.
(11) S
ECRETARY .—The term ‘‘Secretary’’ means the Sec-
retary of Agriculture.
SEC. 622. CONTRACT PAYMENTS TO TOBACCO QUOTA HOLDERS.
(a) C ONTRACT OFFERED .—The Secretary shall offer to enter
into a contract with each tobacco quota holder under which thetobacco quota holder shall be entitled to receive payments underthis section in exchange for the termination of tobacco marketingquotas and related price support under the amendments madeby sections 611 and 612. The contract payments shall constitutefull and fair consideration for the termination of such tobacco mar-keting quotas and related price support.
(b) E
LIGIBILITY .—To be eligible to enter into a contract to
receive a contract payment under this section, a person shall submitto the Secretary an application containing such information asthe Secretary may require to demonstrate to the satisfaction ofthe Secretary that the person is a tobacco quota holder. The applica-tion shall be submitted within such time, in such form, and insuch manner as the Secretary may require.
(c) B
ASEQUOTA LEVEL .—7 USC 518a.
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(1) E STABLISHMENT .—The Secretary shall establish a base
quota level applicable to each tobacco quota holder identifiedunder subsection (b).
(2) P
OUNDAGE QUOTAS .—Subject to adjustment under sub-
section (d), for each kind of tobacco for which the marketingquota is expressed in pounds, the base quota level for eachtobacco quota holder shall be equal to the basic quota forquota tobacco established for the 2002 tobacco marketing yearunder a marketing quota program established under part Iof subtitle B of title III of the Agriculture Adjustment Actof 1938 on the farm owned by the tobacco quota holder.
(3) M
ARKETING QUOTAS OTHER THAN POUNDAGE QUOTAS .—
Subject to adjustment under subsection (d), for each kind oftobacco for which there is marketing quota or allotment onan acreage basis, the base quota level for each tobacco quotaholder shall be the quantity equal to the product obtainedby multiplying—
(A) the basic tobacco farm marketing quota or allot-
ment for the 2002 marketing year established by the Sec-retary for quota tobacco owned by the tobacco quota holder;by
(B) the average production yield, per acre, for the
period covering the 2001, 2002, and 2003 crop years forthat kind of tobacco in the county in which the quotatobacco is located.
(d) T
REATMENT OF CERTAIN CONTRACTS AND AGREEMENTS .—
(1) E FFECT OF PURCHASE CONTRACT .—If there was an agree-
ment for the purchase of all or part of a farm described insubsection (c) as of the date of the enactment of this title,and the parties to the sale are unable to agree to the dispositionof eligibility for contract payments, the Secretary, taking intoaccount any transfer of quota that has been agreed to, shallprovide for the equitable division of the contract paymentsamong the parties by adjusting the determination of who isthe tobacco quota holder with respect to particular poundsor allotment of the quota.
(2) E
FFECT OF AGREEMENT FOR PERMANENT QUOTA
TRANSFER .—If the Secretary determines that there was in exist-
ence, as of the day before the date of the enactment of thistitle, an agreement for the permanent transfer of quota, butthat the transfer was not completed by that date, the Secretaryshall consider the tobacco quota holder to be the party tothe agreement that, as of that date, was the owner of thefarm to which the quota was to be transferred.(e) C
ONTRACT PAYMENTS .—
(1) C ALCULATION OF TOTAL PAYMENT AMOUNT .—The total
amount of contract payments to which an eligible tobacco quotaholder is entitled under this section, with respect to a kindof tobacco, shall be equal to the product obtained bymultiplying—
(A) $7.00 per pound; by(B) the base quota level of the tobacco quota holder
determined under subsection (c) with respect to that kindof tobacco.(2) A
NNUAL PAYMENT .—During each of fiscal years 2005
through 2014, the Secretary shall make a contract paymentunder this section to each eligible tobacco quota holder, with
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respect to a kind of tobacco, in an amount equal to 1⁄10of
the amount determined under paragraph (1) for the tobaccoquota holder for that kind of tobacco.(f) D
EATH OF TOBACCO QUOTA HOLDER .—If a tobacco quota
holder who is entitled to contract payments under this sectiondies and is survived by a spouse or one or more dependents, theright to receive the payments shall transfer to the surviving spouseor, if there is no surviving spouse, to the estate of the tobaccoquota holder.
SEC. 623. CONTRACT PAYMENTS FOR PRODUCERS OF QUOTA
TOBACCO.
(a) C ONTRACT OFFERED .—The Secretary shall offer to enter
into a contract with each producer of quota tobacco under whichthe producer of quota tobacco shall be entitled to receive paymentsunder this section in exchange for the termination of tobacco mar-keting quotas and related price support under the amendmentsmade by sections 611 and 612. The contract payments shall con-stitute full and fair consideration for the termination of such tobaccomarketing quotas and related price support.
(b) E
LIGIBILITY .—
(1) A PPLICATION AND DETERMINATION .—To be eligible to
enter into a contract to receive a contract payment under thissection, a person shall submit to the Secretary an applicationcontaining such information as the Secretary may require todemonstrate to the satisfaction of the Secretary that the personis a producer of quota tobacco. The application shall be sub-mitted within such time, in such form, and in such manneras the Secretary may require.
(2) E
FFECT OF MULTIPLE PRODUCERS FOR SAME QUOTA
TOBACCO .—If, on the basis of the applications submitted under
paragraph (1) or other information, the Secretary determinesthat two or more persons are a producer of the same quotatobacco, the Secretary shall provide for an equitable distributionamong the persons of the contract payments made under this
section with respect to that quota tobacco, based on relativeshare of such persons in the risk of producing the quota tobaccoand such other factors as the Secretary considers appropriate.(c) B
ASEQUOTA LEVEL .—
(1) E STABLISHMENT .—The Secretary shall establish a base
quota level applicable to each producer of quota tobacco, asdetermined under this subsection.
(2) F
LUE-CURED AND BURLEY TOBACCO .—In the case of Flue-
cured tobacco (types 11, 12, 13, and 14) and Burley tobacco(type 31), the base quota level for each producer of quotatobacco shall be equal to the effective tobacco marketing quota(irrespective of disaster lease and transfers) under part I ofsubtitle B of title III of the Agriculture Adjustment Act of1938 for the 2002 marketing year for quota tobacco producedon the farm.
(3) O
THER KINDS OF TOBACCO .—In the case of each kind
of tobacco (other than tobacco covered by paragraph (2)), forthe purpose of calculating a contract payment to a producerof quota tobacco, the base quota level for the producer of quotatobacco shall be the quantity obtained by multiplying—7 USC 518b.
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(A) the basic tobacco farm acreage allotment for the
2002 marketing year established by the Secretary for quotatobacco produced on the farm; by
(B) the average annual yield, per acre, of quota tobacco
produced on the farm for the period covering the 2001,2002, and 2003 crop years.
(d) C
ONTRACT PAYMENTS .—
(1) C ALCULATION OF TOTAL PAYMENT AMOUNT .—Subject to
subsection (b)(2), the total amount of contract payments towhich an eligible producer of quota tobacco is entitled underthis section, with respect to a kind of tobacco, shall be equalto the product obtained by multiplying—
(A) subject to paragraph (2), $3.00 per pound; by(B) the base quota level of the producer of quota tobacco
determined under subsection (c) with respect to that kindof tobacco.(2) A
NNUAL PAYMENT .—During each of fiscal years 2005
through 2014, the Secretary shall make a contract paymentunder this section to each eligible producer of tobacco, withrespect to a kind of tobacco, in an amount equal to
1⁄10of
the amount determined under paragraph (1) for the producerfor that kind of tobacco.
(3) V
ARIABLE PAYMENT RATES .—The rate for payments to
a producer of quota tobacco under paragraph (1)(A) shall beequal to—
(A) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,under a marketing quota in all three of the 2002, 2003,or 2004 tobacco marketing years, the rate prescribed underparagraph (1)(A);
(B) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,under a marketing quota in only two of those tobaccomarketing years,
2⁄3of the rate prescribed under paragraph
(1)(A);
(C) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted,under a marketing quota in only one of those tobaccomarketing years,
1⁄3of the rate prescribed under paragraph
(1)(A).
(e) D EATH OF TOBACCO PRODUCER .—If a producer of quota
tobacco who is entitled to contract payments under this sectiondies and is survived by a spouse or one or more dependents, theright to receive the contract payments shall transfer to the survivingspouse or, if there is no surviving spouse, to the estate of theproducer.
SEC. 624. ADMINISTRATION.
(a) T IME FOR PAYMENT OF CONTRACT PAYMENTS .—Contract pay-
ments required to be made for a fiscal year shall be made bythe Secretary as soon as practicable.
(b) U
SE OF COUNTY COMMITTEES TO RESOLVE DISPUTES .—Any
dispute regarding the eligibility of a person to enter into a contractor to receive contract payments, and any dispute regarding theamount of a contract payment, may be appealed to the countycommittee established under section 8 of the Soil Conservation7 USC 518c.
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and Domestic Allotment Act (16 U.S.C. 590h) for the county or
other area in which the farming operation of the person is located.
(c) R OLE OF NATIONAL APPEALS DIVISION .—Any adverse deter-
mination of a county committee under subsection (b) may beappealed to the National Appeals Division established under sub-title H of the Department of Agriculture Reorganization Act of1994 (7 U.S.C. 6991 et seq.).
(d) U
SE OF FINANCIAL INSTITUTIONS .—The Secretary may use
a financial institution to manage assets, make contract payments,and otherwise carry out this title.
(e) P
AYMENT TO FINANCIAL INSTITUTIONS .—The Secretary shall
permit a tobacco quota holder or producer of quota tobacco entitledto contract payments to assign to a financial institution the rightto receive the contract payments. Upon receiving notification ofthe assignment, the Secretary shall make subsequent contract pay-ments for the tobacco quota holder or producer of quota tobaccodirectly to the financial institution designated by the tobacco quotaholder or producer of quota tobacco. The Secretary shall makeinformation available to tobacco quota holders and producers ofquota tobacco regarding their ability to elect to have the Secretarymake payments directly to a financial institution under this sub-section so that they may obtain a lump sum or other payment.
SEC. 625. USE OF ASSESSMENTS AS SOURCE OF FUNDS FOR PAYMENTS.
(a) D EFINITIONS .—In this section:
(1) B ASE PERIOD .—The term ‘‘base period’ means the one-
year period ending the June 30 before the beginning of afiscal year.
(2) G
ROSS DOMESTIC VOLUME .—The term ‘‘gross domestic
volume’’ means the volume of tobacco products—
(A) removed (as defined by section 5702 of the Internal
Revenue Code of 1986); and
(B) not exempt from tax under chapter 52 of the
Internal Revenue Code of 1986 at the time of their removalunder that chapter or the Harmonized Tariff Scheduleof the United States (19 U.S.C. 1202).(3) M
ARKET SHARE .—The term ‘‘market share’’ means the
share of each manufacturer or importer of a class of tobacco
product (expressed as a decimal to the fourth place) of thetotal volume of domestic sales of the class of tobacco productduring the base period for a fiscal year for an assessmentunder this section.(b) Q
UARTERLY ASSESSMENTS .—
(1) I MPOSITION OF ASSESSMENT .—The Secretary, acting
through the Commodity Credit Corporation, shall impose quar-terly assessments during each of fiscal years 2005 through2014, calculated in accordance with this section, on each tobaccoproduct manufacturer and tobacco product importer that sellstobacco products in domestic commerce in the United Statesduring that fiscal year.
(2) A
MOUNTS .—Beginning with the calendar quarter ending
on December 31 of each of fiscal years 2005 through 2014,the assessment payments over each four-calendar quarterperiod shall be sufficient to cover—
(A) the contract payments made under sections 622
and 623 during that period; and7 USC 518d.
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(B) other expenditures from the Tobacco Trust Fund
made during the base quarter periods corresponding tothe four calendar quarters of that period.(3) D
EPOSIT .—Assessments collected under this section
shall be deposited in the Tobacco Trust Fund.(c) A
SSESSMENTS FOR CLASSES OF TOBACCO PRODUCTS .—
(1) I NITIAL ALLOCATION .—The percentage of the total
amount required by subsection (b) to be assessed against, andpaid by, the manufacturers and importers of each class oftobacco product in fiscal year 2005 shall be as follows:
(A) For cigarette manufacturers and importers, 96.331
percent.
(B) For cigar manufacturers and importers, 2.783 per-
cent.
(C) For snuff manufacturers and importers, 0.539 per-
cent.
(D) For roll-your-own tobacco manufacturers and
importers, 0.171 percent.
(E) For chewing tobacco manufacturers and importers,
0.111 percent.
(F) For pipe tobacco manufacturers and importers,
0.066 percent.(2) S
UBSEQUENT ALLOCATIONS .—For subsequent fiscal
years, the Secretary shall periodically adjust the percentageof the total amount required under subsection (b) to be assessedagainst, and paid by, the manufacturers and importers of eachclass of tobacco product specified in paragraph (1) to reflectchanges in the share of gross domestic volume held by thatclass of tobacco product.
(3) E
FFECT OF INSUFFICIENT AMOUNTS .—If the Secretary
determines that the assessment imposed under subsection (b)will result in insufficient amounts to carry out this subtitleduring a fiscal year, the Secretary shall assess such additionalamounts as the Secretary determines to be necessary to carryout this subtitle during that fiscal year. The additional amountshall be allocated to manufacturers and importers of each classof tobacco product specified in paragraph (1) in the samemanner and based on the same percentages applicable underparagraph (1) or (2) for that fiscal year.
(d) N
OTIFICATION AND TIMING OF ASSESSMENTS .—
(1) N OTIFICATION OF ASSESSMENTS .—The Secretary shall
provide each manufacturer or importer subject to an assessmentunder subsection (b) with written notice setting forth theamount to be assessed against the manufacturer or importerfor each quarterly payment period. The notice for a quarterlyperiod shall be provided not later than 30 days before thedate payment is due under paragraph (3).
(2) C
ONTENT .—The notice shall include the following
information with respect to the quarterly period used by theSecretary in calculating the amount:
(A) The total combined assessment for all manufactur-
ers and importers of tobacco products.
(B) The total assessment with respect to the class
of tobacco products manufactured or imported by the manu-facturer or importer.Deadline.
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(C) Any adjustments to the percentage allocations
among the classes of tobacco products made pursuant toparagraph (2) or (3) of subsection (c).
(D) The volume of gross sales of the applicable class
of tobacco product treated as made by the manufactureror importer for purposes of calculating the manufacturer’sor importer’s market share under subsection (f).
(E) The total volume of gross sales of the applicable
class of tobacco product that the Secretary treated as madeby all manufacturers and importers for purposes of calcu-lating the manufacturer’s or importer’s market share undersubsection (f).
(F) The manufacturer’s or importer’s market share of
the applicable class of tobacco product, as determined bythe Secretary under subsection (f).
(G) The market share, as determined by the Secretary
under subsection (f), of each other manufacturer andimporter, for each applicable class of tobacco product.(3) T
IMING OF ASSESSMENT PAYMENTS .—
(A) C OLLECTION DATE .—Assessments shall be collected
at the end of each calendar year quarter, except that theSecretary shall ensure that the final assessment due underthis section is collected not later than September 30, 2014.
(B) B
ASE PERIOD QUARTER .—The assessment for a cal-
endar year quarter shall correspond to the base periodquarter that ended at the end of the preceding calendaryear quarter.
(e) A
LLOCATION OF ASSESSMENT WITHIN EACH CLASS OF
TOBACCO PRODUCT .—
(1) P RO RATA BASIS .—The assessment for each class of
tobacco product specified in subsection (c)(1) shall be allocatedon a pro rata basis among manufacturers and importers basedon each manufacturer’s or importer’s share of gross domesticvolume.
(2) L
IMITATION .—No manufacturer or importer shall be
required to pay an assessment that is based on a share thatis in excess of the manufacturer’s or importer’s share ofdomestic volume.(f) A
LLOCATION OF TOTAL ASSESSMENTS BY MARKET SHARE .—
The amount of the assessment for each class of tobacco productspecified in subsection (c)(1) to be paid by each manufacturer orimporter of that class of tobacco product shall be determined foreach quarterly payment period by multiplying—
(1) the market share of the manufacturer or importer,
as calculated with respect to that payment period, of the classof tobacco product; by
(2) the total amount of the assessment for that quarterly
payment period under subsection (c), for the class of tobaccoproduct.(g) D
ETERMINATION OF VOLUME OF DOMESTIC SALES .—
(1) I N GENERAL .—The calculation of the volume of domestic
sales of a class of tobacco product by a manufacturer orimporter, and by all manufacturers and importers as a group,shall be made by the Secretary based on information providedby the manufacturers and importers pursuant to subsection(h), as well as any other relevant information provided toor obtained by the Secretary.Deadline.
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(2) G ROSS DOMESTIC VOLUME .—The volume of domestic
sales shall be calculated based on gross domestic volume.
(3) M EASUREMENT .—For purposes of the calculations under
this subsection and the certifications under subsection (h) bythe Secretary, the volumes of domestic sales shall be measuredby—
(A) in the case of cigarettes and cigars, the number
of cigarettes and cigars; and
(B) in the case of the other classes of tobacco products
specified in subsection (c)(1), in terms of number of pounds,or fraction thereof, of those products.
(h) M
EASUREMENT OF VOLUME OF DOMESTIC SALES .—
(1) S UBMISSION OF INFORMATION .—Each manufacturer and
importer of tobacco products shall submit to the Secretarya certified copy of each of the returns or forms described byparagraph (2) that are required to be filed with a Federalagency on the same date that those returns or forms are filed,or required to be filed, with the agency.
(2) R
ETURNS AND FORMS .—The returns and forms described
by this paragraph are those returns and forms that relateto—
(A) the removal of tobacco products into domestic com-
merce (as defined by section 5702 of the Internal RevenueCode of 1986); and
(B) the payment of the taxes imposed under charter
52 of the Internal Revenue Code of 1986, including AFTForm 5000.24 and United States Customs Form 7501 undercurrently applicable regulations.(3) E
FFECT OF FAILURE TO PROVIDE REQUIRED INFORMA –
TION .—Any person that knowingly fails to provide information
required under this subsection or that provides false informa-tion under this subsection shall be subject to the penaltiesdescribed in section 1003 of title 18, United States Code. TheSecretary may also assess against the person a civil penaltyin an amount not to exceed two percent of the value of thekind of tobacco products manufactured or imported by theperson during the fiscal year in which the violation occurred,as determined by the Secretary.(i) C
HALLENGE TO ASSESSMENT .—
(1) A PPEAL TO SECRETARY .—A manufacturer or importer
subject to this section may contest an assessment imposedon the manufacturer or importer under this section by notifyingthe Secretary, not later than 30 business days after receivingthe assessment notification required by subsection (d), thatthe manufacturer or importer intends to contest the assessment.
(2) I
NFORMATION .—Not later than 180 days after the date
of the enactment of this title, the Secretary shall establishby regulation a procedure under which a manufacturer orimporter contesting an assessment under this subsection maypresent information to the Secretary to demonstrate that theassessment applicable to the manufacturer or importer is incor-rect. In challenging the assessment, the manufacturer orimporter may use any information that is available, includingthird party data on industry or individual company sales vol-umes.
(3) R
EVISION .—If a manufacturer or importer establishes
that the initial determination of the amount of an assessmentDeadline.Regulations.Deadline.Certification.
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is incorrect, the Secretary shall revise the amount of the assess-
ment so that the manufacturer or importer is required to payonly the amount correctly determined.
(4) T
IME FOR REVIEW .—Not later than 30 days after
receiving notice from a manufacturer or importer under para-graph (1), the Secretary shall—
(A) decide whether the information provided to the
Secretary under paragraph (2), and any other informationthat the Secretary determines is appropriate, is sufficientto establish that the original assessment was incorrect;and
(B) make any revisions necessary to ensure that each
manufacturer and importer pays only its correct pro ratashare of total gross domestic volume from all sources.(5) I
MMEDIATE PAYMENT OF UNDISPUTED AMOUNTS .—The
regulations promulgated by the Secretary under paragraph (2)shall provide for the immediate payment by a manufactureror importer challenging an assessment of that portion of theassessment that is not in dispute. The manufacturer andimporter may place into escrow, in accordance with such regula-tions, only the portion of the assessment being challenged ingood faith pending final determination of the claim.(j) J
UDICIAL REVIEW .—
(1) I N GENERAL .—Any manufacturer or importer aggrieved
by a determination of the Secretary with respect to the amountof any assessment may seek review of the determination inthe United States District Court for the District of Columbiaor for the district in which the manufacturer or importer residesor has its principal place of business at any time followingexhaustion of the administrative remedies available under sub-section (i).
(2) T
IME LIMITS .—Administrative remedies shall be deemed
exhausted if no decision by the Secretary is made within thetime limits established under subsection (i)(4).
(3) E
XCESSIVE ASSESSMENTS .—The court shall restrain
collection of the excessive portion of any assessment or ordera refund of excessive assessments already paid, along withinterest calculated at the rate prescribed in section 3717 oftitle 31, United States Code, if it finds that the Secretary’sdetermination is not supported by a preponderance of theinformation available to the Secretary.(k) T
ERMINATION DATE.—The authority provided by this section
to impose assessments terminates on September 30, 2014.
SEC. 626. TOBACCO TRUST FUND.
(a) E STABLISHMENT .—There is established in the Commodity
Credit Corporation a revolving trust fund, to be known as the‘‘Tobacco Trust Fund’’, which shall be used in carrying out thissubtitle. The Tobacco Trust Fund shall consist of the following:
(1) Assessments collected under section 625.(2) Such amounts as are necessary from the Commodity
Credit Corporation.
(3) Any interest earned on investment of amounts in the
Tobacco Trust Fund under subsection (c).(b) E
XPENDITURES .—
(1) A UTHORIZED EXPENDITURES .—Subject to paragraph (2),
and notwithstanding any other provision of law, the Secretary7 USC 518e.Deadline.
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shall use amounts in the Tobacco Trust Fund, in such amounts
as the Secretary determines are necessary—
(A) to make payments under sections 622 and 623;(B) to provide reimbursement under section 641(c);(C) to reimburse the Commodity Credit Corporation
for costs incurred by the Commodity Credit Corporationunder paragraph (2); and
(D) to make payments to financial institutions to sat-
isfy contractual obligations under section 622 or 623.(2) E
XPENDITURES BY COMMODITY CREDIT CORPORATION .—
Notwithstanding any other provision of law, the Secretary shalluse the funds, facilities, and authorities of the CommodityCredit Corporation to make payments described in paragraph(1). Not later than January 1, 2015, the Secretary shall useamounts in the Tobacco Trust Fund to fully reimburse, withinterest, the Commodity Credit Corporation for all funds ofthe Commodity Credit Corporation expended under the
authority of this paragraph. Administrative costs incurred bythe Secretary or the Commodity Credit Corporation to carryout this title may not be paid using amounts in the TobaccoTrust Fund.(c) I
NVESTMENT OF AMOUNTS .—
(1) I N GENERAL .—The Commodity Credit Corporation shall
invest such portion of the amounts in the Tobacco Trust Fundas are not, in the judgment of the Commodity Credit Corpora-tion, required to meet current expenditures.
(2) I
NTEREST -BEARING OBLIGATIONS .—Investments may be
made only in interest-bearing obligations of the United States.
(3) A CQUISITION OF OBLIGATIONS .—For the purpose of
investments under paragraph (1), obligations may be acquired—
(A) on original issue at the issue price; or(B) by purchase of outstanding obligations at the
market price.(4) S
ALE OF OBLIGATIONS .—Any obligation acquired by the
Tobacco Trust Fund may be sold by the Commodity CreditCorporation at the market price.
(5) C
REDITS TO FUND .—The interest on, and the proceeds
from the sale or redemption of, any obligations held in theTobacco Trust Fund shall be credited to and form a part ofthe Fund.
SEC. 627. LIMITATION ON TOTAL EXPENDITURES.
The total amount expended by the Secretary from the Tobacco
Trust Fund to make payments under sections 622 and 623 andfor the other authorized purposes of the Fund shall not exceed$10,140,000,000.
Subtitle C—Implementation and
Transition
SEC. 641. TREATMENT OF TOBACCO LOAN POOL STOCKS AND OUT-
STANDING LOAN COSTS.
(a) D ISPOSAL OF STOCKS .—To provide for the orderly disposition
of quota tobacco held by an association that has entered into aloan agreement with the Commodity Credit Corporation under sec-tion 106A or 106B of the Agricultural Act of 1949 (7 U.S.C. 1445–7 USC 519.7 USC 518f.Deadline.
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1, 1445–2) (referred to in this section as an ‘‘association’’), loan
pool stocks for each kind of tobacco held by the association shallbe disposed of in accordance with this section.
(b) D
ISPOSAL BY ASSOCIATIONS .—For each kind of tobacco held
by an association, the association shall be responsible for the dis-posal of a specific quantity of the loan pool stocks for that kindof tobacco held by the association. The quantity transferred tothe association for disposal shall be equal to the quantity deter-mined by dividing—
(1) the amount of funds held by the association in the
No Net Cost Tobacco Fund and the No Net Cost TobaccoAccount established under sections 106A and 106B of the Agri-cultural Act of 1949 (7 U.S.C. 1445–1, 1445–2) for the kindof tobacco; by
(2) the average list price per pound for the kind of tobacco,
as determined by the Secretary.(c) D
ISPOSAL OF REMAINDER BY COMMODITY CREDIT CORPORA –
TION .—
(1) D ISPOSAL .—Any loan pool stocks of a kind of tobacco
of an association that are not transferred to the associationunder subsection (b) for disposal shall be disposed of by Com-modity Credit Corporation in a manner determined by theSecretary.
(2) R
EIMBURSEMENT .—As required by section 626(b)(1)(B),
the Secretary shall transfer from the Tobacco Trust Fund tothe No Net Cost Tobacco Fund or the No Net Cost TobaccoAccount of an association established under section 106A or106B of the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–2) such amounts as the Secretary determines will be adequateto reimburse the Commodity Credit Corporation for any netlosses that the Corporation may sustain under its loan agree-ments with the association.(d) T
RANSFER OF REMAINING NONETCOSTFUNDS .—Any funds
in the No Net Cost Tobacco Fund or the No Net Cost TobaccoAccount of an association established under sections 106A and106B of the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–
2) that remain after the application of subsections (b) and (c)shall be transferred to the association for distribution to producersof quota tobacco in accordance with a plan approved by the Sec-retary.
SEC. 642. REGULATIONS.
(a) I NGENERAL .—The Secretary may promulgate such regula-
tions as are necessary to implement this title and the amendmentsmade by this title.
(b) P
ROCEDURE .—The promulgation of the regulations and
administration of this title and the amendments made by thistitle shall be made without regard to—
(1) the notice and comment provisions of section 553 of
title 5, United States Code;
(2) the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971 (36 Fed. Reg. 13804), relating to noticesof proposed rulemaking and public participation in rulemaking;and
(3) chapter 35 of title 44, United States Code (commonly
known as the ‘‘Paperwork Reduction Act’’).7 USC 519a.
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(c) C ONGRESSIONAL REVIEW OF AGENCY RULEMAKING .—In car-
rying out this section, the Secretary shall use the authority providedunder section 808 of title 5, United States Code.
SEC. 643. EFFECTIVE DATE.
This title and the amendments made by this title shall apply
to the 2005 and subsequent crops of each kind of tobacco.
TITLE VII—MISCELLANEOUS
PROVISIONS
SEC. 701. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED
GREEN BUILDING AND SUSTAINABLE DESIGN PROJECTS.
(a) T REATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of
section 142 (relating to the definition of exempt facility bond) isamended by striking ‘‘or’’ at the end of paragraph (12), by strikingthe period at the end of paragraph (13) and inserting ‘‘, or’’, andby inserting at the end the following new paragraph:
‘‘(14) qualified green building and sustainable design
projects.’’.(b) Q
UALIFIED GREEN BUILDING AND SUSTAINABLE DESIGN
PROJECTS .—Section 142 (relating to exempt facility bonds) is
amended by adding at the end thereof the following new subsection:
‘‘(l) Q UALIFIED GREEN BUILDING AND SUSTAINABLE DESIGN
PROJECTS .—
‘‘(1) I N GENERAL .—For purposes of subsection (a)(14), the
term ‘qualified green building and sustainable design project’means any project which is designated by the Secretary, afterconsultation with the Administrator of the EnvironmentalProtection Agency, as a qualified green building and sustainabledesign project and which meets the requirements of clauses(i), (ii), (iii), and (iv) of paragraph (4)(A).
‘‘(2) D
ESIGNATIONS .—
‘‘(A) I N GENERAL .—Within 60 days after the end of
the application period described in paragraph (3)(A), theSecretary, after consultation with the Administrator of theEnvironmental Protection Agency, shall designate qualifiedgreen building and sustainable design projects. At leastone of the projects designated shall be located in, or withina 10-mile radius of, an empowerment zone as designatedpursuant to section 1391, and at least one of the projectsdesignated shall be located in a rural State. No more thanone project shall be designated in a State. A project shallnot be designated if such project includes a stadium orarena for professional sports exhibitions or games.
‘‘(B) M
INIMUM CONSERVATION AND TECHNOLOGY
INNOVATION OBJECTIVES .—The Secretary, after consultation
with the Administrator of the Environmental ProtectionAgency, shall ensure that, in the aggregate, the projectsdesignated shall—
‘‘(i) reduce electric consumption by more than 150
megawatts annually as compared to conventionalgeneration,
‘‘(ii) reduce daily sulfur dioxide emissions by at
least 10 tons compared to coal generation power,Deadline.7 USC 518 note.
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‘‘(iii) expand by 75 percent the domestic solar
photovoltaic market in the United States (measuredin megawatts) as compared to the expansion of thatmarket from 2001 to 2002, and
‘‘(iv) use at least 25 megawatts of fuel cell energy
generation.
‘‘(3) L
IMITED DESIGNATIONS .—A project may not be des-
ignated under this subsection unless—
‘‘(A) the project is nominated by a State or local govern-
ment within 180 days of the enactment of this subsection,and
‘‘(B) such State or local government provides written
assurances that the project will satisfy the eligibility cri-teria described in paragraph (4).‘‘(4) A
PPLICATION .—
‘‘(A) I N GENERAL .—A project may not be designated
under this subsection unless the application for such des-ignation includes a project proposal which describes theenergy efficiency, renewable energy, and sustainable designfeatures of the project and demonstrates that the projectsatisfies the following eligibility criteria:
‘‘(i) G
REEN BUILDING AND SUSTAINABLE DESIGN .—
At least 75 percent of the square footage of commercialbuildings which are part of the project is registeredfor United States Green Building Council’s LEED cer-tification and is reasonably expected (at the time ofthe designation) to receive such certification. For pur-poses of determining LEED certification as requiredunder this clause, points shall be credited by usingthe following:
‘‘(I) For wood products, certification under the
Sustainable Forestry Initiative Program and theAmerican Tree Farm System.
‘‘(II) For renewable wood products, as credited
for recycled content otherwise provided underLEED certification.
‘‘(III) For composite wood products, certifi-
cation under standards established by the Amer-ican National Standards Institute, or such othervoluntary standards as published in the FederalRegister by the Administrator of the Environ-mental Protection Agency.‘‘(ii) B
ROWNFIELD REDEVELOPMENT .—The project
includes a brownfield site as defined by section 101(39)of the Comprehensive Environmental Response, Com-pensation, and Liability Act of 1980 (42 U.S.C. 9601),including a site described in subparagraph(D)(ii)(II)(aa) thereof.
‘‘(iii) S
TATE AND LOCAL SUPPORT .—The project
receives specific State or local government resourceswhich will support the project in an amount equalto at least $5,000,000. For purposes of the precedingsentence, the term ‘resources’ includes tax abatementbenefits and contributions in kind.
‘‘(iv) S
IZE.—The project includes at least one of
the following:
‘‘(I) At least 1,000,000 square feet of building.Deadline.
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‘‘(II) At least 20 acres.
‘‘(v) U SE OF TAX BENEFIT .—The project proposal
includes a description of the net benefit of the tax-exempt financing provided under this subsection whichwill be allocated for financing of one or more of thefollowing:
‘‘(I) The purchase, construction, integration,
or other use of energy efficiency, renewable energy,and sustainable design features of the project.
‘‘(II) Compliance with certification standards
cited under clause (i).
‘‘(III) The purchase, remediation, and founda-
tion construction and preparation of thebrownfields site.‘‘(vi) P
ROHIBITED FACILITIES .—An issue shall not
be treated as an issue described in subsection (a)(14)if any proceeds of such issue are used to provide anyfacility the principal business of which is the saleof food or alcoholic beverages for consumption on thepremises.
‘‘(vii) E
MPLOYMENT .—The project is projected to
provide permanent employment of at least 1,500 fulltime equivalents (150 full time equivalents in ruralStates) when completed and construction employmentof at least 1,000 full time equivalents (100 full timeequivalents in rural States).
The application shall include an independent analysiswhich describes the project’s economic impact, includingthe amount of projected employment.
‘‘(B) P
ROJECT DESCRIPTION .—Each application
described in subparagraph (A) shall contain for each projecta description of—
‘‘(i) the amount of electric consumption reduced
as compared to conventional construction,
‘‘(ii) the amount of sulfur dioxide daily emissions
reduced compared to coal generation,
‘‘(iii) the amount of the gross installed capacity
of the project’s solar photovoltaic capacity measuredin megawatts, and
‘‘(iv) the amount, in megawatts, of the project’s
fuel cell energy generation.
‘‘(5) C
ERTIFICATION OF USE OF TAX BENEFIT .—No later than
30 days after the completion of the project, each project mustcertify to the Secretary that the net benefit of the tax-exemptfinancing was used for the purposes described in paragraph(4).
‘‘(6) D
EFINITIONS .—For purposes of this subsection—
‘‘(A) R URAL STATE .—The term ‘rural State’ means any
State which has—
‘‘(i) a population of less than 4,500,000 according
to the 2000 census,
‘‘(ii) a population density of less than 150 people
per square mile according to the 2000 census, and
‘‘(iii) increased in population by less than half the
rate of the national increase between the 1990 and2000 censuses.Deadline.
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‘‘(B) L OCAL GOVERNMENT .—The term ‘local government’
has the meaning given such term by section 1393(a)(5).
‘‘(C) N ET BENEFIT OF TAX -EXEMPT FINANCING .—The
term ‘net benefit of tax-exempt financing’ means thepresent value of the interest savings (determined by acalculation established by the Secretary) which result fromthe tax-exempt status of the bonds.‘‘(7) A
GGREGATE FACE AMOUNT OF TAX -EXEMPT FINANCING .—
‘‘(A) I N GENERAL .—An issue shall not be treated as
an issue described in subsection (a)(14) if the aggregateface amount of bonds issued by the State or local govern-ment pursuant thereto for a project (when added to theaggregate face amount of bonds previously so issued forsuch project) exceeds an amount designated by the Sec-retary as part of the designation.
‘‘(B) L
IMITATION ON AMOUNT OF BONDS .—The Secretary
may not allocate authority to issue qualified green buildingand sustainable design project bonds in an aggregate faceamount exceeding $2,000,000,000.‘‘(8) T
ERMINATION .—Subsection (a)(14) shall not apply with
respect to any bond issued after September 30, 2009.
‘‘(9) T REATMENT OF CURRENT REFUNDING BONDS .—Para-
graphs (7)(B) and (8) shall not apply to any bond (or seriesof bonds) issued to refund a bond issued under subsection(a)(14) before October 1, 2009, if—
‘‘(A) the average maturity date of the issue of which
the refunding bond is a part is not later than the averagematurity date of the bonds to be refunded by such issue,
‘‘(B) the amount of the refunding bond does not exceed
the outstanding amount of the refunded bond, and
‘‘(C) the net proceeds of the refunding bond are used
to redeem the refunded bond not later than 90 days afterthe date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall bedetermined in accordance with section 147(b)(2)(A).’’.(c) E
XEMPTION FROM GENERAL STATE VOLUME CAPS.—Para-
graph (3) of section 146(g) (relating to exception for certain bonds)is amended—
(1) by striking ‘‘or (13)’’ and inserting ‘‘(13), or (14)’’, and(2) by striking ‘‘and qualified public educational facilities’’
and inserting ‘‘qualified public educational facilities, and quali-fied green building and sustainable design projects’’.(d) A
CCOUNTABILITY .—Each issuer shall maintain, on behalf
of each project, an interest bearing reserve account equal to 1percent of the net proceeds of any bond issued under this sectionfor such project. Not later than 5 years after the date of issuance,the Secretary of the Treasury, after consultation with the Adminis-trator of the Environmental Protection Agency, shall determinewhether the project financed with such bonds has substantiallycomplied with the terms and conditions described in section 142(l)(4)of the Internal Revenue Code of 1986 (as added by this section).If the Secretary, after such consultation, certifies that the projecthas substantially complied with such terms and conditions andmeets the commitments set forth in the application for such projectdescribed in section 142(l)(4) of such Code, amounts in the reserveaccount, including all interest, shall be released to the project.If the Secretary determines that the project has not substantially
Deadline.26 USC 142 note.
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complied with such terms and conditions, amounts in the reserve
account, including all interest, shall be paid to the United StatesTreasury.
(e) E
FFECTIVE DATE.—The amendments made by this section
shall apply to bonds issued after December 31, 2004.
SEC. 702. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF
CERTAIN BROWNFIELD SITES FROM UNRELATED BUSI-NESS TAXABLE INCOME.
(a) I NGENERAL .—Subsection (b) of section 512 (relating to
unrelated business taxable income) is amended by adding at theend the following new paragraph:
‘‘(18) T
REATMENT OF GAIN OR LOSS ON SALE OR EXCHANGE
OF CERTAIN BROWNFIELD SITES .—
‘‘(A) I N GENERAL .—Notwithstanding paragraph (5)(B),
there shall be excluded any gain or loss from the qualifiedsale, exchange, or other disposition of any qualifyingbrownfield property by an eligible taxpayer.
‘‘(B) E
LIGIBLE TAXPAYER .—For purposes of this
paragraph—
‘‘(i) I N GENERAL .—The term ‘eligible taxpayer’
means, with respect to a property, any organizationexempt from tax under section 501(a) which—
‘‘(I) acquires from an unrelated person a quali-
fying brownfield property, and
‘‘(II) pays or incurs eligible remediation
expenditures with respect to such property in anamount which exceeds the greater of $550,000 or12 percent of the fair market value of the propertyat the time such property was acquired by theeligible taxpayer, determined as if there was nota presence of a hazardous substance, pollutant,or contaminant on the property which is compli-cating the expansion, redevelopment, or reuse ofthe property.‘‘(ii) E
XCEPTION .—Such term shall not include any
organization which is—
‘‘(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Com-pensation, and Liability Act of 1980 with respectto the qualifying brownfield property,
‘‘(II) affiliated with any other person which
is so potentially liable through any direct orindirect familial relationship or any contractual,corporate, or financial relationship (other than acontractual, corporate, or financial relationshipwhich is created by the instruments by which titleto any qualifying brownfield property is conveyedor financed or by a contract of sale of goods orservices), or
‘‘(III) the result of a reorganization of a busi-
ness entity which was so potentially liable.
‘‘(C) Q
UALIFYING BROWNFIELD PROPERTY .—For purposes
of this paragraph—
‘‘(i) I N GENERAL .—The term ‘qualifying brownfield
property’ means any real property which is certified,before the taxpayer incurs any eligible remediation26 USC 142 note.
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expenditures (other than to obtain a Phase I environ-
mental site assessment), by an appropriate Stateagency (within the meaning of section 198(c)(4)) inthe State in which such property is located as abrownfield site within the meaning of section 101(39)of the Comprehensive Environmental Response, Com-pensation, and Liability Act of 1980 (as in effect onthe date of the enactment of this paragraph).
‘‘(ii) R
EQUEST FOR CERTIFICATION .—Any request by
an eligible taxpayer for a certification described inclause (i) shall include a sworn statement by theeligible taxpayer and supporting documentation of thepresence of a hazardous substance, pollutant, orcontaminant on the property which is complicatingthe expansion, redevelopment, or reuse of the propertygiven the property’s reasonably anticipated future landuses or capacity for uses of the property (includinga Phase I environmental site assessment and, ifapplicable, evidence of the property’s presence on alocal, State, or Federal list of brownfields or contami-nated property) and other environmental assessmentsprepared or obtained by the taxpayer.‘‘(D) Q
UALIFIED SALE , EXCHANGE , OR OTHER DISPOSI –
TION .—For purposes of this paragraph—
‘‘(i) I N GENERAL .—A sale, exchange, or other dis-
position of property shall be considered as qualifiedif—
‘‘(I) such property is transferred by the eligible
taxpayer to an unrelated person, and
‘‘(II) within 1 year of such transfer the eligible
taxpayer has received a certification from theEnvironmental Protection Agency or an appro-priate State agency (within the meaning of section198(c)(4)) in the State in which such property islocated that, as a result of the eligible taxpayer’sremediation actions, such property would not betreated as a qualifying brownfield property in thehands of the transferee.
For purposes of subclause (II), before issuing such cer-tification, the Environmental Protection Agency orappropriate State agency shall respond to commentsreceived pursuant to clause (ii)(V) in the same formand manner as required under section 117(b) of theComprehensive Environmental Response, Compensa-tion, and Liability Act of 1980 (as in effect on thedate of the enactment of this paragraph).
‘‘(ii) R
EQUEST FOR CERTIFICATION .—Any request by
an eligible taxpayer for a certification described inclause (i) shall be made not later than the date ofthe transfer and shall include a sworn statement bythe eligible taxpayer certifying the following:
‘‘(I) Remedial actions which comply with all
applicable or relevant and appropriate require-ments (consistent with section 121(d) of the Com-prehensive Environmental Response, Compensa-tion, and Liability Act of 1980) have been substan-tially completed, such that there are no hazardousDeadline.
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substances, pollutants, or contaminants which
complicate the expansion, redevelopment, or reuseof the property given the property’s reasonablyanticipated future land uses or capacity for usesof the property.
‘‘(II) The reasonably anticipated future land
uses or capacity for uses of the property are moreeconomically productive or environmentally bene-ficial than the uses of the property in existenceon the date of the certification described insubparagraph (C)(i). For purposes of the precedingsentence, use of property as a landfill or otherhazardous waste facility shall not be consideredmore economically productive or environmentallybeneficial.
‘‘(III) A remediation plan has been imple-
mented to bring the property into compliance withall applicable local, State, and Federal environ-mental laws, regulations, and standards and toensure that the remediation protects human healthand the environment.
‘‘(IV) The remediation plan described in sub-
clause (III), including any physical improvementsrequired to remediate the property, is either com-plete or substantially complete, and, if substan-tially complete, sufficient monitoring, funding,institutional controls, and financial assuranceshave been put in place to ensure the completeremediation of the property in accordance withthe remediation plan as soon as is reasonably prac-ticable after the sale, exchange, or other disposi-tion of such property.
‘‘(V) Public notice and the opportunity for com-
ment on the request for certification was completedbefore the date of such request. Such notice andopportunity for comment shall be in the same formand manner as required for public participationrequired under section 117(a) of the Comprehen-sive Environmental Response, Compensation, andLiability Act of 1980 (as in effect on the dateof the enactment of this paragraph). For purposesof this subclause, public notice shall include, ata minimum, publication in a major local newspaperof general circulation.‘‘(iii) A
TTACHMENT TO TAX RETURNS .—A copy of
each of the requests for certification described in clause(ii) of subparagraph (C) and this subparagraph shallbe included in the tax return of the eligible taxpayer(and, where applicable, of the qualifying partnership)for the taxable year during which the transfer occurs.
‘‘(iv) S
UBSTANTIAL COMPLETION .—For purposes of
this subparagraph, a remedial action is substantiallycomplete when any necessary physical construction iscomplete, all immediate threats have been eliminated,and all long-term threats are under control.‘‘(E) E
LIGIBLE REMEDIATION EXPENDITURES .—For pur-
poses of this paragraph—Notice.
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‘‘(i) I N GENERAL .—The term ‘eligible remediation
expenditures’ means, with respect to any qualifyingbrownfield property, any amount paid or incurred bythe eligible taxpayer to an unrelated third person toobtain a Phase I environmental site assessment ofthe property, and any amount so paid or incurredafter the date of the certification described in subpara-graph (C)(i) for goods and services necessary to obtaina certification described in subparagraph (D)(i) withrespect to such property, including expenditures—
‘‘(I) to manage, remove, control, contain, abate,
or otherwise remediate a hazardous substance,pollutant, or contaminant on the property,
‘‘(II) to obtain a Phase II environmental site
assessment of the property, including any expendi-ture to monitor, sample, study, assess, or otherwiseevaluate the release, threat of release, or presenceof a hazardous substance, pollutant, or contami-nant on the property,
‘‘(III) to obtain environmental regulatory cer-
tifications and approvals required to manage theremediation and monitoring of the hazardous sub-stance, pollutant, or contaminant on the property,and
‘‘(IV) regardless of whether it is necessary to
obtain a certification described in subparagraph(D)(i)(II), to obtain remediation cost-cap or stop-loss coverage, re-opener or regulatory action cov-erage, or similar coverage under environmentalinsurance policies, or financial guarantees requiredto manage such remediation and monitoring.‘‘(ii) E
XCEPTIONS .—Such term shall not include—
‘‘(I) any portion of the purchase price paid
or incurred by the eligible taxpayer to acquirethe qualifying brownfield property,
‘‘(II) environmental insurance costs paid or
incurred to obtain legal defense coverage, owner/operator liability coverage, lender liability cov-erage, professional liability coverage, or similartypes of coverage,
‘‘(III) any amount paid or incurred to the
extent such amount is reimbursed, funded, orotherwise subsidized by grants provided by theUnited States, a State, or a political subdivisionof a State for use in connection with the property,proceeds of an issue of State or local governmentobligations used to provide financing for the prop-erty the interest of which is exempt from tax undersection 103, or subsidized financing provided(directly or indirectly) under a Federal, State, orlocal program provided in connection with theproperty, or
‘‘(IV) any expenditure paid or incurred before
the date of the enactment of this paragraph.
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For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-pro-vided funds for purposes of determining eligibleremediation expenditures.‘‘(F) D
ETERMINATION OF GAIN OR LOSS .—For purposes
of this paragraph, the determination of gain or loss shallnot include an amount treated as gain which is ordinaryincome with respect to section 1245 or section 1250 prop-erty, including amounts deducted as section 198 expenseswhich are subject to the recapture rules of section 198(e),if the taxpayer had deducted such amounts in the computa-tion of its unrelated business taxable income.
‘‘(G) S
PECIAL RULES FOR PARTNERSHIPS .—
‘‘(i) I N GENERAL .—In the case of an eligible tax-
payer which is a partner of a qualifying partnershipwhich acquires, remediates, and sells, exchanges, orotherwise disposes of a qualifying brownfield property,this paragraph shall apply to the eligible taxpayer’sdistributive share of the qualifying partnership’s gainor loss from the sale, exchange, or other dispositionof such property.
‘‘(ii) Q
UALIFYING PARTNERSHIP .—The term ‘quali-
fying partnership’ means a partnership which—
‘‘(I) has a partnership agreement which satis-
fies the requirements of section 514(c)(9)(B)(vi) atall times beginning on the date of the first certifi-cation received by the partnership under subpara-graph (C)(i),
‘‘(II) satisfies the requirements of subpara-
graphs (B)(i), (C), (D), and (E), if ‘qualified partner-ship’ is substituted for ‘eligible taxpayer’ each placeit appears therein (except subparagraph (D)(iii)),and
‘‘(III) is not an organization which would be
prevented from constituting an eligible taxpayerby reason of subparagraph (B)(ii).‘‘(iii) R
EQUIREMENT THAT TAX -EXEMPT PARTNER BE
A PARTNER SINCE FIRST CERTIFICATION .—This para-
graph shall apply with respect to any eligible taxpayerwhich is a partner of a partnership which acquires,remediates, and sells, exchanges, or otherwise disposesof a qualifying brownfield property only if such eligibletaxpayer was a partner of the qualifying partnershipat all times beginning on the date of the first certifi-cation received by the partnership under subparagraph(C)(i) and ending on the date of the sale, exchange,
or other disposition of the property by the partnership.
‘‘(iv) R
EGULATIONS .—The Secretary shall prescribe
such regulations as are necessary to prevent abuseof the requirements of this subparagraph, includingabuse through—
‘‘(I) the use of special allocations of gains or
losses, or
‘‘(II) changes in ownership of partnership
interests held by eligible taxpayers.
‘‘(H) S
PECIAL RULES FOR MULTIPLE PROPERTIES .—Applicability.
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‘‘(i) I N GENERAL .—An eligible taxpayer or a quali-
fying partnership of which the eligible taxpayer is apartner may make a 1-time election to apply this para-graph to more than 1 qualifying brownfield propertyby averaging the eligible remediation expenditures forall such properties acquired during the election period.If the eligible taxpayer or qualifying partnership makessuch an election, the election shall apply to all qualifiedsales, exchanges, or other dispositions of qualifyingbrownfield properties the acquisition and transfer ofwhich occur during the period for which the electionremains in effect.
‘‘(ii) E
LECTION .—An election under clause (i) shall
be made with the eligible taxpayer’s or qualifying part-nership’s timely filed tax return (including extensions)for the first taxable year for which the taxpayer orqualifying partnership intends to have the electionapply. An election under clause (i) is effective for theperiod—
‘‘(I) beginning on the date which is the first
day of the taxable year of the return in whichthe election is included or a later day in suchtaxable year selected by the eligible taxpayer orqualifying partnership, and
‘‘(II) ending on the date which is the earliest
of a date of revocation selected by the eligibletaxpayer or qualifying partnership, the date whichis 8 years after the date described in subclause(I), or, in the case of an election by a qualifyingpartnership of which the eligible taxpayer is apartner, the date of the termination of the quali-fying partnership.‘‘(iii) R
EVOCATION .—An eligible taxpayer or quali-
fying partnership may revoke an election under clause(i)(II) by filing a statement of revocation with a timelyfiled tax return (including extensions). A revocationis effective as of the first day of the taxable yearof the return in which the revocation is included ora later day in such taxable year selected by the eligibletaxpayer or qualifying partnership. Once an eligibletaxpayer or qualifying partnership revokes the election,the eligible taxpayer or qualifying partnership is ineli-gible to make another election under clause (i) withrespect to any qualifying brownfield property subjectto the revoked election.‘‘(I) R
ECAPTURE .—If an eligible taxpayer excludes gain
or loss from a sale, exchange, or other disposition of prop-erty to which an election under subparagraph (H) applies,and such property fails to satisfy the requirements of thisparagraph, the unrelated business taxable income of theeligible taxpayer for the taxable year in which such failureoccurs shall be determined by including any previouslyexcluded gain or loss from such sale, exchange, or otherdisposition allocable to such taxpayer, and interest shallbe determined at the overpayment rate established undersection 6621 on any resulting tax for the period beginningwith the due date of the return for the taxable year during
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which such sale, exchange, or other disposition occurred,
and ending on the date of payment of the tax.
‘‘(J) R ELATED PERSONS .—For purposes of this para-
graph, a person shall be treated as related to anotherperson if—
‘‘(i) such person bears a relationship to such other
person described in section 267(b) (determined withoutregard to paragraph (9) thereof), or section 707(b)(1),determined by substituting ‘25 percent’ for ‘50 percent’each place it appears therein, and
‘‘(ii) in the case such other person is a nonprofit
organization, if such person controls directly orindirectly more than 25 percent of the governing bodyof such organization.‘‘(K) T
ERMINATION .—Except for purposes of deter-
mining the average eligible remediation expenditures forproperties acquired during the election period undersubparagraph (H), this paragraph shall not apply to anyproperty acquired by the eligible taxpayer or qualifyingpartnership after December 31, 2009.’’.
(b) E
XCLUSION FROM DEFINITION OF DEBT-FINANCED PROP-
ERTY .—Section 514(b)(1) (defining debt-financed property) is
amended by striking ‘‘or’’ at the end of subparagraph (C), by strikingthe period at the end of subparagraph (D) and inserting ‘‘; or’’,and by inserting after subparagraph (D) the following new subpara-graph:
‘‘(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be excludedby reason of the provisions of section 512(b)(18) in com-puting the gross income of any unrelated trade or busi-ness.’’.
(c) S
AVINGS CLAUSE .—Nothing in the amendments made by
this section shall affect any duty, liability, or other requirementimposed under any other Federal or State law. Notwithstandingsection 128(b) of the Comprehensive Environmental Response, Com-pensation, and Liability Act of 1980, a certification provided bythe Environmental Protection Agency or an appropriate Stateagency (within the meaning of section 198(c)(4) of the InternalRevenue Code of 1986) shall not affect the liability of any personunder section 107(a) of such Act.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to any gain or loss on the sale, exchange, or otherdisposition of any property acquired by the taxpayer after December31, 2004.
SEC. 703. CIVIL RIGHTS TAX RELIEF.
(a) D EDUCTION ALLOWED WHETHER OR NOTTAXPAYER ITEMIZES
OTHER DEDUCTIONS .—Subsection (a) of section 62 (defining adjusted
gross income) is amended by inserting after paragraph (18) thefollowing new item:
‘‘(19) C
OSTS INVOLVING DISCRIMINATION SUITS , ETC.—Any
deduction allowable under this chapter for attorney fees andcourt costs paid by, or on behalf of, the taxpayer in connectionwith any action involving a claim of unlawful discrimination(as defined in subsection (e)) or a claim of a violation of sub-chapter III of chapter 37 of title 31, United States Code ora claim made under section 1862(b)(3)(A) of the Social Security
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Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall
not apply to any deduction in excess of the amount includiblein the taxpayer’s gross income for the taxable year on accountof a judgment or settlement (whether by suit or agreementand whether as lump sum or periodic payments) resultingfrom such claim.’’.(b) U
NLAWFUL DISCRIMINATION DEFINED .—Section 62 is
amended by adding at the end the following new subsection:
‘‘(e) U NLAWFUL DISCRIMINATION DEFINED .—For purposes of sub-
section (a)(19), the term ‘unlawful discrimination’ means an actthat is unlawful under any of the following:
‘‘(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
‘‘(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,1313, 1314, 1315, 1316, or 1317).
‘‘(3) The National Labor Relations Act (29 U.S.C. 151 et
seq.).
‘‘(4) The Fair Labor Standards Act of 1938 (29 U.S.C.
201 et seq.).
‘‘(5) Section 4 or 15 of the Age Discrimination in Employ-
ment Act of 1967 (29 U.S.C. 623 or 633a).
‘‘(6) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
‘‘(7) Section 510 of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1140).
‘‘(8) Title IX of the Education Amendments of 1972 (20
U.S.C. 1681 et seq.).
‘‘(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 2001 et seq.).
‘‘(10) The Worker Adjustment and Retraining Notification
Act (29 U.S.C. 2102 et seq.).
‘‘(11) Section 105 of the Family and Medical Leave Act
of 1993 (29 U.S.C. 2615).
‘‘(12) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of theuniformed services).
‘‘(13) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
‘‘(14) Section 703, 704, or 717 of the Civil Rights Act
of 1964 (42 U.S.C. 2000e–2, 2000e–3, or 2000e–16).
‘‘(15) Section 804, 805, 806, 808, or 818 of the Fair Housing
Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
‘‘(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or12203).
‘‘(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the dischargeof an employee, the discrimination against an employee, orany other form of retaliation or reprisal against an employeefor asserting rights or taking other actions permitted underFederal law.
‘‘(18) Any provision of Federal, State, or local law, or
common law claims permitted under Federal, State, or locallaw—
‘‘(i) providing for the enforcement of civil rights,
or
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‘‘(ii) regulating any aspect of the employment rela-
tionship, including claims for wages, compensation, orbenefits, or prohibiting the discharge of an employee,the discrimination against an employee, or any otherform of retaliation or reprisal against an employeefor asserting rights or taking other actions permittedby law.’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to fees and costs paid after the date of the enactmentof this Act with respect to any judgment or settlement occurringafter such date.
SEC. 704. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILI-
TIES.
(a) 7-Y EAR PROPERTY .—Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended by redesig-nating clause (ii) as clause (iii) and by inserting after clause (i)the following new clause:
‘‘(ii) any motorsports entertainment complex, and’’.
(b) D
EFINITION .—Section 168(i) (relating to definitions and spe-
cial rules) is amended by adding at the end the following newparagraph:
‘‘(15) M
OTORSPORTS ENTERTAINMENT COMPLEX .—
‘‘(A) I N GENERAL .—The term ‘motorsports entertain-
ment complex’ means a racing track facility which—
‘‘(i) is permanently situated on land, and‘‘(ii) during the 36-month period following the first
day of the month in which the asset is placed inservice, hosts 1 or more racing events for automobiles(of any type), trucks, or motorcycles which are opento the public for the price of admission.‘‘(B) A
NCILLARY AND SUPPORT FACILITIES .—Such term
shall include, if owned by the taxpayer who owns thecomplex and provided for the benefit of patrons of thecomplex—
‘‘(i) ancillary facilities and land improvements in
support of the complex’s activities (including parkinglots, sidewalks, waterways, bridges, fences, and land-scaping),
‘‘(ii) support facilities (including food and beverage
retailing, souvenir vending, and other nonlodgingaccommodations), and
‘‘(iii) appurtenances associated with such facilities
and related attractions and amusements (includingticket booths, race track surfaces, suites and hospitalityfacilities, grandstands and viewing structures, props,walls, facilities that support the delivery of entertain-ment services, other special purpose structures,facades, shop interiors, and buildings).‘‘(C) E
XCEPTION .—Such term shall not include any
transportation equipment, administrative services assets,warehouses, administrative buildings, hotels, or motels.
‘‘(D) T
ERMINATION .—This paragraph shall not apply
to any property placed in service after December 31, 2007.’’.
(c) E FFECTIVE DATE.— 26 USC 168 note.26 USC 62 note.
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(1) I N GENERAL .—The amendments made by this section
shall apply to any property placed in service after the dateof the enactment of this Act.
(2) S
PECIAL RULE FOR ASSET CLASS 80 .0.—In the case of
race track facilities placed in service after the date of theenactment of this Act, such facilities shall not be treated astheme and amusement facilities classified under asset class80.0.
(3) N
O INFERENCE .—Nothing in this section or the amend-
ments made by this section shall be construed to affect thetreatment of property placed in service on or before the dateof the enactment of this Act.
SEC. 705. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT
PROVISIONS.
(a) D ISTRIBUTIONS TOSHAREHOLDERS FROM PRE-1984 P OLICY –
HOLDERS SURPLUS ACCOUNT .—Section 815 (relating to distributions
to shareholders from pre-1984 policyholders surplus account) isamended by adding at the end the following:
‘‘(g) S
PECIAL RULES APPLICABLE DURING 2005 AND 2006.—In
the case of any taxable year of a stock life insurance companybeginning after December 31, 2004, and before January 1, 2007—
‘‘(1) the amount under subsection (a)(2) for such taxable
year shall be treated as zero, and
‘‘(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and (d)(3),any distribution to shareholders during such taxable year shallbe treated as made first out of the policyholders surplusaccount, then out of the shareholders surplus account, andfinally out of other accounts.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 706. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY
TREATED AS 7-YEAR PROPERTY.
(a) I NGENERAL .—Section 168(e)(3)(C) (defining 7-year prop-
erty), as amended by this Act, is amended by striking ‘‘and’’ atthe end of clause (ii), by redesignating clause (iii) as clause (iv),and by inserting after clause (ii) the following new clause:
‘‘(iii) any Alaska natural gas pipeline, and’’.
(b) A
LASKA NATURAL GASPIPELINE .—Section 168(i) (relating
to definitions and special rules), as amended by this Act, is amendedby inserting after paragraph (15) the following new paragraph:
‘‘(16) A
LASKA NATURAL GAS PIPELINE .—The term ‘Alaska
natural gas pipeline’ means the natural gas pipeline systemlocated in the State of Alaska which—
‘‘(A) has a capacity of more than 500,000,000,000 Btu
of natural gas per day, and
‘‘(B) is—
‘‘(i) placed in service after December 31, 2013,
or
‘‘(ii) treated as placed in service on January 1,
2014, if the taxpayer who places such system in servicebefore January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment,and appurtenances used to carry natural gas, but does notinclude any gas processing plant.’’.26 USC 815 note.
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(c) A LTERNATIVE SYSTEM .—The table contained in section
168(g)(3)(B) (relating to special rule for certain property assignedto classes) is amended by inserting after the item relating tosubparagraph (C)(ii) the following new item:
‘‘(C)(iii) …………………………………………………………………………………………………….. 2 2’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after December 31, 2004.
SEC. 707. EXTENSION OF ENHANCED OIL RECOVERY CREDIT TO CER-
TAIN ALASKA FACILITIES.
(a) I NGENERAL .—Section 43(c)(1) (defining qualified enhanced
oil recovery costs) is amended by adding at the end the followingnew subparagraph:
‘‘(D) Any amount which is paid or incurred during
the taxable year to construct a gas treatment plant which—
‘‘(i) is located in the area of the United States
(within the meaning of section 638(1)) lying north of64 degrees North latitude,
‘‘(ii) prepares Alaska natural gas for transportation
through a pipeline with a capacity of at least2,000,000,000,000 Btu of natural gas per day, and
‘‘(iii) produces carbon dioxide which is injected into
hydrocarbon-bearing geological formations.’’.
(b) A
LASKA NATURAL GAS.—Section 43(c) is amended by adding
at the end the following new paragraph:
‘‘(5) A LASKA NATURAL GAS .—For purposes of paragraph
(1)(D)—
‘‘(1) I N GENERAL .—The term ‘Alaska natural gas’ means
natural gas entering the Alaska natural gas pipeline (as definedin section 168(i)(16) (determined without regard to subpara-graph (B) thereof)) which is produced from a well—
‘‘(A) located in the area of the State of Alaska lying
north of 64 degrees North latitude, determined by excludingthe area of the Alaska National Wildlife Refuge (includingthe continental shelf thereof within the meaning of section638(1)), and
‘‘(B) pursuant to the applicable State and Federal pollu-
tion prevention, control, and permit requirements fromsuch area (including the continental shelf thereof withinthe meaning of section 638(1)).‘‘(2) N
ATURAL GAS .—The term ‘natural gas’ has the meaning
given such term by section 613A(e)(2).’’.(c) E
FFECTIVE DATE.—The amendment made by this section
shall apply to costs paid or incurred in taxable years beginningafter December 31, 2004.
SEC. 708. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.
(a) I NGENERAL .—In the case of a qualified naval ship contract,
the taxable income of such contract during the 5-taxable year periodbeginning with the taxable year in which the contract commence-ment date occurs shall be determined under a method identicalto the method used in the case of a qualified ship contract (asdefined in section 10203(b)(2)(B) of the Revenue Act of 1987).
(b) R
ECAPTURE OF TAXBENEFIT .—In the case of a qualified
naval ship contract to which subsection (a) applies, the taxpayer’stax imposed by chapter 1 of the Internal Revenue Code of 1986for the first taxable year following the 5-taxable year period26 USC 460 note.26 USC 43 note.26 USC 168 note.
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described in subsection (a) shall be increased by the excess (if
any) of—
(1) the amount of tax which would have been imposed
during such period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) Q UALIFIED NAVAL SHIP CONTRACT .—For purposes of this
section:
(1) I N GENERAL .—The term ‘‘qualified naval ship contract’’
means any contract or portion thereof that is for the construc-tion in the United States of 1 ship or submarine for the FederalGovernment if the taxpayer reasonably expects the acceptancedate will occur no later than 9 years after the constructioncommencement date.
(2) A
CCEPTANCE DATE .—The term ‘‘acceptance date’’ means
the date 1 year after the date on which the Federal Governmentissues a letter of acceptance or other similar document forthe ship or submarine.
(3) C
ONSTRUCTION COMMENCEMENT DATE .—The term
‘‘construction commencement date’’ means the date on whichthe physical fabrication of any section or component of theship or submarine begins in the taxpayer’s shipyard.(d) E
FFECTIVE DATE.—This section shall apply to contracts for
ships or submarines with respect to which the constructioncommencement date occurs after the date of the enactment ofthis Act.
SEC. 709. MODIFICATION OF MINIMUM COST REQUIREMENT FOR
TRANSFER OF EXCESS PENSION ASSETS.
(a) A MENDMENTS OF ERISA.—
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended bystriking ‘‘Pension Funding Equity Act of 2004’’ and inserting‘‘American Jobs Creation Act of 2004’’.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ‘‘Pension Funding Equity Act of 2004’’and inserting ‘‘American Jobs Creation Act of 2004’’.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended by striking ‘‘Pension Funding EquityAct of 2004’’ and inserting ‘‘American Jobs Creation Act of2004’’.(b) M
INIMUM COSTREQUIREMENTS .—
(1) I N GENERAL .—Section 420(c)(3)(E) is amended by adding
at the end the following new clause:
‘‘(ii) I NSIGNIFICANT COST REDUCTIONS PERMITTED .—
‘‘(I) I N GENERAL .—An eligible employer shall
not be treated as failing to meet the requirementsof this paragraph for any taxable year if, in lieuof any reduction of retiree health coverage per-mitted under the regulations prescribed underclause (i), the employer reduces applicableemployer cost by an amount not in excess of thereduction in costs which would have occurred ifthe employer had made the maximum permissiblereduction in retiree health coverage under suchregulations. In applying such regulations to anysubsequent taxable year, any reduction inapplicable employer cost under this clause shall
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be treated as if it were an equivalent reduction
in retiree health coverage.
‘‘(II) E LIGIBLE EMPLOYER .—For purposes of
subclause (I), an employer shall be treated as aneligible employer for any taxable year if, for thepreceding taxable year, the qualified currentretiree health liabilities of the employer were atleast 5 percent of the gross receipts of theemployer. For purposes of this subclause, the rulesof paragraphs (2), (3)(B), and (3)(C) of section448(c) shall apply in determining the amount ofan employer’s gross receipts.’’.
(2) C
ONFORMING AMENDMENT .—Section 420(c)(3)(E) is
amended by striking ‘‘The Secretary’’ and inserting:
‘‘(i) I N GENERAL .—The Secretary’’.
(3) E FFECTIVE DATE .—The amendments made by this sub-
section shall apply to taxable years ending after the date ofthe enactment of this Act.
SEC. 710. EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED FROM
CERTAIN RENEWABLE RESOURCES.
(a) E XPANSION OF QUALIFIED ENERGY RESOURCES .—Subsection
(c) of section 45 (relating to electricity produced from certain renew-able resources) is amended to read as follows:
‘‘(c) Q
UALIFIED ENERGY RESOURCES AND REFINED COAL.—For
purposes of this section:
‘‘(1) I N GENERAL .—The term ‘qualified energy resources’
means—
‘‘(A) wind,‘‘(B) closed-loop biomass,‘‘(C) open-loop biomass,‘‘(D) geothermal energy,‘‘(E) solar energy,‘‘(F) small irrigation power, and‘‘(G) municipal solid waste.
‘‘(2) C
LOSED -LOOP BIOMASS .—The term ‘closed-loop biomass’
means any organic material from a plant which is plantedexclusively for purposes of being used at a qualified facilityto produce electricity.
‘‘(3) O
PEN-LOOP BIOMASS .—
‘‘(A) I N GENERAL .—The term ‘open-loop biomass’
means—
‘‘(i) any agricultural livestock waste nutrients, or‘‘(ii) any solid, nonhazardous, cellulosic waste
material which is segregated from other waste mate-rials and which is derived from—
‘‘(I) any of the following forest-related
resources: mill and harvesting residues,precommercial thinnings, slash, and brush,
‘‘(II) solid wood waste materials, including
waste pallets, crates, dunnage, manufacturing andconstruction wood wastes (other than pressure-treated, chemically-treated, or painted woodwastes), and landscape or right-of-way tree trim-mings, but not including municipal solid waste,gas derived from the biodegradation of solid waste,or paper which is commonly recycled, or26 USC 420 note.26 USC 420.
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‘‘(III) agriculture sources, including orchard
tree crops, vineyard, grain, legumes, sugar, andother crop by-products or residues.
Such term shall not include closed-loop biomass or biomassburned in conjunction with fossil fuel (cofiring) beyondsuch fossil fuel required for startup and flame stabilization.
‘‘(B) A
GRICULTURAL LIVESTOCK WASTE NUTRIENTS .—
‘‘(i) I N GENERAL .—The term ‘agricultural livestock
waste nutrients’ means agricultural livestock manureand litter, including wood shavings, straw, rice hulls,and other bedding material for the disposition ofmanure.
‘‘(ii) A
GRICULTURAL LIVESTOCK .—The term ‘agricul-
tural livestock’ includes bovine, swine, poultry, andsheep.
‘‘(4) G
EOTHERMAL ENERGY .—The term ‘geothermal energy’
means energy derived from a geothermal deposit (within themeaning of section 613(e)(2)).
‘‘(5) S
MALL IRRIGATION POWER .—The term ‘small irrigation
power’ means power—
‘‘(A) generated without any dam or impoundment of
water through an irrigation system canal or ditch, and
‘‘(B) the nameplate capacity rating of which is not
less than 150 kilowatts but is less than 5 megawatts.‘‘(6) M
UNICIPAL SOLID WASTE .—The term ‘municipal solid
waste’ has the meaning given the term ‘solid waste’ undersection 2(27) of the Solid Waste Disposal Act (42 U.S.C. 6903).
‘‘(7) R
EFINED COAL .—
‘‘(A) I N GENERAL .—The term ‘refined coal’ means a
fuel which—
‘‘(i) is a liquid, gaseous, or solid synthetic fuel
produced from coal (including lignite) or high carbonfly ash, including such fuel used as a feedstock,
‘‘(ii) is sold by the taxpayer with the reasonable
expectation that it will be used for purpose of producingsteam,
‘‘(iii) is certified by the taxpayer as resulting (when
used in the production of steam) in a qualified emissionreduction, and
‘‘(iv) is produced in such a manner as to result
in an increase of at least 50 percent in the marketvalue of the refined coal (excluding any increase causedby materials combined or added during the productionprocess), as compared to the value of the feedstockcoal.‘‘(B) Q
UALIFIED EMISSION REDUCTION .—The term ‘quali-
fied emission reduction’ means a reduction of at least 20percent of the emissions of nitrogen oxide and either sulfurdioxide or mercury released when burning the refined coal(excluding any dilution caused by materials combined oradded during the production process), as compared to theemissions released when burning the feedstock coal or com-parable coal predominantly available in the marketplaceas of January 1, 2003.’’.
(b) E
XPANSION OF QUALIFIED FACILITIES .—
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(1) I N GENERAL .—Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after subsection(c) the following new subsection:‘‘(d) Q
UALIFIED FACILITIES .—For purposes of this section:
‘‘(1) W IND FACILITY .—In the case of a facility using wind
to produce electricity, the term ‘qualified facility’ means anyfacility owned by the taxpayer which is originally placed inservice after December 31, 1993, and before January 1, 2006.
‘‘(2) C
LOSED -LOOP BIOMASS FACILITY .—
‘‘(A) I N GENERAL .—In the case of a facility using closed-
loop biomass to produce electricity, the term ‘qualifiedfacility’ means any facility—
‘‘(i) owned by the taxpayer which is originally
placed in service after December 31, 1992, and beforeJanuary 1, 2006, or
‘‘(ii) owned by the taxpayer which before January
1, 2006, is originally placed in service and modifiedto use closed-loop biomass to co-fire with coal, withother biomass, or with both, but only if the modificationis approved under the Biomass Power for RuralDevelopment Programs or is part of a pilot projectof the Commodity Credit Corporation as described in65 Fed. Reg. 63052.‘‘(B) S
PECIAL RULES .—In the case of a qualified facility
described in subparagraph (A)(ii)—
‘‘(i) the 10-year period referred to in subsection
(a) shall be treated as beginning no earlier than thedate of the enactment of this clause,
‘‘(ii) the amount of the credit determined under
subsection (a) with respect to the facility shall be anamount equal to the amount determined withoutregard to this clause multiplied by the ratio of thethermal content of the closed-loop biomass used insuch facility to the thermal content of all fuels usedin such facility, and
‘‘(iii) if the owner of such facility is not the producer
of the electricity, the person eligible for the creditallowable under subsection (a) shall be the lessee orthe operator of such facility.
‘‘(3) O
PEN-LOOP BIOMASS FACILITIES .—
‘‘(A) I N GENERAL .—In the case of a facility using open-
loop biomass to produce electricity, the term ‘qualifiedfacility’ means any facility owned by the taxpayer which—
‘‘(i) in the case of a facility using agricultural live-
stock waste nutrients—
‘‘(I) is originally placed in service after the
date of the enactment of this subclause and beforeJanuary 1, 2006, and
‘‘(II) the nameplate capacity rating of which
is not less than 150 kilowatts, and‘‘(ii) in the case of any other facility, is originally
placed in service before January 1, 2006.‘‘(B) C
REDIT ELIGIBILITY .—In the case of any facility
described in subparagraph (A), if the owner of such facilityis not the producer of the electricity, the person eligiblefor the credit allowable under subsection (a) shall be thelessee or the operator of such facility.
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‘‘(4) G EOTHERMAL OR SOLAR ENERGY FACILITY .—In the case
of a facility using geothermal or solar energy to produce elec-tricity, the term ‘qualified facility’ means any facility ownedby the taxpayer which is originally placed in service afterthe date of the enactment of this paragraph and before January1, 2006. Such term shall not include any property describedin section 48(a)(3) the basis of which is taken into accountby the taxpayer for purposes of determining the energy creditunder section 48.
‘‘(5) S
MALL IRRIGATION POWER FACILITY .—In the case of
a facility using small irrigation power to produce electricity,the term ‘qualified facility’ means any facility owned by thetaxpayer which is originally placed in service after the dateof the enactment of this paragraph and before January 1,2006.
‘‘(6) L
ANDFILL GAS FACILITIES .—In the case of a facility
producing electricity from gas derived from the biodegradationof municipal solid waste, the term ‘qualified facility’ meansany facility owned by the taxpayer which is originally placedin service after the date of the enactment of this paragraphand before January 1, 2006.
‘‘(7) T
RASH COMBUSTION FACILITIES .—In the case of a
facility which burns municipal solid waste to produce electricity,the term ‘qualified facility’ means any facility owned by thetaxpayer which is originally placed in service after the dateof the enactment of this paragraph and before January 1,2006.
‘‘(8) R
EFINED COAL PRODUCTION FACILITY .—The term
‘refined coal production facility’ means a facility which is placedin service after the date of the enactment of this paragraphand before January 1, 2009.’’.
(2) R
ULES FOR REFINED COAL PRODUCTION FACILITIES .—
Subsection (e) of section 45, as so redesignated, is amendedby adding at the end the following new paragraph:
‘‘(8) R
EFINED COAL PRODUCTION FACILITIES .—
‘‘(A) D ETERMINATION OF CREDIT AMOUNT .—In the case
of a producer of refined coal, the credit determined underthis section (without regard to this paragraph) for anytaxable year shall be increased by an amount equal to$4.375 per ton of qualified refined coal—
‘‘(i) produced by the taxpayer at a refined coal
production facility during the 10-year period beginningon the date the facility was originally placed in service,and
‘‘(ii) sold by the taxpayer—
‘‘(I) to an unrelated person, and‘‘(II) during such 10-year period and such tax-
able year.
‘‘(B) P
HASEOUT OF CREDIT .—The amount of the increase
determined under subparagraph (A) shall be reduced byan amount which bears the same ratio to the amountof the increase (determined without regard to this subpara-graph) as—
‘‘(i) the amount by which the reference price of
fuel used as a feedstock (within the meaning of sub-section (c)(7)(A)) for the calendar year in which thesale occurs exceeds an amount equal to 1.7 multiplied
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by the reference price for such fuel in 2002, bears
to
‘‘(ii) $8.75.
‘‘(C) A PPLICATION OF RULES .—Rules similar to the rules
of the subsection (b)(3) and paragraphs (1) through (5)and (9) of this subsection shall apply for purposes of deter-mining the amount of any increase under this paragraph.’’.(3) C
ONFORMING AMENDMENTS .—
(A) Section 45(e), as so redesignated, is amended by
striking ‘‘subsection (c)(3)(A)’’ in paragraph (7)(A)(i) andinserting ‘‘subsection (d)(1)’’.
(B) The heading of section 45 and the item relating
to such section in the table of sections for subpart D ofpart IV of subchapter A of chapter 1 are each amendedby inserting before the period at the end ‘‘, etc’’.
(C) Paragraph (2) of section 45(b) is amended by
striking ‘‘The 1.5 cent amount’’ and all that follows through‘‘paragraph (1)’’ and inserting ‘‘The 1.5 cent amount insubsection (a), the 8 cent amount in paragraph (1), the$4.375 amount in subsection (e)(8)(A), and in subsection(e)(8)(B)(i) the reference price of fuel used as a feedstock(within the meaning of subsection (c)(7)(A)) in 2002’’.
(c) S
PECIAL CREDIT RATE AND PERIOD FOR ELECTRICITY PRO-
DUCED AND SOLD AFTER ENACTMENT DATE.—Section 45(b) is
amended by adding at the end the following new paragraph:
‘‘(4) C REDIT RATE AND PERIOD FOR ELECTRICITY PRODUCED
AND SOLD FROM CERTAIN FACILITIES .—
‘‘(A) C REDIT RATE .—In the case of electricity produced
and sold in any calendar year after 2003 at any qualifiedfacility described in paragraph (3), (5), (6), or (7) of sub-section (d), the amount in effect under subsection (a)(1)for such calendar year (determined before the applicationof the last sentence of paragraph (2) of this subsection)shall be reduced by one-half.
‘‘(B) C
REDIT PERIOD .—
‘‘(i) I N GENERAL .—Except as provided in clause
(ii), in the case of any facility described in paragraph(3), (4), (5), (6), or (7) of subsection (d), the 5-yearperiod beginning on the date the facility was originallyplaced in service shall be substituted for the 10-yearperiod in subsection (a)(2)(A)(ii).
‘‘(ii) C
ERTAIN OPEN -LOOP BIOMASS FACILITIES .—In
the case of any facility described in subsection(d)(3)(A)(ii) placed in service before the date of theenactment of this paragraph, the 5-year period begin-ning on the date of the enactment of this Act shall
be substituted for the 10-year period in subsection(a)(2)(A)(ii).’’.
(d) C
OORDINATION WITH OTHER CREDITS .—Section 45(e), as
redesignated and amended by this section, is amended by insertingafter paragraph (8) the following new paragraph:
‘‘(9) C
OORDINATION WITH CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE .—The term ‘qualified facility’ shall
not include any facility the production from which is allowedas a credit under section 29 for the taxable year or any priortaxable year.’’.
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(e) C OORDINATION WITHSECTION 48.—Section 48(a)(3) (defining
energy property) is amended by adding at the end the followingnew sentence: ‘‘Such term shall not include any property whichis part of a facility the production from which is allowed as acredit under section 45 for the taxable year or any prior taxableyear.’’.
(f) E
LIMINATION OF CERTAIN CREDIT REDUCTIONS .—Section
45(b)(3) (relating to credit reduced for grants, tax-exempt bonds,subsidized energy financing, and other credits) is amended—
(1) by inserting ‘‘the lesser of
1⁄2or’’ before ‘‘a fraction’’
in the matter preceding subparagraph (A), and
(2) by adding at the end the following new sentence: ‘‘This
paragraph shall not apply with respect to any facility describedin subsection (d)(2)(A)(ii).’’.(g) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply toelectricity produced and sold after the date of the enactmentof this Act, in taxable years ending after such date.
(2) C
ERTAIN BIOMASS FACILITIES .—With respect to any
facility described in section 45(d)(3)(A)(ii) of the Internal Rev-enue Code of 1986, as added by subsection (b)(1), which isplaced in service before the date of the enactment of thisAct, the amendments made by this section shall apply to elec-tricity produced and sold after December 31, 2004, in taxableyears ending after such date.
(3) C
REDIT RATE AND PERIOD FOR NEW FACILITIES .—The
amendments made by subsection (c) shall apply to electricityproduced and sold after December 31, 2004, in taxable yearsending after such date.
(4) N
ONAPPLICATION OF AMENDMENTS TO PREEFFECTIVE
DATE POULTRY WASTE FACILITIES .—The amendments made by
this section shall not apply with respect to any poultry wastefacility (within the meaning of section 45(c)(3)(C), as in effecton the day before the date of the enactment of this Act) placedin service before January 1, 2004.
(5) R
EFINED COAL PRODUCTION FACILITIES .—Section 45(e)(8)
of the Internal Revenue Code of 1986, as added by this section,shall apply to refined coal produced and sold after the dateof the enactment of this Act.
SEC. 711. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST
REGULAR AND MINIMUM TAX.
(a) I NGENERAL .—Subsection (c) of section 38 (relating to limita-
tion based on amount of tax) is amended by redesignating paragraph(4) as paragraph (5) and by inserting after paragraph (3) the fol-lowing new paragraph:
‘‘(4) S
PECIAL RULES FOR SPECIFIED CREDITS .—
‘‘(A) I N GENERAL .—In the case of specified credits—
‘‘(i) this section and section 39 shall be applied
separately with respect to such credits, and
‘‘(ii) in applying paragraph (1) to such credits—
‘‘(I) the tentative minimum tax shall be treated
as being zero, and
‘‘(II) the limitation under paragraph (1) (as
modified by subclause (I)) shall be reduced by the26 USC 45 note.
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credit allowed under subsection (a) for the taxable
year (other than the specified credits).
‘‘(B) S PECIFIED CREDITS .—For purposes of this sub-
section, the term ‘specified credits’ includes—
‘‘(i) for taxable years beginning after December
31, 2004, the credit determined under section 40,
‘‘(ii) the credit determined under section 45 to the
extent that such credit is attributable to electricityor refined coal produced—
‘‘(I) at a facility which is originally placed in
service after the date of the enactment of thisparagraph, and
‘‘(II) during the 4-year period beginning on
the date that such facility was originally placedin service’’.
(b) C
ONFORMING AMENDMENTS .—Paragraph (2)(A)(ii)(II) and
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ‘‘orthe specified credits’’ after ‘‘employee credit’’.
(c) E
FFECTIVE DATE.—Except as otherwise provided, the amend-
ments made by this section shall apply to taxable years endingafter the date of the enactment of this Act.
SEC. 712. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATE-
GIES FOR CHILDREN AND ADULTS WITH SICKLE CELLDISEASE AS MEDICAL ASSISTANCE UNDER THE MED-ICAID PROGRAM.
(a) O PTIONAL MEDICAL ASSISTANCE .—
(1) I N GENERAL .—Section 1905 of the Social Security Act
(42 U.S.C. 1396d) is amended—
(A) in subsection (a)—
(i) by striking ‘‘and’’ at the end of paragraph (26);(ii) by redesignating paragraph (27) as paragraph
(28); and
(iii) by inserting after paragraph (26), the fol-
lowing:
‘‘(27) subject to subsection (x), primary and secondary med-
ical strategies and treatment and services for individuals whohave Sickle Cell Disease; and’’; and
(B) by adding at the end the following:
‘‘(x) For purposes of subsection (a)(27), the strategies, treatment,
and services described in that subsection include the following:
‘‘(1) Chronic blood transfusion (with deferoxamine chela-
tion) to prevent stroke in individuals with Sickle Cell Diseasewho have been identified as being at high risk for stroke.
‘‘(2) Genetic counseling and testing for individuals with
Sickle Cell Disease or the sickle cell trait to allow healthcare professionals to treat such individuals and to preventsymptoms of Sickle Cell Disease.
‘‘(3) Other treatment and services to prevent individuals
who have Sickle Cell Disease and who have had a strokefrom having another stroke.’’.
(2) R
ULE OF CONSTRUCTION .—Nothing in subsections (a)(27)
or (x) of section 1905 of the Social Security Act (42 U.S.C.1396d), as added by paragraph (1), shall be construed asimplying that a State medicaid program under title XIX ofsuch Act could not have treated, prior to the date of enactmentof this Act, any of the primary and secondary medical strategies42 USC 1396 d
note.26 USC 38 note.
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and treatment and services described in such subsections as
medical assistance under such program, including as early andperiodic screening, diagnostic, and treatment services undersection 1905(r) of such Act.(b) F
EDERAL REIMBURSEMENT FOR EDUCATION AND OTHER SERV-
ICES RELATED TO THE PREVENTION AND TREATMENT OF SICKLE
CELL DISEASE .—Section 1903(a)(3) of the Social Security Act (42
U.S.C. 1396b(a)(3)) is amended—
(1) in subparagraph (D), by striking ‘‘plus’’ at the end
and inserting ‘‘and’’; and
(2) by adding at the end the following:
‘‘(E) 50 percent of the sums expended with respect
to costs incurred during such quarter as are attributableto providing—
‘‘(i) services to identify and educate individuals
who are likely to be eligible for medical assistanceunder this title and who have Sickle Cell Disease orwho are carriers of the sickle cell gene, including edu-cation regarding how to identify such individuals; or
‘‘(ii) education regarding the risks of stroke and
other complications, as well as the prevention of strokeand other complications, in individuals who are likelyto be eligible for medical assistance under this titleand who have Sickle Cell Disease; plus’’.
(c) D
EMONSTRATION PROGRAM FOR THE DEVELOPMENT AND
ESTABLISHMENT OF SYSTEMIC MECHANISMS FOR THE PREVENTION
AND TREATMENT OF SICKLE CELLDISEASE .—
(1) A UTHORITY TO CONDUCT DEMONSTRATION PROGRAM .—
(A) I N GENERAL .—The Administrator, through the
Bureau of Primary Health Care and the Maternal andChild Health Bureau, shall conduct a demonstration pro-gram by making grants to up to 40 eligible entities foreach fiscal year in which the program is conducted underthis section for the purpose of developing and establishingsystemic mechanisms to improve the prevention and treat-ment of Sickle Cell Disease, including through—
(i) the coordination of service delivery for individ-
uals with Sickle Cell Disease;
(ii) genetic counseling and testing;(iii) bundling of technical services related to the
prevention and treatment of Sickle Cell Disease;
(iv) training of health professionals; and(v) identifying and establishing other efforts
related to the expansion and coordination of education,treatment, and continuity of care programs for individ-uals with Sickle Cell Disease.(B) G
RANT AWARD REQUIREMENTS .—
(i) G EOGRAPHIC DIVERSITY .—The Administrator
shall, to the extent practicable, award grants underthis section to eligible entities located in differentregions of the United States.
(ii) P
RIORITY .—In awarding grants under this sub-
section, the Administrator shall give priority toawarding grants to eligible entities that are—
(I) Federally-qualified health centers that have
a partnership or other arrangement with a com-prehensive Sickle Cell Disease treatment center42 USC 300 b–1
note.
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that does not receive funds from the National
Institutes of Health; or
(II) Federally-qualified health centers that
intend to develop a partnership or other arrange-ment with a comprehensive Sickle Cell Diseasetreatment center that does not receive funds fromthe National Institutes of Health.
(2) A
DDITIONAL REQUIREMENTS .—An eligible entity awarded
a grant under this subsection shall use funds made availableunder the grant to carry out, in addition to the activitiesdescribed in paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of edu-
cation, treatment, and continuity of care for individualswith Sickle Cell Disease under—
(i) the entity’s collaborative agreement with a
community-based Sickle Cell Disease organization ora nonprofit entity that works with individuals whohave Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn screening pro-
gram for the State in which the entity is located;and
(iii) the maternal and child health program under
title V of the Social Security Act (42 U.S.C. 701 etseq.) for the State in which the entity is located.(B) To train nursing and other health staff who provide
care for individuals with Sickle Cell Disease.
(C) To enter into a partnership with adult or pediatric
hematologists in the region and other regional experts inSickle Cell Disease at tertiary and academic health centersand State and county health offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State chil-dren’s health insurance program, and other health pro-grams for the prevention and treatment of Sickle CellDisease.(3) N
ATIONAL COORDINATING CENTER .—
(A) E STABLISHMENT .—The Administrator shall enter
into a contract with an entity to serve as the NationalCoordinating Center for the demonstration program con-ducted under this subsection.
(B) A
CTIVITIES DESCRIBED .—The National Coordinating
Center shall—
(i) collect, coordinate, monitor, and distribute data,
best practices, and findings regarding the activitiesfunded under grants made to eligible entities underthe demonstration program;
(ii) develop a model protocol for eligible entities
with respect to the prevention and treatment of SickleCell Disease;
(iii) develop educational materials regarding the
prevention and treatment of Sickle Cell Disease; and
(iv) prepare and submit to Congress a final report
that includes recommendations regarding the effective-ness of the demonstration program conducted underthis subsection and such direct outcome measures as—
(I) the number and type of health care
resources utilized (such as emergency room visits,Contracts.
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hospital visits, length of stay, and physician visits
for individuals with Sickle Cell Disease); and
(II) the number of individuals that were tested
and subsequently received genetic counseling forthe sickle cell trait.
(4) A
PPLICATION .—An eligible entity desiring a grant under
this subsection shall submit an application to the Administratorat such time, in such manner, and containing such informationas the Administrator may require.
(5) D
EFINITIONS .—In this subsection:
(A) A DMINISTRATOR .—The term ‘‘Administrator’’ means
the Administrator of the Health Resources and ServicesAdministration.
(B) E
LIGIBLE ENTITY .—The term ‘‘eligible entity’’ means
a Federally-qualified health center, a nonprofit hospitalor clinic, or a university health center that provides pri-mary health care, that—
(i) has a collaborative agreement with a commu-
nity-based Sickle Cell Disease organization or a non-profit entity with experience in working with individ-uals who have Sickle Cell Disease; and
(ii) demonstrates to the Administrator that either
the Federally-qualified health center, the nonprofit hos-pital or clinic, the university health center, theorganization or entity described in clause (i), or theexperts described in paragraph (2)(C), has at least5 years of experience in working with individuals whohave Sickle Cell Disease.(C) F
EDERALLY -QUALIFIED HEALTH CENTER .—The term
‘‘Federally-qualified health center’’ has the meaning giventhat term in section 1905(l)(2)(B) of the Social SecurityAct (42 U.S.C. 1396d(l)(2)(B)).(6) A
UTHORIZATION OF APPROPRIATIONS .—There is author-
ized to be appropriated to carry out this subsection, $10,000,000for each of fiscal years 2005 through 2009.(d) E
FFECTIVE DATE.—The amendments made by subsections
(a) and (b) take effect on the date of enactment of this Act andapply to medical assistance and services provided under title XIXof the Social Security Act (42 U.S.C. 1396 et seq.) on or afterthat date.
SEC. 713. CEILING FANS.
(a) I NGENERAL .—Subchapter II of chapter 99 of the Har-
monized Tariff Schedule of the United States is amended byinserting in numerical sequence the following new heading:
‘‘ 9902.84.14 Ceiling fans for permanent instal-
lation (provided for in subheading8414.51.00) ………………………………… Free No change No change On or before
12/31/2006 ’’.
(b) E FFECTIVE DATE.—The amendment made by this section
applies to goods entered, or withdrawn from warehouse, forconsumption on or after the 15th day after the date of enactmentof this Act.42 USC 1396 b
note.
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SEC. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR
VESSEL HEADS AND PRESSURIZERS, USED IN NUCLEARFACILITIES.
(a) C ERTAIN STEAM GENERATORS .—Heading 9902.84.02 of the
Harmonized Tariff Schedule of the United States is amended bystriking ‘‘12/31/2006’’ and inserting ‘‘12/31/2008’’.
(b) C
ERTAIN REACTOR VESSEL HEADS AND PRESSURIZERS .—Sub-
chapter II of chapter 99 of the Harmonized Tariff Schedule ofthe United States is amended by inserting in numerical sequencethe following new heading:
‘‘ 9902.84.03 Reactor vessel heads and pressur-
izers for nuclear reactors (providedfor in subheading 8401.40.00) …….. Free No change No change On or before
12/31/2008 ’’.
(c) E FFECTIVE DATE.—
(1) S UBSECTION ( a).—The amendment made by subsection
(a) shall take effect on the date of the enactment of this Act.
(2) S UBSECTION ( b).—The amendment made subsection (b)
shall apply to goods entered, or withdrawn from warehouse,for consumption on or after the 15th day after the date ofthe enactment of this Act.
TITLE VIII—REVENUE PROVISIONS
Subtitle A—Provisions to Reduce Tax
Avoidance Through Individual and Cor-porate Expatriation
SEC. 801. TAX TREATMENT OF EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
(a) I NGENERAL .—Subchapter C of chapter 80 (relating to provi-
sions affecting more than one subtitle) is amended by adding atthe end the following new section:
‘‘SEC. 7874. RULES RELATING TO EXPATRIATED ENTITIES AND THEIR
FOREIGN PARENTS.
‘‘(a) T AX ON INVERSION GAIN OF EXPATRIATED ENTITIES .—
‘‘(1) I N GENERAL .—The taxable income of an expatriated
entity for any taxable year which includes any portion of theapplicable period shall in no event be less than the inversiongain of the entity for the taxable year.
‘‘(2) E
XPATRIATED ENTITY .—For purposes of this
subsection—
‘‘(A) I N GENERAL .—The term ‘expatriated entity’
means—
‘‘(i) the domestic corporation or partnership
referred to in subparagraph (B)(i) with respect to whicha foreign corporation is a surrogate foreign corporation,and
‘‘(ii) any United States person who is related
(within the meaning of section 267(b) or 707(b)(1))to a domestic corporation or partnership described inclause (i).
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‘‘(B) S URROGATE FOREIGN CORPORATION .—A foreign cor-
poration shall be treated as a surrogate foreign corporationif, pursuant to a plan (or a series of related transactions)—
‘‘(i) the entity completes after March 4, 2003, the
direct or indirect acquisition of substantially all ofthe properties held directly or indirectly by a domesticcorporation or substantially all of the properties consti-tuting a trade or business of a domestic partnership,
‘‘(ii) after the acquisition at least 60 percent of
the stock (by vote or value) of the entity is held—
‘‘(I) in the case of an acquisition with respect
to a domestic corporation, by former shareholdersof the domestic corporation by reason of holdingstock in the domestic corporation, or
‘‘(II) in the case of an acquisition with respect
to a domestic partnership, by former partners ofthe domestic partnership by reason of holding acapital or profits interest in the domestic partner-ship, and‘‘(iii) after the acquisition the expanded affiliated
group which includes the entity does not have substan-tial business activities in the foreign country in which,or under the law of which, the entity is created ororganized, when compared to the total business activi-ties of such expanded affiliated group.
An entity otherwise described in clause (i) with respectto any domestic corporation or partnership trade or busi-ness shall be treated as not so described if, on or beforeMarch 4, 2003, such entity acquired directly or indirectlymore than half of the properties held directly or indirectlyby such corporation or more than half of the propertiesconstituting such partnership trade or business, as thecase may be.‘‘(3) C
OORDINATION WITH SUBSECTION ( b).—Paragraph (1)
shall not apply to any entity which is treated as a domesticcorporation under subsection (b).‘‘(b) I
NVERTED CORPORATIONS TREATED AS DOMESTIC CORPORA –
TIONS .—Notwithstanding section 7701(a)(4), a foreign corporation
shall be treated for purposes of this title as a domestic corporationif such corporation would be a surrogate foreign corporation ifsubsection (a)(2) were applied by substituting ‘80 percent’ for ‘60percent’.
‘‘(c) D
EFINITIONS AND SPECIAL RULES .—
‘‘(1) E XPANDED AFFILIATED GROUP .—The term ‘expanded
affiliated group’ means an affiliated group as defined in section1504(a) but without regard to section 1504(b)(3), except that
section 1504(a) shall be applied by substituting ‘more than50 percent’ for ‘at least 80 percent’ each place it appears.
‘‘(2) C
ERTAIN STOCK DISREGARDED .—There shall not be
taken into account in determining ownership under subsection(a)(2)(B)(ii)—
‘‘(A) stock held by members of the expanded affiliated
group which includes the foreign corporation, or
‘‘(B) stock of such foreign corporation which is sold
in a public offering related to the acquisition describedin subsection (a)(2)(B)(i).
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‘‘(3) P LAN DEEMED IN CERTAIN CASES .—If a foreign corpora-
tion acquires directly or indirectly substantially all of the prop-erties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years beforethe ownership requirements of subsection (a)(2)(B)(ii) are met,such actions shall be treated as pursuant to a plan.
‘‘(4) C
ERTAIN TRANSFERS DISREGARDED .—The transfer of
properties or liabilities (including by contribution or distribu-tion) shall be disregarded if such transfers are part of a plana principal purpose of which is to avoid the purposes of thissection.
‘‘(5) S
PECIAL RULE FOR RELATED PARTNERSHIPS .—For pur-
poses of applying subsection (a)(2)(B)(ii) to the acquisition ofa trade or business of a domestic partnership, except as pro-vided in regulations, all partnerships which are under commoncontrol (within the meaning of section 482) shall be treatedas 1 partnership.
‘‘(6) R
EGULATIONS .—The Secretary shall prescribe such
regulations as may be appropriate to determine whether acorporation is a surrogate foreign corporation, includingregulations—
‘‘(A) to treat warrants, options, contracts to acquire
stock, convertible debt interests, and other similar interestsas stock, and
‘‘(B) to treat stock as not stock.
‘‘(d) O
THER DEFINITIONS .—For purposes of this section—
‘‘(1) A PPLICABLE PERIOD .—The term ‘applicable period’
means the period—
‘‘(A) beginning on the first date properties are acquired
as part of the acquisition described in subsection(a)(2)(B)(i), and
‘‘(B) ending on the date which is 10 years after the
last date properties are acquired as part of such acquisition.‘‘(2) I
NVERSION GAIN .—The term ‘inversion gain’ means the
income or gain recognized by reason of the transfer duringthe applicable period of stock or other properties by an expatri-ated entity, and any income received or accrued during theapplicable period by reason of a license of any property byan expatriated entity—
‘‘(A) as part of the acquisition described in subsection
(a)(2)(B)(i), or
‘‘(B) after such acquisition if the transfer or license
is to a foreign related person.
Subparagraph (B) shall not apply to property described in sec-tion 1221(a)(1) in the hands of the expatriated entity.
‘‘(3) F
OREIGN RELATED PERSON .—The term ‘foreign related
person’ means, with respect to any expatriated entity, a foreignperson which—
‘‘(A) is related (within the meaning of section 267(b)
or 707(b)(1)) to such entity, or
‘‘(B) is under the same common control (within the
meaning of section 482) as such entity.
‘‘(e) S
PECIAL RULES .—
‘‘(1) C REDITS NOT ALLOWED AGAINST TAX ON INVERSION
GAIN .—Credits (other than the credit allowed by section 901)
shall be allowed against the tax imposed by this chapter on
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an expatriated entity for any taxable year described in sub-
section (a) only to the extent such tax exceeds the productof—
‘‘(A) the amount of the inversion gain for the taxable
year, and
‘‘(B) the highest rate of tax specified in section 11(b)(1).
For purposes of determining the credit allowed by section 901,inversion gain shall be treated as from sources within theUnited States.
‘‘(2) S
PECIAL RULES FOR PARTNERSHIPS .—In the case of an
expatriated entity which is a partnership—
‘‘(A) subsection (a)(1) shall apply at the partner rather
than the partnership level,
‘‘(B) the inversion gain of any partner for any taxable
year shall be equal to the sum of—
‘‘(i) the partner’s distributive share of inversion
gain of the partnership for such taxable year, plus
‘‘(ii) gain recognized for the taxable year by the
partner by reason of the transfer during the applicableperiod of any partnership interest of the partner insuch partnership to the surrogate foreign corporation,and‘‘(C) the highest rate of tax specified in the rate
schedule applicable to the partner under this chapter shallbe substituted for the rate of tax referred to in paragraph(1).‘‘(3) C
OORDINATION WITH SECTION 172 AND MINIMUM TAX .—
Rules similar to the rules of paragraphs (3) and (4) of section860E(a) shall apply for purposes of subsection (a).
‘‘(4) S
TATUTE OF LIMITATIONS .—
‘‘(A) I N GENERAL .—The statutory period for the assess-
ment of any deficiency attributable to the inversion gainof any taxpayer for any pre-inversion year shall not expirebefore the expiration of 3 years from the date the Secretaryis notified by the taxpayer (in such manner as the Secretarymay prescribe) of the acquisition described in subsection(a)(2)(B)(i) to which such gain relates and such deficiencymay be assessed before the expiration of such 3-year periodnotwithstanding the provisions of any other law or ruleof law which would otherwise prevent such assessment.
‘‘(B) P
RE-INVERSION YEAR .—For purposes of subpara-
graph (A), the term ‘pre-inversion year’ means any taxableyear if—
‘‘(i) any portion of the applicable period is included
in such taxable year, and
‘‘(ii) such year ends before the taxable year in
which the acquisition described in subsection(a)(2)(B)(i) is completed.
‘‘(f) S
PECIAL RULE FOR TREATIES .—Nothing in section 894 or
7852(d) or in any other provision of law shall be construed aspermitting an exemption, by reason of any treaty obligation ofthe United States heretofore or hereafter entered into, from theprovisions of this section.
‘‘(g) R
EGULATIONS .—The Secretary shall provide such regula-
tions as are necessary to carry out this section, including regulationsproviding for such adjustments to the application of this sectionApplicability.Applicability.
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as are necessary to prevent the avoidance of the purposes of this
section, including the avoidance of such purposes through—
‘‘(1) the use of related persons, pass-through or other non-
corporate entities, or other intermediaries, or
‘‘(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or relatedpersons.’’.(b) C
ONFORMING AMENDMENT .—The table of sections for sub-
chapter C of chapter 80 is amended by adding at the end thefollowing new item:
‘‘Sec. 7874. Rules relating to expatriated entities and their foreign par-
ents.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after March 4, 2003.
SEC. 802. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN
EXPATRIATED CORPORATIONS.
(a) I NGENERAL .—Subtitle D is amended by inserting after
chapter 44 end the following new chapter:
‘‘CHAPTER 45—PROVISIONS RELATING TO
EXPATRIATED ENTITIES
‘‘Sec. 4985. Stock compensation of insiders in expatriated corporations.
‘‘SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPATRIATED
CORPORATIONS.
‘‘(a) I MPOSITION OF TAX.—In the case of an individual who
is a disqualified individual with respect to any expatriated corpora-tion, there is hereby imposed on such person a tax equal to—
‘‘(1) the rate of tax specified in section 1(h)(1)(C), multiplied
by
‘‘(2) the value (determined under subsection (b)) of the
specified stock compensation held (directly or indirectly) byor for the benefit of such individual or a member of suchindividual’s family (as defined in section 267) at any timeduring the 12-month period beginning on the date which is6 months before the expatriation date.‘‘(b) V
ALUE .—For purposes of subsection (a)—
‘‘(1) I N GENERAL .—The value of specified stock compensa-
tion shall be—
‘‘(A) in the case of a stock option (or other similar
right) or a stock appreciation right, the fair value of suchoption or right, and
‘‘(B) in any other case, the fair market value of such
compensation.‘‘(2) D
ATE FOR DETERMINING VALUE .—The determination
of value shall be made—
‘‘(A) in the case of specified stock compensation held
on the expatriation date, on such date,
‘‘(B) in the case of such compensation which is canceled
during the 6 months before the expatriation date, on theday before such cancellation, and
‘‘(C) in the case of such compensation which is granted
after the expatriation date, on the date such compensationis granted.26 USC 7874note.
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‘‘(c) T AXTOAPPLY ONLY IF SHAREHOLDER GAINRECOGNIZED .—
Subsection (a) shall apply to any disqualified individual with respectto an expatriated corporation only if gain (if any) on any stockin such corporation is recognized in whole or part by any share-holder by reason of the acquisition referred to in section7874(a)(2)(B)(i) with respect to such corporation.
‘‘(d) E
XCEPTION WHERE GAINRECOGNIZED ON COMPENSATION .—
Subsection (a) shall not apply to—
‘‘(1) any stock option which is exercised on the expatriation
date or during the 6-month period before such date and tothe stock acquired in such exercise, if income is recognizedunder section 83 on or before the expatriation date with respectto the stock acquired pursuant to such exercise, and
‘‘(2) any other specified stock compensation which is exer-
cised, sold, exchanged, distributed, cashed-out, or otherwisepaid during such period in a transaction in which income,gain, or loss is recognized in full.‘‘(e) D
EFINITIONS .—For purposes of this section—
‘‘(1) D ISQUALIFIED INDIVIDUAL .—The term ‘disqualified indi-
vidual’ means, with respect to a corporation, any individualwho, at any time during the 12-month period beginning onthe date which is 6 months before the expatriation date—
‘‘(A) is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect tosuch corporation or any member of the expanded affiliatedgroup which includes such corporation, or
‘‘(B) would be subject to such requirements if such
corporation or member were an issuer of equity securitiesreferred to in such section.‘‘(2) E
XPATRIATED CORPORATION ; EXPATRIATION DATE .—
‘‘(A) E XPATRIATED CORPORATION .—The term ‘expatri-
ated corporation’ means any corporation which is anexpatriated entity (as defined in section 7874(a)(2)). Suchterm includes any predecessor or successor of such a cor-poration.
‘‘(B) E
XPATRIATION DATE .—The term ‘expatriation date’
means, with respect to a corporation, the date on whichthe corporation first becomes an expatriated corporation.‘‘(3) S
PECIFIED STOCK COMPENSATION .—
‘‘(A) I N GENERAL .—The term ‘specified stock compensa-
tion’ means payment (or right to payment) granted bythe expatriated corporation (or by any member of theexpanded affiliated group which includes such corporation)to any person in connection with the performance of serv-ices by a disqualified individual for such corporation ormember if the value of such payment or right is based
on (or determined by reference to) the value (or changein value) of stock in such corporation (or any such member).
‘‘(B) E
XCEPTIONS .—Such term shall not include—
‘‘(i) any option to which part II of subchapter D
of chapter 1 applies, or
‘‘(ii) any payment or right to payment from a plan
referred to in section 280G(b)(6).
‘‘(4) E XPANDED AFFILIATED GROUP .—The term ‘expanded
affiliated group’ means an affiliated group (as defined in section1504(a) without regard to section 1504(b)(3)); except that sectionApplicability.
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1504(a) shall be applied by substituting ‘more than 50 percent’
for ‘at least 80 percent’ each place it appears.‘‘(f) S
PECIAL RULES .—For purposes of this section—
‘‘(1) C ANCELLATION OF RESTRICTION .—The cancellation of
a restriction which by its terms will never lapse shall be treatedas a grant.
‘‘(2) P
AYMENT OR REIMBURSEMENT OF TAX BY CORPORATION
TREATED AS SPECIFIED STOCK COMPENSATION .—Any payment
of the tax imposed by this section directly or indirectly bythe expatriated corporation or by any member of the expandedaffiliated group which includes such corporation—
‘‘(A) shall be treated as specified stock compensation,
and
‘‘(B) shall not be allowed as a deduction under any
provision of chapter 1.‘‘(3) C
ERTAIN RESTRICTIONS IGNORED .—Whether there is
specified stock compensation, and the value thereof, shall bedetermined without regard to any restriction other than arestriction which by its terms will never lapse.
‘‘(4) P
ROPERTY TRANSFERS .—Any transfer of property shall
be treated as a payment and any right to a transfer of propertyshall be treated as a right to a payment.
‘‘(5) O
THER ADMINISTRATIVE PROVISIONS .—For purposes of
subtitle F, any tax imposed by this section shall be treatedas a tax imposed by subtitle A.‘‘(g) R
EGULATIONS .—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposesof this section.’’.
(b) D
ENIAL OF DEDUCTION .—
(1) I N GENERAL .—Paragraph (6) of section 275(a) is
amended by inserting ‘‘45,’’ before ‘‘46,’’.
(2) $1,000,000 limit on deductible compensation reduced
by payment of excise tax on specified stock compensation.—Paragraph (4) of section 162(m) is amended by adding at theend the following new subparagraph:
‘‘(G) C
OORDINATION WITH EXCISE TAX ON SPECIFIED
STOCK COMPENSATION .—The dollar limitation contained in
paragraph (1) with respect to any covered employee shallbe reduced (but not below zero) by the amount of anypayment (with respect to such employee) of the tax imposedby section 4985 directly or indirectly by the expatriatedcorporation (as defined in such section) or by any memberof the expanded affiliated group (as defined in such section)which includes such corporation.’’.
(c) C
ONFORMING AMENDMENTS .—
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ‘‘or to any specified stock com-pensation (as defined in section 4985) on which tax is imposedby section 4985’’.
(2) The table of chapters for subtitle D is amended by
inserting after the item relating to chapter 44 the followingnew item:
‘‘Chapter 45. Provisions relating to expatriated entities.’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall take effect on March 4, 2003; except that periods beforesuch date shall not be taken into account in applying the periods26 USC 4985note.
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in subsections (a) and (e)(1) of section 4985 of the Internal Revenue
Code of 1986, as added by this section.
SEC. 803. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURIS-
DICTIONS.
(a) I NGENERAL .—Section 845(a) (relating to allocation in case
of reinsurance agreement involving tax avoidance or evasion) isamended by striking ‘‘source and character’’ and inserting ‘‘amount,source, or character’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to any risk reinsured after the date of the enactmentof this Act.
SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) E XPATRIATION TOAVOID TAX.—
(1) I N GENERAL .—Subsection (a) of section 877 (relating
to treatment of expatriates) is amended to read as follows:‘‘(a) T
REATMENT OF EXPATRIATES .—
‘‘(1) I N GENERAL .—Every nonresident alien individual to
whom this section applies and who, within the 10-year periodimmediately preceding the close of the taxable year, lost UnitedStates citizenship shall be taxable for such taxable year inthe manner provided in subsection (b) if the tax imposed pursu-ant to such subsection (after any reduction in such tax underthe last sentence of such subsection) exceeds the tax which,without regard to this section, is imposed pursuant to section871.
‘‘(2) I
NDIVIDUALS SUBJECT TO THIS SECTION .—This section
shall apply to any individual if—
‘‘(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period of5 taxable years ending before the date of the loss of UnitedStates citizenship is greater than $124,000,
‘‘(B) the net worth of the individual as of such date
is $2,000,000 or more, or
‘‘(C) such individual fails to certify under penalty of
perjury that he has met the requirements of this titlefor the 5 preceding taxable years or fails to submit suchevidence of such compliance as the Secretary may require.
In the case of the loss of United States citizenship in anycalendar year after 2004, such $124,000 amount shall beincreased by an amount equal to such dollar amount multipliedby the cost-of-living adjustment determined under section 1(f)(3)for such calendar year by substituting ‘2003’ for ‘1992’ insubparagraph (B) thereof. Any increase under the precedingsentence shall be rounded to the nearest multiple of $1,000.’’.
(2) R
EVISION OF EXCEPTIONS FROM ALTERNATIVE TAX .—Sub-
section (c) of section 877 (relating to tax avoidance not pre-sumed in certain cases) is amended to read as follows:
‘‘(c) E
XCEPTIONS .—
‘‘(1) I N GENERAL .—Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph(2) or (3).
‘‘(2) D
UAL CITIZENS .—
‘‘(A) I N GENERAL .—An individual is described in this
paragraph if—
‘‘(i) the individual became at birth a citizen of
the United States and a citizen of another countryApplicability.26 USC 845 note.
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and continues to be a citizen of such other country,
and
‘‘(ii) the individual has had no substantial contacts
with the United States.‘‘(B) S
UBSTANTIAL CONTACTS .—An individual shall be
treated as having no substantial contacts with the UnitedStates only if the individual—
‘‘(i) was never a resident of the United States
(as defined in section 7701(b)),
‘‘(ii) has never held a United States passport, and‘‘(iii) was not present in the United States for
more than 30 days during any calendar year whichis 1 of the 10 calendar years preceding the individual’sloss of United States citizenship.
‘‘(3) C
ERTAIN MINORS .—An individual is described in this
paragraph if—
‘‘(A) the individual became at birth a citizen of the
United States,
‘‘(B) neither parent of such individual was a citizen
of the United States at the time of such birth,
‘‘(C) the individual’s loss of United States citizenship
occurs before such individual attains age 181⁄2, and
‘‘(D) the individual was not present in the United
States for more than 30 days during any calendar yearwhich is 1 of the 10 calendar years preceding the individ-ual’s loss of United States citizenship.’’.(3) C
ONFORMING AMENDMENT .—Section 2107(a) is amended
to read as follows:‘‘(a) T
REATMENT OF EXPATRIATES .—A tax computed in accord-
ance with the table contained in section 2001 is hereby imposedon the transfer of the taxable estate, determined as provided insection 2106, of every decedent nonresident not a citizen of theUnited States if the date of death occurs during a taxable yearwith respect to which the decedent is subject to tax under section877(b).’’.
(b) S
PECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
ISNOLONGER A UNITED STATES CITIZEN OR LONG-TERM RESI-
DENT .—Section 7701 (relating to definitions) is amended by redesig-
nating subsection (n) as subsection (o) and by inserting after sub-section (m) the following new subsection:
‘‘(n) S
PECIAL RULES FOR DETERMINING WHEN AN INDIVIDUAL
ISNOLONGER A UNITED STATES CITIZEN OR LONG-TERM RESI-
DENT .—An individual who would (but for this subsection) cease
to be treated as a citizen or resident of the United States shallcontinue to be treated as a citizen or resident of the United States,as the case may be, until such individual—
‘‘(1) gives notice of an expatriating act or termination of
residency (with the requisite intent to relinquish citizenshipor terminate residency) to the Secretary of State or the Sec-retary of Homeland Security, and
‘‘(2) provides a statement in accordance with section
6039G.’’.(c) P
HYSICAL PRESENCE IN THE UNITED STATES FOR MORE THAN
30 D AYS.—Section 877 (relating to expatriation to avoid tax) is
amended by adding at the end the following new subsection:
‘‘(g) P HYSICAL PRESENCE .—
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‘‘(1) I N GENERAL .—This section shall not apply to any indi-
vidual to whom this section would otherwise apply for anytaxable year during the 10-year period referred to in subsection(a) in which such individual is physically present in the UnitedStates at any time on more than 30 days in the calendaryear ending in such taxable year, and such individual shallbe treated for purposes of this title as a citizen or residentof the United States, as the case may be, for such taxableyear.
‘‘(2) E
XCEPTION .—
‘‘(A) I N GENERAL .—In the case of an individual
described in any of the following subparagraphs of thisparagraph, a day of physical presence in the United Statesshall be disregarded if the individual is performing servicesin the United States on such day for an employer. Thepreceding sentence shall not apply if—
‘‘(i) such employer is related (within the meaning
of section 267 and 707) to such individual, or
‘‘(ii) such employer fails to meet such requirements
as the Secretary may prescribe by regulations to pre-vent the avoidance of the purposes of this paragraph.
Not more than 30 days during any calendar year maybe disregarded under this subparagraph.
‘‘(B) I
NDIVIDUALS WITH TIES TO OTHER COUNTRIES .—
An individual is described in this subparagraph if—
‘‘(i) the individual becomes (not later than the close
of a reasonable period after loss of United States citi-zenship or termination of residency) a citizen or resi-dent of the country in which—
‘‘(I) such individual was born,‘‘(II) if such individual is married, such individ-
ual’s spouse was born, or
‘‘(III) either of such individual’s parents were
born, and‘‘(ii) the individual becomes fully liable for income
tax in such country.‘‘(C) M
INIMAL PRIOR PHYSICAL PRESENCE IN THE UNITED
STATES .—An individual is described in this subparagraph
if, for each year in the 10-year period ending on the dateof loss of United States citizenship or termination of resi-dency, the individual was physically present in the UnitedStates for 30 days or less. The rule of section7701(b)(3)(D)(ii) shall apply for purposes of this subpara-graph.’’.
(d) T
RANSFERS SUBJECT TO GIFTTAX.—
(1) I N GENERAL .—Subsection (a) of section 2501 (relating
to taxable transfers) is amended by striking paragraph (4),by redesignating paragraph (5) as paragraph (4), and bystriking paragraph (3) and inserting the following new para-graph:
‘‘(3) E
XCEPTION .—
‘‘(A) C ERTAIN INDIVIDUALS .—Paragraph (2) shall not
apply in the case of a donor to whom section 877(b) appliesfor the taxable year which includes the date of the transfer.
‘‘(B) C
REDIT FOR FOREIGN GIFT TAXES .—The tax
imposed by this section solely by reason of this paragraphshall be credited with the amount of any gift tax actuallyApplicability.
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paid to any foreign country in respect of any gift which
is taxable under this section solely by reason of this para-graph.’’.(2) T
RANSFERS OF CERTAIN STOCK .—Subsection (a) of section
2501 is amended by adding at the end the following new para-graph:
‘‘(5) T
RANSFERS OF CERTAIN STOCK .—
‘‘(A) I N GENERAL .—In the case of a transfer of stock
in a foreign corporation described in subparagraph (B) bya donor to whom section 877(b) applies for the taxableyear which includes the date of the transfer—
‘‘(i) section 2511(a) shall be applied without regard
to whether such stock is situated within the UnitedStates, and
‘‘(ii) the value of such stock for purposes of this
chapter shall be its U.S.-asset value determined undersubparagraph (C).‘‘(B) F
OREIGN CORPORATION DESCRIBED .—A foreign cor-
poration is described in this subparagraph with respectto a donor if—
‘‘(i) the donor owned (within the meaning of section
958(a)) at the time of such transfer 10 percent ormore of the total combined voting power of all classesof stock entitled to vote of the foreign corporation,and
‘‘(ii) such donor owned (within the meaning of sec-
tion 958(a)), or is considered to have owned (byapplying the ownership rules of section 958(b)), at thetime of such transfer, more than 50 percent of—
‘‘(I) the total combined voting power of all
classes of stock entitled to vote of such corporation,or
‘‘(II) the total value of the stock of such cor-
poration.
‘‘(C) U.S.-
ASSET VALUE .—For purposes of subparagraph
(A), the U.S.-asset value of stock shall be the amountwhich bears the same ratio to the fair market value ofsuch stock at the time of transfer as—
‘‘(i) the fair market value (at such time) of the
assets owned by such foreign corporation and situatedin the United States, bears to
‘‘(ii) the total fair market value (at such time)
of all assets owned by such foreign corporation.’’.
(e) E
NHANCED INFORMATION REPORTING FROM INDIVIDUALS
LOSING UNITED STATES CITIZENSHIP .—
(1) I N GENERAL .—Subsection (a) of section 6039G is
amended to read as follows:‘‘(a) I
NGENERAL .—Notwithstanding any other provision of law,
any individual to whom section 877(b) applies for any taxableyear shall provide a statement for such taxable year which includesthe information described in subsection (b).’’.
(2) I
NFORMATION TO BE PROVIDED .—Subsection (b) of section
6039G is amended to read as follows:‘‘(b) I
NFORMATION TOBEPROVIDED .—Information required
under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,Applicability.
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‘‘(2) the mailing address of such individual’s principal for-
eign residence,
‘‘(3) the foreign country in which such individual is residing,‘‘(4) the foreign country of which such individual is a citizen,‘‘(5) information detailing the income, assets, and liabilities
of such individual,
‘‘(6) the number of days during any portion of which that
the individual was physically present in the United Statesduring the taxable year, and
‘‘(7) such other information as the Secretary may pre-
scribe.’’.
(3) I
NCREASE IN PENALTY .—Subsection (d) of section 6039G
is amended to read as follows:‘‘(d) P
ENALTY .—If—
‘‘(1) an individual is required to file a statement under
subsection (a) for any taxable year, and
‘‘(2) fails to file such a statement with the Secretary on
or before the date such statement is required to be filed orfails to include all the information required to be shown onthe statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shownthat such failure is due to reasonable cause and not to willfulneglect.’’.
(4) C
ONFORMING AMENDMENT .—Section 6039G is amended
by striking subsections (c), (f), and (g) and by redesignatingsubsections (d) and (e) as subsection (c) and (d), respectively.(f) E
FFECTIVE DATE.—The amendments made by this section
shall apply to individuals who expatriate after June 3, 2004.
SEC. 805. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) I NGENERAL .—Subpart B of part III of subchapter A of
chapter 61 is amended by inserting after section 6043 the followingnew section:
‘‘SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISI-
TIONS.
‘‘(a) I NGENERAL .—According to the forms or regulations pre-
scribed by the Secretary, the acquiring corporation in any taxableacquisition shall make a return setting forth—
‘‘(1) a description of the acquisition,‘‘(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)as a result of the acquisition,
‘‘(3) the amount of money and the fair market value of
other property transferred to each such shareholder as partof such acquisition, and
‘‘(4) such other information as the Secretary may prescribe.
To the extent provided by the Secretary, the requirements of thissection applicable to the acquiring corporation shall be applicable
to the acquired corporation and not to the acquiring corporation.
‘‘(b) N
OMINEES .—According to the forms or regulations pre-
scribed by the Secretary:
‘‘(1) R EPORTING .—Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed bythe Secretary to such other person the information providedby the corporation under subsection (d).
‘‘(2) R
EPORTING TO NOMINEES .—In the case of stock held
by any person as a nominee, references in this section (other26 USC 877 note.
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than in subsection (c)) to a shareholder shall be treated as
a reference to the nominee.‘‘(c) T
AXABLE ACQUISITION .—For purposes of this section, the
term ‘taxable acquisition’ means any acquisition by a corporationof stock in or property of another corporation if any shareholderof the acquired corporation is required to recognize gain (if any)as a result of such acquisition.
‘‘(d) S
TATEMENTS TOBEFURNISHED TO SHAREHOLDERS .—
According to the forms or regulations prescribed by the Secretary,every person required to make a return under subsection (a) shallfurnish to each shareholder whose name is required to be setforth in such return a written statement showing—
‘‘(1) the name, address, and phone number of the informa-
tion contact of the person required to make such return,
‘‘(2) the information required to be shown on such return
with respect to such shareholder, and
‘‘(3) such other information as the Secretary may prescribe.
The written statement required under the preceding sentence shallbe furnished to the shareholder on or before January 31 of theyear following the calendar year during which the taxable acquisi-tion occurred.’’.
(b) A
SSESSABLE PENALTIES .—
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through(xviii) as clauses (iii) through (xix), respectively, and byinserting after clause (i) the following new clause:
‘‘(ii) section 6043A(a) (relating to returns relating
to taxable mergers and acquisitions),’’.
(2) Paragraph (2) of section 6724(d) is amended by redesig-
nating subparagraphs (F) through (BB) as subparagraphs (G)through (CC), respectively, and by inserting after subparagraph(E) the following new subparagraph:
‘‘(F) subsections (b) and (d) of section 6043A (relating
to returns relating to taxable mergers and acquisitions).’’.
(c) C
LERICAL AMENDMENT .—The table of sections for subpart
B of part III of subchapter A of chapter 61 is amended by insertingafter the item relating to section 6043 the following new item:
‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to acquisitions after the date of the enactment of thisAct.
SEC. 806. STUDIES.
(a) T RANSFER PRICING RULES .—The Secretary of the Treasury
or the Secretary’s delegate shall conduct a study regarding theeffectiveness of current transfer pricing rules and compliance effortsin ensuring that cross-border transfers and other related-partytransactions, particularly transactions involving intangible assets,
service contracts, or leases cannot be used improperly to shiftincome out of the United States. The study shall include a reviewof the contemporaneous documentation and penalty rules undersection 6662 of the Internal Revenue Code of 1986, a review ofthe regulatory and administrative guidance implementing the prin-ciples of section 482 of such Code to transactions involving intan-gible property and services and to cost-sharing arrangements, andan examination of whether increased disclosure of cross-bordertransactions should be required. The study shall set forth specificDeadlines.Reports.26 USC 6043A
note.
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recommendations to address all abuses identified in the study.
Not later than June 30, 2005, such Secretary or delegate shallsubmit to the Congress a report of such study.
(b) I
NCOME TAXTREATIES .—The Secretary of the Treasury or
the Secretary’s delegate shall conduct a study of United Statesincome tax treaties to identify any inappropriate reductions inUnited States withholding tax that provide opportunities for shiftingincome out of the United States, and to evaluate whether existinganti-abuse mechanisms are operating properly. The study shallinclude specific recommendations to address all inappropriate usesof tax treaties. Not later than June 30, 2005, such Secretary ordelegate shall submit to the Congress a report of such study.
(c) E
FFECTIVENESS OF CORPORATE EXPATRIATION PROVISIONS .—
The Secretary of the Treasury or the Secretary’s delegate shallconduct a study of the effectiveness of the provisions of this titleon corporate expatriation. The study shall include such rec-ommendations as such Secretary or delegate may have to improvethe effectiveness of such provisions in carrying out the purposesof this title. Not later than December 31, 2006, such Secretaryor delegate shall submit to the Congress a report of such study.
Subtitle B—Provisions Relating to Tax
Shelters
Part I—Taxpayer-Related Provisions
SEC. 811. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANS-
ACTIONS.
(a) I NGENERAL .—Part I of subchapter B of chapter 68 (relating
to assessable penalties) is amended by inserting after section 6707the following new section:
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE
TRANSACTION INFORMATION WITH RETURN.
‘‘(a) I MPOSITION OF PENALTY .—Any person who fails to include
on any return or statement any information with respect to areportable transaction which is required under section 6011 tobe included with such return or statement shall pay a penaltyin the amount determined under subsection (b).
‘‘(b) A
MOUNT OF PENALTY .—
‘‘(1) I N GENERAL .—Except as provided in paragraph (2),
the amount of the penalty under subsection (a) shall be—
‘‘(A) $10,000 in the case of a natural person, and‘‘(B) $50,000 in any other case.
‘‘(2) L
ISTED TRANSACTION .—The amount of the penalty
under subsection (a) with respect to a listed transaction shallbe—
‘‘(A) $100,000 in the case of a natural person, and‘‘(B) $200,000 in any other case.
‘‘(c) D
EFINITIONS .—For purposes of this section:
‘‘(1) R EPORTABLE TRANSACTION .—The term ‘reportable
transaction’ means any transaction with respect to whichinformation is required to be included with a return or state-ment because, as determined under regulations prescribedunder section 6011, such transaction is of a type which the
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Secretary determines as having a potential for tax avoidance
or evasion.
‘‘(2) L ISTED TRANSACTION .—The term ‘listed transaction’
means a reportable transaction which is the same as, orsubstantially similar to, a transaction specifically identifiedby the Secretary as a tax avoidance transaction for purposesof section 6011.‘‘(d) A
UTHORITY TORESCIND PENALTY .—
‘‘(1) I N GENERAL .—The Commissioner of Internal Revenue
may rescind all or any portion of any penalty imposed bythis section with respect to any violation if—
‘‘(A) the violation is with respect to a reportable trans-
action other than a listed transaction, and
‘‘(B) rescinding the penalty would promote compliance
with the requirements of this title and effective taxadministration.‘‘(2) N
O JUDICIAL APPEAL .—Notwithstanding any other
provision of law, any determination under this subsection maynot be reviewed in any judicial proceeding.
‘‘(3) R
ECORDS .—If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Officeof the Commissioner the opinion of the Commissioner withrespect to the determination, including—
‘‘(A) a statement of the facts and circumstances relating
to the violation,
‘‘(B) the reasons for the rescission, and‘‘(C) the amount of the penalty rescinded.
‘‘(e) P
ENALTY REPORTED TO SEC.—In the case of a person—
‘‘(1) which is required to file periodic reports under section
13 or 15(d) of the Securities Exchange Act of 1934 or is requiredto be consolidated with another person for purposes of suchreports, and
‘‘(2) which—
‘‘(A) is required to pay a penalty under this section
with respect to a listed transaction,
‘‘(B) is required to pay a penalty under section 6662A
with respect to any reportable transaction at a rate pre-scribed under section 6662A(c), or
‘‘(C) is required to pay a penalty under section 6662(h)
with respect to any reportable transaction and would (butfor section 6662A(e)(2)(C)) have been subject to penaltyunder section 6662A at a rate prescribed under section6662A(c),
the requirement to pay such penalty shall be disclosed in suchreports filed by such person for such periods as the Secretaryshall specify. Failure to make a disclosure in accordance with thepreceding sentence shall be treated as a failure to which the penaltyunder subsection (b)(2) applies.
‘‘(f) C
OORDINATION WITH OTHER PENALTIES .—The penalty
imposed by this section shall be in addition to any other penaltyimposed by this title.’’.
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(b) C ONFORMING AMENDMENT .—The table of sections for part
I of subchapter B of chapter 68 is amended by inserting afterthe item relating to section 6707 the following:
‘‘Sec. 6707A. Penalty for failure to include reportable transaction informa-
tion with return.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to returns and statements the due date for whichis after the date of the enactment of this Act.
(d) R
EPORT .—The Commissioner of Internal Revenue shall
annually report to the Committee on Ways and Means of theHouse of Representatives and the Committee on Finance of theSenate—
(1) a summary of the total number and aggregate amount
of penalties imposed, and rescinded, under section 6707A ofthe Internal Revenue Code of 1986, and
(2) a description of each penalty rescinded under section
6707(c) of such Code and the reasons therefor.
SEC. 812. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS,
OTHER REPORTABLE TRANSACTIONS HAVING A SIGNIFI-CANT TAX AVOIDANCE PURPOSE, ETC.
(a) I NGENERAL .—Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERSTATEMENTS WITH RESPECT TO REPORTABLETRANSACTIONS.
‘‘(a) I MPOSITION OF PENALTY .—If a taxpayer has a reportable
transaction understatement for any taxable year, there shall beadded to the tax an amount equal to 20 percent of the amountof such understatement.
‘‘(b) R
EPORTABLE TRANSACTION UNDERSTATEMENT .—For pur-
poses of this section—
‘‘(1) I N GENERAL .—The term ‘reportable transaction under-
statement’ means the sum of—
‘‘(A) the product of—
‘‘(i) the amount of the increase (if any) in taxable
income which results from a difference between theproper tax treatment of an item to which this sectionapplies and the taxpayer’s treatment of such item (asshown on the taxpayer’s return of tax), and
‘‘(ii) the highest rate of tax imposed by section
1 (section 11 in the case of a taxpayer which is acorporation), and‘‘(B) the amount of the decrease (if any) in the aggre-
gate amount of credits determined under subtitle A whichresults from a difference between the taxpayer’s treatmentof an item to which this section applies (as shown onthe taxpayer’s return of tax) and the proper tax treatmentof such item.
For purposes of subparagraph (A), any reduction of the excessof deductions allowed for the taxable year over gross incomefor such year, and any reduction in the amount of capitallosses which would (without regard to section 1211) be allowedfor such year, shall be treated as an increase in taxable income.
‘‘(2) I
TEMS TO WHICH SECTION APPLIES .—This section shall
apply to any item which is attributable to—26 USC 6707Anote.26 USC 6707A
note.
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‘‘(A) any listed transaction, and
‘‘(B) any reportable transaction (other than a listed
transaction) if a significant purpose of such transactionis the avoidance or evasion of Federal income tax.
‘‘(c) H
IGHER PENALTY FOR NONDISCLOSED LISTED AND OTHER
AVOIDANCE TRANSACTIONS .—Subsection (a) shall be applied by sub-
stituting ‘30 percent’ for ‘20 percent’ with respect to the portionof any reportable transaction understatement with respect to whichthe requirement of section 6664(d)(2)(A) is not met.
‘‘(d) D
EFINITIONS OF REPORTABLE AND LISTED TRANSACTIONS .—
For purposes of this section, the terms ‘reportable transaction’ and‘listed transaction’ have the respective meanings given to suchterms by section 6707A(c).
‘‘(e) S
PECIAL RULES .—
‘‘(1) C OORDINATION WITH PENALTIES , ETC., ON OTHER UNDER –
STATEMENTS .—In the case of an understatement (as defined
in section 6662(d)(2))—
‘‘(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased bythe aggregate amount of reportable transaction understate-ments for purposes of determining whether such under-statement is a substantial understatement under section6662(d)(1), and
‘‘(B) the addition to tax under section 6662(a) shall
apply only to the excess of the amount of the substantialunderstatement (if any) after the application of subpara-graph (A) over the aggregate amount of reportable trans-action understatements.‘‘(2) C
OORDINATION WITH OTHER PENALTIES .—
‘‘(A) A PPLICATION OF FRAUD PENALTY .—References to
an underpayment in section 6663 shall be treated asincluding references to a reportable transaction understate-ment.
‘‘(B) N
O DOUBLE PENALTY .—This section shall not apply
to any portion of an understatement on which a penaltyis imposed under section 6663.
‘‘(C) C
OORDINATION WITH VALUATION PENALTIES .—
‘‘(i) S ECTION 6662( e).—Section 6662(e) shall not
apply to any portion of an understatement on which
a penalty is imposed under this section.
‘‘(ii) S ECTION 6662( h).—This section shall not apply
to any portion of an understatement on which a penaltyis imposed under section 6662(h).
‘‘(3) S
PECIAL RULE FOR AMENDED RETURNS .—Except as pro-
vided in regulations, in no event shall any tax treatmentincluded with an amendment or supplement to a return oftax be taken into account in determining the amount of anyreportable transaction understatement if the amendment orsupplement is filed after the earlier of the date the taxpayeris first contacted by the Secretary regarding the examinationof the return or such other date as is specified by the Sec-retary.’’.(b) D
ETERMINATION OF OTHER UNDERSTATEMENTS .—Subpara-
graph (A) of section 6662(d)(2) is amended by adding at the endthe following flush sentence:Applicability.Applicability.
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‘‘The excess under the preceding sentence shall be deter-
mined without regard to items to which section 6662Aapplies.’’.
(c) R
EASONABLE CAUSE EXCEPTION .—
(1) I N GENERAL .—Section 6664 is amended by adding at
the end the following new subsection:‘‘(d) R
EASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANS –
ACTION UNDERSTATEMENTS .—
‘‘(1) I N GENERAL .—No penalty shall be imposed under sec-
tion 6662A with respect to any portion of a reportable trans-action understatement if it is shown that there was a reason-able cause for such portion and that the taxpayer acted ingood faith with respect to such portion.
‘‘(2) S
PECIAL RULES .—Paragraph (1) shall not apply to any
reportable transaction understatement unless—
‘‘(A) the relevant facts affecting the tax treatment of
the item are adequately disclosed in accordance with theregulations prescribed under section 6011,
‘‘(B) there is or was substantial authority for such
treatment, and
‘‘(C) the taxpayer reasonably believed that such treat-
ment was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance withsection 6011 shall be treated as meeting the requirementsof subparagraph (A) if the penalty for such failure was rescindedunder section 6707A(d).
‘‘(3) R
ULES RELATING TO REASONABLE BELIEF .—For purposes
of paragraph (2)(C)—
‘‘(A) I N GENERAL .—A taxpayer shall be treated as
having a reasonable belief with respect to the tax treatmentof an item only if such belief—
‘‘(i) is based on the facts and law that exist at
the time the return of tax which includes such taxtreatment is filed, and
‘‘(ii) relates solely to the taxpayer’s chances of suc-
cess on the merits of such treatment and does nottake into account the possibility that a return willnot be audited, such treatment will not be raised onaudit, or such treatment will be resolved throughsettlement if it is raised.‘‘(B) C
ERTAIN OPINIONS MAY NOT BE RELIED UPON .—
‘‘(i) I N GENERAL .—An opinion of a tax advisor may
not be relied upon to establish the reasonable beliefof a taxpayer if—
‘‘(I) the tax advisor is described in clause (ii),
or
‘‘(II) the opinion is described in clause (iii).
‘‘(ii) D
ISQUALIFIED TAX ADVISORS .—A tax advisor
is described in this clause if the tax advisor—
‘‘(I) is a material advisor (within the meaning
of section 6111(b)(1)) and participates in theorganization, management, promotion, or sale ofthe transaction or is related (within the meaningof section 267(b) or 707(b)(1)) to any person whoso participates,
‘‘(II) is compensated directly or indirectly by
a material advisor with respect to the transaction,
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‘‘(III) has a fee arrangement with respect to
the transaction which is contingent on all or partof the intended tax benefits from the transactionbeing sustained, or
‘‘(IV) as determined under regulations pre-
scribed by the Secretary, has a disqualifying finan-cial interest with respect to the transaction.‘‘(iii) D
ISQUALIFIED OPINIONS .—For purposes of
clause (i), an opinion is disqualified if the opinion—
‘‘(I) is based on unreasonable factual or legal
assumptions (including assumptions as to futureevents),
‘‘(II) unreasonably relies on representations,
statements, findings, or agreements of the tax-payer or any other person,
‘‘(III) does not identify and consider all rel-
evant facts, or
‘‘(IV) fails to meet any other requirement as
the Secretary may prescribe.’’.
(2) C
ONFORMING AMENDMENTS .—
(A) Paragraph (1) of section 6664(c) is amended by
striking ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.
(B) The heading for subsection (c) of section 6664 is
amended by inserting ‘‘ FORUNDERPAYMENTS ’’ after ‘‘E XCEP –
TION ’’.
(d) R EDUCTION IN PENALTY FOR SUBSTANTIAL UNDERSTATEMENT
OFINCOME TAXNOTTOAPPLY TO TAXSHELTERS .—Subparagraph
(C) of section 6662(d)(2) (relating to substantial understatementof income tax) is amended to read as follows:
‘‘(C) R
EDUCTION NOT TO APPLY TO TAX SHELTERS .—
‘‘(i) I N GENERAL .—Subparagraph (B) shall not
apply to any item attributable to a tax shelter.
‘‘(ii) T AX SHELTER .—For purposes of clause (i), the
term ‘tax shelter’ means—
‘‘(I) a partnership or other entity,‘‘(II) any investment plan or arrangement, or
‘‘(III) any other plan or arrangement,
if a significant purpose of such partnership, entity,plan, or arrangement is the avoidance or evasion ofFederal income tax.’’.
(e) C
LERICAL AMENDMENTS .—
(1) The heading for section 6662 is amended to read as
follows:
‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDER-
PAYMENTS.’’.
(2) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section6662 and inserting the following new items:
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements
with respect to reportable transactions.’’.
(f) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactmentof this Act.26 USC 6662
note.
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SEC. 813. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES
RELATING TO TAXPAYER COMMUNICATIONS.
(a) I NGENERAL .—Section 7525(b) (relating to section not to
apply to communications regarding corporate tax shelters) isamended to read as follows:
‘‘(b) S
ECTION NOTTOAPPLY TO COMMUNICATIONS REGARDING
TAXSHELTERS .—The privilege under subsection (a) shall not apply
to any written communication which is—
‘‘(1) between a federally authorized tax practitioner and—
‘‘(A) any person,‘‘(B) any director, officer, employee, agent, or represent-
ative of the person, or
‘‘(C) any other person holding a capital or profits
interest in the person, and‘‘(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (asdefined in section 6662(d)(2)(C)(ii)).’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to communications made on or after the date of theenactment of this Act.
SEC. 814. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH
REQUIRED LISTED TRANSACTIONS NOT REPORTED.
(a) I NGENERAL .—Section 6501(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
‘‘(10) L ISTED TRANSACTIONS .—If a taxpayer fails to include
on any return or statement for any taxable year any informationwith respect to a listed transaction (as defined in section6707A(c)(2)) which is required under section 6011 to be includedwith such return or statement, the time for assessment ofany tax imposed by this title with respect to such transactionshall not expire before the date which is 1 year after theearlier of—
‘‘(A) the date on which the Secretary is furnished the
information so required, or
‘‘(B) the date that a material advisor (as defined in
section 6111) meets the requirements of section 6112 withrespect to a request by the Secretary under section 6112(b)relating to such transaction with respect to such taxpayer.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years with respect to which the period forassessing a deficiency did not expire before the date of the enact-ment of this Act.
SEC. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) I NGENERAL .—Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
‘‘(a) I NGENERAL .—Each material advisor with respect to any
reportable transaction shall make a return (in such form as theSecretary may prescribe) setting forth—
‘‘(1) information identifying and describing the transaction,‘‘(2) information describing any potential tax benefits
expected to result from the transaction, and
‘‘(3) such other information as the Secretary may prescribe.
Such return shall be filed not later than the date specified bythe Secretary.26 USC 6501note.26 USC 7525
note.
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‘‘(b) D EFINITIONS .—For purposes of this section:
‘‘(1) M ATERIAL ADVISOR .—
‘‘(A) I N GENERAL .—The term ‘material advisor’ means
any person—
‘‘(i) who provides any material aid, assistance, or
advice with respect to organizing, managing, pro-moting, selling, implementing, insuring, or carryingout any reportable transaction, and
‘‘(ii) who directly or indirectly derives gross income
in excess of the threshold amount (or such otheramount as may be prescribed by the Secretary) forsuch advice or assistance.‘‘(B) T
HRESHOLD AMOUNT .—For purposes of subpara-
graph (A), the threshold amount is—
‘‘(i) $50,000 in the case of a reportable transaction
substantially all of the tax benefits from which areprovided to natural persons, and
‘‘(ii) $250,000 in any other case.
‘‘(2) R
EPORTABLE TRANSACTION .—The term ‘reportable
transaction’ has the meaning given to such term by section6707A(c).‘‘(c) R
EGULATIONS .—The Secretary may prescribe regulations
which provide—
‘‘(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or morepersons would otherwise be required to meet such require-ments,
‘‘(2) exemptions from the requirements of this section, and‘‘(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.’’.(b) C
ONFORMING AMENDMENTS .—(1) The item relating to section
6111 in the table of sections for subchapter B of chapter 61 isamended to read as follows:
‘‘Sec. 6111. Disclosure of reportable transactions.’’.
(2) So much of section 6112 as precedes subsection (c) thereof
is amended to read as follows:
‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS
MUST KEEP LISTS OF ADVISEES, ETC.
‘‘(a) I NGENERAL .—Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined insection 6707A(c)) shall (whether or not required to file a returnunder section 6111 with respect to such transaction) maintain (insuch manner as the Secretary may by regulations prescribe) alist—
‘‘(1) identifying each person with respect to whom such
advisor acted as a material advisor with respect to such trans-action, and
‘‘(2) containing such other information as the Secretary
may by regulations require.’’.(3) Section 6112 is amended—
(A) by redesignating subsection (c) as subsection (b),(B) by inserting ‘‘written’’ before ‘‘request’’ in subsection
(b)(1) (as so redesignated), and
(C) by striking ‘‘shall prescribe’’ in subsection (b)(2) (as
so redesignated) and inserting ‘‘may prescribe’’.
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(4) The item relating to section 6112 in the table of sections
for subchapter B of chapter 61 is amended to read as follows:
‘‘Sec. 6112. Material advisors of reportable transactions must keep lists of
advisees, etc.’’.
(5)(A) The heading for section 6708 is amended to read as
follows:
‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT
TO REPORTABLE TRANSACTIONS.’’
(B) The item relating to section 6708 in the table of sections
for part I of subchapter B of chapter 68 is amended to read asfollows:
‘‘Sec. 6708. Failure to maintain lists of advisees with respect to reportable
transactions.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to transactions with respect to which material aid,assistance, or advice referred to in section 6111(b)(1)(A)(i) of theInternal Revenue Code of 1986 (as added by this section) is providedafter the date of the enactment of this Act.
SEC. 816. FAILURE TO FURNISH INFORMATION REGARDING REPORT-
ABLE TRANSACTIONS.
(a) I NGENERAL .—Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORT-
ABLE TRANSACTIONS.
‘‘(a) I NGENERAL .—If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction—
‘‘(1) fails to file such return on or before the date prescribed
therefor, or
‘‘(2) files false or incomplete information with the Secretary
with respect to such transaction,
such person shall pay a penalty with respect to such return inthe amount determined under subsection (b).
‘‘(b) A
MOUNT OF PENALTY .—
‘‘(1) I N GENERAL .—Except as provided in paragraph (2),
the penalty imposed under subsection (a) with respect to anyfailure shall be $50,000.
‘‘(2) L
ISTED TRANSACTIONS .—The penalty imposed under
subsection (a) with respect to any listed transaction shall bean amount equal to the greater of—
‘‘(A) $200,000, or‘‘(B) 50 percent of the gross income derived by such
person with respect to aid, assistance, or advice whichis provided with respect to the listed transaction beforethe date the return is filed under section 6111.
Subparagraph (B) shall be applied by substituting ‘75 percent’for ‘50 percent’ in the case of an intentional failure or actdescribed in subsection (a).‘‘(c) R
ESCISSION AUTHORITY .—The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shallapply to any penalty imposed under this section.
‘‘(d) R
EPORTABLE AND LISTED TRANSACTIONS .—For purposes of
this section, the terms ‘reportable transaction’ and ‘listed trans-action’ have the respective meanings given to such terms by section6707A(c).’’.Applicability.Applicability.26 USC 6111
note.
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(b) C LERICAL AMENDMENT .—The item relating to section 6707
in the table of sections for part I of subchapter B of chapter68 is amended by striking ‘‘tax shelters’’ and inserting ‘‘reportabletransactions’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to returns the due date for which is after the dateof the enactment of this Act.
SEC. 817. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN
LISTS OF INVESTORS.
(a) I NGENERAL .—Subsection (a) of section 6708 is amended
to read as follows:
‘‘(a) I MPOSITION OF PENALTY .—
‘‘(1) I N GENERAL .—If any person who is required to main-
tain a list under section 6112(a) fails to make such list availableupon written request to the Secretary in accordance with section6112(b) within 20 business days after the date of such request,such person shall pay a penalty of $10,000 for each day ofsuch failure after such 20th day.
‘‘(2) R
EASONABLE CAUSE EXCEPTION .—No penalty shall be
imposed by paragraph (1) with respect to the failure on anyday if such failure is due to reasonable cause.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to requests made after the date of the enactment ofthis Act.
SEC. 818. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) P ENALTY ON PROMOTING ABUSIVE TAXSHELTERS .—Section
6700(a) is amended by adding at the end the following new sentence:‘‘Notwithstanding the first sentence, if an activity with respectto which a penalty imposed under this subsection involves a state-ment described in paragraph (2)(A), the amount of the penaltyshall be equal to 50 percent of the gross income derived (or tobe derived) from such activity by the person on which the penaltyis imposed.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to activities after the date of the enactment of thisAct.
SEC. 819. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PEN-
ALTY FOR NONREPORTABLE TRANSACTIONS.
(a) S UBSTANTIAL UNDERSTATEMENT OF CORPORATIONS .—Section
6662(d)(1)(B) (relating to special rule for corporations) is amendedto read as follows:
‘‘(B) S
PECIAL RULE FOR CORPORATIONS .—In the case
of a corporation other than an S corporation or a personalholding company (as defined in section 542), there is asubstantial understatement of income tax for any taxableyear if the amount of the understatement for the taxableyear exceeds the lesser of—
‘‘(i) 10 percent of the tax required to be shown
on the return for the taxable year (or, if greater,$10,000), or
‘‘(ii) $10,000,000.’’.
(b) S
ECRETARIAL LIST.—
(1) I N GENERAL .—Section 6662(d) is amended by adding
at the end the following new paragraph:26 USC 6700note.26 USC 6708
note.Deadline.26 USC 6707
note.
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‘‘(3) S ECRETARIAL LIST .—The Secretary may prescribe a
list of positions which the Secretary believes do not meet the1 or more of the standards specified in paragraph (2)(B)(i),section 6664(d)(2), and section 6694(a)(1). Such list (and anyrevisions thereof) shall be published in the Federal Registeror the Internal Revenue Bulletin.’’.
(2) C
ONFORMING AMENDMENT .—Paragraph (2) of section
6662(d) is amended by striking subparagraph (D).(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT
RELATED TO TAX SHELTERS AND REPORTABLE TRANS-ACTIONS.
(a) I NGENERAL .—Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignatingsubsection (c) as subsection (d) and by striking subsections (a)and (b) and inserting the following new subsections:
‘‘(a) A
UTHORITY TOSEEK INJUNCTION .—A civil action in the
name of the United States to enjoin any person from furtherengaging in specified conduct may be commenced at the requestof the Secretary. Any action under this section shall be broughtin the district court of the United States for the district in whichsuch person resides, has his principal place of business, or hasengaged in specified conduct. The court may exercise its jurisdictionover such action (as provided in section 7402(a)) separate andapart from any other action brought by the United States againstsuch person.
‘‘(b) A
DJUDICATION AND DECREE .—In any action under sub-
section (a), if the court finds—
‘‘(1) that the person has engaged in any specified conduct,
and
‘‘(2) that injunctive relief is appropriate to prevent recur-
rence of such conduct,
the court may enjoin such person from engaging in such conductor in any other activity subject to penalty under this title.
‘‘(c) S
PECIFIED CONDUCT .—For purposes of this section, the
term ‘specified conduct’ means any action, or failure to take action,which is—
‘‘(1) subject to penalty under section 6700, 6701, 6707,
or 6708, or
‘‘(2) in violation of any requirement under regulations
issued under section 330 of title 31, United States Code.’’.(b) C
ONFORMING AMENDMENTS .—(1) The heading for section
7408 is amended to read as follows:
‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.’’.
(2) The table of sections for subchapter A of chapter 76 is
amended by striking the item relating to section 7408 and insertingthe following new item:
‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and re-
portable transactions.’’.
(c) E FFECTIVE DATE.—The amendment made by this section
shall take effect on the day after the date of the enactment ofthis Act.26 USC 7408note.26 USC 6662
note.Federal Register,
publication.
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SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
(a) I NGENERAL .—Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
‘‘(5) F OREIGN FINANCIAL AGENCY TRANSACTION VIOLATION .—
‘‘(A) P ENALTY AUTHORIZED .—The Secretary of the
Treasury may impose a civil money penalty on any personwho violates, or causes any violation of, any provisionof section 5314.
‘‘(B) A
MOUNT OF PENALTY .—
‘‘(i) I N GENERAL .—Except as provided in subpara-
graph (C), the amount of any civil penalty imposedunder subparagraph (A) shall not exceed $10,000.
‘‘(ii) R
EASONABLE CAUSE EXCEPTION .—No penalty
shall be imposed under subparagraph (A) with respectto any violation if—
‘‘(I) such violation was due to reasonable cause,
and
‘‘(II) the amount of the transaction or the bal-
ance in the account at the time of the transactionwas properly reported.
‘‘(C) W
ILLFUL VIOLATIONS .—In the case of any person
willfully violating, or willfully causing any violation of,any provision of section 5314—
‘‘(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of—
‘‘(I) $100,000, or‘‘(II) 50 percent of the amount determined
under subparagraph (D), and‘‘(ii) subparagraph (B)(ii) shall not apply.
‘‘(D) A
MOUNT .—The amount determined under this
subparagraph is—
‘‘(i) in the case of a violation involving a trans-
action, the amount of the transaction, or
‘‘(ii) in the case of a violation involving a failure
to report the existence of an account or any identifyinginformation required to be provided with respect toan account, the balance in the account at the timeof the violation.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to violations occurring after the date of the enactmentof this Act.
SEC. 822. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE
DEPARTMENT OF THE TREASURY.
(a) C ENSURE ; IMPOSITION OF PENALTY .—
(1) I N GENERAL .—Section 330(b) of title 31, United States
Code, is amended—
(A) by inserting ‘‘, or censure,’’ after ‘‘Department’’,
and
(B) by adding at the end the following new flush sen-
tence:
‘‘The Secretary may impose a monetary penalty on any representa-tive described in the preceding sentence. If the representative wasacting on behalf of an employer or any firm or other entity inconnection with the conduct giving rise to such penalty, the Sec-retary may impose a monetary penalty on such employer, firm,31 USC 5321note.
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or entity if it knew, or reasonably should have known, of such
conduct. Such penalty shall not exceed the gross income derived(or to be derived) from the conduct giving rise to the penaltyand may be in addition to, or in lieu of, any suspension, disbarment,or censure of the representative.’’.
(2) E
FFECTIVE DATE .—The amendments made by this sub-
section shall apply to actions taken after the date of the enact-ment of this Act.(b) T
AXSHELTER OPINIONS , ETC.—Section 330 of such title
31 is amended by adding at the end the following new subsection:
‘‘(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of theTreasury to impose standards applicable to the rendering of writtenadvice with respect to any entity, transaction plan or arrangement,or other plan or arrangement, which is of a type which the Secretarydetermines as having a potential for tax avoidance or evasion.’’.
Part II—Other Provisions
SEC. 831. TREATMENT OF STRIPPED INTERESTS IN BOND AND PRE-
FERRED STOCK FUNDS, ETC.
(a) I NGENERAL .—Section 1286 (relating to tax treatment of
stripped bonds) is amended by redesignating subsection (f) as sub-section (g) and by inserting after subsection (e) the following newsubsection:
‘‘(f) T
REATMENT OF STRIPPED INTERESTS IN BOND AND PRE-
FERRED STOCK FUNDS , ETC.—In the case of an account or entity
substantially all of the assets of which consist of bonds, preferredstock, or a combination thereof, the Secretary may by regulationsprovide that rules similar to the rules of this section and 305(e),as appropriate, shall apply to interests in such account or entityto which (but for this subsection) this section or section 305(e),as the case may be, would not apply.’’.
(b) C
ROSS REFERENCE .—Subsection (e) of section 305 is
amended by adding at the end the following new paragraph:
‘‘(7) C ROSS REFERENCE .—
‘‘For treatment of stripped interests in certain accounts or enti-
ties holding preferred stock, see section 1286(f).’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to purchases and dispositions after the date of theenactment of this Act.
SEC. 832. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON
WITHHOLDING TAXES ON INCOME OTHER THAN DIVI-DENDS.
(a) I NGENERAL .—Section 901 is amended by redesignating
subsection (l) as subsection (m) and by inserting after subsection(k) the following new subsection:
‘‘(l) M
INIMUM HOLDING PERIOD FOR WITHHOLDING TAXES ON
GAIN AND INCOME OTHER THAN DIVIDENDS ETC.—
‘‘(1) I N GENERAL .—In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined insubsection (k)) on any item of income or gain with respectto any property if—
‘‘(A) such property is held by the recipient of the item
for 15 days or less during the 31-day period beginning26 USC 305 note.31 USC 330 note.
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on the date which is 15 days before the date on which
the right to receive payment of such item arises, or
‘‘(B) to the extent that the recipient of the item is
under an obligation (whether pursuant to a short saleor otherwise) to make related payments with respect topositions in substantially similar or related property.
This paragraph shall not apply to any dividend to which sub-section (k) applies.
‘‘(2) E
XCEPTION FOR TAXES PAID BY DEALERS .—
‘‘(A) I N GENERAL .—Paragraph (1) shall not apply to
any qualified tax with respect to any property held inthe active conduct in a foreign country of a business asa dealer in such property.
‘‘(B) Q
UALIFIED TAX .—For purposes of subparagraph
(A), the term ‘qualified tax’ means a tax paid to a foreigncountry (other than the foreign country referred to insubparagraph (A)) if—
‘‘(i) the item to which such tax is attributable
is subject to taxation on a net basis by the countryreferred to in subparagraph (A), and
‘‘(ii) such country allows a credit against its net
basis tax for the full amount of the tax paid to suchother foreign country.‘‘(C) D
EALER .—For purposes of subparagraph (A), the
term ‘dealer’ means—
‘‘(i) with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would notapply by reason of paragraph (4) thereof if such secu-rity were stock, and
‘‘(ii) with respect to any other property, any person
with respect to whom such property is described insection 1221(a)(1).‘‘(D) R
EGULATIONS .—The Secretary may prescribe such
regulations as may be appropriate to carry out this para-graph, including regulations to prevent the abuse of theexception provided by this paragraph and to treat othertaxes as qualified taxes.‘‘(3) E
XCEPTIONS .—The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the Sec-retary determines that the application of paragraph (1) to suchproperty is not necessary to carry out the purposes of thissubsection.
‘‘(4) C
ERTAIN RULES TO APPLY .—Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall applyfor purposes of this subsection.
‘‘(5) D
ETERMINATION OF HOLDING PERIOD .—Holding periods
shall be determined for purposes of this subsection withoutregard to section 1235 or any similar rule.’’.(b) C
ONFORMING AMENDMENT .—The heading of subsection (k)
of section 901 is amended by inserting ‘‘ ONDIVIDENDS ’’ after
‘‘TAXES ’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or accrued more than 30 days afterthe date of the enactment of this Act.26 USC 901 note.
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SEC. 833. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANS-
FERS.
(a) T REATMENT OF CONTRIBUTED PROPERTY WITH BUILT-IN
LOSS.—Paragraph (1) of section 704(c) is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the period at theend of subparagraph (B) and inserting ‘‘, and’’, and by addingat the end the following:
‘‘(C) if any property so contributed has a built-in loss—
‘‘(i) such built-in loss shall be taken into account
only in determining the amount of items allocated tothe contributing partner, and
‘‘(ii) except as provided in regulations, in deter-
mining the amount of items allocated to other partners,the basis of the contributed property in the handsof the partnership shall be treated as being equalto its fair market value at the time of contribution.
For purposes of subparagraph (C), the term ‘built-in loss’ meansthe excess of the adjusted basis of the property (determinedwithout regard to subparagraph (C)(ii)) over its fair marketvalue at the time of contribution.’’.(b) S
PECIAL RULES FOR TRANSFERS OF PARTNERSHIP INTEREST
IFTHERE ISSUBSTANTIAL BUILT-INLOSS.—
(1) A DJUSTMENT OF PARTNERSHIP BASIS REQUIRED .—Sub-
section (a) of section 743 (relating to optional adjustment tobasis of partnership property) is amended by inserting beforethe period ‘‘or unless the partnership has a substantial built-in loss immediately after such transfer’’.
(2) A
DJUSTMENT .—Subsection (b) of section 743 is amended
by inserting ‘‘or which has a substantial built-in loss imme-diately after such transfer’’ after ‘‘section 754 is in effect’’.
(3) S
UBSTANTIAL BUILT -IN LOSS .—Section 743 is amended
by adding at the end the following new subsection:‘‘(d) S
UBSTANTIAL BUILT-INLOSS.—
‘‘(1) I N GENERAL .—For purposes of this section, a partner-
ship has a substantial built-in loss with respect to a transferof an interest in a partnership if the partnership’s adjustedbasis in the partnership property exceeds by more than$250,000 the fair market value of such property.
‘‘(2) R
EGULATIONS .—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposesof paragraph (1) and section 734(d), including regulations aggre-gating related partnerships and disregarding property acquiredby the partnership in an attempt to avoid such purposes.’’.
(4) A
LTERNATIVE RULES FOR ELECTING INVESTMENT PART –
NERSHIPS .—
(A) I N GENERAL .—Section 743 is amended by adding
after subsection (d) the following new subsection:
‘‘(e) A LTERNATIVE RULES FOR ELECTING INVESTMENT PARTNER –
SHIPS .—
‘‘(1) N O ADJUSTMENT OF PARTNERSHIP BASIS .—For purposes
of this section, an electing investment partnership shall notbe treated as having a substantial built-in loss with respectto any transfer occurring while the election under paragraph(6)(A) is in effect.
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‘‘(2) L OSS DEFERRAL FOR TRANSFEREE PARTNER .—In the case
of a transfer of an interest in an electing investment partner-ship, the transferee partner’s distributive share of losses (with-out regard to gains) from the sale or exchange of partnershipproperty shall not be allowed except to the extent that itis established that such losses exceed the loss (if any) recognizedby the transferor (or any prior transferor to the extent notfully offset by a prior disallowance under this paragraph) onthe transfer of the partnership interest.
‘‘(3) N
O REDUCTION IN PARTNERSHIP BASIS .—Losses dis-
allowed under paragraph (2) shall not decrease the transfereepartner’s basis in the partnership interest.
‘‘(4) E
FFECT OF TERMINATION OF PARTNERSHIP .—This sub-
section shall be applied without regard to any terminationof a partnership under section 708(b)(1)(B).
‘‘(5) C
ERTAIN BASIS REDUCTIONS TREATED AS LOSSES .—In
the case of a transferee partner whose basis in property distrib-uted by the partnership is reduced under section 732(a)(2),the amount of the loss recognized by the transferor on thetransfer of the partnership interest which is taken into accountunder paragraph (2) shall be reduced by the amount of suchbasis reduction.
‘‘(6) E
LECTING INVESTMENT PARTNERSHIP .—For purposes of
this subsection, the term ‘electing investment partnership’means any partnership if—
‘‘(A) the partnership makes an election to have this
subsection apply,
‘‘(B) the partnership would be an investment company
under section 3(a)(1)(A) of the Investment Company Actof 1940 but for an exemption under paragraph (1) or (7)of section 3(c) of such Act,
‘‘(C) such partnership has never been engaged in a
trade or business,
‘‘(D) substantially all of the assets of such partnership
are held for investment,
‘‘(E) at least 95 percent of the assets contributed to
such partnership consist of money,
‘‘(F) no assets contributed to such partnership had
an adjusted basis in excess of fair market value at thetime of contribution,
‘‘(G) all partnership interests of such partnership are
issued by such partnership pursuant to a private offeringbefore the date which is 24 months after the date of thefirst capital contribution to such partnership,
‘‘(H) the partnership agreement of such partnership
has substantive restrictions on each partner’s ability tocause a redemption of the partner’s interest, and
‘‘(I) the partnership agreement of such partnership pro-
vides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shallbe irrevocable except with the consent of the Secretary.
‘‘(7) R
EGULATIONS .—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposesof this subsection, including regulations for applying this sub-section to tiered partnerships.’’.
(B) I
NFORMATION REPORTING .—Section 6031 is
amended by adding at the end the following new subsection:Applicability.
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‘‘(f) E LECTING INVESTMENT PARTNERSHIPS .—In the case of any
electing investment partnership (as defined in section 743(e)(6)),the information required under subsection (b) to be furnished toany partner to whom section 743(e)(2) applies shall include suchinformation as is necessary to enable the partner to compute theamount of losses disallowed under section 743(e).’’.
(5) S
PECIAL RULE FOR SECURITIZATION PARTNERSHIPS .—Sec-
tion 743 is amended by adding after subsection (e) the followingnew subsection:‘‘(f) E
XCEPTION FOR SECURITIZATION PARTNERSHIPS .—
‘‘(1) N O ADJUSTMENT OF PARTNERSHIP BASIS .—For purposes
of this section, a securitization partnership shall not be treatedas having a substantial built-in loss with respect to anytransfer.
‘‘(2) S
ECURITIZATION PARTNERSHIP .—For purposes of para-
graph (1), the term ‘securitization partnership’ means any part-nership the sole business activity of which is to issue securitieswhich provide for a fixed principal (or similar) amount andwhich are primarily serviced by the cash flows of a discretepool (either fixed or revolving) of receivables or other financialassets that by their terms convert into cash in a finite period,but only if the sponsor of the pool reasonably believes thatthe receivables and other financial assets comprising the poolare not acquired so as to be disposed of.’’.
(6) C
LERICAL AMENDMENTS .—(A) The section heading for
section 743 is amended to read as follows:
‘‘SEC. 743. SPECIAL RULES WHERE SECTION 754 ELECTION OR
SUBSTANTIAL BUILT-IN LOSS.’’.
(B) The table of sections for subpart C of part II of sub-
chapter K of chapter 1 is amended by striking the item relatingto section 743 and inserting the following new item:
‘‘Sec. 743. Special rules where section 754 election or substantial built-in
loss.’’.
(c) A DJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY IF THERE ISSUBSTANTIAL BASIS REDUCTION .—
(1) A DJUSTMENT REQUIRED .—Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed part-nership property) is amended by inserting before the periodthe following: ‘‘or unless there is a substantial basis reduction’’.
(2) A
DJUSTMENT .—Subsection (b) of section 734 is amended
by inserting ‘‘or unless there is a substantial basis reduction’’after ‘‘section 754 is in effect’’.
(3) S
UBSTANTIAL BASIS REDUCTION .—Section 734 is
amended by adding at the end the following new subsection:‘‘(d) S
UBSTANTIAL BASIS REDUCTION .—
‘‘(1) I N GENERAL .—For purposes of this section, there is
a substantial basis reduction with respect to a distributionif the sum of the amounts described in subparagraphs (A)and (B) of subsection (b)(2) exceeds $250,000.
‘‘(2) R
EGULATIONS .—
‘‘For regulations to carry out this subsection, see section
743(d)(2).’’.
(4) E XCEPTION FOR SECURITIZATION PARTNERSHIPS .—Section
734 is amended by inserting after subsection (d) the followingnew subsection:
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‘‘(e) E XCEPTION FOR SECURITIZATION PARTNERSHIPS .—For pur-
poses of this section, a securitization partnership (as defined insection 743(f)) shall not be treated as having a substantial basisreduction with respect to any distribution of property to a partner.’’.
(5) C
LERICAL AMENDMENTS .—(A) The section heading for
section 734 is amended to read as follows:
‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY WHERE SECTION 754 ELECTION OR SUBSTAN-TIAL BASIS REDUCTION.’’.
(B) The table of sections for subpart B of part II of sub-
chapter K of chapter 1 is amended by striking the item relatingto section 734 and inserting the following new item:
‘‘Sec. 734. Adjustment to basis of undistributed partnership property
where section 754 election or substantial basis reduction.’’.
(d) E FFECTIVE DATES .—
(1) S UBSECTION ( a).—The amendment made by subsection
(a) shall apply to contributions made after the date of theenactment of this Act.
(2) S
UBSECTION ( b).—
(A) I N GENERAL .—Except as provided in subparagraph
(B), the amendments made by subsection (b) shall applyto transfers after the date of the enactment of this Act.
(B) T
RANSITION RULE .—In the case of an electing
investment partnership which is in existence on June 4,2004, section 743(e)(6)(H) of the Internal Revenue Codeof 1986, as added by this section, shall not apply to suchpartnership and section 743(e)(6)(I) of such Code, as soadded, shall be applied by substituting ‘‘20 years’’ for ‘‘15years’’.(3) S
UBSECTION ( c).—The amendments made by subsection
(c) shall apply to distributions after the date of the enactmentof this Act.
SEC. 834. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK
HELD BY PARTNERSHIP IN CORPORATE PARTNER.
(a) I NGENERAL .—Section 755 is amended by adding at the
end the following new subsection:
‘‘(c) N OALLOCATION OF BASIS DECREASE TO STOCK OF COR-
PORATE PARTNER .—In making an allocation under subsection (a)
of any decrease in the adjusted basis of partnership property undersection 734(b)—
‘‘(1) no allocation may be made to stock in a corporation
(or any person related (within the meaning of sections 267(b)and 707(b)(1)) to such corporation) which is a partner in thepartnership, and
‘‘(2) any amount not allocable to stock by reason of para-
graph (1) shall be allocated under subsection (a) to other part-nership property.
Gain shall be recognized to the partnership to the extent thatthe amount required to be allocated under paragraph (2) to otherpartnership property exceeds the aggregate adjusted basis of suchother property immediately before the allocation required by para-graph (2).’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to distributions after the date of the enactment ofthis Act.26 USC 755 note.26 USC 734 note.26 USC 743 note.26 USC 704 note.
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SEC. 835. REPEAL OF SPECIAL RULES FOR FASITS.
(a) I NGENERAL .—Part V of subchapter M of chapter 1 (relating
to financial asset securitization investment trusts) is herebyrepealed.
(b) C
ONFORMING AMENDMENTS .—
(1) Paragraph (6) of section 56(g) is amended by striking
‘‘REMIC, or FASIT’’ and inserting ‘‘or REMIC’’.
(2) Clause (ii) of section 382(l)(4)(B) is amended by striking
‘‘a REMIC to which part IV of subchapter M applies, or aFASIT to which part V of subchapter M applies,’’ and inserting‘‘or a REMIC to which part IV of subchapter M applies,’’.
(3) Paragraph (1) of section 582(c) is amended by striking
‘‘, and any regular interest in a FASIT,’’.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5)(A) Section 860G(a)(1) is amended by adding at the
end the following new sentence: ‘‘An interest shall not failto qualify as a regular interest solely because the specifiedprincipal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced asa result of the nonoccurrence of 1 or more contingent paymentswith respect to any reverse mortgage loan held by the REMICif, on the startup day for the REMIC, the sponsor reasonablybelieves that all principal and interest due under the regularinterest will be paid at or prior to the liquidation of theREMIC.’’.
(B) The last sentence of section 860G(a)(3) is amended
by inserting ‘‘, and any reverse mortgage loan (and each balanceincrease on such loan meeting the requirements of subpara-graph (A)(iii)) shall be treated as an obligation secured byan interest in real property’’ before the period at the end.
(6) Paragraph (3) of section 860G(a) is amended by adding
‘‘and’’ at the end of subparagraph (B), by striking ‘‘, and’’at the end of subparagraph (C) and inserting a period, andby striking subparagraph (D).
(7) Section 860G(a)(3), as amended by paragraph (6), is
amended by adding at the end the following new sentence:‘‘For purposes of subparagraph (A), if more than 50 percentof the obligations transferred to, or purchased by, the REMICare originated by the United States or any State (or any politicalsubdivision, agency, or instrumentality of the United Statesor any State) and are principally secured by an interest inreal property, then each obligation transferred to, or purchasedby, the REMIC shall be treated as secured by an interestin real property.’’.
(8)(A) Section 860G(a)(3)(A) is amended by striking ‘‘or’’
at the end of clause (i), by inserting ‘‘or’’ at the end of clause(ii), and by inserting after clause (ii) the following new clause:
‘‘(iii) represents an increase in the principal
amount under the original terms of an obligationdescribed in clause (i) or (ii) if such increase—
‘‘(I) is attributable to an advance made to the
obligor pursuant to the original terms of the obliga-tion,
‘‘(II) occurs after the startup day, and26 USC 860H–
860L.
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‘‘(III) is purchased by the REMIC pursuant
to a fixed price contract in effect on the startupday.’’.
(B) Section 860G(a)(7)(B) is amended to read as follows:
‘‘(B) Q
UALIFIED RESERVE FUND .—For purposes of
subparagraph (A), the term ‘qualified reserve fund’ meansany reasonably required reserve to—
‘‘(i) provide for full payment of expenses of the
REMIC or amounts due on regular interests in theevent of defaults on qualified mortgages or lower thanexpected returns on cash flow investments, or
‘‘(ii) provide a source of funds for the purchase
of obligations described in clause (ii) or (iii) of para-graph (3)(A).
The aggregate fair market value of the assets held inany such reserve shall not exceed 50 percent of the aggre-gate fair market value of all of the assets of the REMICon the startup day, and the amount of any such reserveshall be promptly and appropriately reduced to the extentthe amount held in such reserve is no longer reasonablyrequired for purposes specified in clause (i) or (ii) of thissubparagraph.’’.(9) Subparagraph (C) of section 1202(e)(4) is amended by
striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or REMIC’’.
(10) Clause (xi) of section 7701(a)(19)(C) is amended—
(A) by striking ‘‘and any regular interest in a FASIT,’’,
and
(B) by striking ‘‘or FASIT’’ each place it appears.
(11) Subparagraph (A) of section 7701(i)(2) is amended
by striking ‘‘or a FASIT’’.
(12) The table of parts for subchapter M of chapter 1
is amended by striking the item relating to part V.(c) E
FFECTIVE DATE.—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall take effect on January1, 2005.
(2) E
XCEPTION FOR EXISTING FASITS .—Paragraph (1) shall
not apply to any FASIT in existence on the date of the enact-ment of this Act to the extent that regular interests issuedby the FASIT before such date continue to remain outstandingin accordance with the original terms of issuance.
SEC. 836. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN
LOSSES.
(a) I NGENERAL .—Section 362 (relating to basis to corporations)
is amended by adding at the end the following new subsection:
‘‘(e) L IMITATIONS ON BUILT-INLOSSES .—
‘‘(1) L IMITATION ON IMPORTATION OF BUILT -IN LOSSES .—
‘‘(A) I N GENERAL .—If in any transaction described in
subsection (a) or (b) there would (but for this subsection)be an importation of a net built-in loss, the basis of eachproperty described in subparagraph (B) which is acquiredin such transaction shall (notwithstanding subsections (a)and (b)) be its fair market value immediately after suchtransaction.
‘‘(B) P
ROPERTY DESCRIBED .—For purposes of subpara-
graph (A), property is described in this subparagraph if—26 USC 56 note.
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‘‘(i) gain or loss with respect to such property is
not subject to tax under this subtitle in the handsof the transferor immediately before the transfer, and
‘‘(ii) gain or loss with respect to such property
is subject to such tax in the hands of the transfereeimmediately after such transfer.
In any case in which the transferor is a partnership, thepreceding sentence shall be applied by treating eachpartner in such partnership as holding such partner’sproportionate share of the property of such partnership.
‘‘(C) I
MPORTATION OF NET BUILT -IN LOSS .—For purposes
of subparagraph (A), there is an importation of a net built-in loss in a transaction if the transferee’s aggregateadjusted bases of property described in subparagraph (B)which is transferred in such transaction would (but forthis paragraph) exceed the fair market value of such prop-erty immediately after such transaction.‘‘(2) L
IMITATION ON TRANSFER OF BUILT -IN LOSSES IN SEC –
TION 351 TRANSACTIONS .—
‘‘(A) I N GENERAL .—If—
‘‘(i) property is transferred by a transferor in any
transaction which is described in subsection (a) andwhich is not described in paragraph (1) of this sub-section, and
‘‘(ii) the transferee’s aggregate adjusted bases of
such property so transferred would (but for this para-graph) exceed the fair market value of such propertyimmediately after such transaction,
then, notwithstanding subsection (a), the transferee’saggregate adjusted bases of the property so transferredshall not exceed the fair market value of such propertyimmediately after such transaction.
‘‘(B) A
LLOCATION OF BASIS REDUCTION .—The aggregate
reduction in basis by reason of subparagraph (A) shallbe allocated among the property so transferred in propor-tion to their respective built-in losses immediately beforethe transaction.
‘‘(C) E
LECTION TO APPLY LIMITATION TO TRANSFEROR ’S
STOCK BASIS .—
‘‘(i) I N GENERAL .—If the transferor and transferee
of a transaction described in subparagraph (A) bothelect the application of this subparagraph—
‘‘(I) subparagraph (A) shall not apply, and‘‘(II) the transferor’s basis in the stock received
for property to which subparagraph (A) does notapply by reason of the election shall not exceed
its fair market value immediately after thetransfer.‘‘(ii) E
LECTION .—An election under clause (i) shall
be included with the return of tax for the taxableyear in which the transaction occurred, shall be insuch form and manner as the Secretary may prescribe,and, once made, shall be irrevocable.’’.
(b) C
OMPARABLE TREATMENT WHERE LIQUIDATION .—Paragraph
(1) of section 334(b) (relating to liquidation of subsidiary) isamended to read as follows:
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‘‘(1) I N GENERAL .—If property is received by a corporate
distributee in a distribution in a complete liquidation to whichsection 332 applies (or in a transfer described in section337(b)(1)), the basis of such property in the hands of suchdistributee shall be the same as it would be in the handsof the transferor; except that the basis of such property inthe hands of such distributee shall be the fair market valueof the property at the time of the distribution—
‘‘(A) in any case in which gain or loss is recognized
by the liquidating corporation with respect to such prop-erty, or
‘‘(B) in any case in which the liquidating corporation
is a foreign corporation, the corporate distributee is adomestic corporation, and the corporate distributee’s aggre-gate adjusted bases of property described in section362(e)(1)(B) which is distributed in such liquidation would(but for this subparagraph) exceed the fair market valueof such property immediately after such liquidation.’’.
(c) E
FFECTIVE DATES .—
(1) I N GENERAL .—The amendment made by subsection (a)
shall apply to transactions after the date of the enactmentof this Act.
(2) L
IQUIDATIONS .—The amendment made by subsection
(b) shall apply to liquidations after the date of the enactmentof this Act.
SEC. 837. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF
DETERMINING INVESTMENT OF EARNINGS IN UNITEDSTATES PROPERTY.
(a) I NGENERAL .—Subparagraph (A) of section 956(c)(2) is
amended to read as follows:
‘‘(A) obligations of the United States, money, or
deposits with—
‘‘(i) any bank (as defined by section 2(c) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)),without regard to subparagraphs (C) and (G) of para-graph (2) of such section), or
‘‘(ii) any corporation not described in clause (i)
with respect to which a bank holding company (asdefined by section 2(a) of such Act) or financial holdingcompany (as defined by section 2(p) of such Act) ownsdirectly or indirectly more than 80 percent by voteor value of the stock of such corporation;’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 838. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE TRANS-ACTIONS.
(a) I NGENERAL .—Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) andby inserting after subsection (l) the following new subsection:
‘‘(m) I
NTEREST ON UNPAID TAXES ATTRIBUTABLE TO NONDIS –
CLOSED REPORTABLE TRANSACTIONS .—No deduction shall be allowed
under this chapter for any interest paid or accrued under section6601 on any underpayment of tax which is attributable to theportion of any reportable transaction understatement (as defined26 USC 956 note.26 USC 334 note.26 USC 362 note.
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in section 6662A(b)) with respect to which the requirement of section
6664(d)(2)(A) is not met.’’.
(b) E FFECTIVE DATE.—The amendments made by this section
shall apply to transactions in taxable years beginning after thedate of the enactment of this Act.
SEC. 839. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED
TAX FOR CERTAIN DEEMED ASSET SALES.
(a) I NGENERAL .—Paragraph (13) of section 338(h) (relating
to tax on deemed sale not taken into account for estimated taxpurposes) is amended by adding at the end the following: ‘‘Thepreceding sentence shall not apply with respect to a qualified stockpurchase for which an election is made under paragraph (10).’’.
(b) E
FFECTIVE DATE.—The amendment made by subsection (a)
shall apply to transactions occurring after the date of the enactmentof this Act.
SEC. 840. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL
RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGEWITHIN 5 YEARS OF SALE.
(a) I NGENERAL .—Section 121(d) (relating to special rules for
exclusion of gain from sale of principal residence) is amended byadding at the end the following new paragraph:
‘‘(10) P
ROPERTY ACQUIRED IN LIKE -KIND EXCHANGE .—If a
taxpayer acquired property in an exchange to which section1031 applied, subsection (a) shall not apply to the sale orexchange of such property if it occurs during the 5-year periodbeginning with the date of the acquisition of such property.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to sales or exchanges after the date of the enactmentof this Act.
SEC. 841. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL
ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONSIN TRANSACTIONS WITH RELATED FOREIGN PERSONS.
(a) O RIGINAL ISSUE DISCOUNT .—Section 163(e)(3) (relating to
special rule for original issue discount on obligation held by relatedforeign person) is amended by redesignating subparagraph (B) assubparagraph (C) and by inserting after subparagraph (A) the fol-lowing new subparagraph:
‘‘(B) S
PECIAL RULE FOR CERTAIN FOREIGN ENTITIES .—
‘‘(i) I N GENERAL .—In the case of any debt
instrument having original issue discount which is heldby a related foreign person which is a controlled foreigncorporation (as defined in section 957) or a passiveforeign investment company (as defined in section1297), a deduction shall be allowable to the issuerwith respect to such original issue discount for anytaxable year before the taxable year in which paidonly to the extent such original issue discount is includ-ible (determined without regard to properly allocabledeductions and qualified deficits under section952(c)(1)(B)) during such prior taxable year in the grossincome of a United States person who owns (withinthe meaning of section 958(a)) stock in such corpora-tion.
‘‘(ii) S
ECRETARIAL AUTHORITY .—The Secretary may
by regulation exempt transactions from the application26 USC 121 note.26 USC 163 note.26 USC 163 note.
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of clause (i), including any transaction which is entered
into by a payor in the ordinary course of a tradeor business in which the payor is predominantlyengaged.’’.
(b) I
NTEREST AND OTHER DEDUCTIBLE AMOUNTS .—Section
267(a)(3) is amended—
(1) by striking ‘‘The Secretary’’ and inserting:
‘‘(A) I N GENERAL .—The Secretary’’, and
(2) by adding at the end the following new subparagraph:
‘‘(B) S PECIAL RULE FOR CERTAIN FOREIGN ENTITIES .—
‘‘(i) I N GENERAL .—Notwithstanding subparagraph
(A), in the case of any item payable to a controlledforeign corporation (as defined in section 957) or apassive foreign investment company (as defined in sec-tion 1297), a deduction shall be allowable to the payorwith respect to such amount for any taxable year beforethe taxable year in which paid only to the extentthat an amount attributable to such item is includible(determined without regard to properly allocable deduc-tions and qualified deficits under section 952(c)(1)(B))during such prior taxable year in the gross incomeof a United States person who owns (within themeaning of section 958(a)) stock in such corporation.
‘‘(ii) S
ECRETARIAL AUTHORITY .—The Secretary may
by regulation exempt transactions from the applicationof clause (i), including any transaction which is enteredinto by a payor in the ordinary course of a tradeor business in which the payor is predominantlyengaged and in which the payment of the accruedamounts occurs within 8
1⁄2months after accrual or
within such other period as the Secretary may pre-scribe.’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to payments accrued on or after the date of the enact-ment of this Act.
SEC. 842. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS.
(a) I NGENERAL .—Subchapter A of chapter 67 (relating to
interest on underpayments) is amended by adding at the end thefollowing new section:
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS, ETC.
‘‘(a) A UTHORITY TOMAKE DEPOSITS OTHER THAN ASPAYMENT
OFTAX.—A taxpayer may make a cash deposit with the Secretary
which may be used by the Secretary to pay any tax imposed undersubtitle A or B or chapter 41, 42, 43, or 44 which has not beenassessed at the time of the deposit. Such a deposit shall be madein such manner as the Secretary shall prescribe.
‘‘(b) N
OINTEREST IMPOSED .—To the extent that such deposit
is used by the Secretary to pay tax, for purposes of section 6601(relating to interest on underpayments), the tax shall be treatedas paid when the deposit is made.
‘‘(c) R
ETURN OF DEPOSIT .—Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shallreturn to the taxpayer any amount of the deposit (to the extent26 USC 163 note.
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not used for a payment of tax) which the taxpayer requests in
writing.
‘‘(d) P AYMENT OF INTEREST .—
‘‘(1) I N GENERAL .—For purposes of section 6611 (relating
to interest on overpayments), except as provided in paragraph(4), a deposit which is returned to a taxpayer shall be treatedas a payment of tax for any period to the extent (and onlyto the extent) attributable to a disputable tax for such period.Under regulations prescribed by the Secretary, rules similarto the rules of section 6611(b)(2) shall apply.
‘‘(2) D
ISPUTABLE TAX .—
‘‘(A) I N GENERAL .—For purposes of this section, the
term ‘disputable tax’ means the amount of tax specifiedat the time of the deposit as the taxpayer’s reasonableestimate of the maximum amount of any tax attributableto disputable items.
‘‘(B) S
AFE HARBOR BASED ON 30 -DAY LETTER .—In the
case of a taxpayer who has been issued a 30-day letter,the maximum amount of tax under subparagraph (A) shallnot be less than the amount of the proposed deficiencyspecified in such letter.‘‘(3) O
THER DEFINITIONS .—For purposes of paragraph (2)—
‘‘(A) D ISPUTABLE ITEM .—The term ‘disputable item’
means any item of income, gain, loss, deduction, or creditif the taxpayer—
‘‘(i) has a reasonable basis for its treatment of
such item, and
‘‘(ii) reasonably believes that the Secretary also
has a reasonable basis for disallowing the taxpayer’streatment of such item.‘‘(B) 30-
DAY LETTER .—The term ‘30-day letter’ means
the first letter of proposed deficiency which allows thetaxpayer an opportunity for administrative review in theInternal Revenue Service Office of Appeals.‘‘(4) R
ATE OF INTEREST .—The rate of interest under this
subsection shall be the Federal short-term rate determinedunder section 6621(b), compounded daily.‘‘(e) U
SE OF DEPOSITS .—
‘‘(1) P AYMENT OF TAX .—Except as otherwise provided by
the taxpayer, deposits shall be treated as used for the paymentof tax in the order deposited.
‘‘(2) R
ETURNS OF DEPOSITS .—Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.’’.(b) C
LERICAL AMENDMENT .—The table of sections for subchapter
A of chapter 67 is amended by adding at the end the followingnew item:
‘‘Sec. 6603. Deposits made to suspend running of interest on potential un-
derpayments, etc.’’.
(c) E FFECTIVE DATE.—
(1) I N GENERAL .—The amendments made by this section
shall apply to deposits made after the date of the enactmentof this Act.
(2) C
OORDINATION WITH DEPOSITS MADE UNDER REVENUE
PROCEDURE 84 –58.—In the case of an amount held by the Sec-
retary of the Treasury or his delegate on the date of the
enactment of this Act as a deposit in the nature of a cashbond deposit pursuant to Revenue Procedure 84–58, the date26 USC 6603note.Regulations.
Applicability.
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that the taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue Code (asadded by this Act) shall be treated as the date such amountis deposited for purposes of such section 6603.
SEC. 843. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT
AGREEMENTS.
(a) I NGENERAL .—
(1) Section 6159(a) (relating to authorization of agreements)
is amended—
(A) by striking ‘‘satisfy liability for payment of’’ and
inserting ‘‘make payment on’’, and
(B) by inserting ‘‘full or partial’’ after ‘‘facilitate’’.
(2) Section 6159(c) (relating to Secretary required to enter
into installment agreements in certain cases) is amended inthe matter preceding paragraph (1) by inserting ‘‘full’’ before‘‘payment’’.(b) R
EQUIREMENT TOREVIEW PARTIAL PAYMENT AGREEMENTS
EVERY TWOYEARS .—Section 6159 is amended by redesignating
subsections (d) and (e) as subsections (e) and (f), respectively, andinserting after subsection (c) the following new subsection:
‘‘(d) S
ECRETARY REQUIRED TOREVIEW INSTALLMENT AGREE –
MENTS FOR PARTIAL COLLECTION EVERY TWOYEARS .—In the case
of an agreement entered into by the Secretary under subsection(a) for partial collection of a tax liability, the Secretary shall reviewthe agreement at least once every 2 years.’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to agreements entered into on or after the date ofthe enactment of this Act.
SEC. 844. AFFIRMATION OF CONSOLIDATED RETURN REGULATION
AUTHORITY.
(a) I NGENERAL .—Section 1502 is amended by adding at the
end the following new sentence: ‘‘In carrying out the precedingsentence, the Secretary may prescribe rules that are different fromthe provisions of chapter 1 that would apply if such corporationsfiled separate returns.’’.
(b) R
ESULT NOTOVERTURNED .—Notwithstanding the amend-
ment made by subsection (a), the Internal Revenue Code of 1986shall be construed by treating Treasury Regulation § 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) as being inapplicableto the factual situation in Rite Aid Corporation and SubsidiaryCorporations v. United States, 255 F.3d 1357 (Fed. Cir. 2001).
(c) E
FFECTIVE DATE.—This section, and the amendment made
by this section, shall apply to taxable years beginning before, on,or after the date of the enactment of this Act.
SEC. 845. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST
ON CONVERTIBLE DEBT.
(a) I NGENERAL .—Paragraph (2) of section 163(l) is amended
by inserting ‘‘or equity held by the issuer (or any related party)in any other person’’ after ‘‘or a related party’’.
(b) C
APITALIZATION ALLOWED WITH RESPECT TO EQUITY OF
PERSONS OTHER THAN ISSUER AND RELATED PARTIES .—Section
163(l) is amended by redesignating paragraphs (4) and (5) as para-graphs (5) and (6) and by inserting after paragraph (3) the followingnew paragraph:26 USC 1502note.26 USC 6159
note.
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‘‘(4) C APITALIZATION ALLOWED WITH RESPECT TO EQUITY OF
PERSONS OTHER THAN ISSUER AND RELATED PARTIES .—If the
disqualified debt instrument of a corporation is payable inequity held by the issuer (or any related party) in any otherperson (other than a related party), the basis of such equityshall be increased by the amount not allowed as a deductionby reason of paragraph (1) with respect to the instrument.’’.(c) E
XCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY DEALERS
INSECURITIES .—Section 163(l), as amended by subsection (b), is
amended by redesignating paragraphs (5) and (6) as paragraphs(6) and (7) and by inserting after paragraph (4) the followingnew paragraph:
‘‘(5) E
XCEPTION FOR CERTAIN INSTRUMENTS ISSUED BY
DEALERS IN SECURITIES .—For purposes of this subsection, the
term ‘disqualified debt instrument’ does not include indebted-ness issued by a dealer in securities (or a related party) whichis payable in, or by reference to, equity (other than equity
of the issuer or a related party) held by such dealer in itscapacity as a dealer in securities. For purposes of this para-graph, the term ‘dealer in securities’ has the meaning givensuch term by section 475.’’.(d) C
ONFORMING AMENDMENT .—Paragraph (3) of section 163(l)
is amended by striking ‘‘or a related party’’ in the material precedingsubparagraph (A) and inserting ‘‘or any other person’’.
(e) E
FFECTIVE DATE.—The amendments made by this section
shall apply to debt instruments issued after October 3, 2004.
Part III—Leasing
SEC. 847. REFORM OF TAX TREATMENT OF CERTAIN LEASING
ARRANGEMENTS.
(a) C LARIFICATION OF RECOVERY PERIOD FOR TAX-EXEMPT USE
PROPERTY SUBJECT TO LEASE .—Subparagraph (A) of section
168(g)(3) (relating to special rules for determining class life) isamended by inserting ‘‘(notwithstanding any other subparagraphof this paragraph)’’ after ‘‘shall’’.
(b) L
IMITATION ON DEPRECIATION AND AMORTIZATION PERIODS
FORINTANGIBLES LEASED TO TAX-EXEMPT ENTITY .—
(1) C OMPUTER SOFTWARE .—Paragraph (1) of section 167(f)
is amended by adding at the end the following new subpara-graph:
‘‘(C) T
AX-EXEMPT USE PROPERTY SUBJECT TO LEASE .—
In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section168 if such section applied to computer software, the usefullife under subparagraph (A) shall not be less than 125percent of the lease term (within the meaning of section168(i)(3)).’’.(2) C
ERTAIN INTERESTS OR RIGHTS ACQUIRED SEPARATELY .—
Paragraph (2) of section 167(f) is amended by adding at theend the following new sentence: ‘‘If such property would betax-exempt use property as defined in subsection (h) of section168 if such section applied to such property, the useful lifeunder such regulations shall not be less than 125 percentof the lease term (within the meaning of section 168(i)(3)).’’.26 USC 163 note.
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(3) S ECTION 197 INTANGIBLES .—Section 197(f) (relating to
special rules) is amended by adding at the end the followingnew paragraph:
‘‘(10) T
AX-EXEMPT USE PROPERTY SUBJECT TO LEASE .—In
the case of any section 197 intangible which would be tax-exempt use property as defined in subsection (h) of section168 if such section applied to such intangible, the amortizationperiod under this section shall not be less than 125 percentof the lease term (within the meaning of section 168(i)(3)).’’.(c) L
EASE TERM TOINCLUDE RELATED SERVICE CONTRACTS .—
Subparagraph (A) of section 168(i)(3) (relating to lease term) isamended by striking ‘‘and’’ at the end of clause (i), by redesignatingclause (ii) as clause (iii), and by inserting after clause (i) thefollowing new clause:
‘‘(ii) the term of a lease shall include the term
of any service contract or similar arrangement(whether or not treated as a lease under section7701(e))—
‘‘(I) which is part of the same transaction (or
series of related transactions) which includes thelease, and
‘‘(II) which is with respect to the property
subject to the lease or substantially similar prop-erty, and’’.
(d) E
XPANSION OF SHORT -TERM LEASE EXEMPTION FOR QUALI –
FIED TECHNOLOGICAL EQUIPMENT .—Subparagraph (A) of section
168(h)(3) is amended by adding at the end the following new sen-tence: ‘‘Notwithstanding subsection (i)(3)(A)(i), in determining alease term for purposes of the preceding sentence, there shall notbe taken into account any option of the lessee to renew at thefair market value rent determined at the time of renewal; exceptthat the aggregate period not taken into account by reason ofthis sentence shall not exceed 24 months.’’.
(e) T
REATMENT OF CERTAIN INDIAN TRIBAL GOVERNMENTS AS
TAX-EXEMPT ENTITIES .—Section 168(h)(2)(A) is amended by striking
‘‘and’’ at the end of clause (ii), by striking the period at the endof clause (iii) and inserting ‘‘, and’’, and by inserting at the endthe following:
‘‘(iv) any Indian tribal government described in
section 7701(a)(40).
For purposes of applying this subsection, any Indian tribalgovernment referred to in clause (iv) shall be treated inthe same manner as a State.’’.
SEC. 848. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY
USED BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTI-TIES.
(a) I NGENERAL .—Subpart C of part II of subchapter E of
chapter 1 (relating to taxable year for which deductions taken)is amended by adding at the end the following new section:
‘‘SEC. 470. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY
USED BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTI-TIES.
‘‘(a) L IMITATION ON LOSSES .—Except as otherwise provided in
this section, a tax-exempt use loss for any taxable year shall notbe allowed.
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‘‘(b) D ISALLOWED LOSS CARRIED TO NEXT YEAR.—Any tax-
exempt use loss with respect to any tax-exempt use property whichis disallowed under subsection (a) for any taxable year shall betreated as a deduction with respect to such property in the nexttaxable year.
‘‘(c) D
EFINITIONS .—For purposes of this section—
‘‘(1) T AX-EXEMPT USE LOSS .—The term ‘tax-exempt use loss’
means, with respect to any taxable year, the amount (if any)by which—
‘‘(A) the sum of—
‘‘(i) the aggregate deductions (other than interest)
directly allocable to a tax-exempt use property, plus
‘‘(ii) the aggregate deductions for interest properly
allocable to such property, exceed‘‘(B) the aggregate income from such property.
‘‘(2) T
AX-EXEMPT USE PROPERTY .—The term ‘tax-exempt use
property’ has the meaning given to such term by section 168(h),except that such section shall be applied—
‘‘(A) without regard to paragraphs (1)(C) and (3)
thereof, and
‘‘(B) as if property described in—
‘‘(i) section 167(f)(1)(B),‘‘(ii) section 167(f)(2), and‘‘(iii) section 197 intangible,
were tangible property.
Such term shall not include property which would (but forthis sentence) be tax-exempt use property solely by reasonof section 168(h)(6) if any credit is allowable under section42 or 47 with respect to such property.‘‘(d) E
XCEPTION FOR CERTAIN LEASES .—This section shall not
apply to any lease of property which meets the requirements ofall of the following paragraphs:
‘‘(1) A
VAILABILITY OF FUNDS .—
‘‘(A) I N GENERAL .—A lease of property meets the
requirements of this paragraph if (at any time during thelease term) not more than an allowable amount of fundsare—
‘‘(i) subject to any arrangement referred to in
subparagraph (B), or
‘‘(ii) set aside or expected to be set aside,
to or for the benefit of the lessor or any lender, or toor for the benefit of the lessee to satisfy the lessee’s obliga-tions or options under the lease. For purposes of clause(ii), funds shall be treated as set aside or expected tobe set aside only if a reasonable person would conclude,based on the facts and circumstances, that such fundsare set aside or expected to be set aside.
‘‘(B) A
RRANGEMENTS .—The arrangements referred to
in this subparagraph include a defeasance arrangement,a loan by the lessee to the lessor or any lender, a depositarrangement, a letter of credit collateralized with cashor cash equivalents, a payment undertaking agreement,prepaid rent (within the meaning of the regulations undersection 467), a sinking fund arrangement, a guaranteedinvestment contract, financial guaranty insurance, and anysimilar arrangement (whether or not such arrangementprovides credit support).
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‘‘(C) A LLOWABLE AMOUNT .—
‘‘(i) I N GENERAL .—Except as otherwise provided
in this subparagraph, the term ‘allowable amount’means an amount equal to 20 percent of the lessor’sadjusted basis in the property at the time the leaseis entered into.
‘‘(ii) H
IGHER AMOUNT PERMITTED IN CERTAIN
CASES .—To the extent provided in regulations, a higher
percentage shall be permitted under clause (i) wherenecessary because of the credit-worthiness of the les-see. In no event may such regulations permit a percent-age of more than 50 percent.
‘‘(iii) O
PTION TO PURCHASE .—If under the lease
the lessee has the option to purchase the propertyfor a fixed price or for other than the fair marketvalue of the property (determined at the time of exer-cise), the allowable amount at the time such optionmay be exercised may not exceed 50 percent of theprice at which such option may be exercised.
‘‘(iv) N
O ALLOWABLE AMOUNT FOR CERTAIN
ARRANGEMENTS .—The allowable amount shall be zero
with respect to any arrangement which involves—
‘‘(I) a loan from the lessee to the lessor or
a lender,
‘‘(II) any deposit received, letter of credit
issued, or payment undertaking agreement enteredinto by a lender otherwise involved in the trans-action, or
‘‘(III) in the case of a transaction which
involves a lender, any credit support made avail-able to the lessor in which any such lender doesnot have a claim that is senior to the lessor.
For purposes of subclause (I), the term ‘loan’ shallnot include any amount treated as a loan under section467 with respect to a section 467 rental agreement.
‘‘(2) L
ESSOR MUST MAKE SUBSTANTIAL EQUITY INVEST –
MENT .—
‘‘(A) I N GENERAL .—A lease of property meets the
requirements of this paragraph if—
‘‘(i) the lessor—
‘‘(I) has at the time the lease is entered into
an unconditional at-risk equity investment (asdetermined by the Secretary) in the property ofat least 20 percent of the lessor’s adjusted basisin the property as of that time, and
‘‘(II) maintains such investment throughout
the term of the lease, and‘‘(ii) the fair market value of the property at the
end of the lease term is reasonably expected to beequal to at least 20 percent of such basis.‘‘(B) R
ISK OF LOSS .—For purposes of clause (ii), the
fair market value at the end of the lease term shall bereduced to the extent that a person other than the lessorbears a risk of loss in the value of the property.
‘‘(C) P
ARAGRAPH NOT TO APPLY TO SHORT -TERM
LEASES .—This paragraph shall not apply to any lease with
a lease term of 5 years or less.
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‘‘(3) L ESSEE MAY NOT BEAR MORE THAN MINIMAL RISK OF
LOSS .—
‘‘(A) I N GENERAL .—A lease of property meets the
requirements of this paragraph if there is no arrangementunder which the lessee bears—
‘‘(i) any portion of the loss that would occur if
the fair market value of the leased property were 25percent less than its reasonably expected fair marketvalue at the time the lease is terminated, or
‘‘(ii) more than 50 percent of the loss that would
occur if the fair market value of the leased propertyat the time the lease is terminated were zero.‘‘(B) E
XCEPTION .—The Secretary may by regulations
provide that the requirements of this paragraph are notmet where the lessee bears more than a minimal riskof loss.
‘‘(C) P
ARAGRAPH NOT TO APPLY TO SHORT -TERM
LEASES .—This paragraph shall not apply to any lease with
a lease term of 5 years or less.‘‘(4) P
ROPERTY WITH MORE THAN 7 -YEAR CLASS LIFE .—In
the case of a lease—
‘‘(A) of property with a class life (as defined in section
168(i)(1)) of more than 7 years, other than fixed-wing air-craft and vessels, and
‘‘(B) under which the lessee has the option to purchase
the property,
the lease meets the requirements of this paragraph only ifthe purchase price under the option equals the fair marketvalue of the property (determined at the time of exercise).‘‘(e) S
PECIAL RULES .—
‘‘(1) T REATMENT OF FORMER TAX -EXEMPT USE PROPERTY .—
‘‘(A) I N GENERAL .—In the case of any former tax-exempt
use property—
‘‘(i) any deduction allowable under subsection (b)
with respect to such property for any taxable yearshall be allowed only to the extent of any net income(without regard to such deduction) from such propertyfor such taxable year, and
‘‘(ii) any portion of such unused deduction
remaining after application of clause (i) shall be treatedas a deduction allowable under subsection (b) withrespect to such property in the next taxable year.‘‘(B) F
ORMER TAX -EXEMPT USE PROPERTY .—For purposes
of this subsection, the term ‘former tax-exempt use prop-erty’ means any property which—
‘‘(i) is not tax-exempt use property for the taxable
year, but
‘‘(ii) was tax-exempt use property for any prior
taxable year.
‘‘(2) D
ISPOSITION OF ENTIRE INTEREST IN PROPERTY .—If
during the taxable year a taxpayer disposes of the taxpayer’sentire interest in tax-exempt use property (or former tax-exempt use property), rules similar to the rules of section469(g) shall apply for purposes of this section.
‘‘(3) C
OORDINATION WITH SECTION 469 .—This section shall
be applied before the application of section 469.
‘‘(4) C OORDINATION WITH SECTIONS 1031 AND 1033 .—Applicability.
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‘‘(A) I N GENERAL .—Sections 1031(a) and 1033(a) shall
not apply if—
‘‘(i) the exchanged or converted property is tax-
exempt use property subject to a lease which wasentered into before March 13, 2004, and which wouldnot have met the requirements of subsection (d) hadsuch requirements been in effect when the lease wasentered into, or
‘‘(ii) the replacement property is tax-exempt use
property subject to a lease which does not meet therequirements of subsection (d).‘‘(B) A
DJUSTED BASIS .—In the case of property acquired
by the lessor in a transaction to which section 1031 or1033 applies, the adjusted basis of such property for pur-poses of this section shall be equal to the lesser of—
‘‘(i) the fair market value of the property as of
the beginning of the lease term, or
‘‘(ii) the amount which would be the lessor’s
adjusted basis if such sections did not apply to suchtransaction.
‘‘(f) O
THER DEFINITIONS .—For purposes of this section—
‘‘(1) R ELATED PARTIES .—The terms ‘lessor’, ‘lessee’, and
‘lender’ each include any related party (within the meaningof section 197(f)(9)(C)(i)).
‘‘(2) L
EASE TERM .—The term ‘lease term’ has the meaning
given to such term by section 168(i)(3).
‘‘(3) L ENDER .—The term ‘lender’ means, with respect to
any lease, a person that makes a loan to the lessor whichis secured (or economically similar to being secured) by thelease or the leased property.
‘‘(4) L
OAN.—The term ‘loan’ includes any similar arrange-
ment.‘‘(g) R
EGULATIONS .—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposesof this section, including regulations which—
‘‘(1) allow in appropriate cases the aggregation of property
subject to the same lease, and
‘‘(2) provide for the determination of the allocation of
interest expense for purposes of this section.’’.(b) C
ONFORMING AMENDMENT .—The table of sections for sub-
part C of part II of subchapter E of chapter 1 is amended byadding at the end the following new item:
‘‘Sec. 470. Limitation on deductions allocable to property used by govern-
ments or other tax-exempt entities.’’.
SEC. 849. EFFECTIVE DATE.
(a) I NGENERAL .—Except as provided in this section, the amend-
ments made by this part shall apply to leases entered into afterMarch 12, 2004.
(b) E
XCEPTION .—
(1) I N GENERAL .—The amendments made by this part shall
not apply to qualified transportation property.
(2) Q UALIFIED TRANSPORTATION PROPERTY .—For purposes
of paragraph (1), the term ‘‘qualified transportation property’’means domestic property subject to a lease with respect towhich a formal application—26 USC 470 note.
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(A) was submitted for approval to the Federal Transit
Administration (an agency of the Department of Transpor-tation) after June 30, 2003, and before March 13, 2004,
(B) is approved by the Federal Transit Administration
before January 1, 2006, and
(C) includes a description of such property and the
value of such property.(3) E
XCHANGES AND CONVERSION OF TAX -EXEMPT USE PROP –
ERTY .—Section 470(e)(4) of the Internal Revenue Code of 1986,
as added by section 848, shall apply to property exchangedor converted after the date of the enactment of this Act.
(4) I
NTANGIBLES AND INDIAN TRIBAL GOVERNMENTS .—The
amendments made subsections (b)(2), (b)(3), and (e) of section847, and the treatment of property described in clauses (ii)and (iii) of section 470(c)(2)(B) of the Internal Revenue Codeof 1986 (as added by section 848) as tangible property, shallapply to leases entered into after October 3, 2004.
Subtitle C—Reduction of Fuel Tax Evasion
SEC. 851. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE
MACHINERY.
(a) E XEMPTION FROM TAX ON HEAVY TRUCKS AND TRAILERS
SOLD AT RETAIL .—
(1) I N GENERAL .—Section 4053 (relating to exemptions) is
amended by adding at the end the following new paragraph:
‘‘(8) M OBILE MACHINERY .—Any vehicle which consists of
a chassis—
‘‘(A) to which there has been permanently mounted
(by welding, bolting, riveting, or other means) machineryor equipment to perform a construction, manufacturing,processing, farming, mining, drilling, timbering, or similaroperation if the operation of the machinery or equipmentis unrelated to transportation on or off the public highways,
‘‘(B) which has been specially designed to serve only
as a mobile carriage and mount (and a power source, whereapplicable) for the particular machinery or equipmentinvolved, whether or not such machinery or equipmentis in operation, and
‘‘(C) which, by reason of such special design, could
not, without substantial structural modification, be used
as a component of a vehicle designed to perform a functionof transporting any load other than that particularmachinery or equipment or similar machinery or equipmentrequiring such a specially designed chassis.’’.(2) E
FFECTIVE DATE .—The amendment made by this sub-
section shall take effect on the day after the date of the enact-ment of this Act.(b) E
XEMPTION FROM TAX ON USE OF CERTAIN VEHICLES .—
(1) I N GENERAL .—Section 4483 (relating to exemptions) is
amended by redesignating subsection (g) as subsection (h) andby inserting after subsection (f) the following new subsection:‘‘(g) E
XEMPTION FOR MOBILE MACHINERY .—No tax shall be
imposed by section 4481 on the use of any vehicle described insection 4053(8).’’.26 USC 4053note.Applicability.Applicability.
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(2) E FFECTIVE DATE .—The amendments made by this sub-
section shall take effect on the day after the date of the enact-ment of this Act.(c) E
XEMPTION FROM TAX ON TIRES.—
(1) I NGENERAL .—Section 4072(b)(2) is amended by adding
at the end the following flush sentence: ‘‘Such term shall notinclude tires of a type used exclusively on vehicles describedin section 4053(8).’’.
(2) E
FFECTIVE DATE .—The amendment made by this sub-
section shall take effect on the day after the date of the enact-ment of this Act.(d) R
EFUND OF FUELTAXES .—
(1) I N GENERAL .—Section 6421(e)(2) (defining off-highway
business use) is amended by adding at the end the followingnew subparagraph:
‘‘(C) U
SES IN MOBILE MACHINERY .—
‘‘(i) I N GENERAL .—The term ‘off-highway business
use’ shall include any use in a vehicle which meetsthe requirements described in clause (ii).
‘‘(ii) R
EQUIREMENTS FOR MOBILE MACHINERY .—The
requirements described in this clause are—
‘‘(I) the design-based test, and‘‘(II) the use-based test.
‘‘(iii) D
ESIGN -BASED TEST .—For purposes of clause
(ii)(I), the design-based test is met if the vehicle con-sists of a chassis—
‘‘(I) to which there has been permanently
mounted (by welding, bolting, riveting, or othermeans) machinery or equipment to perform aconstruction, manufacturing, processing, farming,mining, drilling, timbering, or similar operationif the operation of the machinery or equipmentis unrelated to transportation on or off the publichighways,
‘‘(II) which has been specially designed to serve
only as a mobile carriage and mount (and a powersource, where applicable) for the particularmachinery or equipment involved, whether or notsuch machinery or equipment is in operation, and
‘‘(III) which, by reason of such special design,
could not, without substantial structural modifica-tion, be used as a component of a vehicle designedto perform a function of transporting any loadother than that particular machinery or equipmentor similar machinery or equipment requiring sucha specially designed chassis.‘‘(iv) U
SE-BASED TEST .—For purposes of clause
(ii)(II), the use-based test is met if the use of thevehicle on public highways was less than 7,500 milesduring the taxpayer’s taxable year. This clause shallbe applied without regard to use of the vehicle byany organization which is described in section 501(c)and exempt from tax under section 501(a).’’.
(2) N
O TAX -FREE SALES .—Subsection (b) of section 4082
is amended by inserting before the period at the end the fol-lowing: ‘‘and such term shall not include any use describedin section 6421(e)(2)(C)’’.Applicability.26 USC 4072
note.26 USC 4483
note.
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(3) A NNUAL REFUND OF TAX PAID .—Section 6427(i)(2)
(relating to exceptions) is amended by adding at the end thefollowing new subparagraph:
‘‘(C) N
ONAPPLICATION OF PARAGRAPH .—This paragraph
shall not apply to any fuel used solely in any off-highwaybusiness use described in section 6421(e)(2)(C).’’.(4) E
FFECTIVE DATE .—The amendments made by this sub-
section shall apply to taxable years beginning after the dateof the enactment of this Act.
SEC. 852. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.
(a) I NGENERAL .—Section 7701(a) (relating to definitions) is
amended by adding at the end the following new paragraph:
‘‘(48) O FF-HIGHWAY VEHICLES .—
‘‘(A) O FF-HIGHWAY TRANSPORTATION VEHICLES .—
‘‘(i) I N GENERAL .—A vehicle shall not be treated
as a highway vehicle if such vehicle is speciallydesigned for the primary function of transporting aparticular type of load other than over the public high-way and because of this special design such vehicle’scapability to transport a load over the public highwayis substantially limited or impaired.
‘‘(ii) D
ETERMINATION OF VEHICLE ’S DESIGN .—For
purposes of clause (i), a vehicle’s design is determinedsolely on the basis of its physical characteristics.
‘‘(iii) D
ETERMINATION OF SUBSTANTIAL LIMITATION
OR IMPAIRMENT .—For purposes of clause (i), in deter-
mining whether substantial limitation or impairmentexists, account may be taken of factors such as thesize of the vehicle, whether such vehicle is subjectto the licensing, safety, and other requirementsapplicable to highway vehicles, and whether suchvehicle can transport a load at a sustained speed ofat least 25 miles per hour. It is immaterial that avehicle can transport a greater load off the publichighway than such vehicle is permitted to transportover the public highway.‘‘(B) N
ONTRANSPORTATION TRAILERS AND
SEMITRAILERS .—A trailer or semitrailer shall not be treated
as a highway vehicle if it is specially designed to functiononly as an enclosed stationary shelter for the carryingon of an off-highway function at an off-highway site.’’.
(c) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendment made by this section shall take effect on the dateof the enactment of this Act.
(2) F
UEL TAXES .—With respect to taxes imposed under
subchapter B of chapter 31 and part III of subchapter A ofchapter 32, the amendment made by this section shall applyto taxable periods beginning after the date of the enactmentof this Act.
SEC. 853. TAXATION OF AVIATION-GRADE KEROSENE.
(a) R ATE OF TAX.—
(1) I N GENERAL .—Subparagraph (A) of section 4081(a)(2)
is amended by striking ‘‘and’’ at the end of clause (ii), bystriking the period at the end of clause (iii) and inserting‘‘, and’’, and by adding at the end the following new clause:26 USC 7701note.26 USC 4082
note.
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‘‘(iv) in the case of aviation-grade kerosene, 21.8
cents per gallon.’’.
(2) C OMMERCIAL AVIATION .—Paragraph (2) of section
4081(a) is amended by adding at the end the following newsubparagraph:
‘‘(C) T
AXES IMPOSED ON FUEL USED IN COMMERCIAL
AVIATION .—In the case of aviation-grade kerosene which
is removed from any refinery or terminal directly intothe fuel tank of an aircraft for use in commercial aviation,the rate of tax under subparagraph (A)(iv) shall be 4.3cents per gallon.’’.(3) C
ERTAIN REFUELER TRUCKS , TANKERS , AND TANK WAGONS
TREATED AS TERMINAL .—
(A) I N GENERAL .—Subsection (a) of section 4081 is
amended by adding at the end the following new paragraph:‘‘(3) C
ERTAIN REFUELER TRUCKS , TANKERS , AND TANK
WAGONS TREATED AS TERMINAL .—
‘‘(A) I N GENERAL .—For purposes of paragraph (2)(C),
a refueler truck, tanker, or tank wagon shall be treatedas part of a terminal if—
‘‘(i) such terminal is located within a secured area
of an airport,
‘‘(ii) any aviation-grade kerosene which is loaded
in such truck, tanker, or wagon at such terminal isfor delivery only into aircraft at the airport in whichsuch terminal is located,
‘‘(iii) such truck, tanker, or wagon meets the
requirements of subparagraph (B) with respect to suchterminal, and
‘‘(iv) except in the case of exigent circumstances
identified by the Secretary in regulations, no vehicleregistered for highway use is loaded with aviation-grade kerosene at such terminal.‘‘(B) R
EQUIREMENTS .—A refueler truck, tanker, or tank
wagon meets the requirements of this subparagraph withrespect to a terminal if such truck, tanker, or wagon—
‘‘(i) has storage tanks, hose, and coupling equip-
ment designed and used for the purposes of fuelingaircraft,
‘‘(ii) is not registered for highway use, and‘‘(iii) is operated by—
‘‘(I) the terminal operator of such terminal,
or
‘‘(II) a person that makes a daily accounting
to such terminal operator of each delivery of fuelfrom such truck, tanker, or wagon.
‘‘(C) R
EPORTING .—The Secretary shall require under
section 4101(d) reporting by such terminal operator of—
‘‘(i) any information obtained under subparagraph
(B)(iii)(II), and
‘‘(ii) any similar information maintained by such
terminal operator with respect to deliveries of fuelmade by trucks, tankers, or wagons operated by suchterminal operator.’’.(B) L
IST OF AIRPORTS WITH SECURED TERMINALS .—Not
later than December 15, 2004, the Secretary of theTreasury shall publish and maintain a list of airports whichDeadline.Publication.Records.26 USC 4081note.
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include a secured area in which a terminal is located
(within the meaning of section 4081(a)(3)(A)(i) of theInternal Revenue Code of 1986, as added by this para-graph).(4) L
IABILITY FOR TAX ON AVIATION -GRADE KEROSENE USED
IN COMMERCIAL AVIATION .—Subsection (a) of section 4081 is
amended by adding at the end the following new paragraph:
‘‘(4) L IABILITY FOR TAX ON AVIATION -GRADE KEROSENE USED
IN COMMERCIAL AVIATION .—For purposes of paragraph (2)(C),
the person who uses the fuel for commercial aviation shallpay the tax imposed under such paragraph. For purposes ofthe preceding sentence, fuel shall be treated as used whensuch fuel is removed into the fuel tank.’’.
(5) N
ONTAXABLE USES .—
(A) I N GENERAL .—Section 4082 is amended by redesig-
nating subsections (e) and (f) as subsections (f) and (g),respectively, and by inserting after subsection (d) the fol-lowing new subsection:
‘‘(e) A
VIATION -GRADE KEROSENE .—In the case of aviation-grade
kerosene which is exempt from the tax imposed by section 4041(c)(other than by reason of a prior imposition of tax) and whichis removed from any refinery or terminal directly into the fueltank of an aircraft, the rate of tax under section 4081(a)(2)(A)(iv)shall be zero.’’.
(B) C
ONFORMING AMENDMENTS .—(i) Subsection (b) of
section 4082 is amended by adding at the end the followingnew flush sentence:
‘‘The term ‘nontaxable use’ does not include the use of aviation-grade kerosene in an aircraft.’’.
(ii) Section 4082(d) is amended by striking paragraph
(1) and by redesignating paragraphs (2) and (3) as para-graphs (1) and (2), respectively.(6) N
ONAIRCRAFT USE OF AVIATION -GRADE KEROSENE .—
(A) I N GENERAL .—Subparagraph (B) of section
4041(a)(1) is amended by adding at the end the followingnew sentence: ‘‘This subparagraph shall not apply to avia-tion-grade kerosene.’’.
(B) C
ONFORMING AMENDMENT .—The heading for para-
graph (1) of section 4041(a) is amended by inserting ‘‘ AND
KEROSENE ’’ after ‘‘ DIESEL FUEL ’’.
(b) C OMMERCIAL AVIATION .—Section 4083 is amended by
redesignating subsections (b) and (c) as subsections (c) and (d),respectively, and by inserting after subsection (a) the followingnew subsection:
‘‘(b) C
OMMERCIAL AVIATION .—For purposes of this subpart, the
term ‘commercial aviation’ means any use of an aircraft in a busi-ness of transporting persons or property for compensation or hireby air, unless properly allocable to any transportation exempt fromthe taxes imposed by sections 4261 and 4271 by reason of section4281 or 4282 or by reason of section 4261(h).’’.
(c) R
EFUNDS .—
(1) I N GENERAL .—Paragraph (4) of section 6427(l) is
amended to read as follows:
‘‘(4) R EFUNDS FOR AVIATION -GRADE KEROSENE .—
‘‘(A) N O REFUND OF CERTAIN TAXES ON FUEL USED IN
COMMERCIAL AVIATION .—In the case of aviation-grade ker-
osene used in commercial aviation (as defined in section
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4083(b)) (other than supplies for vessels or aircraft within
the meaning of section 4221(d)(3)), paragraph (1) shallnot apply to so much of the tax imposed by section 4081as is attributable to—
‘‘(i) the Leaking Underground Storage Tank Trust
Fund financing rate imposed by such section, and
‘‘(ii) so much of the rate of tax specified in section
4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.‘‘(B) P
AYMENT TO ULTIMATE , REGISTERED VENDOR .—
With respect to aviation-grade kerosene, if the ultimatepurchaser of such kerosene waives (at such time and insuch form and manner as the Secretary shall prescribe)the right to payment under paragraph (1) and assignssuch right to the ultimate vendor, then the Secretary shallpay the amount which would be paid under paragraph(1) to such ultimate vendor, but only if such ultimatevendor—
‘‘(i) is registered under section 4101, and‘‘(ii) meets the requirements of subparagraph (A),
(B), or (D) of section 6416(a)(1).’’.
(2) T
IME FOR FILING CLAIMS .—Subparagraph (A) of section
6427(i)(4) is amended—
(A) by striking ‘‘subsection (l)(5)’’ both places it appears
and inserting ‘‘paragraph (4)(B) or (5) of subsection (l)’’,and
(B) by striking ‘‘the preceding sentence’’ and inserting
‘‘subsection (l)(5)’’.(3) C
ONFORMING AMENDMENT .—Subparagraph (B) of section
6427(l)(2) is amended to read as follows:
‘‘(B) in the case of aviation-grade kerosene—
‘‘(i) any use which is exempt from the tax imposed
by section 4041(c) other than by reason of a priorimposition of tax, or
‘‘(ii) any use in commercial aviation (within the
meaning of section 4083(b)).’’.
(d) R
EPEAL OF PRIOR TAXATION OF AVIATION FUEL.—
(1) I N GENERAL .—Part III of subchapter A of chapter 32
is amended by striking subpart B and by redesignating subpartC as subpart B.
(2) C
ONFORMING AMENDMENTS .—
(A) Section 4041(c) is amended to read as follows:
‘‘(c) A VIATION -GRADE KEROSENE .—
‘‘(1) I N GENERAL .—There is hereby imposed a tax upon
aviation-grade kerosene—
‘‘(A) sold by any person to an owner, lessee, or other
operator of an aircraft for use in such aircraft, or
‘‘(B) used by any person in an aircraft unless there
was a taxable sale of such fuel under subparagraph (A).‘‘(2) E
XEMPTION FOR PREVIOUSLY TAXED FUEL .—No tax shall
be imposed by this subsection on the sale or use of any aviation-grade kerosene if tax was imposed on such liquid under section4081 and the tax thereon was not credited or refunded.
‘‘(3) R
ATE OF TAX .—The rate of tax imposed by this sub-
section shall be the rate of tax applicable under section4081(a)(2)(A)(iv) which is in effect at the time of such saleor use.’’.26 USC 4091–
4093.
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(B) Section 4041(d)(2) is amended by striking ‘‘section
4091’’ and inserting ‘‘section 4081’’.
(C) Section 4041 is amended by striking subsection
(e).
(D) Section 4041 is amended by striking subsection
(i).
(E) Section 4041(m)(1) is amended to read as follows:
‘‘(1) I N GENERAL .—In the case of the sale or use of any
partially exempt methanol or ethanol fuel the rate of the taximposed by subsection (a)(2) shall be—
‘‘(A) after September 30, 1997, and before October 1,
2005—
‘‘(i) in the case of fuel none of the alcohol in which
consists of ethanol, 9.15 cents per gallon, and
‘‘(ii) in any other case, 11.3 cents per gallon, and
‘‘(B) after September 30, 2005—
‘‘(i) in the case of fuel none of the alcohol in which
consists of ethanol, 2.15 cents per gallon, and
‘‘(ii) in any other case, 4.3 cents per gallon.’’.
(F) Sections 4101(a), 4103, 4221(a), and 6206 are each
amended by striking ‘‘, 4081, or 4091’’ and inserting ‘‘or4081’’.
(G) Section 6416(b)(2) is amended by striking ‘‘4091
or’’.
(H) Section 6416(b)(3) is amended by striking ‘‘or 4091’’
each place it appears.
(I) Section 6416(d) is amended by striking ‘‘or to the
tax imposed by section 4091 in the case of refunds describedin section 4091(d)’’.
(J) Section 6427(j)(1) is amended by striking ‘‘, 4081,
and 4091’’ and inserting ‘‘and 4081’’.
(K)(i) Section 6427(l)(1) is amended to read as follows:
‘‘(1) I
N GENERAL .—Except as otherwise provided in this
subsection and in subsection (k), if any diesel fuel or keroseneon which tax has been imposed by section 4041 or 4081 isused by any person in a nontaxable use, the Secretary shallpay (without interest) to the ultimate purchaser of such fuelan amount equal to the aggregate amount of tax imposedon such fuel under section 4041 or 4081, as the case maybe, reduced by any payment made to the ultimate vendorunder paragraph (4)(B).’’.
(ii) Paragraph (5)(B) of section 6427(l) is amended by
striking ‘‘Paragraph (1)(A) shall not apply to kerosene’’and inserting ‘‘Paragraph (1) shall not apply to kerosene(other than aviation-grade kerosene)’’.
(L) Subparagraph (B) of section 6724(d)(1), as amended
by section 805, is amended by striking clause (xvi) andby redesignating the succeeding clauses accordingly.
(M) Paragraph (2) of section 6724(d), as amended by
section 805, is amended by striking subparagraph (X) andby redesignating the succeeding subparagraphs accord-ingly.
(N) Paragraph (1) of section 9502(b) is amended by
adding ‘‘and’’ at the end of subparagraph (B) and by strikingsubparagraphs (C) and (D) and inserting the following newsubparagraph:
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‘‘(C) section 4081 with respect to aviation gasoline and
aviation-grade kerosene, and’’.
(O) The last sentence of section 9502(b) is amended
to read as follows:
‘‘There shall not be taken into account under paragraph (1) somuch of the taxes imposed by section 4081 as are determinedat the rate specified in section 4081(a)(2)(B).’’.
(P) Subsection (b) of section 9508 is amended by
striking paragraph (3) and by redesignating paragraphs(4) and (5) as paragraphs (3) and (4), respectively.
(Q) Section 9508(c)(2)(A) is amended by striking ‘‘sec-
tions 4081 and 4091’’ and inserting ‘‘section 4081’’.
(R) The table of subparts for part III of subchapter
A of chapter 32 is amended to read as follows:
‘‘Subpart A. Motor and aviation fuels.
‘‘Subpart B. Special provisions applicable to fuels tax.’’.
(S) The heading for subpart A of part III of subchapter
A of chapter 32 is amended to read as follows:
‘‘Subpart A—Motor and Aviation Fuels’’.
(T) The heading for subpart B of part III of subchapter
A of chapter 32, as redesignated by paragraph (1), isamended to read as follows:
‘‘Subpart B—Special Provisions Applicable to
Fuels Tax’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to aviation-grade kerosene removed, entered, or soldafter December 31, 2004.
(f) F
LOOR STOCKS TAX.—
(1) I N GENERAL .—There is hereby imposed on aviation-
grade kerosene held on January 1, 2005, by any person atax equal to—
(A) the tax which would have been imposed before
such date on such kerosene had the amendments made
by this section been in effect at all times before suchdate, reduced by
(B) the sum of—
(i) the tax imposed before such date on such ker-
osene under section 4091 of the Internal Revenue Codeof 1986, as in effect on such date, and
(ii) in the case of kerosene held exclusively for
such person’s own use, the amount which such personwould (but for this clause) reasonably expect (as ofsuch date) to be paid as a refund under section 6427(l)of such Code with respect to such kerosene.
(2) E
XCEPTION FOR FUEL HELD IN AIRCRAFT FUEL TANK .—
Paragraph (1) shall not apply to kerosene held in the fueltank of an aircraft on January 1, 2005.
(3) L
IABILITY FOR TAX AND METHOD OF PAYMENT .—
(A) L IABILITY FOR TAX .—The person holding the ker-
osene on January 1, 2005, to which the tax imposed byparagraph (1) applies shall be liable for such tax.
(B) M
ETHOD AND TIME FOR PAYMENT .—The tax imposed
by paragraph (1) shall be paid at such time and in such26 USC 4081note.26 USC 4041
note.
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manner as the Secretary of the Treasury (or the Secretary’s
delegate) shall prescribe, including the nonapplication ofsuch tax on de minimis amounts of kerosene.(4) T
RANSFER OF FLOOR STOCK TAX REVENUES TO TRUST
FUNDS .—For purposes of determining the amount transferred
to any trust fund, the tax imposed by this subsection shallbe treated as imposed by section 4081 of the Internal RevenueCode of 1986—
(A) in any case in which tax was not imposed by
section 4091 of such Code, at the Leaking UndergroundStorage Tank Trust Fund financing rate under such sectionto the extent of 0.1 cents per gallon, and
(B) at the rate under section 4081(a)(2)(A)(iv) of such
Code to the extent of the remainder.(5) H
ELD BY A PERSON .—For purposes of this subsection,
kerosene shall be considered as held by a person if title theretohas passed to such person (whether or not delivery to theperson has been made).
(6) O
THER LAWS APPLICABLE .—All provisions of law,
including penalties, applicable with respect to the tax imposedby section 4081 of such Code shall, insofar as applicable andnot inconsistent with the provisions of this subsection, applywith respect to the floor stock tax imposed by paragraph (1)to the same extent as if such tax were imposed by such section.
SEC. 854. DYE INJECTION EQUIPMENT.
(a) I NGENERAL .—Section 4082(a)(2) (relating to exemptions
for diesel fuel and kerosene) is amended by inserting ‘‘by mechanicalinjection’’ after ‘‘indelibly dyed’’.
(b) D
YEINJECTOR SECURITY .—Not later than 180 days after
the date of the enactment of this Act, the Secretary of the Treasuryshall issue regulations regarding mechanical dye injection systemsdescribed in the amendment made by subsection (a), and suchregulations shall include standards for making such systems tamperresistant.
(c) P
ENALTY FOR TAMPERING WITH OR FAILING TOMAINTAIN
SECURITY REQUIREMENTS FOR MECHANICAL DYEINJECTION SYS-
TEMS .—
(1) I N GENERAL .—Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding aftersection 6715 the following new section:
‘‘SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY
REQUIREMENTS FOR MECHANICAL DYE INJECTION SYS-TEMS.
‘‘(a) I MPOSITION OF PENALTY .—
‘‘(1) T AMPERING .—If any person tampers with a mechanical
dye injection system used to indelibly dye fuel for purposesof section 4082, such person shall pay a penalty in addition
to the tax (if any).
‘‘(2) F
AILURE TO MAINTAIN SECURITY REQUIREMENTS .—If any
operator of a mechanical dye injection system used to indeliblydye fuel for purposes of section 4082 fails to maintain thesecurity standards for such system as established by the Sec-retary, then such operator shall pay a penalty in additionto the tax (if any).‘‘(b) A
MOUNT OF PENALTY .—The amount of the penalty under
subsection (a) shall be—Deadline.Regulations.26 USC 4082note.
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‘‘(1) for each violation described in paragraph (1), the
greater of—
‘‘(A) $25,000, or‘‘(B) $10 for each gallon of fuel involved, and
‘‘(2) for each—
‘‘(A) failure to maintain security standards described
in paragraph (2), $1,000, and
‘‘(B) failure to correct a violation described in para-
graph (2), $1,000 per day for each day after which suchviolation was discovered or such person should have reason-ably known of such violation.
‘‘(c) J
OINT AND SEVERAL LIABILITY .—
‘‘(1) I N GENERAL .—If a penalty is imposed under this section
on any business entity, each officer, employee, or agent ofsuch entity or other contracting party who willfully participatedin any act giving rise to such penalty shall be jointly andseverally liable with such entity for such penalty.
‘‘(2) A
FFILIATED GROUPS .—If a business entity described
in paragraph (1) is part of an affiliated group (as definedin section 1504(a)), the parent corporation of such entity shallbe jointly and severally liable with such entity for the penaltyimposed under this section.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for part
I of subchapter B of chapter 68 is amended by adding afterthe item related to section 6715 the following new item:
‘‘Sec. 6715A. Tampering with or failing to maintain security requirements
for mechanical dye injection systems.’’.
(d) E FFECTIVE DATE.—The amendments made by subsections
(a) and (c) shall take effect on the 180th day after the date onwhich the Secretary issues the regulations described in subsection(b).
SEC. 855. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE
USE OF DYED FUEL.
(a) I NGENERAL .—Section 6715 is amended by inserting at
the end the following new subsection:
‘‘(e) N OADMINISTRATIVE APPEAL FOR THIRD AND SUBSEQUENT
VIOLATIONS .—In the case of any person who is found to be subject
to the penalty under this section after a chemical analysis of suchfuel and who has been penalized under this section at least twiceafter the date of the enactment of this subsection, no administrativeappeal or review shall be allowed with respect to such findingexcept in the case of a claim regarding—
‘‘(1) fraud or mistake in the chemical analysis, or‘‘(2) mathematical calculation of the amount of the pen-
alty.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to penalties assessed after the date of the enactmentof this Act.
SEC. 856. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL
MIXTURES.
(a) I NGENERAL .—Section 6715(a) (relating to dyed fuel sold
for use or used in taxable use, etc.) is amended by striking ‘‘or’’in paragraph (2), by inserting ‘‘or’’ at the end of paragraph (3),and by inserting after paragraph (3) the following new paragraph:26 USC 6715note.26 USC 4082
note.
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‘‘(4) any person who has knowledge that a dyed fuel which
has been altered as described in paragraph (3) sells or holdsfor sale such fuel for any use which the person knows orhas reason to know is not a nontaxable use of such fuel,’’.(b) C
ONFORMING AMENDMENT .—Section 6715(a)(3) is amended
by striking ‘‘alters, or attempts to alter,’’ and inserting ‘‘alters,chemically or otherwise, or attempts to so alter,’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 857. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.
(a) I NGENERAL .—Paragraph (3) of section 4082(b) (relating
to nontaxable use) is amended to read as follows:
‘‘(3) any use described in section 4041(a)(1)(C)(iii)(II).’’.
(b) U LTIMATE VENDOR REFUND .—Subsection (b) of section 6427
is amended by adding at the end the following new paragraph:
‘‘(4) R EFUNDS FOR USE OF DIESEL FUEL IN CERTAIN INTER –
CITY BUSES .—With respect to any fuel to which paragraph
(2)(A) applies, if the ultimate purchaser of such fuel waives(at such time and in such form and manner as the Secretaryshall prescribe) the right to payment under paragraph (1) andassigns such right to the ultimate vendor, then the Secretaryshall pay the amount which would be paid under paragraph(1) to such ultimate vendor, but only if such ultimate vendor—
‘‘(A) is registered under section 4101, and‘‘(B) meets the requirements of subparagraph (A), (B),
or (D) of section 6416(a)(1).’’.
(c) P
AYMENT OF REFUNDS .—Subparagraph (A) of section
6427(i)(4), as amended by this Act, is amended by inserting ‘‘sub-sections (b)(4) and’’ after ‘‘filed under’’.
(d) E
FFECTIVE DATE.—The amendments made by this section
shall apply to fuel sold after December 31, 2004.
SEC. 858. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) I NGENERAL .—Section 4083(d)(1)(A) (relating to administra-
tive authority), as amended by this Act, is amended by striking‘‘and’’ at the end of clause (i) and by inserting after clause (ii)the following new clause:
‘‘(iii) inspecting any books and records and any
shipping papers pertaining to such fuel, and’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 859. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.
(a) I NGENERAL .—Part I of subchapter B of chapter 68 (relating
to assessable penalties), as amended by this Act, is amended byinserting after section 6716 the following new section:
‘‘SEC. 6717. REFUSAL OF ENTRY.
‘‘(a) I NGENERAL .—In addition to any other penalty provided
by law, any person who refuses to admit entry or refuses to permitany other action by the Secretary authorized by section 4083(d)(1)shall pay a penalty of $1,000 for such refusal.
‘‘(b) J
OINT AND SEVERAL LIABILITY .—
‘‘(1) I N GENERAL .—If a penalty is imposed under this section
on any business entity, each officer, employee, or agent ofsuch entity or other contracting party who willfully participated26 USC 4083note.26 USC 4082
note.26 USC 6715
note.
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in any act giving rise to such penalty shall be jointly and
severally liable with such entity for such penalty.
‘‘(2) A FFILIATED GROUPS .—If a business entity described
in paragraph (1) is part of an affiliated group (as definedin section 1504(a)), the parent corporation of such entity shallbe jointly and severally liable with such entity for the penaltyimposed under this section.‘‘(c) R
EASONABLE CAUSE EXCEPTION .—No penalty shall be
imposed under this section with respect to any failure if it isshown that such failure is due to reasonable cause.’’.
(b) C
ONFORMING AMENDMENTS .—(1) Section 4083(d)(3), as
amended by this Act, is amended—
(A) by striking ‘‘ ENTRY .—The penalty’’ and inserting:
‘‘ENTRY .—
‘‘(A) F ORFEITURE .—The penalty’’, and
(B) by adding at the end the following new subparagraph:
‘‘(B) A SSESSABLE PENALTY .—For additional assessable
penalty for the refusal to admit entry or other refusalto permit an action by the Secretary authorized by para-graph (1), see section 6717.’’.
(2) The table of sections for part I of subchapter B of chapter
68, as amended by this Act, is amended by inserting after theitem relating to section 6716 the following new item:
‘‘Sec. 6717. Refusal of entry.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 860. REGISTRATION OF PIPELINE OR VESSEL OPERATORS
REQUIRED FOR EXEMPTION OF BULK TRANSFERS TOREGISTERED TERMINALS OR REFINERIES.
(a) I NGENERAL .—Section 4081(a)(1)(B) (relating to exemption
for bulk transfers to registered terminals or refineries) is amended—
(1) by inserting ‘‘by pipeline or vessel’’ after ‘‘transferred
in bulk’’, and
(2) by inserting ‘‘, the operator of such pipeline or vessel,’’
after ‘‘the taxable fuel’’.(b) E
FFECTIVE DATE.—The amendments made by this section
shall take effect on March 1, 2005.
(c) P UBLICATION OF REGISTERED PERSONS .—Beginning on
January 1, 2005, the Secretary of the Treasury (or the Secretary’sdelegate) shall periodically publish under section 6103(k)(7) of theInternal Revenue Code of 1986 a current list of persons registeredunder section 4101 of such Code who are required to registerunder such section.
SEC. 861. DISPLAY OF REGISTRATION.
(a) I NGENERAL .—Subsection (a) of section 4101 (relating to
registration) is amended—
(1) by striking ‘‘Every’’ and inserting the following:‘‘(1) I
N GENERAL .—Every’’, and
(2) by adding at the end the following new paragraph:‘‘(2) D
ISPLAY OF REGISTRATION .—Every operator of a vessel
required by the Secretary to register under this section shalldisplay proof of registration through an identification deviceprescribed by the Secretary on each vessel used by such oper-ator to transport any taxable fuel.’’.(b) C
IVIL PENALTY FOR FAILURE TODISPLAY REGISTRATION .—Effective date.26 USC 4101note.26 USC 4081
note.26 USC 4083
note.
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(1) I N GENERAL .—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, isamended by inserting after section 6717 the following newsection:
‘‘SEC. 6718. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.
‘‘(a) F AILURE TODISPLAY REGISTRATION .—Every operator of
a vessel who fails to display proof of registration pursuant tosection 4101(a)(2) shall pay a penalty of $500 for each such failure.With respect to any vessel, only one penalty shall be imposedby this section during any calendar month.
‘‘(b) M
ULTIPLE VIOLATIONS .—In determining the penalty under
subsection (a) on any person, subsection (a) shall be applied byincreasing the amount in subsection (a) by the product of suchamount and the aggregate number of penalties (if any) imposedwith respect to prior months by this section on such person (ora related person or any predecessor of such person or relatedperson).
‘‘(c) R
EASONABLE CAUSE EXCEPTION .—No penalty shall be
imposed under this section with respect to any failure if it isshown that such failure is due to reasonable cause.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for part
I of subchapter B of chapter 68, as amended by this Act,is amended by inserting after the item relating to section 6717the following new item:
‘‘Sec. 6718. Failure to display tax registration on vessels.’’.
(c) E FFECTIVE DATES .—
(1) S UBSECTION ( a).—The amendments made by subsection
(a) shall take effect on January 1, 2005.
(2) S UBSECTION ( b).—The amendments made by subsection
(b) shall apply to penalties imposed after December 31, 2004.
SEC. 862. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE ZONES,
ETC.
(a) I NGENERAL .—Section 4101(a), as amended by this Act,
is amended by redesignating paragraph (2) as paragraph (3), andby inserting after paragraph (1) the following new paragraph:
‘‘(2) R
EGISTRATION OF PERSONS WITHIN FOREIGN TRADE
ZONES , ETC.—The Secretary shall require registration by any
person which—
‘‘(A) operates a terminal or refinery within a foreign
trade zone or within a customs bonded storage facility,or
‘‘(B) holds an inventory position with respect to a tax-
able fuel in such a terminal.’’.
(b) T
ECHNICAL AMENDMENT .—Section 6718(a), as added by this
Act, is amended by striking ‘‘section 4101(a)(2)’’ and inserting ‘‘sec-tion 4101(a)(3)’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 863. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO
REPORT.
(a) I NCREASED PENALTY .—Subsection (a) of section 7272
(relating to penalty for failure to register) is amended by inserting‘‘($10,000 in the case of a failure to register under section 4101)’’after ‘‘$50’’.26 USC 4101note.26 USC 6718
note.26 USC 4101
note.Applicability.
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(b) I NCREASED CRIMINAL PENALTY .—Section 7232 (relating to
failure to register under section 4101, false representations of reg-istration status, etc.) is amended by striking ‘‘$5,000’’ and inserting‘‘$10,000’’.
(c) A
SSESSABLE PENALTY FOR FAILURE TO REGISTER .—
(1) I N GENERAL .—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, isamended by inserting after section 6718 at the end the followingnew section:
‘‘SEC. 6719. FAILURE TO REGISTER.
‘‘(a) F AILURE TO REGISTER .—Every person who is required to
register under section 4101 and fails to do so shall pay a penaltyin addition to the tax (if any).
‘‘(b) A
MOUNT OF PENALTY .—The amount of the penalty under
subsection (a) shall be—
‘‘(1) $10,000 for each initial failure to register, and
‘‘(2) $1,000 for each day thereafter such person fails to
register.‘‘(c) R
EASONABLE CAUSE EXCEPTION .—No penalty shall be
imposed under this section with respect to any failure if it isshown that such failure is due to reasonable cause.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for part
I of subchapter B of chapter 68, as amended by this Act,is amended by inserting after the item relating to section 6718the following new item:
‘‘Sec. 6719. Failure to register.’’.
(d) A SSESSABLE PENALTY FOR FAILURE TO REPORT .—
(1) I N GENERAL .—Part II of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at theend the following new section:
‘‘SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.
‘‘(a) I NGENERAL .—In the case of each failure described in
subsection (b) by any person with respect to a vessel or facility,such person shall pay a penalty of $10,000 in addition to thetax (if any).
‘‘(b) F
AILURES SUBJECT TO PENALTY .—For purposes of sub-
section (a), the failures described in this subsection are—
‘‘(1) any failure to make a report under section 4101(d)
on or before the date prescribed therefor, and
‘‘(2) any failure to include all of the information required
to be shown on such report or the inclusion of incorrect informa-tion.‘‘(c) R
EASONABLE CAUSE EXCEPTION .—No penalty shall be
imposed under this section with respect to any failure if it isshown that such failure is due to reasonable cause.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for part
II of subchapter B of chapter 68 is amended by adding atthe end the following new item:
‘‘Sec. 6725. Failure to report information under section 4101.’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to penalties imposed after December 31, 2004.26 USC 6719
note.
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SEC. 864. ELECTRONIC FILING OF REQUIRED INFORMATION REPORTS.
(a) I NGENERAL .—Section 4101(d) is amended by adding at
the end the following new flush sentence:‘‘Any person who is required to report under this subsection andwho has 25 or more reportable transactions in a month shall filesuch report in electronic format.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply on January 1, 2006.
SEC. 865. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.
(a) I NGENERAL .—Paragraph (4) of section 6416(a) (relating
to abatements, credits, and refunds) is amended to read as follows:
‘‘(4) R EGISTERED ULTIMATE VENDOR TO ADMINISTER CREDITS
AND REFUNDS OF GASOLINE TAX .—
‘‘(A) I N GENERAL .—For purposes of this subsection, if
an ultimate vendor purchases any gasoline on which taximposed by section 4081 has been paid and sells suchgasoline to an ultimate purchaser described in subpara-graph (C) or (D) of subsection (b)(2) (and such gasolineis for a use described in such subparagraph), such ultimatevendor shall be treated as the person (and the only person)who paid such tax, but only if such ultimate vendor isregistered under section 4101.
‘‘(B) T
IMING OF CLAIMS .—The procedure and timing
of any claim under subparagraph (A) shall be the sameas for claims under section 6427(i)(4), except that the rulesof section 6427(i)(3)(B) regarding electronic claims shallnot apply unless the ultimate vendor has certified to theSecretary for the most recent quarter of the taxable yearthat all ultimate purchasers of the vendor are certifiedand entitled to a refund under subparagraph (C) or (D)of subsection (b)(2).’’.
(b) E
FFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 866. TWO-PARTY EXCHANGES.
(a) I NGENERAL .—Subpart C of part III of subchapter A of
chapter 32, as amended by this Act, is amended by inserting aftersection 4104 the following new section:
‘‘SEC. 4105. TWO-PARTY EXCHANGES.
‘‘(a) I NGENERAL .—In a two-party exchange, the delivering per-
son shall not be liable for the tax imposed under section4081(a)(1)(A)(ii).
‘‘(b) T
WO-PARTY EXCHANGE .—The term ‘two-party exchange’
means a transaction, other than a sale, in which taxable fuelis transferred from a delivering person registered under section4101 as a taxable fuel registrant to a receiving person who isso registered where all of the following occur:
‘‘(1) The transaction includes a transfer from the delivering
person, who holds the inventory position for taxable fuel inthe terminal as reflected in the records of the terminal operator.
‘‘(2) The exchange transaction occurs before or contempora-
neous with completion of removal across the rack from theterminal by the receiving person.
‘‘(3) The terminal operator in its books and records treats
the receiving person as the person that removes the product26 USC 6416note.26 USC 4101
note.
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across the terminal rack for purposes of reporting the trans-
action to the Secretary.
‘‘(4) The transaction is the subject of a written contract.’’.
(b) C ONFORMING AMENDMENT .—The table of sections for sub-
part C of part III of subchapter A of chapter 32, as amendedby this Act, is amended by adding after the last item the followingnew item:
‘‘Sec. 4105. Two-party exchanges.’’.
(c) E FFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 867. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.
(a) P RORATION OF TAXWHERE VEHICLE SOLD.—
(1) I N GENERAL .—Subparagraph (A) of section 4481(c)(2)
(relating to where vehicle destroyed or stolen) is amended bystriking ‘‘destroyed or stolen’’ both places it appears andinserting ‘‘sold, destroyed, or stolen’’.
(2) C
ONFORMING AMENDMENT .—The heading for section
4481(c)(2) is amended by striking ‘‘ DESTROYED OR STOLEN ’’ and
inserting ‘‘ SOLD , DESTROYED , OR STOLEN ’’.
(b) R EPEAL OF INSTALLMENT PAYMENT .—(1) Section 6156
(relating to installment payment of tax on use of highway motorvehicles) is repealed.
(2) The table of sections for subchapter A of chapter 62 is
amended by striking the item relating to section 6156.
(c) E
LECTRONIC FILING .—Section 4481 is amended by redesig-
nating subsection (e) as subsection (f) and by inserting after sub-section (d) the following new subsection:
‘‘(e) E
LECTRONIC FILING .—Any taxpayer who files a return
under this section with respect to 25 or more vehicles for anytaxable period shall file such return electronically.’’.
(d) R
EPEAL OF REDUCTION IN TAX FOR CERTAIN TRUCKS .—
Section 4483 is amended by striking subsection (f).
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to taxable periods beginning after the date of the enact-ment of this Act.
SEC. 868. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO
THE HIGHWAY TRUST FUND.
(a) I NGENERAL .—Subsection (b) of section 9503 (relating to
transfer to Highway Trust Fund of amounts equivalent to certaintaxes) is amended by redesignating paragraph (5) as paragraph(6) and inserting after paragraph (4) the following new paragraph:
‘‘(5) C
ERTAIN PENALTIES .—There are hereby appropriated
to the Highway Trust Fund amounts equivalent to the penaltiespaid under sections 6715, 6715A, 6717, 6718, 6719, 6725, 7232,and 7272 (but only with regard to penalties under such sectionrelated to failure to register under section 4101).’’.(b) C
ONFORMING AMENDMENTS .—(1) The heading of subsection
(b) of section 9503 is amended by inserting ‘‘ AND PENALTIES ’’ after
‘‘TAXES ’’.
(2) The heading of paragraph (1) of section 9503(b) is amended
by striking ‘‘I N GENERAL ’’ and inserting ‘‘C ERTAIN TAXES ’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to penalties assessed on or after the date of the enact-ment of this Act.26 USC 9503note.26 USC 4481
note.26 USC 4105
note.
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SEC. 869. SIMPLIFICATION OF TAX ON TIRES.
(a) I NGENERAL .—Subsection (a) of section 4071 is amended
to read as follows:
‘‘(a) I MPOSITION AND RATE OF TAX.—There is hereby imposed
on taxable tires sold by the manufacturer, producer, or importerthereof a tax at the rate of 9.45 cents (4.725 cents in the caseof a biasply tire or super single tire) for each 10 pounds so muchof the maximum rated load capacity thereof as exceeds 3,500pounds.’’.
(b) B
IASPLY AND SUPER SINGLE TIRES.—Section 4072 is
amended by adding at the end the following new subsections:
‘‘(c) B IASPLY .—For purposes of this part, the term ‘biasply tire’
means a pneumatic tire on which the ply cords that extend tothe beads are laid at alternate angles substantially less than 90degrees to the centerline of the tread.
‘‘(d) S
UPER SINGLE TIRE .—For purposes of this part, the term
‘super single tire’ means a single tire greater than 13 inches incross section width designed to replace 2 tires in a dual fitment.’’.
(b) T
AXABLE TIRE.—Section 4072, as amended by subsection
(a), is amended by redesignating subsections (a), (b), (c), and (d)as subsections (b), (c), (d), and (e) respectively, and by insertingbefore subsection (b) (as so redesignated) the following new sub-section:
‘‘(a) T
AXABLE TIRE.—For purposes of this chapter, the term
‘taxable tire’ means any tire of the type used on highway vehiclesif wholly or in part made of rubber and if marked pursuant toFederal regulations for highway use.’’.
(c) E
XEMPTION FOR TIRES SOLD TO DEPARTMENT OF DEFENSE .—
Section 4073 is amended to read as follows:
‘‘SEC. 4073. EXEMPTIONS.
‘‘The tax imposed by section 4071 shall not apply to tires
sold for the exclusive use of the Department of Defense or theCoast Guard.’’.
(d) C
ONFORMING AMENDMENTS .—(1) Section 4071 is amended
by striking subsection (c) and by moving subsection (e) after sub-section (b) and redesignating subsection (e) as subsection (c).
(2) The item relating to section 4073 in the table of sections
for part II of subchapter A of chapter 32 is amended to read
as follows:
‘‘Sec. 4073. Exemptions.’’.
(e) E FFECTIVE DATE.—The amendments made by this section
shall apply to sales in calendar years beginning more than 30days after the date of the enactment of this Act.
SEC. 870. TRANSMIX AND DIESEL FUEL BLEND STOCKS TREATED AS
TAXABLE FUEL.
(a) I NGENERAL .—Paragraph (3) of section 4083(a) is amended
to read as follows:
‘‘(3) D IESEL FUEL .—
‘‘(A) I N GENERAL .—The term ‘diesel fuel’ means—
‘‘(i) any liquid (other than gasoline) which is suit-
able for use as a fuel in a diesel-powered highwayvehicle, or a diesel-powered train,
‘‘(ii) transmix, and‘‘(iii) diesel fuel blend stocks identified by the Sec-
retary.26 USC 4071note.
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‘‘(B) T RANSMIX .—For purposes of subparagraph (A), the
term ‘transmix’ means a byproduct of refined products pipe-line operations created by the mixing of different specifica-tion products during pipeline transportation.’’.
(b) C
ONFORMING AMENDMENT .—Subsection (h) of section 6427
is amended to read as follows:
‘‘(h) B LEND STOCKS NOTUSED FOR PRODUCING TAXABLE FUEL.—
‘‘(1) G ASOLINE BLEND STOCKS OR ADDITIVES NOT USED FOR
PRODUCING GASOLINE .—Except as provided in subsection (k),
if any gasoline blend stock or additive (within the meaningof section 4083(a)(2)) is not used by any person to producegasoline and such person establishes that the ultimate useof such gasoline blend stock or additive is not to producegasoline, the Secretary shall pay (without interest) to suchperson an amount equal to the aggregate amount of the taximposed on such person with respect to such gasoline blendstock or additive.
‘‘(2) D
IESEL FUEL BLEND STOCKS OR ADDITIVES NOT USED
FOR PRODUCING DIESEL .—Except as provided in subsection (k),
if any diesel fuel blend stock is not used by any person toproduce diesel fuel and such person establishes that the ulti-mate use of such diesel fuel blend stock is not to producediesel fuel, the Secretary shall pay (without interest) to suchperson an amount equal to the aggregate amount of the taximposed on such person with respect to such diesel fuel blendstock.’’.(c) E
FFECTIVE DATE.—The amendment made by this section
shall apply to fuel removed, sold, or used after December 31, 2004.
SEC. 871. STUDY REGARDING FUEL TAX COMPLIANCE.
(a) I NGENERAL .—Not later than January 31, 2005, the Sec-
retary of the Treasury shall submit to the Committee on Financeof the Senate and the Committee on Ways and Means of theHouse of Representatives a report regarding compliance with thetax imposed under subchapter B of chapter 31 and part III ofsubchapter A of chapter 32 of the Internal Revenue Code of 1986.Such report shall include the information, analysis, and rec-ommendations specified in subsections (b), (c), and (d).
(b) T
AXABLE FUEL BLENDSTOCKS .—The Secretary shall identify
chemical products to be added to the list of blendstocks from labanalysis of fuel samples collected by the Internal Revenue Servicewhich have been blended with taxable fuel but are not treatedas blendstocks. The Secretary shall include statistics regardingthe frequency in which a chemical product has been collected,and whether the sample contained an above normal concentrationof the chemical product.
(c) W
ASTE PRODUCTS ADDED TO TAXABLE FUELS .—The report
shall include a discussion of Internal Revenue Service findingsregarding the addition of waste products to taxable fuel and anyrecommendations to address the taxation of such products.
(d) E
RRONEOUS CLAIMS OF FUEL TAXEXEMPTIONS .—The report
shall include a discussion of Internal Revenue Service findingsregarding sales of taxable fuel to entities claiming exempt statusas a State or local government and the frequency of erroneouscertifications of tax exempt status. The Secretary, in consultationwith representatives of State and local governments, shall provideDeadline.
Reports.26 USC 4083
note.
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recommendations to address such erroneous claims, including rec-
ommendations on the feasibility of a State maintained list of exemptgovernmental entities within the State.
Subtitle D—Other Revenue Provisions
SEC. 881. QUALIFIED TAX COLLECTION CONTRACTS.
(a) C ONTRACT REQUIREMENTS .—
(1) I N GENERAL .—Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following newsection:
‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
‘‘(a) I NGENERAL .—Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a qualifiedtax collection contract.
‘‘(b) Q
UALIFIED TAXCOLLECTION CONTRACT .—For purposes of
this section, the term ‘qualified tax collection contract’ means anycontract which—
‘‘(1) is for the services of any person (other than an officer
or employee of the Treasury Department)—
‘‘(A) to locate and contact any taxpayer specified by
the Secretary,
‘‘(B) to request full payment from such taxpayer of
an amount of Federal tax specified by the Secretary and,if such request cannot be met by the taxpayer, to offerthe taxpayer an installment agreement providing for fullpayment of such amount during a period not to exceed5 years, and
‘‘(C) to obtain financial information specified by the
Secretary with respect to such taxpayer,‘‘(2) prohibits each person providing such services under
such contract from committing any act or omission whichemployees of the Internal Revenue Service are prohibited fromcommitting in the performance of similar services,
‘‘(3) prohibits subcontractors from—
‘‘(A) having contacts with taxpayers,‘‘(B) providing quality assurance services, and‘‘(C) composing debt collection notices, and
‘‘(4) permits subcontractors to perform other services only
with the approval of the Secretary.‘‘(c) F
EES.—The Secretary may retain and use—
‘‘(1) an amount not in excess of 25 percent of the amount
collected under any qualified tax collection contract for thecosts of services performed under such contract, and
‘‘(2) an amount not in excess of 25 percent of such amount
collected for collection enforcement activities of the InternalRevenue Service.
The Secretary shall keep adequate records regarding amounts soretained and used. The amount credited as paid by any taxpayershall be determined without regard to this subsection.
‘‘(d) N
OFEDERAL LIABILITY .—The United States shall not be
liable for any act or omission of any person performing servicesunder a qualified tax collection contract.
‘‘(e) A
PPLICATION OF FAIRDEBTCOLLECTION PRACTICES ACT.—
The provisions of the Fair Debt Collection Practices Act (15 U.S.C.Records.
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1692 et seq.) shall apply to any qualified tax collection contract,
except to the extent superseded by section 6304, section 7602(c),or by any other provision of this title.
‘‘(f) C
ROSS REFERENCES .—
‘‘(1) For damages for certain unauthorized collection actions by
persons performing services under a qualified tax collection con-tract, see section 7433A.
‘‘(2) For application of Taxpayer Assistance Orders to persons
performing services under a qualified tax collection contract, seesection 7811(g).’’.
(2) C ONFORMING AMENDMENTS .—(A) Section 7809(a) is
amended by inserting ‘‘6306,’’ before ‘‘7651’’.
(B) The table of sections for subchapter A of chapter 64
is amended by adding at the end the following new item:
‘‘Sec. 6306. Qualified tax collection contracts.’’.
(b) C IVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION
ACTIONS BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS .—
(1) I N GENERAL .—Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended byinserting after section 7433 the following new section:
‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLEC-
TION ACTIONS BY PERSONS PERFORMING SERVICESUNDER QUALIFIED TAX COLLECTION CONTRACTS.
‘‘(a) I NGENERAL .—Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and omissionsof any person performing services under a qualified tax collectioncontract (as defined in section 6306(b)) to the same extent andin the same manner as if such person were an employee of theInternal Revenue Service.
‘‘(b) M
ODIFICATIONS .—For purposes of subsection (a):
‘‘(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who enteredinto the qualified tax collection contract with the Secretaryand shall not be brought against the United States.
‘‘(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
‘‘(3) Such civil action shall not be an exclusive remedy
with respect to such person.
‘‘(4) Subsections (c), (d)(1), and (e) of section 7433 shall
not apply.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for sub-
chapter B of chapter 76 is amended by inserting after theitem relating to section 7433 the following new item:
‘‘Sec. 7433A. Civil damages for certain unauthorized collection actions by
persons performing services under qualified tax collection con-tracts.’’.
(c) A PPLICATION OF TAXPAYER ASSISTANCE ORDERS TO PERSONS
PERFORMING SERVICES UNDER A QUALIFIED TAXCOLLECTION CON-
TRACT .—Section 7811 (relating to taxpayer assistance orders) is
amended by adding at the end the following new subsection:
‘‘(g) A PPLICATION TO PERSONS PERFORMING SERVICES UNDER
AQUALIFIED TAXCOLLECTION CONTRACT .—Any order issued or
action taken by the National Taxpayer Advocate pursuant to thissection shall apply to persons performing services under a qualifiedtax collection contract (as defined in section 6306(b)) to the sameApplicability.
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extent and in the same manner as such order or action applies
to the Secretary.’’.
(d) I NELIGIBILITY OF INDIVIDUALS WHOCOMMIT MISCONDUCT
TOPERFORM UNDER CONTRACT .—Section 1203 of the Internal Rev-
enue Service Restructuring Act of 1998 (relating to terminationof employment for misconduct) is amended by adding at the endthe following new subsection:
‘‘(e) I
NDIVIDUALS PERFORMING SERVICES UNDER A QUALIFIED
TAXCOLLECTION CONTRACT .—An individual shall cease to be per-
mitted to perform any services under any qualified tax collectioncontract (as defined in section 6306(b) of the Internal RevenueCode of 1986) if there is a final determination by the Secretaryof the Treasury under such contract that such individual committedany act or omission described under subsection (b) in connectionwith the performance of such services.’’.
(e) B
IENNIAL REPORT .—The Secretary of the Treasury shall
biennially submit (beginning in 2005) to the Committee on Financeof the Senate and the Committee on Ways and Means of theHouse of Representatives a report with respect to qualified taxcollection contracts under section 6306 of the Internal RevenueCode of 1986 (as added by this section) which includes—
(1) a complete cost benefit analysis,(2) the impact of such contracts on collection enforcement
staff levels in the Internal Revenue Service,
(3) the impact of such contracts on the total number and
amount of unpaid assessments, and on the number and amountof assessments collected by Internal Revenue Service personnelafter initial contact by a contractor,
(4) the amounts collected and the collection costs incurred
(directly and indirectly) by the Internal Revenue Service,
(5) an evaluation of contractor performance,(6) a disclosure safeguard report in a form similar to that
required under section 6103(p)(5) of such Code, and
(7) a measurement plan which includes a comparison of
the best practices used by the private collectors with theInternal Revenue Service’s own collection techniques and
mechanisms to identify and capture information on successfulcollection techniques used by the contractors which could beadopted by the Internal Revenue Service.(f) E
FFECTIVE DATE.—The amendments made to this section
shall take effect on the date of the enactment of this Act.
SEC. 882. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS
AND SIMILAR PROPERTY.
(a) I NGENERAL .—Subparagraph (B) of section 170(e)(1) is
amended by striking ‘‘or’’ at the end of clause (i), by adding ‘‘or’’at the end of clause (ii), and by inserting after clause (ii) thefollowing new clause:
‘‘(iii) of any patent, copyright (other than a copy-
right described in section 1221(a)(3) or 1231(b)(1)(C)),trademark, trade name, trade secret, know-how, soft-ware (other than software described in section197(e)(3)(A)(i)), or similar property, or applications orregistrations of such property,’’.
(b) C
ERTAIN DONEE INCOME FROM INTELLECTUAL PROPERTY
TREATED AS AN ADDITIONAL CHARITABLE CONTRIBUTION .—Section26 USC 6306
note.26 USC 6306
note.26 USC 7804
note.
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170 is amended by redesignating subsection (m) as subsection (n)
and by inserting after subsection (l) the following new subsection:
‘‘(m) C ERTAIN DONEE INCOME FROM INTELLECTUAL PROPERTY
TREATED AS AN ADDITIONAL CHARITABLE CONTRIBUTION .—
‘‘(1) T REATMENT AS ADDITIONAL CONTRIBUTION .—In the case
of a taxpayer who makes a qualified intellectual property con-tribution, the deduction allowed under subsection (a) for eachtaxable year of the taxpayer ending on or after the date ofsuch contribution shall be increased (subject to the limitationsunder subsection (b)) by the applicable percentage of qualifieddonee income with respect to such contribution which is prop-erly allocable to such year under this subsection.
‘‘(2) R
EDUCTION IN ADDITIONAL DEDUCTIONS TO EXTENT OF
INITIAL DEDUCTION .—With respect to any qualified intellectual
property contribution, the deduction allowed under subsection(a) shall be increased under paragraph (1) only to the extentthat the aggregate amount of such increases with respect tosuch contribution exceed the amount allowed as a deductionunder subsection (a) with respect to such contribution deter-mined without regard to this subsection.
‘‘(3) Q
UALIFIED DONEE INCOME .—For purposes of this sub-
section, the term ‘qualified donee income’ means any net incomereceived by or accrued to the donee which is properly allocableto the qualified intellectual property.
‘‘(4) A
LLOCATION OF QUALIFIED DONEE INCOME TO TAXABLE
YEARS OF DONOR .—For purposes of this subsection, qualified
donee income shall be treated as properly allocable to a taxableyear of the donor if such income is received by or accruedto the donee for the taxable year of the donee which endswithin or with such taxable year of the donor.
‘‘(5) 10-
YEAR LIMITATION .—Income shall not be treated as
properly allocable to qualified intellectual property for purposesof this subsection if such income is received by or accruedto the donee after the 10-year period beginning on the dateof the contribution of such property.
‘‘(6) B
ENEFIT LIMITED TO LIFE OF INTELLECTUAL PROP –
ERTY .—Income shall not be treated as properly allocable to
qualified intellectual property for purposes of this subsectionif such income is received by or accrued to the donee afterthe expiration of the legal life of such property.
‘‘(7) A
PPLICABLE PERCENTAGE .—For purposes of this sub-
section, the term ‘applicable percentage’ means the percentagedetermined under the following table which corresponds toa taxable year of the donor ending on or after the date ofthe qualified intellectual property contribution:
‘‘Taxable Year of Donor
Ending on or After ApplicableDate of Contribution: Percentage:
1st …………………………………………………………………………………………………….. 1002nd ……………………………………………………………………………………………………. 1003rd …………………………………………………………………………………………………….. 904th …………………………………………………………………………………………………….. 805th …………………………………………………………………………………………………….. 706th …………………………………………………………………………………………………….. 607th …………………………………………………………………………………………………….. 508th …………………………………………………………………………………………………….. 409th …………………………………………………………………………………………………….. 3010th …………………………………………………………………………………………………… 2011th …………………………………………………………………………………………………… 1012th …………………………………………………………………………………………………… 10.
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‘‘(8) Q UALIFIED INTELLECTUAL PROPERTY CONTRIBUTION .—
For purposes of this subsection, the term ‘qualified intellectualproperty contribution’ means any charitable contribution ofqualified intellectual property—
‘‘(A) the amount of which taken into account under
this section is reduced by reason of subsection (e)(1), and
‘‘(B) with respect to which the donor informs the donee
at the time of such contribution that the donor intendsto treat such contribution as a qualified intellectual prop-erty contribution for purposes of this subsection and section6050L.‘‘(9) Q
UALIFIED INTELLECTUAL PROPERTY .—For purposes of
this subsection, the term ‘qualified intellectual property’ meansproperty described in subsection (e)(1)(B)(iii) (other than prop-erty contributed to or for the use of an organization describedin subsection (e)(1)(B)(ii)).
‘‘(10) O
THER SPECIAL RULES .—
‘‘(A) A PPLICATION OF LIMITATIONS ON CHARITABLE CON –
TRIBUTIONS .—Any increase under this subsection of the
deduction provided under subsection (a) shall be treatedfor purposes of subsection (b) as a deduction which isattributable to a charitable contribution to the donee towhich such increase relates.
‘‘(B) N
ET INCOME DETERMINED BY DONEE .—The net
income taken into account under paragraph (3) shall notexceed the amount of such income reported under section6050L(b)(1).
‘‘(C) D
EDUCTION LIMITED TO 12 TAXABLE YEARS .—Except
as may be provided under subparagraph (D)(i), this sub-section shall not apply with respect to any qualified intellec-tual property contribution for any taxable year of the donorafter the 12th taxable year of the donor which ends onor after the date of such contribution.
‘‘(D) R
EGULATIONS .—The Secretary may issue regula-
tions or other guidance to carry out the purposes of thissubsection, including regulations or guidance—
‘‘(i) modifying the application of this subsection
in the case of a donor or donee with a short taxableyear, and
‘‘(ii) providing for the determination of an amount
to be treated as net income of the donee which isproperly allocable to qualified intellectual property inthe case of a donee who uses such property to furthera purpose or function constituting the basis of thedonee’s exemption under section 501 (or, in the caseof a governmental unit, any purpose described in sec-tion 170(c)) and does not possess a right to receiveany payment from a third party with respect to suchproperty.’’.
(c) R
EPORTING REQUIREMENTS .—
(1) I N GENERAL .—Section 6050L (relating to returns
relating to certain dispositions of donated property) is amendedto read as follows:
‘‘SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.
‘‘(a) D ISPOSITIONS OF DONATED PROPERTY .—
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‘‘(1) I N GENERAL .—If the donee of any charitable deduction
property sells, exchanges, or otherwise disposes of such propertywithin 2 years after its receipt, the donee shall make a return(in accordance with forms and regulations prescribed by theSecretary) showing—
‘‘(A) the name, address, and TIN of the donor,‘‘(B) a description of the property,‘‘(C) the date of the contribution,‘‘(D) the amount received on the disposition, and‘‘(E) the date of such disposition.
‘‘(2) D
EFINITIONS .—For purposes of this subsection:
‘‘(A) C HARITABLE DEDUCTION PROPERTY .—The term
‘charitable deduction property’ means any property (other
than publicly traded securities) contributed in a contribu-tion for which a deduction was claimed under section 170if the claimed value of such property (plus the claimedvalue of all similar items of property donated by the donorto 1 or more donees) exceeds $5,000.
‘‘(B) P
UBLICLY TRADED SECURITIES .—The term ‘publicly
traded securities’ means securities for which (as of thedate of the contribution) market quotations are readilyavailable on an established securities market.
‘‘(b) Q
UALIFIED INTELLECTUAL PROPERTY CONTRIBUTIONS .—
‘‘(1) I N GENERAL .—Each donee with respect to a qualified
intellectual property contribution shall make a return (at suchtime and in such form and manner as the Secretary mayby regulations prescribe) with respect to each specified taxableyear of the donee showing—
‘‘(A) the name, address, and TIN of the donor,‘‘(B) a description of the qualified intellectual property
contributed,
‘‘(C) the date of the contribution, and‘‘(D) the amount of net income of the donee for the
taxable year which is properly allocable to the qualifiedintellectual property (determined without regard to para-graph (10)(B) of section 170(m) and with the modificationsdescribed in paragraphs (5) and (6) of such section).‘‘(2) D
EFINITIONS .—For purposes of this subsection:
‘‘(A) I N GENERAL .—Terms used in this subsection which
are also used in section 170(m) have the respectivemeanings given such terms in such section.
‘‘(B) S
PECIFIED TAXABLE YEAR .—The term ‘specified tax-
able year’ means, with respect to any qualified intellectualproperty contribution, any taxable year of the donee anyportion of which is part of the 10-year period beginningon the date of such contribution.
‘‘(c) S
TATEMENT TOBEFURNISHED TO DONORS .—Every person
making a return under subsection (a) or (b) shall furnish a copyof such return to the donor at such time and in such manneras the Secretary may by regulations prescribe.’’.
(2) C
LERICAL AMENDMENT .—The table of sections for sub-
part A of part II of subchapter A of chapter 61 is amendedby striking the item relating to section 6050L and insertingthe following new item:
‘‘Sec. 6050L. Returns relating to certain donated property.’’.
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(d) C OORDINATION WITHAPPRAISAL REQUIREMENTS .—Subclause
(I) of section 170(f)(11)(A)(ii), as added by this Act, is amendedby inserting ‘‘subsection (e)(1)(B)(iii) or’’ before ‘‘section 1221(a)(1)’’.
(e) A
NTI-ABUSE RULES .—The Secretary of the Treasury may
prescribe such regulations or other guidance as may be necessaryor appropriate to prevent the avoidance of the purposes of section170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as addedby subsection (a)), including preventing—
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar prop-erty as part of a charitable contribution of property thatincludes the patent or similar property,
(2) the manipulation of the basis of the property to increase
the amount of the charitable deduction through the use ofrelated persons, pass-thru entities, or other intermediaries, orthrough the use of any provision of law or regulation (includingthe consolidated return regulations), and
(3) a donor from changing the form of the patent or similar
property to property of a form for which different deductionrules would apply.(f) E
FFECTIVE DATE.—The amendments made by this section
shall apply to contributions made after June 3, 2004.
SEC. 883. INCREASED REPORTING FOR NONCASH CHARITABLE CON-
TRIBUTIONS.
(a) I NGENERAL .—Subsection (f) of section 170 (relating to dis-
allowance of deduction in certain cases and special rules) isamended by adding after paragraph (10) the following new para-graph:
‘‘(11) Q
UALIFIED APPRAISAL AND OTHER DOCUMENTATION FOR
CERTAIN CONTRIBUTIONS .—
‘‘(A) I N GENERAL .—
‘‘(i) D ENIAL OF DEDUCTION .—In the case of an indi-
vidual, partnership, or corporation, no deduction shallbe allowed under subsection (a) for any contributionof property for which a deduction of more than $500is claimed unless such person meets the requirementsof subparagraphs (B), (C), and (D), as the case maybe, with respect to such contribution.
‘‘(ii) E
XCEPTIONS .—
‘‘(I) R EADILY VALUED PROPERTY .—Subpara-
graphs (C) and (D) shall not apply to cash, propertydescribed in section 1221(a)(1), publicly tradedsecurities (as defined in section 6050L(a)(2)(B)),and any qualified vehicle described in paragraph(12)(A)(ii) for which an acknowledgement underparagraph (12)(B)(iii) is provided.
‘‘(II) R
EASONABLE CAUSE .—Clause (i) shall not
apply if it is shown that the failure to meet suchrequirements is due to reasonable cause and notto willful neglect.
‘‘(B) P
ROPERTY DESCRIPTION FOR CONTRIBUTIONS OF
MORE THAN $500 .—In the case of contributions of property
for which a deduction of more than $500 is claimed, therequirements of this subparagraph are met if the indi-vidual, partnership or corporation includes with the returnfor the taxable year in which the contribution is made26 USC 170 note.26 USC 170 note.
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a description of such property and such other information
as the Secretary may require. The requirements of thissubparagraph shall not apply to a C corporation whichis not a personal service corporation or a closely held Ccorporation.
‘‘(C) Q
UALIFIED APPRAISAL FOR CONTRIBUTIONS OF MORE
THAN $5 ,000.—In the case of contributions of property for
which a deduction of more than $5,000 is claimed, therequirements of this subparagraph are met if the indi-vidual, partnership, or corporation obtains a qualifiedappraisal of such property and attaches to the return forthe taxable year in which such contribution is made suchinformation regarding such property and such appraisalas the Secretary may require.
‘‘(D) S
UBSTANTIATION FOR CONTRIBUTIONS OF MORE
THAN $500 ,000.—In the case of contributions of property
for which a deduction of more than $500,000 is claimed,the requirements of this subparagraph are met if the indi-vidual, partnership, or corporation attaches to the returnfor the taxable year a qualified appraisal of such property.
‘‘(E) Q
UALIFIED APPRAISAL .—For purposes of this para-
graph, the term ‘qualified appraisal’ means, with respectto any property, an appraisal of such property which istreated for purposes of this paragraph as a qualifiedappraisal under regulations or other guidance prescribedby the Secretary.
‘‘(F) A
GGREGATION OF SIMILAR ITEMS OF PROPERTY .—
For purposes of determining thresholds under this para-graph, property and all similar items of property donatedto 1 or more donees shall be treated as 1 property.
‘‘(G) S
PECIAL RULE FOR PASS -THRU ENTITIES .—In the
case of a partnership or S corporation, this paragraphshall be applied at the entity level, except that the deduc-tion shall be denied at the partner or shareholder level.
‘‘(H) R
EGULATIONS .—The Secretary may prescribe such
regulations as may be necessary or appropriate to carryout the purposes of this paragraph, including regulationsthat may provide that some or all of the requirementsof this paragraph do not apply in appropriate cases.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to contributions made after June 3, 2004.
SEC. 884. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) I NGENERAL .—Subsection (f) of section 170 (relating to dis-
allowance of deduction in certain cases and special rules), asamended by this Act, is amended by inserting after paragraph(11) the following new paragraph:
‘‘(12) C
ONTRIBUTIONS OF USED MOTOR VEHICLES , BOATS , AND
AIRPLANES .—
‘‘(A) I N GENERAL .—In the case of a contribution of
a qualified vehicle the claimed value of which exceeds$500—
‘‘(i) paragraph (8) shall not apply and no deduction
shall be allowed under subsection (a) for such contribu-tion unless the taxpayer substantiates the contributionby a contemporaneous written acknowledgement of thecontribution by the donee organization that meets the26 USC 170 note.Applicability.
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requirements of subparagraph (B) and includes the
acknowledgement with the taxpayer’s return of taxwhich includes the deduction, and
‘‘(ii) if the organization sells the vehicle without
any significant intervening use or material improve-ment of such vehicle by the organization, the amountof the deduction allowed under subsection (a) shallnot exceed the gross proceeds received from such sale.‘‘(B) C
ONTENT OF ACKNOWLEDGEMENT .—An acknowl-
edgement meets the requirements of this subparagraphif it includes the following information:
‘‘(i) The name and taxpayer identification number
of the donor.
‘‘(ii) The vehicle identification number or similar
number.
‘‘(iii) In the case of a qualified vehicle to which
subparagraph (A)(ii) applies—
‘‘(I) a certification that the vehicle was sold
in an arm’s length transaction between unrelatedparties,
‘‘(II) the gross proceeds from the sale, and‘‘(III) a statement that the deductible amount
may not exceed the amount of such gross proceeds.‘‘(iv) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply—
‘‘(I) a certification of the intended use or mate-
rial improvement of the vehicle and the intendedduration of such use, and
‘‘(II) a certification that the vehicle would not
be transferred in exchange for money, other prop-erty, or services before completion of such use orimprovement.
‘‘(C) C
ONTEMPORANEOUS .—For purposes of subpara-
graph (A), an acknowledgement shall be considered to becontemporaneous if the donee organization provides itwithin 30 days of—
‘‘(i) the sale of the qualified vehicle, or‘‘(ii) in the case of an acknowledgement including
a certification described in subparagraph (B)(iv), thecontribution of the qualified vehicle.‘‘(D) I
NFORMATION TO SECRETARY .—A donee organiza-
tion required to provide an acknowledgement under thisparagraph shall provide to the Secretary the informationcontained in the acknowledgement. Such information shallbe provided at such time and in such manner as the Sec-retary may prescribe.
‘‘(E) Q
UALIFIED VEHICLE .—For purposes of this para-
graph, the term ‘qualified vehicle’ means any—
‘‘(i) motor vehicle manufactured primarily for use
on public streets, roads, and highways,
‘‘(ii) boat, or‘‘(iii) airplane.
Such term shall not include any property which is describedin section 1221(a)(1).
‘‘(F) R
EGULATIONS OR OTHER GUIDANCE .—The Secretary
shall prescribe such regulations or other guidance as maybe necessary to carry out the purposes of this paragraph.
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The Secretary may prescribe regulations or other guidance
which exempts sales by the donee organization which arein direct furtherance of such organization’s charitable pur-pose from the requirements of subparagraphs (A)(ii) and(B)(iv)(II).’’.
(b) P
ENALTY FOR FRAUDULENT ACKNOWLEDGMENTS .—
(1) I N GENERAL .—Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, isamended by inserting after section 6719 the following newsection:
‘‘SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO
DONATIONS OF MOTOR VEHICLES, BOATS, AND AIR-PLANES.
‘‘Any donee organization required under section 170(f)(12)(A)
to furnish a contemporaneous written acknowledgment to a donorwhich knowingly furnishes a false or fraudulent acknowledgment,or which knowingly fails to furnish such acknowledgment in themanner, at the time, and showing the information required undersection 170(f)(12), or regulations prescribed thereunder, shall foreach such act, or for each such failure, be subject to a penaltyequal to—
‘‘(1) in the case of an acknowledgment with respect to
a qualified vehicle to which section 170(f)(12)(A)(ii) applies,the greater of—
‘‘(A) the product of the highest rate of tax specified
in section 1 and the sales price stated on the acknowledg-ment, or
‘‘(B) the gross proceeds from the sale of such vehicle,
and‘‘(2) in the case of an acknowledgment with respect to
any other qualified vehicle to which section 170(f)(12) applies,the greater of—
‘‘(A) the product of the highest rate of tax specified
in section 1 and the claimed value of the vehicle, or
‘‘(B) $5,000.’’.
(2) C
ONFORMING AMENDMENT .—The table of sections for
part I of subchapter B of chapter 68, as amended by thisAct, is amended by inserting after the item relating to section6719 the following new item:
‘‘Sec. 6720. Fraudulent acknowledgments with respect to donations of
motor vehicles, boats, and airplanes.’’.
(c) E FFECTIVE DATE.—The amendments made by this section
shall apply to contributions made after December 31, 2004.
SEC. 885. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION
PLANS.
(a) I NGENERAL .—Subpart A of part I of subchapter D of chapter
1 is amended by adding at the end the following new section:
‘‘SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSA-
TION UNDER NONQUALIFIED DEFERRED COMPENSATIONPLANS.
‘‘(a) R ULES RELATING TO CONSTRUCTIVE RECEIPT .—
‘‘(1) P LAN FAILURES .—
‘‘(A) G ROSS INCOME INCLUSION .—26 USC 170 note.
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‘‘(i) I N GENERAL .—If at any time during a taxable
year a nonqualified deferred compensation plan—
‘‘(I) fails to meet the requirements of para-
graphs (2), (3), and (4), or
‘‘(II) is not operated in accordance with such
requirements,
all compensation deferred under the plan for the tax-able year and all preceding taxable years shall beincludible in gross income for the taxable year to theextent not subject to a substantial risk of forfeitureand not previously included in gross income.
‘‘(ii) A
PPLICATION ONLY TO AFFECTED PARTICI –
PANTS .—Clause (i) shall only apply with respect to
all compensation deferred under the plan for partici-pants with respect to whom the failure relates.‘‘(B) I
NTEREST AND ADDITIONAL TAX PAYABLE WITH
RESPECT TO PREVIOUSLY DEFERRED COMPENSATION .—
‘‘(i) I N GENERAL .—If compensation is required to
be included in gross income under subparagraph (A)for a taxable year, the tax imposed by this chapterfor the taxable year shall be increased by the sumof—
‘‘(I) the amount of interest determined under
clause (ii), and
‘‘(II) an amount equal to 20 percent of the
compensation which is required to be included ingross income.‘‘(ii) I
NTEREST .—For purposes of clause (i), the
interest determined under this clause for any taxableyear is the amount of interest at the underpaymentrate plus 1 percentage point on the underpaymentsthat would have occurred had the deferred compensa-tion been includible in gross income for the taxableyear in which first deferred or, if later, the first taxableyear in which such deferred compensation is not subjectto a substantial risk of forfeiture.
‘‘(2) D
ISTRIBUTIONS .—
‘‘(A) I N GENERAL .—The requirements of this paragraph
are met if the plan provides that compensation deferredunder the plan may not be distributed earlier than—
‘‘(i) separation from service as determined by the
Secretary (except as provided in subparagraph (B)(i)),
‘‘(ii) the date the participant becomes disabled
(within the meaning of subparagraph (C)),
‘‘(iii) death,‘‘(iv) a specified time (or pursuant to a fixed
schedule) specified under the plan at the date of thedeferral of such compensation,
‘‘(v) to the extent provided by the Secretary, a
change in the ownership or effective control of thecorporation, or in the ownership of a substantial por-tion of the assets of the corporation, or
‘‘(vi) the occurrence of an unforeseeable emergency.
‘‘(B) S
PECIAL RULES .—
‘‘(i) S PECIFIED EMPLOYEES .—In the case of any
specified employee, the requirement of subparagraph(A)(i) is met only if distributions may not be made
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before the date which is 6 months after the date of
separation from service (or, if earlier, the date of deathof the employee). For purposes of the preceding sen-tence, a specified employee is a key employee (asdefined in section 416(i) without regard to paragraph(5) thereof) of a corporation any stock in which ispublicly traded on an established securities marketor otherwise.
‘‘(ii) U
NFORESEEABLE EMERGENCY .—For purposes
of subparagraph (A)(vi)—
‘‘(I) I N GENERAL .—The term ‘unforeseeable
emergency’ means a severe financial hardship tothe participant resulting from an illness oraccident of the participant, the participant’sspouse, or a dependent (as defined in section152(a)) of the participant, loss of the participant’sproperty due to casualty, or other similar extraor-dinary and unforeseeable circumstances arising asa result of events beyond the control of the partici-pant.
‘‘(II) L
IMITATION ON DISTRIBUTIONS .—The
requirement of subparagraph (A)(vi) is met onlyif, as determined under regulations of the Sec-retary, the amounts distributed with respect toan emergency do not exceed the amounts necessaryto satisfy such emergency plus amounts necessaryto pay taxes reasonably anticipated as a resultof the distribution, after taking into account theextent to which such hardship is or may be relievedthrough reimbursement or compensation by insur-ance or otherwise or by liquidation of the partici-pant’s assets (to the extent the liquidation of suchassets would not itself cause severe financial hard-ship).
‘‘(C) D
ISABLED .—For purposes of subparagraph (A)(ii),
a participant shall be considered disabled if theparticipant—
‘‘(i) is unable to engage in any substantial gainful
activity by reason of any medically determinable phys-ical or mental impairment which can be expected toresult in death or can be expected to last for a contin-uous period of not less than 12 months, or
‘‘(ii) is, by reason of any medically determinable
physical or mental impairment which can be expectedto result in death or can be expected to last for acontinuous period of not less than 12 months, receivingincome replacement benefits for a period of not lessthan 3 months under an accident and health plancovering employees of the participant’s employer.
‘‘(3) A
CCELERATION OF BENEFITS .—The requirements of this
paragraph are met if the plan does not permit the accelerationof the time or schedule of any payment under the plan, exceptas provided in regulations by the Secretary.
‘‘(4) E
LECTIONS .—
‘‘(A) I N GENERAL .—The requirements of this paragraph
are met if the requirements of subparagraphs (B) and(C) are met.
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‘‘(B) I NITIAL DEFERRAL DECISION .—
‘‘(i) I N GENERAL .—The requirements of this
subparagraph are met if the plan provides that com-pensation for services performed during a taxable yearmay be deferred at the participant’s election only ifthe election to defer such compensation is made notlater than the close of the preceding taxable year orat such other time as provided in regulations.
‘‘(ii) F
IRST YEAR OF ELIGIBILITY .—In the case of
the first year in which a participant becomes eligibleto participate in the plan, such election may be madewith respect to services to be performed subsequentto the election within 30 days after the date the partici-pant becomes eligible to participate in such plan.
‘‘(iii) P
ERFORMANCE -BASED COMPENSATION .—In the
case of any performance-based compensation based onservices performed over a period of at least 12 months,such election may be made no later than 6 monthsbefore the end of the period.‘‘(C) C
HANGES IN TIME AND FORM OF DISTRIBUTION .—
The requirements of this subparagraph are met if, in thecase of a plan which permits under a subsequent electiona delay in a payment or a change in the form of payment—
‘‘(i) the plan requires that such election may not
take effect until at least 12 months after the dateon which the election is made,
‘‘(ii) in the case of an election related to a payment
not described in clause (ii), (iii), or (vi) of paragraph(2)(A), the plan requires that the first payment withrespect to which such election is made be deferredfor a period of not less than 5 years from the datesuch payment would otherwise have been made, and
‘‘(iii) the plan requires that any election related
to a payment described in paragraph (2)(A)(iv) maynot be made less than 12 months prior to the dateof the first scheduled payment under such paragraph.
‘‘(b) R
ULES RELATING TO FUNDING .—
‘‘(1) O FFSHORE PROPERTY IN A TRUST .—In the case of assets
set aside (directly or indirectly) in a trust (or other arrangementdetermined by the Secretary) for purposes of paying deferredcompensation under a nonqualified deferred compensation plan,for purposes of section 83 such assets shall be treated asproperty transferred in connection with the performance ofservices whether or not such assets are available to satisfyclaims of general creditors—
‘‘(A) at the time set aside if such assets (or such trust
or other arrangement) are located outside of the UnitedStates, or
‘‘(B) at the time transferred if such assets (or such
trust or other arrangement) are subsequently transferredoutside of the United States.
This paragraph shall not apply to assets located in a foreignjurisdiction if substantially all of the services to which thenonqualified deferred compensation relates are performed insuch jurisdiction.
‘‘(2) E
MPLOYER ’S FINANCIAL HEALTH .—In the case of com-
pensation deferred under a nonqualified deferred compensationDeadline.
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plan, there is a transfer of property within the meaning of
section 83 with respect to such compensation as of the earlierof—
‘‘(A) the date on which the plan first provides that
assets will become restricted to the provision of benefitsunder the plan in connection with a change in theemployer’s financial health, or
‘‘(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claimsof general creditors.
‘‘(3) I
NCOME INCLUSION FOR OFFSHORE TRUSTS AND
EMPLOYER ’S FINANCIAL HEALTH .—For each taxable year that
assets treated as transferred under this subsection remain setaside in a trust or other arrangement subject to paragraph(1) or (2), any increase in value in, or earnings with respectto, such assets shall be treated as an additional transfer ofproperty under this subsection (to the extent not previouslyincluded in income).
‘‘(4) I
NTEREST ON TAX LIABILITY PAYABLE WITH RESPECT
TO TRANSFERRED PROPERTY .—
‘‘(A) I N GENERAL .—If amounts are required to be
included in gross income by reason of paragraph (1) or(2) for a taxable year, the tax imposed by this chapterfor such taxable year shall be increased by the sum of—
‘‘(i) the amount of interest determined under
subparagraph (B), and
‘‘(ii) an amount equal to 20 percent of the amounts
required to be included in gross income.‘‘(B) I
NTEREST .—For purposes of subparagraph (A), the
interest determined under this subparagraph for any tax-able year is the amount of interest at the underpaymentrate plus 1 percentage point on the underpayments thatwould have occurred had the amounts so required to beincluded in gross income by paragraph (1) or (2) beenincludible in gross income for the taxable year in whichfirst deferred or, if later, the first taxable year in whichsuch amounts are not subject to a substantial risk of for-feiture.
‘‘(c) N
OINFERENCE ON EARLIER INCOME INCLUSION OR REQUIRE –
MENT OF LATER INCLUSION .—Nothing in this section shall be con-
strued to prevent the inclusion of amounts in gross income underany other provision of this chapter or any other rule of law earlierthan the time provided in this section. Any amount included ingross income under this section shall not be required to be includedin gross income under any other provision of this chapter or anyother rule of law later than the time provided in this section.
‘‘(d) O
THER DEFINITIONS AND SPECIAL RULES .—For purposes
of this section:
‘‘(1) N ONQUALIFIED DEFERRED COMPENSATION PLAN .—The
term ‘nonqualified deferred compensation plan’ means any planthat provides for the deferral of compensation, other than—
‘‘(A) a qualified employer plan, and‘‘(B) any bona fide vacation leave, sick leave, compen-
satory time, disability pay, or death benefit plan.‘‘(2) Q
UALIFIED EMPLOYER PLAN .—The term ‘qualified
employer plan’ means—
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‘‘(A) any plan, contract, pension, account, or trust
described in subparagraph (A) or (B) of section 219(g)(5)(without regard to subparagraph (A)(iii)),
‘‘(B) any eligible deferred compensation plan (within
the meaning of section 457(b)), and
‘‘(C) any plan described in section 415(m).
‘‘(3) P
LAN INCLUDES ARRANGEMENTS , ETC.—The term ‘plan’
includes any agreement or arrangement, including an agree-ment or arrangement that includes one person.
‘‘(4) S
UBSTANTIAL RISK OF FORFEITURE .—The rights of a
person to compensation are subject to a substantial risk offorfeiture if such person’s rights to such compensation areconditioned upon the future performance of substantial servicesby any individual.
‘‘(5) T
REATMENT OF EARNINGS .—References to deferred com-
pensation shall be treated as including references to income(whether actual or notional) attributable to such compensationor such income.
‘‘(6) A
GGREGATION RULES .—Except as provided by the Sec-
retary, rules similar to the rules of subsections (b) and (c)of section 414 shall apply.‘‘(e) R
EGULATIONS .—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposesof this section, including regulations—
‘‘(1) providing for the determination of amounts of deferral
in the case of a nonqualified deferred compensation plan whichis a defined benefit plan,
‘‘(2) relating to changes in the ownership and control of
a corporation or assets of a corporation for purposes of sub-section (a)(2)(A)(v),
‘‘(3) exempting arrangements from the application of sub-
section (b) if such arrangements will not result in an improperdeferral of United States tax and will not result in assetsbeing effectively beyond the reach of creditors,
‘‘(4) defining financial health for purposes of subsection
(b)(2), and
‘‘(5) disregarding a substantial risk of forfeiture in cases
where necessary to carry out the purposes of this section.’’.(b) T
REATMENT OF DEFERRED AMOUNTS .—
(1) W–2 FORMS .—
(A) I N GENERAL .—Subsection (a) of section 6051
(relating to receipts for employees) is amended by striking‘‘and’’ at the end of paragraph (11), by striking the periodat the end of paragraph (12) and inserting ‘‘, and’’, andby inserting after paragraph (12) the following new para-graph:‘‘(13) the total amount of deferrals for the year under
a nonqualified deferred compensation plan (within the meaningof section 409A(d)).’’.
(B) T
HRESHOLD .—Subsection (a) of section 6051 is
amended by adding at the end the following: ‘‘In the caseof the amounts required to be shown by paragraph (13),the Secretary may (by regulation) establish a minimumamount of deferrals below which paragraph (13) does notapply.’’.(2) W
AGE WITHHOLDING .—Section 3401(a) (defining wages)
is amended by adding at the end the following flush sentence:Applicability.
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‘‘The term ‘wages’ includes any amount includible in gross
income of an employee under section 409A and payment ofsuch amount shall be treated as having been made in thetaxable year in which the amount is so includible.’’.
(3) O
THER REPORTING .—Section 6041 (relating to informa-
tion at source) is amended by adding at the end the followingnew subsection:‘‘(g) N
ONQUALIFIED DEFERRED COMPENSATION .—Subsection (a)
shall apply to—
‘‘(1) any deferrals for the year under a nonqualified deferred
compensation plan (within the meaning of section 409A(d)),whether or not paid, except that this paragraph shall not applyto deferrals which are required to be reported under section6051(a)(13) (without regard to any de minimis exception), and
‘‘(2) any amount includible under section 409A and which
is not treated as wages under section 3401(a).’’.(c) C
LERICAL AMENDMENT .—The table of sections for such sub-
part A of part I of subchapter D of chapter 1 is amended byadding at the end the following new item:
‘‘Sec. 409A. Inclusion in gross income of deferred compensation under non-
qualified deferred compensation plans.’’.
(d) E FFECTIVE DATE.—
(1) I N GENERAL .—The amendments made by this section
shall apply to amounts deferred after December 31, 2004.
(2) S PECIAL RULES .—
(A) E ARNINGS .—The amendments made by this section
shall apply to earnings on deferred compensation only tothe extent that such amendments apply to such compensa-tion.
(B) M
ATERIAL MODIFICATIONS .—For purposes of this
subsection, amounts deferred in taxable years beginningbefore January 1, 2005, shall be treated as amountsdeferred in a taxable year beginning on or after such dateif the plan under which the deferral is made is materiallymodified after October 3, 2004, unless such modificationis pursuant to the guidance issued under subsection (f).(3) E
XCEPTION FOR NONELECTIVE DEFERRED COMPENSA –
TION .—The amendments made by this section shall not apply
to any nonelective deferred compensation to which section 457of the Internal Revenue Code of 1986 does not apply by reasonof section 457(e)(12) of such Code, but only if such compensationis provided under a nonqualified deferred compensation plan—
(A) which was in existence on May 1, 2004,(B) which was providing nonelective deferred com-
pensation described in such section 457(e)(12) on such date,and
(C) which is established or maintained by an organiza-
tion incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding sentenceadopts a plan amendment which provides a material changein the classes of individuals eligible to participate in the plan,this paragraph shall not apply to any nonelective deferredcompensation provided under the plan on or after the dateof the adoption of the amendment.(e) G
UIDANCE RELATING TO CHANGE OF OWNERSHIP OR CON-
TROL .—Not later than 90 days after the date of the enactment
of this Act, the Secretary of the Treasury shall issue guidanceDeadline.26 USC 409Anote.26 USC 409A
note.Applicability.26 USC 6041.
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on what constitutes a change in ownership or effective control
for purposes of section 409A of the Internal Revenue Code of 1986,as added by this section.
(f) G
UIDANCE RELATING TO TERMINATION OF CERTAIN EXISTING
ARRANGEMENTS .—Not later than 60 days after the date of the
enactment of this Act, the Secretary of the Treasury shall issueguidance providing a limited period during which a nonqualifieddeferred compensation plan adopted before December 31, 2004,may, without violating the requirements of paragraphs (2), (3),and (4) of section 409A(a) of the Internal Revenue Code of 1986(as added by this section), be amended—
(1) to provide that a participant may terminate participa-
tion in the plan, or cancel an outstanding deferral electionwith regard to amounts deferred after December 31, 2004,but only if amounts subject to the termination or cancellationare includible in income of the participant as earned (or, iflater, when no longer subject to substantial risk of forfeiture),and
(2) to conform to the requirements of such section 409A
with regard to amounts deferred after December 31, 2004.
SEC. 886. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS
FRANCHISES.
(a) I NGENERAL .—Section 197(e) (relating to exceptions to defi-
nition of section 197 intangible) is amended by striking paragraph(6) and by redesignating paragraphs (7) and (8) as paragraphs(6) and (7), respectively.
(b) C
ONFORMING AMENDMENTS .—
(1)(A) Section 1056 (relating to basis limitation for player
contracts transferred in connection with the sale of a franchise)is repealed.
(B) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section1056.
(2) Section 1245(a) (relating to gain from disposition of
certain depreciable property) is amended by striking paragraph(4).
(3) Section 1253 (relating to transfers of franchises, trade-
marks, and trade names) is amended by striking subsection(e).(c) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall apply to propertyacquired after the date of the enactment of this Act.
(2) S
ECTION 1245 .—The amendment made by subsection
(b)(2) shall apply to franchises acquired after the date of theenactment of this Act.
SEC. 887. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FED-
ERAL VENDORS.
(a) I NGENERAL .—Section 6331(h) (relating to continuing levy
on certain payments) is amended by adding at the end the followingnew paragraph:
‘‘(3) I
NCREASE IN LEVY FOR CERTAIN PAYMENTS .—Paragraph
(1) shall be applied by substituting ‘100 percent’ for ‘15 percent’in the case of any specified payment due to a vendor of goodsor services sold or leased to the Federal Government.’’.Applicability.26 USC 197 note.Deadline.
26 USC 409Anote.
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(b) E FFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 888. MODIFICATION OF STRADDLE RULES.
(a) R ULES RELATING TO IDENTIFIED STRADDLES .—
(1) I N GENERAL .—Subparagraph (A) of section 1092(a)(2)
(relating to special rule for identified straddles) is amendedto read as follows:
‘‘(A) I
N GENERAL .—In the case of any straddle which
is an identified straddle—
‘‘(i) paragraph (1) shall not apply with respect
to identified positions comprising the identifiedstraddle,
‘‘(ii) if there is any loss with respect to any identi-
fied position of the identified straddle, the basis ofeach of the identified offsetting positions in the identi-fied straddle shall be increased by an amount whichbears the same ratio to the loss as the unrecognizedgain with respect to such offsetting position bears tothe aggregate unrecognized gain with respect to allsuch offsetting positions, and
‘‘(iii) any loss described in clause (ii) shall not
otherwise be taken into account for purposes of thistitle.’’.
(2) I
DENTIFIED STRADDLE .—Section 1092(a)(2)(B) (defining
identified straddle) is amended—
(A) by striking clause (ii) and inserting the following:
‘‘(ii) to the extent provided by regulations, the
value of each position of which (in the hands of thetaxpayer immediately before the creation of thestraddle) is not less than the basis of such positionin the hands of the taxpayer at the time the straddleis created, and’’, and(B) by adding at the end the following new flush sen-
tence:
‘‘The Secretary shall prescribe regulations which specifythe proper methods for clearly identifying a straddle asan identified straddle (and the positions comprising suchstraddle), which specify the rules for the application ofthis section for a taxpayer which fails to properly identifythe positions of an identified straddle, and which specifythe ordering rules in cases where a taxpayer disposes ofless than an entire position which is part of an identifiedstraddle.’’.(3) U
NRECOGNIZED GAIN .—Section 1092(a)(3) (defining
unrecognized gain) is amended by redesignating subparagraph(B) as subparagraph (C) and by inserting after subparagraph(A) the following new subparagraph:
‘‘(B) S
PECIAL RULE FOR IDENTIFIED STRADDLES .—For
purposes of paragraph (2)(A)(ii), the unrecognized gain withrespect to any identified offsetting position shall be theexcess of the fair market value of the position at thetime of the determination over the fair market value ofthe position at the time the taxpayer identified the positionas a position in an identified straddle.’’.Regulations.26 USC 6331
note.
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(4) C ONFORMING AMENDMENT .—Section 1092(c)(2) is
amended by striking subparagraph (B) and by redesignatingsubparagraph (C) as subparagraph (B).(b) P
HYSICALLY SETTLED POSITIONS .—Section 1092(d) (relating
to definitions and special rules) is amended by adding at the endthe following new paragraph:
‘‘(8) S
PECIAL RULES FOR PHYSICALLY SETTLED POSITIONS .—
For purposes of subsection (a), if a taxpayer settles a positionwhich is part of a straddle by delivering property to whichthe position relates (and such position, if terminated, wouldresult in a realization of a loss), then such taxpayer shallbe treated as if such taxpayer—
‘‘(A) terminated the position for its fair market value
immediately before the settlement, and
‘‘(B) sold the property so delivered by the taxpayer
at its fair market value.’’.
(c) R
EPEAL OF STOCK EXCEPTION .—
(1) I N GENERAL .—Paragraph (3) of section 1092(d) (relating
to definitions and special rules) is amended to read as follows:
‘‘(3) S PECIAL RULES FOR STOCK .—For purposes of paragraph
(1)—
‘‘(A) I N GENERAL .—In the case of stock, the term ‘per-
sonal property’ includes stock only if—
‘‘(i) such stock is of a type which is actively traded
and at least 1 of the positions offsetting such stockis a position with respect to such stock or substantiallysimilar or related property, or
‘‘(ii) such stock is of a corporation formed or availed
of to take positions in personal property which offsetpositions taken by any shareholder.‘‘(B) R
ULE FOR APPLICATION .—For purposes of deter-
mining whether subsection (e) applies to any transactionwith respect to stock described in subparagraph (A)(ii),all includible corporations of an affiliated group (withinthe meaning of section 1504(a)) shall be treated as 1 tax-payer.’’.
(2) C
ONFORMING AMENDMENT .—Section 1258(d)(1) is
amended by striking ‘‘; except that the term ‘personal property’shall include stock’’.(d) H
OLDING PERIOD FOR DIVIDEND EXCLUSION .—The last sen-
tence of section 246(c) is amended by inserting: ‘‘, other than aqualified covered call option to which section 1092(f) applies’’ beforethe period at the end.
(e) E
FFECTIVE DATE.—The amendments made by this section
shall apply to positions established on or after the date of theenactment of this Act.
SEC. 889. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF
TAXABLE VACCINES.
(a) I NGENERAL .—Paragraph (1) of section 4132(a) (defining
taxable vaccine) is amended by redesignating subparagraphs (I),(J), (K), and (L) as subparagraphs (J), (K), (L), and (M), respectively,and by inserting after subparagraph (H) the following new subpara-graph:
‘‘(I) Any vaccine against hepatitis A.’’.
(b) E
FFECTIVE DATE.— 26 USC 4132
note.26 USC 246 note.
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(1) S ALES , ETC.—The amendments made by subsection (a)
shall apply to sales and uses on or after the first day ofthe first month which begins more than 4 weeks after thedate of the enactment of this Act.
(2) D
ELIVERIES .—For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case ofsales on or before the effective date described in such paragraphfor which delivery is made after such date, the delivery dateshall be considered the sale date.
SEC. 890. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF
TAXABLE VACCINES.
(a) I NGENERAL .—Section 4132(a)(1) (defining taxable vaccine),
as amended by this Act, is amended by adding at the end thefollowing new subparagraph:
‘‘(N) Any trivalent vaccine against influenza.’’.
(b) E
FFECTIVE DATE.—
(1) S ALES , ETC.—The amendment made by this section
shall apply to sales and uses on or after the later of—
(A) the first day of the first month which begins more
than 4 weeks after the date of the enactment of this Act,or
(B) the date on which the Secretary of Health and
Human Services lists any vaccine against influenza forpurposes of compensation for any vaccine-related injuryor death through the Vaccine Injury Compensation TrustFund.(2) D
ELIVERIES .—For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case ofsales on or before the effective date described in such paragraphfor which delivery is made after such date, the delivery dateshall be considered the sale date.
SEC. 891. EXTENSION OF IRS USER FEES.
(a) I NGENERAL .—Section 7528(c) (relating to termination) is
amended by striking ‘‘December 31, 2004’’ and inserting ‘‘September30, 2014’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to requests after the date of the enactment of thisAct.
SEC. 892. COBRA FEES.
(a) U SE OF MERCHANDISE PROCESSING FEE.—Section 13031(f)
of the Consolidated Omnibus Budget Reconciliation Act of 1985(19 U.S.C. 58c(f)) is amended—
(1) in paragraph (1), by aligning subparagraph (B) with
subparagraph (A); and
(2) in paragraph (2), by striking ‘‘commercial operations’’
and all that follows through ‘‘processing.’’ and inserting ‘‘cus-toms revenue functions as defined in section 415 of the Home-land Security Act of 2002 (other than functions performed bythe Office of International Affairs referred to in section 415(8)of that Act), and for automation (including the AutomationCommercial Environment computer system), and for no otherpurpose. To the extent that funds in the Customs User FeeAccount are insufficient to pay the costs of such customs rev-enue functions, customs duties in an amount equal to theamount of such insufficiency shall be available, to the extent26 USC 7528note.26 USC 4132
note.Applicability.
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provided for in appropriations Acts, to pay the costs of such
customs revenue functions in the amount of such insufficiency,and shall be available for no other purpose. The provisionsof the first and second sentences of this paragraph specifyingthe purposes for which amounts in the Customs User FeeAccount may be made available shall not be superseded exceptby a provision of law which specifically modifies or supersedessuch provisions.’’.(b) R
EIMBURSEMENT OF APPROPRIATIONS FROM COBRA F EES.—
Section 13031(f)(3) of the Consolidated Omnibus Budget Reconcili-ation Act of 1985 (19 U.S.C. 58c(f)(3)) is amended by adding atthe end the following:
‘‘(E) Nothing in this paragraph shall be construed to preclude
the use of appropriated funds, from sources other than the feescollected under subsection (a), to pay the costs set forth in clauses(i), (ii), and (iii) of subparagraph (A).’’.
(c) S
ENSE OF CONGRESS ; EFFECTIVE PERIOD FOR COLLECTING
FEES; STANDARD FOR SETTING FEES.—
(1) S ENSE OF CONGRESS .—The Congress finds that—
(A) the fees set forth in paragraphs (1) through (8)
of subsection (a) of section 13031 of the Consolidated Omni-bus Budget Reconciliation Act of 1985 have been reasonablyrelated to the costs of providing customs services in connec-tion with the activities or items for which the fees havebeen charged under such paragraphs; and
(B) the fees collected under such paragraphs have not
exceeded, in the aggregate, the amounts paid for the costsdescribed in subsection (f)(3)(A) incurred in providing cus-toms services in connection with the activities or itemsfor which the fees were charged under such paragraphs.(2) E
FFECTIVE PERIOD ; STANDARD FOR SETTING FEES .—Sec-
tion 13031(j)(3) of the Consolidated Omnibus Budget Reconcili-ation Act of 1985 is amended to read as follows:‘‘(3)(A) Fees may not be charged under paragraphs (9) and
(10) of subsection (a) after September 30, 2014.
‘‘(B)(i) Subject to clause (ii), Fees may not be charged under
paragraphs (1) through (8) of subsection (a) after September 30,2014.
‘‘(ii) In fiscal year 2006 and in each succeeding fiscal year
for which fees under paragraphs (1) through (8) of subsection (a)are authorized—
‘‘(I) the Secretary of the Treasury shall charge fees under
each such paragraph in amounts that are reasonably relatedto the costs of providing customs services in connection withthe activity or item for which the fee is charged under suchparagraph, except that in no case may the fee charged under
any such paragraph exceed by more than 10 percent the amountotherwise prescribed by such paragraph;
‘‘(II) the amount of fees collected under such paragraphs
may not exceed, in the aggregate, the amounts paid in thatfiscal year for the costs described in subsection (f)(3)(A) incurredin providing customs services in connection with the activityor item for which the fees are charged under such paragraphs;
‘‘(III) a fee may not be collected under any such paragraph
except to the extent such fee will be expended to pay thecosts described in subsection (f)(3)(A) incurred in providing19 USC 58c.19 USC 58c note.
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customs services in connection with the activity or item for
which the fee is charged under such paragraph; and
‘‘(IV) any fee collected under any such paragraph shall
be available for expenditure only to pay the costs describedin subsection (f)(3)(A) incurred in providing customs servicesin connection with the activity or item for which the fee ischarged under such paragraph.’’.(d) C
LERICAL AMENDMENTS .—Section 13031 of the Consolidated
Omnibus Budget Reconciliation Act of 1985 is amended—
(1) in subsection (a)(5)(B), by striking ‘‘$1.75’’ and inserting
‘‘$1.75.’’;
(2) in subsection (b)—
(A) in paragraph (1)(A), by aligning clause (iii) with
clause (ii);
(B) in paragraph (7), by striking ‘‘paragraphs’’ and
inserting ‘‘paragraph’’; and
(C) in paragraph (9), by aligning subparagraph (B)
with subparagraph (A); and(3) in subsection (e)(2), by aligning subparagraph (B) with
subparagraph (A).(e) S
TUDY OF ALLFEESCOLLECTED BY DEPARTMENT OF HOME-
LAND SECURITY .—The Secretary of the Treasury shall conduct a
study of all the fees collected by the Department of HomelandSecurity, and shall submit to the Congress, not later than Sep-tember 30, 2005, a report containing the recommendations of theSecretary on—
(1) what fees should be eliminated;(2) what the rate of fees retained should be; and(3) any other recommendations with respect to the fees
that the Secretary considers appropriate.
SEC. 893. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH
COMPLETE LIQUIDATION OF HOLDING COMPANY.
(a) I NGENERAL .—Section 332 is amended by adding at the
end the following new subsection:
‘‘(d) R ECOGNITION OF GAIN ON LIQUIDATION OF CERTAIN
HOLDING COMPANIES .—
‘‘(1) I N GENERAL .—In the case of any distribution to a
foreign corporation in complete liquidation of an applicableholding company—
‘‘(A) subsection (a) and section 331 shall not apply
to such distribution, and
‘‘(B) such distribution shall be treated as a distribution
to which section 301 applies.‘‘(2) A
PPLICABLE HOLDING COMPANY .—For purposes of this
subsection:
‘‘(A) I N GENERAL .—The term ‘applicable holding com-
pany’ means any domestic corporation—
‘‘(i) which is a common parent of an affiliated
group,
‘‘(ii) stock of which is directly owned by the dis-
tributee foreign corporation,
‘‘(iii) substantially all of the assets of which consist
of stock in other members of such affiliated group,andDeadline.
Reports.19 USC 58c.
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‘‘(iv) which has not been in existence at all times
during the 5 years immediately preceding the dateof the liquidation.‘‘(B) A
FFILIATED GROUP .—For purposes of this sub-
section, the term ‘affiliated group’ has the meaning givensuch term by section 1504(a) (without regard to paragraphs(2) and (4) of section 1504(b)).‘‘(3) C
OORDINATION WITH SUBPART F .—If the distributee
of a distribution described in paragraph (1) is a controlledforeign corporation (as defined in section 957), then notwith-standing paragraph (1) or subsection (a), such distribution shallbe treated as a distribution to which section 331 applies.
‘‘(4) R
EGULATIONS .—The Secretary shall provide such regu-
lations as appropriate to prevent the abuse of this subsection,including regulations which provide, for the purposes of clause(iv) of paragraph (2)(A), that a corporation is not in existencefor any period unless it is engaged in the active conduct ofa trade or business or owns a significant ownership interestin another corporation so engaged.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to distributions in complete liquidation occurring onor after the date of the enactment of this Act.
SEC. 894. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN
FOREIGN SOURCE INCOME.
(a) I NGENERAL .—Section 864(c)(4)(B) (relating to treatment
of income from sources without the United States as effectivelyconnected income) is amended by adding at the end the followingnew flush sentence:
‘‘Any income or gain which is equivalent to any item ofincome or gain described in clause (i), (ii), or (iii) shallbe treated in the same manner as such item for purposesof this subparagraph.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 895. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF
CONTROLLED FOREIGN CORPORATION.
(a) I NGENERAL .—Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
‘‘(D) A PPLICATION TO CERTAIN DISPOSITIONS OF STOCK
IN CONTROLLED FOREIGN CORPORATION .—
‘‘(i) I N GENERAL .—This paragraph shall apply to
an applicable disposition in the same manner as ifit were a disposition of property described in subpara-graph (A), except that the exception contained insubparagraph (C)(i) shall not apply.
‘‘(ii) A
PPLICABLE DISPOSITION .—For purposes of
clause (i), the term ‘applicable disposition’ means anydisposition of any share of stock in a controlled foreigncorporation in a transaction or series of transactionsif, immediately before such transaction or series oftransactions, the taxpayer owned more than 50 percent(by vote or value) of the stock of the controlled foreigncorporation. Such term shall not include a dispositiondescribed in clause (iii) or (iv), except that clause (i)26 USC 864 note.26 USC 332 note.
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shall apply to any gain recognized on any such disposi-
tion.
‘‘(iii) E XCEPTION FOR CERTAIN EXCHANGES WHERE
OWNERSHIP PERCENTAGE RETAINED .—A disposition
shall not be treated as an applicable disposition underclause (ii) if it is part of a transaction or series oftransactions—
‘‘(I) to which section 351 or 721 applies, or
under which the transferor receives stock in aforeign corporation in exchange for the stock inthe controlled foreign corporation and the stockreceived is exchanged basis property (as definedin section 7701(a)(44)), and
‘‘(II) immediately after which, the transferor
owns (by vote or value) at least the same percent-age of stock in the controlled foreign corporation(or, if the controlled foreign corporation is not inexistence after such transaction or series of trans-actions, in another foreign corporation stock inwhich was received by the transferor in exchangefor stock in the controlled foreign corporation) asthe percentage of stock in the controlled foreigncorporation which the taxpayer owned immediatelybefore such transaction or series of transactions.‘‘(iv) E
XCEPTION FOR CERTAIN ASSET ACQUISI –
TIONS .—A disposition shall not be treated as an
applicable disposition under clause (ii) if it is partof a transaction or series of transactions in whichthe taxpayer (or any member of a controlled groupof corporations filing a consolidated return under sec-tion 1501 which includes the taxpayer) acquires theassets of a controlled foreign corporation in exchangefor the shares of the controlled foreign corporationin a liquidation described in section 332 or a reorga-nization described in section 368(a)(1).
‘‘(v) C
ONTROLLED FOREIGN CORPORATION .—For pur-
poses of this subparagraph, the term ‘controlled foreigncorporation’ has the meaning given such term by sec-tion 957.
‘‘(vi) S
TOCK OWNERSHIP .—For purposes of this
subparagraph, ownership of stock shall be determinedunder the rules of subsections (a) and (b) of section958.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to dispositions after the date of the enactment of thisAct.
SEC. 896. RECOGNITION OF CANCELLATION OF INDEBTEDNESS
INCOME REALIZED ON SATISFACTION OF DEBT WITHPARTNERSHIP INTEREST.
(a) I NGENERAL .—Paragraph (8) of section 108(e) (relating to
general rules for discharge of indebtedness (including dischargesnot in title 11 cases or insolvency)) is amended to read as follows:
‘‘(8) I
NDEBTEDNESS SATISFIED BY CORPORATE STOCK OR
PARTNERSHIP INTEREST .—For purposes of determining income
of a debtor from discharge of indebtedness, if—
‘‘(A) a debtor corporation transfers stock, or26 USC 904 note.
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‘‘(B) a debtor partnership transfers a capital or profits
interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourseindebtedness, such corporation or partnership shall be treatedas having satisfied the indebtedness with an amount of moneyequal to the fair market value of the stock or interest. Inthe case of any partnership, any discharge of indebtednessincome recognized under this paragraph shall be included inthe distributive shares of taxpayers which were the partnersin the partnership immediately before such discharge.’’.(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply with respect to cancellations of indebtedness occurringon or after the date of the enactment of this Act.
SEC. 897. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL
READILY TRADABLE DEBT.
(a) I NGENERAL .—Section 453(f)(4)(B) (relating to purchaser
evidences of indebtedness payable on demand or readily tradable)is amended by striking ‘‘is issued by a corporation or a governmentor political subdivision thereof and’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to sales occurring on or after the date of the enactmentof this Act.
SEC. 898. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDI-
TORS IN DIVISIVE REORGANIZATIONS.
(a) I NGENERAL .—Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the followingnew sentence: ‘‘In the case of a reorganization described in section368(a)(1)(D) with respect to which stock or securities of the corpora-tion to which the assets are transferred are distributed in a trans-action which qualifies under section 355, this paragraph shall applyonly to the extent that the sum of the money and the fair marketvalue of other property transferred to such creditors does not exceedthe adjusted bases of such assets transferred.’’.
(b) L
IABILITIES IN EXCESS OF BASIS.—Section 357(c)(1)(B) is
amended by inserting ‘‘with respect to which stock or securitiesof the corporation to which the assets are transferred are distributedin a transaction which qualifies under section 355’’ after ‘‘section368(a)(1)(D)’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to transfers of money or other property, or liabilitiesassumed, in connection with a reorganization occurring on or afterthe date of the enactment of this Act.
SEC. 899. CLARIFICATION OF DEFINITION OF NONQUALIFIED PRE-
FERRED STOCK.
(a) I NGENERAL .—Section 351(g)(3)(A) is amended by adding
at the end the following: ‘‘Stock shall not be treated as participatingin corporate growth to any significant extent unless there is areal and meaningful likelihood of the shareholder actually partici-pating in the earnings and growth of the corporation.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to transactions after May 14, 2003.26 USC 351 note.26 USC 357 note.26 USC 453 note.26 USC 108 note.
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SEC. 900. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(a) I NGENERAL .—Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ‘‘possessing—’’ and allthat follows through ‘‘(B)’’ and inserting ‘‘possessing’’.
(b) A
PPLICATION OF EXISTING RULES TO OTHER CODE PROVI –
SIONS .—Section 1563(f) (relating to other definitions and rules) is
amended by adding at the end the following new paragraph:
‘‘(5) B ROTHER -SISTER CONTROLLED GROUP DEFINITION FOR
PROVISIONS OTHER THAN THIS PART .—
‘‘(A) I N GENERAL .—Except as specifically provided in
an applicable provision, subsection (a)(2) shall be appliedto an applicable provision as if it read as follows:‘‘(2) B
ROTHER -SISTER CONTROLLED GROUP .—Two or more
corporations if 5 or fewer persons who are individuals, estates,or trusts own (within the meaning of subsection (d)(2) stockpossessing—
‘‘(A) at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, or at least80 percent of the total value of shares of all classes ofstock, of each corporation, and
‘‘(B) more than 50 percent of the total combined voting
power of all classes of stock entitled to vote or more than50 percent of the total value of shares of all classes ofstock of each corporation, taking into account the stockownership of each such person only to the extent such
stock ownership is identical with respect to each such cor-poration.’
‘‘(B) A
PPLICABLE PROVISION .—For purposes of this para-
graph, an applicable provision is any provision of law (otherthan this part) which incorporates the definition of con-trolled group of corporations under subsection (a).’’.
(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-ment of this Act.
SEC. 901. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) G ASUTILITY PROPERTY .—Section 168(e)(3)(E) (defining 15-
year property), as amended by this Act, is amended by striking‘‘and’’ at the end of clause (iv), by striking the period at the endof clause (v) and inserting ‘‘, and’’, and by adding at the endthe following new clause:
‘‘(vi) initial clearing and grading land improve-
ments with respect to gas utility property.’’.
(b) E
LECTRIC UTILITY PROPERTY .—Section 168(e)(3) is amended
by adding at the end the following new subparagraph:
‘‘(F) 20- YEAR PROPERTY .—The term ‘20-year property’
means initial clearing and grading land improvements withrespect to any electric utility transmission and distributionplant.’’.
(c) C
ONFORMING AMENDMENT .—The table contained in section
168(g)(3)(B), as amended by this Act, is amended by insertingafter the item relating to subparagraph (E)(v) the following newitems:
‘‘(E)(vi) ………………………………………………………………………………….. 20’’.
‘‘(F) ……………………………………………………………………………………….. 25’’.26 USC 1563note.
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(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of theenactment of this Act.
SEC. 902. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) S TART -UPEXPENDITURES .—
(1) A LLOWANCE OF DEDUCTION .—Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to readas follows:
‘‘(1) A
LLOWANCE OF DEDUCTION .—If a taxpayer elects the
application of this subsection with respect to any start-upexpenditures—
‘‘(A) the taxpayer shall be allowed a deduction for
the taxable year in which the active trade or businessbegins in an amount equal to the lesser of—
‘‘(i) the amount of start-up expenditures with
respect to the active trade or business, or
‘‘(ii) $5,000, reduced (but not below zero) by the
amount by which such start-up expenditures exceed$50,000, and‘‘(B) the remainder of such start-up expenditures shall
be allowed as a deduction ratably over the 180-monthperiod beginning with the month in which the active tradeor business begins.’’.(2) C
ONFORMING AMENDMENT .—Subsection (b) of section
195 is amended by striking ‘‘A MORTIZE ’’ and inserting ‘‘D EDUCT ’’
in the heading.(b) O
RGANIZATIONAL EXPENDITURES .—Subsection (a) of section
248 (relating to organizational expenditures) is amended to readas follows:
‘‘(a) E
LECTION TO DEDUCT .—If a corporation elects the applica-
tion of this subsection (in accordance with regulations prescribedby the Secretary) with respect to any organizational expenditures—
‘‘(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an
amount equal to the lesser of—
‘‘(A) the amount of organizational expenditures with
respect to the taxpayer, or
‘‘(B) $5,000, reduced (but not below zero) by the amount
by which such organizational expenditures exceed $50,000,and‘‘(2) the remainder of such organizational expenditures
shall be allowed as a deduction ratably over the 180-monthperiod beginning with the month in which the corporationbegins business.’’.(c) T
REATMENT OF ORGANIZATIONAL AND SYNDICATION FEES OR
PARTNERSHIPS .—
(1) I N GENERAL .—Section 709(b) (relating to amortization
of organization fees) is amended by redesignating paragraph(2) as paragraph (3) and by amending paragraph (1) to readas follows:
‘‘(1) A
LLOWANCE OF DEDUCTION .—If a taxpayer elects the
application of this subsection (in accordance with regulationsprescribed by the Secretary) with respect to any organizationalexpenses—Regulations.26 USC 168 note.
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‘‘(A) the taxpayer shall be allowed a deduction for
the taxable year in which the partnership begins businessin an amount equal to the lesser of—
‘‘(i) the amount of organizational expenses with
respect to the partnership, or
‘‘(ii) $5,000, reduced (but not below zero) by the
amount by which such organizational expenses exceed$50,000, and‘‘(B) the remainder of such organizational expenses
shall be allowed as a deduction ratably over the 180-monthperiod beginning with the month in which the partnershipbegins business.‘‘(2) D
ISPOSITIONS BEFORE CLOSE OF AMORTIZATION
PERIOD .—In any case in which a partnership is liquidated before
the end of the period to which paragraph (1)(B) applies, anydeferred expenses attributable to the partnership which werenot allowed as a deduction by reason of this section may bededucted to the extent allowable under section 165.’’.
(2) C
ONFORMING AMENDMENT .—Subsection (b) of section
709 is amended by striking ‘‘A MORTIZATION ’’ and inserting
‘‘DEDUCTION ’’ in the heading.
(d) E FFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or incurred after the date of theenactment of this Act.
SEC. 903. FREEZE OF PROVISIONS REGARDING SUSPENSION OF
INTEREST WHERE SECRETARY FAILS TO CONTACT TAX-PAYER.
(a) I NGENERAL .—Section 6404(g) (relating to suspension of
interest and certain penalties where Secretary fails to contact tax-payer) is amended by striking ‘‘1-year period (18-month periodin the case of taxable years beginning before January 1, 2004)’’both places it appears and inserting ‘‘18-month period’’.
(b) E
XCEPTION FOR GROSS MISSTATEMENT .—Section 6404(g)(2)
(relating to exceptions) is amended by striking ‘‘or’’ at the endof subparagraph (C), by redesignating subparagraph (D) as subpara-graph (E), and by inserting after subparagraph (C) the followingnew subparagraph:
‘‘(D) any interest, penalty, addition to tax, or additional
amount with respect to any gross misstatement; or’’.
(c) E
XCEPTION FOR LISTED AND REPORTABLE TRANSACTIONS .—
Section 6404(g)(2) (relating to exceptions), as amended by subsection(b), is amended by striking ‘‘or’’ at the end of subparagraph (D),by redesignating subparagraph (E) as subparagraph (F), and byinserting after subparagraph (D) the following new subparagraph:
‘‘(E) any interest, penalty, addition to tax, or additional
amount with respect to any reportable transaction withrespect to which the requirement of section 6664(d)(2)(A)is not met and any listed transaction (as defined in6707A(c)); or’’.
(d) E
FFECTIVE DATES .—
(1) I N GENERAL .—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable yearsbeginning after December 31, 2003.
(2) E
XCEPTION FOR REPORTABLE OR LISTED TRANSACTIONS .—
The amendments made by subsection (c) shall apply withrespect to interest accruing after October 3, 2004.26 USC 6404note.26 USC 195 note.
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SEC. 904. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE
PAYMENTS IN EXCESS OF $1,000,000.
(a) I NGENERAL .—If an employer elects under Treasury Regula-
tion 31.3402(g)–1 to determine the amount to be deducted andwithheld from any supplemental wage payment by using a flatpercentage rate, the rate to be used in determining the amount
to be so deducted and withheld shall not be less than 28 percent(or the corresponding rate in effect under section 1(i)(2) of theInternal Revenue Code of 1986 for taxable years beginning inthe calendar year in which the payment is made).
(b) S
PECIAL RULE FOR LARGE PAYMENTS .—
(1) I N GENERAL .—Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such paymentspreviously made by the employer to the employee during thecalendar year, exceeds $1,000,000, the rate used with respectto such excess shall be equal to the maximum rate of taxin effect under section 1 of such Code for taxable years begin-ning in such calendar year.
(2) A
GGREGATION .—All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal RevenueCode of 1986 shall be treated as a single employer for purposesof this subsection.(c) C
ONFORMING AMENDMENT .—Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103–66) is repealed.
(d) E FFECTIVE DATE.—The provisions of, and the amendment
made by, this section shall apply to payments made after December31, 2004.
SEC. 905. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO
EXERCISE OF STOCK OPTIONS TO COMPLY WITH CON-FLICT-OF-INTEREST REQUIREMENTS.
(a) I NGENERAL .—Section 421 (relating to general rules for
certain stock options) is amended by adding at the end the followingnew subsection:
‘‘(d) C
ERTAIN SALES TOCOMPLY WITHCONFLICT -OF-INTEREST
REQUIREMENTS .—If—
‘‘(1) a share of stock is transferred to an eligible person
(as defined in section 1043(b)(1)) pursuant to such person’sexercise of an option to which this part applies, and
‘‘(2) such share is disposed of by such person pursuant
to a certificate of divestiture (as defined in section 1043(b)(2)),
such disposition shall be treated as meeting the requirements ofsection 422(a)(1) or 423(a)(1), whichever is applicable.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to sales after the date of the enactment of this Act.
SEC. 906. APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.
(a) I NGENERAL .—Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amendedby redesignating subsection (w) as subsection (x) and by insertingafter subsection (v) the following new subsection:
‘‘(w) A
PPLICATION OF BASIS RULES TO NONRESIDENT ALIENS .—
‘‘(1) I N GENERAL .—Notwithstanding any other provision of
this section, for purposes of determining the portion of anydistribution which is includible in gross income of a distributeewho is a citizen or resident of the United States, the investment26 USC 421 note.107 Stat. 542.
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in the contract shall not include any applicable nontaxable
contributions or applicable nontaxable earnings.
‘‘(2) A PPLICABLE NONTAXABLE CONTRIBUTION .—For purposes
of this subsection, the term ‘applicable nontaxable contribution’means any employer or employee contribution—
‘‘(A) which was made with respect to compensation—
‘‘(i) for labor or personal services performed by
an employee who, at the time the labor or serviceswere performed, was a nonresident alien for purposesof the laws of the United States in effect at suchtime, and
‘‘(ii) which is treated as from sources without the
United States, and‘‘(B) which was not subject to income tax (and would
have been subject to income tax if paid as cash compensa-tion when the services were rendered) under the lawsof the United States or any foreign country.‘‘(3) A
PPLICABLE NONTAXABLE EARNINGS .—For purposes of
this subsection, the term ‘applicable nontaxable earnings’means earnings—
‘‘(A) which are paid or accrued with respect to any
employer or employee contribution which was made withrespect to compensation for labor or personal services per-formed by an employee,
‘‘(B) with respect to which the employee was at the
time the earnings were paid or accrued a nonresident alienfor purposes of the laws of the United States, and
‘‘(C) which were not subject to income tax under the
laws of the United States or any foreign country.‘‘(4) R
EGULATIONS .—The Secretary shall prescribe such
regulations as may be necessary to carry out the provisionsof this subsection, including regulations treating contributionsand earnings as not subject to tax under the laws of anyforeign country where appropriate to carry out the purposesof this subsection.’’.(b) B
ASIS.—Section 83 (relating to property transferred in
connection with the performance of services is amended by addingafter paragraph (3) of subsection (c) the following new paragraph:
‘‘(4) For purposes of determining an individual’s basis in
property transferred in connection with the performance ofservices, rules similar to the rules of section 72(w) shall apply.’’.(c) E
FFECTIVE DATE.—The amendments made by this section
shall apply to distributions on or after the date of the enactmentof this Act.
SEC. 907. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN
ENTERTAINMENT EXPENSES.
(a) I NGENERAL .—Paragraph (2) of section 274(e) (relating to
expenses treated as compensation) is amended to read as follows:
‘‘(2) E XPENSES TREATED AS COMPENSATION .—
‘‘(A) I N GENERAL .—Except as provided in subparagraph
(B), expenses for goods, services, and facilities, to the extentthat the expenses are treated by the taxpayer, with respectto the recipient of the entertainment, amusement, or recre-ation, as compensation to an employee on the taxpayer’sreturn of tax under this chapter and as wages to such26 USC 72 note.
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employee for purposes of chapter 24 (relating to with-
holding of income tax at source on wages).
‘‘(B) S PECIFIED INDIVIDUALS .—
‘‘(i) I N GENERAL .—In the case of a recipient who
is a specified individual, subparagraph (A) and para-graph (9) shall each be applied by substituting ‘tothe extent that the expenses do not exceed the amountof the expenses which’ for ‘to the extent that theexpenses’.
‘‘(ii) S
PECIFIED INDIVIDUAL .—For purposes of clause
(i), the term ‘specified individual’ means any individualwho—
‘‘(I) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 withrespect to the taxpayer, or
‘‘(II) would be subject to such requirements
if the taxpayer were an issuer of equity securitiesreferred to in such section.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to expenses incurred after the date of the enactmentof this Act.
SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED
STATES POSSESSIONS.
(a) R ESIDENCE AND SOURCE RULES .—Subpart D of part III
of subchapter N of chapter 1 (relating to possessions of the UnitedStates) is amended by adding at the end the following new section:
‘‘SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS.
‘‘(a) B ONA FIDERESIDENT .—For purposes of this subpart, sec-
tion 865(g)(3), section 876, section 881(b), paragraphs (2) and (3)of section 901(b), section 957(c), section 3401(a)(8)(C), and section7654(a), except as provided in regulations, the term ‘bona fideresident’ means a person—
‘‘(1) who is present for at least 183 days during the taxable
year in Guam, American Samoa, the Northern Mariana Islands,Puerto Rico, or the Virgin Islands, as the case may be, and
‘‘(2) who does not have a tax home (determined under
the principles of section 911(d)(3) without regard to the secondsentence thereof) outside such specified possession during thetaxable year and does not have a closer connection (determinedunder the principles of section 7701(b)(3)(B)(ii)) to the UnitedStates or a foreign country than to such specified possession.
For purposes of paragraph (1), the determination as to whethera person is present for any day shall be made under the principlesof section 7701(b).
‘‘(b) S
OURCE RULES .—Except as provided in regulations, for
purposes of this title—
‘‘(1) except as provided in paragraph (2), rules similar to
the rules for determining whether income is income fromsources within the United States or is effectively connectedwith the conduct of a trade or business within the UnitedStates shall apply for purposes of determining whether incomeis from sources within a possession specified in subsection(a)(1) or effectively connected with the conduct of a trade orbusiness within any such possession, and
‘‘(2) any income treated as income from sources within
the United States or as effectively connected with the conductApplicability.26 USC 274 note.Applicability.
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of a trade or business within the United States shall not be
treated as income from sources within any such possessionor as effectively connected with the conduct of a trade or busi-ness within any such possession.‘‘(c) R
EPORTING REQUIREMENT .—
‘‘(1) I N GENERAL .—If, for any taxable year, an individual
takes the position for United States income tax reporting pur-poses that the individual became, or ceases to be, a bonafide resident of a possession specified in subsection (a)(1), suchindividual shall file with the Secretary, at such time and insuch manner as the Secretary may prescribe, notice of suchposition.
‘‘(2) T
RANSITION RULE .—If, for any of an individual’s 3
taxable years ending before the individual’s first taxable yearending after the date of the enactment of this subsection, theindividual took a position described in paragraph (1), the indi-vidual shall file with the Secretary, at such time and in suchmanner as the Secretary may prescribe, notice of such posi-tion.’’.(b) P
ENALTY .—Section 6688 is amended—
(1) by inserting ‘‘under section 937(c) or’’ before ‘‘by regula-
tions’’, and
(2) by striking ‘‘$100’’ and inserting ‘‘$1,000’’.
(c) C ONFORMING AND CLERICAL AMENDMENTS .—
(1) Section 931(d) is amended to read as follows:
‘‘(d) E MPLOYEES OF THE UNITED STATES .—Amounts paid for
services performed as an employee of the United States (or anyagency thereof) shall be treated as not described in paragraph(1) or (2) of subsection (a).’’.
(2) Section 932 is amended by striking ‘‘at the close of
the taxable year’’ and inserting ‘‘during the entire taxable year’’each place it appears.
(3) Section 934(b)(4) is amended by striking ‘‘the Virgin
Islands or’’ each place it appears.
(4) Section 935, as in effect before the effective date of
its repeal, is amended—
(A) by striking ‘‘for the taxable year who’’ in subsection
(a) and inserting ‘‘who, during the entire taxable year’’,
(B) by inserting ‘‘bona fide’’ before ‘‘resident’’ in sub-
section (a)(1),
(C) in subsection (b)(1)—
(i) by inserting ‘‘(other a bona fide resident of
Guam during the entire taxable year)’’ after ‘‘UnitedStates’’ in subparagraph (A), and
(ii) by inserting ‘‘bona fide’’ before ‘‘resident’’ in
subparagraph (B), and(D) in subsection (b)(2) by striking ‘‘residence and’’.
(5) Section 957(c) is amended—
(A) in paragraph (2)(B) by striking ‘‘conduct of an
active’’ and inserting ‘‘active conduct of a’’, and
(B) in the last sentence by striking ‘‘derived from
sources within a possession, was effectively connected withthe conduct of a trade or business within a possession,or’’.
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(6) The table of sections of subpart D of part III of sub-
chapter N of chapter 1 is amended by adding at the endthe following new item:
‘‘Sec. 937. Residence and source rules involving possessions.’’.
(d) E FFECTIVE DATE.—
(1) I N GENERAL .—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply totaxable years ending after the date of the enactment of thisAct.
(2) 183-
DAY RULE .—Section 937(a)(1) of the Internal Rev-
enue Code of 1986 (as added by this section) shall apply totaxable years beginning after the date of the enactment ofthis Act.
(3) S
OURCING .—Section 937(b)(2) of such Code (as so added)
shall apply to income earned after the date of the enactmentof this Act.
SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY
REGULATORY COMMISSION OR STATE ELECTRICRESTRUCTURING POLICY.
(a) I NGENERAL .—Section 451 (relating to general rule for tax-
able year of inclusion) is amended by adding at the end the followingnew subsection:
‘‘(i) S
PECIAL RULE FOR SALES OR DISPOSITIONS TOIMPLEMENT
FEDERAL ENERGY REGULATORY COMMISSION OR STATE ELECTRIC
RESTRUCTURING POLICY .—
‘‘(1) I N GENERAL .—In the case of any qualifying electric
transmission transaction for which the taxpayer elects theapplication of this section, qualified gain from such transactionshall be recognized—
‘‘(A) in the taxable year which includes the date of
such transaction to the extent the amount realized fromsuch transaction exceeds—
‘‘(i) the cost of exempt utility property which is
purchased by the taxpayer during the 4-year periodbeginning on such date, reduced (but not below zero)by
‘‘(ii) any portion of such cost previously taken into
account under this subsection, and‘‘(B) ratably over the 8-taxable year period beginning
with the taxable year which includes the date of suchtransaction, in the case of any such gain not recognizedunder subparagraph (A).‘‘(2) Q
UALIFIED GAIN .—For purposes of this subsection, the
term ‘qualified gain’ means, with respect to any qualifyingelectric transmission transaction in any taxable year—
‘‘(A) any ordinary income derived from such transaction
which would be required to be recognized under section1245 or 1250 for such taxable year (determined withoutregard to this subsection), and
‘‘(B) any income derived from such transaction in excess
of the amount described in subparagraph (A) which isrequired to be included in gross income for such taxableyear (determined without regard to this subsection).‘‘(3) Q
UALIFYING ELECTRIC TRANSMISSION TRANSACTION .—
For purposes of this subsection, the term ‘qualifying electric26 USC 937 note.
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transmission transaction’ means any sale or other disposition
before January 1, 2007, of—
‘‘(A) property used in the trade or business of providing
electric transmission services, or
‘‘(B) any stock or partnership interest in a corporation
or partnership, as the case may be, whose principal tradeor business consists of providing electric transmission serv-ices,
but only if such sale or disposition is to an independent trans-mission company.
‘‘(4) I
NDEPENDENT TRANSMISSION COMPANY .—For purposes
of this subsection, the term ‘independent transmission company’means—
‘‘(A) an independent transmission provider approved
by the Federal Energy Regulatory Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regulatory Commis-
sion determines in its authorization of the transactionunder section 203 of the Federal Power Act (16 U.S.C.824b) or by declaratory order is not a market partici-pant within the meaning of such Commission’s rulesapplicable to independent transmission providers, and
‘‘(ii) whose transmission facilities to which the elec-
tion under this subsection applies are under the oper-ational control of a Federal Energy RegulatoryCommission-approved independent transmission pro-vider before the close of the period specified in suchauthorization, but not later than the close of the periodapplicable under subsection (a)(2)(B) as extended underparagraph (2), or‘‘(C) in the case of facilities subject to the jurisdiction
of the Public Utility Commission of Texas—
‘‘(i) a person which is approved by that Commission
as consistent with Texas State law regarding an inde-pendent transmission provider, or
‘‘(ii) a political subdivision or affiliate thereof
whose transmission facilities are under the operationalcontrol of a person described in clause (i).
‘‘(5) E
XEMPT UTILITY PROPERTY .—For purposes of this sub-
section:
‘‘(A) I N GENERAL .—The term ‘exempt utility property’
means property used in the trade or business of—
‘‘(i) generating, transmitting, distributing, or
selling electricity, or
‘‘(ii) producing, transmitting, distributing, or
selling natural gas.
‘‘(B) N ONRECOGNITION OF GAIN BY REASON OF ACQUISI –
TION OF STOCK .—Acquisition of control of a corporation
shall be taken into account under this subsection withrespect to a qualifying electric transmission transactiononly if the principal trade or business of such corporationis a trade or business referred to in subparagraph (A).‘‘(6) S
PECIAL RULE FOR CONSOLIDATED GROUPS .—In the case
of a corporation which is a member of an affiliated groupfiling a consolidated return, any exempt utility property pur-chased by another member of such group shall be treated
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as purchased by such corporation for purposes of applying
paragraph (1)(A).
‘‘(7) T IME FOR ASSESSMENT OF DEFICIENCIES .—If the tax-
payer has made the election under paragraph (1) and anygain is recognized by such taxpayer as provided in paragraph(1)(B), then—
‘‘(A) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of thegain on the transaction is realized, attributable to suchgain shall not expire prior to the expiration of 3 yearsfrom the date the Secretary is notified by the taxpayer(in such manner as the Secretary may by regulations pre-scribe) of the purchase of exempt utility property or ofan intention not to purchase such property, and
‘‘(B) such deficiency may be assessed before the expira-
tion of such 3-year period notwithstanding any law orrule of law which would otherwise prevent such assess-ment.‘‘(8) P
URCHASE .—For purposes of this subsection, the tax-
payer shall be considered to have purchased any property ifthe unadjusted basis of such property is its cost within themeaning of section 1012.
‘‘(9) E
LECTION .—An election under paragraph (1) shall be
made at such time and in such manner as the Secretary mayrequire and, once made, shall be irrevocable.
‘‘(10) N
ONAPPLICATION OF INSTALLMENT SALES TREAT –
MENT .—Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election toapply this subsection is made.’’.(b) E
FFECTIVE DATE.—The amendments made by this section
shall apply to transactions occurring after the date of the enactmentof this Act, in taxable years ending after such date.
SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.
(a) I NGENERAL .—Section 179(b) (relating to limitations) is
amended by adding at the end the following new paragraph:
‘‘(6) L IMITATION ON COST TAKEN INTO ACCOUNT FOR CERTAIN
PASSENGER VEHICLES .—
‘‘(A) I N GENERAL .—The cost of any sport utility vehicle
for any taxable year which may be taken into accountunder this section shall not exceed $25,000.
‘‘(B) S
PORT UTILITY VEHICLE .—For purposes of subpara-
graph (A)—
‘‘(i) I N GENERAL .—The term ‘sport utility vehicle’
means any 4-wheeled vehicle—
‘‘(I) which is primarily designed or which can
be used to carry passengers over public streets,roads, or highways (except any vehicle operatedexclusively on a rail or rails),
‘‘(II) which is not subject to section 280F, and‘‘(III) which is rated at not more than 14,000
pounds gross vehicle weight.‘‘(ii) C
ERTAIN VEHICLES EXCLUDED .—Such term
does not include any vehicle which—
‘‘(I) is designed to have a seating capacity of
more than 9 persons behind the driver’s seat,26 USC 451 note.
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LEGISLATIVE HISTORY—H.R. 4520:
HOUSE REPORTS: Nos. 108–548, Pt. 1 (Comm. on Ways and Means) and 108–755
(Comm. of Conference).
CONGRESSIONAL RECORD, Vol. 150 (2004):
June 17, considered and passed House.July 15, considered and passed Senate, amended.Oct. 7, House agreed to conference report.Oct. 8–11, Senate considered and agreed to conference report.‘‘(II) is equipped with a cargo area of at least
6 feet in interior length which is an open areaor is designed for use as an open area but isenclosed by a cap and is not readily accessibledirectly from the passenger compartment, or
‘‘(III) has an integral enclosure, fully enclosing
the driver compartment and load carrying device,does not have seating rearward of the driver’sseat, and has no body section protruding morethan 30 inches ahead of the leading edge of thewindshield.’’.
(b) E
FFECTIVE DATE.—The amendment made by this section
shall apply to property placed in service after the date of theenactment of this Act.
Approved October 22, 2004.26 USC 179 note.
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Highlights content goes here...

Purpose

The document outlines various amendments and revisions to the tax code, focusing on corporate taxation, international taxation, and other related matters. The purpose of these changes is to provide a more efficient and effective tax system for businesses operating in the United States.

Key provisions include:

  • Tax Reform and Simplification: The document discusses various tax reform and simplification measures for United States businesses, including changes to business credits and deductions.

  • Business Credits: New credits are introduced, such as the low sulfur diesel fuel production credit (section 45H) and the marginal oil and gas well production credit (section 45I).

  • Interest Expense Allocation: A new subsection (f) is added to section 864, allowing worldwide affiliated groups to elect to allocate interest expense on a worldwide basis.

  • Foreign Tax Credit Basket Reduction: The number of foreign tax credit baskets is reduced from three to two (passive and general), with specified passive category income being treated as part of the passive basket (section 904(d)(2)).

  • Recharacterization of Overall Domestic Loss: A new subsection (g) is added to section 904, allowing taxpayers who sustain an overall domestic loss to recharacterize that portion of their taxable income from sources within the United States for each succeeding taxable year.

Key Provisions

The document outlines several key provisions related to taxation, including:

  • Taxation of Cooperatives: The tax code is amended to include new provisions for cooperatives, farmers, and fishermen. Cooperatives can now elect to apportion the small ethanol producer credit among patrons based on business done with or for them.

  • Farmer and Fisherman Income Averaging: Farmers and fishermen can now take advantage of income averaging under section 1301(a).

  • Native Alaskan Subsistence Whaling Expenses: Certain expenses incurred in support of native Alaskan subsistence whaling are now eligible for a charitable contribution deduction.

  • Low Sulfur Diesel Fuel Production Credit: A new tax credit is being introduced for the production of low sulfur diesel fuel, with a maximum credit of 25% of qualified capital costs.

  • Small Business Refiners and Cooperatives: Small business refiners can now take advantage of a tax credit for producing low sulfur diesel fuel, and cooperatives can apportion this credit among patrons.

Industry Impact

The amendments outlined in the document are expected to have significant impacts on various industries, including:

  • Energy and Natural Resources: The changes related to low sulfur diesel fuel production credits and small business refiners will likely benefit companies operating in the energy sector.

  • Agriculture: The income averaging provision for farmers and fishermen may impact farm income taxation strategies.

  • Native Alaskan Communities: The charitable contribution deduction for expenses incurred in support of native Alaskan subsistence whaling may have implications for communities reliant on this industry.

Updates/Amendments

The document includes several updates and amendments to existing tax laws, including:

  • Tax Reform and Simplification: Various provisions are included to simplify the tax code and reduce compliance burdens.

  • International Taxation: Changes related to foreign tax credits and overall domestic losses will impact companies operating in international markets.

  • Cooperative Taxation: New rules for cooperatives, farmers, and fishermen aim to provide more equitable treatment under the tax code.

These changes aim to improve the efficiency of the US tax system, promote economic growth, and address specific industry needs.

Congress.gov

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