[108th Congress Public Law 357]
[From the U.S. Government Printing Office]
[DOCID: f:publ357.108]
[[Page 1417]]
AMERICAN JOBS CREATION ACT OF 2004
[[Page 118 STAT. 1418]]
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
and workers more competitive and productive both at <<NOTE: Oct. 22,
2004 - [H.R. 4520]>> home and abroad.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress <<NOTE: American Jobs Creation Act
of 2004.>> assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This <<NOTE: 26 USC 1 note.>> Act may be cited as
the ``American Jobs Creation Act of 2004''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; 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 activities.
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 markets 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 migration 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.
[[Page 118 STAT. 1419]]
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 elections 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 waterway 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 activities 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 income 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 processing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers'
cooperative organizations.
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 programs.
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 income 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 support 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 Protection 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.
[[Page 118 STAT. 1420]]
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply
in determining 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 corporations.
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 sustainable 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.
[[Page 118 STAT. 1421]]
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 resources.
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 Medicaid program.
Sec. 713. Ceiling fans.
Sec. 714. Certain steam generators, and certain reactor vessel heads and
pressurizers, 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
Part I--Taxpayer-Related Provisions
Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other
reportable transactions 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 transactions 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 Treasury.
Part II--Other 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 income 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 nondisclosed 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 deductions and income inclusions in transactions
with related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential
underpayments.
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.
[[Page 118 STAT. 1422]]
Part III--Leasing
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 corporation.
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 reorganizations.
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
Commission or State electric restructuring policy.
Sec. 910. Expansion of limitation on depreciation of certain passenger
automobiles.
[[Page 118 STAT. 1423]]
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR EXTRATERRITORIAL
INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) <<NOTE: 26 USC
941-943.>> 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 section
114.
(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 inserting a 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) Tax-exempt assets not taken into account.--
``(A) In general.--For purposes of''; and inserting:
``(3) Tax-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) Effective Date.--The <<NOTE: 26 USC 56 note.>> amendments made
by this section shall apply to transactions after December 31, 2004.
(d) Transitional <<NOTE: 26 USC 114 note.>> Rule for 2005 and
2006.--
(1) In general.--In the case of transactions during 2005 or
2006, the amount includible in gross income by reason of the
amendments made by this section shall not exceed the applicable
percentage of the amount which would have been so included but
for this subsection.
(2) Applicable 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) Revocation of Election To Be Treated as Domestic Corporation.--
If, during the 1-year period beginning on the date of the enactment of
this Act, a corporation for which an election is in effect under section
943(e) of the Internal Revenue Code of 1986 revokes such election, no
gain or loss shall be recognized with 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, or
[[Page 118 STAT. 1424]]
(2) was acquired during a taxable year to which such
election applies and before May 1, 2003, in the ordinary course
of its trade or business.
The Secretary of the Treasury (or such Secretary's delegate) may
prescribe such regulations as may be necessary to prevent the abuse of
the purposes of this subsection.
(f) Binding Contracts.--The amendments made by this section shall
not apply to any transaction in the ordinary course of a trade 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 such Code, as
in effect on the day before the date of the enactment of 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 include a
purchase option, renewal option, or replacement option which is included
in such contract and which is enforceable against the seller or lessor.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO DOMESTIC
PRODUCTION ACTIVITIES.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
adding at the end the following new section:
``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
``(a) Allowance of Deduction.--
``(1) In 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) Phasein.--In <<NOTE: Applicability.>> 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 percentage contained therein the transition
percentage determined under the following table:
``For taxable years The transition............................
beginning in: percentage is:............................
2005 or 2006 3
2007, 2008, or 2009 6.
``(b) Deduction Limited to Wages Paid.--
``(1) In general.--The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed 50
percent of the W-2 wages of the employer for the taxable year.
``(2) W-2 wages.--For purposes of paragraph (1), the term
`W-2 wages' means the sum of the aggregate amounts the taxpayer
is required to include on statements under paragraphs (3) and
(8) of section 6051(a) with respect to employment of employees
of the taxpayer during the calendar year ending during the
taxpayer's taxable year.
``(3) Acquisitions and dispositions.--The Secretary shall
provide for the application of this subsection in cases where
[[Page 118 STAT. 1425]]
the taxpayer acquires, or disposes of, the major portion of a
trade or business or the major portion of a separate unit of a
trade or business during the taxable year.
``(c) Qualified Production Activities Income.--For purposes of this
section--
``(1) In general.--The term `qualified production activities
income' for any taxable year means an amount equal to the excess
(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
allocable to such receipts or another class of
income.
``(2) Allocation method.--
The <<NOTE: Regulations.>> Secretary shall prescribe rules for
the proper allocation of items of income, deduction, expense,
and loss for purposes of determining income attributable to
domestic production activities.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining costs
under clause (i) of paragraph (1)(B), any item or
service brought into the United States shall be treated
as acquired by purchase, and its cost shall be treated
as not less than its value immediately after it entered
the United States. <<NOTE: Applicability.>> A similar
rule shall apply in determining the adjusted basis of
leased or rented property where the lease or rental
gives rise to domestic production gross receipts.
``(B) Exports for further manufacture.--In the case
of any property described in subparagraph (A) that had
been 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 of the property when exported and the value of
the property when brought back into the United States
after the further manufacture.
``(4) Domestic production gross receipts.--
``(A) In general.--The term `domestic production
gross receipts' means the gross receipts of the taxpayer
which are derived from--
``(i) any lease, rental, license, sale,
exchange, or other disposition of--
``(I) qualifying production property
which was manufactured, produced, grown,
or extracted by the taxpayer in whole or
in significant part within the United
States,
``(II) any qualified film produced
by the taxpayer, or
``(III) electricity, natural gas, or
potable water produced by the taxpayer
in the United States,
``(ii) construction performed in the United
States, or
[[Page 118 STAT. 1426]]
``(iii) engineering or architectural services
performed in the United States for construction
projects in the United States.
``(B) Exceptions.--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) Qualifying production property.--The term `qualifying
production property' means--
``(A) tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f)(4).
``(6) Qualified film.--The term `qualified film' means any
property described in section 168(f)(3) if not less than 50
percent of the total compensation relating to the production of
such property is compensation for services performed in the
United States by actors, production personnel, directors, and
producers. Such term does not include property with respect to
which records are required to be maintained under section 2257
of title 18, United States Code.
``(7) Related persons.--
``(A) In general.--The term `domestic production
gross receipts' shall not include any gross receipts of
the taxpayer derived from property leased, licensed, or
rented by the taxpayer for use by any related person.
``(B) Related person.--For purposes of subparagraph
(A), a person shall be treated as related to another
person if such persons are treated as a single employer
under subsection (a) or (b) of section 52 or subsection
(m) or (o) of section 414, except that determinations
under subsections (a) and (b) of section 52 shall be
made without regard to section 1563(b).
``(d) Definitions and Special Rules.--
``(1) Application of section to pass-thru entities.--
``(A) In 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 deduction to taxpayers at the
partner or similar level, and
``(II) additional reporting
requirements.
``(B) Application of wage limitation.--
Notwithstanding subparagraph (A)(i), for purposes of
applying subsection (b), a shareholder, partner, or
similar person which is allocated qualified production
activities income from an S corporation, partnership,
estate, trust, or other pass-thru entity shall also be
treated as having been allocated W-2 wages from such
entity in an amount equal to the lesser of--
[[Page 118 STAT. 1427]]
``(i) such person's allocable share of such
wages (without regard to this subparagraph), as
determined under regulations prescribed by the
Secretary, or
``(ii) 2 times 9 percent of the qualified
production activities income allocated to such
person for the taxable year.
``(2) Application to individuals.--In the case of an
individual, subsection (a)(1)(B) shall be applied by
substituting `adjusted gross income' for `taxable income'. For
purposes of the preceding sentence, adjusted gross income shall
be determined--
``(A) after application of sections 86, 135, 137,
219, 221, 222, and 469, and
``(B) without regard to this section.
``(3) Patrons of agricultural and horticultural
cooperatives.--
``(A) In general.--If any amount described in
paragraph (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 is engaged--
``(I) in the manufacturing,
production, growth, or extraction in
whole or significant part of any
agricultural or horticultural product,
or
``(II) in the marketing of
agricultural or horticultural 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 subsection (a) by the
organization and is designated as such by the
organization in a written notice mailed to its
patrons during the payment period described in
section 1382(d),
then such person shall be allowed a deduction under
subsection (a) with respect to such amount. The taxable
income of the organization shall not be reduced under
section 1382 by reason of any amount to which the
preceding sentence applies.
``(B) Special rules.--For purposes of applying
subparagraph (A), in determining the qualified
production activities income which would be deductible
by the organization under subsection (a)--
``(i) there shall not be taken into account in
computing the organization's taxable income any
deduction allowable under subsection (b) or (c) of
section 1382 (relating to patronage dividends,
per-unit retain allocations, and nonpatronage
distributions), and
``(ii) in the case of an organization
described in subparagraph (A)(i)(II), the
organization shall be treated as having
manufactured, produced, grown, or extracted in
whole or significant part any qualifying
production property marketed by the organization
which its patrons have so manufactured, produced,
grown, or extracted.
``(4) Special rule for affiliated groups.--
[[Page 118 STAT. 1428]]
``(A) In general.--All members of an expanded
affiliated group shall be treated as a single
corporation for purposes of this section.
``(B) Expanded affiliated group.--For purposes of
this section, the term `expanded affiliated group' means
an 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) Allocation of deduction.--Except as provided
in regulations, the deduction under subsection (a) shall
be allocated among the members of the expanded
affiliated group in proportion to each member's
respective amount (if any) of qualified production
activities income.
``(5) Trade or business requirement.--This section shall be
applied by only taking into account items which are attributable
to the actual conduct of a trade or business.
``(6) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed by
section 55; except that for purposes of section 55, the
deduction under subsection (a) shall be 9 percent of the 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 applied
by substituting `adjusted gross income' for `alternative minimum
taxable income'. For purposes of the preceding sentence,
adjusted gross income shall be determined in the same manner as
provided in paragraph (2).
``(7) Regulations.--The Secretary shall prescribe such
regulations as are necessary to carry out the purposes of this
section.''.
(b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of
items not deductible in computing earnings and profits) is amended by
adding at the end the following new clause:
``(v) Deduction for domestic production.--
Clause (i) shall not apply to any amount allowable
as a deduction under section 199.''.
(c) Special <<NOTE: 26 USC 631 note.>> Rule Relating to Election To
Treat Cutting of Timber as a Sale or Exchange.--Any election under
section 631(a) of the Internal Revenue Code of 1986 made for a taxable
year ending on or before the date of the enactment of this Act may be
revoked by the taxpayer for any taxable year ending after such date. For
purposes of determining whether such taxpayer may make a further
election under such section, such election (and any revocation under
this section) shall not be taken into account.
(d) Technical 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''.
[[Page 118 STAT. 1429]]
(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 ``without
allowances for depletion''.
(7) Subsection (a) of section 1402 is amended by striking
``and'' at the end of paragraph (14), by striking the period at
the end of paragraph (15) and inserting ``, and'', and by
inserting 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 new
item:
``Sec. 199. Income attributable to domestic production
activities.''.
(e) Effective Date.--The <<NOTE: 26 USC 56 note.>> 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 LEASEHOLD
IMPROVEMENTS AND RESTAURANT PROPERTY.
(a) 15-Year Recovery Period.--Subparagraph (E) of section 168(e)(3)
(relating to classification of certain property) is amended by striking
``and'' at the end of clause (ii), by striking the period at the end of
clause (iii) and inserting a comma, and by adding at 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) Qualified Leasehold Improvement Property.--Subsection (e) of
section 168 is amended by adding at the end the following new paragraph:
``(6) Qualified leasehold improvement property.--The term
`qualified leasehold improvement property' has the meaning given
such term in section 168(k)(3) except that the following special
rules shall apply:
``(A) Improvements made by lessor.--In the case of
an improvement made by the person who was the lessor of
such improvement when such improvement was placed
[[Page 118 STAT. 1430]]
in service, such improvement shall be qualified
leasehold improvement property (if at all) only so long
as such improvement is held by such person.
``(B) Exception for changes in form of business.--
Property shall not cease to be qualified leasehold
improvement 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 retained in such trade or business as
qualified leasehold improvement property and the
taxpayer retains a substantial interest in such
trade or business,
``(iv) the acquisition of such property in an
exchange described in section 1031, 1033, or 1038
to the extent that the basis of such property
includes an amount representing the adjusted basis
of other property owned by the taxpayer or a
related person, or
``(v) the acquisition of such property by the
taxpayer in a transaction described in section
332, 351, 361, 721, or 731 (or the acquisition of
such property by the taxpayer from the transferee
or acquiring corporation in a transaction
described in such section), to the extent that the
basis of the property in the hands of the taxpayer
is determined by reference to its basis in the
hands of the transferor or distributor.''.
(c) Qualified Restaurant Property.--Subsection (e) of section 168
(as amended by subsection (b)) is further amended by adding at the end
the following new paragraph:
``(7) Qualified restaurant property.--The term `qualified
restaurant property' means any section 1250 property which is 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 in service, 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) Requirement To Use Straight Line Method.--
(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
subsection (e)(7).''.
(2) Subparagraph (A) of section 168(b)(2) is amended by
inserting before the comma ``not referred to in paragraph (3)''.
(e) Alternative System.--The table contained in section 168(g)(3)(B)
is amended by adding at the end the following new items:
``(E)(iv)..........................................39
``(E)(v).........................................39''.
(f) Effective Date.--The <<NOTE: 26 USC 168 note.>> amendments made
by this section shall apply to property placed in service after the date
of the enactment of this Act.
[[Page 118 STAT. 1431]]
Subtitle C--Community Revitalization
SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME COMMUNITIES FOR
NEW MARKETS TAX CREDIT.
(a) Targeted areas.--Paragraph (2) of section 45D(e) (relating to
targeted areas) is amended to read as follows:
``(2) Targeted populations.--
The <<NOTE: Regulations.>> Secretary shall prescribe regulations
under which 1 or more targeted populations (within the meaning
of section 103(20) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (12 U.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 community businesses with respect to such
populations.''.
(b) Tracts with Low Population.--Subsection (e) of section 45D
(defining low-income community) is amended by adding at the end the
following:
``(4) Tracts with low population.--A population census tract
with a population of less than 2,000 shall be treated as a low-
income community for purposes of this section if such tract--
``(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) Effective <<NOTE: 26 USC 45D note.>> Dates.--
(1) Targeted areas.--The amendment made by subsection (a)
shall apply to designations made by the Secretary of the
Treasury after the date of the enactment of this Act.
(2) Tracts with low population.--The amendment made by
subsection (b) shall apply to investments made after the date of
the enactment of this Act.
SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED ON 2000
CENSUS DATA.
(a) In General.--Section 1400E (relating to designation of renewal
communities) is amended by adding at the end the following new
subsection:
``(g) Expansion of Designated Area Based on 2000 Census.--
``(1) In general.--At the request of all governments which
nominated an area as a renewal community, the Secretary of
Housing and Urban Development may expand the area of such
community to include any census tract if--
``(A)(i) at the time such community was nominated,
such community would have met the requirements of this
section using 1990 census data even if such tract had
been included in such community, and
``(ii) such tract has a poverty rate using 2000
census data which exceeds the poverty rate for such
tract using 1990 census data, or
``(B)(i) such community would be described in
subparagraph (A)(i) but for the failure to meet one or
more of the requirements of paragraphs (2)(C)(i),
(3)(C), and (3)(D) of subsection (c) using 1990 census
data,
[[Page 118 STAT. 1432]]
``(ii) such community, including such tract, has a
population of not more than 200,000 using either 1990
census data 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) Exception 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 of the Census
using 1990 census data, paragraph (1)(B) shall be applied
without regard to clause (iv) thereof.
``(3) Special 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 Secretary of
Housing and Urban Development may expand the area of such
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) Period in effect.--Any expansion under this subsection
shall take effect as provided in subsection (b).''.
(b) Effective Date.--The <<NOTE: 26 USC 1400E note.>> amendment made
by subsection (a) shall take effect as if included in the amendments
made by section 101 of the Community Renewal Tax Relief Act of 2000.
SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS TRACTS WITHIN
HIGH MIGRATION RURAL COUNTIES.
(a) In general.--Section 45D(e) (relating to low-income community),
as amended by this Act, is amended by inserting after paragraph (4) the
following new paragraph:
``(5) Modification of income requirement for census tracts
within high migration rural counties.--
``(A) In general.--In the case of a population
census tract located within a high migration rural
county, paragraph (1)(B)(i) shall be applied by
substituting `85 percent' for `80 percent'.
``(B) High migration rural county.--For purposes of
this paragraph, the term `high migration rural county'
means any county which, during the 20-year period ending
with the year in which the most recent census was
conducted, has a net out-migration of inhabitants from
the county of at least 10 percent of the population of
the county at the beginning of such period.''.
(b) Effective Date.--The <<NOTE: 26 USC 45D note.>> amendment made
by this section shall take effect as if included in the amendment made
by section 121(a) of the Community Renewal Tax Relief Act of 2000.
[[Page 118 STAT. 1433]]
Subtitle D--S Corporation Reform and Simplification
SEC. 231. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) In General.--Paragraph (1) of section 1361(c) (relating to
special rules for applying subsection (b)) is amended to read as
follows:
``(1) Members of family treated as 1 shareholder.--
``(A) In 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 shareholder, and
``(ii) in the case of a family with respect to
which an election is in effect under subparagraph
(D), all members of the family shall be treated as
1 shareholder.
``(B) Members of the family.--For purpose of
subparagraph (A)(ii)--
``(i) In general.--The term `members of the
family' means the common ancestor, lineal
descendants of the common ancestor, and the
spouses (or former spouses) of such lineal
descendants or common ancestor.
``(ii) Common Ancestor--For purposes of this
paragraph, an individual shall not be considered a
common ancestor if, as of the later of the
effective date of this paragraph or the time the
election under section 1362(a) is made, the
individual is more than 6 generations removed from
the youngest generation of shareholders who would
(but for this clause) be members of the family.
For purposes of the preceding sentence, a spouse
(or former spouse) shall be treated as being of
the same generation as the individual to which
such spouse is (or was) married.
``(C) Effect of adoption, etc.--
In <<NOTE: Applicability.>> determining whether any
relationship specified in subparagraph (B) exists, the
rules of section 152(b)(2) shall apply.
``(D) Election.--An <<NOTE: Regulations.>> election
under subparagraph (A)(ii)--
``(i) may, except as otherwise provided in
regulations prescribed by the Secretary, be made
by any member of the family, and
``(ii) shall remain in effect until terminated
as provided in regulations prescribed by the
Secretary.''.
(b) Relief From Inadvertent Invalid Election or Termination.--
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) Effective Dates.--
(1) Subsection (a).--The <<NOTE: 26 USC 1361
note.>> amendment made by subsection (a) shall apply to taxable
years beginning after December 31, 2004.
[[Page 118 STAT. 1434]]
(2) Subsection (b).--The <<NOTE: 26 USC 1362
note.>> amendments made by subsection (b) shall apply to
elections and terminations made after December 31, 2004.
SEC. 232. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 100.
(a) In General.--Section 1361(b)(1)(A) (defining small business
corporation) is amended by striking ``75'' and inserting ``100''.
(b) Effective Date.--The <<NOTE: 26 USC 1361 note.>> amendment made
by this section shall apply to taxable years beginning after December
31, 2004.
SEC. 233. EXPANSION OF BANK S CORPORATION ELIGIBLE SHAREHOLDERS TO
INCLUDE IRAS.
(a) In General.--Section 1361(c)(2)(A) (relating to certain trusts
permitted as shareholders) is amended by inserting after clause (v) the
following new clause:
``(vi) In the case of a corporation which is a
bank (as defined in section 581), a trust which
constitutes an individual retirement account under
section 408(a), including one designated as a Roth
IRA under section 408A, but only to the extent of
the stock held by such trust in such bank as of
the date of the enactment of this clause.''.
(b) Treatment as Shareholder.--Section 1361(c)(2)(B) (relating to
treatment as shareholders) is amended by adding at the end the following
new clause:
``(vi) In the case of a trust described in
clause (vi) of subparagraph (A), the individual
for whose benefit the trust was created shall be
treated as a shareholder.''.
(c) Sale of Bank Stock in IRA Relating to S Corporation Election
Exempt From Prohibited Transaction Rules.--Section 4975(d) (relating to
exemptions) is amended by striking ``or'' at the end of paragraph (14),
by striking the period at the end of paragraph (15) and inserting ``;
or'', and by adding at the end the following new paragraph:
``(16) a sale of stock held by a trust which constitutes an
individual retirement account under section 408(a) to the
individual 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) and
the terms of the sale are otherwise at least as
favorable to such trust as the terms that would apply on
a sale to 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
election is made.''.
(d) Conforming Amendment.--Section 512(e)(1) is amended by inserting
``1361(c)(2)(A)(vi) or'' before ``1361(c)(6)''.
[[Page 118 STAT. 1435]]
(e) Effective Date.--The <<NOTE: 26 USC 512 note.>> 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 BENEFICIARIES OF ESBT.
(a) In General.--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 unexercised at
the end of such period)'' after ``of the trust'' in the first
sentence, and
(2) by striking ``60-day'' in the second sentence and
inserting ``1-year''.
(b) Effective Date.--The <<NOTE: 26 USC 1361 note.>> 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) In General.--Section 1366(d)(2) (relating to indefinite
carryover of disallowed losses and deductions) is amended to read as
follows:
``(2) Indefinite carryover of disallowed losses and
deductions.--
``(A) In general.--Except as provided in
subparagraph (B), any loss or deduction which is
disallowed for any taxable year by reason of paragraph
(1) shall be treated as incurred by the corporation in
the succeeding taxable year with respect to that
shareholder.
``(B) Transfers 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) with respect
such stock shall be treated as incurred by the
corporation in the succeeding taxable year with respect
to the transferee.''.
(b) Effective Date.--The <<NOTE: 26 USC 1366 note.>> 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 BENEFICIARIES.
(a) In General.--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
S corporation stock by the trust shall be treated as a
disposition by such beneficiary.''.
(b) Effective Date.--The <<NOTE: 26 USC 1361 note.>> amendments made
by this section shall apply to transfers made after December 31, 2004.
[[Page 118 STAT. 1436]]
SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME
TEST FOR BANK S CORPORATIONS.
(a) In General.--Section 1362(d)(3) (relating to where passive
investment income exceeds 25 percent of gross receipts for 3 consecutive
taxable years and corporation has accumulated earnings and profits) is
amended by adding at the end the following new subparagraph:
``(F) Exception 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 Holding
Company Act of 1956 (12 U.S.C. 1841(a))), or a financial
holding company (within the meaning of section 2(p) of
such Act), the term `passive investment income' shall
not include--
``(i) interest income earned by such bank or
company, or
``(ii) dividends on assets required to be held
by such bank or company, including stock in the
Federal Reserve Bank, the Federal Home Loan Bank,
or the Federal Agricultural Mortgage Bank or
participation certificates issued by a Federal
Intermediate Credit Bank.''.
(b) Effective Date.--The <<NOTE: 26 USC 1362 note.>> amendment made
by this section shall apply to taxable years beginning after December
31, 2004.
SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUBCHAPTER S
SUBSIDIARY ELECTIONS AND TERMINATIONS.
(a) In General.--Section 1362(f) (relating to inadvertent invalid
elections or terminations) is amended--
(1) by inserting ``, section 1361(b)(3)(B)(ii),'' after
``subsection (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 business
corporation or a qualified subchapter S subsidiary, as
the case 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 shareholder in
such corporation at any time during the period specified
pursuant to this subsection, agrees to make such adjustments
(consistent with the treatment of such corporation as an S
corporation or a qualified subchapter S subsidiary, as the case
may be) as may be required by the Secretary with respect to such
period,'', and
(5) by inserting ``or a qualified subchapter S subsidiary,
as the case may be'' after ``S corporation'' in the matter
following paragraph (4).
(b) Effective Date.--The <<NOTE: 26 USC 1362 note.>> amendments made
by this section shall apply to elections made and terminations made
after December 31, 2004.
[[Page 118 STAT. 1437]]
SEC. 239. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES.
(a) In General.--Section 1361(b)(3)(A) (relating to treatment of
certain wholly owned subsidiaries) is amended by inserting ``and in the
case of information returns required under part III of subchapter A of
chapter 61'' after ``Secretary''.
(b) Effective Date.--The <<NOTE: 26 USC 1361 note.>> amendment made
by this section shall apply to taxable years beginning after December
31, 2004.
SEC. 240. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURITIES.
(a) In General.--Subsection (f) of section 4975 (relating to other
definitions and special rules) is amended by adding at the end 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 of
subsection (d)(3), merely by reason of any distribution (as
described in section 1368(a)) with respect to S corporation
stock that constitutes qualifying employer securities, which in
accordance with the plan provisions is used to make payments on
a loan described in subsection (d)(3) the proceeds of which were
used to acquire such qualifying employer securities (whether or
not allocated to participants). The preceding sentence shall not
apply in the case of a distribution which is paid with respect
to any employer security which is allocated to a participant
unless the plan provides that employer securities with a fair
market value of not less than the amount of such distribution
are allocated to such participant for the year which (but for
the preceding sentence) such distribution would have been
allocated to such participant.''.
(b) Effective Date.--The <<NOTE: 26 USC 4975 note.>> amendment made
by this section shall apply to distributions with respect to S
corporation stock made after December 31, 1997.
Subtitle E--Other Business Incentives
SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND
INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL FUND.
(a) Taxes on Trains.--
(1) In general.--Clause (ii) of section 4041(a)(1)(C) is
amended by striking subclauses (I), (II), and (III) and
inserting the 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) Conforming amendments.--
(A) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new
paragraph:
``(3) Diesel fuel used in trains.--In the case of any sale
for use or use after December 31, 2006, there is hereby
[[Page 118 STAT. 1438]]
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 in such train, or
``(B) used by any person as a fuel in a diesel-
powered train unless there was a taxable sale of such
fuel under subparagraph (A).
No tax shall be imposed by this paragraph on the sale or use of
any liquid if tax was imposed on such liquid under section
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
under section 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
under section 4041(a)(1)(C)(ii).''.
(b) Fuel 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) Effective Date.--The <<NOTE: 26 USC 4041 note.>> amendments made
by this section shall take effect on January 1, 2005.
SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF
DEPRECIATION.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(7) Treatment of participations and residuals.--
``(A) In general.--For purposes of determining the
depreciation deduction allowable with respect to a
property under this subsection, the taxpayer may include
participations and residuals with respect to such
property in the adjusted basis of such property for the
taxable year in which the property is placed in service,
but only to the extent that such participations and
residuals relate to income estimated (for purposes of
this subsection) to be earned in connection with the
property before the close of the 10th taxable year
referred to in paragraph (1)(A).
``(B) Participations and residuals.--For purposes of
this paragraph, the term `participations and residuals'
means, with respect to any property, costs the amount of
which by contract varies with the amount of income
earned in connection with such property.
[[Page 118 STAT. 1439]]
``(C) Special rules relating to recomputation
years.--If the adjusted basis of any property is
determined under this paragraph, paragraph (4) shall be
applied by substituting `for each taxable year in such
period' for `for such period'.
``(D) Other special rules.--
``(i) Participations and residuals.--
Notwithstanding subparagraph (A), the taxpayer may
exclude participations and residuals from the
adjusted basis of such property and deduct such
participations and residuals in the taxable year
that such participations and residuals are paid.
``(ii) Coordination with other rules.--
Deductions computed in accordance with this
paragraph shall be allowable notwithstanding
paragraph (1)(B), section 263, 263A, 404, 419, or
461(h).
``(E) Authority to make adjustments.--The Secretary
shall prescribe appropriate adjustments to the basis of
property and to the look-back method for the additional
amounts allowable as a deduction solely by reason of
this paragraph.''.
(b) Determination 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 after
subparagraph (D) the following new subparagraph:
``(E) Treatment of distribution costs.--For purposes
of this subsection, the income with respect to any
property shall be the taxpayer's gross income from such
property.''.
(c) Effective Date.--The <<NOTE: 26 USC 167 note.>> amendments made
by this section shall apply to property placed in service after the date
of the enactment of this Act.
SEC. 243. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT TRUSTS.
(a) Expansion 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) Safe Harbor in Applying Subsection (c)(4).--
``(1) In general.--In applying subclause (III) of subsection
(c)(4)(B)(iii), except as otherwise determined by the Secretary
in regulations, the following shall not be considered securities
held 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 subsection (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 foreign government or any political subdivision
thereof, or the Commonwealth of Puerto Rico, but only if
the determination of any payment received or accrued
under such security does not depend in whole or in part
on the profits of
[[Page 118 STAT. 1440]]
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
Secretary.
``(2) Special rules relating to straight debt securities.--
``(A) In general.--For purposes of paragraph (1)(A),
securities meet the requirements of this paragraph if
such securities are straight debt, as defined in section
1361(c)(5) (without regard to subparagraph (B)(iii)
thereof).
``(B) Special rules relating to certain
contingencies.--For purposes of subparagraph (A), any
interest or principal shall not be treated as failing to
satisfy section 1361(c)(5)(B)(i) solely by reason of the
fact that--
``(i) the time of payment of such interest or
principal 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 a change in the annual yield to
maturity which does not exceed the
greater of \1/4\ of 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 debt instruments held by
the trust exceeds $1,000,000 and not
more than 12 months of unaccrued
interest can 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 of a prepayment right by the issuer of
the debt, but only if such contingency is
consistent with customary commercial practice.
``(C) Special rules relating to corporate or
partnership issuers.--In the case of an issuer which is
a corporation or a partnership, securities that
otherwise would be described in paragraph (1)(A) shall
be considered not to be so described if the trust
holding such securities and any of its controlled
taxable REIT subsidiaries (as defined in subsection
(d)(8)(A)(iv)) hold any securities of the 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
percent of the issuer's outstanding securities
determined without regard to paragraph (3)(A)(i).
``(3) Look-through rule for partnership securities.--
``(A) In 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 considered a security, and
``(ii) the trust shall be deemed to own its
proportionate share of each of the assets of the
partnership.
``(B) Determination of trust's interest in
partnership assets.--For purposes of subparagraph (A),
with
[[Page 118 STAT. 1441]]
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 securities issued by the partnership
(determined without regard to subparagraph (A)(i)
and paragraph (4), but not including securities
described in paragraph (1)), and
``(ii) the value of any debt instrument shall
be the adjusted issue price thereof, as defined in
section 1272(a)(4).
``(4) Certain 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
considered a security to the extent of the trust's
interest as a partner in the partnership, and
``(B) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security if at least 75 percent of the
partnership's gross income (excluding gross income from
prohibited transactions) is derived from sources
referred to in subsection (c)(3).
``(5) Secretarial guidance.--The Secretary is authorized to
provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an
arrangement shall not be considered a security held by the trust
for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of
subsection (c)(5).''.
(b) Clarification of Application of Limited Rental Exception.--
Subparagraph (A) of section 856(d)(8) (relating to special rules for
taxable REIT subsidiaries) is amended to read as follows:
``(A) Limited rental exception.--
``(i) In general.--The requirements of this
subparagraph are met with respect to any property
if at least 90 percent of the leased space of the
property is rented to persons other than taxable
REIT subsidiaries of such trust and other than
persons described in paragraph (2)(B).
``(ii) Rents must be substantially
comparable.--Clause (i) shall apply only to the
extent that the amounts paid to the trust as rents
from real property (as defined in paragraph (1)
without regard to paragraph (2)(B)) from such
property are substantially comparable to such
rents paid by the other tenants of the trust's
property for comparable space.
``(iii) Times for testing rent
comparability.--The substantial comparability
requirement of clause (ii) shall be treated as met
with respect to a lease to a taxable REIT
subsidiary of the trust if such requirement is met
under the terms of the lease--
``(I) at the time such lease is
entered into,
[[Page 118 STAT. 1442]]
``(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 subsidiary if
the rent under such lease is effectively
increased pursuant to such modification.
With respect to subclause (III), if the taxable
REIT subsidiary of the trust is a controlled
taxable REIT subsidiary of the trust, the term
`rents from real property' shall not in any event
include rent under such lease to the extent of the
increase in such rent on account of such
modification.
``(iv) Controlled taxable reit subsidiary.--
For purposes of clause (iii), the term `controlled
taxable REIT subsidiary' means, with respect to
any real estate investment trust, any taxable REIT
subsidiary of such trust if such trust owns
directly or indirectly--
``(I) stock possessing more than 50
percent of the total voting power of the
outstanding stock of such subsidiary, or
``(II) stock having a value of more
than 50 percent of the total value of
the outstanding stock of such
subsidiary.
``(v) Continuing qualification based on third
party actions.--If the requirements of clause (i)
are met at a time referred to in clause (iii),
such requirements shall continue to be treated as
met so long as there is no increase in the space
leased to any taxable REIT subsidiary of such
trust or to any person described in paragraph
(2)(B).
``(vi) Correction period.--If there is an
increase referred to in clause (v) during any
calendar quarter with respect to any property, the
requirements of clause (iii) shall be treated as
met during the quarter and the succeeding quarter
if such requirements are met at the close of such
succeeding quarter.''.
(c) Deletion of Customary Services Exception.--Subparagraph (B) of
section 857(b)(7) (relating to redetermined rents) is amended by
striking clause (ii) and by redesignating clauses (iii), (iv), (v),
(vi), and (vii) as clauses (ii), (iii), (iv), (v), and (vi),
respectively.
(d) Conformity With General Hedging Definition.--Subparagraph (G) of
section 856(c)(5) (relating to treatment of certain hedging instruments)
is amended to read as follows:
``(G) Treatment of certain hedging instruments.--
Except to the extent provided by regulations, any income
of 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 transaction, shall not
constitute gross income under paragraph (2) to the
extent that the transaction hedges any indebtedness
incurred or to be incurred by the trust to acquire or
carry real estate assets.''.
(e) Conformity With Regulated Investment Company Rules.--Clause (i)
of section 857(b)(5)(A) (relating to imposition
[[Page 118 STAT. 1443]]
of tax in case of failure to meet certain requirements) is amended by
striking ``90 percent'' and inserting ``95 percent''.
(f) Savings Provisions.--
(1) Rules of application for failure to satisfy section
856(c)(4).--Section 856(c) (relating to definition of real
estate investment trust) is amended by inserting after paragraph
(6) the following new paragraph:
``(7) Rules of application for failure to satisfy paragraph
(4).--
``(A) De minimis failure.--A corporation, trust, or
association that fails to meet the requirements of
paragraph (4)(B)(iii) for a particular quarter shall
nevertheless be considered to have satisfied the
requirements of such paragraph for such quarter if--
``(i) such failure is due to the ownership of
assets the total value of which does not exceed
the lesser of--
``(I) 1 percent of the total value
of the trust's assets at the end of the
quarter for which such measurement is
done, and
``(II) $10,000,000, and
``(ii)(I) the corporation, trust, or
association, following the identification of such
failure, disposes of assets in order to meet the
requirements of such paragraph within 6 months
after the last day of the quarter in which the
corporation, trust or association's identification
of the failure to satisfy the requirements of such
paragraph occurred or such other time period
prescribed by the Secretary and in the manner
prescribed by the Secretary, or
``(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
``(B) Failures exceeding de minimis amount.--A
corporation, trust, or association that fails to meet
the requirements of paragraph (4) for a particular
quarter shall nevertheless be considered to have
satisfied the requirements of such paragraph for such
quarter if--
``(i) such failure involves the ownership of
assets the total value of which exceeds the de
minimis standard described in subparagraph (A)(i)
at the end of the quarter for which such
measurement is done,
``(ii) following the corporation, trust, or
association's identification of the failure to
satisfy the requirements of such paragraph for a
particular quarter, a description of each asset
that causes the corporation, trust, or association
to fail to satisfy the requirements of such
paragraph at the close of such quarter of any
taxable year is set forth in a schedule for such
quarter filed in accordance with regulations
prescribed by the Secretary,
``(iii) the failure to meet the requirements
of such paragraph for a particular quarter is due
to reasonable cause and not due to willful
neglect,
``(iv) the corporation, trust, or association
pays a tax computed under subparagraph (C), and
[[Page 118 STAT. 1444]]
``(v)(I) the corporation, trust, or
association disposes of the assets set forth on
the schedule specified in clause (ii) within 6
months after the last day of the quarter in which
the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary and
in the manner prescribed by the Secretary, or
``(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
``(C) Tax.--For purposes of subparagraph (B)(iv)--
``(i) Tax imposed.--If a corporation, trust,
or association elects the application of this
subparagraph, there is hereby imposed a tax on the
failure described in subparagraph (B) of such
corporation, trust, or association. Such tax shall
be paid by the corporation, trust, or association.
``(ii) Tax 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 regulations promulgated by
the Secretary) by multiplying the net
income generated by the assets described
in the schedule specified in
subparagraph (B)(ii) for the period
specified in clause (iii) by the highest
rate of tax specified in section 11.
``(iii) Period.--For purposes of clause
(ii)(II), the period described in this clause is
the period beginning on the first date that the
failure to satisfy the requirements of such
paragraph (4) occurs as a result of the ownership
of such assets and ending on the earlier of the
date on which the trust disposes of such assets or
the end of the first quarter when there is no
longer a failure to satisfy such paragraph (4).
``(iv) Administrative provisions.--For
purposes of subtitle F, the taxes imposed by this
subparagraph shall be treated as excise taxes with
respect to which the deficiency procedures of such
subtitle apply.''.
(2) Modification of rules of application for failure to
satisfy sections 856(c)(2) or 856(c)(3).--Paragraph (6) of
section 856(c) (relating to definition of real estate investment
trust) is amended by striking subparagraphs (A) and (B), by
redesignating subparagraph (C) as subparagraph (B), and by
inserting before subparagraph (B) (as so redesignated) the
following new subparagraph:
``(A) following the corporation, trust, or
association's identification of the failure to meet the
requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year, a description of each
item of its gross income described in such paragraphs is
set forth in a schedule for such taxable year filed in
accordance with regulations prescribed by the Secretary,
and''.
(3) Reasonable cause exception to loss of reit status if
failure to satisfy requirements.--Subsection (g) of section 856
(relating to termination of election) is amended--
[[Page 118 STAT. 1445]]
(A) in paragraph (1) by inserting before the period
at the end of the first sentence the following: ``unless
paragraph (5) applies'', and
(B) by adding at the end the following new
paragraph:
``(5) Entities to which paragraph applies.--This paragraph
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 taxable
year due to one or more failures to comply with one or
more 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 same manner as tax) a penalty of $50,000 for each
failure to satisfy a provision of this part due to
reasonable cause and not willful neglect.''.
(4) Deduction 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) Expansion of deficiency dividend procedure.--Subsection
(e) of section 860 is amended by striking ``or'' at the end of
paragraph (2), by striking the period at the end of paragraph
(3) and inserting ``; or'', and by adding at the end the
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) Effective <<NOTE: 26 USC 856 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) Subsections (c) through (f).--The amendments made by
subsections (c), (d), (e), and (f) shall apply to taxable years
beginning after the date of the enactment of this Act.
SEC. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.
(a) In General.--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) Election To Treat Costs as Expenses.--
``(1) In general.--A taxpayer may elect to treat the cost of
any qualified film or television production as an expense which
is not chargeable to capital account. Any cost so treated shall
be allowed as a deduction.
``(2) Dollar limitation.--
``(A) In general.--Paragraph (1) shall not apply to
any qualified film or television production the
aggregate cost of which exceeds $15,000,000.
``(B) Higher dollar limitation for productions in
certain areas.--In the case of any qualified film or
television production the aggregate cost of which is
significantly incurred in an area eligible for
designation as--
[[Page 118 STAT. 1446]]
``(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 section 2009aa-1 of title 7,
United States Code,
subparagraph (A) shall be applied by substituting
`$20,000,000' for `$15,000,000'.
``(b) No Other 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 allowable.
``(c) Election.--
``(1) In general.--An election under this section with
respect to any qualified film or television production shall be
made in such manner as prescribed by the Secretary and by the
due date (including extensions) for filing the taxpayer's return
of tax under this chapter for the taxable year in which costs of
the production are first incurred.
``(2) Revocation of election.--Any election made under this
section may not be revoked without the consent of the Secretary.
``(d) Qualified Film or Television Production.--For purposes of this
section--
``(1) In 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 is
qualified compensation.
``(2) Production.--
``(A) In general.--A production is described in this
paragraph if such production is property described in
section 168(f)(3). For purposes of a television series,
only the first 44 episodes of such series may be taken
into account.
``(B) Exception.--A production is not described in
this paragraph if records are required under section
2257 of title 18, United States Code, to be maintained
with respect to any performer in such production.
``(3) Qualified compensation.--For purposes of paragraph
(1)--
``(A) In general.--The term `qualified compensation'
means compensation for services performed in the United
States by actors, directors, producers, and other
relevant production personnel.
``(B) Participations and residuals excluded.--The
term `compensation' does not include participations and
residuals (as defined in section 167(g)(7)(B)).
``(e) Application 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) Termination.--This section shall not apply to qualified film
and television productions commencing after December 31, 2008.''.
(b) Conforming Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 180 the following new item:
``Sec. 181. Treatment of certain qualified film and
television productions.''.
[[Page 118 STAT. 1447]]
(c) Effective Date.--The <<NOTE: 26 USC 181 note.>> amendments made
by this section shall apply to qualified film and television productions
(as defined in section 181(d)(1) of the Internal Revenue Code of 1986,
as added by this section) commencing after the date of the enactment of
this Act.
SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits) is amended by adding at the end
the following new section:
``SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.
``(a) General Rule.--For purposes of section 38, the railroad track
maintenance credit determined under this section for the taxable year is
an amount equal to 50 percent of the qualified railroad track
maintenance expenditures paid or incurred by an eligible taxpayer during
the taxable year.
``(b) Limitation.--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 person other
than the owner only if such mile is assigned to such person by the owner
for purposes of this subsection. Any mile which is so assigned may not
be taken into account by the owner for purposes of this subsection.
``(c) Eligible 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
furnishes railroad-related property or services to such a
person.
``(d) Qualified Railroad Track Maintenance Expenditures.--For
purposes of this section, the term `qualified railroad track maintenance
expenditures' means expenditures (whether or not otherwise chargeable to
capital account) for maintaining railroad track (including roadbed,
bridges, and related track structures) owned or leased as of January 1,
2005, by a Class II or Class III railroad.
``(e) Other Definitions and Special Rules.--
``(1) Class 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 Surface
Transportation Board.
``(2) Controlled groups.--Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of this
section.
``(3) Basis adjustment.--For purposes of this subtitle, if a
credit is allowed under this section with respect to any
railroad track, the basis of such track shall be reduced by the
amount of the credit so allowed.
``(f) Application of Section.--This section shall apply to qualified
railroad track maintenance expenditures paid or incurred during taxable
years beginning after December 31, 2004, and before January 1, 2008.''.
(b) Limitation on Carryback.--
[[Page 118 STAT. 1448]]
(1) In general.--Subsection (d) of section 39 is amended to
read as follows:
``(d) Transitional Rule.--No portion of the unused business credit
for any taxable year which is attributable to a credit specified in
section 38(b) or any portion thereof may be carried back to any taxable
year before the first taxable year for which such specified credit or
such portion is allowable (without regard to subsection (a)).''.
(2) Effective date.--The <<NOTE: 26 USC 39 note.>> amendment
made by paragraph (1) shall apply with respect to taxable years
ending after December 31, 2003.
(c) Conforming Amendments.--
(1) Section 38(b) (relating to general business credit) is
amended by striking ``plus'' at the end of paragraph (14), by
striking 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 period at
the end of paragraph (28) and inserting ``, and'', and by
inserting 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 provided in
section 45G(e)(3).''.
(d) Clerical Amendment.--The table of sections for subpart D of part
IV of subchapter A of chapter 1 is amended by inserting after the item
relating to section 45F the following new item:
``Sec. 45G. Railroad track maintenance credit.''.
(e) Effective Date.--The <<NOTE: 26 USC 38 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2004.
SEC. 246. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DISTILLED
SPIRITS, WINE, AND BEER.
(a) In General.--Subpart G of part II of subchapter A of chapter 51
is amended by redesignating section 5148 as section 5149 and by
inserting after section 5147 the following new section:
``SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.
``(a) In General.--Notwithstanding sections 5081, 5091, 5111, 5121,
and 5131, the rate of tax imposed under such sections for the suspension
period shall be zero. During such period, persons engaged in or carrying
on a trade or business covered by such sections shall register under
section 5141 and shall comply with the recordkeeping requirements under
this part.
``(b) Suspension Period.--For purposes of subsection (a), the
suspension period is the period beginning on July 1, 2005, and ending on
June 30, 2008.''.
(b) Conforming Amendment.--Section 5117 is amended by adding at the
end the following new subsection:
``(d) Special Rule During Suspension Period.--Except as provided in
subsection (b) or by the Secretary, during the suspension period (as
defined in section 5148) it shall be unlawful for any dealer to purchase
distilled spirits for resale from any person other than a wholesale
dealer in liquors who is required to keep records under section 5114.''.
[[Page 118 STAT. 1449]]
(c) Clerical Amendment.--The table of sections for subpart G of part
II of subchapter A of chapter 51 is amended by striking the last item
and inserting the following new items:
``Sec. 5148. Suspension of occupational tax.
``Sec. 5149. Cross references.''.
(d) Effective Date.--The <<NOTE: 26 USC 5117 note.>> amendments made
by this section shall take effect on the date of the enactment of this
Act.
SEC. 247. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON
INVESTMENT IN CERTAIN SMALL BUSINESS INVESTMENT COMPANIES.
(a) In General.--Paragraph (6) of section 514(c) (relating to
acquisition indebtedness) is amended to read as follows:
``(6) Certain federal financing.--
``(A) In 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 the purchase, rehabilitation, or
construction of housing for low and moderate
income persons, or
``(ii) indebtedness incurred by a small
business investment company licensed after the
date of the enactment of the American Jobs
Creation Act of 2004 under the Small Business
Investment Act of 1958 if such 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) Limitation.--Subparagraph (A)(ii) shall not
apply with respect to any small business investment
company during any period that--
``(i) any organization which is exempt from
tax under this title (other than a governmental
unit) owns more than 25 percent of the capital or
profits interest in such company, or
``(ii) organizations which are exempt from tax
under this title (including governmental units
other than any agency or instrumentality of the
United States) own, in the aggregate, 50 percent
or more of the capital or profits interest in such
company.''.
(b) Effective Date.--The <<NOTE: 26 USC 514 note.>> amendment made
by this section shall apply to indebtedness incurred after the date of
the enactment of this Act by a small business investment company
licensed after the date of the enactment of this Act.
SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN INTERNATIONAL
SHIPPING ACTIVITIES USING PER TON RATE.
(a) In General.--Chapter 1 is amended by inserting after subchapter
Q the following new subchapter:
[[Page 118 STAT. 1450]]
``Subchapter R--Election To Determine Corporate Tax on Certain
International Shipping Activities Using Per Ton Rate
``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) In General.--For purposes of this subchapter, the notional
shipping income of an electing corporation shall be the sum of the
amounts determined under subsection (b) for each qualifying vessel
operated by such electing corporation.
``(b) Amounts.--
``(1) In general.--For purposes of subsection (a), the
amount of notional shipping income of an electing corporation
for each qualifying vessel for the taxable year shall equal the
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
qualifying vessel in United States foreign trade.
``(2) Treatment 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 gross income by
reason of section 883 or otherwise, the amount of notional
shipping income from such vessel for the taxable year shall be
the amount which bears the same ratio to such shipping income
(determined without regard to this paragraph) as the gross
income from the operation of such vessel in the United States
foreign trade bears to the sum of such gross income and the
income so excluded.
``(c) Daily Notional Shipping Income.--For purposes of subsection
(b), the daily notional shipping income from the operation of 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) Multiple Operators of Vessel.--If for any period 2 or more
persons are operators of a qualifying vessel, the notional shipping
income from the operation of such vessel for such period
[[Page 118 STAT. 1451]]
shall be allocated among such persons on the basis of their respective
ownership and charter interests in such vessel or on such other basis as
the Secretary may prescribe by regulations.
``SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMINATION.
``(a) In General.--A qualifying vessel operator may elect the
application of this subchapter.
``(b) Time and Manner; Years for Which Effective.--An election under
this subchapter--
``(1) shall be made in such form as prescribed by the
Secretary, and
``(2) shall be effective for the taxable year for which made
and all succeeding taxable years until terminated under
subsection (d).
Such election may be effective for any taxable year only if made before
the due date (including extensions) for filing the corporation's return
for such taxable year.
``(c) Consistent <<NOTE: Applicability.>> Elections By Members of
Controlled Groups.--An election under subsection (a) by a member of a
controlled group shall apply to all qualifying vessel operators that are
members of such group.
``(d) Termination.--
``(1) By revocation.--
``(A) In general.--An election under subsection (a)
may be terminated by revocation.
``(B) When effective.--Except as provided in
subparagraph (C)--
``(i) a revocation made during the taxable
year and on or before the 15th day of the 3d month
thereof shall 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 1st day of the following taxable year.
``(C) Revocation may specify prospective date.--If
the revocation specifies a date for revocation which is
on or after the day on which the revocation is made, the
revocation shall be effective for taxable years
beginning on and after the date so specified.
``(2) By person ceasing to be qualifying vessel operator.--
``(A) In general.--An election under subsection (a)
shall be terminated whenever (at any time on or after
the 1st day of the 1st taxable year for which the
corporation is an electing corporation) such corporation
ceases to be a qualifying vessel operator.
``(B) When effective.--Any termination under this
paragraph shall be effective on and after the date of
cessation.
``(C) Annualization.--The Secretary shall prescribe
such annualization and other rules as are appropriate in
the case of a termination under this paragraph.
``(e) Election After Termination.--If a qualifying vessel operator
has made an election under subsection (a) and if such election has been
terminated under subsection (d), such operator (and any successor
operator) shall not be eligible to make an election under
[[Page 118 STAT. 1452]]
subsection (a) for any taxable year before its 5th taxable year which
begins after the 1st taxable year for which such termination is
effective, unless the Secretary consents to such election.
``SEC. 1355. DEFINITIONS AND SPECIAL RULES.
``(a) Definitions.--For purposes of this subchapter--
``(1) Electing corporation.--The term `electing corporation'
means any corporation for which an election is in effect under
this subchapter.
``(2) Electing group; controlled group.--
``(A) Electing group.--The term `electing group'
means a controlled group of which one or more members is
an electing corporation.
``(B) Controlled group.--The term `controlled group'
means any group which would be treated as a single
employer under subsection (a) or (b) of section 52 if
paragraphs (1) and (2) of section 52(a) did not apply.
``(3) Qualifying 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) Qualifying vessel.--The term `qualifying vessel' means
a self-propelled (or a combination self-propelled and non-self-
propelled) United States flag vessel of not less than 10,000
deadweight tons used exclusively in the United States foreign
trade during the period that the election under this subchapter
is in effect.
``(5) United states flag vessel.--The term `United States
flag vessel' means any vessel documented under the laws of the
United States.
``(6) United states domestic trade.--The term `United States
domestic trade' means the transportation of goods or passengers
between places in the United States.
``(7) United states foreign trade.--The term `United States
foreign trade' means the transportation of goods or passengers
between a place in the United States and a foreign place or
between foreign places.
``(8) Charter.--The term `charter' includes an operating
agreement.
``(b) Operating a Vessel.--For purposes of this subchapter--
``(1) In general.--Except as provided in paragraph (2), a
person is treated as operating any vessel during any period if
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) Bareboat charters.--A person is treated as operating
and using a vessel that it has chartered out on bareboat charter
terms only if--
``(A)(i) the vessel is temporarily surplus to the
person's requirements and the term of the charter does
not exceed 3 years, or
``(ii) the vessel is bareboat chartered to a member
of a controlled group which includes such person or to
an unrelated person who sub-bareboats or time charters
the
[[Page 118 STAT. 1453]]
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) Shipping Activity Requirement.--For purposes of this section--
``(1) In general.--Except as otherwise provided in this
subsection, a corporation meets the shipping activity
requirement of this subsection for any taxable year only if the
requirement of paragraph (4) is met for each of the 2 preceding
taxable years.
``(2) Special rule for 1st year of election.--A corporation
meets the shipping activity requirement of this subsection for
the first taxable year for which the election under section
1354(a) is in effect only if the requirement of paragraph (4) is
met for the preceding taxable year.
``(3) Controlled groups.--A corporation who is a member of a
controlled group meets the shipping activity requirement of 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) Requirement.--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 vessels used
by the corporation were owned by such corporation or chartered
to such corporation on bareboat charter terms.
``(d) Activities 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
activities 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
shall be determined on the basis of the partner's interest in
the partnership.
A similar <<NOTE: Applicability.>> rule shall apply with respect to
other pass-thru entities.
``(e) Effect of Temporarily Ceasing To Operate a Qualifying
Vessel.--
``(1) In general.--For purposes of subsections (b) and (c),
an electing corporation shall be treated as continuing to use a
qualifying vessel during any period of temporary cessation if
the electing corporation gives timely notice to the Secretary
stating--
``(A) that it has temporarily ceased to operate the
qualifying vessel, and
``(B) its intention to resume operating the
qualifying vessel.
``(2) Notice.--Notice shall be deemed timely if given not
later than the due date (including extensions) for the
corporation's tax return for the taxable year in which the
temporary cessation begins.
``(3) Period disregard in effect.--The period of temporary
cessation under paragraph (1) shall continue until the earlier
of the date on which--
[[Page 118 STAT. 1454]]
``(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) Effect of Temporarily Operating a Qualifying Vessel in the
United States Domestic Trade.--
``(1) In general.--For purposes of this subchapter, an
electing corporation shall be treated as continuing to use a
qualifying vessel in the United States foreign trade during any
period of temporary use in the United States domestic trade if
the electing corporation gives timely notice to the Secretary
stating--
``(A) that it temporarily operates or has operated
in the United States domestic trade a qualifying vessel
which had 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) Notice.--Notice shall be deemed timely if given not
later than the due date (including extensions) for the
corporation's tax return for the taxable year in which the
temporary cessation begins.
``(3) Period disregard in effect.--The period of temporary
use under paragraph (1) continues until the earlier of the date
of which--
``(A) the electing corporation abandons its
intention to resume operations of the vessel in the
United States foreign trade, or
``(B) the electing corporation resumes operation of
the vessel in the United States foreign trade.
``(4) No 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 for more than 30
days during the taxable year.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.
``SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
``(a) Qualifying 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) Core Qualifying Activities.--For purposes of this subchapter,
the term `core qualifying activities' means activities in operating
qualifying vessels in United States foreign trade.
``(c) Qualifying Secondary Activities.--For purposes of this
section--
``(1) In general.--The term `qualifying secondary
activities' means secondary activities but only to the extent
that, without regard to this subchapter, the gross income
derived by such corporation from such activities does not exceed
20 percent of the gross income derived by the corporation from
its core qualifying activities.
``(2) Secondary activities.--The term `secondary activities'
means--
[[Page 118 STAT. 1455]]
``(A) the active management or operation of vessels
other than qualifying vessels in the United States
foreign trade,
``(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
integral part of its business of operating qualifying
vessels in United States foreign trade, including--
``(i) ownership or operation of barges,
containers, chassis, and other equipment that are
the complement of, or used in connection with, a
qualifying vessel in United States foreign trade,
``(ii) the inland haulage of cargo shipped, or
to be shipped, on qualifying vessels in United
States foreign trade, and
``(iii) the provision of terminal,
maintenance, repair, logistical, or other vessel,
barge, container, or cargo-related services that
are an integral part of operating qualifying
vessels in United States foreign trade, and
``(D) such other activities as may be prescribed by
the Secretary pursuant to regulations.
``(3) Coordination with core activities.--
``(A) In general.--Such term shall not include any
core qualifying activities.
``(B) Nonelecting corporations.--In the case of a
corporation (other than an electing corporation) which
is a member of an electing group, any core qualifying
activities of the corporation shall be treated as
qualifying secondary activities (and not as core
qualifying activities).
``(d) Qualifying 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 exceed
0.1 percent of the corporation's gross income from its core
qualifying activities.
``(e) Application 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 the limitations under such
subsections shall be allocated among the corporations in such group.
``SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION; INTEREST.
``(a) Exclusion From Gross Income.--Gross income of an electing
corporation shall not include its income from qualifying shipping
activities.
``(b) Electing Group Member.--Gross income of a corporation (other
than an electing corporation) which is a member of an electing group
shall not include its income from qualifying shipping activities
conducted by such member.
``(c) Denial of Losses, Deductions, and Credits.--
[[Page 118 STAT. 1456]]
``(1) General rule.--Subject to paragraph (2), each item of
loss, deduction (other than for interest expense), or credit of
any taxpayer with respect to any activity the income from which
is excluded from gross income under this section shall be
disallowed.
``(2) Depreciation.--
``(A) In general.--Notwithstanding paragraph (1),
the adjusted basis (for purposes of determining gain) of
any qualifying vessel shall be determined as if the
deduction for depreciation had been allowed.
``(B) Method.--
``(i) In general.--Except as provided in
clause (ii), the straight-line method of
depreciation shall apply to qualifying vessels the
income from operation of which is excluded from
gross income under this section.
``(ii) Exception.--Clause (i) shall not apply
to any qualifying vessel which is subject to a
charter entered into before the date of the
enactment of this subchapter.
``(3) Interest.--
``(A) In general.--Except as provided in
subparagraph (B), the interest expense of an electing
corporation shall be disallowed in the ratio that the
fair market value of such corporation's qualifying
vessels bears to the fair market value of such
corporation's total assets.
``(B) Electing group.--In the case of a corporation
which is a member of an electing group, the interest
expense of such corporation shall be disallowed in the
ratio that the fair market value of such corporation's
qualifying vessels bears to the fair market value of the
electing groups total assets.
``SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
``(a) Qualifying Shipping Activities.--For purposes of this chapter,
the qualifying shipping activities of an electing corporation shall be
treated as a separate trade or business activity distinct from all other
activities conducted by such corporation.
``(b) Exclusion of Credits or Deductions.--
``(1) No deduction shall be allowed against the notional
shipping income of an electing corporation, and no credit shall
be 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 any
person to the extent that such loss is carried forward by such
person from a taxable year preceding the first taxable year for
which such person was an electing corporation.
``(c) Transactions <<NOTE: Applicability.>> Not at Arm's Length.--
Section 482 applies in accordance with this subsection to a transaction
or series of transactions--
``(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) In General.--If any qualifying vessel operator sells or
disposes of any qualifying vessel in an otherwise taxable transaction,
at the election of such operator, no gain shall be recognized
[[Page 118 STAT. 1457]]
if any replacement qualifying vessel is acquired during the period
specified in subsection (b), except to the extent that the amount
realized upon such sale or disposition exceeds the cost of the
replacement qualifying vessel.
``(b) Period Within Which Property Must Be Replaced.--The period
referred to in subsection (a) shall be the period beginning one year
prior to the disposition of the qualifying vessel and ending--
``(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
specified by the Secretary, on such later date as the Secretary
may designate on application by the taxpayer.
Such application shall be made at such time and in such manner as the
Secretary may by regulations prescribe.
``(c) Application of Section to Noncorporate Operators.--For
purposes of this section, the term `qualifying vessel operator' includes
any person who would be a qualifying vessel operator were such person a
corporation.
``(d) Time for Assessment of Deficiency Attributable to Gain.--If a
qualifying vessel operator has made the election provided in subsection
(a), then--
``(1) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of the gain
is realized, attributable to such gain shall not expire prior to
the expiration of 3 years from the date the Secretary is
notified by such operator (in such manner as the Secretary may
by regulations prescribe) of the replacement qualifying vessel
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 section
6212(c) or the provisions of any other law or rule of law which
would otherwise prevent such assessment.
``(e) Basis of Replacement Qualifying Vessel.--In the case of any
replacement qualifying vessel purchased by the qualifying vessel
operator which resulted in the nonrecognition of any part of the gain
realized as the result of a sale or other disposition of a qualifying
vessel, the basis shall be the cost of the replacement qualifying vessel
decreased in the amount of the gain not so recognized; and if the
property purchased consists of more than one piece of property, the
basis determined under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.''.
(b) Technical 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 following
new item:
``Subchapter R. Election to determine corporate tax on
certain international shipping
activities using per ton rate.''.
(c) Effective Date.--The <<NOTE: 26 USC 56 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
[[Page 118 STAT. 1458]]
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) Exclusion From Employment Taxes.--
(1) Social 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) and inserting ``; 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 (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(B) Section 209(a) of the <<NOTE: 42 USC
409.>> Social Security Act is amended by striking ``or''
at the end of 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 (as defined in section 422(b) of the Internal
Revenue Code of 1986) or under an employee stock
purchase plan (as defined in section 423(b) of such
Code), or
``(B) any disposition by the individual of such
stock.''.
(2) Railroad retirement taxes.--Subsection (e) of section
3231 is amended by adding at the end the following new
paragraph:
``(12) Qualified 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 (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(3) Unemployment taxes.--Section 3306(b) (relating to
definition of wages) is amended by striking ``or'' at the end of
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 (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(b) Wage Withholding Not Required on Disqualifying Dispositions.--
Section 421(b) (relating to effect of disqualifying dispositions) is
amended by adding at the end the following new sentence: ``No amount
shall be required to be deducted and withheld
[[Page 118 STAT. 1459]]
under chapter 24 with respect to any increase in income attributable to
a disposition described in the preceding sentence.''.
(c) Wage Withholding Not Required on Compensation Where Option Price
Is Between 85 Percent and 100 Percent of Value of Stock.--Section 423(c)
(relating to special rule where option price is between 85 percent and
100 percent of value of stock) is amended by adding at the end the
following new sentence: ``No amount shall be required to be deducted and
withheld under chapter 24 with respect to any amount treated as
compensation under this subsection.''.
(d) Effective Date.--The <<NOTE: 26 USC 421 note.>> amendments made
by this section shall apply to stock acquired pursuant to options
exercised after the date of the enactment of this Act.
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 INCOME TAX CREDIT.
(a) In General.--Subchapter B of chapter 65 (relating to rules of
special application) is amended by inserting after section 6425 the
following new section:
``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
``(a) Allowance of Credits.--There shall be allowed as a credit
against the tax imposed by section 4081 an amount equal to the sum of--
``(1) the alcohol fuel mixture credit, plus
``(2) the biodiesel mixture credit.
``(b) Alcohol Fuel Mixture Credit.--
``(1) In general.--For purposes of this section, the alcohol
fuel mixture credit is the product of the applicable amount and
the number of gallons of alcohol used by the taxpayer in
producing any alcohol fuel mixture for sale or use in a trade or
business of the taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in
subparagraph (B), the applicable amount is 51 cents.
``(B) Mixtures not containing ethanol.--In the case
of an alcohol fuel mixture in which none of the alcohol
consists of ethanol, the applicable amount is 60 cents.
``(3) Alcohol fuel mixture.--For purposes of this
subsection, the term `alcohol fuel mixture' means a mixture of
alcohol 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.
[[Page 118 STAT. 1460]]
For purposes of subparagraph (A), a mixture produced by any
person at a refinery prior to a taxable event which includes
ethyl tertiary butyl ether or other ethers produced from alcohol
shall be treated as sold at the time of its removal from the
refinery (and only at such time) to another person for use as a
fuel.
``(4) Other definitions.--For purposes of this subsection--
``(A) Alcohol.--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
(determined without regard to any added
denaturants).
Such term also includes an alcohol gallon equivalent of
ethyl tertiary butyl ether or other ethers produced from
such alcohol.
``(B) Taxable fuel.--The term `taxable fuel' has the
meaning given such term by section 4083(a)(1).
``(5) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.
``(c) Biodiesel Mixture Credit.--
``(1) In general.--For purposes of this section, the
biodiesel mixture credit is the product of the applicable amount
and the number of gallons of biodiesel used by the taxpayer in
producing any biodiesel mixture for sale or use in a trade or
business of the taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in
subparagraph (B), the applicable amount is 50 cents.
``(B) Amount for agri-biodiesel.--In the case of any
biodiesel which is agri-biodiesel, the applicable amount
is $1.00.
``(3) Biodiesel mixture.--For purposes of this section, the
term `biodiesel mixture' means a mixture of biodiesel and diesel
fuel (as defined in section 4083(a)(3)), determined without
regard 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) Certification for biodiesel.--No credit shall be
allowed under this subsection unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agri-
biodiesel in the product.
``(5) Other definitions.--Any term used in this subsection
which is also used in section 40A shall have the meaning given
such term by section 40A.
``(6) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.
``(d) Mixture Not Used As a Fuel, Etc.--
``(1) Imposition of tax.--If--
``(A) any credit was determined under this section
with respect to alcohol or biodiesel used in the
production of
[[Page 118 STAT. 1461]]
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 equal
to the product of the applicable amount and the number
of gallons of such alcohol or biodiesel.
``(2) Applicable laws.--All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed under
paragraph (1) as if such tax were imposed by section 4081 and
not by this section.
``(e) Coordination With Exemption From Excise Tax.--Rules similar to
the rules under section 40(c) shall apply for purposes of this
section.''.
(b) Registration 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 defined in section
40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))'' before
``shall register with the Secretary''.
(c) Additional 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
section 6427(e)''.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
``(4) Volume of alcohol.--For purposes of determining under
subsection (a) the number of gallons of alcohol with respect to
which a credit is allowable under subsection (a), the volume of
alcohol shall include the volume of any denaturant (including
gasoline) which is added under any formulas approved by the
Secretary to the extent that such denaturants do not exceed 5
percent of the volume of such alcohol (including
denaturants).''.
(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
substance 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) Gasoline.--The term `gasoline'--
[[Page 118 STAT. 1462]]
``(A) includes any gasoline blend, other than
qualified methanol or ethanol fuel (as defined in
section 4041(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 blend
stock' means any petroleum product component of gasoline.''.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:
``(e) Alcohol or Biodiesel Used To Produce Alcohol Fuel and
Biodiesel Mixtures.--Except as provided in subsection (k)--
``(1) Used to produce a mixture.--If any person produces a
mixture described in section 6426 in such person's trade or
business, the Secretary shall pay (without interest) to such
person an amount equal to the alcohol fuel mixture credit or the
biodiesel mixture credit with respect to such mixture.
``(2) Coordination with other repayment provisions.--No
amount shall be payable under paragraph (1) with respect to any
mixture with respect to which an amount is allowed as a credit
under section 6426.
``(3) Termination.--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 section 4081(c)(3))'' in subparagraph (A) and
inserting ``a mixture described 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
shall be 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
days of 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 sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.''.
(12) Section 9503(b)(4) is amended--
(A) by adding ``or'' at the end of subparagraph (C),
[[Page 118 STAT. 1463]]
(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 apply to
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 section 6425 the
following new item:
``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.
(d) Effective <<NOTE: 26 USC 40 note.>> Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
fuel sold or used after December 31, 2004.
(2) Registration requirement.--The amendment made by
subsection (b) shall take effect on April 1, 2005.
(3) Extension of alcohol fuels credit.--The amendments made
by paragraphs (3), (4), and (14) of subsection (c) shall take
effect on the date of the enactment of this Act.
(4) Repeal <<NOTE: Applicability.>> 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) Format for Filing.--The <<NOTE: Deadline. 26 USC 6427
note.>> Secretary of the Treasury shall describe the electronic format
for filing claims described in section 6427(i)(3)(B) of the Internal
Revenue Code of 1986 (as amended by subsection (c)(10)(C)) not later
than December 31, 2004.
SEC. 302. BIODIESEL INCOME TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by inserting after
section 40 the following new section:
``SEC. 40A. BIODIESEL USED AS FUEL.
``(a) General Rule.--For purposes of section 38, the biodiesel fuels
credit determined under this section for the taxable year is an amount
equal to the sum of--
``(1) the biodiesel mixture credit, plus
``(2) the biodiesel credit.
``(b) Definition of Biodiesel Mixture Credit and Biodiesel Credit.--
For purposes of this section--
``(1) Biodiesel mixture credit.--
``(A) In general.--The biodiesel mixture credit of
any taxpayer for any taxable year is 50 cents for each
gallon of biodiesel used by the taxpayer in the
production of a qualified biodiesel mixture.
``(B) Qualified biodiesel mixture.--The term
`qualified biodiesel mixture' means a mixture of
biodiesel and diesel fuel (as defined in section
4083(a)(3)), determined without 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) Sale or use must be in trade or business,
etc.--Biodiesel used in the production of a qualified
biodiesel mixture shall be taken into account--
[[Page 118 STAT. 1464]]
``(i) only if the sale or use described in
subparagraph (B) is in a trade or business of the
taxpayer, and
``(ii) for the taxable year in which such sale
or use occurs.
``(D) Casual off-farm production not eligible.--No
credit shall be allowed under this section with respect
to any casual off-farm production of a qualified
biodiesel mixture.
``(2) Biodiesel credit.--
``(A) In general.--The biodiesel credit of any
taxpayer for any taxable year is 50 cents for each
gallon of biodiesel which is not in a mixture with
diesel fuel and which during 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) User 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 a
retail sale described in subparagraph (A)(ii).
``(3) Credit for agri-biodiesel.--
In <<NOTE: Applicability.>> the case of any biodiesel which is
agri-biodiesel, paragraphs (1)(A) and (2)(A) shall be applied by
substituting `$1.00' for `50 cents'.
``(4) Certification for biodiesel.--No credit shall be
allowed under this section unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer or importer of the biodiesel which
identifies the product produced and the percentage of biodiesel
and agri-biodiesel in the product.
``(c) Coordination With Credit Against Excise Tax.--The amount of
the credit determined under this section with respect to any biodiesel
shall be properly reduced to take into account any benefit provided with
respect to such biodiesel solely by reason of the application of section
6426 or 6427(e).
``(d) Definitions and Special Rules.--For purposes of this section--
``(1) Biodiesel.--The term `biodiesel' means the monoalkyl
esters of long chain fatty acids derived from plant or animal
matter which meet--
``(A) the registration requirements for fuels and
fuel additives established by the Environmental
Protection Agency 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) Agri-biodiesel.--The term `agri-biodiesel' means
biodiesel derived solely from virgin oils, including esters
derived from virgin vegetable oils from corn, soybeans,
sunflower seeds, cottonseeds, canola, crambe, rapeseeds,
safflowers, flaxseeds, rice bran, and mustard seeds, and from
animal fats.
``(3) Mixture or biodiesel not used as a fuel, etc.--
``(A) Mixtures.--If--
``(i) any credit was determined under this
section with respect to biodiesel used in the
production of any qualified biodiesel mixture, and
[[Page 118 STAT. 1465]]
``(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 equal
to the product of the rate applicable under subsection
(b)(1)(A) and the number of gallons of such biodiesel in
such mixture.
``(B) Biodiesel.--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 equal
to the product of the rate applicable under subsection
(b)(2)(A) and the number of gallons of such biodiesel.
``(C) Applicable laws.--All provisions of law,
including penalties, shall, insofar as applicable and
not inconsistent with this section, apply in respect of
any tax imposed under subparagraph (A) or (B) as if such
tax were imposed by section 4081 and not by this
chapter.
``(4) Pass-thru <<NOTE: Regulations. Applicability.>> in the
case of estates and trusts.--Under regulations prescribed by the
Secretary, rules similar to the rules of subsection (d) of
section 52 shall apply.
``(e) Termination.--This section shall not apply to any sale or use
after December 31, 2006.''.
(b) Credit Treated as Part of General Business Credit.--Section
38(b) (relating to current year business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (15), by
striking the period at the end of paragraph (16) and inserting ``,
plus'', and by inserting after paragraph (16) the following new
paragraph:
``(17) the biodiesel fuels credit determined under section
40A(a).''.
(c) Conforming 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 section
40(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 of paragraph
(10) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(11) the biodiesel fuels credit determined under section
40A(a).''.
[[Page 118 STAT. 1466]]
(3) The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding after the item
relating to section 40 the following new item:
``Sec. 40A. Biodiesel used as fuel.''.
(d) Effective Date.--The <<NOTE: 26 USC 38 note.>> amendments made
by this section shall apply to fuel produced, and sold or used, after
December 31, 2004, in taxable years ending after such date.
SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
(a) In General.--Subpart C of part III of subchapter A of chapter 32
is amended by adding at the end the following new section:
``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
``(a) In General.--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
Secretary may prescribe).
``(b) Contents of Return.--Any return filed under this section shall
provide such information relating to such benefits and the coordination
of such benefits as the Secretary may require to ensure the proper
administration and use of such benefits.
``(c) Enforcement.--With <<NOTE: Applicability.>> respect to any
person described in subsection (a) and subject to registration
requirements under this title, rules similar to rules of section 4222(c)
shall apply with respect to any requirement under this section.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32 is amended by adding at the end
the following new item:
``Sec. 4104. Information reporting for persons claiming certain
tax benefits.''.
(c) Effective Date.--The <<NOTE: 26 USC 4104 note.>> 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) Replacement of Livestock With Other Farm Property.--Subsection
(f) of section 1033 (relating to involuntary conversions) 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 ``Where There Has Been Environmental
Contamination'' in the heading and inserting ``in Certain
Cases''.
[[Page 118 STAT. 1467]]
(b) Extension of Replacement Period of Involuntarily Converted
Livestock.--Subsection (e) of section 1033 (relating to involuntary
conversions) is amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood, or
other weather-related conditions described in paragraph
(1) which result in the area being designated as
eligible for assistance by the Federal Government,
subsection (a)(2)(B) shall be applied with respect to
any converted property by substituting `4 years' for `2
years'.
``(B) Further extension by secretary.--The Secretary
may extend on a regional basis the period for
replacement under this section (after the application of
subparagraph (A)) for such additional time as the
Secretary determines appropriate if the weather-related
conditions which resulted in such application continue
for more than 3 years.''.
(c) Income Inclusion Rules.--Section 451(e) (relating to special
rule for proceeds from livestock sold on account of drought, flood, or
other weather-related conditions) is amended by adding at the end the
following new paragraph:
``(3) Special 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 made
during the replacement period described in such section.''.
(d) Effective Date.--The <<NOTE: 26 USC 451 note.>> amendments made
by this section shall apply to any taxable year with respect to which
the due date (without regard to extensions) for the return is after
December 31, 2002.
SEC. 312. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT REDUCING
PATRONAGE DIVIDENDS.
(a) In General.--Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end the
following: ``For purposes of paragraph (3), net earnings shall not be
reduced by amounts paid during the year as dividends on capital stock or
other proprietary capital interests of the organization to the extent
that the articles of incorporation or bylaws of such organization or
other contract with patrons provide that such dividends are in addition
to amounts otherwise payable to patrons which are derived from business
done with or for patrons during the taxable year.''.
(b) Effective Date.--The <<NOTE: 26 USC 1388 note.>> amendment made
by this section shall apply to distributions in taxable years beginning
after the date of the enactment of this Act.
SEC. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.
(a) Allocation of Alcohol Fuels Credit to Patrons of a
Cooperative.--Section 40(g) (relating to definitions and special rules
for eligible small ethanol producer credit) is amended by adding at the
end the following new paragraph:
``(6) Allocation of small ethanol producer credit to patrons
of cooperative.--
``(A) Election to allocate.--
[[Page 118 STAT. 1468]]
``(i) In general.--In the case of a
cooperative organization described in section
1381(a), any portion of the credit determined
under subsection (a)(3) for the taxable year may,
at the election of the organization, be
apportioned pro rata among patrons of the
organization on the basis of the quantity or value
of business done with or for such patrons for the
taxable year.
``(ii) Form and effect of election.--An
election under clause (i) for any taxable year
shall be made on a timely filed return for such
year. Such election, once made, shall be
irrevocable for such taxable year.
``(B) Treatment of organizations and patrons.--
``(i) Organizations.--The amount of the credit
not apportioned to patrons pursuant to
subparagraph (A) shall be included in the amount
determined under subsection (a)(3) for the taxable
year of the organization.
``(ii) Patrons.--The amount of the credit
apportioned to patrons pursuant to subparagraph
(A) shall be included in the amount determined
under such subsection for the first taxable year
of each patron ending on or after the last day of
the payment period (as defined in section 1382(d))
for the taxable year of the organization or, if
earlier, for the taxable year of each patron
ending on or after the date on which the patron
receives notice from the cooperative of the
apportionment.
``(iii) Special rules for decrease in credits
for taxable year.--If the amount of the credit of
the organization determined under such subsection
for a taxable year is less than the amount of such
credit shown 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 taxable year,
shall be treated as an increase in tax imposed by
this chapter on the organization. Such increase
shall not be treated as tax imposed by this
chapter for purposes of determining the amount of
any credit under this chapter or for purposes of
section 55.''.
(b) Effective Date.--The <<NOTE: 26 USC 40 note.>> amendment made by
this section shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND THE
ALTERNATIVE MINIMUM TAX.
(a) In General.--Section 55(c) (defining regular tax) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Coordination with income averaging for farmers and
fishermen.--Solely for purposes of this section, section 1301
(relating to averaging of farm and fishing income) shall not
apply in computing the regular tax.''.
(b) Allowing Income Averaging for Fishermen.--
[[Page 118 STAT. 1469]]
(1) In general.--Section 1301(a) is amended by striking
``farming business'' and inserting ``farming business or fishing
business''.
(2) Definition of elected farm income.--
(A) In general.--Clause (i) of section 1301(b)(1)(A)
is amended by inserting ``or fishing business'' before
the semicolon.
(B) Conforming amendment.--Subparagraph (B) of
section 1301(b)(1) is amended by inserting ``or fishing
business'' after ``farming business'' both places it
occurs.
(3) Definition of fishing business.--Section 1301(b) is
amended by adding at the end the following new paragraph:
``(4) Fishing business.--The term `fishing business' means
the conduct of commercial fishing as defined in section 3 of the
Magnuson-Stevens Fishery Conservation and Management Act (16
U.S.C. 1802).''.
(c) Effective Date.--The <<NOTE: 26 USC 55 note.>> 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) In General.--The first sentence of section 631(b) (relating to
disposal of timber with a retained economic interest) is amended by
striking ``retains an economic interest in such timber'' and inserting
``either retains an economic interest in such timber or makes an
outright sale of such timber''.
(b) Conforming Amendments.--
(1) The third sentence of section 631(b) is amended by
striking ``The date of disposal'' and inserting ``In the case of
disposal of timber with a retained economic interest, the date
of disposal''.
(2) The heading for section 631(b) is amended by striking
``With a Retained Economic Interest''.
(c) Effective Date.--The <<NOTE: 26 USC 631 note.>> 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 ANIMALS.
(a) In General.--Section 1388 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(k) Cooperative Marketing Includes Value-Added Processing
Involving Animals.--For purposes of section 521 and this subchapter, the
marketing of the products of members or other producers shall include
the feeding of such products to cattle, hogs, fish, chickens, or other
animals and the sale of the resulting animals or animal products.''.
(b) Conforming Amendment.--Section 521(b) is amended by adding at
the end the following new paragraph:
``(7) Cross Reference.--
``For treatment of value-added processing involving
animals, see section 1388(k).''.
(c) Effective Date.--The <<NOTE: 26 USC 521 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
[[Page 118 STAT. 1470]]
SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS'
COOPERATIVE ORGANIZATIONS.
(a) In General.--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 end the following new
subparagraph:
``(D) with respect to the initial classification or
continuing classification of a cooperative as an
organization described in section 521(b) which is exempt
from tax under section 521(a), or''.
(b) Effective Date.--The <<NOTE: 26 USC 7428 note.>> amendments made
by this section shall apply with respect to pleadings filed after the
date of the enactment of this Act.
SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) In General.--Section 162(o) (relating to treatment of certain
reimbursed expenses of rural mail carriers) is amended by redesignating
paragraph (2) as paragraph (3) and by inserting after paragraph (1) the
following:
``(2) Special rule where expenses exceed reimbursements.--
Notwithstanding paragraph (1)(A), if the expenses incurred by an
employee for the use of a vehicle in performing services
described in paragraph (1) exceed the qualified reimbursements
for such expenses, such excess shall be taken into account in
computing the miscellaneous itemized deductions of the employee
under section 67.''.
(b) Conforming Amendment.--The heading for section 162(o) is amended
by striking ``Reimbursed''.
(c) Effective Date.--The <<NOTE: 26 USC 162 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2003.
SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) Income From Open Access and Nuclear Decommissioning
Transactions.--
(1) In general.--Subparagraph (C) of section 501(c)(12) is
amended by striking clause (ii) and adding at the end the
following:
``(ii) from any provision or sale of electric
energy transmission services or ancillary services
if such services are provided on a
nondiscriminatory open access basis under an open
access transmission tariff approved or accepted by
FERC or under an independent transmission provider
agreement approved or accepted by FERC (other than
income received or accrued directly or indirectly
from a member),
``(iii) from the provision or sale of electric
energy distribution services or ancillary services
if such services are provided on a
nondiscriminatory open access basis to distribute
electric energy not owned by the mutual or
electric cooperative company--
``(I) to end-users who are served by
distribution facilities not owned by
such company or any of its members
(other than income received or accrued
directly or indirectly from a member),
or
``(II) generated by a generation
facility not owned or leased by such
company or any of its
[[Page 118 STAT. 1471]]
members and which is directly connected
to distribution facilities owned by such
company or any of its members (other
than income received or accrued directly
or indirectly from a member),
``(iv) from any nuclear decommissioning
transaction, or
``(v) from any asset exchange or conversion
transaction.
Clauses (ii) through (v) shall not apply to taxable
years beginning after December 31, 2006.''.
(2) Definitions and special rules.--Paragraph (12) of
section 501(c) is amended by adding at the end the following new
subparagraphs:
``(E) For purposes of subparagraph (C)(ii), the term
`FERC' means the Federal Energy Regulatory Commission
and references to such term shall be treated as
including the Public Utility Commission of Texas with
respect to any ERCOT utility (as defined in section
212(k)(2)(B) of the 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 costs if the transfer is in
connection with the transfer of the mutual or
cooperative electric company's interest in a
nuclear power plant or nuclear power plant unit,
``(ii) any distribution from any trust, fund,
or instrument established to pay any nuclear
decommissioning costs, or
``(iii) any earnings from any trust, fund, or
instrument established to pay any nuclear
decommissioning costs.
``(G) For purposes of subparagraph (C)(iv), the term
`asset exchange or conversion transaction' means any
voluntary exchange or involuntary conversion of any
property related to generating, transmitting,
distributing, or selling electric energy by a mutual or
cooperative electric company, the gain from which
qualifies for deferred recognition under section 1031 or
1033, but only if the replacement property acquired by
such company pursuant to such section constitutes
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) Treatment 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 following new subparagraph:
``(H)(i) In the case of a mutual or cooperative
electric company described in this paragraph or an
organization described in section 1381(a)(2)(C), income
received or accrued from a load loss transaction shall
be treated as an amount collected from members for the
sole purpose of meeting losses and expenses.
``(ii) For purposes of clause (i), the term `load
loss transaction' means any wholesale or retail sale of
electric
[[Page 118 STAT. 1472]]
energy (other than to members) to the extent that the
aggregate sales during the recovery period do not exceed
the 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 annual load losses for each year of such
period.
``(iv) For purposes of clause (iii), a mutual or
cooperative electric company's annual load loss for each
year of the 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
company are 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 years preceding the start-up year.
``(vi) For purposes of this subparagraph, the
recovery period is the 7-year period beginning with the
start-up year.
``(vii) For purposes of this subparagraph, the
start-up year is the first year that the mutual or
cooperative electric company offers nondiscriminatory
open access or the calendar year which includes the date
of the enactment of this subparagraph, if later, at the
election of such company.
``(viii) A company shall not fail to be treated as a
mutual or cooperative electric company for purposes of
this paragraph or as a corporation operating on a
cooperative basis for purposes of section 1381(a)(2)(C)
by reason of the treatment under clause (i).
``(ix) For purposes of subparagraph (A), in the case
of a mutual or cooperative electric company, income
received, or accrued, indirectly from a member shall be
treated as an amount collected from members for the sole
purpose of meeting losses and expenses.
``(x) This subparagraph shall not apply to taxable
years beginning after December 31, 2006.''.
(c) Exception From Unrelated Business Taxable Income.--Subsection
(b) of section 512 (relating to modifications) is amended by adding at
the end the following new paragraph:
``(18) Treatment 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 excluded
income which is treated as member income under subparagraph (H)
thereof.''.
(d) Cross Reference.--Section 1381 is amended by adding at the end
the following new subsection:
[[Page 118 STAT. 1473]]
``(c) Cross Reference.--
``For treatment of income from load loss transactions
of organizations described in subsection (a)(2)(C), see
section 501(c)(12)(H).''.
(e) Effective Date.--The <<NOTE: 26 USC 501 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH
SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN STATE LOAN
REPAYMENT PROGRAMS.
(a) In General.--Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
``(4) Payments under national health service corps loan
repayment program and certain state loan repayment 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 program described in section 338I
of such Act.''.
(b) Treatment 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) <<NOTE: 42 USC 409.>> of the Social
Security Act.
(c) Effective Date.--The <<NOTE: 26 USC 108 note.>> amendments made
by this section shall apply to amounts received by an individual in
taxable years beginning after December 31, 2003.
SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.
(a) Expansion of Prohibited Transaction Safe Harbor.--Section
857(b)(6) (relating to income from prohibited transactions) is amended
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F),
respectively, and by inserting after subparagraph (C) the following new
subparagraph:
``(D) Certain sales not to constitute prohibited
transactions.--For purposes of this part, the term
`prohibited transaction' does not include a sale of
property which is 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 of producing timber,
``(ii) the aggregate expenditures made by the
trust, or a partner of the trust, during the 4-
year period preceding 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 the
preservation of the property for use as
timberland,
do not exceed 30 percent of the net selling price
of the property,
[[Page 118 STAT. 1474]]
``(iii) the aggregate expenditures made by the
trust, or a partner of the trust, during the 4-
year period preceding 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 for the
preservation of the property for use as
timberland,
do not exceed 5 percent of the net selling price
of the property,
``(iv)(I) during the taxable year the trust
does not make more than 7 sales of property (other
than sales of foreclosure property or sales to
which section 1033 applies), or
``(II) the aggregate adjusted bases (as
determined for purposes of computing earnings and
profits) of property (other than sales of
foreclosure property or sales to which section
1033 applies) sold during the taxable year does
not exceed 10 percent of the aggregate bases (as
so determined) of all of the assets of the trust
as 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 marketing expenditures with respect to the
property were made through an independent
contractor (as defined in section 856(d)(3)) from
whom the trust itself does not derive 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 or profits, including income or profits
derived from the sale or operation of such
property.''.
(b) Effective Date.--The <<NOTE: 26 USC 857 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) In General.--So much of subsection (b) of section 194 (relating
to amortization of reforestation expenditures) as precedes paragraph (2)
is amended to read as follows:
``(b) Treatment as Expenses.--
``(1) Election to treat certain reforestation expenditures
as expenses.--
``(A) In 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 treat reforestation expenditures which
are paid or incurred during the taxable year with
respect to such property as an expense which is not
chargeable to capital account. The reforestation
expenditures so treated shall be allowed as a deduction.
``(B) Dollar limitation.--The aggregate amount of
reforestation expenditures which may be taken into
account under subparagraph (A) with respect to each
qualified timber property for any taxable year shall not
exceed
[[Page 118 STAT. 1475]]
$10,000 ($5,000 in the case of a separate return by a
married individual (as defined in section 7703)).''.
(b) Net Amortizable Basis.--Section 194(c)(2) (defining amortizable
basis) is amended by inserting ``which have not been taken into account
under subsection (b)'' after ``expenditures''.
(c) Conforming 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) Treatment of trusts and estates.--
``(A) In general.--Except as provided in
subparagraph (B), this section shall not apply to trusts
and estates.
``(B) Amortization deduction allowed to estates.--
The benefit of the deduction for amortization provided
by subsection (a) shall be allowed to estates in the
same manner as in the case of an individual. The
allowable deduction shall be apportioned between the
income beneficiary and the fiduciary under regulations
prescribed by the Secretary. Any amount so apportioned
to a beneficiary shall be taken into account for
purposes of determining the amount allowable as a
deduction under subsection (a) to such beneficiary.
``(5) Application with other deductions.--No deduction shall
be allowed under any other provision of this chapter with
respect to any expenditure with respect to which a deduction 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) Repeal of Reforestation Credit.--
(1) In 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) Conforming 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
subsection (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
chapter 1 is amended by striking ``, reforestation
credit''.
(D) Section 50(c)(3) is amended by striking ``or
reforestation credit''.
[[Page 118 STAT. 1476]]
(e) Effective Date.--The amendments made by this section shall apply
with respect to expenditures paid or incurred after the 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 REGULATED INVESTMENT COMPANIES.
(a) In General.--Paragraph (2) of section 851(b) (defining regulated
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
securities loans (as defined in section 512(a)(5)), and
gains from the sale or other disposition of stock or
securities (as defined in section 2(a)(36) of the
Investment Company Act of 1940, as amended) or foreign
currencies, or other income (including but not limited
to gains from options, futures or forward contracts)
derived with respect to its business 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) Source Flow-Through Rule Not To Apply.--The last sentence of
section 851(b) is amended by inserting ``(other than a qualified
publicly traded partnership as defined in subsection (h))'' after
``derived from a partnership''.
(c) Limitation on Ownership.--Subsection (c) of section 851 is
amended by redesignating paragraph (5) as paragraph (6) and inserting
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 traded partnership (as defined in subsection (h)).''.
(d) Definition of Qualified Publicly Traded Partnership.--Section
851 is amended by adding at the end the following new subsection:
``(h) Qualified 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 income requirements of section
7704(c)(2) if qualifying income included only income described in
subsection (b)(2)(A).''.
(e) Definition of Qualifying Income.--Section 7704(d)(4) is amended
by striking ``section 851(b)(2)'' and inserting ``section
851(b)(2)(A)''.
(f) Limitation 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
securities or the securities of other regulated
investment companies) of any one issuer,
[[Page 118 STAT. 1477]]
``(ii) the securities (other than the
securities of other regulated investment
companies) of two or more issuers which the
taxpayer controls and which are determined, under
regulations prescribed by the Secretary, to be
engaged in the same or similar trades or
businesses or related trades or businesses, or
``(iii) the securities of one or more
qualified publicly traded partnerships (as defined
in subsection (h)).''.
(g) Application of Special Passive Activity Rule to Regulated
Investment Companies.--Subsection (k) of section 469 (relating to
separate application of section in case of publicly traded partnerships)
is amended by adding at the end the following new paragraph:
``(4) Application to regulated investment companies.--For
purposes of this section, a regulated investment company (as
defined in section 851) holding an interest in a qualified
publicly traded partnership (as defined in section 851(h)) shall
be treated as a taxpayer described in subsection (a)(2) with
respect to items attributable to such interest.''.
(h) Effective Date.--The <<NOTE: 26 USC 469 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 332. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.
(a) Bows.--Paragraph (1) of section 4161(b) (relating to bows) is
amended to read as follows:
``(1) Bows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow 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) Archery 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) Arrows.--Subsection (b) of section 4161 (relating to bows and
arrows, etc.) is amended by redesignating paragraph (3) as paragraph (4)
and inserting after paragraph (2) the following:
``(3) Arrows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
arrow, a tax equal to 12 percent of the price for which
so sold.
``(B) Exception.--In the case of any arrow of which
the shaft or any other component has been previously
taxed 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 paragraph (determined without
regard to this subparagraph), over
[[Page 118 STAT. 1478]]
``(II) the amount of tax paid with
respect to the tax imposed under
paragraph (1) or (2) on such shaft or
component.
``(C) Arrow.--For purposes of this paragraph, the
term `arrow' means any shaft described in paragraph (2)
to which additional components are attached.''.
(c) Conforming Amendments.--Section 4161(b)(2) is amended--
(1) by inserting ``(other than broadheads)'' after
``point'', and
(2) by striking ``Arrows.--'' in the heading and inserting
``Arrow components.--''.
(d) Effective Date.--The <<NOTE: 26 USC 4161 note.>> amendments made
by this section shall apply to articles sold by the manufacturer,
producer, or importer after the date which is 30 days after the date of
the enactment of this Act.
SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.
(a) In General.--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 following new
paragraph:
``(3) 3 percent <<NOTE: Applicability.>> rate of tax for
tackle boxes.--In the case of fishing tackle boxes, paragraph
(1) shall be applied by substituting `3 percent' for `10
percent'.''.
(b) Effective Date.--The <<NOTE: 26 USC 4161 note.>> amendments made
this section shall apply to articles sold by the manufacturer, producer,
or importer after December 31, 2004.
SEC. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.
(a) Not Treated 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), by striking ``, and'' at
the end of paragraph (9) and inserting a period, and by striking
paragraph (10).
(b) Conforming Amendment.--Section 4162 is amended by striking
subsection (b) and by redesignating subsection (c) as subsection (b).
(c) Effective Date.--The <<NOTE: 26 USC 4162 note.>> amendments made
this section shall apply to articles sold by the manufacturer, producer,
or importer after December 31, 2004.
SEC. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES
INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE WHALING.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts), as amended by this Act, is amended by
redesignating subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:
``(n) Expenses Paid by Certain Whaling Captains in Support of Native
Alaskan Subsistence Whaling.--
``(1) In general.--In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as a whaling
captain charged with the responsibility of maintaining and
carrying out sanctioned whaling activities and who engages in
such activities during the taxable year, the amount described in
paragraph (2) (to the extent such amount does not exceed
[[Page 118 STAT. 1479]]
$10,000 for the taxable year) shall be treated for purposes of
this section as a charitable contribution.
``(2) Amount described.--
``(A) In general.--The amount described in this
paragraph is the aggregate of the reasonable and
necessary whaling expenses paid by the taxpayer during
the taxable year in carrying out sanctioned whaling
activities.
``(B) Whaling expenses.--For purposes of
subparagraph (A), the term `whaling expenses' includes
expenses for--
``(i) the acquisition and maintenance of
whaling boats, weapons, and gear used in
sanctioned whaling activities,
``(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) Sanctioned whaling activities.--For purposes of this
subsection, the term `sanctioned whaling activities' means
subsistence bowhead whale hunting activities conducted pursuant
to the management plan of the Alaska Eskimo Whaling Commission.
``(4) Substantiation of expenses.--
The <<NOTE: Regulations.>> Secretary shall issue guidance
requiring that the taxpayer substantiate the whaling expenses
for which a deduction is claimed under this subsection,
including by maintaining appropriate written records with
respect to the time, place, date, amount, and nature of the
expense, as well as the taxpayer's eligibility for such
deduction, and that (to the extent provided by the Secretary)
such substantiation be provided as part of the taxpayer's return
of tax.''.
(b) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendments made
by subsection (a) shall apply to contributions made after December 31,
2004.
SEC. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.
(a) Aircraft Treated as Qualified Property.--
(1) In general.--Paragraph (2) of section 168(k) is amended
by redesignating subparagraphs (C) through (F) as subparagraphs
(D) through (G), respectively, and by inserting after
subparagraph (B) the following new subparagraph:
``(C) Certain 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
transportation property (as defined in
subparagraph (B)(iii)) other than for agricultural
or firefighting purposes,
``(iii) which is purchased and on which such
purchaser, at the time of the contract for
purchase, has made 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.''.
[[Page 118 STAT. 1480]]
(2) Placed in service date.--Clause (iv) of section
168(k)(2)(A) is amended by striking ``subparagraph (B)'' and
inserting ``subparagraphs (B) and (C)''.
(b) Conforming Amendments.--
(1) Section 168(k)(2)(B) is amended by adding at the end the
following new clause:
``(iv) Application of subparagraph.--This
subparagraph shall not apply to any property which
is described in subparagraph (C).''.
(2) Section 168(k)(4)(A)(ii) is amended by striking
``paragraph (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
``subparagraphs (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) Effective Date.--The <<NOTE: 26 USC 168 note.>> amendments made
by this section shall take effect as if included in the amendments made
by section 101 of the Job Creation and Worker Assistance Act of 2002.
SEC. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS DEPRECIATION
PROPERTY.
(a) In General.--Subclause (II) of section 168(k)(2)(E)(iii)
(relating to syndication), as amended by the Working Families Tax Relief
Act of 2004 and as redesignated by this Act, is amended by inserting
before the comma at the end the following: ``(or, in the 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 placed in service and the time
the last unit is placed in service does not exceed 12 months)''.
(b) Effective Date.--The <<NOTE: 26 USC 168 note.>> 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 SULFUR REGULATIONS.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
inserting after section 179A the following new section:
``SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
``(a) Allowance of Deduction.--In the case of a small business
refiner (as defined in section 45H(c)(1)) which elects the application
of this section, there shall be allowed as a deduction an amount equal
to 75 percent of qualified capital costs (as defined in section
45H(c)(2)) which are paid or incurred by the taxpayer during the taxable
year.
``(b) Reduced 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 155,000 barrels, the number of
percentage points described in subsection (a) shall be reduced (not
below zero) by the product of such number (before
[[Page 118 STAT. 1481]]
the application of this subsection) and the ratio of such excess to
50,000 barrels.
``(c) Basis Reduction.--
``(1) In general.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(2) Ordinary 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 subject to
the allowance for depreciation shall be treated as a deduction
allowed for depreciation under section 167.''.
``(d) Coordination With Other Provisions.--Section 280B shall not
apply to amounts which are treated as expenses under this section.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended by
striking ``or'' at the end of subparagraph (G), by striking the
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 of
paragraph (29) and inserting ``, and'', and by inserting after
paragraph (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 inserting after
the item relating to section 179A the following new item:
``Sec. 179B. Deduction for capital costs incurred in
complying with Environmental Protection
Agency sulfur regulations.''.
(c) Effective Date.--The <<NOTE: 26 USC 179B note.>> 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) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by inserting after section 45G the following new section:
``SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
``(a) In General.--For purposes of section 38, the amount of the low
sulfur diesel fuel production credit determined under this section with
respect to any facility of a small business refiner is an amount equal
to 5 cents for each gallon of low sulfur diesel fuel produced during the
taxable year by such small business refiner at such facility.
``(b) Maximum Credit.--
[[Page 118 STAT. 1482]]
``(1) In general.--The aggregate credit determined under
subsection (a) for any taxable year with respect to any facility
shall 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
section for all prior taxable years with respect to such
facility.
``(2) Reduced 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 155,000
barrels, the number of percentage points described in paragraph
(1) shall be reduced (not below zero) by the product of such
number (before the application of this paragraph) and the ratio
of such excess to 50,000 barrels.
``(c) Definitions and Special Rule.--For purposes of this section--
``(1) Small business refiner.--The term `small business
refiner' means, with respect to any taxable year, a refiner of
crude oil--
``(A) with respect to which not more than 1,500
individuals are engaged in the refinery operations of
the business on 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 taxpayer for the 1-year period ending on December
31, 2002, did not exceed 205,000 barrels.
``(2) Qualified capital costs.--The term `qualified capital
costs' means, with respect to any facility, those costs paid or
incurred during the applicable period for compliance with the
applicable EPA regulations with respect to such facility,
including expenditures for the construction of new process
operation units or the dismantling and reconstruction of
existing process units to be used in the production of low
sulfur diesel fuel, associated adjacent or offsite equipment
(including tankage, catalyst, and power supply), engineering,
construction period interest, and sitework.
``(3) Applicable epa regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control
Requirements of the Environmental Protection Agency.
``(4) Applicable period.--The term `applicable period'
means, with respect to any facility, the period beginning on
January 1, 2003, and ending on the earlier of the date which is
1 year after the date on which the taxpayer must comply with the
applicable EPA regulations with respect to such facility or
December 31, 2009.
``(5) Low sulfur diesel fuel.--The term `low sulfur diesel
fuel' means diesel fuel with a sulfur content of 15 parts per
million or less.
``(d) Reduction in Basis.--For purposes of this subtitle, if a
credit is determined under this section for any expenditure with respect
to any property, the increase in basis of such property which would (but
for this subsection) result from such expenditure shall be reduced by
the amount of the credit so determined.
``(e) Special Rule for Determination of Refinery Runs.--For purposes
this section and section 179B(b), in the calculation of average daily
domestic refinery run or retained production, only
[[Page 118 STAT. 1483]]
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) Certification.--
``(1) Required.--No <<NOTE: Deadline.>> credit shall be
allowed unless, not later than the date which is 30 months after
the first day of the first taxable year in which the low sulfur
diesel fuel production credit is determined with respect to a
facility, the small business refiner obtains certification from
the Secretary, after consultation with the Administrator of the
Environmental Protection Agency, that the taxpayer's qualified
capital costs with respect to such facility will result in
compliance with the applicable EPA regulations.
``(2) Contents of application.--An application for
certification shall include relevant information regarding unit
capacities and operating characteristics sufficient for the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, to determine that such
qualified capital costs are necessary for compliance with the
applicable EPA regulations.
``(3) Review period.--Any <<NOTE: Deadline.>> application
shall be reviewed and notice of certification, if applicable,
shall be made within 60 days of receipt of such application. In
the event the Secretary does not notify the taxpayer of the
results of such certification within such period, the taxpayer
may presume the certification to be issued until so notified.
``(4) Statute 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
before the end of the 3-year period ending on the date
that the review period described in paragraph (3) ends
with respect to the taxpayer, and
``(B) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
``(g) Cooperative Organizations.--
``(1) Apportionment of credit.--
``(A) In general.--In the case of a cooperative
organization described in section 1381(a), any portion
of the credit determined under subsection (a) for the
taxable year may, at the election of the organization,
be apportioned among patrons eligible to share in
patronage dividends on the basis of the quantity or
value of business done with or for such patrons for the
taxable year.
``(B) Form and effect of election.--An election
under subparagraph (A) for any taxable year shall be
made on a timely filed return for such year. Such
election, once made, shall be irrevocable for such
taxable year.
``(2) Treatment of organizations and patrons.--
``(A) Organizations.--The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
``(B) Patrons.--The amount of the credit apportioned
to patrons pursuant to paragraph (1) shall be included
[[Page 118 STAT. 1484]]
in the amount determined under subsection (a) for the
first taxable year of each patron ending on or after the
last day of the payment period (as defined in section
1382(d)) for the taxable year of the organization or, if
earlier, for the taxable year of each patron ending on
or after the date on which the patron receives notice
from the cooperative of the apportionment.
``(3) Special rule.--If the amount of a credit which has
been apportioned to any patron under this subsection is
decreased 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
organization shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as tax
imposed by this chapter for purposes of determining the amount
of any credit under this chapter or for purposes of section
55.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to general business credit), as amended by this
Act, is amended by striking ``plus'' at the end of 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) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding at the
end the following new subsection:
``(d) Low Sulfur Diesel Fuel Production Credit.--No deduction shall
be allowed for that portion of the expenses otherwise allowable as a
deduction for the taxable year which is equal to the amount of the
credit determined for the taxable year under section 45H(a).''.
(d) Basis Adjustment.--Section 1016(a) (relating to adjustments to
basis), as amended by this Act, is amended by striking ``and'' at the
end of paragraph (29), by striking the period at the end of paragraph
(30) and inserting ``, and'', and by inserting after paragraph (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 provided in
section 45H(d).''.
(e) Deduction for Certain Unused Business Credits.--Section 196(c)
(defining qualified business credits), as amended by this Act, is
amended by striking ``and'' at the end of paragraph (10), by striking
the period at the end of paragraph (11) and inserting ``, and'', and by
adding after paragraph (11) the following new paragraph:
``(12) the low sulfur diesel fuel production credit
determined under section 45H(a).''.
(e) Clerical Amendment.--The table of sections for subpart D of part
IV of subchapter A of chapter 1, as amended by this Act, is amended by
inserting after the item relating to section 45G the following new item:
``Sec. 45H. Credit for production of low sulfur diesel
fuel.''.
[[Page 118 STAT. 1485]]
(f) Effective Date.--The <<NOTE: 26 USC 38 note.>> 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) In General.--Section 144(a)(4) (relating to $10,000,000 limit in
certain cases) is amended by adding at the end the following new
subparagraph:
``(G) Additional capital expenditures not taken into
account.--With respect to bonds issued after September
30, 2009, in addition to any capital expenditure
described in subparagraph (C), capital expenditures of
not to exceed $10,000,000 shall not be taken into
account for purposes of applying subparagraph
(A)(ii).''.
(b) Conforming Amendment.--Subparagraph (F) of section 144(a)(4) is
amended by adding at the end the following new sentence: ``This
subparagraph shall not apply to bonds issued after September 30,
2009.''.
SEC. 341. OIL AND GAS FROM MARGINAL WELLS.
(a) In General.--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) General Rule.--For purposes of section 38, the marginal well
production credit for any taxable year is an amount equal to 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) Credit Amount.--For purposes of this section--
``(1) In 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) Reduction as oil and gas prices increase.--
``(A) In 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 production), bears to
``(ii) $3 ($0.33 for qualified natural gas
production).
The applicable reference price for a taxable year is the
reference price of the calendar year preceding the
calendar year in which the taxable year begins.
``(B) Inflation adjustment.--In the case of any
taxable year beginning in a calendar year after 2005,
each of the dollar amounts contained in subparagraph (A)
shall be increased to an amount equal to such dollar
amount multiplied by the inflation adjustment factor for
such calendar year (determined under section 43(b)(3)(B)
by substituting `2004' for `1990').
[[Page 118 STAT. 1486]]
``(C) Reference price.--For purposes of this
paragraph, the term `reference price' means, with
respect to any calendar year--
``(i) in the case of qualified crude oil
production, the reference price determined under
section 29(d)(2)(C), and
``(ii) in the case of qualified natural gas
production, the Secretary's estimate of the annual
average wellhead price per 1,000 cubic feet for
all domestic natural gas.
``(c) Qualified Crude Oil and Natural Gas Production.--For purposes
of this section--
``(1) In general.--The terms `qualified crude oil
production' and `qualified natural gas production' mean domestic
crude oil or natural gas which is produced from a qualified
marginal well.
``(2) Limitation on amount of production which may
qualify.--
``(A) In general.--Crude oil or natural gas produced
during any taxable year from any well shall not be
treated as qualified crude oil production or qualified
natural gas production to the extent production from the
well during the taxable year exceeds 1,095 barrels or
barrel-of-oil equivalents (as defined in section
29(d)(5)).
``(B) Proportionate reductions.--
``(i) Short taxable years.--In the case of a
short taxable year, the limitations under this
paragraph shall be proportionately reduced to
reflect the ratio which the number of days in such
taxable year bears to 365.
``(ii) Wells not in production entire year.--
In the case of a well which is not capable of
production during each day of a taxable year, the
limitations under this paragraph applicable to the
well shall be proportionately reduced to reflect
the ratio which the number of days of production
bears to the total number of days in the taxable
year.
``(3) Definitions.--
``(A) Qualified 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 section 613A(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) Crude oil, etc.--The terms `crude oil',
`natural gas', `domestic', and `barrel' have the
meanings given such terms by section 613A(e).
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case
of a qualified marginal well in which there is more than one
owner of operating interests in the well and the crude
[[Page 118 STAT. 1487]]
oil or natural gas production exceeds the limitation under
subsection (c)(2), qualifying crude oil production or qualifying
natural gas production attributable to the taxpayer shall be
determined on the basis of the ratio which taxpayer's revenue
interest in the production bears to the aggregate of the revenue
interests of all operating interest owners in the production.
``(2) Operating interest required.--Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
``(3) Production from nonconventional sources excluded.--In
the case of production from a qualified marginal well which is
eligible for the credit allowed under section 29 for the taxable
year, no credit shall be allowable under this section unless the
taxpayer elects not to claim the credit under section 29 with
respect to the well.''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended by
this Act, is amended by striking ``plus'' at the end of 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
determined under section 45I(a).''.
(c) Carryback.--Subsection (a) of section 39 (relating to carryback
and carryforward of unused credits generally) is amended by adding at
the end the following:
``(3) 5-year <<NOTE: Applicability.>> 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
well production 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 taxable years' in subparagraph (B) thereof.''.
(d) Clerical Amendment.--The table of sections for subpart D of part
IV of subchapter A of chapter 1, 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.''.
(e) Effective Date.--The <<NOTE: 26 USC 38 note.>> amendments made
by this section shall apply to production in taxable years beginning
after December 31, 2004.
[[Page 118 STAT. 1488]]
TITLE IV--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES
SEC. 401. INTEREST EXPENSE ALLOCATION RULES.
(a) Election To Allocate 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) Election To Allocate Interest, etc. on Worldwide Basis.--For
purposes of this subchapter, at the election of the worldwide affiliated
group--
``(1) Allocation and apportionment of interest expense.--
``(A) In general.--The taxable income of each
domestic corporation which is a member of a worldwide
affiliated group shall be determined by allocating and
apportioning interest expense of each member as if all
members of such group were a single corporation.
``(B) Treatment of worldwide affiliated group.--The
taxable income of the domestic members of a worldwide
affiliated group from sources outside the United States
shall be determined by allocating and apportioning the
interest expense of such domestic members to such income
in 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 foreign assets of the worldwide
affiliated group bears to all the assets of the
worldwide affiliated group, over
``(ii) the interest expense of all foreign
corporations which are members of the worldwide
affiliated group to the extent such interest
expense of such foreign corporations would have
been allocated and apportioned to foreign source
income if this subsection were applied to a group
consisting of all the foreign corporations in such
worldwide affiliated group.
``(C) Worldwide affiliated group.--For purposes of
this paragraph, the term `worldwide affiliated group'
means a group consisting of--
``(i) the includible members of an affiliated
group (as defined in section 1504(a), determined
without regard to paragraphs (2) and (4) of
section 1504(b)), and
``(ii) all controlled foreign corporations in
which such members in the aggregate meet the
ownership requirements of section 1504(a)(2)
either directly or indirectly through applying
paragraph (2) of section 958(a) or through
applying rules similar to the rules of such
paragraph to stock owned directly or indirectly by
domestic partnerships, trusts, or estates.
``(2) Allocation and apportionment of other expenses.--
Expenses other than interest which are not directly allocable or
apportioned to any specific income producing activity shall be
allocated and apportioned as if all members of the affiliated
group were a single corporation. For purposes
[[Page 118 STAT. 1489]]
of the preceding sentence, the term `affiliated group' has the
meaning given such term by section 1504 (determined without
regard to paragraph (4) of section 1504(b)).
``(3) Treatment <<NOTE: Applicability.>> of tax-exempt
assets; basis of stock in nonaffiliated 10-percent owned
corporations.--The rules of paragraphs (3) and (4) of subsection
(e) shall apply for purposes of this subsection, except that
paragraph (4) shall be applied on a worldwide affiliated group
basis.
``(4) Treatment of certain financial institutions.--
``(A) In general.--For purposes of paragraph (1),
any corporation described in subparagraph (B) shall be
treated as an includible corporation for purposes of
section 1504 only for purposes of applying this
subsection separately to corporations so described.
``(B) Description.--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 customers, and
``(iii) such financial institution is required
by State or Federal law to be operated separately
from any other entity which is not such an
institution.
``(C) Treatment 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 of 1956 (12 U.S.C. 1841(a)),
``(ii) a financial holding company (within the
meaning of section 2(p) of the Bank Holding
Company Act 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 bank or financial holding company, if
such subsidiary is predominantly engaged (directly
or indirectly) in the active conduct of a banking,
financing, or similar business,
shall be treated as a corporation described in
subparagraph (B).
``(5) Election to expand financial institution group of
worldwide group.--
``(A) In general.--If a worldwide affiliated group
elects the application of this subsection, all financial
corporations which--
``(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
purposes of applying paragraph
(4)(A). <<NOTE: Applicability.>> This subsection (other
than this paragraph) shall apply to any such group in
the same manner as this subsection (other than this
paragraph) applies to the pre-election worldwide
affiliated group of which such group is a part.
[[Page 118 STAT. 1490]]
``(B) Financial corporation.--For purposes of this
paragraph, the term `financial corporation' means any
corporation if at least 80 percent of its gross income
is income described in section 904(d)(2)(D)(ii) and the
regulations thereunder which is derived from
transactions with persons who are not related (within
the meaning of section 267(b) or 707(b)(1)) to the
corporation. For purposes of the preceding sentence,
there shall be disregarded any item of income or gain
from a transaction or series of transactions a principal
purpose of which is the qualification of any corporation
as a financial corporation.
``(C) Anti-abuse rules.--In the case of a
corporation which is a member of an electing financial
institution group, to the extent that such corporation--
``(i) distributes dividends or makes other
distributions with respect to its stock after the
date of the enactment of this paragraph to any
member of the pre-election worldwide affiliated
group (other than to a 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 the
taxable 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
(as determined under principles similar to the
principles of section 482),
an amount of indebtedness of the electing financial
institution group equal to the excess distribution or
the understatement or overstatement of income, as the
case may be, shall be recharacterized (for the taxable
year and subsequent taxable years) for purposes of this
paragraph as indebtedness of the worldwide affiliated
group (excluding the electing financial institution
group). If a corporation has not been in existence for 5
taxable years, this subparagraph shall be applied with
respect to the period it was in existence.
``(D) Election.--An election under this paragraph
with respect to any financial institution group may be
made only by the common parent of the pre-election
worldwide affiliated group and may be made only for the
first taxable year beginning after December 31, 2008, in
which such affiliated group includes 1 or more financial
corporations. Such an
election, <<NOTE: Applicability.>> once made, shall
apply to all financial corporations which are members of
the electing financial institution group for such
taxable year and all subsequent years unless revoked
with the consent of the Secretary.
``(E) Definitions relating to groups.--For purposes
of this paragraph--
``(i) Pre-election worldwide affiliated
group.--The term `pre-election worldwide
affiliated group' means, with respect to a
corporation, the worldwide affiliated group of
which such corporation would
[[Page 118 STAT. 1491]]
(but for an election under this paragraph) be a
member for purposes of applying paragraph (1).
``(ii) Electing financial institution group.--
The term `electing financial institution group'
means the group of corporations to which this
subsection applies separately by reason of the
application of paragraph (4)(A) and which includes
financial corporations by reason of an election
under subparagraph (A).
``(F) Regulations.--The Secretary shall prescribe
such regulations as may be appropriate to carry out this
subsection, including regulations--
``(i) providing for the direct allocation of
interest expense in other circumstances where such
allocation would be appropriate to carry out the
purposes of this 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 this paragraph as an affiliated group for
purposes of this subsection.
``(6) Election.--An election to have this subsection apply
with respect to any worldwide affiliated group may be made only
by the common parent of the domestic affiliated group referred
to in paragraph (1)(C) and may be made only for the first
taxable year beginning after December 31, 2008, in which a
worldwide affiliated group exists which includes such affiliated
group and at least 1 <<NOTE: Applicability.>> foreign
corporation. Such an election, once made, shall apply to such
common parent and all other corporations which are members of
such worldwide affiliated group for such taxable year and all
subsequent years unless revoked with the consent of the
Secretary.''.
(b) Expansion of Regulatory Authority.--Paragraph (7) of section
864(e) is amended--
(1) by inserting before the comma at the end of subparagraph
(B) ``and in other circumstances where such allocation would be
appropriate to carry out the purposes of this subsection'', and
(2) by striking ``and'' at the end of subparagraph (E), by
redesignating subparagraph (F) as subparagraph (G), and by
inserting after subparagraph (E) the following new subparagraph:
``(F) preventing assets or interest expense from
being taken into account more than once, and''.
(c) Effective Date.--The <<NOTE: 26 USC 864 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2008.
SEC. 402. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) General 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
following new subsection:
``(g) Recharacterization of Overall Domestic Loss.--
``(1) General rule.--For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an overall
domestic loss for any taxable year beginning after December 31,
2006, that portion of the taxpayer's taxable income from
[[Page 118 STAT. 1492]]
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 taxable year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
``(2) Overall domestic loss defined.--For purposes of this
subsection--
``(A) In general.--The term `overall domestic loss'
means any domestic loss to the extent such loss offsets
taxable income from sources without the United States
for the taxable year or for any preceding taxable year
by reason of a carryback. For purposes of the preceding
sentence, the term `domestic loss' means the amount by
which the gross income for the taxable year from sources
within the United States is exceeded by the sum of the
deductions properly apportioned or allocated thereto
(determined without regard to any carryback from a
subsequent taxable year).
``(B) Taxpayer must have elected foreign tax credit
for year of loss.--The term `overall domestic loss'
shall not include any loss for any taxable year unless
the taxpayer chose the benefits of this subpart for such
taxable year.
``(3) Characterization of subsequent income.--
``(A) In general.--Any income from sources within
the United States that is treated as income from sources
without the United States under paragraph (1) shall be
allocated among and increase the income categories in
proportion to the loss from sources within the United
States previously allocated to those income categories.
``(B) Income category.--For purposes of this
paragraph, the term `income category' has the meaning
given such term by subsection (f)(5)(E)(i).
``(4) Coordination <<NOTE: Regulations.>> with subsection
(f).--The Secretary shall prescribe such regulations as may be
necessary to coordinate the provisions of this subsection with
the provisions of subsection (f).''.
(b) Conforming 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) Effective Date.--The <<NOTE: 26 USC 535 note.>> amendments made
by this section shall apply to losses for taxable years beginning after
December 31, 2006.
SEC. 403. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED
SECTION 902 CORPORATIONS.
(a) In General.--Section 904(d)(4) (relating to look-thru rules
apply to dividends from noncontrolled section 902 corporations) is
amended to read as follows:
[[Page 118 STAT. 1493]]
``(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
``(A) In general.--For purposes of this subsection,
any dividend from a noncontrolled section 902
corporation with respect to the taxpayer shall be
treated as income described in a subparagraph of
paragraph (1) in proportion to the ratio 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) Earnings and profits of controlled foreign
corporations.--In the case of any distribution from a
controlled foreign corporation to a United States
shareholder, rules similar to the rules of subparagraph
(A) shall apply in determining the extent to which
earnings and profits of the controlled foreign
corporation which are attributable to dividends received
from a noncontrolled section 902 corporation may be
treated as income in a separate category.
``(C) Special rules.--For purposes of this
paragraph--
``(i) Earnings and profits.--
``(I) In general.--The rules of
section 316 shall apply.
``(II) Regulations.--The Secretary
may prescribe regulations regarding the
treatment of distributions out of
earnings and profits for periods before
the taxpayer's acquisition of the stock
to which the distributions relate.
``(ii) Inadequate substantiation.--If the
Secretary determines that the proper subparagraph
of paragraph (1) in which a dividend is described
has not been substantiated, such dividend shall be
treated as income described in paragraph (1)(A).
``(iii) Coordination with high-taxed income
provisions.--Rules similar to the rules of
paragraph (3)(F) shall apply for purposes of this
paragraph.
``(iv) Look-thru with respect to carryover of
credit.--Rules similar to subparagraph (A) also
shall apply to any carryforward under subsection
(c) from a taxable year beginning before January
1, 2003, of tax allocable to a dividend from a
noncontrolled section 902 corporation with respect
to the taxpayer. The Secretary may by regulations
provide for the allocation of any carryback of tax
allocable to a dividend from a noncontrolled
section 902 corporation from a taxable year
beginning on or after January 1, 2003, to a
taxable year beginning before such date for
purposes of allocating such dividend among the
separate categories in effect for the taxable year
to which carried.''.
(b) Conforming 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), and by
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 financial
services income.''.
[[Page 118 STAT. 1494]]
(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) Effective Date.--The <<NOTE: 26 USC 864 note.>> 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) In General.--Paragraph (1) of section 904(d) (relating to
separate application of section with respect to certain categories of
income) is amended to read as follows:
``(1) In general.--The <<NOTE: Applicability.>> provisions
of subsections (a), (b), and (c) and sections 902, 907, and 960
shall be applied separately with respect to--
``(A) passive category income, and
``(B) general category income.''.
(b) Categories.--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) Categories.--
``(i) Passive category income.--The term
`passive category income' means passive income and
specified passive category income.
``(ii) General category income.--The term
`general category income' means income other than
passive category income.''.
(c) Specified Passive Category Income.--Subparagraph (B) of section
904(d)(2), as so redesignated, is amended by adding at the end the
following new clause:
``(v) Specified 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 such dividends are
treated as income from sources without
the United States,
``(II) taxable income attributable
to foreign trade income (within the
meaning of section 923(b)), and
``(III) distributions from a FSC (or
a former FSC) out of earnings and
profits attributable to foreign trade
income (within the meaning of section
923(b)) or interest or carrying charges
(as defined in section 927(d)(1))
derived from a transaction which results
in foreign trade income (as defined in
section 923(b)).''.
(d) Treatment of Financial Services.--Paragraph (2) of section
904(d), as amended by section 403(b)(3), is amended by striking
subparagraph (D), by redesignating subparagraph (C) as subparagraph (D),
and by inserting before subparagraph (D) (as so redesignated) the
following new subparagraph:
[[Page 118 STAT. 1495]]
``(C) Treatment of financial services income and
companies.--
``(i) In 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 of a banking, insurance,
financing, or similar business.
``(ii) Financial services group.--The term
`financial services group' means any affiliated
group (as defined in section 1504(a) without
regard to paragraphs (2) and (3) of section
1504(b)) which is predominantly engaged in the
active conduct of a banking, insurance, financing,
or similar business. In determining whether such a
group is so engaged, there shall be taken into
account only the income of members of the group
that are--
``(I) United States corporations, or
``(II) controlled foreign
corporations in which such United States
corporations own, directly or
indirectly, at least 80 percent of the
total voting power and value of the
stock.
``(iii) Pass-thru entities.--
The <<NOTE: Regulations.>> Secretary shall by
regulation specify for purposes of this
subparagraph the treatment of financial services
income received or accrued by partnerships and by
other pass-thru entities which are not members of
a financial services group.''.
(e) Treatment of Income Tax Base Differences.--Paragraph (2) of
section 904(d) is amended by redesignating subparagraphs (H) and (I) as
subparagraphs (I) and (J), respectively, and by inserting after
subparagraph (G) the following new subparagraph:
``(H) Treatment of income tax base differences.--
``(i) In general.--In the case of taxable
years beginning after December 31, 2006, tax
imposed under the law of a foreign country or
possession of the United States on an amount which
does not constitute income under United States tax
principles shall be treated as imposed on income
described in paragraph (1)(B).
``(ii) Special rule for years before 2007.--
``(I) In general.--In the case of
taxes paid or accrued in taxable years
beginning after December 31, 2004, and
before January 1, 2007, a taxpayer may
elect to treat tax imposed under the law
of a foreign country or possession of
the United States on an amount which
does not constitute income under United
States tax principles as tax imposed on
income described in subparagraph (C) or
(I) of paragraph (1).
``(II) Election irrevocable.--
Any <<NOTE: Applicability.>> such
election shall apply to the taxable year
for which made and all subsequent
taxable years described in subclause (I)
unless revoked with the consent of the
Secretary.''.
(f) Conforming Amendments.--
[[Page 118 STAT. 1496]]
(1) Clause (iii) of section 904(d)(2)(B) (relating to
exceptions from passive income), as so redesignated, is amended
by striking 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), is
amended by striking clause (iii).
(4) Paragraph (3) of section 904(d) is amended to read as
follows:
``(3) Look-thru in case of controlled foreign
corporations.--
``(A) In general.--Except as otherwise provided in
this paragraph, dividends, interest, rents, and
royalties received or accrued by the taxpayer from a
controlled foreign corporation in which the taxpayer is
a United States shareholder shall not be treated as
passive category income.
``(B) Subpart f inclusions.--Any amount included in
gross income under section 951(a)(1)(A) shall be treated
as passive category income to the extent the amount so
included is attributable to passive category income.
``(C) Interest, <<NOTE: Regulations.>> rents, and
royalties.--Any interest, rent, or royalty which is
received or accrued from a controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category income
to the extent it is properly allocable (under
regulations prescribed by the Secretary) to passive
category income of the controlled foreign corporation.
``(D) Dividends.--Any dividend paid out of the
earnings and profits of any controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category income
in proportion to the ratio of--
``(i) the portion of the earnings and profits
attributable to passive category income, to
``(ii) the total amount of earnings and
profits.
``(E) Look-thru applies only where subpart f
applies.--If a controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de
minimis rule) for any taxable year, for purposes of this
paragraph, none of its foreign base company income (as
defined in section 954(a) without regard to section
954(b)(5)) and none of its gross insurance income (as
defined in section 954(b)(3)(C)) for such taxable year
shall be treated as passive category income, except that
this sentence shall not apply to any income which
(without regard to this sentence) would be treated as
financial services income. Solely for purposes of
applying subparagraph (D), passive income of a
controlled foreign corporation shall not be treated as
passive category income if the requirements of section
954(b)(4) are met with respect to such income.
``(F) Coordination with high-taxed income
provisions.--
[[Page 118 STAT. 1497]]
``(i) In determining whether any income of a
controlled 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 shall be so treated notwithstanding any
provision of paragraph (2); except that the
determination of whether any amount is high-taxed
income shall be made after the application of this
paragraph.
``(G) Dividend.--For purposes of this paragraph, the
term `dividend' includes any amount included in gross
income in section 951(a)(1)(B). Any amount included in
gross income under section 78 to the extent attributable
to amounts included in gross income in section
951(a)(1)(A) shall not be treated as a dividend but
shall be treated as included in gross income under
section 951(a)(1)(A).
``(H) Look-thru applies to passive foreign
investment 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 1293
shall be treated as income in a separate category to the
extent such amount is attributable to income in such
category.''.
(5) Paragraph (2) of section 904(d) is amended by adding at
the end the following new subparagraph:
``(K) Transitional rules for 2007 changes.--For
purposes of paragraph (1)--
``(i) taxes carried from any taxable year
beginning before January 1, 2007, to any taxable
year beginning on or after such date, with respect
to any item of income, shall be treated as
described in the subparagraph of paragraph (1) in
which such income would be described were such
taxes paid or accrued in a taxable year beginning
on or after such date, and
``(ii) the Secretary may by regulations
provide for the allocation of any carryback of
taxes with respect to income from a taxable year
beginning on or after January 1, 2007, to a
taxable year beginning before such date for
purposes of allocating such income among the
separate categories in effect for the taxable year
to which carried.''.
(6) Section 904(j)(3)(A)(i) is amended by striking
``subsection (d)(2)(A)'' and inserting ``subsection (d)(2)(B)''.
(g) Effective <<NOTE: 26 USC 904 note.>> Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
(2) Transitional rule relating to income tax base
difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue
Code of 1986, as added by subsection (e), shall apply to taxable
years beginning after December 31, 2004.
[[Page 118 STAT. 1498]]
SEC. 405. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY
IN DETERMINING SECTION 902 AND 960 CREDITS.
(a) In General.--Subsection (c) of section 902 is amended by
redesignating paragraph (7) as paragraph (8) and by inserting after
paragraph (6) the following new paragraph:
``(7) Constructive ownership through partnerships.--Stock
owned, directly or indirectly, by or for a partnership shall be
considered as being owned proportionately by its partners. Stock
considered to be owned by a person by reason of the preceding
sentence shall, for purposes of applying such sentence, be
treated as actually owned by such person. The Secretary may
prescribe such regulations as may be necessary to carry out the
purposes of this paragraph, including rules to account for
special partnership allocations of dividends, credits, and other
incidents of ownership of stock in determining proportionate
ownership.''.
(b) Clarification of Comparable Attribution Under Section
901(b)(5).--Paragraph (5) of section 901(b) is amended by striking ``any
individual'' and inserting ``any person''.
(c) Effective Date.--The <<NOTE: 26 USC 901 note.>> amendments made
by this section shall apply to taxes of foreign corporations for taxable
years of such corporations beginning after the date of the enactment of
this Act.
SEC. 406. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF INTANGIBLE
PROPERTY.
(a) In General.--Subparagraph (C) of section 367(d)(2) is amended by
adding at the end the following new sentence: ``For purposes of applying
section 904(d), any such amount shall be treated in the same manner as
if such amount were a royalty.''.
(b) Effective Date.--The <<NOTE: 26 USC 367 note.>> amendment made
by this section shall apply to amounts treated as received pursuant to
section 367(d)(2) of the Internal Revenue Code of 1986 on or after
August 5, 1997.
SEC. 407. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS OF
CONTROLLED FOREIGN CORPORATION.
(a) In General.--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 at the
end of subparagraph (K) and inserting a semicolon, and by adding 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 a dealer in securities if--
``(i) the dealer accounts for the securities
as securities held primarily for sale to customers
in the ordinary course of business, and
``(ii) the dealer disposes of the securities
(or such securities mature while held by the
dealer) within a period consistent with the
holding of securities for sale 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--
[[Page 118 STAT. 1499]]
``(I) a United States shareholder
(as defined in section 951(b)) of the
controlled foreign corporation, or
``(II) a partnership, estate, or
trust in which the controlled foreign
corporation, or any related person (as
defined in section 954(d)(3)), is a
partner, beneficiary, or trustee
immediately after the acquisition of any
obligation of such partnership, estate,
or trust by the controlled foreign
corporation.''.
(b) Conforming Amendment.--Section 956(c)(2) is amended by striking
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
(c) Effective Date.--The <<NOTE: 26 USC 956 note.>> amendments made
by this section shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 408. TRANSLATION OF FOREIGN TAXES.
(a) Elective Exception for Taxes Paid Other Than in Functional
Currency.--Paragraph (1) of section 986(a) (relating to determination of
foreign taxes and foreign corporation's earnings and profits) is amended
by redesignating subparagraph (D) as subparagraph (E) and by inserting
after subparagraph (C) the following new subparagraph:
``(D) Elective exception for taxes paid other than
in functional currency.--
``(i) In general.--At the election of the
taxpayer, subparagraph (A) shall not apply to any
foreign income taxes the liability for which is
denominated in any currency other than in the
taxpayer's functional currency.
``(ii) Application to qualified business
units.--An election under this subparagraph may
apply to foreign income taxes attributable to a
qualified business unit in accordance with
regulations prescribed by the Secretary.
``(iii) Election.--
Any <<NOTE: Applicability.>> such election shall
apply to the taxable year for which made and all
subsequent taxable years unless revoked with the
consent of the Secretary.''.
(b) Special Rule for Regulated Investment Companies.--
(1) In general.--Section 986(a)(1), as amended by subsection
(a), is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following:
``(E) Special rule for regulated investment
companies.--In the case of a regulated investment
company which takes into account income on an accrual
basis, subparagraphs (A) through (D) shall not apply and
foreign income taxes paid or accrued with respect to
such income shall be translated into dollars using the
exchange rate as of the date the income accrues.''.
(2) Conforming amendment.--Section 986(a)(2) is amended by
inserting ``or (E)'' after ``subparagraph (A)''.
[[Page 118 STAT. 1500]]
(c) Effective Date.--The <<NOTE: 26 USC 986 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2004.
SEC. 409. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN
CORPORATIONS.
(a) In General.--Paragraph (2) of section 871(i) (relating to tax
not to apply to certain interest and dividends) is amended by 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 from
sources within the United States.''.
(b) Effective Date.--The <<NOTE: 26 USC 871 note.>> amendment made
by this section shall apply to payments made after December 31, 2004.
SEC. 410. EQUAL TREATMENT OF INTEREST PAID BY FOREIGN PARTNERSHIPS AND
FOREIGN CORPORATIONS.
(a) In General.--Paragraph (1) of section 861(a) is amended by
striking ``and'' at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, and'', and by 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 trade
or business outside the United States, any interest not
paid by a trade or business engaged in by the
partnership in the United States and not allocable to
income which is effectively connected (or treated as
effectively connected) with the conduct of a trade or
business in the United States.''.
(b) Effective Date.--The <<NOTE: 26 USC 861 note.>> 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) Treatment of Certain Dividends.--
(1) Nonresident alien individuals.--Section 871 (relating to
tax on nonresident alien individuals) is amended by
redesignating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
``(k) Exemption for Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any interest-
related dividend received from a regulated investment
company.
``(B) Exceptions.--Subparagraph (A) shall not
apply--
``(i) to any interest-related dividend
received from a regulated investment company by a
person to the extent such dividend is attributable
to interest (other than interest described in
subparagraph (E) (i) or (iii)) received by such
company on indebtedness issued by such person or
by any corporation or partnership with respect to
which such person is a 10-percent shareholder,
``(ii) to any interest-related dividend with
respect to stock of a regulated investment company
unless the person who would otherwise be required
to deduct and withhold tax from such dividend
under chapter
[[Page 118 STAT. 1501]]
3 receives a statement (which meets requirements
similar to the requirements of subsection (h)(5))
that the beneficial owner of such stock is not a
United States person, and
``(iii) to any interest-related dividend paid
to any person within a foreign country (or any
interest-related dividend payment addressed to, or
for the account of, persons within such foreign
country) during any period described in subsection
(h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or before the
date of the publication of the Secretary's determination
under subsection (h)(6).
``(C) Interest-related dividend.--
For <<NOTE: Deadline.>> purposes of this paragraph, the
term `interest-related dividend' means any dividend (or
part thereof) which is designated by the regulated
investment company as an interest-related dividend in a
written notice mailed to its shareholders not later than
60 days after the close of its taxable year. If the
aggregate amount so designated with respect to a taxable
year of the company (including amounts so designated
with respect to dividends paid after the close of the
taxable year described in section 855) is greater than
the qualified net interest income of the company for
such taxable year, the portion of each distribution
which shall be an interest-related dividend shall be
only that portion of the amounts so designated which
such qualified net interest income bears to the
aggregate amount so designated. Such term shall not
include any dividend with respect to any taxable year of
the company beginning after December 31, 2007.
``(D) Qualified net interest income.--For purposes
of subparagraph (C), the term `qualified net interest
income' means the qualified interest income of the
regulated investment company reduced by the deductions
properly allocable to such income.
``(E) Qualified interest income.--For purposes of
subparagraph (D), the term `qualified interest income'
means the sum of the following amounts derived by the
regulated investment company from sources within the
United States:
``(i) Any amount includible in gross income as
original issue discount (within the meaning of
section 1273) on an obligation payable 183 days or
less from the 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
in respect of original issue discount or market
discount or acquisition discount under part V of
subchapter P and such other amounts as regulations
may provide) on an obligation which is in
registered form; except that this clause shall not
apply to--
``(I) any interest on an obligation
issued by a corporation or partnership
if the regulated
[[Page 118 STAT. 1502]]
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 regulated investment company).
``(iv) Any interest-related dividend
includable in gross income with respect to stock
of another regulated investment company.
``(F) 10-percent shareholder.--For purposes of this
paragraph, the term `10-percent shareholder' has the
meaning given such term by subsection (h)(3)(B).
``(2) Short-term capital gain dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any short-term
capital gain dividend received from a regulated
investment company.
``(B) Exception for aliens taxable under subsection
(a)(2).--Subparagraph (A) shall not apply in the case of
any nonresident alien individual subject to tax under
subsection (a)(2).
``(C) Short-term <<NOTE: Notice. Deadline.>> capital
gain dividend.--For purposes of this paragraph, the term
`short-term capital gain dividend' means any dividend
(or part thereof) which is designated by the regulated
investment company as a short-term capital gain dividend
in a written notice mailed to its shareholders not later
than 60 days after the close of its taxable year. If the
aggregate amount so designated with respect to a taxable
year of the company (including amounts so designated
with respect to dividends paid after the close of the
taxable year described in section 855) is greater than
the qualified short-term gain of the company for such
taxable year, the portion of each distribution which
shall be a short-term capital gain dividend shall be
only that portion of the amounts so designated which
such qualified short-term gain bears to the aggregate
amount so designated. Such term shall not include any
dividend with respect to any taxable year of the company
beginning after December 31, 2007.
``(D) Qualified short-term gain.--For purposes of
subparagraph (C), the term `qualified short-term gain'
means the excess of the net short-term capital gain of
the regulated investment company for the taxable year
over the net long-term capital loss (if any) of such
company for such taxable year. For purposes of this
subparagraph--
``(i) the net short-term capital gain of the
regulated investment company shall be computed by
treating any short-term capital gain dividend
includible in gross income with respect to stock
of another regulated investment 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 loss for a taxable year (to which an
election under section 4982(e)(4) does not apply)
shall be determined without regard to any net
capital loss or net short-term capital
[[Page 118 STAT. 1503]]
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 the 1st day of the next taxable year.
To the extent provided in regulations, clause (ii) shall
apply also for purposes of computing the taxable income
of the regulated investment company.''.
(2) Foreign corporations.--Section 881 (relating to tax on
income of foreign corporations not connected with United States
business) is amended by redesignating subsection (e) as
subsection (f) and by inserting after subsection (d) the
following new subsection:
``(e) Tax Not To Apply to Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1) of subsection (a) on any interest-related
dividend (as defined in section 871(k)(1)) received from
a regulated investment company.
``(B) Exception.--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 meaning of section 957(a)) to the
extent such dividend is attributable to interest
received by the regulated investment company from
a person who is a related person (within the
meaning of section 864(d)(4)) with respect to such
controlled foreign corporation.
``(C) Treatment <<NOTE: Applicability.>> of
dividends received by controlled foreign corporations.--
The rules of subsection (c)(5)(A) shall apply to any
(within the meaning of section 957(a)) to the extent
such dividend is attributable to interest received by
the regulated investment company which is described in
clause (ii) of section 871(k)(1)(E) (and not described
in clause (i) or (iii) of such section).
``(2) Short-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) Withholding taxes.--
(A) Section 1441(c) (relating to exceptions) is
amended by adding at the end the following new
paragraph:
``(12) Certain dividends received from regulated investment
companies.--
``(A) In general.--No tax shall be required to be
deducted and withheld under subsection (a) from any
amount exempt from the tax imposed by section
871(a)(1)(A) by reason of section 871(k).
``(B) Special rule.--For purposes of subparagraph
(A), clause (i) of section 871(k)(1)(B) shall not apply
to any dividend unless the regulated investment company
knows that such dividend is a dividend referred to in
such clause. A similar
rule <<NOTE: Applicability.>> shall apply with respect
to the exception contained in section 871(k)(2)(B).''.
[[Page 118 STAT. 1504]]
(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
section 1441(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 referring to sections 881(a) and 881(e)
(except that for purposes of applying subparagraph
(A) of section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply to
any dividend unless the regulated investment
company knows that such dividend is a dividend
referred to in such clause)''.
(b) Estate Tax Treatment of Interest in Certain Regulated Investment
Companies.--Section 2105 (relating to property without the United States
for estate tax purposes) is amended by adding at the end the following
new subsection:
``(d) Stock in a RIC.--
``(1) In 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 States shall not be
deemed property within the United States in the proportion that,
at the end of the quarter of such investment company's taxable
year immediately preceding a decedent's date of death (or at
such other time as the Secretary may designate in regulations),
the assets of the investment company that were qualifying assets
with respect to the decedent bore to the total assets of the
investment company.
``(2) Qualifying 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) Termination.--This subsection shall not apply to
estates of decedents dying after December 31, 2007.''.
(c) Treatment 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
investment entity''.
(2) Paragraphs (2) and (3) of section 897(h) are amended to
read as follows:
``(2) Sale of stock in domestically controlled entity not
taxed.--The term `United States real property interest' does not
include any interest in a domestically controlled qualified
investment entity.
``(3) Distributions by <<NOTE: Applicability.>> domestically
controlled qualified investment entities.--In the case of a
domestically controlled qualified investment entity, rules
similar to the rules of subsection (d) shall apply to the
foreign ownership percentage of any gain.''.
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:
[[Page 118 STAT. 1505]]
``(A) Qualified investment entity.--
``(i) In general.--The term `qualified
investment entity' means--
``(I) any real estate investment
trust, and
``(II) any regulated investment
company.
``(ii) Termination.--Clause (i)(II) shall not
apply after December 31, 2007.
``(B) Domestically controlled.--The term
`domestically controlled qualified investment entity'
means any qualified investment entity in which at all
times during the testing period less than 50 percent in
value of the stock 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 ``qualified
investment entity''.
(5) The subsection heading for subsection (h) of section 897
is amended by striking ``REITS'' and inserting ``Certain
Investment Entities''.
(d) Effective <<NOTE: 26 USC 871 note.>> Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
dividends with respect to taxable years of regulated investment
companies beginning after December 31, 2004.
(2) Estate tax treatment.--The amendment made by subsection
(b) shall apply to estates of decedents dying after December 31,
2004.
(3) Certain other provisions.--The amendments made by
subsection (c) (other than paragraph (1) thereof) shall take
effect after December 31, 2004.
SEC. 412. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.
(a) In General.--Section 954(c) (defining foreign personal holding
company income) is amended by adding after paragraph (3) the following
new paragraph:
``(4) Look-thru rule for certain partnership sales.--
``(A) In general.--In the case of any sale by a
controlled foreign corporation of an interest in a
partnership with respect to which such corporation is a
25-percent owner, such corporation shall be treated for
purposes of this subsection as selling the proportionate
share of the assets of the partnership attributable to
such interest. <<NOTE: Regulations.>> The Secretary
shall prescribe such regulations as may be appropriate
to prevent abuse of the purposes of this paragraph,
including regulations providing for coordination of this
paragraph with the provisions of subchapter K.
``(B) 25-percent owner.--For purposes of this
paragraph, the term `25-percent owner' means a
controlled foreign corporation which owns directly 25
percent or more of the capital or profits interest in a
partnership. For purposes of the preceding sentence, if
a controlled foreign corporation is a shareholder or
partner of a corporation or partnership, the controlled
foreign corporation shall be treated as owning directly
its proportionate share of any such capital or profits
interest held directly or indirectly by such corporation
or partnership.''.
[[Page 118 STAT. 1506]]
(b) Effective Date.--The <<NOTE: 26 USC 954 note.>> amendment made
by this section shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 413. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN
INVESTMENT COMPANY RULES.
(a) General Rule.--The following provisions are hereby repealed:
(1) <<NOTE: 26 USC 551-558.>> 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) Exemption of Foreign Corporations From Personal Holding Company
Rules.--
(1) In general.--Subsection (c) of section 542 (relating to
exceptions) is amended--
(A) by striking paragraph (5) and inserting the
following:
``(5) a foreign corporation,'',
(B) by striking paragraphs (7) and (10) and by
redesignating 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) Treatment of income from personal service contracts.--
Paragraph (1) of section 954(c) is amended by adding at the end
the following new subparagraph:
``(I) Personal service contracts.--
``(i) Amounts received under a contract under
which the corporation is to furnish personal
services if--
``(I) some person other than the
corporation has the right to designate
(by name or by description) the
individual who is to perform the
services, or
``(II) the individual who is to
perform the services is designated (by
name or by description) in the contract,
and
``(ii) amounts received from the sale or other
disposition of such a contract.
This subparagraph <<NOTE: Applicability.>> shall apply
with respect to amounts received for services under a
particular contract only if at some time during the
taxable year 25 percent or more in value of the
outstanding stock of the corporation is owned, directly
or indirectly, by or for the individual who has
performed, is to perform, or may be designated (by name
or by description) as the one to perform, such
services.''.
(c) Conforming Amendments.--
(1) Section 1(h) is amended--
[[Page 118 STAT. 1507]]
(A) in paragraph (10), by inserting ``and'' at the
end of subparagraph (F), by striking subparagraph (G),
and by 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 section
1246(b)), or a foreign personal holding company (within the
meaning 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, and by
striking subparagraph (C).
(9) Paragraph (1) of section 562(b) is amended by striking
``or a foreign personal holding company described in section
552''.
(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 by striking
``paragraph (1), (2), or (3)'' in paragraph (3) (as so
redesignated) 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 subchapter, and''.
(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ``and sections 551(f) and 554, whichever are
applicable,''.
(C) Paragraph (3) of section 898(b) is amended to read as
follows:
[[Page 118 STAT. 1508]]
``(3) United states shareholder.--The term `United States
shareholder' has the meaning given to such term by section
951(b), except that, in the case of a foreign corporation having
related person insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such person
is treated as a United States shareholder under section
953(c)(1).''.
(D) Subsection (c) of section 898 is amended to read as
follows:
``(c) Determination of Required Year.--
``(1) In 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
corporation may elect, in lieu of the taxable year under
paragraph (1)(A), a taxable year beginning 1 month earlier than
the majority U.S. shareholder year.
``(3) Majority u.s. shareholder year.--
``(A) In general.--For purposes of this subsection,
the term `majority U.S. shareholder year' means the
taxable year (if any) which, on each testing day,
constituted the taxable 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 under subsection (b)(2)(B) by any
shareholder described in such clause.
``(B) Testing 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) Certain amounts included.--Except as
provided in clause (iii), the term `passive
income' includes, except as provided in
subparagraph (E)(iii) or paragraph (3)(I), any
amount includible in gross income under section
1293 (relating to certain passive foreign
investment companies).''.
(15)(A) Subparagraph (A) of section 904(h)(1), as
redesignated by this Act, is amended by adding ``or'' at the end
of clause (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 subsections
(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,''.
[[Page 118 STAT. 1509]]
(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) Special 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 <<NOTE: Applicability.>> 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 enactment of
the American Jobs Creation Act of 2004)'' after ``section
1246''.
(25) Paragraph (2) of section 1294(a) is amended to read as
follows:
``(2) Election not permitted where amounts otherwise
includible under section 951.--The taxpayer may not make an
election under paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a qualified electing
fund for the taxable year if any amount is includible in the
gross income of the taxpayer under section 951 with respect 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) Constructive dividends.--If the taxpayer omits
from gross income an amount properly includible therein
under section 951(a), the tax may be assessed, or a
proceeding in court for the collection of such tax may
be done without assessing, at any time within 6 years
after the 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.
[[Page 118 STAT. 1510]]
(32) The table of sections for part IV of subchapter P of
chapter 1 is amended by striking the items relating to sections
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 item
relating to section 6035.
(d) Effective <<NOTE: 26 USC 1 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years of
foreign corporations beginning after December 31, 2004, and to
taxable years of United States shareholders with or within which
such taxable years of foreign corporations end.
(2) Subsection (c)(27).--The amendments made by subsection
(c)(27) shall apply to disclosures of return or return
information with respect to taxable years beginning after
December 31, 2004.
SEC. 414. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH
RESPECT TO TRANSACTIONS IN COMMODITIES.
(a) In General.--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 of the controlled foreign
corporation's commodities are property described
in paragraph (1), (2), or (8) of section 1221(a),
or''.
(b) Definition 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) Definition and special rules relating to commodity
transactions.--
``(A) Commodity hedging transactions.--For purposes
of paragraph (1)(C)(i), the term `commodity hedging
transaction' means any transaction with respect to a
commodity 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 property described in
section 1231(b)' for `ordinary
property', and
``(III) by substituting `controlled
foreign corporation' for `taxpayer' each
place it appears, and
``(ii) is clearly identified as such in
accordance with section 1221(a)(7).
``(B) Treatment of dealer activities under paragraph
(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 foreign
personal holding company income shall not be taken into
account in applying the substantially all test under
paragraph (1)(C)(ii) to such corporation.
[[Page 118 STAT. 1511]]
``(C) Regulations.--The Secretary shall prescribe
such regulations as are appropriate to carry out the
purposes of paragraph (1)(C) in the case of transactions
involving related parties.''.
(c) Modification of Exception for Dealers.--Clause (i) of section
954(c)(2)(C) is amended by inserting ``and transactions involving
physical settlement'' after ``(including hedging transactions''.
(d) Effective Date.--The <<NOTE: 26 USC 954 note.>> 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) Elimination 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
company shipping income).
(b) Safe Harbor for Certain Leasing Activities.--Subparagraph (A) of
section 954(c)(2) is amended by adding at the end the following new
sentence: ``For purposes of the preceding sentence, rents derived from
leasing an aircraft or vessel in foreign commerce shall not fail to be
treated as derived in the active conduct of a trade or business if, as
determined under regulations prescribed by the Secretary, the active
leasing expenses are not less than 10 percent of the profit on the
lease.''.
(c) Conforming 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) Effective Date.--The <<NOTE: 26 USC 952 note.>> amendments made
by this section shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE
FINANCING.
(a) In General.--Section 954(h)(3) is amended by adding at the end
the following:
``(E) Direct conduct of activities.--For purposes of
subparagraph (A)(ii)(II), an activity shall be treated
as conducted directly by an eligible controlled foreign
corporation or qualified business unit in its home
country if the activity is performed by employees of a
related person and--
``(i) the related person is an eligible
controlled foreign corporation the home country of
which is the same as the home country of the
corporation or unit to which subparagraph
(A)(ii)(II) is being applied,
[[Page 118 STAT. 1512]]
``(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
activity by its employees and such compensation is
treated as earned by such person in its home
country for purposes of the home country's tax
laws.''.
(b) Effective Date.--The <<NOTE: 26 USC 954 note.>> amendment made
by this section shall apply to taxable years of such foreign
corporations beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable years of
such foreign corporations end.
SEC. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX
CREDIT CARRYBACK.
(a) General 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) Excess 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) Effective <<NOTE: 26 USC 904 note.>> Date.--
(1) Carryback.--The amendments made by subsections (a)(1)
and (b)(1) shall apply to excess foreign taxes arising in
taxable years beginning after the date of the enactment of this
Act.
(2) Carryover.--The amendments made by subsections (a)(2)
and (b)(2) shall apply to excess foreign taxes which (without
regard to the amendments made by this section) may be carried to
any taxable year ending after the date of the enactment of this
Act.
SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS
ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED
STATES REAL PROPERTY INTERESTS.
(a) In General.--Paragraph (1) of section 897(h) (relating to look-
through of distributions) is amended by adding at the end the following
new sentence: ``Notwithstanding the preceding sentence, any distribution
by a REIT with respect to any class of stock which is regularly traded
on an established securities market located in the United States shall
not be treated as gain recognized from the sale or exchange of a United
States real property interest if the shareholder did not own more than 5
percent of such class of stock at any time during the taxable year.''.
(b) Conforming Amendment.--Paragraph (3) of section 857(b) (relating
to capital gains) is amended by adding at the end the following new
subparagraph:
``(F) Certain distributions.--In the case of a
shareholder of a real estate investment trust to whom
section 897 does not apply by reason of the second
sentence of section 897(h)(1), the amount which would be
included
[[Page 118 STAT. 1513]]
in computing long-term capital gains for such
shareholder under subparagraph (B) or (D) (without
regard to this subparagraph)--
``(i) shall not be included in computing such
shareholder's long-term capital gains, and
``(ii) shall be included in such shareholder's
gross income as a dividend from the real estate
investment trust.''.
(c) Effective Date.--The <<NOTE: 26 USC 857 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE RACES
AND DOG RACES FROM GROSS INCOME OF NONRESIDENT ALIEN
INDIVIDUALS.
(a) In General.--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 after
paragraph (4) the following new paragraph:
``(5) Income derived from wagering transactions in certain
parimutuel pools.--Gross income derived by a nonresident alien
individual from a legal wagering transaction initiated outside
the United States in a parimutuel pool with respect to a live
horse race or dog race in the United States.''.
(b) Conforming Amendment.--Section 883(a)(4) is amended by striking
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
(c) Effective Date.--The <<NOTE: 26 USC 872 note.>> amendments made
by this section shall apply to wagers made after the date of the
enactment of this Act.
SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.
(a) In General.--Subsection (b) of section 881 is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Commonwealth of puerto rico.--
``(A) In 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) are met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.
``(B) Applicability.--If, on or after the date of
the enactment of this paragraph, an increase in the rate
of the Commonwealth of Puerto Rico's withholding tax
which is generally applicable to dividends paid to
United States corporations not engaged in a trade or
business in the Commonwealth to a rate greater than 10
percent takes effect, this paragraph shall not apply to
dividends received on or after the effective date of the
increase.''.
(b) Withholding.--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) Guam, american samoa, the northern mariana islands,
and the virgin islands.--For purposes'', and
[[Page 118 STAT. 1514]]
(2) by adding at the end the following new paragraph:
``(2) Commonwealth of puerto rico.--
``(A) In 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 by
substituting `10 percent' for `30 percent'.
``(B) Applicability.--If, on or after the date of
the enactment of this paragraph, an increase in the rate
of the Commonwealth of Puerto Rico's withholding tax
which is generally applicable to dividends paid to
United States corporations not engaged in a trade or
business in the Commonwealth to a rate greater than 10
percent takes effect, this paragraph shall not apply to
dividends received on or after the effective date of the
increase.''.
(c) Conforming Amendments.--
(1) Subsection (b) of section 881 is amended by striking
``Guam and Virgin Islands Corporations'' in the heading and
inserting ``Possessions''.
(2) Paragraph (1) of section 881(b) is amended by striking
``In general'' in the heading and inserting ``Guam, american
samoa, the northern mariana islands, and the virgin islands''.
(d) Effective Date.--The <<NOTE: 26 USC 881 note.>> amendments made
by this section shall apply to dividends paid after the date of the
enactment of this Act.
SEC. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
(a) In General.--
(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) Effective Date.--The <<NOTE: 26 USC 53 note.>> 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) In General.--Subpart F of part III of subchapter N of chapter 1
(relating to controlled foreign corporations) is amended by adding at
the end the following new section:
``SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
``(a) Deduction.--
``(1) In general.--In the case of a corporation which is a
United States shareholder and for which the election under this
section is in effect for the taxable year, there shall be
allowed as a deduction an amount equal to 85 percent of the cash
dividends which are received during such taxable year by such
shareholder from controlled foreign corporations.
``(2) Dividends paid indirectly from controlled foreign
corporations.--If, within the taxable year for which the
election under this section is in effect, a United States
[[Page 118 STAT. 1515]]
shareholder receives a cash distribution from a controlled
foreign corporation which is excluded from gross income under
section 959(a), such distribution shall be treated for purposes
of this section as a cash dividend to the extent of any amount
included in income by such United States shareholder under
section 951(a)(1)(A) as a result of any cash dividend during
such taxable year to--
``(A) such controlled foreign corporation from
another controlled foreign corporation that is in a
chain of ownership described in section 958(a), or
``(B) any other controlled foreign corporation in
such chain of ownership, but only to the extent of cash
distributions described in section 959(b) which are made
during such taxable year to the controlled foreign
corporation from which such United States shareholder
received such distribution.
``(b) Limitations.--
``(1) In 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 the
United States, or
``(C) in the case of an applicable financial
statement which fails to show a specific amount of
earnings permanently reinvested outside the United
States and which shows a specific amount of tax
liability attributable to such earnings, the amount
equal to the amount of such liability divided by 0.35.
The amounts described in subparagraphs (B) and (C) shall be
treated as being zero if there is no such statement or such
statement fails to show a specific amount of such earnings or
liability, as the case may be.
``(2) Dividends must be extraordinary.--The amount of
dividends taken into account under subsection (a) shall not
exceed 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 corporations,
``(ii) the amounts includible in such
shareholder's gross income for each base period
year under section 951(a)(1)(B) with respect to
controlled foreign corporations, and
``(iii) the amounts that would have been
included for each base period year but for section
959(a) with respect to controlled foreign
corporations.
The amount taken into account under clause (iii) for any
base period year shall not include any amount which is
not includible in gross income by reason of an amount
described in clause (ii) with respect to a prior taxable
year. Amounts described in subparagraph (B) for any base
period year shall be such amounts as shown on the most
recent return filed for such year; except that amended
[[Page 118 STAT. 1516]]
returns filed after June 30, 2003, shall not be taken
into account.
``(3) Reduction 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
foreign corporation to any related person (as defined in
section 954(d)(3)) as of the close of the taxable year
for which the election under this section is in effect,
over
``(B) the amount of indebtedness of the controlled
foreign corporation to any related person (as so
defined) as of the close of October 3, 2004.
All controlled foreign corporations with respect to which the
taxpayer is a United States shareholder shall be treated as 1
controlled foreign corporation for purposes of this paragraph.
``(4) Requirement to invest in united states.--Subsection
(a) shall not apply to any dividend received by a United States
shareholder unless the amount of the dividend is invested in the
United States pursuant to a domestic reinvestment plan which--
``(A) is approved by the taxpayer's president, chief
executive officer, or comparable official before the
payment of such dividend and subsequently approved by
the taxpayer's board of directors, management committee,
executive committee, or similar body, and
``(B) provides for the reinvestment of such dividend
in the United States (other than as payment for
executive compensation), including as a source for the
funding of worker hiring and training, infrastructure,
research and development, capital investments, or the
financial stabilization of the corporation for the
purposes of job retention or creation.
``(c) Definitions and Special Rules.--For purposes of this section--
``(1) Applicable financial statement.--The term `applicable
financial statement' means, with respect to a United States
shareholder, the most recently audited financial statement
(including notes and other documents which accompany such
statement) which includes such shareholder--
``(A) which is certified on or before June 30, 2003,
as being prepared in accordance with generally accepted
accounting 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
statement with the Securities and Exchange Commission, such term
means the most recent such statement filed on or before June 30,
2003.
``(2) Base period years.--
``(A) In 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
[[Page 118 STAT. 1517]]
``(ii) which are determined by disregarding--
``(I) 1 taxable year for which the
sum of the amounts described in clauses
(i), (ii), and (iii) of subsection
(b)(2)(B) is the largest, and
``(II) 1 taxable year for which such
sum is the smallest.
``(B) Shorter period.--If the taxpayer has fewer
than 5 taxable years ending on or before June 30, 2003,
then in lieu of applying subparagraph (A), the base
period years shall include all the taxable years of the
taxpayer ending on or before June 30, 2003.
``(C) Mergers, acquisitions, etc.--
``(i) In general.--
Rules <<NOTE: Applicability.>> similar to the
rules of subparagraphs (A) and (B) of section
41(f)(3) shall apply for purposes of this
paragraph.
``(ii) Spin-offs, etc.--If there is a
distribution to which section 355 (or so much of
section 356 as relates to section 355) applies
during the 5-year period referred to in
subparagraph (A)(i) and the controlled corporation
(within the meaning of section 355) is a United
States shareholder--
``(I) the controlled corporation
shall be treated as being in existence
during the period that the distributing
corporation (within the meaning of
section 355) is in existence, and
``(II) for purposes of applying
subsection (b)(2) to the controlled
corporation and the distributing
corporation, amounts described in
subsection (b)(2)(B) which are received
or includible by the distributing
corporation or controlled corporation
(as the case may be) before the
distribution referred to in subclause
(I) from a controlled foreign
corporation shall be allocated between
such corporations in proportion to their
respective interests as United States
shareholders of such controlled foreign
corporation immediately after such
distribution.
Subclause (II) shall not apply if neither the
controlled corporation nor the distributing
corporation is a United States shareholder of such
controlled foreign corporation immediately after
such distribution.
``(3) Dividend.--The term `dividend' shall not include
amounts includible in gross income as a dividend under section
78, 367, or 1248. In the case of a liquidation under section 332
to which section 367(b) applies, the preceding sentence shall
not apply to the extent the United States shareholder actually
receives cash as part of the liquidation.
``(4) Coordination with dividends received deduction.--No
deduction shall be allowed under section 243 or 245 for any
dividend for which a deduction is allowed under this section.
``(5) Controlled groups.--
``(A) In general.--All United States shareholders
which are members of an affiliated group filing a
consolidated return under section 1501 shall be treated
as one United States shareholder.
[[Page 118 STAT. 1518]]
``(B) Application of $500,000,000 limit.--All
corporations which are treated as a single employer
under section 52(a) shall be limited to one $500,000,000
amount in subsection (b)(1)(A), and such amount shall be
divided among such corporations under regulations
prescribed by the Secretary.
``(C) Permanently reinvested earnings.--If a
financial statement is an applicable financial statement
for more than 1 United States shareholder, the amount
applicable under subparagraph (B) or (C) of subsection
(b)(1) shall be divided among such shareholders under
regulations prescribed by the Secretary.
``(d) Denial of Foreign Tax Credit; Denial of Certain Expenses.--
``(1) Foreign tax credit.--No credit shall be allowed under
section 901 for any taxes paid or accrued (or treated as paid or
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 tax for
which credit is not allowable by reason of the preceding
sentence.
``(2) Expenses.--No deduction shall be allowed for expenses
properly allocated and apportioned to the deductible portion
described in paragraph (1).
``(3) Deductible portion.--For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the deductible portion
of any dividend or other amount is the amount which bears the
same ratio to the amount of such dividend or other amount as 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) Increase in Tax on Included Amounts Not Reduced by Credits,
Etc.--
``(1) In general.--Any tax under this chapter by reason of
nondeductible CFC dividends shall not be treated as tax imposed
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 section 53
or to the credit under section 27(a) with respect to taxes
attributable to such dividends.
``(2) Limitation on reduction in taxable income, etc.--
``(A) In general.--The taxable income of any United
States shareholder for any taxable year shall in no
event be less than the amount of nondeductible CFC
dividends received during such year.
``(B) Coordination with section 172.--The
nondeductible CFC dividends for any taxable year shall
not be taken into 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
section 172(b)(2).
[[Page 118 STAT. 1519]]
``(3) Nondeductible cfc dividends.--For purposes of this
subsection, the term `nondeductible CFC dividends' means the
excess of the amount of dividends taken into account under
subsection (a) over the deduction allowed under subsection (a)
for such dividends.
``(f) Election.--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 before the due
date (including extensions) for filing the return of tax for such
taxable year.''.
(b) Alternative Minimum Tax.--Subparagraph (C) of section 56(g)(4)
is amended by inserting after clause (v) the following new clause:
``(vi) Special rule for certain distributions
from controlled foreign corporations.--Clause (i)
shall not apply to any deduction allowable under
section 965.''.
(c) Clerical Amendment.--The table of sections for subpart F of part
III of subchapter N of chapter 1 is amended by adding at the end the
following new item:
``Sec. 965. Temporary dividends received deduction.''.
(d) Effective Date.--The <<NOTE: 26 USC 56 note.>> amendments made
by this section shall apply to taxable years ending on or after the date
of the enactment of this Act.
SEC. 423. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING
EXCLUSION OF INCOME FROM INTERNATIONAL OPERATION OF SHIPS OR
AIRCRAFT.
Notwithstanding the provisions of Treasury regulation Sec. 1.883-5,
the final regulations issued by the Secretary of the Treasury relating
to income derived by foreign corporations from the international
operation of ships or aircraft (Treasury regulations Sec. 1.883-1
through Sec. 1.883-5) shall apply to taxable years of a foreign
corporation seeking qualified foreign corporation status beginning after
September 24, 2004.
SEC. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
(a) In General.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study of the effectiveness of the provisions of
the Internal Revenue Code of 1986 applicable to earnings stripping,
including a study of--
(1) the effectiveness of section 163(j) of such Code in
preventing the shifting of income outside the United States,
(2) whether any deficiencies of such provisions place United
States-based businesses at a competitive disadvantage relative
to 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.
[[Page 118 STAT. 1520]]
(b) Report.--Not later than June 30, 2005, the Secretary shall
submit to the Congress a report of the study conducted under this
section, including specific recommendations as to how to improve the
provisions of such Code applicable to earnings stripping.
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) In General.--Subsection (b) of section 164 (relating to
definitions and special rules) is amended by adding at the end the
following:
``(5) General sales taxes.--For purposes of subsection (a)--
``(A) Election to deduct state and local sales taxes
in lieu of state and local income taxes.--
``(i) In 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) Definition of general sales tax.--The term
`general sales tax' means a tax imposed at one rate with
respect to the sale at retail of a broad range of
classes of items.
``(C) Special rules for food, etc.--In the case of
items of food, clothing, medical supplies, and motor
vehicles--
``(i) the fact that the tax does not apply
with respect to some or all of such items shall
not be taken into account in determining whether
the tax applies with respect 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 than the general rate of tax shall
not be taken into account in determining whether
the tax is imposed at one rate.
``(D) Items taxed at different rates.--Except in the
case of a lower rate of tax applicable with respect to
an item described in subparagraph (C), no deduction
shall be allowed under this paragraph for any general
sales tax imposed with respect to an item at a rate
other than the general rate of tax.
``(E) Compensating use taxes.--A compensating use
tax with respect to an item shall be treated as a
general sales 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
[[Page 118 STAT. 1521]]
with respect to items sold at retail in the taxing
jurisdiction which are similar to such item.
``(F) Special rule for motor vehicles.--In the case
of motor vehicles, if the rate of tax exceeds the
general rate, such excess shall be disregarded and the
general rate shall be treated as the rate of tax.
``(G) Separately 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
the consumer (other than in connection with the
consumer's trade or business) to the seller, such amount
shall be treated as a tax imposed on, and paid by, such
consumer.
``(H) Amount of deduction may be determined under
tables.--
``(i) In general.--At the election of the
taxpayer for the taxable year, the amount of the
deduction allowed under this paragraph for such
year shall be--
``(I) the amount determined under
this paragraph (without regard to this
subparagraph) with respect to motor
vehicles, boats, and other items
specified by the Secretary, and
``(II) the amount determined under
tables prescribed by the Secretary with
respect to items to which subclause (I)
does not apply.
``(ii) Requirements for tables.--The tables
prescribed under clause (i)--
``(I) shall reflect the provisions
of this paragraph,
``(II) shall be based on the average
consumption by taxpayers on a State-by-
State basis (as determined by the
Secretary) of items to which clause
(i)(I) does not apply, taking into
account filing status, number of
dependents, adjusted gross income, and
rates of State and local general sales
taxation, and
``(III) need only be determined with
respect to adjusted gross incomes up to
the applicable amount (as determined
under section 68(b)).
``(I) Application of paragraph.--This paragraph
shall apply to taxable years beginning after December
31, 2003, and before January 1, 2006.''.
(b) Effective Date.--The <<NOTE: 26 USC 164 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2003.
TITLE VI--FAIR <<NOTE: Fair and Equitable Tobacco Reform Act of
2004.>> AND EQUITABLE TOBACCO REFORM
SEC. 601. <<NOTE: 7 USC 518 note.>> SHORT TITLE.
This title may be cited as the ``Fair and Equitable Tobacco Reform
Act of 2004''.
[[Page 118 STAT. 1522]]
Subtitle A--Termination of Federal Tobacco Quota and Price Support
Programs
SEC. 611. TERMINATION OF TOBACCO QUOTA PROGRAM AND RELATED PROVISIONS.
(a) Marketing 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) Tobacco Inspections.--Section 213 of the Tobacco Adjustment Act
of 1983 (7 U.S.C. 511r) is repealed.
(c) Tobacco Control.--The Act of April 25, 1936 (commonly known as
the Tobacco Control Act; 7 U.S.C. 515 et seq.), is repealed.
(d) Processing Tax.--Section 9(b) of the Agricultural Adjustment Act
(7 U.S.C. 609(b)), reenacted with amendments by the Agricultural
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 more
than 10 per centum,''.
(e) Declaration of Policy.--Section 2 of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1282) is amended by striking ``tobacco,''.
(f) Definitions.--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
subparagraph (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
subparagraph (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
subparagraph (B);
(9) by striking paragraph (17); and
(10) by redesignating paragraph (16) as paragraph (15).
(g) Parity Payments.--Section 303 of the Agricultural Adjustment Act
of 1938 (7 U.S.C. 1303) is amended in the first sentence by striking
``rice, or tobacco,'' and inserting ``or rice,''.
(h) Administrative Provisions.--Section 361 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
``tobacco,''.
(i) Adjustment of Quotas.--Section 371 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1371) is amended--
[[Page 118 STAT. 1523]]
(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) Reports 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
stemming tobacco for producers,''; and
(B) in the last sentence, by striking ``$500;'' and
all that follows through the period at the end of the
sentence and inserting ``$500.''.
(k) Regulations.--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) Eminent Domain.--Section 378 of the Agricultural Adjustment 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) Burley Tobacco Farm Reconstitution.--Section 379 of the
Agricultural Adjustment Act of 1938 (7 U.S.C. 1379) is amended--
(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) Acreage-Poundage Quotas.--Section 4 of the Act of April 16, 1955
(Public Law 89-12; 7 U.S.C. 1314c note), is repealed.
(o) Burley Tobacco Acreage Allotments.--The Act of July 12, 1952 (7
U.S.C. 1315), is repealed.
(p) Transfer of Allotments.--Section 703 of the Food and Agriculture
Act of 1965 (7 U.S.C. 1316) is repealed.
(q) Advance Recourse Loans.--Section 13(a)(2)(B) of the Food
Security Improvements Act of 1986 (7 U.S.C. 1433c-1(a)(2)(B)) is amended
by striking ``tobacco and''.
(r) Tobacco Field Measurement.--Section 1112 of the Omnibus Budget
Reconciliation Act of 1987 (Public Law 100-203; 101 Stat. 1330-8) is
amended by striking subsection (c).
(s) Burley 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) Termination of Tobacco Price Support and No Net Cost
Provisions.--Sections 106, 106A, and 106B of the Agricultural Act of
1949 (7 U.S.C. 1445, 1445-1, 1445-2) are repealed.
(b) Parity Price Support.--Section 101 of the Agricultural Act of
1949 (7 U.S.C. 1441) is amended--
[[Page 118 STAT. 1524]]
(1) in the first sentence of subsection (a), by striking
``tobacco (except as otherwise provided herein), corn,'' and
inserting ``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
quotas have been disapproved by producers;''; and
(4) by redesignating subsections (d) and (e) as subsections
(c) and (d), respectively.
(c) Definition of Basic Agricultural Commodity.--Section 408(c) of
the Agricultural Act of 1949 (7 U.S.C. 1428(c)) is amended by striking
``tobacco,''.
(d) Powers 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 ``agricultural commodities''
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 under
section 106 of the Agricultural Act of 1949 (7 U.S.C. 1445) at
the time of the violation; by''.
SEC. 614. <<NOTE: 7 USC 515 note.>> 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 amended with respect to the
2004 or an earlier crop of each kind of tobacco.
Subtitle B--Transitional Payments to Tobacco Quota Holders and Producers
of Tobacco
SEC. 621. <<NOTE: 7 USC 518.>> DEFINITIONS.
In this subtitle and subtitle C:
(1) Agricultural 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 the enactment
of this title.
(2) Agricultural adjustment act of 1938.--The term
``Agricultural Adjustment Act of 1938'' means the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1281 et seq.), as in effect on
the day before the date of the enactment of this title.
(3) Considered planted.--The term ``considered planted''
means tobacco that was planted, but failed to be produced as a
result of a natural disaster, as determined by the Secretary.
(4) Contract.--The term ``contract'' means a contract
entered into under section 622 or 623.
[[Page 118 STAT. 1525]]
(5) Contract payment.--The term ``contract payment'' means a
payment made under section 622 or 623 pursuant to a contract.
(6) Producer of quota tobacco.--The term ``producer of quota
tobacco'' means an owner, operator, landlord, tenant, or
sharecropper that shared in the risk of producing tobacco on a
farm where tobacco was produced or considered planted pursuant
to a tobacco farm poundage quota or farm acreage allotment
established under part I of subtitle B of title III of the
Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.).
(7) Quota tobacco.--The term `quota tobacco' means a kind of
tobacco that is subject to a farm marketing quota or farm
acreage allotment for the 2004 tobacco marketing year under a
marketing quota or allotment program established under part I of
subtitle B of title III of the Agricultural Adjustment Act of
1938 (7 U.S.C. 1311 et seq.).
(8) Tobacco.--The term ``tobacco'' means each of the
following 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) Tobacco quota holder.--The term ``tobacco quota holder''
means a person that was an owner of a farm, as of the date of
enactment of this title, for which a basic tobacco farm
marketing quota or farm acreage allotment for quota tobacco was
established for the 2004 tobacco marketing year.
(10) Tobacco trust fund.--The term ``Tobacco Trust Fund''
means the Tobacco Trust Fund established under section 626.
(11) Secretary.--The term ``Secretary'' means the Secretary
of Agriculture.
SEC. 622. <<NOTE: 7 USC 518a.>> CONTRACT PAYMENTS TO TOBACCO QUOTA
HOLDERS.
(a) Contract Offered.--The Secretary shall offer to enter into a
contract with each tobacco quota holder under which the tobacco quota
holder shall be entitled to receive payments under this section in
exchange for the termination of tobacco marketing quotas and related
price support under the amendments made by sections 611 and 612. The
contract payments shall constitute full and fair consideration for the
termination of such tobacco marketing quotas and related price support.
(b) Eligibility.--To be eligible to enter into a contract to receive
a contract payment under this section, a person shall submit to the
Secretary an application containing such information as the Secretary
may require to demonstrate to the satisfaction of the Secretary that the
person is a tobacco quota holder. The application shall be submitted
within such time, in such form, and in such manner as the Secretary may
require.
(c) Base Quota Level.--
[[Page 118 STAT. 1526]]
(1) Establishment.--The Secretary shall establish a base
quota level applicable to each tobacco quota holder identified
under subsection (b).
(2) Poundage quotas.--Subject to adjustment under subsection
(d), for each kind of tobacco for which the marketing quota is
expressed in pounds, the base quota level for each tobacco quota
holder shall be equal to the basic quota for quota tobacco
established for the 2002 tobacco marketing year under a
marketing quota program established under part I of subtitle B
of title III of the Agriculture Adjustment Act of 1938 on the
farm owned by the tobacco quota holder.
(3) Marketing quotas other than poundage quotas.--Subject to
adjustment under subsection (d), for each kind of tobacco for
which there is marketing quota or allotment on an acreage basis,
the base quota level for each tobacco quota holder shall be the
quantity equal to the product obtained by multiplying--
(A) the basic tobacco farm marketing quota or
allotment for the 2002 marketing year established by the
Secretary 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 for
that kind of tobacco in the county in which the quota
tobacco is located.
(d) Treatment of Certain Contracts and Agreements.--
(1) Effect of purchase contract.--If there was an agreement
for the purchase of all or part of a farm described in
subsection (c) as of the date of the enactment of this title,
and the parties to the sale are unable to agree to the
disposition of eligibility for contract payments, the Secretary,
taking into account any transfer of quota that has been agreed
to, shall provide for the equitable division of the contract
payments among the parties by adjusting the determination of who
is the tobacco quota holder with respect to particular pounds or
allotment of the quota.
(2) Effect of agreement for permanent quota transfer.--If
the Secretary determines that there was in existence, as of the
day before the date of the enactment of this title, an agreement
for the permanent transfer of quota, but that the transfer was
not completed by that date, the Secretary shall consider the
tobacco quota holder to be the party to the agreement that, as
of that date, was the owner of the farm to which the quota was
to be transferred.
(e) Contract Payments.--
(1) Calculation of total payment amount.--The total amount
of contract payments to which an eligible tobacco quota holder
is entitled under this section, with respect to a kind of
tobacco, shall be equal to the product obtained by multiplying--
(A) $7.00 per pound; by
(B) the base quota level of the tobacco quota holder
determined under subsection (c) with respect to that
kind of tobacco.
(2) Annual payment.--During each of fiscal years 2005
through 2014, the Secretary shall make a contract payment under
this section to each eligible tobacco quota holder, with
[[Page 118 STAT. 1527]]
respect to a kind of tobacco, in an amount equal to \1/10\ of
the amount determined under paragraph (1) for the tobacco quota
holder for that kind of tobacco.
(f) Death of Tobacco Quota Holder.--If a tobacco quota holder who is
entitled to contract payments under this section dies and is survived by
a spouse or one or more dependents, the right to receive the payments
shall transfer to the surviving spouse or, if there is no surviving
spouse, to the estate of the tobacco quota holder.
SEC. 623. <<NOTE: 7 USC 518b.>> CONTRACT PAYMENTS FOR PRODUCERS OF QUOTA
TOBACCO.
(a) Contract Offered.--The Secretary shall offer to enter into a
contract with each producer of quota tobacco under which the producer of
quota tobacco shall be entitled to receive payments under this section
in exchange for the termination of tobacco marketing quotas and related
price support under the amendments made by sections 611 and 612. The
contract payments shall constitute full and fair consideration for the
termination of such tobacco marketing quotas and related price support.
(b) Eligibility.--
(1) Application and determination.--To be eligible to enter
into a contract to receive a contract payment under this
section, a person shall submit to the Secretary an application
containing such information as the Secretary may require to
demonstrate to the satisfaction of the Secretary that the person
is a producer of quota tobacco. The application shall be
submitted within such time, in such form, and in such manner as
the Secretary may require.
(2) Effect of Multiple Producers for Same Quota Tobacco.--
If, on the basis of the applications submitted under paragraph
(1) or other information, the Secretary determines that two or
more persons are a producer of the same quota tobacco, the
Secretary shall provide for an equitable distribution among the
persons of the contract payments made under this section with
respect to that quota tobacco, based on relative share of such
persons in the risk of producing the quota tobacco and such
other factors as the Secretary considers appropriate.
(c) Base Quota Level.--
(1) Establishment.--The Secretary shall establish a base
quota level applicable to each producer of quota tobacco, as
determined under this subsection.
(2) Flue-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 quota
tobacco shall be equal to the effective tobacco marketing quota
(irrespective of disaster lease and transfers) under part I of
subtitle B of title III of the Agriculture Adjustment Act of
1938 for the 2002 marketing year for quota tobacco produced on
the farm.
(3) Other kinds of tobacco.--In the case of each kind of
tobacco (other than tobacco covered by paragraph (2)), for the
purpose of calculating a contract payment to a producer of quota
tobacco, the base quota level for the producer of quota tobacco
shall be the quantity obtained by multiplying--
[[Page 118 STAT. 1528]]
(A) the basic tobacco farm acreage allotment for the
2002 marketing year established by the Secretary for
quota tobacco 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) Contract Payments.--
(1) Calculation of total payment amount.--Subject to
subsection (b)(2), the total amount of contract payments to
which an eligible producer of quota tobacco is entitled under
this section, with respect to a kind of tobacco, shall be equal
to 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 kind of tobacco.
(2) Annual payment.--During each of fiscal years 2005
through 2014, the Secretary shall make a contract payment under
this section to each eligible producer of tobacco, with respect
to a kind of tobacco, in an amount equal to \1/10\ of the amount
determined under paragraph (1) for the producer for that kind of
tobacco.
(3) Variable payment rates.--The rate for payments to a
producer of quota tobacco under paragraph (1)(A) shall be equal
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
under paragraph (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 tobacco
marketing years, \2/3\ of 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 tobacco
marketing years, \1/3\ of the rate prescribed under
paragraph (1)(A).
(e) Death of Tobacco Producer.--If a producer of quota tobacco who
is entitled to contract payments under this section dies and is survived
by a spouse or one or more dependents, the right to receive the contract
payments shall transfer to the surviving spouse or, if there is no
surviving spouse, to the estate of the producer.
SEC. 624. <<NOTE: 7 USC 518c.>> ADMINISTRATION.
(a) Time for Payment of Contract Payments.--Contract payments
required to be made for a fiscal year shall be made by the Secretary as
soon as practicable.
(b) Use of County Committees to Resolve Disputes.--Any dispute
regarding the eligibility of a person to enter into a contract or to
receive contract payments, and any dispute regarding the amount of a
contract payment, may be appealed to the county committee established
under section 8 of the Soil Conservation
[[Page 118 STAT. 1529]]
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) Role of National Appeals Division.--Any adverse determination of
a county committee under subsection (b) may be appealed to the National
Appeals Division established under subtitle H of the Department of
Agriculture Reorganization Act of 1994 (7 U.S.C. 6991 et seq.).
(d) Use of Financial Institutions.--The Secretary may use a
financial institution to manage assets, make contract payments, and
otherwise carry out this title.
(e) Payment to Financial Institutions.--The Secretary shall permit a
tobacco quota holder or producer of quota tobacco entitled to contract
payments to assign to a financial institution the right to receive the
contract payments. Upon receiving notification of the assignment, the
Secretary shall make subsequent contract payments for the tobacco quota
holder or producer of quota tobacco directly to the financial
institution designated by the tobacco quota holder or producer of quota
tobacco. The Secretary shall make information available to tobacco quota
holders and producers of quota tobacco regarding their ability to elect
to have the Secretary make payments directly to a financial institution
under this subsection so that they may obtain a lump sum or other
payment.
SEC. 625. <<NOTE: 7 USC 518d.>> USE OF ASSESSMENTS AS SOURCE OF FUNDS
FOR PAYMENTS.
(a) Definitions.--In this section:
(1) Base period.--The term ``base period' means the one-year
period ending the June 30 before the beginning of a fiscal year.
(2) Gross 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
removal under that chapter or the Harmonized Tariff
Schedule of the United States (19 U.S.C. 1202).
(3) Market 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 the total volume
of domestic sales of the class of tobacco product during the
base period for a fiscal year for an assessment under this
section.
(b) Quarterly Assessments.--
(1) Imposition of assessment.--The Secretary, acting through
the Commodity Credit Corporation, shall impose quarterly
assessments during each of fiscal years 2005 through 2014,
calculated in accordance with this section, on each tobacco
product manufacturer and tobacco product importer that sells
tobacco products in domestic commerce in the United States
during that fiscal year.
(2) Amounts.--Beginning with the calendar quarter ending on
December 31 of each of fiscal years 2005 through 2014, the
assessment payments over each four-calendar quarter period shall
be sufficient to cover--
(A) the contract payments made under sections 622
and 623 during that period; and
[[Page 118 STAT. 1530]]
(B) other expenditures from the Tobacco Trust Fund
made during the base quarter periods corresponding to
the four calendar quarters of that period.
(3) Deposit.--Assessments collected under this section shall
be deposited in the Tobacco Trust Fund.
(c) Assessments for Classes of Tobacco Products.--
(1) Initial allocation.--The percentage of the total amount
required by subsection (b) to be assessed against, and paid by,
the manufacturers and importers of each class of tobacco 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
percent.
(C) For snuff manufacturers and importers, 0.539
percent.
(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) Subsequent allocations.--For subsequent fiscal years,
the Secretary shall periodically adjust the percentage of the
total amount required under subsection (b) to be assessed
against, and paid by, the manufacturers and importers of each
class of tobacco product specified in paragraph (1) to reflect
changes in the share of gross domestic volume held by that class
of tobacco product.
(3) Effect of insufficient amounts.--If the Secretary
determines that the assessment imposed under subsection (b) will
result in insufficient amounts to carry out this subtitle during
a fiscal year, the Secretary shall assess such additional
amounts as the Secretary determines to be necessary to carry out
this subtitle during that fiscal year. The additional amount
shall be allocated to manufacturers and importers of each class
of tobacco product specified in paragraph (1) in the same manner
and based on the same percentages applicable under paragraph (1)
or (2) for that fiscal year.
(d) Notification and Timing of Assessments.--
(1) Notification of assessments.--The Secretary shall
provide each manufacturer or importer subject to an assessment
under subsection (b) with written notice setting forth the
amount to be assessed against the manufacturer or importer for
each quarterly payment period. <<NOTE: Deadline.>> The notice
for a quarterly period shall be provided not later than 30 days
before the date payment is due under paragraph (3).
(2) Content.--The notice shall include the following
information with respect to the quarterly period used by the
Secretary in calculating the amount:
(A) The total combined assessment for all
manufacturers and importers of tobacco products.
(B) The total assessment with respect to the class
of tobacco products manufactured or imported by the
manufacturer or importer.
[[Page 118 STAT. 1531]]
(C) Any adjustments to the percentage allocations
among the classes of tobacco products made pursuant to
paragraph (2) or (3) of subsection (c).
(D) The volume of gross sales of the applicable
class of tobacco product treated as made by the
manufacturer or importer for purposes of calculating the
manufacturer's or 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 made by all manufacturers and importers for
purposes of calculating the manufacturer's or importer's
market share under subsection (f).
(F) The manufacturer's or importer's market share of
the applicable class of tobacco product, as determined
by the Secretary under subsection (f).
(G) The market share, as determined by the Secretary
under subsection (f), of each other manufacturer and
importer, for each applicable class of tobacco product.
(3) Timing of assessment payments.--
(A) Collection date.--
Assessments <<NOTE: Deadline.>> shall be collected at
the end of each calendar year quarter, except that the
Secretary shall ensure that the final assessment due
under this section is collected not later than September
30, 2014.
(B) Base period quarter.--The assessment for a
calendar year quarter shall correspond to the base
period quarter that ended at the end of the preceding
calendar year quarter.
(e) Allocation of Assessment Within Each Class of Tobacco Product.--
(1) Pro rata basis.--The assessment for each class of
tobacco product specified in subsection (c)(1) shall be
allocated on a pro rata basis among manufacturers and importers
based on each manufacturer's or importer's share of gross
domestic volume.
(2) Limitation.--No manufacturer or importer shall be
required to pay an assessment that is based on a share that is
in excess of the manufacturer's or importer's share of domestic
volume.
(f) Allocation of Total Assessments by Market Share.--The amount of
the assessment for each class of tobacco product specified in subsection
(c)(1) to be paid by each manufacturer or importer of that class of
tobacco product shall be determined for each quarterly payment period by
multiplying--
(1) the market share of the manufacturer or importer, as
calculated with respect to that payment period, of the class of
tobacco product; by
(2) the total amount of the assessment for that quarterly
payment period under subsection (c), for the class of tobacco
product.
(g) Determination of Volume of Domestic Sales.--
(1) In general.--The calculation of the volume of domestic
sales of a class of tobacco product by a manufacturer or
importer, and by all manufacturers and importers as a group,
shall be made by the Secretary based on information provided by
the manufacturers and importers pursuant to subsection (h), as
well as any other relevant information provided to or obtained
by the Secretary.
[[Page 118 STAT. 1532]]
(2) Gross domestic volume.--The volume of domestic sales
shall be calculated based on gross domestic volume.
(3) Measurement.--For purposes of the calculations under
this subsection and the certifications under subsection (h) by
the Secretary, the volumes of domestic sales shall be measured
by--
(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) Measurement of Volume of Domestic Sales.--
(1) Submission of information.--
Each <<NOTE: Certification.>> manufacturer and importer of
tobacco products shall submit to the Secretary a certified copy
of each of the returns or forms described by paragraph (2) that
are required to be filed with a Federal agency on the same date
that those returns or forms are filed, or required to be filed,
with the agency.
(2) Returns and forms.--The returns and forms described by
this paragraph are those returns and forms that relate to--
(A) the removal of tobacco products into domestic
commerce (as defined by section 5702 of the Internal
Revenue Code of 1986); and
(B) the payment of the taxes imposed under charter
52 of the Internal Revenue Code of 1986, including AFT
Form 5000.24 and United States Customs Form 7501 under
currently applicable regulations.
(3) Effect of failure to provide required information.--Any
person that knowingly fails to provide information required
under this subsection or that provides false information under
this subsection shall be subject to the penalties described in
section 1003 of title 18, United States Code. The Secretary may
also assess against the person a civil penalty in an amount not
to exceed two percent of the value of the kind of tobacco
products manufactured or imported by the person during the
fiscal year in which the violation occurred, as determined by
the Secretary.
(i) Challenge to Assessment.--
(1) Appeal to secretary.--A <<NOTE: Deadline.>> manufacturer
or importer subject to this section may contest an assessment
imposed on the manufacturer or importer under this section by
notifying the Secretary, not later than 30 business days after
receiving the assessment notification required by subsection
(d), that the manufacturer or importer intends to contest the
assessment.
(2) Information.--Not <<NOTE: Deadline. Regulations.>> later
than 180 days after the date of the enactment of this title, the
Secretary shall establish by regulation a procedure under which
a manufacturer or importer contesting an assessment under this
subsection may present information to the Secretary to
demonstrate that the assessment applicable to the manufacturer
or importer is incorrect. In challenging the assessment, the
manufacturer or importer may use any information that is
available, including third party data on industry or individual
company sales volumes.
(3) Revision.--If a manufacturer or importer establishes
that the initial determination of the amount of an assessment
[[Page 118 STAT. 1533]]
is incorrect, the Secretary shall revise the amount of the
assessment so that the manufacturer or importer is required to
pay only the amount correctly determined.
(4) Time for review.--Not <<NOTE: Deadline.>> later than 30
days after receiving notice from a manufacturer or importer
under paragraph (1), the Secretary shall--
(A) decide whether the information provided to the
Secretary under paragraph (2), and any other information
that the Secretary determines is appropriate, is
sufficient to 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 rata
share of total gross domestic volume from all sources.
(5) Immediate payment of undisputed amounts.--The
regulations promulgated by the Secretary under paragraph (2)
shall provide for the immediate payment by a manufacturer or
importer challenging an assessment of that portion of the
assessment that is not in dispute. The manufacturer and importer
may place into escrow, in accordance with such regulations, only
the portion of the assessment being challenged in good faith
pending final determination of the claim.
(j) Judicial Review.--
(1) In general.--Any manufacturer or importer aggrieved by a
determination of the Secretary with respect to the amount of any
assessment may seek review of the determination in the United
States District Court for the District of Columbia or for the
district in which the manufacturer or importer resides or has
its principal place of business at any time following exhaustion
of the administrative remedies available under subsection (i).
(2) Time limits.--Administrative remedies shall be deemed
exhausted if no decision by the Secretary is made within the
time limits established under subsection (i)(4).
(3) Excessive assessments.--The court shall restrain
collection of the excessive portion of any assessment or order a
refund of excessive assessments already paid, along with
interest calculated at the rate prescribed in section 3717 of
title 31, United States Code, if it finds that the Secretary's
determination is not supported by a preponderance of the
information available to the Secretary.
(k) Termination Date.--The authority provided by this section to
impose assessments terminates on September 30, 2014.
SEC. 626. <<NOTE: 7 USC 518e.>> TOBACCO TRUST FUND.
(a) Establishment.--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 this subtitle. 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) Expenditures.--
(1) Authorized expenditures.--Subject to paragraph (2), and
notwithstanding any other provision of law, the Secretary
[[Page 118 STAT. 1534]]
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 Corporation
under paragraph (2); and
(D) to make payments to financial institutions to
satisfy contractual obligations under section 622 or
623.
(2) Expenditures by commodity credit corporation.--
Notwithstanding any other provision of law, the Secretary shall
use the funds, facilities, and authorities of the Commodity
Credit Corporation to make payments described in paragraph (1).
Not later <<NOTE: Deadline.>> than January 1, 2015, the
Secretary shall use amounts in the Tobacco Trust Fund to fully
reimburse, with interest, the Commodity Credit Corporation for
all funds of the Commodity Credit Corporation expended under the
authority of this paragraph. Administrative costs incurred by
the Secretary or the Commodity Credit Corporation to carry out
this title may not be paid using amounts in the Tobacco Trust
Fund.
(c) Investment of Amounts.--
(1) In general.--The Commodity Credit Corporation shall
invest such portion of the amounts in the Tobacco Trust Fund as
are not, in the judgment of the Commodity Credit Corporation,
required to meet current expenditures.
(2) Interest-bearing obligations.--Investments may be made
only in interest-bearing obligations of the United States.
(3) Acquisition 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) Sale of obligations.--Any obligation acquired by the
Tobacco Trust Fund may be sold by the Commodity Credit
Corporation at the market price.
(5) Credits to fund.--The interest on, and the proceeds from
the sale or redemption of, any obligations held in the Tobacco
Trust Fund shall be credited to and form a part of the Fund.
SEC. 627. <<NOTE: 7 USC 518f.>> LIMITATION ON TOTAL EXPENDITURES.
The total amount expended by the Secretary from the Tobacco Trust
Fund to make payments under sections 622 and 623 and for the other
authorized purposes of the Fund shall not exceed $10,140,000,000.
Subtitle C--Implementation and Transition
SEC. 641. <<NOTE: 7 USC 519.>> TREATMENT OF TOBACCO LOAN POOL STOCKS AND
OUTSTANDING LOAN COSTS.
(a) Disposal of Stocks.--To provide for the orderly disposition of
quota tobacco held by an association that has entered into a loan
agreement with the Commodity Credit Corporation under section 106A or
106B of the Agricultural Act of 1949 (7 U.S.C. 1445-
[[Page 118 STAT. 1535]]
1, 1445-2) (referred to in this section as an ``association''), loan
pool stocks for each kind of tobacco held by the association shall be
disposed of in accordance with this section.
(b) Disposal by Associations.--For each kind of tobacco held by an
association, the association shall be responsible for the disposal of a
specific quantity of the loan pool stocks for that kind of tobacco held
by the association. The quantity transferred to the association for
disposal shall be equal to the quantity determined by dividing--
(1) the amount of funds held by the association in the No
Net Cost Tobacco Fund and the No Net Cost Tobacco Account
established under sections 106A and 106B of the Agricultural Act
of 1949 (7 U.S.C. 1445-1, 1445-2) for the kind of tobacco; by
(2) the average list price per pound for the kind of
tobacco, as determined by the Secretary.
(c) Disposal of Remainder by Commodity Credit Corporation.--
(1) Disposal.--Any loan pool stocks of a kind of tobacco of
an association that are not transferred to the association under
subsection (b) for disposal shall be disposed of by Commodity
Credit Corporation in a manner determined by the Secretary.
(2) Reimbursement.--As required by section 626(b)(1)(B), the
Secretary shall transfer from the Tobacco Trust Fund to the No
Net Cost Tobacco Fund or the No Net Cost Tobacco Account of an
association established under section 106A or 106B of the
Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) such amounts
as the Secretary determines will be adequate to reimburse the
Commodity Credit Corporation for any net losses that the
Corporation may sustain under its loan agreements with the
association.
(d) Transfer of Remaining No Net Cost Funds.--Any funds in the No
Net Cost Tobacco Fund or the No Net Cost Tobacco Account of an
association established under sections 106A and 106B 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 producers of quota tobacco in accordance with a plan
approved by the Secretary.
SEC. 642. <<NOTE: 7 USC 519a.>> REGULATIONS.
(a) In General.--The Secretary may promulgate such regulations as
are necessary to implement this title and the amendments made by this
title.
(b) Procedure.--The promulgation of the regulations and
administration of this title and the amendments made by this title 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
notices of proposed rulemaking and public participation in
rulemaking; and
(3) chapter 35 of title 44, United States Code (commonly
known as the ``Paperwork Reduction Act'').
[[Page 118 STAT. 1536]]
(c) Congressional Review of Agency Rulemaking.--In carrying out this
section, the Secretary shall use the authority provided under section
808 of title 5, United States Code.
SEC. 643. <<NOTE: 7 USC 518 note.>> 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) Treatment as Exempt Facility Bond.--Subsection (a) of section
142 (relating to the definition of exempt facility bond) is amended by
striking ``or'' at the end of paragraph (12), by striking the period at
the end of paragraph (13) and inserting ``, or'', and by inserting at
the end the following new paragraph:
``(14) qualified green building and sustainable design
projects.''.
(b) Qualified 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) Qualified Green Building and Sustainable Design Projects.--
``(1) In 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, after
consultation with the Administrator of the Environmental
Protection Agency, as a qualified green building and sustainable
design project and which meets the requirements of clauses (i),
(ii), (iii), and (iv) of paragraph (4)(A).
``(2) Designations.--
``(A) In general.--Within <<NOTE: Deadline.>> 60
days after the end of the application period described
in paragraph (3)(A), the Secretary, after consultation
with the Administrator of the Environmental Protection
Agency, shall designate qualified green building and
sustainable design projects. At least one of the
projects designated shall be located in, or within a 10-
mile radius of, an empowerment zone as designated
pursuant to section 1391, and at least one of the
projects designated shall be located in a rural State.
No more than one project shall be designated in a State.
A project shall not be designated if such project
includes a stadium or arena for professional sports
exhibitions or games.
``(B) Minimum conservation and technology innovation
objectives.--The Secretary, after consultation with the
Administrator of the Environmental Protection Agency,
shall ensure that, in the aggregate, the projects
designated shall--
``(i) reduce electric consumption by more than
150 megawatts annually as compared to conventional
generation,
``(ii) reduce daily sulfur dioxide emissions
by at least 10 tons compared to coal generation
power,
[[Page 118 STAT. 1537]]
``(iii) expand by 75 percent the domestic
solar photovoltaic market in the United States
(measured in megawatts) as compared to the
expansion of that market from 2001 to 2002, and
``(iv) use at least 25 megawatts of fuel cell
energy generation.
``(3) Limited designations.--A project may not be designated
under this subsection unless--
``(A) the <<NOTE: Deadline.>> project is nominated
by a State or local government 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 criteria described in paragraph (4).
``(4) Application.--
``(A) In general.--A project may not be designated
under this subsection unless the application for such
designation includes a project proposal which describes
the energy efficiency, renewable energy, and sustainable
design features of the project and demonstrates that the
project satisfies the following eligibility criteria:
``(i) Green building and sustainable design.--
At least 75 percent of the square footage of
commercial buildings which are part of the project
is registered for United States Green Building
Council's LEED certification and is reasonably
expected (at the time of the designation) to
receive such certification. For purposes of
determining LEED certification as required under
this clause, points shall be credited by using the
following:
``(I) For wood products,
certification under the Sustainable
Forestry Initiative Program and the
American Tree Farm System.
``(II) For renewable wood products,
as credited for recycled content
otherwise provided under LEED
certification.
``(III) For composite wood products,
certification under standards
established by the American National
Standards Institute, or such other
voluntary standards as published in the
Federal Register by the Administrator of
the Environmental Protection Agency.
``(ii) Brownfield redevelopment.--The project
includes a brownfield site as defined by section
101(39) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(42 U.S.C. 9601), including a site described in
subparagraph (D)(ii)(II)(aa) thereof.
``(iii) State and local support.--The project
receives specific State or local government
resources which will support the project in an
amount equal to at least $5,000,000. For purposes
of the preceding sentence, the term `resources'
includes tax abatement benefits and contributions
in kind.
``(iv) Size.--The project includes at least
one of the following:
``(I) At least 1,000,000 square feet
of building.
[[Page 118 STAT. 1538]]
``(II) At least 20 acres.
``(v) Use of tax benefit.--The project
proposal includes a description of the net benefit
of the tax-exempt financing provided under this
subsection which will be allocated for financing
of one or more of the following:
``(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 foundation construction and
preparation of the brownfields site.
``(vi) Prohibited 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 any facility the principal business of
which is the sale of food or alcoholic beverages
for consumption on the premises.
``(vii) Employment.--The project is projected
to provide permanent employment of at least 1,500
full time equivalents (150 full time equivalents
in rural States) when completed and construction
employment of at least 1,000 full time equivalents
(100 full time equivalents in rural States).
The application shall include an independent analysis
which describes the project's economic impact, including
the amount of projected employment.
``(B) Project description.--Each application
described in subparagraph (A) shall contain for each
project a 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 measured in megawatts, and
``(iv) the amount, in megawatts, of the
project's fuel cell energy generation.
``(5) Certification of <<NOTE: Deadline.>> use of tax
benefit.--No later than 30 days after the completion of the
project, each project must certify to the Secretary that the net
benefit of the tax-exempt financing was used for the purposes
described in paragraph (4).
``(6) Definitions.--For purposes of this subsection--
``(A) Rural 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 and 2000 censuses.
[[Page 118 STAT. 1539]]
``(B) Local government.--The term `local government'
has the meaning given such term by section 1393(a)(5).
``(C) Net benefit of tax-exempt financing.--The term
`net benefit of tax-exempt financing' means the present
value of the interest savings (determined by a
calculation established by the Secretary) which result
from the tax-exempt status of the bonds.
``(7) Aggregate face amount of tax-exempt financing.--
``(A) In general.--An issue shall not be treated as
an issue described in subsection (a)(14) if the
aggregate face amount of bonds issued by the State or
local government pursuant thereto for a project (when
added to the aggregate face amount of bonds previously
so issued for such project) exceeds an amount designated
by the Secretary as part of the designation.
``(B) Limitation on amount of bonds.--The Secretary
may not allocate authority to issue qualified green
building and sustainable design project bonds in an
aggregate face amount exceeding $2,000,000,000.
``(8) Termination.--Subsection (a)(14) shall not apply with
respect to any bond issued after September 30, 2009.
``(9) Treatment of current refunding bonds.--Paragraphs
(7)(B) and (8) shall not apply to any bond (or series of 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
average maturity 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
after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A).''.
(c) Exemption From General State Volume Caps.--Paragraph (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 qualified green building and sustainable design
projects''.
(d) Accountability.--Each <<NOTE: 26 USC 142 note.>> issuer shall
maintain, on behalf of each project, an interest bearing reserve account
equal to 1 percent of the net proceeds of any bond issued under this
section for such project. <<NOTE: Deadline.>> Not later than 5 years
after the date of issuance, the Secretary of the Treasury, after
consultation with the Administrator of the Environmental Protection
Agency, shall determine whether the project financed with such bonds has
substantially complied 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
project has substantially complied with such terms and conditions and
meets the commitments set forth in the application for such project
described in section 142(l)(4) of such Code, amounts in the reserve
account, including all interest, shall be released to the project. If
the Secretary determines that the project has not substantially
[[Page 118 STAT. 1540]]
complied with such terms and conditions, amounts in the reserve account,
including all interest, shall be paid to the United States Treasury.
(e) Effective Date.--The <<NOTE: 26 USC 142 note.>> 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 BUSINESS TAXABLE INCOME.
(a) In General.--Subsection (b) of section 512 (relating to
unrelated business taxable income) is amended by adding at the end the
following new paragraph:
``(18) Treatment of gain or loss on sale or exchange of
certain brownfield sites.--
``(A) In general.--Notwithstanding paragraph (5)(B),
there shall be excluded any gain or loss from the
qualified sale, exchange, or other disposition of any
qualifying brownfield property by an eligible taxpayer.
``(B) Eligible taxpayer.--For purposes of this
paragraph--
``(i) In general.--The term `eligible
taxpayer' means, with respect to a property, any
organization exempt from tax under section 501(a)
which--
``(I) acquires from an unrelated
person a qualifying brownfield property,
and
``(II) pays or incurs eligible
remediation expenditures with respect to
such property in an amount which exceeds
the greater of $550,000 or 12 percent of
the fair market value of the property at
the time such property was acquired by
the eligible taxpayer, determined as if
there was not a presence of a hazardous
substance, pollutant, or contaminant on
the property which is complicating the
expansion, redevelopment, or reuse of
the property.
``(ii) Exception.--Such term shall not include
any organization which is--
``(I) potentially liable under
section 107 of the Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980 with respect
to the qualifying brownfield property,
``(II) affiliated with any other
person which is so potentially liable
through any direct or indirect familial
relationship or any contractual,
corporate, or financial relationship
(other than a contractual, corporate, or
financial relationship which is created
by the instruments by which title to any
qualifying brownfield property is
conveyed or financed or by a contract of
sale of goods or services), or
``(III) the result of a
reorganization of a business entity
which was so potentially liable.
``(C) Qualifying brownfield property.--For purposes
of this paragraph--
``(i) In general.--The term `qualifying
brownfield property' means any real property which
is certified, before the taxpayer incurs any
eligible remediation
[[Page 118 STAT. 1541]]
expenditures (other than to obtain a Phase I
environmental site assessment), by an appropriate
State agency (within the meaning of section
198(c)(4)) in the State in which such property is
located as a brownfield site within the meaning of
section 101(39) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(as in effect on the date of the enactment of this
paragraph).
``(ii) Request for certification.--Any request
by an eligible taxpayer for a certification
described in clause (i) shall include a sworn
statement by the eligible taxpayer and supporting
documentation of the presence of a hazardous
substance, pollutant, or contaminant on the
property which is complicating the expansion,
redevelopment, or reuse of the property given the
property's reasonably anticipated future land uses
or capacity for uses of the property (including a
Phase I environmental site assessment and, if
applicable, evidence of the property's presence on
a local, State, or Federal list of brownfields or
contaminated property) and other environmental
assessments prepared or obtained by the taxpayer.
``(D) Qualified sale, exchange, or other
disposition.--For purposes of this paragraph--
``(i) In general.--A sale, exchange, or other
disposition of property shall be considered as
qualified if--
``(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 the
Environmental Protection Agency or an
appropriate State agency (within the
meaning of section 198(c)(4)) in the
State in which such property is located
that, as a result of the eligible
taxpayer's remediation actions, such
property would not be treated as a
qualifying brownfield property in the
hands of the transferee.
For purposes of subclause (II), before issuing
such certification, the Environmental Protection
Agency or appropriate State agency shall respond
to comments received pursuant to clause (ii)(V) in
the same form and manner as required under section
117(b) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(as in effect on the date of the enactment of this
paragraph).
``(ii) Request
for <<NOTE: Deadline.>> certification.--Any
request by an eligible taxpayer for a
certification described in clause (i) shall be
made not later than the date of the transfer and
shall include a sworn statement by the eligible
taxpayer certifying the following:
``(I) Remedial actions which comply
with all applicable or relevant and
appropriate requirements (consistent
with section 121(d) of the Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980) have been
substantially completed, such that there
are no hazardous
[[Page 118 STAT. 1542]]
substances, pollutants, or contaminants
which complicate the expansion,
redevelopment, or reuse of the property
given the property's reasonably
anticipated future land uses or capacity
for uses of the property.
``(II) The reasonably anticipated
future land uses or capacity for uses of
the property are more economically
productive or environmentally beneficial
than the uses of the property in
existence on the date of the
certification described in subparagraph
(C)(i). For purposes of the preceding
sentence, use of property as a landfill
or other hazardous waste facility shall
not be considered more economically
productive or environmentally
beneficial.
``(III) A remediation plan has been
implemented to bring the property into
compliance with all applicable local,
State, and Federal environmental laws,
regulations, and standards and to ensure
that the remediation protects human
health and the environment.
``(IV) The remediation plan
described in subclause (III), including
any physical improvements required to
remediate the property, is either
complete or substantially complete, and,
if substantially complete, sufficient
monitoring, funding, institutional
controls, and financial assurances have
been put in place to ensure the complete
remediation of the property in
accordance with the remediation plan as
soon as is reasonably practicable after
the sale, exchange, or other disposition
of such property.
``(V) Public
notice <<NOTE: Notice.>> and the
opportunity for comment on the request
for certification was completed before
the date of such request. Such notice
and opportunity for comment shall be in
the same form and manner as required for
public participation required under
section 117(a) of the Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980 (as in effect
on the date of the enactment of this
paragraph). For purposes of this
subclause, public notice shall include,
at a minimum, publication in a major
local newspaper of general circulation.
``(iii) Attachment to tax returns.--A copy of
each of the requests for certification described
in clause (ii) of subparagraph (C) and this
subparagraph shall be 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) Substantial completion.--For purposes
of this subparagraph, a remedial action is
substantially complete when any necessary physical
construction is complete, all immediate threats
have been eliminated, and all long-term threats
are under control.
``(E) Eligible remediation expenditures.--For
purposes of this paragraph--
[[Page 118 STAT. 1543]]
``(i) In general.--The term `eligible
remediation expenditures' means, with respect to
any qualifying brownfield property, any amount
paid or incurred by the eligible taxpayer to an
unrelated third person to obtain a Phase I
environmental site assessment of the property, and
any amount so paid or incurred after the date of
the certification described in subparagraph (C)(i)
for goods and services necessary to obtain a
certification described in subparagraph (D)(i)
with respect 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 expenditure to
monitor, sample, study, assess, or
otherwise evaluate the release, threat
of release, or presence of a hazardous
substance, pollutant, or contaminant on
the property,
``(III) to obtain environmental
regulatory certifications and approvals
required to manage the remediation and
monitoring of the hazardous substance,
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
coverage, or similar coverage under
environmental insurance policies, or
financial guarantees required to manage
such remediation and monitoring.
``(ii) Exceptions.--Such term shall not
include--
``(I) any portion of the purchase
price paid or incurred by the eligible
taxpayer to acquire the qualifying
brownfield property,
``(II) environmental insurance costs
paid or incurred to obtain legal defense
coverage, owner/operator liability
coverage, lender liability coverage,
professional liability coverage, or
similar types of coverage,
``(III) any amount paid or incurred
to the extent such amount is reimbursed,
funded, or otherwise subsidized by
grants provided by the United States, a
State, or a political subdivision of a
State for use in connection with the
property, proceeds of an issue of State
or local government obligations used to
provide financing for the property the
interest of which is exempt from tax
under section 103, or subsidized
financing provided (directly or
indirectly) under a Federal, State, or
local program provided in connection
with the property, or
``(IV) any expenditure paid or
incurred before the date of the
enactment of this paragraph.
[[Page 118 STAT. 1544]]
For purposes of subclause (III), the Secretary may
issue guidance regarding the treatment of
government-provided funds for purposes of
determining eligible remediation expenditures.
``(F) Determination of gain or loss.--For purposes
of this paragraph, the determination of gain or loss
shall not include an amount treated as gain which is
ordinary income with respect to section 1245 or section
1250 property, including amounts deducted as section 198
expenses which are subject to the recapture rules of
section 198(e), if the taxpayer had deducted such
amounts in the computation of its unrelated business
taxable income.
``(G) Special rules for partnerships.--
``(i) In general.--In the case of an eligible
taxpayer which is a partner of a qualifying
partnership which acquires, remediates, and sells,
exchanges, or otherwise disposes of a qualifying
brownfield property, this paragraph shall apply to
the eligible taxpayer's distributive share of the
qualifying partnership's gain or loss from the
sale, exchange, or other disposition of such
property.
``(ii) Qualifying partnership.--The term
`qualifying partnership' means a partnership
which--
``(I) has a partnership agreement
which satisfies the requirements of
section 514(c)(9)(B)(vi) at all times
beginning on the date of the first
certification received by the
partnership under subparagraph (C)(i),
``(II) satisfies the requirements of
subparagraphs (B)(i), (C), (D), and (E),
if `qualified partnership' is
substituted for `eligible taxpayer' each
place it appears therein (except
subparagraph (D)(iii)), and
``(III) is not an organization which
would be prevented from constituting an
eligible taxpayer by reason of
subparagraph (B)(ii).
``(iii) Requirement
that <<NOTE: Applicability.>> tax-exempt partner
be a partner since first certification.--This
paragraph shall apply with respect to any eligible
taxpayer which is a partner of a partnership which
acquires, remediates, and sells, exchanges, or
otherwise disposes of a qualifying brownfield
property only if such eligible taxpayer was a
partner of the qualifying partnership at all times
beginning on the date of the first certification
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) Regulations.--The Secretary shall
prescribe such regulations as are necessary to
prevent abuse of the requirements of this
subparagraph, including abuse through--
``(I) the use of special allocations
of gains or losses, or
``(II) changes in ownership of
partnership interests held by eligible
taxpayers.
``(H) Special rules for multiple properties.--
[[Page 118 STAT. 1545]]
``(i) In general.--An eligible taxpayer or a
qualifying partnership of which the eligible
taxpayer is a partner may make a 1-time election
to apply this paragraph to more than 1 qualifying
brownfield property by averaging the eligible
remediation expenditures for all such properties
acquired during the election period. If the
eligible taxpayer or qualifying partnership makes
such an election, the election shall apply to all
qualified sales, exchanges, or other dispositions
of qualifying brownfield properties the
acquisition and transfer of which occur during the
period for which the election remains in effect.
``(ii) Election.--An election under clause (i)
shall be made with the eligible taxpayer's or
qualifying partnership's timely filed tax return
(including extensions) for the first taxable year
for which the taxpayer or qualifying partnership
intends to have the election apply. An election
under clause (i) is effective for the period--
``(I) beginning on the date which is
the first day of the taxable year of the
return in which the election is included
or a later day in such taxable year
selected by the eligible taxpayer or
qualifying partnership, and
``(II) ending on the date which is
the earliest of a date of revocation
selected by the eligible taxpayer or
qualifying partnership, the date which
is 8 years after the date described in
subclause (I), or, in the case of an
election by a qualifying partnership of
which the eligible taxpayer is a
partner, the date of the termination of
the qualifying partnership.
``(iii) Revocation.--An eligible taxpayer or
qualifying partnership may revoke an election
under clause (i)(II) by filing a statement of
revocation with a timely filed tax return
(including extensions). A revocation is effective
as of the first day of the taxable year of the
return in which the revocation is included or a
later day in such taxable year selected by the
eligible taxpayer or qualifying partnership. Once
an eligible taxpayer or qualifying partnership
revokes the election, the eligible taxpayer or
qualifying partnership is ineligible to make
another election under clause (i) with respect to
any qualifying brownfield property subject to the
revoked election.
``(I) Recapture.--If an eligible taxpayer excludes
gain or loss from a sale, exchange, or other disposition
of property to which an election under subparagraph (H)
applies, and such property fails to satisfy the
requirements of this paragraph, the unrelated business
taxable income of the eligible taxpayer for the taxable
year in which such failure occurs shall be determined by
including any previously excluded gain or loss from such
sale, exchange, or other disposition allocable to such
taxpayer, and interest shall be determined at the
overpayment rate established under section 6621 on any
resulting tax for the period beginning with the due date
of the return for the taxable year during
[[Page 118 STAT. 1546]]
which such sale, exchange, or other disposition
occurred, and ending on the date of payment of the tax.
``(J) Related persons.--For purposes of this
paragraph, a person shall be treated as related to
another person if--
``(i) such person bears a relationship to such
other person described in section 267(b)
(determined without regard 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 or indirectly more than 25 percent of the
governing body of such organization.
``(K) Termination.--Except for purposes of
determining the average eligible remediation
expenditures for properties acquired during the election
period under subparagraph (H), this paragraph shall not
apply to any property acquired by the eligible taxpayer
or qualifying partnership after December 31, 2009.''.
(b) Exclusion From Definition of Debt-Financed Property.--Section
514(b)(1) (defining debt-financed property) is amended by striking
``or'' at the end of subparagraph (C), by striking the period at the end
of subparagraph (D) and inserting ``; or'', and by inserting after
subparagraph (D) the following new subparagraph:
``(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be
excluded by reason of the provisions of section
512(b)(18) in computing the gross income of any
unrelated trade or business.''.
(c) Savings Clause.--Nothing in the amendments made by this section
shall affect any duty, liability, or other requirement imposed under any
other Federal or State law. Notwithstanding section 128(b) of the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, a certification provided by the Environmental Protection Agency or
an appropriate State agency (within the meaning of section 198(c)(4) of
the Internal Revenue Code of 1986) shall not affect the liability of any
person under section 107(a) of such Act.
(d) Effective Date.--The amendments made by this section shall apply
to any gain or loss on the sale, exchange, or other disposition of any
property acquired by the taxpayer after December 31, 2004.
SEC. 703. CIVIL RIGHTS TAX RELIEF.
(a) Deduction Allowed Whether or Not Taxpayer Itemizes Other
Deductions.--Subsection (a) of section 62 (defining adjusted gross
income) is amended by inserting after paragraph (18) the following new
item:
``(19) Costs involving discrimination suits, etc.--Any
deduction allowable under this chapter for attorney fees and
court costs paid by, or on behalf of, the taxpayer in connection
with any action involving a claim of unlawful discrimination (as
defined in subsection (e)) or a claim of a violation of
subchapter III of chapter 37 of title 31, United States Code or
a claim made under section 1862(b)(3)(A) of the Social Security
[[Page 118 STAT. 1547]]
Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall not
apply to any deduction in excess of the amount includible in the
taxpayer's gross income for the taxable year on account of a
judgment or settlement (whether by suit or agreement and whether
as lump sum or periodic payments) resulting from such claim.''.
(b) Unlawful Discrimination Defined.--Section 62 is amended by
adding at the end the following new subsection:
``(e) Unlawful Discrimination Defined.--For purposes of subsection
(a)(19), the term `unlawful discrimination' means an act that 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
Employment 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 Security
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 the
uniformed 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, or
12203).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge
of an employee, the discrimination against an employee, or any
other form of retaliation or reprisal against an employee for
asserting rights or taking other actions permitted under Federal
law.
``(18) Any provision of Federal, State, or local law, or
common law claims permitted under Federal, State, or local law--
``(i) providing for the enforcement of civil
rights, or
[[Page 118 STAT. 1548]]
``(ii) regulating any aspect of the employment
relationship, including claims for wages,
compensation, or benefits, or prohibiting the
discharge of an employee, the discrimination
against an employee, or any other form of
retaliation or reprisal against an employee for
asserting rights or taking other actions permitted
by law.''.
(c) Effective Date.--The <<NOTE: 26 USC 62 note.>> amendments made
by this section shall apply to fees and costs paid after the date of the
enactment of this Act with respect to any judgment or settlement
occurring after such date.
SEC. 704. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.
(a) 7-Year Property.--Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended by
redesignating clause (ii) as clause (iii) and by inserting after clause
(i) the following new clause:
``(ii) any motorsports entertainment complex,
and''.
(b) Definition.--Section 168(i) (relating to definitions and special
rules) is amended by adding at the end the following new paragraph:
``(15) Motorsports entertainment complex.--
``(A) In general.--The term `motorsports
entertainment 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 in service, hosts 1 or more racing events
for automobiles (of any type), trucks, or
motorcycles which are open to the public for the
price of admission.
``(B) Ancillary and support facilities.--Such term
shall include, if owned by the taxpayer who owns the
complex and provided for the benefit of patrons of the
complex--
``(i) ancillary facilities and land
improvements in support of the complex's
activities (including parking lots, sidewalks,
waterways, bridges, fences, and landscaping),
``(ii) support facilities (including food and
beverage retailing, souvenir vending, and other
nonlodging accommodations), and
``(iii) appurtenances associated with such
facilities and related attractions and amusements
(including ticket booths, race track surfaces,
suites and hospitality facilities, grandstands and
viewing structures, props, walls, facilities that
support the delivery of entertainment services,
other special purpose structures, facades, shop
interiors, and buildings).
``(C) Exception.--Such term shall not include any
transportation equipment, administrative services
assets, warehouses, administrative buildings, hotels, or
motels.
``(D) Termination.--This paragraph shall not apply
to any property placed in service after December 31,
2007.''.
(c) Effective <<NOTE: 26 USC 168 note.>> Date.--
[[Page 118 STAT. 1549]]
(1) In general.--The amendments made by this section shall
apply to any property placed in service after the date of the
enactment of this Act.
(2) Special rule for asset class 80.0.--In the case of race
track facilities placed in service after the date of the
enactment of this Act, such facilities shall not be treated as
theme and amusement facilities classified under asset class
80.0.
(3) No inference.--Nothing in this section or the amendments
made by this section shall be construed to affect the treatment
of property placed in service on or before the date of the
enactment of this Act.
SEC. 705. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.
(a) Distributions To Shareholders From Pre-1984 Policyholders
Surplus Account.--Section 815 (relating to distributions to shareholders
from pre-1984 policyholders surplus account) is amended by adding at the
end the following:
``(g) Special Rules Applicable During 2005 and 2006.--In the case of
any taxable year of a stock life insurance company beginning 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 shall be treated as made first out of the policyholders
surplus account, then out of the shareholders surplus account,
and finally out of other accounts.''.
(b) Effective Date.--The <<NOTE: 26 USC 815 note.>> 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) In General.--Section 168(e)(3)(C) (defining 7-year property), as
amended by this Act, is amended by striking ``and'' at the 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) Alaska Natural Gas Pipeline.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
inserting after paragraph (15) the following new paragraph:
``(16) Alaska natural gas pipeline.--The term `Alaska
natural gas pipeline' means the natural gas pipeline system
located 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
service before January 1, 2014, elects such
treatment.
Such term includes the pipe, trunk lines, related equipment, and
appurtenances used to carry natural gas, but does not include
any gas processing plant.''.
[[Page 118 STAT. 1550]]
(c) Alternative System.--The table contained in section 168(g)(3)(B)
(relating to special rule for certain property assigned to classes) is
amended by inserting after the item relating to subparagraph (C)(ii) the
following new item:
``(C)(iii)........................................................ 22''.
(d) Effective Date.--The <<NOTE: 26 USC 168 note.>> 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 CERTAIN ALASKA
FACILITIES.
(a) In General.--Section 43(c)(1) (defining qualified enhanced oil
recovery costs) is amended by adding at the end the following new
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 of 64 degrees North latitude,
``(ii) prepares Alaska natural gas for
transportation through a pipeline with a capacity
of at least 2,000,000,000,000 Btu of natural gas
per day, and
``(iii) produces carbon dioxide which is
injected into hydrocarbon-bearing geological
formations.''.
(b) Alaska Natural Gas.--Section 43(c) is amended by adding at the
end the following new paragraph:
``(5) Alaska natural gas.--For purposes of paragraph
(1)(D)--
``(1) In general.--The term `Alaska natural gas' means
natural gas entering the Alaska natural gas pipeline (as defined
in section 168(i)(16) (determined without regard to subparagraph
(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
excluding the area of the Alaska National Wildlife
Refuge (including the continental shelf thereof within
the meaning of section 638(1)), and
``(B) pursuant to the applicable State and Federal
pollution prevention, control, and permit requirements
from such area (including the continental shelf thereof
within the meaning of section 638(1)).
``(2) Natural gas.--The term `natural gas' has the meaning
given such term by section 613A(e)(2).''.
(c) Effective Date.--The <<NOTE: 26 USC 43 note.>> amendment made by
this section shall apply to costs paid or incurred in taxable years
beginning after December 31, 2004.
SEC. 708. <<NOTE: 26 USC 460 note.>> METHOD OF ACCOUNTING FOR NAVAL
SHIPBUILDERS.
(a) In General.--In the case of a qualified naval ship contract, the
taxable income of such contract during the 5-taxable year period
beginning with the taxable year in which the contract commencement date
occurs shall be determined under a method identical to the method used
in the case of a qualified ship contract (as defined in section
10203(b)(2)(B) of the Revenue Act of 1987).
(b) Recapture of Tax Benefit.--In the case of a qualified naval ship
contract to which subsection (a) applies, the taxpayer's tax imposed by
chapter 1 of the Internal Revenue Code of 1986 for the first taxable
year following the 5-taxable year period
[[Page 118 STAT. 1551]]
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) Qualified Naval Ship Contract.--For purposes of this section:
(1) In general.--The term ``qualified naval ship contract''
means any contract or portion thereof that is for the
construction in the United States of 1 ship or submarine for the
Federal Government if the taxpayer reasonably expects the
acceptance date will occur no later than 9 years after the
construction commencement date.
(2) Acceptance date.--The term ``acceptance date'' means the
date 1 year after the date on which the Federal Government
issues a letter of acceptance or other similar document for the
ship or submarine.
(3) Construction commencement date.--The term ``construction
commencement date'' means the date on which the physical
fabrication of any section or component of the ship or submarine
begins in the taxpayer's shipyard.
(d) Effective Date.--This section shall apply to contracts for ships
or submarines with respect to which the construction commencement date
occurs after the date of the enactment of this Act.
SEC. 709. MODIFICATION OF MINIMUM COST REQUIREMENT FOR TRANSFER OF
EXCESS PENSION ASSETS.
(a) Amendments 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 by
striking ``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 Equity Act
of 2004'' and inserting ``American Jobs Creation Act of 2004''.
(b) Minimum Cost Requirements.--
(1) In general.--Section 420(c)(3)(E) is amended by adding
at the end the following new clause:
``(ii) Insignificant cost reductions
permitted.--
``(I) In general.--An eligible
employer shall not be treated as failing
to meet the requirements of this
paragraph for any taxable year if, in
lieu of any reduction of retiree health
coverage permitted under the regulations
prescribed under clause (i), the
employer reduces applicable employer
cost by an amount not in excess of the
reduction in costs which would have
occurred if the employer had made the
maximum permissible reduction in retiree
health coverage under such regulations.
In applying such regulations to any
subsequent taxable year, any reduction
in applicable employer cost under this
clause shall
[[Page 118 STAT. 1552]]
be treated as if it were an equivalent
reduction in retiree health coverage.
``(II) Eligible employer.--For
purposes of subclause (I), an employer
shall be treated as an eligible employer
for any taxable year if, for the
preceding taxable year, the qualified
current retiree health liabilities of
the employer were at least 5 percent of
the gross receipts of the employer. For
purposes of this subclause, the rules of
paragraphs (2), (3)(B), and (3)(C) of
section 448(c) shall apply in
determining the amount of an employer's
gross receipts.''.
(2) Conforming amendment.--Section <<NOTE: 26 USC
420.>> 420(c)(3)(E) is amended by striking ``The Secretary'' and
inserting:
``(i) In general.--The Secretary''.
(3) Effective date.--The <<NOTE: 26 USC 420
note.>> amendments made by this subsection shall apply to
taxable years ending after the date of the enactment of this
Act.
SEC. 710. EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES.
(a) Expansion of Qualified Energy Resources.--Subsection (c) of
section 45 (relating to electricity produced from certain renewable
resources) is amended to read as follows:
``(c) Qualified Energy Resources and Refined Coal.--For purposes of
this section:
``(1) In 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) Closed-loop biomass.--The term `closed-loop biomass'
means any organic material from a plant which is planted
exclusively for purposes of being used at a qualified facility
to produce electricity.
``(3) Open-loop biomass.--
``(A) In 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 materials 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 and construction
wood wastes (other than pressure-
treated, chemically-treated, or painted
wood wastes), and landscape or right-of-
way tree trimmings, but not including
municipal solid waste, gas derived from
the biodegradation of solid waste, or
paper which is commonly recycled, or
[[Page 118 STAT. 1553]]
``(III) agriculture sources,
including orchard tree crops, vineyard,
grain, legumes, sugar, and other crop
by-products or residues.
Such term shall not include closed-loop biomass or
biomass burned in conjunction with fossil fuel
(cofiring) beyond such fossil fuel required for startup
and flame stabilization.
``(B) Agricultural livestock waste nutrients.--
``(i) In general.--The term `agricultural
livestock waste nutrients' means agricultural
livestock manure and litter, including wood
shavings, straw, rice hulls, and other bedding
material for the disposition of manure.
``(ii) Agricultural livestock.--The term
`agricultural livestock' includes bovine, swine,
poultry, and sheep.
``(4) Geothermal energy.--The term `geothermal energy' means
energy derived from a geothermal deposit (within the meaning of
section 613(e)(2)).
``(5) Small 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) Municipal solid waste.--The term `municipal solid
waste' has the meaning given the term `solid waste' under
section 2(27) of the Solid Waste Disposal Act (42 U.S.C. 6903).
``(7) Refined coal.--
``(A) In 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 carbon fly 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 producing steam,
``(iii) is certified by the taxpayer as
resulting (when used in the production of steam)
in a qualified emission reduction, and
``(iv) is produced in such a manner as to
result in an increase of at least 50 percent in
the market value of the refined coal (excluding
any increase caused by materials combined or added
during the production process), as compared to the
value of the feedstock coal.
``(B) Qualified emission reduction.--The term
`qualified emission reduction' means a reduction of at
least 20 percent of the emissions of nitrogen oxide and
either sulfur dioxide or mercury released when burning
the refined coal (excluding any dilution caused by
materials combined or added during the production
process), as compared to the emissions released when
burning the feedstock coal or comparable coal
predominantly available in the marketplace as of January
1, 2003.''.
(b) Expansion of Qualified Facilities.--
[[Page 118 STAT. 1554]]
(1) In general.--Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after
subsection (c) the following new subsection:
``(d) Qualified Facilities.--For purposes of this section:
``(1) Wind facility.--In the case of a facility using wind
to produce electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after December 31, 1993, and before January 1, 2006.
``(2) Closed-loop biomass facility.--
``(A) In general.--In the case of a facility using
closed-loop biomass to produce electricity, the term
`qualified facility' means any facility--
``(i) owned by the taxpayer which is
originally placed in service after December 31,
1992, and before January 1, 2006, or
``(ii) owned by the taxpayer which before
January 1, 2006, is originally placed in service
and modified to use closed-loop biomass to co-fire
with coal, with other biomass, or with both, but
only if the modification is approved under the
Biomass Power for Rural Development Programs or is
part of a pilot project of the Commodity Credit
Corporation as described in 65 Fed. Reg. 63052.
``(B) Special 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 the date of the enactment of this
clause,
``(ii) the amount of the credit determined
under subsection (a) with respect to the facility
shall be an amount equal to the amount determined
without regard to this clause multiplied by the
ratio of the thermal content of the closed-loop
biomass used in such facility to the thermal
content of all fuels used in such facility, and
``(iii) if the owner of such facility is not
the producer of the electricity, the person
eligible for the credit allowable under subsection
(a) shall be the lessee or the operator of such
facility.
``(3) Open-loop biomass facilities.--
``(A) In general.--In the case of a facility using
open-loop biomass to produce electricity, the term
`qualified facility' means any facility owned by the
taxpayer which--
``(i) in the case of a facility using
agricultural livestock waste nutrients--
``(I) is originally placed in
service after the date of the enactment
of this subclause and before January 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) Credit eligibility.--In the case of any
facility described in subparagraph (A), if the owner of
such facility is not the producer of the electricity,
the person eligible for the credit allowable under
subsection (a) shall be the lessee or the operator of
such facility.
[[Page 118 STAT. 1555]]
``(4) Geothermal or solar energy facility.--In the case of a
facility using geothermal or solar energy to produce
electricity, the term `qualified facility' means any facility
owned by the taxpayer which is originally placed in service
after the date of the enactment of this paragraph and before
January 1, 2006. Such term shall not include any property
described in section 48(a)(3) the basis of which is taken into
account by the taxpayer for purposes of determining the energy
credit under section 48.
``(5) Small 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 the
taxpayer which is originally placed in service after the date of
the enactment of this paragraph and before January 1, 2006.
``(6) Landfill gas facilities.--In the case of a facility
producing electricity from gas derived from the biodegradation
of municipal solid waste, the term `qualified facility' means
any facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this paragraph and
before January 1, 2006.
``(7) Trash 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 the taxpayer which is originally placed in service
after the date of the enactment of this paragraph and before
January 1, 2006.
``(8) Refined coal production facility.--The term `refined
coal production facility' means a facility which is placed in
service after the date of the enactment of this paragraph and
before January 1, 2009.''.
(2) Rules for refined coal production facilities.--
Subsection (e) of section 45, as so redesignated, is amended by
adding at the end the following new paragraph:
``(8) Refined coal production facilities.--
``(A) Determination of credit amount.--In the case
of a producer of refined coal, the credit determined
under this section (without regard to this paragraph)
for any taxable 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
beginning on 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 taxable year.
``(B) Phaseout of credit.--The amount of the
increase determined under subparagraph (A) shall be
reduced by an amount which bears the same ratio to the
amount of the increase (determined without regard to
this subparagraph) as--
``(i) the amount by which the reference price
of fuel used as a feedstock (within the meaning of
subsection (c)(7)(A)) for the calendar year in
which the sale occurs exceeds an amount equal to
1.7 multiplied
[[Page 118 STAT. 1556]]
by the reference price for such fuel in 2002,
bears to
``(ii) $8.75.
``(C) Application 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 determining the amount of any increase under
this paragraph.''.
(3) Conforming amendments.--
(A) Section 45(e), as so redesignated, is amended by
striking ``subsection (c)(3)(A)'' in paragraph (7)(A)(i)
and inserting ``subsection (d)(1)''.
(B) The heading of section 45 and the item relating
to such section in the table of sections for subpart D
of part IV of subchapter A of chapter 1 are each amended
by 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 in subsection (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) Special Credit Rate and Period for Electricity Produced and Sold
After Enactment Date.--Section 45(b) is amended by adding at the end the
following new paragraph:
``(4) Credit rate and period for electricity produced and
sold from certain facilities.--
``(A) Credit rate.--In the case of electricity
produced and sold in any calendar year after 2003 at any
qualified facility described in paragraph (3), (5), (6),
or (7) of subsection (d), the amount in effect under
subsection (a)(1) for such calendar year (determined
before the application of the last sentence of paragraph
(2) of this subsection) shall be reduced by one-half.
``(B) Credit period.--
``(i) In 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-year period beginning on the
date the facility was originally placed in service
shall be substituted for the 10-year period in
subsection (a)(2)(A)(ii).
``(ii) Certain open-loop biomass facilities.--
In the case of any facility described in
subsection (d)(3)(A)(ii) placed in service before
the date of the enactment of this paragraph, the
5-year period beginning on the date of the
enactment of this Act shall be substituted for the
10-year period in subsection (a)(2)(A)(ii).''.
(d) Coordination With Other Credits.--Section 45(e), as redesignated
and amended by this section, is amended by inserting after paragraph (8)
the following new paragraph:
``(9) Coordination with credit for producing fuel from a
nonconventional source.--The term `qualified facility' shall not
include any facility the production from which is allowed as a
credit under section 29 for the taxable year or any prior
taxable year.''.
[[Page 118 STAT. 1557]]
(e) Coordination With Section 48.--Section 48(a)(3) (defining energy
property) is amended by adding at the end the following new sentence:
``Such term shall not include any property which is part of a facility
the production from which is allowed as a credit under section 45 for
the taxable year or any prior taxable year.''.
(f) Elimination 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 \1/2\ or'' 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 described
in subsection (d)(2)(A)(ii).''.
(g) Effective <<NOTE: 26 USC 45 note.>> Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
electricity produced and sold after the date of the enactment of
this Act, in taxable years ending after such date.
(2) Certain biomass facilities.--With respect to any
facility described in section 45(d)(3)(A)(ii) of the Internal
Revenue Code of 1986, as added by subsection (b)(1), which is
placed in service before the date of the enactment of this Act,
the amendments made by this section shall apply to electricity
produced and sold after December 31, 2004, in taxable years
ending after such date.
(3) Credit rate and period for new facilities.--The
amendments made by subsection (c) shall apply to electricity
produced and sold after December 31, 2004, in taxable years
ending after such date.
(4) Nonapplication of amendments to preeffective date
poultry waste facilities.--The amendments made by this section
shall not apply with respect to any poultry waste facility
(within the meaning of section 45(c)(3)(C), as in effect on the
day before the date of the enactment of this Act) placed in
service before January 1, 2004.
(5) Refined 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 date of
the enactment of this Act.
SEC. 711. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST REGULAR AND
MINIMUM TAX.
(a) In General.--Subsection (c) of section 38 (relating to
limitation based on amount of tax) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3) the following
new paragraph:
``(4) Special rules for specified credits.--
``(A) In 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 the
[[Page 118 STAT. 1558]]
credit allowed under subsection (a) for
the taxable year (other than the
specified credits).
``(B) Specified credits.--For purposes of this
subsection, 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
electricity or refined coal produced--
``(I) at a facility which is
originally placed in service after the
date of the enactment of this paragraph,
and
``(II) during the 4-year period
beginning on the date that such facility
was originally placed in service''.
(b) Conforming Amendments.--Paragraph (2)(A)(ii)(II) and
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ``or the
specified credits'' after ``employee credit''.
(c) Effective Date.--Except <<NOTE: 26 USC 38 note.>> as otherwise
provided, the amendments made by this section shall apply to taxable
years ending after the date of the enactment of this Act.
SEC. 712. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR
CHILDREN AND ADULTS WITH SICKLE CELL DISEASE AS MEDICAL
ASSISTANCE UNDER THE MEDICAID PROGRAM.
(a) Optional Medical Assistance.--
(1) In 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
following:
``(27) subject to subsection (x), primary and secondary
medical strategies and treatment and services for individuals
who have 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
chelation) to prevent stroke in individuals with Sickle Cell
Disease who 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 health
care professionals to treat such individuals and to prevent
symptoms of Sickle Cell Disease.
``(3) Other treatment and services to prevent individuals
who have Sickle Cell Disease and who have had a stroke from
having another stroke.''.
(2) Rule of construction.--Nothing <<NOTE: 42 USC 1396d
note.>> 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 as implying that a State medicaid
program under title XIX of such Act could not have treated,
prior to the date of enactment of this Act, any of the primary
and secondary medical strategies
[[Page 118 STAT. 1559]]
and treatment and services described in such subsections as
medical assistance under such program, including as early and
periodic screening, diagnostic, and treatment services under
section 1905(r) of such Act.
(b) Federal Reimbursement for Education and Other Services 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
attributable to providing--
``(i) services to identify and educate
individuals who are likely to be eligible for
medical assistance under this title and who have
Sickle Cell Disease or who are carriers of the
sickle cell gene, including education regarding
how to identify such individuals; or
``(ii) education regarding the risks of stroke
and other complications, as well as the prevention
of stroke and other complications, in individuals
who are likely to be eligible for medical
assistance under this title and who have Sickle
Cell Disease; plus''.
(c) Demonstration Program <<NOTE: 42 USC 300b-1 note.>> for the
Development and Establishment of Systemic Mechanisms for the Prevention
and Treatment of Sickle Cell Disease.--
(1) Authority to conduct demonstration program.--
(A) In general.--The Administrator, through the
Bureau of Primary Health Care and the Maternal and Child
Health Bureau, shall conduct a demonstration program by
making grants to up to 40 eligible entities for each
fiscal year in which the program is conducted under this
section for the purpose of developing and establishing
systemic mechanisms to improve the prevention and
treatment of Sickle Cell Disease, including through--
(i) the coordination of service delivery for
individuals 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 individuals with Sickle Cell Disease.
(B) Grant award requirements.--
(i) Geographic diversity.--The Administrator
shall, to the extent practicable, award grants
under this section to eligible entities located in
different regions of the United States.
(ii) Priority.--In awarding grants under this
subsection, the Administrator shall give priority
to awarding grants to eligible entities that are--
(I) Federally-qualified health
centers that have a partnership or other
arrangement with a comprehensive Sickle
Cell Disease treatment center
[[Page 118 STAT. 1560]]
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 arrangement with a
comprehensive Sickle Cell Disease
treatment center that does not receive
funds from the National Institutes of
Health.
(2) Additional requirements.--An eligible entity awarded a
grant under this subsection shall use funds made available under
the grant to carry out, in addition to the activities described
in paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of
education, treatment, and continuity of care for
individuals with Sickle Cell Disease under--
(i) the entity's collaborative agreement with
a community-based Sickle Cell Disease organization
or a nonprofit entity that works with individuals
who have Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn screening
program 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 et seq.) 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 in Sickle Cell Disease at tertiary and academic
health centers and State and county health offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State
children's health insurance program, and other health
programs for the prevention and treatment of Sickle Cell
Disease.
(3) National coordinating center.--
(A) Establishment.--
The <<NOTE: Contracts.>> Administrator shall enter into
a contract with an entity to serve as the National
Coordinating Center for the demonstration program
conducted under this subsection.
(B) Activities described.--The National Coordinating
Center shall--
(i) collect, coordinate, monitor, and
distribute data, best practices, and findings
regarding the activities funded under grants made
to eligible entities under the demonstration
program;
(ii) develop a model protocol for eligible
entities with respect to the prevention and
treatment of Sickle Cell 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
effectiveness of the demonstration program
conducted under this subsection and such direct
outcome measures as--
(I) the number and type of health
care resources utilized (such as
emergency room visits,
[[Page 118 STAT. 1561]]
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 for the sickle cell
trait.
(4) Application.--An eligible entity desiring a grant under
this subsection shall submit an application to the Administrator
at such time, in such manner, and containing such information as
the Administrator may require.
(5) Definitions.--In this subsection:
(A) Administrator.--The term ``Administrator'' means
the Administrator of the Health Resources and Services
Administration.
(B) Eligible entity.--The term ``eligible entity''
means a Federally-qualified health center, a nonprofit
hospital or clinic, or a university health center that
provides primary health care, that--
(i) has a collaborative agreement with a
community-based Sickle Cell Disease organization
or a nonprofit entity with experience in working
with individuals who have Sickle Cell Disease; and
(ii) demonstrates to the Administrator that
either the Federally-qualified health center, the
nonprofit hospital or clinic, the university
health center, the organization or entity
described in clause (i), or the experts described
in paragraph (2)(C), has at least 5 years of
experience in working with individuals who have
Sickle Cell Disease.
(C) Federally-qualified health center.--The term
``Federally-qualified health center'' has the meaning
given that term in section 1905(l)(2)(B) of the Social
Security Act (42 U.S.C. 1396d(l)(2)(B)).
(6) Authorization of appropriations.--There is authorized to
be appropriated to carry out this subsection, $10,000,000 for
each of fiscal years 2005 through 2009.
(d) Effective Date.--The <<NOTE: 42 USC 1396b note.>> amendments
made by subsections (a) and (b) take effect on the date of enactment of
this Act and apply to medical assistance and services provided under
title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) on or
after that date.
SEC. 713. CEILING FANS.
(a) In General.--Subchapter II of chapter 99 of the Harmonized
Tariff Schedule of the United States is amended by inserting in
numerical sequence the following new heading:
`` 9902.84.14 Ceiling fans for Free No change No change On or before 12/
permanent 31/2006 ''
installation .
(provided for in
subheading
8414.51.00).......
(b) Effective Date.--The amendment made by this section applies to
goods entered, or withdrawn from warehouse, for consumption on or after
the 15th day after the date of enactment of this Act.
[[Page 118 STAT. 1562]]
SEC. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR VESSEL HEADS AND
PRESSURIZERS, USED IN NUCLEAR FACILITIES.
(a) Certain Steam Generators.--Heading 9902.84.02 of the Harmonized
Tariff Schedule of the United States is amended by striking ``12/31/
2006'' and inserting ``12/31/2008''.
(b) Certain Reactor Vessel Heads and Pressurizers.--Subchapter II of
chapter 99 of the Harmonized Tariff Schedule of the United States is
amended by inserting in numerical sequence the following new heading:
`` 9902.84.03 Reactor vessel Free No change No change On or before 12/
heads and 31/2008 ''
pressurizers for .
nuclear reactors
(provided for in
subheading
8401.40.00).......
(c) Effective Date.--
(1) Subsection (a).--The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
(2) Subsection (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 of the
enactment of this Act.
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.
(a) In General.--Subchapter C of chapter 80 (relating to provisions
affecting more than one subtitle) is amended by adding at the end the
following new section:
``SEC. 7874. RULES RELATING TO EXPATRIATED ENTITIES AND THEIR FOREIGN
PARENTS.
``(a) Tax on Inversion Gain of Expatriated Entities.--
``(1) In general.--The taxable income of an expatriated
entity for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
``(2) Expatriated entity.--For purposes of this subsection--
``(A) In general.--The term `expatriated entity'
means--
``(i) the domestic corporation or partnership
referred to in subparagraph (B)(i) with respect to
which a 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 in clause (i).
[[Page 118 STAT. 1563]]
``(B) Surrogate foreign corporation.--A foreign
corporation shall be treated as a surrogate foreign
corporation if, 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 of the properties held directly
or indirectly by a domestic corporation or
substantially all of the properties constituting 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 shareholders of the domestic
corporation by reason of holding stock
in the domestic corporation, or
``(II) in the case of an acquisition
with respect to a domestic partnership,
by former partners of the domestic
partnership by reason of holding a
capital or profits interest in the
domestic partnership, and
``(iii) after the acquisition the expanded
affiliated group which includes the entity does
not have substantial business activities in the
foreign country in which, or under the law of
which, the entity is created or organized, when
compared to the total business activities of such
expanded affiliated group.
An entity otherwise described in clause (i) with respect
to any domestic corporation or partnership trade or
business shall be treated as not so described if, on or
before March 4, 2003, such entity acquired directly or
indirectly more than half of the properties held
directly or indirectly by such corporation or more than
half of the properties constituting such partnership
trade or business, as the case may be.
``(3) Coordination with subsection (b).--Paragraph (1) shall
not apply to any entity which is treated as a domestic
corporation under subsection (b).
``(b) Inverted Corporations Treated as Domestic Corporations.--
Notwithstanding section 7701(a)(4), a foreign corporation shall be
treated for purposes of this title as a domestic corporation if such
corporation would be a surrogate foreign corporation if subsection
(a)(2) were applied by substituting `80 percent' for `60 percent'.
``(c) Definitions and Special Rules.--
``(1) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a) but without regard to section 1504(b)(3), except
that section 1504(a) shall be applied by substituting `more than
50 percent' for `at least 80 percent' each place it appears.
``(2) Certain 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
described in subsection (a)(2)(B)(i).
[[Page 118 STAT. 1564]]
``(3) Plan deemed in certain cases.--If a foreign
corporation acquires directly or indirectly substantially all of
the properties of a domestic corporation or partnership during
the 4-year period beginning on the date which is 2 years before
the ownership requirements of subsection (a)(2)(B)(ii) are met,
such actions shall be treated as pursuant to a plan.
``(4) Certain transfers disregarded.--The transfer of
properties or liabilities (including by contribution or
distribution) shall be disregarded if such transfers are part of
a plan a principal purpose of which is to avoid the purposes of
this section.
``(5) Special rule for related partnerships.--For purposes
of applying subsection (a)(2)(B)(ii) to the acquisition of a
trade or business of a domestic partnership, except as provided
in regulations, all partnerships which are under common control
(within the meaning of section 482) shall be treated as 1
partnership.
``(6) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to determine whether a
corporation is a surrogate foreign corporation, including
regulations--
``(A) to treat warrants, options, contracts to
acquire stock, convertible debt interests, and other
similar interests as stock, and
``(B) to treat stock as not stock.
``(d) Other Definitions.--For purposes of this section--
``(1) Applicable 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) Inversion gain.--The term `inversion gain' means the
income or gain recognized by reason of the transfer during the
applicable period of stock or other properties by an expatriated
entity, and any income received or accrued during the applicable
period by reason of a license of any property by an 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
section 1221(a)(1) in the hands of the expatriated entity.
``(3) Foreign related person.--The term `foreign related
person' means, with respect to any expatriated entity, a foreign
person 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) Special Rules.--
``(1) Credits 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
[[Page 118 STAT. 1565]]
an expatriated entity for any taxable year described in
subsection (a) only to the extent such tax exceeds the product
of--
``(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 the
United States.
``(2) Special rules for partnerships.--In the case of an
expatriated entity which is a partnership--
``(A) subsection
(a)(1) <<NOTE: Applicability.>> 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
applicable period of any partnership interest of
the partner in such 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
shall be substituted for the rate of tax referred to in
paragraph (1).
``(3) Coordination with <<NOTE: Applicability.>> section 172
and minimum tax.--Rules similar to the rules of paragraphs (3)
and (4) of section 860E(a) shall apply for purposes of
subsection (a).
``(4) Statute of limitations.--
``(A) In general.--The statutory period for the
assessment of any deficiency attributable to the
inversion gain of any taxpayer for any pre-inversion
year shall not expire before the expiration of 3 years
from the date the Secretary is notified by the taxpayer
(in such manner as the Secretary may prescribe) of the
acquisition described in subsection (a)(2)(B)(i) to
which such gain relates and such deficiency may be
assessed before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
``(B) Pre-inversion year.--For purposes of
subparagraph (A), the term `pre-inversion year' means
any taxable year 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) Special Rule for Treaties.--Nothing in section 894 or 7852(d)
or in any other provision of law shall be construed as permitting an
exemption, by reason of any treaty obligation of the United States
heretofore or hereafter entered into, from the provisions of this
section.
``(g) Regulations.--The Secretary shall provide such regulations as
are necessary to carry out this section, including regulations providing
for such adjustments to the application of this section
[[Page 118 STAT. 1566]]
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
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Conforming Amendment.--The table of sections for subchapter C of
chapter 80 is amended by adding at the end the following new item:
``Sec. 7874. Rules relating to expatriated entities and
their foreign parents.''.
(c) Effective Date.--The <<NOTE: 26 USC 7874 note.>> 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) In General.--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) Imposition of Tax.--In the case of an individual who is a
disqualified individual with respect to any expatriated corporation,
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) by or
for the benefit of such individual or a member of such
individual's family (as defined in section 267) at any time
during the 12-month period beginning on the date which is 6
months before the expatriation date.
``(b) Value.--For purposes of subsection (a)--
``(1) In general.--The value of specified stock compensation
shall be--
``(A) in the case of a stock option (or other
similar right) or a stock appreciation right, the fair
value of such option or right, and
``(B) in any other case, the fair market value of
such compensation.
``(2) Date 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 the day before such cancellation, and
``(C) in the case of such compensation which is
granted after the expatriation date, on the date such
compensation is granted.
[[Page 118 STAT. 1567]]
``(c) Tax To Apply Only if Shareholder Gain Recognized.--Subsection
(a) shall apply to any disqualified individual with respect to an
expatriated corporation only if gain (if any) on any stock in such
corporation is recognized in whole or part by any shareholder by reason
of the acquisition referred to in section 7874(a)(2)(B)(i) with respect
to such corporation.
``(d) Exception Where Gain Recognized 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 to the stock acquired in such exercise, if income is
recognized under section 83 on or before the expatriation date
with respect to the stock acquired pursuant to such exercise,
and
``(2) any other specified stock compensation which is
exercised, sold, exchanged, distributed, cashed-out, or
otherwise paid during such period in a transaction in which
income, gain, or loss is recognized in full.
``(e) Definitions.--For purposes of this section--
``(1) Disqualified individual.--The term `disqualified
individual' means, with respect to a corporation, any individual
who, at any time during the 12-month period beginning on the
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 to such corporation or any member of the
expanded affiliated group which includes such
corporation, or
``(B) would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section.
``(2) Expatriated corporation; expatriation date.--
``(A) Expatriated corporation.--The term
`expatriated corporation' means any corporation which is
an expatriated entity (as defined in section
7874(a)(2)). Such term includes any predecessor or
successor of such a corporation.
``(B) Expatriation date.--The term `expatriation
date' means, with respect to a corporation, the date on
which the corporation first becomes an expatriated
corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock
compensation' means payment (or right to payment)
granted by the expatriated corporation (or by any member
of the expanded affiliated group which includes such
corporation) to any person in connection with the
performance of services by a disqualified individual for
such corporation or member if the value of such payment
or right is based on (or determined by reference to) the
value (or change in value) of stock in such corporation
(or any such member).
``(B) Exceptions.--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) Expanded affiliated group.--
The <<NOTE: Applicability.>> term `expanded affiliated group'
means an affiliated group (as defined in section 1504(a) without
regard to section 1504(b)(3)); except that section
[[Page 118 STAT. 1568]]
1504(a) shall be applied by substituting `more than 50 percent'
for `at least 80 percent' each place it appears.
``(f) Special Rules.--For purposes of this section--
``(1) Cancellation of restriction.--The cancellation of a
restriction which by its terms will never lapse shall be treated
as a grant.
``(2) Payment or reimbursement of tax by corporation treated
as specified stock compensation.--Any payment of the tax imposed
by this section directly or indirectly by the expatriated
corporation or by any member of the expanded affiliated 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) Certain restrictions ignored.--Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
``(4) Property transfers.--Any transfer of property shall be
treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
``(5) Other administrative provisions.--For purposes of
subtitle F, any tax imposed by this section shall be treated as
a tax imposed by subtitle A.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Denial of Deduction.--
(1) In 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 the end
the following new subparagraph:
``(G) Coordination with excise tax on specified
stock compensation.--The dollar limitation contained in
paragraph (1) with respect to any covered employee shall
be reduced (but not below zero) by the amount of any
payment (with respect to such employee) of the tax
imposed by section 4985 directly or indirectly by the
expatriated corporation (as defined in such section) or
by any member of the expanded affiliated group (as
defined in such section) which includes such
corporation.''.
(c) Conforming Amendments.--
(1) The last sentence of section 3121(v)(2)(A) is amended by
inserting before the period ``or to any specified stock
compensation (as defined in section 4985) on which tax is
imposed by section 4985''.
(2) The table of chapters for subtitle D is amended by
inserting after the item relating to chapter 44 the following
new item:
``Chapter 45. Provisions relating to expatriated
entities.''.
(d) Effective Date.--The <<NOTE: 26 USC 4985 note.>> amendments made
by this section shall take effect on March 4, 2003; except that periods
before such date shall not be taken into account in applying the periods
[[Page 118 STAT. 1569]]
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 JURISDICTIONS.
(a) In General.--Section 845(a) (relating to allocation in case of
reinsurance agreement involving tax avoidance or evasion) is amended by
striking ``source and character'' and inserting ``amount, source, or
character''.
(b) Effective Date.--The <<NOTE: 26 USC 845 note.>> amendments made
by this section shall apply to any risk reinsured after the date of the
enactment of this Act.
SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) Expatriation To Avoid Tax.--
(1) In general.--Subsection (a) of section 877 (relating to
treatment of expatriates) is amended to read as follows:
``(a) Treatment of Expatriates.--
``(1) In general.--Every nonresident alien individual to
whom this section applies and who, within the 10-year period
immediately preceding the close of the taxable year, lost United
States citizenship shall be taxable for such taxable year in the
manner provided in subsection (b) if the tax imposed pursuant to
such subsection (after any reduction in such tax under the last
sentence of such subsection) exceeds the tax which, without
regard to this section, is imposed pursuant to section 871.
``(2) Individuals <<NOTE: Applicability.>> 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
of 5 taxable years ending before the date of the loss of
United States 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
title for the 5 preceding taxable years or fails to
submit such evidence of such compliance as the Secretary
may require.
In the case of the loss of United States citizenship in any
calendar year after 2004, such $124,000 amount shall be
increased by an amount equal to such dollar amount multiplied by
the cost-of-living adjustment determined under section 1(f)(3)
for such calendar year by substituting `2003' for `1992' in
subparagraph (B) thereof. Any increase under the preceding
sentence shall be rounded to the nearest multiple of $1,000.''.
(2) Revision of exceptions from alternative tax.--Subsection
(c) of section 877 (relating to tax avoidance not presumed in
certain cases) is amended to read as follows:
``(c) Exceptions.--
``(1) In general.--Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph
(2) or (3).
``(2) Dual citizens.--
``(A) In 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
country
[[Page 118 STAT. 1570]]
and continues to be a citizen of such other
country, and
``(ii) the individual has had no substantial
contacts with the United States.
``(B) Substantial contacts.--An individual shall be
treated as having no substantial contacts with the
United States 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
which is 1 of the 10 calendar years preceding the
individual's loss of United States citizenship.
``(3) Certain 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
18\1/2\, and
``(D) the individual was not present in the United
States for more than 30 days during any calendar year
which is 1 of the 10 calendar years preceding the
individual's loss of United States citizenship.''.
(3) Conforming amendment.--Section 2107(a) is amended to
read as follows:
``(a) Treatment of Expatriates.--A tax computed in accordance with
the table contained in section 2001 is hereby imposed on the transfer of
the taxable estate, determined as provided in section 2106, of every
decedent nonresident not a citizen of the United States if the date of
death occurs during a taxable year with respect to which the decedent is
subject to tax under section 877(b).''.
(b) Special Rules for Determining When an Individual Is No Longer a
United States Citizen or Long-Term Resident.--Section 7701 (relating to
definitions) is amended by redesignating subsection (n) as subsection
(o) and by inserting after subsection (m) the following new subsection:
``(n) Special Rules for Determining When an Individual Is No Longer
a United States Citizen or Long-Term Resident.--An individual who would
(but for this subsection) cease to be treated as a citizen or resident
of the United States shall continue 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 citizenship
or terminate residency) to the Secretary of State or the
Secretary of Homeland Security, and
``(2) provides a statement in accordance with section
6039G.''.
(c) Physical Presence in the United States for More Than 30 Days.--
Section 877 (relating to expatriation to avoid tax) is amended by adding
at the end the following new subsection:
``(g) Physical Presence.--
[[Page 118 STAT. 1571]]
``(1) In general.--This section shall not apply to any
individual to whom this section would otherwise apply for any
taxable year during the 10-year period referred to in subsection
(a) in which such individual is physically present in the United
States at any time on more than 30 days in the calendar year
ending in such taxable year, and such individual shall be
treated for purposes of this title as a citizen or resident of
the United States, as the case may be, for such taxable year.
``(2) Exception.--
``(A) In general.--In the case of an individual
described in any of the following subparagraphs of this
paragraph, a day of physical presence in the United
States shall be disregarded if the individual is
performing services in the United States on such day for
an employer. The preceding 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 prevent the avoidance of the
purposes of this paragraph.
Not more than 30 days during any calendar year may be
disregarded under this subparagraph.
``(B) Individuals 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 citizenship or termination of
residency) a citizen or resident of the country in
which--
``(I) such individual was born,
``(II) if such individual is
married, such individual'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) Minimal 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
date of loss of United States citizenship or termination
of residency, the individual was physically present in
the United States for 30 days or
less. <<NOTE: Applicability.>> The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this
subparagraph.''.
(d) Transfers Subject to Gift Tax.--
(1) In general.--Subsection (a) of section 2501 (relating to
taxable transfers) is amended by striking paragraph (4), by
redesignating paragraph (5) as paragraph (4), and by striking
paragraph (3) and inserting the following new paragraph:
``(3) Exception.--
``(A) Certain individuals.--Paragraph (2) shall not
apply in the case of a donor to whom section 877(b)
applies for the taxable year which includes the date of
the transfer.
``(B) Credit for foreign gift taxes.--The tax
imposed by this section solely by reason of this
paragraph shall be credited with the amount of any gift
tax actually
[[Page 118 STAT. 1572]]
paid to any foreign country in respect of any gift which
is taxable under this section solely by reason of this
paragraph.''.
(2) Transfers of certain stock.--Subsection (a) of section
2501 is amended by adding at the end the following new
paragraph:
``(5) Transfers of certain stock.--
``(A) In general.--In the case of a transfer of
stock in a foreign corporation described in subparagraph
(B) by a donor to whom section 877(b) applies for the
taxable year which includes the date of the transfer--
``(i) section
2511(a) <<NOTE: Applicability.>> shall be applied
without regard to whether such stock is situated
within the United States, and
``(ii) the value of such stock for purposes of
this chapter shall be its U.S.-asset value
determined under subparagraph (C).
``(B) Foreign corporation described.--A foreign
corporation is described in this subparagraph with
respect to a donor if--
``(i) the donor owned (within the meaning of
section 958(a)) at the time of such transfer 10
percent or more of the total combined voting power
of all classes of stock entitled to vote of the
foreign corporation, and
``(ii) such donor owned (within the meaning of
section 958(a)), or is considered to have owned
(by applying the ownership rules of section
958(b)), at the time 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 corporation.
``(C) U.S.-asset value.--For purposes of
subparagraph (A), the U.S.-asset value of stock shall be
the amount which bears the same ratio to the fair market
value of such stock at the time of transfer as--
``(i) the fair market value (at such time) of
the assets owned by such foreign corporation and
situated in the United States, bears to
``(ii) the total fair market value (at such
time) of all assets owned by such foreign
corporation.''.
(e) Enhanced Information Reporting From Individuals Losing United
States Citizenship.--
(1) In general.--Subsection (a) of section 6039G is amended
to read as follows:
``(a) In General.--Notwithstanding any other provision of law, any
individual to whom section 877(b) applies for any taxable year shall
provide a statement for such taxable year which includes the information
described in subsection (b).''.
(2) Information to be provided.--Subsection (b) of section
6039G is amended to read as follows:
``(b) Information To Be Provided.--Information required under
subsection (a) shall include--
``(1) the taxpayer's TIN,
[[Page 118 STAT. 1573]]
``(2) the mailing address of such individual's principal
foreign 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 States
during the taxable year, and
``(7) such other information as the Secretary may
prescribe.''.
(3) Increase in penalty.--Subsection (d) of section 6039G is
amended to read as follows:
``(d) Penalty.--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 or
fails to include all the information required to be shown on the
statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown that
such failure is due to reasonable cause and not to willful neglect.''.
(4) Conforming amendment.--Section 6039G is amended by
striking subsections (c), (f), and (g) and by redesignating
subsections (d) and (e) as subsection (c) and (d), respectively.
(f) Effective Date.--The <<NOTE: 26 USC 877 note.>> amendments made
by this section shall apply to individuals who expatriate after June 3,
2004.
SEC. 805. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) In General.--Subpart B of part III of subchapter A of chapter 61
is amended by inserting after section 6043 the following new section:
``SEC. 6043A. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--According to the forms or regulations prescribed
by the Secretary, the acquiring corporation in any taxable acquisition
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 part of such
acquisition, and
``(4) such other information as the Secretary may prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable to
the acquired corporation and not to the acquiring corporation.
``(b) Nominees.--According to the forms or regulations prescribed by
the Secretary:
``(1) Reporting.--Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by the
Secretary to such other person the information provided by the
corporation under subsection (d).
``(2) Reporting to nominees.--In the case of stock held by
any person as a nominee, references in this section (other
[[Page 118 STAT. 1574]]
than in subsection (c)) to a shareholder shall be treated as a
reference to the nominee.
``(c) Taxable Acquisition.--For purposes of this section, the term
`taxable acquisition' means any acquisition by a corporation of stock in
or property of another corporation if any shareholder of the acquired
corporation is required to recognize gain (if any) as a result of such
acquisition.
``(d) Statements To Be Furnished to Shareholders.--According to the
forms or regulations prescribed by the Secretary, every person required
to make a return under subsection (a) shall furnish to each shareholder
whose name is required to be set forth in such return a written
statement showing--
``(1) the name, address, and phone number of the information
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 shall be
furnished to the shareholder on or before January 31 of the year
following the calendar year during which the taxable acquisition
occurred.''.
(b) Assessable 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 by
inserting 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
redesignating 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) Clerical Amendment.--The table of sections for subpart B of part
III of subchapter A of chapter 61 is amended by inserting after the item
relating to section 6043 the following new item:
``Sec. 6043A. Returns relating to taxable mergers and
acquisitions.''.
(d) Effective Date.--The <<NOTE: 26 USC 6043A note.>> amendments
made by this section shall apply to acquisitions after the date of the
enactment of this Act.
SEC. 806. <<NOTE: Deadlines. Reports.>> STUDIES.
(a) Transfer Pricing Rules.--The Secretary of the Treasury or the
Secretary's delegate shall conduct a study regarding the effectiveness
of current transfer pricing rules and compliance efforts in ensuring
that cross-border transfers and other related-party transactions,
particularly transactions involving intangible assets, service
contracts, or leases cannot be used improperly to shift income out of
the United States. The study shall include a review of the
contemporaneous documentation and penalty rules under section 6662 of
the Internal Revenue Code of 1986, a review of the regulatory and
administrative guidance implementing the principles of section 482 of
such Code to transactions involving intangible property and services and
to cost-sharing arrangements, and an examination of whether increased
disclosure of cross-border transactions should be required. The study
shall set forth specific
[[Page 118 STAT. 1575]]
recommendations to address all abuses identified in the study. Not later
than June 30, 2005, such Secretary or delegate shall submit to the
Congress a report of such study.
(b) Income Tax Treaties.--The Secretary of the Treasury or the
Secretary's delegate shall conduct a study of United States income tax
treaties to identify any inappropriate reductions in United States
withholding tax that provide opportunities for shifting income out of
the United States, and to evaluate whether existing anti-abuse
mechanisms are operating properly. The study shall include specific
recommendations to address all inappropriate uses of tax treaties. Not
later than June 30, 2005, such Secretary or delegate shall submit to the
Congress a report of such study.
(c) Effectiveness of Corporate Expatriation Provisions.--The
Secretary of the Treasury or the Secretary's delegate shall conduct a
study of the effectiveness of the provisions of this title on corporate
expatriation. The study shall include such recommendations as such
Secretary or delegate may have to improve the effectiveness of such
provisions in carrying out the purposes of this title. Not later than
December 31, 2006, such Secretary or 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 TRANSACTIONS.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN.
``(a) Imposition of Penalty.--Any person who fails to include on any
return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
amount of the penalty under subsection (a) shall be--
``(A) $10,000 in the case of a natural person, and
``(B) $50,000 in any other case.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be--
``(A) $100,000 in the case of a natural person, and
``(B) $200,000 in any other case.
``(c) Definitions.--For purposes of this section:
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
[[Page 118 STAT. 1576]]
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--The term `listed transaction'
means a reportable transaction which is the same as, or
substantially similar to, a transaction specifically identified
by the Secretary as a tax avoidance transaction for purposes of
section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction, and
``(B) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) No judicial appeal.--Notwithstanding any other
provision of law, any determination under this subsection may
not be reviewed in any judicial proceeding.
``(3) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner with respect 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) Penalty 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
required to be consolidated with another person for purposes of
such reports, 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 prescribed under section 6662A(c), or
``(C) is required to pay a penalty under section
6662(h) with respect to any reportable transaction and
would (but for section 6662A(e)(2)(C)) have been subject
to penalty under section 6662A at a rate prescribed
under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section shall be in addition to any other penalty imposed by this
title.''.
[[Page 118 STAT. 1577]]
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to include reportable
transaction information with return.''.
(c) Effective Date.--The <<NOTE: 26 USC 6707A note.>> amendments
made by this section shall apply to returns and statements the due date
for which is after the date of the enactment of this Act.
(d) Report.--The <<NOTE: 26 USC 6707A note.>> Commissioner of
Internal Revenue shall annually report to the Committee on Ways and
Means of the House of Representatives and the Committee on Finance of
the Senate--
(1) a summary of the total number and aggregate amount of
penalties imposed, and rescinded, under section 6707A of the
Internal Revenue Code of 1986, and
(2) a description of each penalty rescinded under section
6707(c) of such Code and the reasons therefor.
SEC. 812. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS, OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX AVOIDANCE
PURPOSE, ETC.
(a) In General.--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 REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added to
the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' 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 the proper tax treatment of an item to
which this section applies and the taxpayer's
treatment of such item (as shown 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 a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess of
deductions allowed for the taxable year over gross income for
such year, and any reduction in the amount of capital losses
which would (without regard to section 1211) be allowed for such
year, shall be treated as an increase in taxable income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
[[Page 118 STAT. 1578]]
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for <<NOTE: Applicability.>> Nondisclosed
Listed and Other Avoidance Transactions.--Subsection (a) shall be
applied by substituting `30 percent' for `20 percent' with respect to
the portion of any reportable transaction understatement with respect to
which the requirement of section 6664(d)(2)(A) is not met.
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and `listed
transaction' have the respective meanings given to such terms by section
6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--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 by
the aggregate amount of reportable transaction
understatements for purposes of determining whether such
understatement is a substantial understatement under
section 6662(d)(1), and
``(B) the <<NOTE: Applicability.>> addition to tax
under section 6662(a) shall apply only to the excess of
the amount of the substantial understatement (if any)
after the application of subparagraph (A) over the
aggregate amount of reportable transaction
understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6663.
``(C) Coordination with valuation penalties.--
``(i) Section 6662(e).--Section 6662(e) shall
not apply to any portion of an understatement on
which a penalty is imposed under this section.
``(ii) Section 6662(h).--This section shall
not apply to any portion of an understatement on
which a penalty is imposed under section 6662(h).
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken into
account in determining the amount of any reportable transaction
understatement if the amendment or supplement is filed after the
earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.''.
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
[[Page 118 STAT. 1579]]
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under section
6662A with respect to any portion of a reportable transaction
understatement if it is shown that there was a reasonable cause
for such portion and that the taxpayer acted in good faith with
respect to such portion.
``(2) Special 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
the regulations prescribed under section 6011,
``(B) there is or was substantial authority for such
treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of 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
tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such treatment
and does not take into account the possibility
that a return will not be audited, such treatment
will not be raised on audit, or such treatment
will be resolved through settlement if it is
raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax advisor
may not be relied upon to establish the reasonable
belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified 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 the organization,
management, promotion, or sale of the
transaction or is related (within the
meaning of section 267(b) or 707(b)(1))
to any person who so participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
[[Page 118 STAT. 1580]]
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the Secretary,
has a disqualifying financial interest
with respect to the transaction.
``(iii) Disqualified 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 future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming 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 ``for Underpayments'' after
``Exception''.
(d) Reduction in Penalty for Substantial Understatement of Income
Tax Not To Apply to Tax Shelters.--Subparagraph (C) of section
6662(d)(2) (relating to substantial understatement of income tax) is
amended to read as follows:
``(C) Reduction not to apply to tax shelters.--
``(i) In general.--Subparagraph (B) shall not
apply to any item attributable to a tax shelter.
``(ii) Tax 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 of Federal income tax.''.
(e) Clerical Amendments.--
(1) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''.
(2) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 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) Effective Date.--The <<NOTE: 26 USC 6662 note.>> amendments made
by this section shall apply to taxable years ending after the date of
the enactment of this Act.
[[Page 118 STAT. 1581]]
SEC. 813. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--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
representative 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 (as
defined in section 6662(d)(2)(C)(ii)).''.
(b) Effective Date.--The <<NOTE: 26 USC 7525 note.>> amendment made
by this section shall apply to communications made on or after the date
of the enactment of this Act.
SEC. 814. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED
LISTED TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(c) (relating to exceptions) is amended
by adding at the end the following new paragraph:
``(10) Listed transactions.--If a taxpayer fails to include
on any return or statement for any taxable year any information
with respect to a listed transaction (as defined in section
6707A(c)(2)) which is required under section 6011 to be included
with such return or statement, the time for assessment of any
tax imposed by this title with respect to such transaction shall
not expire before the date which is 1 year after the earlier
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
with respect to a request by the Secretary under section
6112(b) relating to such transaction with respect to
such taxpayer.''.
(b) Effective Date.--The <<NOTE: 26 USC 6501 note.>> amendment made
by this section shall apply to taxable years with respect to which the
period for assessing a deficiency did not expire before the date of the
enactment of this Act.
SEC. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary 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 by the
Secretary.
[[Page 118 STAT. 1582]]
``(b) Definitions.--For purposes of this section:
``(1) Material advisor.--
``(A) In general.--The term `material advisor' means
any person--
``(i) who provides any material aid,
assistance, or advice with respect to organizing,
managing, promoting, selling, implementing,
insuring, or carrying out any reportable
transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount (or
such other amount as may be prescribed by the
Secretary) for such advice or assistance.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax benefits
from which are provided to natural persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--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 more
persons would otherwise be required to meet such requirements,
``(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) Conforming Amendments.--(1) The item relating to section 6111 in
the table of sections for subchapter B of chapter 61 is amended 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) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall (whether or not required to file a return under section
6111 with respect to such transaction) maintain (in such manner as the
Secretary may by regulations prescribe) a list--
``(1) identifying each person with respect to whom such
advisor acted as a material advisor with respect to such
transaction, 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''.
[[Page 118 STAT. 1583]]
(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 as follows:
``Sec. 6708. Failure to maintain lists of advisees with
respect to reportable transactions.''.
(c) Effective Date.--The <<NOTE: 26 USC 6111 note.>> 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 the Internal Revenue Code of 1986 (as added by this
section) is provided after the date of the enactment of this Act.
SEC. 816. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--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 in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any failure
shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an 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 which
is provided with respect to the listed transaction
before the date the return is filed under section 6111.
Subparagraph (B) shall <<NOTE: Applicability.>> be applied by
substituting `75 percent' for `50 percent' in the case of an
intentional failure or act described in subsection (a).
``(c) Rescission Authority.--The <<NOTE: Applicability.>> provisions
of section 6707A(d) (relating to authority of Commissioner to rescind
penalty) shall apply to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--For purposes of this
section, the terms `reportable transaction' and `listed transaction'
have the respective meanings given to such terms by section 6707A(c).''.
[[Page 118 STAT. 1584]]
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended by
striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The <<NOTE: 26 USC 6707 note.>> amendments made
by this section shall apply to returns the due date for which is after
the date of the enactment of this Act.
SEC. 817. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If <<NOTE: Deadline.>> any person who is
required to maintain a list under section 6112(a) fails to make
such list available upon written request to the Secretary in
accordance with section 6112(b) within 20 business days after
the date of such request, such person shall pay a penalty of
$10,000 for each day of such failure after such 20th day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''.
(b) Effective Date.--The <<NOTE: 26 USC 6708 note.>> amendment made
by this section shall apply to requests made after the date of the
enactment of this Act.
SEC. 818. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''.
(b) Effective Date.--The <<NOTE: 26 USC 6700 note.>> amendment made
by this section shall apply to activities after the date of the
enactment of this Act.
SEC. 819. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case of
a corporation other than an S corporation or a personal
holding company (as defined in section 542), there is a
substantial understatement of income tax for any taxable
year if the amount of the understatement for the taxable
year 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) Secretarial List.--
(1) In general.--Section 6662(d) is amended by adding at the
end the following new paragraph:
[[Page 118 STAT. 1585]]
``(3) Secretarial list.--The Secretary may prescribe a list
of positions which the Secretary believes do not meet the 1 or
more of the standards specified in paragraph (2)(B)(i), section
6664(d)(2), and section 6694(a)(1). Such <<NOTE: Federal
Register, publication.>> list (and any revisions thereof) shall
be published in the Federal Register or the Internal Revenue
Bulletin.''.
(2) Conforming amendment.--Paragraph (2) of section 6662(d)
is amended by striking subparagraph (D).
(c) Effective Date.--The <<NOTE: 26 USC 6662 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and (b)
and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by the
United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in any
other activity subject to penalty under this title.
``(c) Specified 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) Conforming 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 inserting the
following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The <<NOTE: 26 USC 7408 note.>> amendment made
by this section shall take effect on the day after the date of the
enactment of this Act.
[[Page 118 STAT. 1586]]
SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States Code,
is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil penalty
imposed under subparagraph (A) shall not exceed
$10,000.
``(ii) Reasonable cause exception.--No penalty
shall be imposed under subparagraph (A) with
respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the transaction
or the balance in the account at the
time of the transaction was properly
reported.
``(C) Willful 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) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving a
transaction, 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 identifying information required to be
provided with respect to an account, the balance
in the account at the time of the violation.''.
(b) Effective Date.--The <<NOTE: 31 USC 5321 note.>> amendment made
by this section shall apply to violations occurring after the date of
the enactment of this Act.
SEC. 822. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
THE TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In 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
sentence:
``The Secretary may impose a monetary penalty on any representative
described in the preceding sentence. If the representative was acting on
behalf of an employer or any firm or other entity in connection with the
conduct giving rise to such penalty, the Secretary may impose a monetary
penalty on such employer, firm,
[[Page 118 STAT. 1587]]
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 penalty and may be in
addition to, or in lieu of, any suspension, disbarment, or censure of
the representative.''.
(2) Effective date.--The <<NOTE: 31 USC 330
note.>> amendments made by this subsection shall apply to
actions taken after the date of the enactment of this Act.
(b) Tax Shelter 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 the Treasury to
impose standards applicable to the rendering of written advice with
respect to any entity, transaction plan or arrangement, or other plan or
arrangement, which is of a type which the Secretary determines as having
a potential for tax avoidance or evasion.''.
Part II--Other Provisions
SEC. 831. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK
FUNDS, ETC.
(a) In General.--Section 1286 (relating to tax treatment of stripped
bonds) is amended by redesignating subsection (f) as subsection (g) and
by inserting after subsection (e) the following new subsection:
``(f) Treatment of Stripped Interests in Bond and Preferred Stock
Funds, Etc.--In the case of an account or entity substantially all of
the assets of which consist of bonds, preferred stock, or a combination
thereof, the Secretary may by regulations provide that rules similar to
the rules of this section and 305(e), as appropriate, shall apply to
interests in such account or entity to which (but for this subsection)
this section or section 305(e), as the case may be, would not apply.''.
(b) Cross Reference.--Subsection (e) of section 305 is amended by
adding at the end the following new paragraph:
``(7) Cross reference.--
``For treatment of stripped interests in certain
accounts or entities holding preferred stock, see
section 1286(f).''.
(c) Effective Date.--The <<NOTE: 26 USC 305 note.>> amendments made
by this section shall apply to purchases and dispositions after the date
of the enactment of this Act.
SEC. 832. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING
TAXES ON INCOME OTHER THAN DIVIDENDS.
(a) In General.--Section 901 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k) the
following new subsection:
``(l) Minimum Holding Period for Withholding Taxes on Gain and
Income Other Than Dividends Etc.--
``(1) In general.--In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect to
any property if--
``(A) such property is held by the recipient of the
item for 15 days or less during the 31-day period
beginning
[[Page 118 STAT. 1588]]
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 sale
or otherwise) to make related payments with respect to
positions in substantially similar or related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
``(2) Exception for taxes paid by dealers.--
``(A) In general.--Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business as
a dealer in such property.
``(B) Qualified tax.--For purposes of subparagraph
(A), the term `qualified tax' means a tax paid to a
foreign country (other than the foreign country referred
to in subparagraph (A)) if--
``(i) the item to which such tax is
attributable is subject to taxation on a net basis
by the country referred 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 such other foreign country.
``(C) Dealer.--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 not apply by reason of paragraph (4) thereof
if such security were stock, and
``(ii) with respect to any other property, any
person with respect to whom such property is
described in section 1221(a)(1).
``(D) Regulations.--The Secretary may prescribe such
regulations as may be appropriate to carry out this
paragraph, including regulations to prevent the abuse of
the exception provided by this paragraph and to treat
other taxes as qualified taxes.
``(3) Exceptions.--The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the
Secretary determines that the application of paragraph (1) to
such property is not necessary to carry out the purposes of this
subsection.
``(4) Certain rules to apply.--Rules similar to the rules of
paragraphs (5), (6), and (7) of subsection (k) shall apply for
purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of section
901 is amended by inserting ``on Dividends'' after ``Taxes''.
(c) Effective Date.--The <<NOTE: 26 USC 901 note.>> amendments made
by this section shall apply to amounts paid or accrued more than 30 days
after the date of the enactment of this Act.
[[Page 118 STAT. 1589]]
SEC. 833. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) Treatment 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 the end of subparagraph (B)
and inserting ``, and'', and by adding at 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 to the contributing partner, and
``(ii) except as provided in regulations, in
determining the amount of items allocated to other
partners, the basis of the contributed property in
the hands of the partnership shall be treated as
being equal to its fair market value at the time
of contribution.
For purposes of subparagraph (C), the term `built-in loss' means
the excess of the adjusted basis of the property (determined
without regard to subparagraph (C)(ii)) over its fair market
value at the time of contribution.''.
(b) Special Rules for Transfers of Partnership Interest if There Is
Substantial Built-In Loss.--
(1) Adjustment of partnership basis required.--Subsection
(a) of section 743 (relating to optional adjustment to basis of
partnership property) is amended by inserting before the period
``or unless the partnership has a substantial built-in loss
immediately after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended by
inserting ``or which has a substantial built-in loss immediately
after such transfer'' after ``section 754 is in effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the partnership's
adjusted basis in the partnership property exceeds by more than
$250,000 the fair market value of such property.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by the partnership in an attempt to avoid such
purposes.''.
(4) Alternative rules for electing investment
partnerships.--
(A) In general.--Section 743 is amended by adding
after subsection (d) the following new subsection:
``(e) Alternative Rules for Electing Investment Partnerships.--
``(1) No adjustment of partnership basis.--For purposes of
this section, an electing investment partnership shall not be
treated as having a substantial built-in loss with respect to
any transfer occurring while the election under paragraph (6)(A)
is in effect.
[[Page 118 STAT. 1590]]
``(2) Loss deferral for transferee partner.--In the case of
a transfer of an interest in an electing investment partnership,
the transferee partner's distributive share of losses (without
regard to gains) from the sale or exchange of partnership
property shall not be allowed except to the extent that it is
established that such losses exceed the loss (if any) recognized
by the transferor (or any prior transferor to the extent not
fully offset by a prior disallowance under this paragraph) on
the transfer of the partnership interest.
``(3) No reduction in partnership basis.--Losses disallowed
under paragraph (2) shall not decrease the transferee partner's
basis in the partnership interest.
``(4) Effect of <<NOTE: Applicability.>> termination of
partnership.--This subsection shall be applied without regard to
any termination of a partnership under section 708(b)(1)(B).
``(5) Certain basis reductions treated as losses.--In the
case of a transferee partner whose basis in property distributed
by the partnership is reduced under section 732(a)(2), the
amount of the loss recognized by the transferor on the transfer
of the partnership interest which is taken into account under
paragraph (2) shall be reduced by the amount of such basis
reduction.
``(6) Electing 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 Act
of 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 the
time of contribution,
``(G) all partnership interests of such partnership
are issued by such partnership pursuant to a private
offering before the date which is 24 months after the
date of the first capital contribution to such
partnership,
``(H) the partnership agreement of such partnership
has substantive restrictions on each partner's ability
to cause a redemption of the partner's interest, and
``(I) the partnership agreement of such partnership
provides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall be
irrevocable except with the consent of the Secretary.
``(7) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
this subsection, including regulations for applying this
subsection to tiered partnerships.''.
(B) Information reporting.--Section 6031 is amended
by adding at the end the following new subsection:
[[Page 118 STAT. 1591]]
``(f) Electing 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 to any partner
to whom section 743(e)(2) applies shall include such information as is
necessary to enable the partner to compute the amount of losses
disallowed under section 743(e).''.
(5) Special rule for securitization partnerships.--Section
743 is amended by adding after subsection (e) the following new
subsection:
``(f) Exception for Securitization Partnerships.--
``(1) No adjustment of partnership basis.--For purposes of
this section, a securitization partnership shall not be treated
as having a substantial built-in loss with respect to any
transfer.
``(2) Securitization partnership.--For purposes of paragraph
(1), the term `securitization partnership' means any partnership
the sole business activity of which is to issue securities which
provide for a fixed principal (or similar) amount and which are
primarily serviced by the cash flows of a discrete pool (either
fixed or revolving) of receivables or other financial assets
that by their terms convert into cash in a finite period, but
only if the sponsor of the pool reasonably believes that the
receivables and other financial assets comprising the pool are
not acquired so as to be disposed of.''.
(6) Clerical 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
subchapter K of chapter 1 is amended by striking the item
relating to section 743 and inserting the following new item:
``Sec. 743. Special rules where section 754 election or
substantial built-in loss.''.
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
the following: ``or unless there is a substantial basis
reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended by
inserting ``or unless there is a substantial basis reduction''
after ``section 754 is in effect''.
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B) of
subsection (b)(2) exceeds $250,000.
``(2) Regulations.--
``For regulations to carry out this subsection, see
section 743(d)(2).''.
(4) Exception for securitization partnerships.--Section 734
is amended by inserting after subsection (d) the following new
subsection:
[[Page 118 STAT. 1592]]
``(e) Exception for Securitization Partnerships.--For purposes of
this section, a securitization partnership (as defined in section
743(f)) shall not be treated as having a substantial basis reduction
with respect to any distribution of property to a partner.''.
(5) Clerical 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 SUBSTANTIAL BASIS
REDUCTION.''.
(B) The table of sections for subpart B of part II of
subchapter K of chapter 1 is amended by striking the item
relating to 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) Effective Dates.--
(1) Subsection (a).--The <<NOTE: 26 USC 704
note.>> amendment made by subsection (a) shall apply to
contributions made after the date of the enactment of this Act.
(2) Subsection <<NOTE: 26 USC 743 note.>> (b).--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by subsection (b) shall apply
to transfers after the date of the enactment of this
Act.
(B) Transition 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 Code
of 1986, as added by this section, shall not apply to
such partnership and section 743(e)(6)(I) of such Code,
as so added, shall be applied by substituting ``20
years'' for ``15 years''.
(3) Subsection (c).--The <<NOTE: 26 USC 734
note.>> amendments made by subsection (c) shall apply to
distributions after the date of the enactment of this Act.
SEC. 834. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY
PARTNERSHIP IN CORPORATE PARTNER.
(a) In General.--Section 755 is amended by adding at the end the
following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any decrease
in the adjusted basis of partnership property under section 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 the
partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other partnership
property exceeds the aggregate adjusted basis of such other property
immediately before the allocation required by paragraph (2).''.
(b) Effective Date.--The <<NOTE: 26 USC 755 note.>> amendment made
by this section shall apply to distributions after the date of the
enactment of this Act.
[[Page 118 STAT. 1593]]
SEC. 835. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of <<NOTE: 26 USC 860H-860L.>> subchapter M
of chapter 1 (relating to financial asset securitization investment
trusts) is hereby repealed.
(b) Conforming 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
a FASIT 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 fail to
qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced as a
result of the nonoccurrence of 1 or more contingent payments
with respect to any reverse mortgage loan held by the REMIC if,
on the startup day for the REMIC, the sponsor reasonably
believes that all principal and interest due under the regular
interest will be paid at or prior to the liquidation of the
REMIC.''.
(B) The last sentence of section 860G(a)(3) is amended by
inserting ``, and any reverse mortgage loan (and each balance
increase on such loan meeting the requirements of subparagraph
(A)(iii)) shall be treated as an obligation secured by an
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, and by
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 percent of the
obligations transferred to, or purchased by, the REMIC are
originated by the United States or any State (or any political
subdivision, agency, or instrumentality of the United States or
any State) and are principally secured by an interest in real
property, then each obligation transferred to, or purchased by,
the REMIC shall be treated as secured by an interest in 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
obligation described 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 obligation,
``(II) occurs after the startup day,
and
[[Page 118 STAT. 1594]]
``(III) is purchased by the REMIC
pursuant to a fixed price contract in
effect on the startup day.''.
(B) Section 860G(a)(7)(B) is amended to read as follows:
``(B) Qualified reserve fund.--For purposes of
subparagraph (A), the term `qualified reserve fund'
means any reasonably required reserve to--
``(i) provide for full payment of expenses of
the REMIC or amounts due on regular interests in
the event of defaults on qualified mortgages or
lower than expected returns on cash flow
investments, or
``(ii) provide a source of funds for the
purchase of obligations described in clause (ii)
or (iii) of paragraph (3)(A).
The aggregate fair market value of the assets held in
any such reserve shall not exceed 50 percent of the
aggregate fair market value of all of the assets of the
REMIC on the startup day, and the amount of any such
reserve shall be promptly and appropriately reduced to
the extent the amount held in such reserve is no longer
reasonably required for purposes specified in clause (i)
or (ii) of this subparagraph.''.
(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) Effective <<NOTE: 26 USC 56 note.>> Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on January 1,
2005.
(2) Exception for existing fasits.--Paragraph (1) shall not
apply to any FASIT in existence on the date of the enactment of
this Act to the extent that regular interests issued by the
FASIT before such date continue to remain outstanding in
accordance with the original terms of issuance.
SEC. 836. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In 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 each property described in subparagraph (B)
which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair
market value immediately after such transaction.
``(B) Property described.--For purposes of
subparagraph (A), property is described in this
subparagraph if--
[[Page 118 STAT. 1595]]
``(i) gain or loss with respect to such
property is not subject to tax under this subtitle
in the hands of 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 transferee immediately after such transfer.
In any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating each
partner in such partnership as holding such partner's
proportionate share of the property of such partnership.
``(C) Importation 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
aggregate adjusted bases of property described in
subparagraph (B) which is transferred in such
transaction would (but for this paragraph) exceed the
fair market value of such property immediately after
such transaction.
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred by a transferor
in any transaction which is described in
subsection (a) and which is not described in
paragraph (1) of this subsection, and
``(ii) the transferee's aggregate adjusted
bases of such property so transferred would (but
for this paragraph) exceed the fair market value
of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in
proportion to their respective built-in losses
immediately before the transaction.
``(C) Election to apply limitation to transferor's
stock basis.--
``(i) In general.--If the transferor and
transferee of a transaction described in
subparagraph (A) both elect 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 not apply by
reason of the election shall not exceed
its fair market value immediately after
the transfer.
``(ii) Election.--An election under clause (i)
shall be included with the return of tax for the
taxable year in which the transaction occurred,
shall be in such form and manner as the Secretary
may prescribe, and, once made, shall be
irrevocable.''.
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
[[Page 118 STAT. 1596]]
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to which
section 332 applies (or in a transfer described in section
337(b)(1)), the basis of such property in the hands of such
distributee shall be the same as it would be in the hands of the
transferor; except that the basis of such property in the hands
of such distributee shall be the fair market value of 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 property, or
``(B) in any case in which the liquidating
corporation is a foreign corporation, the corporate
distributee is a domestic corporation, and the corporate
distributee's aggregate adjusted bases of property
described in section 362(e)(1)(B) which is distributed
in such liquidation would (but for this subparagraph)
exceed the fair market value of such property
immediately after such liquidation.''.
(c) Effective Dates.--
(1) In general.--The <<NOTE: 26 USC 362 note.>> amendment
made by subsection (a) shall apply to transactions after the
date of the enactment of this Act.
(2) Liquidations.--The <<NOTE: 26 USC 334 note.>> amendment
made by subsection (b) shall apply to liquidations after the
date of the enactment of this Act.
SEC. 837. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF DETERMINING
INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY.
(a) In General.--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 paragraph (2) of such section), or
``(ii) any corporation not described in clause
(i) with respect to which a bank holding company
(as defined by section 2(a) of such Act) or
financial holding company (as defined by section
2(p) of such Act) owns directly or indirectly more
than 80 percent by vote or value of the stock of
such corporation;''.
(b) Effective Date.--The <<NOTE: 26 USC 956 note.>> 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 TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for interest) is
amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable to Nondisclosed
Reportable Transactions.--No deduction shall be allowed under this
chapter for any interest paid or accrued under section 6601 on any
underpayment of tax which is attributable to the portion of any
reportable transaction understatement (as defined
[[Page 118 STAT. 1597]]
in section 6662A(b)) with respect to which the requirement of section
6664(d)(2)(A) is not met.''.
(b) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to transactions in taxable years beginning
after the date of the enactment of this Act.
SEC. 839. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR
CERTAIN DEEMED ASSET SALES.
(a) In General.--Paragraph (13) of section 338(h) (relating to tax
on deemed sale not taken into account for estimated tax purposes) is
amended by adding at the end the following: ``The preceding sentence
shall not apply with respect to a qualified stock purchase for which an
election is made under paragraph (10).''.
(b) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendment made
by subsection (a) shall apply to transactions occurring after the date
of the enactment of this Act.
SEC. 840. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE
ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.
(a) In General.--Section 121(d) (relating to special rules for
exclusion of gain from sale of principal residence) is amended by adding
at the end the following new paragraph:
``(10) Property acquired in like-kind exchange.--If a
taxpayer acquired property in an exchange to which section 1031
applied, subsection (a) shall not apply to the sale or exchange
of such property if it occurs during the 5-year period beginning
with the date of the acquisition of such property.''.
(b) Effective Date.--The <<NOTE: 26 USC 121 note.>> amendment made
by this section shall apply to sales or exchanges after the date of the
enactment of this Act.
SEC. 841. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE
DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN TRANSACTIONS
WITH RELATED FOREIGN PERSONS.
(a) Original Issue Discount.--Section 163(e)(3) (relating to special
rule for original issue discount on obligation held by related foreign
person) is amended by redesignating subparagraph (B) as subparagraph (C)
and by inserting after subparagraph (A) the following new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--In the case of any debt
instrument having original issue discount which is
held by a related foreign person which is a
controlled foreign corporation (as defined in
section 957) or a passive foreign investment
company (as defined in section 1297), a deduction
shall be allowable to the issuer with respect to
such original issue discount for any taxable year
before the taxable year in which paid only to the
extent such original issue discount is includible
(determined without regard to properly allocable
deductions and qualified deficits under section
952(c)(1)(B)) during such prior taxable year in
the gross income of a United States person who
owns (within the meaning of section 958(a)) stock
in such corporation.
``(ii) Secretarial authority.--The Secretary
may by regulation exempt transactions from the
application
[[Page 118 STAT. 1598]]
of clause (i), including any transaction which is
entered into by a payor in the ordinary course of
a trade or business in which the payor is
predominantly engaged.''.
(b) Interest and Other Deductible Amounts.--Section 267(a)(3) is
amended--
(1) by striking ``The Secretary'' and inserting:
``(A) In general.--The Secretary'', and
(2) by adding at the end the following new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--Notwithstanding
subparagraph (A), in the case of any item payable
to a controlled foreign corporation (as defined in
section 957) or a passive foreign investment
company (as defined in section 1297), a deduction
shall be allowable to the payor with respect to
such amount for any taxable year before the
taxable year in which paid only to the extent that
an amount attributable to such item is includible
(determined without regard to properly allocable
deductions and qualified deficits under section
952(c)(1)(B)) during such prior taxable year in
the gross income of a United States person who
owns (within the meaning of section 958(a)) stock
in such corporation.
``(ii) Secretarial authority.--The Secretary
may by regulation exempt transactions from the
application of clause (i), including any
transaction which is entered into by a payor in
the ordinary course of a trade or business in
which the payor is predominantly engaged and in
which the payment of the accrued amounts occurs
within 8\1/2\ months after accrual or within such
other period as the Secretary may prescribe.''.
(c) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to payments accrued on or after the date of
the enactment of this Act.
SEC. 842. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS.
(a) In General.--Subchapter A of chapter 67 (relating to interest on
underpayments) is amended by adding at the end the following new
section:
``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than As Payment of Tax.--A
taxpayer may make a cash deposit with the Secretary which may be used by
the Secretary to pay any tax imposed under subtitle A or B or chapter
41, 42, 43, or 44 which has not been assessed at the time of the
deposit. Such a deposit shall be made in such manner as the Secretary
shall prescribe.
``(b) No Interest 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 treated as paid when the
deposit is made.
``(c) Return of Deposit.--Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shall
return to the taxpayer any amount of the deposit (to the extent
[[Page 118 STAT. 1599]]
not used for a payment of tax) which the taxpayer requests in writing.
``(d) Payment of Interest.--
``(1) In 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 treated as a
payment of tax for any period to the extent (and only to the
extent) attributable to a disputable tax for such period. Under
regulations <<NOTE: Regulations. Applicability.>> prescribed by
the Secretary, rules similar to the rules of section 6611(b)(2)
shall apply.
``(2) Disputable tax.--
``(A) In general.--For purposes of this section, the
term `disputable tax' means the amount of tax specified
at the time of the deposit as the taxpayer's reasonable
estimate of the maximum amount of any tax attributable
to disputable items.
``(B) Safe 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) shall
not be less than the amount of the proposed deficiency
specified in such letter.
``(3) Other definitions.--For purposes of paragraph (2)--
``(A) Disputable item.--The term `disputable item'
means any item of income, gain, loss, deduction, or
credit if 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's treatment of such item.
``(B) 30-day letter.--The term `30-day letter' means
the first letter of proposed deficiency which allows the
taxpayer an opportunity for administrative review in the
Internal Revenue Service Office of Appeals.
``(4) Rate of interest.--The rate of interest under this
subsection shall be the Federal short-term rate determined under
section 6621(b), compounded daily.
``(e) Use of Deposits.--
``(1) Payment of tax.--Except as otherwise provided by the
taxpayer, deposits shall be treated as used for the payment of
tax in the order deposited.
``(2) Returns of deposits.--Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.''.
(b) Clerical Amendment.--The table of sections for subchapter A of
chapter 67 is amended by adding at the end the following new item:
``Sec. 6603. Deposits made to suspend running of
interest on potential underpayments,
etc.''.
(c) Effective <<NOTE: 26 USC 6603 note.>> Date.--
(1) In general.--The amendments made by this section shall
apply to deposits made after the date of the enactment of this
Act.
(2) Coordination with deposits made under revenue procedure
84-58.--In the case of an amount held by the Secretary of the
Treasury or his delegate on the date of the enactment of this
Act as a deposit in the nature of a cash bond deposit pursuant
to Revenue Procedure 84-58, the date
[[Page 118 STAT. 1600]]
that the taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue Code (as added
by this Act) shall be treated as the date such amount is
deposited for purposes of such section 6603.
SEC. 843. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.
(a) In General.--
(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 in the
matter preceding paragraph (1) by inserting ``full'' before
``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159 is amended by redesignating subsections (d) and (e)
as subsections (e) and (f), respectively, and inserting after subsection
(c) the following new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement entered
into by the Secretary under subsection (a) for partial collection of a
tax liability, the Secretary shall review the agreement at least once
every 2 years.''.
(c) Effective Date.--The <<NOTE: 26 USC 6159 note.>> amendments made
by this section shall apply to agreements entered into on or after the
date of the enactment of this Act.
SEC. 844. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 is amended by adding at the end the
following new sentence: ``In carrying out the preceding sentence, the
Secretary may prescribe rules that are different from the provisions of
chapter 1 that would apply if such corporations filed separate
returns.''.
(b) Result Not Overturned.--Notwithstanding the amendment made by
subsection (a), the Internal Revenue Code of 1986 shall be construed by
treating Treasury Regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on
January 1, 2001) as being inapplicable to the factual situation in Rite
Aid Corporation and Subsidiary Corporations v. United States, 255 F.3d
1357 (Fed. Cir. 2001).
(c) Effective Date.--This <<NOTE: 26 USC 1502 note.>> 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) In General.--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) Capitalization 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 paragraphs (5) and (6) and by
inserting after paragraph (3) the following new paragraph:
[[Page 118 STAT. 1601]]
``(4) Capitalization allowed with respect to equity of
persons other than issuer and related parties.--If the
disqualified debt instrument of a corporation is payable in
equity held by the issuer (or any related party) in any other
person (other than a related party), the basis of such equity
shall be increased by the amount not allowed as a deduction by
reason of paragraph (1) with respect to the instrument.''.
(c) Exception for Certain Instruments Issued by Dealers in
Securities.--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 following new paragraph:
``(5) Exception for certain instruments issued by dealers in
securities.--For purposes of this subsection, the term
`disqualified debt instrument' does not include indebtedness
issued by a dealer in securities (or a related party) which is
payable in, or by reference to, equity (other than equity of the
issuer or a related party) held by such dealer in its capacity
as a dealer in securities. For purposes of this paragraph, the
term `dealer in securities' has the meaning given such term by
section 475.''.
(d) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(e) Effective Date.--The <<NOTE: 26 USC 163 note.>> 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) Clarification 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) is amended by inserting
``(notwithstanding any other subparagraph of this paragraph)'' after
``shall''.
(b) Limitation on Depreciation and Amortization Periods for
Intangibles Leased to Tax-Exempt Entity.--
(1) Computer software.--Paragraph (1) of section 167(f) is
amended by adding at the end the following new subparagraph:
``(C) Tax-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 section 168
if such section applied to computer software, the useful
life under subparagraph (A) shall not be less than 125
percent of the lease term (within the meaning of section
168(i)(3)).''.
(2) Certain interests or rights acquired separately.--
Paragraph (2) of section 167(f) is amended by adding at the end
the following new sentence: ``If such property would be tax-
exempt use property as defined in subsection (h) of section 168
if such section applied to such property, the useful life under
such regulations shall not be less than 125 percent of the lease
term (within the meaning of section 168(i)(3)).''.
[[Page 118 STAT. 1602]]
(3) Section 197 intangibles.--Section 197(f) (relating to
special rules) is amended by adding at the end the following new
paragraph:
``(10) Tax-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 section 168 if such
section applied to such intangible, the amortization period
under this section shall not be less than 125 percent of the
lease term (within the meaning of section 168(i)(3)).''.
(c) Lease Term To Include Related Service Contracts.--Subparagraph
(A) of section 168(i)(3) (relating to lease term) is amended by striking
``and'' at the end of clause (i), by redesignating clause (ii) as clause
(iii), and by inserting after clause (i) the following 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 section 7701(e))--
``(I) which is part of the same
transaction (or series of related
transactions) which includes the lease,
and
``(II) which is with respect to the
property subject to the lease or
substantially similar property, and''.
(d) Expansion of Short-Term Lease Exemption for Qualified
Technological Equipment.--Subparagraph (A) of section 168(h)(3) is
amended by adding at the end the following new sentence:
``Notwithstanding subsection (i)(3)(A)(i), in determining a lease term
for purposes of the preceding sentence, there shall not be taken into
account any option of the lessee to renew at the fair market value rent
determined at the time of renewal; except that the aggregate period not
taken into account by reason of this sentence shall not exceed 24
months.''.
(e) Treatment 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 end of clause (iii)
and inserting ``, and'', and by inserting at the end the following:
``(iv) any Indian tribal government described
in section 7701(a)(40).
For purposes of applying this subsection, any Indian
tribal government referred to in clause (iv) shall be
treated in the same manner as a State.''.
SEC. 848. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY
GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
(a) In General.--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 ENTITIES.
``(a) Limitation on Losses.--Except as otherwise provided in this
section, a tax-exempt use loss for any taxable year shall not be
allowed.
[[Page 118 STAT. 1603]]
``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt use loss
with respect to any tax-exempt use property which is disallowed under
subsection (a) for any taxable year shall be treated as a deduction with
respect to such property in the next taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Tax-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) Tax-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 for this
sentence) be tax-exempt use property solely by reason of section
168(h)(6) if any credit is allowable under section 42 or 47 with
respect to such property.
``(d) Exception for Certain Leases.--This section shall not apply to
any lease of property which meets the requirements of all of the
following paragraphs:
``(1) Availability of funds.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if (at any time during
the lease term) not more than an allowable amount of
funds are--
``(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 to
or for the benefit of the lessee to satisfy the lessee's
obligations or options under the lease. For purposes of
clause (ii), funds shall be treated as set aside or
expected to be set aside only if a reasonable person
would conclude, based on the facts and circumstances,
that such funds are set aside or expected to be set
aside.
``(B) Arrangements.--The arrangements referred to in
this subparagraph include a defeasance arrangement, a
loan by the lessee to the lessor or any lender, a
deposit arrangement, a letter of credit collateralized
with cash or cash equivalents, a payment undertaking
agreement, prepaid rent (within the meaning of the
regulations under section 467), a sinking fund
arrangement, a guaranteed investment contract, financial
guaranty insurance, and any similar arrangement (whether
or not such arrangement provides credit support).
[[Page 118 STAT. 1604]]
``(C) Allowable amount.--
``(i) In general.--Except as otherwise
provided in this subparagraph, the term `allowable
amount' means an amount equal to 20 percent of the
lessor's adjusted basis in the property at the
time the lease is entered into.
``(ii) Higher amount permitted in certain
cases.--To the extent provided in regulations, a
higher percentage shall be permitted under clause
(i) where necessary because of the credit-
worthiness of the lessee. In no event may such
regulations permit a percentage of more than 50
percent.
``(iii) Option to purchase.--If under the
lease the lessee has the option to purchase the
property for a fixed price or for other than the
fair market value of the property (determined at
the time of exercise), the allowable amount at the
time such option may be exercised may not exceed
50 percent of the price at which such option may
be exercised.
``(iv) No 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 entered into by a lender
otherwise involved in the transaction,
or
``(III) in the case of a transaction
which involves a lender, any credit
support made available to the lessor in
which any such lender does not have a
claim that is senior to the lessor.
For purposes of subclause (I), the term `loan'
shall not include any amount treated as a loan
under section 467 with respect to a section 467
rental agreement.
``(2) Lessor must make substantial equity investment.--
``(A) In 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 (as determined by the
Secretary) in the property of at least
20 percent of the lessor's adjusted
basis in 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 be equal to at least 20 percent of
such basis.
``(B) Risk of loss.--For purposes of clause (ii),
the fair market value at the end of the lease term shall
be reduced to the extent that a person other than the
lessor bears a risk of loss in the value of the
property.
``(C) Paragraph not to apply to short-term leases.--
This paragraph shall not apply to any lease with a lease
term of 5 years or less.
[[Page 118 STAT. 1605]]
``(3) Lessee may not bear more than minimal risk of loss.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if there is no
arrangement under which the lessee bears--
``(i) any portion of the loss that would occur
if the fair market value of the leased property
were 25 percent less than its reasonably expected
fair market value 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
property at the time the lease is terminated were
zero.
``(B) Exception.--The Secretary may by regulations
provide that the requirements of this paragraph are not
met where the lessee bears more than a minimal risk of
loss.
``(C) Paragraph 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) Property 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 aircraft and vessels, and
``(B) under which the lessee has the option to
purchase the property,
the lease meets the requirements of this paragraph only if the
purchase price under the option equals the fair market value of
the property (determined at the time of exercise).
``(e) Special Rules.--
``(1) Treatment of former tax-exempt use property.--
``(A) In 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
year shall be allowed only to the extent of any
net income (without regard to such deduction) from
such property for such taxable year, and
``(ii) any portion of such unused deduction
remaining after application of clause (i) shall be
treated as a deduction allowable under subsection
(b) with respect to such property in the next
taxable year.
``(B) Former tax-exempt use property.--For purposes
of this subsection, the term `former tax-exempt use
property' 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) Disposition of entire interest in property.--If during
the taxable year a taxpayer disposes of the taxpayer's entire
interest in tax-exempt use property (or former tax-exempt use
property), rules similar to the rules of section 469(g) shall
apply for purposes of this section.
``(3) Coordination with <<NOTE: Applicability.>> section
469.--This section shall be applied before the application of
section 469.
``(4) Coordination with sections 1031 and 1033.--
[[Page 118 STAT. 1606]]
``(A) In 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
was entered into before March 13, 2004, and which
would not have met the requirements of subsection
(d) had such requirements been in effect when the
lease was entered into, or
``(ii) the replacement property is tax-exempt
use property subject to a lease which does not
meet the requirements of subsection (d).
``(B) Adjusted basis.--In the case of property
acquired by the lessor in a transaction to which section
1031 or 1033 applies, the adjusted basis of such
property for purposes 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
such transaction.
``(f) Other Definitions.--For purposes of this section--
``(1) Related parties.--The terms `lessor', `lessee', and
`lender' each include any related party (within the meaning of
section 197(f)(9)(C)(i)).
``(2) Lease term.--The term `lease term' has the meaning
given to such term by section 168(i)(3).
``(3) Lender.--The term `lender' means, with respect to any
lease, a person that makes a loan to the lessor which is secured
(or economically similar to being secured) by the lease or the
leased property.
``(4) Loan.--The term `loan' includes any similar
arrangement.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of 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) Conforming Amendment.--The table of sections for subpart C of
part II of subchapter E of chapter 1 is amended by adding at the end the
following new item:
``Sec. 470. Limitation on deductions allocable to
property used by governments or other
tax-exempt entities.''.
SEC. 849. <<NOTE: 26 USC 470 note.>> EFFECTIVE DATE.
(a) In General.--Except as provided in this section, the amendments
made by this part shall apply to leases entered into after March 12,
2004.
(b) Exception.--
(1) In general.--The amendments made by this part shall not
apply to qualified transportation property.
(2) Qualified transportation property.--For purposes of
paragraph (1), the term ``qualified transportation property''
means domestic property subject to a lease with respect to which
a formal application--
[[Page 118 STAT. 1607]]
(A) was submitted for approval to the Federal
Transit Administration (an agency of the Department of
Transportation) 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) Exchanges and <<NOTE: Applicability.>> conversion of
tax-exempt use property.--Section 470(e)(4) of the Internal
Revenue Code of 1986, as added by section 848, shall apply to
property exchanged or converted after the date of the enactment
of this Act.
(4) Intangibles and <<NOTE: Applicability.>> indian tribal
governments.--The amendments made subsections (b)(2), (b)(3),
and (e) of section 847, and the treatment of property described
in clauses (ii) and (iii) of section 470(c)(2)(B) of the
Internal Revenue Code of 1986 (as added by section 848) as
tangible property, shall apply 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) Exemption From Tax on Heavy Trucks and Trailers Sold at
Retail.--
(1) In general.--Section 4053 (relating to exemptions) is
amended by adding at the end the following new paragraph:
``(8) Mobile machinery.--Any vehicle which consists of a
chassis--
``(A) to which there has been permanently mounted
(by welding, bolting, riveting, or other means)
machinery or equipment to perform a construction,
manufacturing, processing, farming, mining, drilling,
timbering, or similar operation if the operation of the
machinery or equipment is 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,
where applicable) for the particular machinery or
equipment involved, whether or not such machinery or
equipment is 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
function of transporting any load other than that
particular machinery or equipment or similar machinery
or equipment requiring such a specially designed
chassis.''.
(2) Effective date.--The <<NOTE: 26 USC 4053
note.>> amendment made by this subsection shall take effect on
the day after the date of the enactment of this Act.
(b) Exemption From Tax on Use of Certain Vehicles.--
(1) In general.--Section 4483 (relating to exemptions) is
amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
``(g) Exemption for Mobile Machinery.--No tax shall be imposed by
section 4481 on the use of any vehicle described in section 4053(8).''.
[[Page 118 STAT. 1608]]
(2) Effective date.--The <<NOTE: 26 USC 4483
note.>> amendments made by this subsection shall take effect on
the day after the date of the enactment of this Act.
(c) Exemption From Tax on Tires.--
(1) In General.--Section 4072(b)(2) is amended by adding at
the end the following flush sentence: ``Such term shall not
include tires of a type used exclusively on vehicles described
in section 4053(8).''.
(2) Effective date.--The <<NOTE: 26 USC 4072
note.>> amendment made by this subsection shall take effect on
the day after the date of the enactment of this Act.
(d) Refund of Fuel Taxes.--
(1) In general.--Section 6421(e)(2) (defining off-highway
business use) is amended by adding at the end the following new
subparagraph:
``(C) Uses in mobile machinery.--
``(i) In general.--The term `off-highway
business use' shall include any use in a vehicle
which meets the requirements described in clause
(ii).
``(ii) Requirements for mobile machinery.--The
requirements described in this clause are--
``(I) the design-based test, and
``(II) the use-based test.
``(iii) Design-based test.--For purposes of
clause (ii)(I), the design-based test is met if
the vehicle consists of a chassis--
``(I) to which there has been
permanently mounted (by welding,
bolting, riveting, or other means)
machinery or equipment to perform a
construction, manufacturing, processing,
farming, mining, drilling, timbering, or
similar operation if the operation of
the machinery or equipment is unrelated
to transportation on or off the public
highways,
``(II) which has been specially
designed to serve only as a mobile
carriage and mount (and a power source,
where applicable) for the particular
machinery or equipment involved, whether
or not such machinery or equipment is in
operation, and
``(III) 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 function of
transporting any load other than that
particular machinery or equipment or
similar machinery or equipment requiring
such a specially designed chassis.
``(iv) Use-based test.--For purposes of clause
(ii)(II), the use-based test is met if the use of
the vehicle on public highways was less than 7,500
miles during the taxpayer's taxable
year. <<NOTE: Applicability.>> This clause shall
be applied without regard to use of the vehicle by
any organization which is described in section
501(c) and exempt from tax under section
501(a).''.
(2) No tax-free sales.--Subsection (b) of section 4082 is
amended by inserting before the period at the end the following:
``and such term shall not include any use described in section
6421(e)(2)(C)''.
[[Page 118 STAT. 1609]]
(3) Annual refund of tax paid.--Section 6427(i)(2) (relating
to exceptions) is amended by adding at the end the following new
subparagraph:
``(C) Nonapplication of paragraph.--This paragraph
shall not apply to any fuel used solely in any off-
highway business use described in section
6421(e)(2)(C).''.
(4) Effective date.--The <<NOTE: 26 USC 4082
note.>> amendments made by this subsection shall apply to
taxable years beginning after the date of the enactment of this
Act.
SEC. 852. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.
(a) In General.--Section 7701(a) (relating to definitions) is
amended by adding at the end the following new paragraph:
``(48) Off-highway vehicles.--
``(A) Off-highway transportation vehicles.--
``(i) In general.--A vehicle shall not be
treated as a highway vehicle if such vehicle is
specially designed for the primary function of
transporting a particular type of load other than
over the public highway and because of this
special design such vehicle's capability to
transport a load over the public highway is
substantially limited or impaired.
``(ii) Determination of vehicle's design.--For
purposes of clause (i), a vehicle's design is
determined solely on the basis of its physical
characteristics.
``(iii) Determination of substantial
limitation or impairment.--For purposes of clause
(i), in determining whether substantial limitation
or impairment exists, account may be taken of
factors such as the size of the vehicle, whether
such vehicle is subject to the licensing, safety,
and other requirements applicable to highway
vehicles, and whether such vehicle can transport a
load at a sustained speed of at least 25 miles per
hour. It is immaterial that a vehicle can
transport a greater load off the public highway
than such vehicle is permitted to transport over
the public highway.
``(B) Nontransportation trailers and semitrailers.--
A trailer or semitrailer shall not be treated as a
highway vehicle if it is specially designed to function
only as an enclosed stationary shelter for the carrying
on of an off-highway function at an off-highway site.''.
(c) Effective <<NOTE: 26 USC 7701 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall take effect on the date of
the enactment of this Act.
(2) Fuel taxes.--With respect to taxes imposed under
subchapter B of chapter 31 and part III of subchapter A of
chapter 32, the amendment made by this section shall apply to
taxable periods beginning after the date of the enactment of
this Act.
SEC. 853. TAXATION OF AVIATION-GRADE KEROSENE.
(a) Rate of Tax.--
(1) In general.--Subparagraph (A) of section 4081(a)(2) is
amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``,
and'', and by adding at the end the following new clause:
[[Page 118 STAT. 1610]]
``(iv) in the case of aviation-grade kerosene,
21.8 cents per gallon.''.
(2) Commercial aviation.--Paragraph (2) of section 4081(a)
is amended by adding at the end the following new subparagraph:
``(C) Taxes imposed on fuel used in commercial
aviation.--In the case of aviation-grade kerosene which
is removed from any refinery or terminal directly into
the fuel tank of an aircraft for use in commercial
aviation, the rate of tax under subparagraph (A)(iv)
shall be 4.3 cents per gallon.''.
(3) Certain refueler trucks, tankers, and tank wagons
treated as terminal.--
(A) In general.--Subsection (a) of section 4081 is
amended by adding at the end the following new
paragraph:
``(3) Certain refueler trucks, tankers, and tank wagons
treated as terminal.--
``(A) In general.--For purposes of paragraph (2)(C),
a refueler truck, tanker, or tank wagon shall be treated
as 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 is for delivery only into aircraft at the
airport in which such terminal is located,
``(iii) such truck, tanker, or wagon meets the
requirements of subparagraph (B) with respect to
such terminal, and
``(iv) except in the case of exigent
circumstances identified by the Secretary in
regulations, no vehicle registered for highway use
is loaded with aviation-grade kerosene at such
terminal.
``(B) Requirements.--A refueler truck, tanker, or
tank wagon meets the requirements of this subparagraph
with respect to a terminal if such truck, tanker, or
wagon--
``(i) has storage tanks, hose, and coupling
equipment designed and used for the purposes of
fueling aircraft,
``(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 fuel from such truck,
tanker, or wagon.
``(C) Reporting.--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 fuel made by trucks, tankers, or wagons
operated by such terminal operator.''.
(B) List of airports
with <<NOTE: Deadline. Publication. Records. 26 USC 4081
note.>> secured terminals.--Not later than December 15,
2004, the Secretary of the Treasury shall publish and
maintain a list of airports which
[[Page 118 STAT. 1611]]
include a secured area in which a terminal is located
(within the meaning of section 4081(a)(3)(A)(i) of the
Internal Revenue Code of 1986, as added by this
paragraph).
(4) Liability 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) Liability 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 shall pay the
tax imposed under such paragraph. For purposes of the preceding
sentence, fuel shall be treated as used when such fuel is
removed into the fuel tank.''.
(5) Nontaxable uses.--
(A) In general.--Section 4082 is amended by
redesignating subsections (e) and (f) as subsections (f)
and (g), respectively, and by inserting after subsection
(d) the following new subsection:
``(e) Aviation-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 which is removed from
any refinery or terminal directly into the fuel tank of an aircraft, the
rate of tax under section 4081(a)(2)(A)(iv) shall be zero.''.
(B) Conforming amendments.--(i) Subsection (b) of
section 4082 is amended by adding at the end the
following new 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 paragraphs (1) and (2), respectively.
(6) Nonaircraft use of aviation-grade kerosene.--
(A) In general.--Subparagraph (B) of section
4041(a)(1) is amended by adding at the end the following
new sentence: ``This subparagraph shall not apply to
aviation-grade kerosene.''.
(B) Conforming amendment.--The heading for paragraph
(1) of section 4041(a) is amended by inserting ``and
kerosene'' after ``diesel fuel''.
(b) Commercial Aviation.--Section 4083 is amended by redesignating
subsections (b) and (c) as subsections (c) and (d), respectively, and by
inserting after subsection (a) the following new subsection:
``(b) Commercial Aviation.--For purposes of this subpart, the term
`commercial aviation' means any use of an aircraft in a business of
transporting persons or property for compensation or hire by air, unless
properly allocable to any transportation exempt from the taxes imposed
by sections 4261 and 4271 by reason of section 4281 or 4282 or by reason
of section 4261(h).''.
(c) Refunds.--
(1) In general.--Paragraph (4) of section 6427(l) is amended
to read as follows:
``(4) Refunds for aviation-grade kerosene.--
``(A) No refund of certain taxes on fuel used in
commercial aviation.--In the case of aviation-grade
kerosene used in commercial aviation (as defined in
section
[[Page 118 STAT. 1612]]
4083(b)) (other than supplies for vessels or aircraft
within the meaning of section 4221(d)(3)), paragraph (1)
shall not apply to so much of the tax imposed by section
4081 as 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) Payment to ultimate, registered vendor.--With
respect to aviation-grade kerosene, if the ultimate
purchaser of such kerosene waives (at such time and in
such form and manner as the Secretary shall prescribe)
the right to payment under paragraph (1) and assigns
such right to the ultimate vendor, then the Secretary
shall pay the amount which would be paid under paragraph
(1) to such ultimate vendor, but only if such ultimate
vendor--
``(i) is registered under section 4101, and
``(ii) meets the requirements of subparagraph
(A), (B), or (D) of section 6416(a)(1).''.
(2) Time 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) Conforming 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 prior imposition of tax, or
``(ii) any use in commercial aviation (within
the meaning of section 4083(b)).''.
(d) Repeal of Prior Taxation of Aviation Fuel.--
(1) In general.--Part III of <<NOTE: 26 USC 4091-
4093.>> subchapter A of chapter 32 is amended by striking
subpart B and by redesignating subpart C as subpart B.
(2) Conforming amendments.--
(A) Section 4041(c) is amended to read as follows:
``(c) Aviation-Grade Kerosene.--
``(1) In 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) Exemption 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 section
4081 and the tax thereon was not credited or refunded.
``(3) Rate of tax.--The rate of tax imposed by this
subsection shall be the rate of tax applicable under section
4081(a)(2)(A)(iv) which is in effect at the time of such sale or
use.''.
[[Page 118 STAT. 1613]]
(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) In general.--In the case of the sale or use of any
partially exempt methanol or ethanol fuel the rate of the tax
imposed 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 ``or 4081''.
(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
described in 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) In general.--Except as otherwise provided in this
subsection and in subsection (k), if any diesel fuel or kerosene
on which tax has been imposed by section 4041 or 4081 is used by
any person in a nontaxable use, the Secretary shall pay (without
interest) to the ultimate purchaser of such fuel an amount equal
to the aggregate amount of tax imposed on such fuel under
section 4041 or 4081, as the case may be, reduced by any payment
made to the ultimate vendor under 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) and by redesignating the succeeding clauses
accordingly.
(M) Paragraph (2) of section 6724(d), as amended by
section 805, is amended by striking subparagraph (X) and
by redesignating the succeeding subparagraphs
accordingly.
(N) Paragraph (1) of section 9502(b) is amended by
adding ``and'' at the end of subparagraph (B) and by
striking subparagraphs (C) and (D) and inserting the
following new subparagraph:
[[Page 118 STAT. 1614]]
``(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) so much of
the taxes imposed by section 4081 as are determined at 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
``sections 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), is amended to read as follows:
``Subpart B--Special Provisions Applicable to Fuels Tax''.
(e) Effective Date.--The <<NOTE: 26 USC 4041 note.>> amendments made
by this section shall apply to aviation-grade kerosene removed, entered,
or sold after December 31, 2004.
(f) Floor <<NOTE: 26 USC 4081 note.>> Stocks Tax.--
(1) In general.--There is hereby imposed on aviation-grade
kerosene held on January 1, 2005, by any person a tax 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 such
date, reduced by
(B) the sum of--
(i) the tax imposed before such date on such
kerosene under section 4091 of the Internal
Revenue Code of 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
person would (but for this clause) reasonably
expect (as of such date) to be paid as a refund
under section 6427(l) of such Code with respect to
such kerosene.
(2) Exception for fuel held in aircraft fuel tank.--
Paragraph (1) shall not apply to kerosene held in the fuel tank
of an aircraft on January 1, 2005.
(3) Liability for tax and method of payment.--
(A) Liability for tax.--The person holding the
kerosene on January 1, 2005, to which the tax imposed by
paragraph (1) applies shall be liable for such tax.
(B) Method and time for payment.--The tax imposed by
paragraph (1) shall be paid at such time and in such
[[Page 118 STAT. 1615]]
manner as the Secretary of the Treasury (or the
Secretary's delegate) shall prescribe, including the
nonapplication of such tax on de minimis amounts of
kerosene.
(4) Transfer 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 shall be treated as
imposed by section 4081 of the Internal Revenue Code of 1986--
(A) in any case in which tax was not imposed by
section 4091 of such Code, at the Leaking Underground
Storage Tank Trust Fund financing rate under such
section to 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) Held by a person.--For purposes of this subsection,
kerosene shall be considered as held by a person if title
thereto has passed to such person (whether or not delivery to
the person has been made).
(6) Other laws applicable.--All provisions of law, including
penalties, applicable with respect to the tax imposed by section
4081 of such Code shall, insofar as applicable and not
inconsistent with the provisions of this subsection, apply with
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) In General.--Section 4082(a)(2) (relating to exemptions for
diesel fuel and kerosene) is amended by inserting ``by mechanical
injection'' after ``indelibly dyed''.
(b) Dye Injector Security.--Not <<NOTE: Deadline. Regulations. 26
USC 4082 note.>> later than 180 days after the date of the enactment of
this Act, the Secretary of the Treasury shall issue regulations
regarding mechanical dye injection systems described in the amendment
made by subsection (a), and such regulations shall include standards for
making such systems tamper resistant.
(c) Penalty for Tampering With or Failing To Maintain Security
Requirements for Mechanical Dye Injection Systems.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding after
section 6715 the following new section:
``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY
REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.
``(a) Imposition of Penalty.--
``(1) Tampering.--If any person tampers with a mechanical
dye injection system used to indelibly dye fuel for purposes of
section 4082, such person shall pay a penalty in addition to the
tax (if any).
``(2) Failure to maintain security requirements.--If any
operator of a mechanical dye injection system used to indelibly
dye fuel for purposes of section 4082 fails to maintain the
security standards for such system as established by the
Secretary, then such operator shall pay a penalty in addition to
the tax (if any).
``(b) Amount of Penalty.--The amount of the penalty under subsection
(a) shall be--
[[Page 118 STAT. 1616]]
``(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
paragraph (2), $1,000 per day for each day after which
such violation was discovered or such person should have
reasonably known of such violation.
``(c) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this
section on any business entity, each officer, employee, or agent
of such entity or other contracting party who willfully
participated in any act giving rise to such penalty shall be
jointly and severally liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in
section 1504(a)), the parent corporation of such entity shall be
jointly and severally liable with such entity for the penalty
imposed under this section.''.
(2) Clerical amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by adding after the 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) Effective Date.--The <<NOTE: 26 USC 4082 note.>> amendments made
by subsections (a) and (c) shall take effect on the 180th day after the
date on which the Secretary issues the regulations described in
subsection (b).
SEC. 855. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE USE OF DYED
FUEL.
(a) In General.--Section 6715 is amended by inserting at the end the
following new subsection:
``(e) No Administrative 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 such fuel and
who has been penalized under this section at least twice after the date
of the enactment of this subsection, no administrative appeal or review
shall be allowed with respect to such finding except in the case of a
claim regarding--
``(1) fraud or mistake in the chemical analysis, or
``(2) mathematical calculation of the amount of the
penalty.''.
(b) Effective Date.--The <<NOTE: 26 USC 6715 note.>> amendment made
by this section shall apply to penalties assessed after the date of the
enactment of this Act.
SEC. 856. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL MIXTURES.
(a) In General.--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:
[[Page 118 STAT. 1617]]
``(4) any person who has knowledge that a dyed fuel which
has been altered as described in paragraph (3) sells or holds
for sale such fuel for any use which the person knows or has
reason to know is not a nontaxable use of such fuel,''.
(b) Conforming 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) Effective Date.--The <<NOTE: 26 USC 6715 note.>> 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) In General.--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) Ultimate Vendor Refund.--Subsection (b) of section 6427 is
amended by adding at the end the following new paragraph:
``(4) Refunds for use of diesel fuel in certain intercity
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 Secretary shall
prescribe) the right to payment under paragraph (1) and assigns
such right to the ultimate vendor, then the Secretary shall 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) Payment of Refunds.--Subparagraph (A) of section 6427(i)(4), as
amended by this Act, is amended by inserting ``subsections (b)(4) and''
after ``filed under''.
(d) Effective Date.--The <<NOTE: 26 USC 4082 note.>> amendments made
by this section shall apply to fuel sold after December 31, 2004.
SEC. 858. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) In General.--Section 4083(d)(1)(A) (relating to administrative
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) Effective Date.--The <<NOTE: 26 USC 4083 note.>> 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) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties), as amended by this Act, is amended by inserting
after section 6716 the following new section:
``SEC. 6717. REFUSAL OF ENTRY.
``(a) In General.--In addition to any other penalty provided by law,
any person who refuses to admit entry or refuses to permit any other
action by the Secretary authorized by section 4083(d)(1) shall pay a
penalty of $1,000 for such refusal.
``(b) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this
section on any business entity, each officer, employee, or agent
of such entity or other contracting party who willfully
participated
[[Page 118 STAT. 1618]]
in any act giving rise to such penalty shall be jointly and
severally liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in
section 1504(a)), the parent corporation of such entity shall be
jointly and severally liable with such entity for the penalty
imposed under this section.
``(c) Reasonable Cause Exception.--No penalty shall be imposed under
this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(b) Conforming Amendments.--(1) Section 4083(d)(3), as amended by
this Act, is amended--
(A) by striking ``entry.--The penalty'' and inserting:
``entry.--
``(A) Forfeiture.--The penalty'', and
(B) by adding at the end the following new subparagraph:
``(B) Assessable penalty.--For additional assessable
penalty for the refusal to admit entry or other refusal
to permit an action by the Secretary authorized by
paragraph (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 the item relating
to section 6716 the following new item:
``Sec. 6717. Refusal of entry.''.
(c) Effective Date.--The <<NOTE: 26 USC 4083 note.>> 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 TO REGISTERED TERMINALS OR
REFINERIES.
(a) In General.--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) Effective Date.--The <<NOTE: 26 USC 4081 note.>> amendments made
by this section shall take effect on March 1, 2005.
(c) Publication of <<NOTE: Effective date. 26 USC 4101
note.>> Registered Persons.--Beginning on January 1, 2005, the Secretary
of the Treasury (or the Secretary's delegate) shall periodically publish
under section 6103(k)(7) of the Internal Revenue Code of 1986 a current
list of persons registered under section 4101 of such Code who are
required to register under such section.
SEC. 861. DISPLAY OF REGISTRATION.
(a) In General.--Subsection (a) of section 4101 (relating to
registration) is amended--
(1) by striking ``Every'' and inserting the following:
``(1) In general.--Every'', and
(2) by adding at the end the following new paragraph:
``(2) Display of registration.--Every operator of a vessel
required by the Secretary to register under this section shall
display proof of registration through an identification device
prescribed by the Secretary on each vessel used by such operator
to transport any taxable fuel.''.
(b) Civil Penalty for Failure To Display Registration.--
[[Page 118 STAT. 1619]]
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6717 the following new
section:
``SEC. 6718. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.
``(a) Failure To Display Registration.--Every operator of a vessel
who fails to display proof of registration pursuant to section
4101(a)(2) shall pay a penalty of $500 for each such failure. With
respect to any vessel, only one penalty shall be imposed by this section
during any calendar month.
``(b) Multiple Violations.--In <<NOTE: Applicability.>> determining
the penalty under subsection (a) on any person, subsection (a) shall be
applied by increasing the amount in subsection (a) by the product of
such amount and the aggregate number of penalties (if any) imposed with
respect to prior months by this section on such person (or a related
person or any predecessor of such person or related person).
``(c) Reasonable Cause Exception.--No penalty shall be imposed under
this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical 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 6717 the
following new item:
``Sec. 6718. Failure to display tax registration on
vessels.''.
(c) Effective Dates.--
(1) Subsection (a).--The <<NOTE: 26 USC 4101
note.>> amendments made by subsection (a) shall take effect on
January 1, 2005.
(2) Subsection (b).--The <<NOTE: 26 USC 6718
note.>> 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) In General.--Section 4101(a), as amended by this Act, is amended
by redesignating paragraph (2) as paragraph (3), and by inserting after
paragraph (1) the following new paragraph:
``(2) Registration 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
taxable fuel in such a terminal.''.
(b) Technical Amendment.--Section 6718(a), as added by this Act, is
amended by striking ``section 4101(a)(2)'' and inserting ``section
4101(a)(3)''.
(c) Effective Date.--The <<NOTE: 26 USC 4101 note.>> amendments made
by this section shall take effect on January 1, 2005.
SEC. 863. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO REPORT.
(a) Increased 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''.
[[Page 118 STAT. 1620]]
(b) Increased Criminal Penalty.--Section 7232 (relating to failure
to register under section 4101, false representations of registration
status, etc.) is amended by striking ``$5,000'' and inserting
``$10,000''.
(c) Assessable Penalty for Failure to Register.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6718 at the end the following
new section:
``SEC. 6719. FAILURE TO REGISTER.
``(a) Failure to Register.--Every person who is required to register
under section 4101 and fails to do so shall pay a penalty in addition to
the tax (if any).
``(b) Amount 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) Reasonable Cause Exception.--No penalty shall be imposed under
this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical 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 6718 the
following new item:
``Sec. 6719. Failure to register.''.
(d) Assessable Penalty for Failure to Report.--
(1) In general.--Part II of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end the following new section:
``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.
``(a) In General.--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 the tax (if any).
``(b) Failures Subject to Penalty.--For purposes of subsection (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
information.
``(c) Reasonable Cause Exception.--No penalty shall be imposed under
this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part II
of subchapter B of chapter 68 is amended by adding at the end
the following new item:
``Sec. 6725. Failure to report information under section
4101.''.
(e) Effective Date.--The <<NOTE: 26 USC 6719 note.>> amendments made
by this section shall apply to penalties imposed after December 31,
2004.
[[Page 118 STAT. 1621]]
SEC. 864. ELECTRONIC FILING OF REQUIRED INFORMATION REPORTS.
(a) In General.--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 and who has
25 or more reportable transactions in a month shall file such report in
electronic format.''.
(b) Effective Date.--The <<NOTE: 26 USC 4101 note.>> amendment made
by this section shall apply on January 1, 2006.
SEC. 865. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.
(a) In General.--Paragraph (4) of section 6416(a) (relating to
abatements, credits, and refunds) is amended to read as follows:
``(4) Registered ultimate vendor to administer credits and
refunds of gasoline tax.--
``(A) In general.--For purposes of this subsection,
if an ultimate vendor purchases any gasoline on which
tax imposed by section 4081 has been paid and sells such
gasoline to an ultimate purchaser described in
subparagraph (C) or (D) of subsection (b)(2) (and such
gasoline is for a use described in such subparagraph),
such ultimate vendor shall be treated as the person (and
the only person) who paid such tax, but only if such
ultimate vendor is registered under section 4101.
``(B) Timing of claims.--The procedure and timing of
any claim under subparagraph (A) shall be the same as
for claims under section 6427(i)(4), except that the
rules of section 6427(i)(3)(B) regarding electronic
claims shall not apply unless the ultimate vendor has
certified to the Secretary for the most recent quarter
of the taxable year that all ultimate purchasers of the
vendor are certified and entitled to a refund under
subparagraph (C) or (D) of subsection (b)(2).''.
(b) Effective Date.--The <<NOTE: 26 USC 6416 note.>> amendments made
by this section shall take effect on January 1, 2005.
SEC. 866. TWO-PARTY EXCHANGES.
(a) In General.--Subpart C of part III of subchapter A of chapter
32, as amended by this Act, is amended by inserting after section 4104
the following new section:
``SEC. 4105. TWO-PARTY EXCHANGES.
``(a) In General.--In a two-party exchange, the delivering person
shall not be liable for the tax imposed under section 4081(a)(1)(A)(ii).
``(b) Two-Party Exchange.--The term `two-party exchange' means a
transaction, other than a sale, in which taxable fuel is transferred
from a delivering person registered under section 4101 as a taxable fuel
registrant to a receiving person who is so 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 in the terminal as reflected in the records of the terminal
operator.
``(2) The exchange transaction occurs before or
contemporaneous with completion of removal across the rack from
the terminal by the receiving person.
``(3) The terminal operator in its books and records treats
the receiving person as the person that removes the product
[[Page 118 STAT. 1622]]
across the terminal rack for purposes of reporting the
transaction to the Secretary.
``(4) The transaction is the subject of a written
contract.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32, as amended by this Act, is
amended by adding after the last item the following new item:
``Sec. 4105. Two-party exchanges.''.
(c) Effective Date.--The <<NOTE: 26 USC 4105 note.>> 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) Proration of Tax Where Vehicle Sold.--
(1) In general.--Subparagraph (A) of section 4481(c)(2)
(relating to where vehicle destroyed or stolen) is amended by
striking ``destroyed or stolen'' both places it appears and
inserting ``sold, destroyed, or stolen''.
(2) Conforming amendment.--The heading for section
4481(c)(2) is amended by striking ``destroyed or stolen'' and
inserting ``sold, destroyed, or stolen''.
(b) Repeal of Installment Payment.--(1) Section 6156 (relating to
installment payment of tax on use of highway motor vehicles) is
repealed.
(2) The table of sections for subchapter A of chapter 62 is amended
by striking the item relating to section 6156.
(c) Electronic Filing.--Section 4481 is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection (d)
the following new subsection:
``(e) Electronic Filing.--Any taxpayer who files a return under this
section with respect to 25 or more vehicles for any taxable period shall
file such return electronically.''.
(d) Repeal of Reduction in Tax for Certain Trucks.--Section 4483 is
amended by striking subsection (f).
(e) Effective Date.--The <<NOTE: 26 USC 4481 note.>> amendments made
by this section shall apply to taxable periods beginning after the date
of the enactment of this Act.
SEC. 868. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO THE HIGHWAY
TRUST FUND.
(a) In General.--Subsection (b) of section 9503 (relating to
transfer to Highway Trust Fund of amounts equivalent to certain taxes)
is amended by redesignating paragraph (5) as paragraph (6) and inserting
after paragraph (4) the following new paragraph:
``(5) Certain penalties.--There are hereby appropriated to
the Highway Trust Fund amounts equivalent to the penalties paid
under sections 6715, 6715A, 6717, 6718, 6719, 6725, 7232, and
7272 (but only with regard to penalties under such section
related to failure to register under section 4101).''.
(b) Conforming 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 ``In general'' and inserting ``Certain taxes''.
(c) Effective Date.--The <<NOTE: 26 USC 9503 note.>> amendments made
by this section shall apply to penalties assessed on or after the date
of the enactment of this Act.
[[Page 118 STAT. 1623]]
SEC. 869. SIMPLIFICATION OF TAX ON TIRES.
(a) In General.--Subsection (a) of section 4071 is amended to read
as follows:
``(a) Imposition and Rate of Tax.--There is hereby imposed on
taxable tires sold by the manufacturer, producer, or importer thereof a
tax at the rate of 9.45 cents (4.725 cents in the case of a biasply tire
or super single tire) for each 10 pounds so much of the maximum rated
load capacity thereof as exceeds 3,500 pounds.''.
(b) Biasply and Super Single Tires.--Section 4072 is amended by
adding at the end the following new subsections:
``(c) Biasply.--For purposes of this part, the term `biasply tire'
means a pneumatic tire on which the ply cords that extend to the beads
are laid at alternate angles substantially less than 90 degrees to the
centerline of the tread.
``(d) Super single tire.--For purposes of this part, the term `super
single tire' means a single tire greater than 13 inches in cross section
width designed to replace 2 tires in a dual fitment.''.
(b) Taxable 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 inserting before
subsection (b) (as so redesignated) the following new subsection:
``(a) Taxable Tire.--For purposes of this chapter, the term `taxable
tire' means any tire of the type used on highway vehicles if wholly or
in part made of rubber and if marked pursuant to Federal regulations for
highway use.''.
(c) Exemption 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 the Coast Guard.''.
(d) Conforming Amendments.--(1) Section 4071 is amended by striking
subsection (c) and by moving subsection (e) after subsection (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) Effective Date.--The <<NOTE: 26 USC 4071 note.>> amendments made
by this section shall apply to sales in calendar years beginning more
than 30 days after the date of the enactment of this Act.
SEC. 870. TRANSMIX AND DIESEL FUEL BLEND STOCKS TREATED AS TAXABLE FUEL.
(a) In General.--Paragraph (3) of section 4083(a) is amended to read
as follows:
``(3) Diesel fuel.--
``(A) In general.--The term `diesel fuel' means--
``(i) any liquid (other than gasoline) which
is suitable for use as a fuel in a diesel-powered
highway vehicle, or a diesel-powered train,
``(ii) transmix, and
``(iii) diesel fuel blend stocks identified by
the Secretary.
[[Page 118 STAT. 1624]]
``(B) Transmix.--For purposes of subparagraph (A),
the term `transmix' means a byproduct of refined
products pipeline operations created by the mixing of
different specification products during pipeline
transportation.''.
(b) Conforming Amendment.--Subsection (h) of section 6427 is amended
to read as follows:
``(h) Blend Stocks Not Used for Producing Taxable Fuel.--
``(1) Gasoline blend stocks or additives not used for
producing gasoline.--Except as provided in subsection (k), if
any gasoline blend stock or additive (within the meaning of
section 4083(a)(2)) is not used by any person to produce
gasoline and such person establishes that the ultimate use of
such gasoline blend stock or additive is not to produce
gasoline, the Secretary shall pay (without interest) to such
person an amount equal to the aggregate amount of the tax
imposed on such person with respect to such gasoline blend stock
or additive.
``(2) Diesel 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 to produce
diesel fuel and such person establishes that the ultimate use of
such diesel fuel blend stock is not to produce diesel fuel, the
Secretary shall pay (without interest) to such person an amount
equal to the aggregate amount of the tax imposed on such person
with respect to such diesel fuel blend stock.''.
(c) Effective Date.--The <<NOTE: 26 USC 4083 note.>> 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) In General.--Not <<NOTE: Deadline. Reports.>> later than January
31, 2005, the Secretary of the Treasury shall submit to the Committee on
Finance of the Senate and the Committee on Ways and Means of the House
of Representatives a report regarding compliance with the tax imposed
under subchapter B of chapter 31 and part III of subchapter A of chapter
32 of the Internal Revenue Code of 1986. Such report shall include the
information, analysis, and recommendations specified in subsections (b),
(c), and (d).
(b) Taxable Fuel Blendstocks.--The Secretary shall identify chemical
products to be added to the list of blendstocks from lab analysis of
fuel samples collected by the Internal Revenue Service which have been
blended with taxable fuel but are not treated as blendstocks. The
Secretary shall include statistics regarding the frequency in which a
chemical product has been collected, and whether the sample contained an
above normal concentration of the chemical product.
(c) Waste Products Added to Taxable Fuels.--The report shall include
a discussion of Internal Revenue Service findings regarding the addition
of waste products to taxable fuel and any recommendations to address the
taxation of such products.
(d) Erroneous Claims of Fuel Tax Exemptions.--The report shall
include a discussion of Internal Revenue Service findings regarding
sales of taxable fuel to entities claiming exempt status as a State or
local government and the frequency of erroneous certifications of tax
exempt status. The Secretary, in consultation with representatives of
State and local governments, shall provide
[[Page 118 STAT. 1625]]
recommendations to address such erroneous claims, including
recommendations on the feasibility of a State maintained list of exempt
governmental entities within the State.
Subtitle D--Other Revenue Provisions
SEC. 881. QUALIFIED TAX COLLECTION CONTRACTS.
(a) Contract Requirements.--
(1) In general.--Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following new
section:
``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
``(a) In General.--Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a qualified tax
collection contract.
``(b) Qualified Tax Collection Contract.--For purposes of this
section, the term `qualified tax collection contract' means any contract
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 offer
the taxpayer an installment agreement providing for full
payment of such amount during a period not to exceed 5
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 which
employees of the Internal Revenue Service are prohibited from
committing 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) Fees.--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 the
costs 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 Internal
Revenue Service.
The Secretary <<NOTE: Records.>> shall keep adequate records regarding
amounts so retained and used. The amount credited as paid by any
taxpayer shall be determined without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be liable
for any act or omission of any person performing services under a
qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C.
[[Page 118 STAT. 1626]]
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) Cross References.--
``(1) For damages for certain unauthorized collection
actions by persons performing services under a qualified
tax collection contract, see section 7433A.
``(2) For application of Taxpayer Assistance Orders to
persons performing services under a qualified tax
collection contract, see section 7811(g).''.
(2) Conforming 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) Civil Damages for Certain Unauthorized Collection Actions by
Persons Performing Services Under Qualified Tax Collection Contracts.--
(1) In general.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS
BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
``(a) In General.--Subject to
the <<NOTE: Applicability.>> modifications provided by subsection (b),
section 7433 shall apply to the acts and omissions of any person
performing services under a qualified tax collection contract (as
defined in section 6306(b)) to the same extent and in the same manner as
if such person were an employee of the Internal Revenue Service.
``(b) Modifications.--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 entered
into the qualified tax collection contract with the Secretary
and 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) Clerical amendment.--The table of sections for
subchapter B of chapter 76 is amended by inserting after the
item 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
contracts.''.
(c) Application of Taxpayer Assistance Orders to Persons Performing
Services Under a Qualified Tax Collection Contract.--Section 7811
(relating to taxpayer assistance orders) is amended by adding at the end
the following new subsection:
``(g) Application to Persons Performing Services Under a Qualified
Tax Collection Contract.--Any order issued or action taken by the
National Taxpayer Advocate pursuant to this section shall apply to
persons performing services under a qualified tax collection contract
(as defined in section 6306(b)) to the same
[[Page 118 STAT. 1627]]
extent and in the same manner as such order or action applies to the
Secretary.''.
(d) Ineligibility of <<NOTE: 26 USC 7804 note.>> Individuals Who
Commit Misconduct to Perform Under Contract.--Section 1203 of the
Internal Revenue Service Restructuring Act of 1998 (relating to
termination of employment for misconduct) is amended by adding at the
end the following new subsection:
``(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.--An individual shall cease to be permitted to
perform any services under any qualified tax collection contract (as
defined in section 6306(b) of the Internal Revenue Code of 1986) if
there is a final determination by the Secretary of the Treasury under
such contract that such individual committed any act or omission
described under subsection (b) in connection with the performance of
such services.''.
(e) Biennial Report.--The <<NOTE: 26 USC 6306 note.>> Secretary of
the Treasury shall biennially submit (beginning in 2005) to the
Committee on Finance of the Senate and the Committee on Ways and Means
of the House of Representatives a report with respect to qualified tax
collection contracts under section 6306 of the Internal Revenue Code 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 amount of
assessments collected by Internal Revenue Service personnel
after 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 the Internal
Revenue Service's own collection techniques and mechanisms to
identify and capture information on successful collection
techniques used by the contractors which could be adopted by the
Internal Revenue Service.
(f) Effective Date.--The <<NOTE: 26 USC 6306 note.>> 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) In General.--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) the following new
clause:
``(iii) of any patent, copyright (other than a
copyright described in section 1221(a)(3) or
1231(b)(1)(C)), trademark, trade name, trade
secret, know-how, software (other than software
described in section 197(e)(3)(A)(i)), or similar
property, or applications or registrations of such
property,''.
(b) Certain Donee Income From Intellectual Property Treated as an
Additional Charitable Contribution.--Section
[[Page 118 STAT. 1628]]
170 is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Certain Donee Income From Intellectual Property Treated as an
Additional Charitable Contribution.--
``(1) Treatment as additional contribution.--In the case of
a taxpayer who makes a qualified intellectual property
contribution, the deduction allowed under subsection (a) for
each taxable year of the taxpayer ending on or after the date of
such contribution shall be increased (subject to the limitations
under subsection (b)) by the applicable percentage of qualified
donee income with respect to such contribution which is properly
allocable to such year under this subsection.
``(2) Reduction 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 extent
that the aggregate amount of such increases with respect to such
contribution exceed the amount allowed as a deduction under
subsection (a) with respect to such contribution determined
without regard to this subsection.
``(3) Qualified donee income.--For purposes of this
subsection, the term `qualified donee income' means any net
income received by or accrued to the donee which is properly
allocable to the qualified intellectual property.
``(4) Allocation 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 taxable year
of the donor if such income is received by or accrued to the
donee for the taxable year of the donee which ends within 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
purposes of this subsection if such income is received by or
accrued to the donee after the 10-year period beginning on the
date of the contribution of such property.
``(6) Benefit limited to life of intellectual property.--
Income shall not be treated as properly allocable to qualified
intellectual property for purposes of this subsection if such
income is received by or accrued to the donee after the
expiration of the legal life of such property.
``(7) Applicable percentage.--For purposes of this
subsection, the term `applicable percentage' means the
percentage determined under the following table which
corresponds to a taxable year of the donor ending on or after
the date of the qualified intellectual property contribution:
``Taxable Year of Donor ........................................
Ending on or After Applicable................................
Date of Contribution: Percentage:...............................
1st....................................................... 100
2nd....................................................... 100
3rd....................................................... 90
4th....................................................... 80
5th....................................................... 70
6th....................................................... 60
7th....................................................... 50
8th....................................................... 40
9th....................................................... 30
10th...................................................... 20
11th...................................................... 10
12th...................................................... 10.
[[Page 118 STAT. 1629]]
``(8) Qualified intellectual property contribution.--For
purposes of this subsection, the term `qualified intellectual
property contribution' means any charitable contribution of
qualified 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
intends to treat such contribution as a qualified
intellectual property contribution for purposes of this
subsection and section 6050L.
``(9) Qualified intellectual property.--For purposes of this
subsection, the term `qualified intellectual property' means
property described in subsection (e)(1)(B)(iii) (other than
property contributed to or for the use of an organization
described in subsection (e)(1)(B)(ii)).
``(10) Other special rules.--
``(A) Application of limitations on charitable
contributions.--Any increase under this subsection of
the deduction provided under subsection (a) shall be
treated for purposes of subsection (b) as a deduction
which is attributable to a charitable contribution to
the donee to which such increase relates.
``(B) Net income determined by donee.--The net
income taken into account under paragraph (3) shall not
exceed the amount of such income reported under section
6050L(b)(1).
``(C) Deduction limited to 12 taxable years.--Except
as may be provided under subparagraph (D)(i), this
subsection shall not apply with respect to any qualified
intellectual property contribution for any taxable year
of the donor after the 12th taxable year of the donor
which ends on or after the date of such contribution.
``(D) Regulations.--The Secretary may issue
regulations or other guidance to carry out the purposes
of this subsection, including regulations or guidance--
``(i) modifying the application of this
subsection in the case of a donor or donee with a
short taxable year, and
``(ii) providing for the determination of an
amount to be treated as net income of the donee
which is properly allocable to qualified
intellectual property in the case of a donee who
uses such property to further a purpose or
function constituting the basis of the donee's
exemption under section 501 (or, in the case of a
governmental unit, any purpose described in
section 170(c)) and does not possess a right to
receive any payment from a third party with
respect to such property.''.
(c) Reporting Requirements.--
(1) In general.--Section 6050L (relating to returns relating
to certain dispositions of donated property) is amended to read
as follows:
``SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.
``(a) Dispositions of Donated Property.--
[[Page 118 STAT. 1630]]
``(1) In general.--If the donee of any charitable deduction
property sells, exchanges, or otherwise disposes of such
property within 2 years after its receipt, the donee shall make
a return (in accordance with forms and regulations prescribed by
the Secretary) 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) Definitions.--For purposes of this subsection:
``(A) Charitable deduction property.--The term
`charitable deduction property' means any property
(other than publicly traded securities) contributed in a
contribution for which a deduction was claimed under
section 170 if the claimed value of such property (plus
the claimed value of all similar items of property
donated by the donor to 1 or more donees) exceeds
$5,000.
``(B) Publicly traded securities.--The term
`publicly traded securities' means securities for which
(as of the date of the contribution) market quotations
are readily available on an established securities
market.
``(b) Qualified Intellectual Property Contributions.--
``(1) In general.--Each donee with respect to a qualified
intellectual property contribution shall make a return (at such
time and in such form and manner as the Secretary may by
regulations prescribe) with respect to each specified taxable
year 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
qualified intellectual property (determined without
regard to paragraph (10)(B) of section 170(m) and with
the modifications described in paragraphs (5) and (6) of
such section).
``(2) Definitions.--For purposes of this subsection:
``(A) In general.--Terms used in this subsection
which are also used in section 170(m) have the
respective meanings given such terms in such section.
``(B) Specified taxable year.--The term `specified
taxable year' means, with respect to any qualified
intellectual property contribution, any taxable year of
the donee any portion of which is part of the 10-year
period beginning on the date of such contribution.
``(c) Statement To Be Furnished to Donors.--Every person making a
return under subsection (a) or (b) shall furnish a copy of such return
to the donor at such time and in such manner as the Secretary may by
regulations prescribe.''.
(2) Clerical amendment.--The table of sections for subpart A
of part II of subchapter A of chapter 61 is amended by striking
the item relating to section 6050L and inserting the following
new item:
``Sec. 6050L. Returns relating to certain donated
property.''.
[[Page 118 STAT. 1631]]
(d) Coordination With Appraisal Requirements.--Subclause (I) of
section 170(f)(11)(A)(ii), as added by this Act, is amended by inserting
``subsection (e)(1)(B)(iii) or'' before ``section 1221(a)(1)''.
(e) Anti-Abuse Rules.--The <<NOTE: 26 USC 170 note.>> Secretary of
the Treasury may prescribe such regulations or other guidance as may be
necessary or appropriate to prevent the avoidance of the purposes of
section 170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added
by subsection (a)), including preventing--
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar
property as part of a charitable contribution of property that
includes 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
of related persons, pass-thru entities, or other intermediaries,
or through the use of any provision of law or regulation
(including the 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 deduction
rules would apply.
(f) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendments made
by this section shall apply to contributions made after June 3, 2004.
SEC. 883. INCREASED REPORTING FOR NONCASH CHARITABLE CONTRIBUTIONS.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules) is amended
by adding after paragraph (10) the following new paragraph:
``(11) Qualified appraisal and other documentation for
certain contributions.--
``(A) In general.--
``(i) Denial of deduction.--In the case of an
individual, partnership, or corporation, no
deduction shall be allowed under subsection (a)
for any contribution of property for which a
deduction of more than $500 is claimed unless such
person meets the requirements of subparagraphs
(B), (C), and (D), as the case may be, with
respect to such contribution.
``(ii) Exceptions.--
``(I) Readily valued property.--
Subparagraphs (C) and (D) shall not
apply to cash, property described in
section 1221(a)(1), publicly traded
securities (as defined in section
6050L(a)(2)(B)), and any qualified
vehicle described in paragraph
(12)(A)(ii) for which an acknowledgement
under paragraph (12)(B)(iii) is
provided.
``(II) Reasonable cause.--Clause (i)
shall not apply if it is shown that the
failure to meet such requirements is due
to reasonable cause and not to willful
neglect.
``(B) Property description for contributions of more
than $500.--In the case of contributions of property for
which a deduction of more than $500 is claimed, the
requirements of this subparagraph are met if the
individual, partnership or corporation includes with the
return for the taxable year in which the contribution is
made
[[Page 118 STAT. 1632]]
a description of such property and such other
information as the Secretary may require. The
requirements of this subparagraph shall not apply to a C
corporation which is not a personal service corporation
or a closely held C corporation.
``(C) Qualified 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,
the requirements of this subparagraph are met if the
individual, partnership, or corporation obtains a
qualified appraisal of such property and attaches to the
return for the taxable year in which such contribution
is made such information regarding such property and
such appraisal as the Secretary may require.
``(D) Substantiation 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
individual, partnership, or corporation attaches to the
return for the taxable year a qualified appraisal of
such property.
``(E) Qualified appraisal.--For purposes of this
paragraph, the term `qualified appraisal' means, with
respect to any property, an appraisal of such property
which is treated for purposes of this paragraph as a
qualified appraisal under regulations or other guidance
prescribed by the Secretary.
``(F) Aggregation of similar items of property.--For
purposes of determining thresholds under this paragraph,
property and all similar items of property donated to 1
or more donees shall be treated as 1 property.
``(G) Special rule
for <<NOTE: Applicability.>> pass-thru entities.--In the
case of a partnership or S corporation, this paragraph
shall be applied at the entity level, except that the
deduction shall be denied at the partner or shareholder
level.
``(H) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry
out the purposes of this paragraph, including
regulations that may provide that some or all of the
requirements of this paragraph do not apply in
appropriate cases.''.
(b) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendment made
by this section shall apply to contributions made after June 3, 2004.
SEC. 884. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules), as
amended by this Act, is amended by inserting after paragraph (11) the
following new paragraph:
``(12) Contributions of used motor vehicles, boats, and
airplanes.--
``(A) In 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 contribution unless the taxpayer
substantiates the contribution by a
contemporaneous written acknowledgement of the
contribution by the donee organization that meets
the
[[Page 118 STAT. 1633]]
requirements of subparagraph (B) and includes the
acknowledgement with the taxpayer's return of tax
which includes the deduction, and
``(ii) if the organization sells the vehicle
without any significant intervening use or
material improvement of such vehicle by the
organization, the amount of the deduction allowed
under subsection (a) shall not exceed the gross
proceeds received from such sale.
``(B) Content of acknowledgement.--An
acknowledgement meets the requirements of this
subparagraph if 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 unrelated parties,
``(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 material improvement of
the vehicle and the intended duration of
such use, and
``(II) a certification that the
vehicle would not be transferred in
exchange for money, other property, or
services before completion of such use
or improvement.
``(C) Contemporaneous.--For purposes of subparagraph
(A), an acknowledgement shall be considered to be
contemporaneous if the donee organization provides it
within 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), the contribution of the
qualified vehicle.
``(D) Information to secretary.--A donee
organization required to provide an acknowledgement
under this paragraph shall provide to the Secretary the
information contained in the acknowledgement. Such
information shall be provided at such time and in such
manner as the Secretary may prescribe.
``(E) Qualified vehicle.--For purposes of this
paragraph, 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
described in section 1221(a)(1).
``(F) Regulations or other guidance.--The Secretary
shall prescribe such regulations or other guidance as
may be necessary to carry out the purposes of this
paragraph.
[[Page 118 STAT. 1634]]
The Secretary may prescribe regulations or other
guidance which exempts sales by the donee organization
which are in direct furtherance of such organization's
charitable purpose from the requirements of
subparagraphs (A)(ii) and (B)(iv)(II).''.
(b) Penalty for Fraudulent Acknowledgments.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by inserting after section 6719 the following new
section:
``SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO DONATIONS OF
MOTOR VEHICLES, BOATS, AND AIRPLANES.
``Any donee organization required under section 170(f)(12)(A) to
furnish a contemporaneous written acknowledgment to a donor which
knowingly furnishes a false or fraudulent acknowledgment, or which
knowingly fails to furnish such acknowledgment in the manner, at the
time, and showing the information required under section 170(f)(12), or
regulations prescribed thereunder, shall for each such act, or for each
such failure, be subject to a penalty equal 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
acknowledgment, 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) Conforming 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 6719 the
following new item:
``Sec. 6720. Fraudulent acknowledgments with respect to
donations of motor vehicles, boats, and
airplanes.''.
(c) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendments made
by this section shall apply to contributions made after December 31,
2004.
SEC. 885. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS.
(a) In General.--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 COMPENSATION UNDER
NONQUALIFIED DEFERRED COMPENSATION PLANS.
``(a) Rules Relating to Constructive Receipt.--
``(1) Plan failures.--
``(A) Gross income inclusion.--
[[Page 118 STAT. 1635]]
``(i) In general.--If at any time during a
taxable year a nonqualified deferred compensation
plan--
``(I) fails to meet the requirements
of paragraphs (2), (3), and (4), or
``(II) is not operated in accordance
with such requirements,
all compensation deferred under the plan for the
taxable year and all preceding taxable years shall
be includible in gross income for the taxable year
to the extent not subject to a substantial risk of
forfeiture and not previously included in gross
income.
``(ii) Application only to affected
participants.--Clause (i) shall only apply with
respect to all compensation deferred under the
plan for participants with respect to whom the
failure relates.
``(B) Interest and additional tax payable with
respect to previously deferred compensation.--
``(i) In general.--If compensation is required
to be included in gross income under subparagraph
(A) for a taxable year, the tax imposed by this
chapter for the taxable year shall be increased by
the sum of--
``(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 in gross income.
``(ii) Interest.--For purposes of clause (i),
the interest determined under this clause for any
taxable year is the amount of interest at the
underpayment rate plus 1 percentage point on the
underpayments that would have occurred had the
deferred compensation been includible in gross
income for the taxable year in which first
deferred or, if later, the first taxable year in
which such deferred compensation is not subject to
a substantial risk of forfeiture.
``(2) Distributions.--
``(A) In general.--The requirements of this
paragraph are met if the plan provides that compensation
deferred under 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 the deferral of such compensation,
``(v) to the extent provided by the Secretary,
a change in the ownership or effective control of
the corporation, or in the ownership of a
substantial portion of the assets of the
corporation, or
``(vi) the occurrence of an unforeseeable
emergency.
``(B) Special rules.--
``(i) Specified employees.--In the case of any
specified employee, the requirement of
subparagraph (A)(i) is met only if distributions
may not be made
[[Page 118 STAT. 1636]]
before the date which is 6 months after the date
of separation from service (or, if earlier, the
date of death of the employee). For purposes of
the preceding sentence, a specified employee is a
key employee (as defined in section 416(i) without
regard to paragraph (5) thereof) of a corporation
any stock in which is publicly traded on an
established securities market or otherwise.
``(ii) Unforeseeable emergency.--For purposes
of subparagraph (A)(vi)--
``(I) In general.--The term
`unforeseeable emergency' means a severe
financial hardship to the participant
resulting from an illness or accident of
the participant, the participant's
spouse, or a dependent (as defined in
section 152(a)) of the participant, loss
of the participant's property due to
casualty, or other similar extraordinary
and unforeseeable circumstances arising
as a result of events beyond the control
of the participant.
``(II) Limitation on
distributions.--The requirement of
subparagraph (A)(vi) is met only if, as
determined under regulations of the
Secretary, the amounts distributed with
respect to an emergency do not exceed
the amounts necessary to satisfy such
emergency plus amounts necessary to pay
taxes reasonably anticipated as a result
of the distribution, after taking into
account the extent to which such
hardship is or may be relieved through
reimbursement or compensation by
insurance or otherwise or by liquidation
of the participant's assets (to the
extent the liquidation of such assets
would not itself cause severe financial
hardship).
``(C) Disabled.--For purposes of subparagraph
(A)(ii), a participant shall be considered disabled if
the participant--
``(i) is unable to engage in any substantial
gainful activity by reason of any medically
determinable physical or mental impairment which
can be expected to result in death or can be
expected to last for a continuous period of not
less than 12 months, or
``(ii) is, by reason of any medically
determinable physical or mental impairment which
can be expected to result in death or can be
expected to last for a continuous period of not
less than 12 months, receiving income replacement
benefits for a period of not less than 3 months
under an accident and health plan covering
employees of the participant's employer.
``(3) Acceleration of benefits.--The requirements of this
paragraph are met if the plan does not permit the acceleration
of the time or schedule of any payment under the plan, except as
provided in regulations by the Secretary.
``(4) Elections.--
``(A) In general.--The requirements of this
paragraph are met if the requirements of subparagraphs
(B) and (C) are met.
[[Page 118 STAT. 1637]]
``(B) Initial deferral decision.--
``(i) In general.--The requirements of this
subparagraph are met if the plan provides that
compensation for services performed during a
taxable year may be deferred at the participant's
election only if the election to defer such
compensation is made not later than the close of
the preceding taxable year or at such other time
as provided in regulations.
``(ii) First year of eligibility.--In the case
of the first year in which a participant becomes
eligible to participate in the plan, such election
may be made with respect to services to be
performed subsequent to the election within 30
days after the date the participant becomes
eligible to participate in such plan.
``(iii) Performance-
based <<NOTE: Deadline.>> compensation.--In the
case of any performance-based compensation based
on services performed over a period of at least 12
months, such election may be made no later than 6
months before the end of the period.
``(C) Changes in time and form of distribution.--The
requirements of this subparagraph are met if, in the
case of a plan which permits under a subsequent election
a 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
date on 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 with respect to which such
election is made be deferred for a period of not
less than 5 years from the date such payment would
otherwise have been made, and
``(iii) the plan requires that any election
related to a payment described in paragraph
(2)(A)(iv) may not be made less than 12 months
prior to the date of the first scheduled payment
under such paragraph.
``(b) Rules Relating to Funding.--
``(1) Offshore property in a trust.--In the case of assets
set aside (directly or indirectly) in a trust (or other
arrangement determined by the Secretary) for purposes of paying
deferred compensation under a nonqualified deferred compensation
plan, for purposes of section 83 such assets shall be treated as
property transferred in connection with the performance of
services whether or not such assets are available to satisfy
claims of general creditors--
``(A) at the time set aside if such assets (or such
trust or other arrangement) are located outside of the
United States, or
``(B) at the time transferred if such assets (or
such trust or other arrangement) are subsequently
transferred outside of the United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which the
nonqualified deferred compensation relates are performed in such
jurisdiction.
``(2) Employer's financial health.--In the case of
compensation deferred under a nonqualified deferred compensation
[[Page 118 STAT. 1638]]
plan, there is a transfer of property within the meaning of
section 83 with respect to such compensation as of the earlier
of--
``(A) the date on which the plan first provides that
assets will become restricted to the provision of
benefits under the plan in connection with a change in
the employer's financial health, or
``(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claims of
general creditors.
``(3) Income inclusion for offshore trusts and employer's
financial health.--For each taxable year that assets treated as
transferred under this subsection remain set aside in a trust or
other arrangement subject to paragraph (1) or (2), any increase
in value in, or earnings with respect to, such assets shall be
treated as an additional transfer of property under this
subsection (to the extent not previously included in income).
``(4) Interest on tax liability payable with respect to
transferred property.--
``(A) In 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 chapter
for 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) Interest.--For purposes of subparagraph (A),
the interest determined under this subparagraph for any
taxable year is the amount of interest at the
underpayment rate plus 1 percentage point on the
underpayments that would have occurred had the amounts
so required to be included in gross income by paragraph
(1) or (2) been includible in gross income for the
taxable year in which first deferred or, if later, the
first taxable year in which such amounts are not subject
to a substantial risk of forfeiture.
``(c) No Inference on Earlier Income Inclusion or Requirement of
Later Inclusion.--Nothing in this section shall be construed to prevent
the inclusion of amounts in gross income under any other provision of
this chapter or any other rule of law earlier than the time provided in
this section. Any amount included in gross income under this section
shall not be required to be included in gross income under any other
provision of this chapter or any other rule of law later than the time
provided in this section.
``(d) Other Definitions and Special Rules.--For purposes of this
section:
``(1) Nonqualified deferred compensation plan.--The term
`nonqualified deferred compensation plan' means any plan that
provides for the deferral of compensation, other than--
``(A) a qualified employer plan, and
``(B) any bona fide vacation leave, sick leave,
compensatory time, disability pay, or death benefit
plan.
``(2) Qualified employer plan.--The term `qualified employer
plan' means--
[[Page 118 STAT. 1639]]
``(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) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement, including an agreement or
arrangement that includes one person.
``(4) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial services
by any individual.
``(5) Treatment of earnings.--References to deferred
compensation shall be treated as including references to income
(whether actual or notional) attributable to such compensation
or such income.
``(6) Aggregation rules.--Except
as <<NOTE: Applicability.>> provided by the Secretary, rules
similar to the rules of subsections (b) and (c) of section 414
shall apply.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) providing for the determination of amounts of deferral
in the case of a nonqualified deferred compensation plan which
is a defined benefit plan,
``(2) relating to changes in the ownership and control of a
corporation or assets of a corporation for purposes of
subsection (a)(2)(A)(v),
``(3) exempting arrangements from the application of
subsection (b) if such arrangements will not result in an
improper deferral of United States tax and will not result in
assets being 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) Treatment of Deferred Amounts.--
(1) W-2 forms.--
(A) In 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 period at the end of paragraph (12) and
inserting ``, and'', and by inserting after paragraph
(12) the following new paragraph:
``(13) the total amount of deferrals for the year under a
nonqualified deferred compensation plan (within the meaning of
section 409A(d)).''.
(B) Threshold.--Subsection (a) of section 6051 is
amended by adding at the end the following: ``In the
case of the amounts required to be shown by paragraph
(13), the Secretary may (by regulation) establish a
minimum amount of deferrals below which paragraph (13)
does not apply.''.
(2) Wage withholding.--Section 3401(a) (defining wages) is
amended by adding at the end the following flush sentence:
[[Page 118 STAT. 1640]]
``The term `wages' includes any amount includible in gross
income of an employee under section 409A and payment of such
amount shall be treated as having been made in the taxable year
in which the amount is so includible.''.
(3) Other reporting.--Section <<NOTE: 26 USC 6041.>> 6041
(relating to information at source) is amended by adding at the
end the following new subsection:
``(g) Nonqualified Deferred <<NOTE: Applicability.>> 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 apply to deferrals which are required to be reported under
section 6051(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) Clerical Amendment.--The table of sections for such subpart A of
part I of subchapter D of chapter 1 is amended by adding at the end the
following new item:
``Sec. 409A. Inclusion in gross income of deferred
compensation under nonqualified deferred
compensation plans.''.
(d) Effective <<NOTE: 26 USC 409A note.>> Date.--
(1) In general.--The amendments made by this section shall
apply to amounts deferred after December 31, 2004.
(2) Special rules.--
(A) Earnings.--The amendments made by this section
shall apply to earnings on deferred compensation only to
the extent that such amendments apply to such
compensation.
(B) Material modifications.--For purposes of this
subsection, amounts deferred in taxable years beginning
before January 1, 2005, shall be treated as amounts
deferred in a taxable year beginning on or after such
date if the plan under which the deferral is made is
materially modified after October 3, 2004, unless such
modification is pursuant to the guidance issued under
subsection (f).
(3) Exception for nonelective deferred compensation.--The
amendments made by this section shall not apply to any
nonelective deferred compensation to which section 457 of the
Internal Revenue Code of 1986 does not apply by reason of
section 457(e)(12) of such Code, but only if such compensation
is provided under a nonqualified deferred compensation plan--
(A) which was in existence on May 1, 2004,
(B) which was providing nonelective deferred
compensation described in such section 457(e)(12) on
such date, and
(C) which is established or maintained by an
organization incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding
sentence adopts a plan amendment which provides a material
change in the classes of individuals eligible to participate in
the plan, this paragraph shall not apply to any nonelective
deferred compensation provided under the plan on or after the
date of the adoption of the amendment.
(e) Guidance Relating to <<NOTE: Deadline. 26 USC 409A
note.>> Change of Ownership or Control.--Not later than 90 days after
the date of the enactment of this Act, the Secretary of the Treasury
shall issue guidance
[[Page 118 STAT. 1641]]
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) Guidance Relating to <<NOTE: Deadline. 26 USC 409A
note.>> 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 issue guidance providing a limited period during which a
nonqualified deferred 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
participation in the plan, or cancel an outstanding deferral
election with regard to amounts deferred after December 31,
2004, but only if amounts subject to the termination or
cancellation are includible in income of the participant as
earned (or, if later, 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) In General.--Section 197(e) (relating to exceptions to
definition of section 197 intangible) is amended by striking paragraph
(6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and
(7), respectively.
(b) Conforming 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 section
1056.
(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,
trademarks, and trade names) is amended by striking subsection
(e).
(c) Effective <<NOTE: 26 USC 197 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to property acquired
after the date of the enactment of this Act.
(2) Section 1245.--The amendment made by subsection (b)(2)
shall apply to franchises acquired after the date of the
enactment of this Act.
SEC. 887. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL
VENDORS.
(a) In General.--Section 6331(h) (relating to continuing levy on
certain payments) is amended by adding at the end the following new
paragraph:
``(3) Increase in levy for <<NOTE: Applicability.>> certain
payments.--Paragraph (1) shall be applied by substituting `100
percent' for `15 percent' in the case of any specified payment
due to a vendor of goods or services sold or leased to the
Federal Government.''.
[[Page 118 STAT. 1642]]
(b) Effective Date.--The <<NOTE: 26 USC 6331 note.>> amendment made
by this section shall take effect on the date of the enactment of this
Act.
SEC. 888. MODIFICATION OF STRADDLE RULES.
(a) Rules Relating to Identified Straddles.--
(1) In general.--Subparagraph (A) of section 1092(a)(2)
(relating to special rule for identified straddles) is amended
to read as follows:
``(A) In 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
identified straddle,
``(ii) if there is any loss with respect to
any identified position of the identified
straddle, the basis of each of the identified
offsetting positions in the identified straddle
shall be increased by an amount which bears the
same ratio to the loss as the unrecognized gain
with respect to such offsetting position bears to
the aggregate unrecognized gain with respect to
all such offsetting positions, and
``(iii) any loss described in clause (ii)
shall not otherwise be taken into account for
purposes of this title.''.
(2) Identified 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 the taxpayer immediately before the creation of
the straddle) is not less than the basis of such
position in the hands of the taxpayer at the time
the straddle is created, and'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary shall <<NOTE: Regulations.>> prescribe
regulations which specify the proper methods for clearly
identifying a straddle as an identified straddle (and
the positions comprising such straddle), which specify
the rules for the application of this section for a
taxpayer which fails to properly identify the positions
of an identified straddle, and which specify the
ordering rules in cases where a taxpayer disposes of
less than an entire position which is part of an
identified straddle.''.
(3) Unrecognized 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) Special rule for identified straddles.--For
purposes of paragraph (2)(A)(ii), the unrecognized gain
with respect to any identified offsetting position shall
be the excess of the fair market value of the position
at the time of the determination over the fair market
value of the position at the time the taxpayer
identified the position as a position in an identified
straddle.''.
[[Page 118 STAT. 1643]]
(4) Conforming amendment.--Section 1092(c)(2) is amended by
striking subparagraph (B) and by redesignating subparagraph (C)
as subparagraph (B).
(b) Physically Settled Positions.--Section 1092(d) (relating to
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(8) Special rules for physically settled positions.--For
purposes of subsection (a), if a taxpayer settles a position
which is part of a straddle by delivering property to which the
position relates (and such position, if terminated, would result
in a realization of a loss), then such taxpayer shall be 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) Repeal of Stock Exception.--
(1) In general.--Paragraph (3) of section 1092(d) (relating
to definitions and special rules) is amended to read as follows:
``(3) Special rules for stock.--For purposes of paragraph
(1)--
``(A) In general.--In the case of stock, the term
`personal 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 stock is a position with respect
to such stock or substantially similar or related
property, or
``(ii) such stock is of a corporation formed
or availed of to take positions in personal
property which offset positions taken by any
shareholder.
``(B) Rule for application.--For purposes of
determining whether subsection (e) applies to any
transaction with respect to stock described in
subparagraph (A)(ii), all includible corporations of an
affiliated group (within the meaning of section 1504(a))
shall be treated as 1 taxpayer.''.
(2) Conforming amendment.--Section 1258(d)(1) is amended by
striking ``; except that the term `personal property' shall
include stock''.
(d) Holding period for dividend exclusion.--The last sentence of
section 246(c) is amended by inserting: ``, other than a qualified
covered call option to which section 1092(f) applies'' before the period
at the end.
(e) Effective Date.--The <<NOTE: 26 USC 246 note.>> amendments made
by this section shall apply to positions established on or after the
date of the enactment of this Act.
SEC. 889. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE
VACCINES.
(a) In General.--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 subparagraph:
``(I) Any vaccine against hepatitis A.''.
(b) Effective <<NOTE: 26 USC 4132 note.>> Date.--
[[Page 118 STAT. 1644]]
(1) Sales, etc.--The <<NOTE: Applicability.>> amendments
made by subsection (a) shall apply to sales and uses on or after
the first day of the first month which begins more than 4 weeks
after the date of the enactment of this Act.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of sales
on or before the effective date described in such paragraph for
which delivery is made after such date, the delivery date shall
be considered the sale date.
SEC. 890. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF TAXABLE
VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable vaccine), as
amended by this Act, is amended by adding at the end the following new
subparagraph:
``(N) Any trivalent vaccine against influenza.''.
(b) Effective <<NOTE: 26 USC 4132 note.>> Date.--
(1) Sales, 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 for
purposes of compensation for any vaccine-related injury
or death through the Vaccine Injury Compensation Trust
Fund.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of sales
on or before the effective date described in such paragraph for
which delivery is made after such date, the delivery date shall
be considered the sale date.
SEC. 891. EXTENSION OF IRS USER FEES.
(a) In General.--Section 7528(c) (relating to termination) is
amended by striking ``December 31, 2004'' and inserting ``September 30,
2014''.
(b) Effective Date.--The <<NOTE: 26 USC 7528 note.>> amendment made
by this section shall apply to requests after the date of the enactment
of this Act.
SEC. 892. COBRA FEES.
(a) Use 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
``customs revenue functions as defined in section 415 of the
Homeland Security Act of 2002 (other than functions performed by
the Office of International Affairs referred to in section
415(8) of that Act), and for automation (including the
Automation Commercial Environment computer system), and for no
other purpose. To the extent that funds in the Customs User Fee
Account are insufficient to pay the costs of such customs
revenue functions, customs duties in an amount equal to the
amount of such insufficiency shall be available, to the extent
[[Page 118 STAT. 1645]]
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 provisions of
the first and second sentences of this paragraph specifying the
purposes for which amounts in the Customs User Fee Account may
be made available shall not be superseded except by a provision
of law which specifically modifies or supersedes such
provisions.''.
(b) Reimbursement of Appropriations From COBRA Fees.--Section
13031(f)(3) of the Consolidated Omnibus Budget Reconciliation Act of
1985 (19 U.S.C. 58c(f)(3)) is amended by adding at the end the
following:
``(E) Nothing in this paragraph shall be construed to preclude the
use of appropriated funds, from sources other than the fees collected
under subsection (a), to pay the costs set forth in clauses (i), (ii),
and (iii) of subparagraph (A).''.
(c) Sense of Congress; Effective Period for Collecting Fees;
Standard for Setting Fees.--
(1) Sense of congress.--The <<NOTE: 19 USC 58c
note.>> Congress finds that--
(A) the fees set forth in paragraphs (1) through (8)
of subsection (a) of section 13031 of the Consolidated
Omnibus Budget Reconciliation Act of 1985 have been
reasonably related to the costs of providing customs
services in connection with the activities or items for
which the fees have been charged under such paragraphs;
and
(B) the fees collected under such paragraphs have
not exceeded, in the aggregate, the amounts paid for the
costs described in subsection (f)(3)(A) incurred in
providing customs services in connection with the
activities or items for which the fees were charged
under such paragraphs.
(2) Effective period; standard for setting fees.--Section
13031(j)(3) of the Consolidated Omnibus Budget Reconciliation
Act of 1985 is <<NOTE: 19 USC 58c.>> 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 related to
the costs of providing customs services in connection with the
activity or item for which the fee is charged under such
paragraph, except that in no case may the fee charged under any
such paragraph exceed by more than 10 percent the amount
otherwise prescribed by such paragraph;
``(II) the amount of fees collected under such paragraphs
may not exceed, in the aggregate, the amounts paid in that
fiscal year for the costs described in subsection (f)(3)(A)
incurred in providing customs services in connection with the
activity or 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 the costs
described in subsection (f)(3)(A) incurred in providing
[[Page 118 STAT. 1646]]
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 described in
subsection (f)(3)(A) incurred in providing customs services in
connection with the activity or item for which the fee is
charged under such paragraph.''.
(d) Clerical Amendments.--Section 13031 of the Consolidated Omnibus
Budget Reconciliation Act of 1985 <<NOTE: 19 USC 58c.>> 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) Study of All Fees <<NOTE: Deadline. Reports.>> Collected by
Department of Homeland Security.--The Secretary of the Treasury shall
conduct a study of all the fees collected by the Department of Homeland
Security, and shall submit to the Congress, not later than September 30,
2005, a report containing the recommendations of the Secretary 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) In General.--Section 332 is amended by adding at the end the
following new subsection:
``(d) Recognition of Gain on Liquidation of Certain Holding
Companies.--
``(1) In general.--In the case of any distribution to a
foreign corporation in complete liquidation of an applicable
holding 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) Applicable holding company.--For purposes of this
subsection:
``(A) In general.--The term `applicable holding
company' means any domestic corporation--
``(i) which is a common parent of an
affiliated group,
``(ii) stock of which is directly owned by the
distributee foreign corporation,
``(iii) substantially all of the assets of
which consist of stock in other members of such
affiliated group, and
[[Page 118 STAT. 1647]]
``(iv) which has not been in existence at all
times during the 5 years immediately preceding the
date of the liquidation.
``(B) Affiliated group.--For purposes of this
subsection, the term `affiliated group' has the meaning
given such term by section 1504(a) (without regard to
paragraphs (2) and (4) of section 1504(b)).
``(3) Coordination with subpart f.--If the distributee of a
distribution described in paragraph (1) is a controlled foreign
corporation (as defined in section 957), then notwithstanding
paragraph (1) or subsection (a), such distribution shall be
treated as a distribution to which section 331 applies.
``(4) Regulations.--The Secretary shall provide such
regulations 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 existence for any period unless it is engaged in the
active conduct of a trade or business or owns a significant
ownership interest in another corporation so engaged.''.
(b) Effective Date.--The <<NOTE: 26 USC 332 note.>> amendment made
by this section shall apply to distributions in complete liquidation
occurring on or after the date of the enactment of this Act.
SEC. 894. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN SOURCE
INCOME.
(a) In General.--Section 864(c)(4)(B) (relating to treatment of
income from sources without the United States as effectively connected
income) is amended by adding at the end the following new flush
sentence:
``Any income or gain which is equivalent to any item of
income or gain described in clause (i), (ii), or (iii)
shall be treated in the same manner as such item for
purposes of this subparagraph.''.
(b) Effective Date.--The <<NOTE: 26 USC 864 note.>> amendment made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 895. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED
FOREIGN CORPORATION.
(a) In General.--Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
``(D) Application to certain dispositions of stock
in controlled foreign corporation.--
``(i) In general.--This paragraph shall apply
to an applicable disposition in the same manner as
if it were a disposition of property described in
subparagraph (A), except that the exception
contained in subparagraph (C)(i) shall not apply.
``(ii) Applicable disposition.--For purposes
of clause (i), the term `applicable disposition'
means any disposition of any share of stock in a
controlled foreign corporation in a transaction or
series of transactions if, immediately before such
transaction or series of transactions, the
taxpayer owned more than 50 percent (by vote or
value) of the stock of the controlled foreign
corporation. Such term shall not include a
disposition described in clause (iii) or (iv),
except that clause (i)
[[Page 118 STAT. 1648]]
shall apply to any gain recognized on any such
disposition.
``(iii) Exception for certain exchanges where
ownership percentage retained.--A disposition
shall not be treated as an applicable disposition
under clause (ii) if it is part of a transaction
or series of transactions--
``(I) to which section 351 or 721
applies, or under which the transferor
receives stock in a foreign corporation
in exchange for the stock in the
controlled foreign corporation and the
stock received is exchanged basis
property (as defined in section
7701(a)(44)), and
``(II) immediately after which, the
transferor owns (by vote or value) at
least the same percentage of stock in
the controlled foreign corporation (or,
if the controlled foreign corporation is
not in existence after such transaction
or series of transactions, in another
foreign corporation stock in which was
received by the transferor in exchange
for stock in the controlled foreign
corporation) as the percentage of stock
in the controlled foreign corporation
which the taxpayer owned immediately
before such transaction or series of
transactions.
``(iv) Exception for certain asset
acquisitions.--A disposition shall not be treated
as an applicable disposition under clause (ii) if
it is part of a transaction or series of
transactions in which the taxpayer (or any member
of a controlled group of corporations filing a
consolidated return under section 1501 which
includes the taxpayer) acquires the assets of a
controlled foreign corporation in exchange for the
shares of the controlled foreign corporation in a
liquidation described in section 332 or a
reorganization described in section 368(a)(1).
``(v) Controlled foreign corporation.--For
purposes of this subparagraph, the term
`controlled foreign corporation' has the meaning
given such term by section 957.
``(vi) Stock ownership.--For purposes of this
subparagraph, ownership of stock shall be
determined under the rules of subsections (a) and
(b) of section 958.''.
(b) Effective Date.--The <<NOTE: 26 USC 904 note.>> amendment made
by this section shall apply to dispositions after the date of the
enactment of this Act.
SEC. 896. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED ON
SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.
(a) In General.--Paragraph (8) of section 108(e) (relating to
general rules for discharge of indebtedness (including discharges not in
title 11 cases or insolvency)) is amended to read as follows:
``(8) Indebtedness 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, or
[[Page 118 STAT. 1649]]
``(B) a debtor partnership transfers a capital or
profits interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse
indebtedness, such corporation or partnership shall be treated
as having satisfied the indebtedness with an amount of money
equal to the fair market value of the stock or interest. In the
case of any partnership, any discharge of indebtedness income
recognized under this paragraph shall be included in the
distributive shares of taxpayers which were the partners in the
partnership immediately before such discharge.''.
(b) Effective Date.--The <<NOTE: 26 USC 108 note.>> amendment made
by this section shall apply with respect to cancellations of
indebtedness occurring on or after the date of the enactment of this
Act.
SEC. 897. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY TRADABLE
DEBT.
(a) In General.--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 government or
political subdivision thereof and''.
(b) Effective Date.--The <<NOTE: 26 USC 453 note.>> amendment made
by this section shall apply to sales occurring on or after the date of
the enactment of this Act.
SEC. 898. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN
DIVISIVE REORGANIZATIONS.
(a) In General.--Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the following
new sentence: ``In the case of a reorganization described in section
368(a)(1)(D) with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355, this paragraph shall
apply only to the extent that the sum of the money and the fair market
value of other property transferred to such creditors does not exceed
the adjusted bases of such assets transferred.''.
(b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is amended
by inserting ``with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355'' after ``section
368(a)(1)(D)''.
(c) Effective Date.--The <<NOTE: 26 USC 357 note.>> amendments made
by this section shall apply to transfers of money or other property, or
liabilities assumed, in connection with a reorganization occurring on or
after the date of the enactment of this Act.
SEC. 899. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.
(a) In General.--Section 351(g)(3)(A) is amended by adding at the
end the following: ``Stock shall not be treated as participating in
corporate growth to any significant extent unless there is a real and
meaningful likelihood of the shareholder actually participating in the
earnings and growth of the corporation.''.
(b) Effective Date.--The <<NOTE: 26 USC 351 note.>> amendment made
by this section shall apply to transactions after May 14, 2003.
[[Page 118 STAT. 1650]]
SEC. 900. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(a) In General.--Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ``possessing--'' and all that
follows through ``(B)'' and inserting ``possessing''.
(b) Application of Existing Rules to Other Code Provisions.--Section
1563(f) (relating to other definitions and rules) is amended by adding
at the end the following new paragraph:
``(5) Brother-sister controlled group definition for
provisions other than this part.--
``(A) In general.--Except as specifically provided
in an applicable provision, subsection (a)(2) shall be
applied to an applicable provision as if it read as
follows:
``(2) Brother-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) stock
possessing--
``(A) at least 80 percent of the total combined
voting power of all classes of stock entitled to vote,
or at least 80 percent of the total value of shares of
all classes of stock, of each corporation, and
``(B) more than 50 percent of the total combined
voting power of all classes of stock entitled to vote or
more than 50 percent of the total value of shares of all
classes of stock of each corporation, taking into
account the stock ownership of each such person only to
the extent such stock ownership is identical with
respect to each such corporation.'
``(B) Applicable provision.--For purposes of this
paragraph, an applicable provision is any provision of
law (other than this part) which incorporates the
definition of controlled group of corporations under
subsection (a).''.
(c) Effective Date.--The <<NOTE: 26 USC 1563 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 901. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) Gas Utility 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 end of clause (v) and
inserting ``, and'', and by adding at the end the following new clause:
``(vi) initial clearing and grading land
improvements with respect to gas utility
property.''.
(b) Electric 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
with respect to any electric utility transmission and
distribution plant.''.
(c) Conforming Amendment.--The table contained in section
168(g)(3)(B), as amended by this Act, is amended by inserting after the
item relating to subparagraph (E)(v) the following new items:
``(E)(vi) 20''.
``(F) 25''.
[[Page 118 STAT. 1651]]
(d) Effective Date.--The <<NOTE: 26 USC 168 note.>> amendments made
by this section shall apply to property placed in service after the date
of the enactment of this Act.
SEC. 902. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section 195(b)
(relating to start-up expenditures) is amended to read as
follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the active trade or business
begins 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-
month period beginning with the month in which the
active trade or business begins.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in the
heading.
(b) Organizational Expenditures.--Subsection (a) of section 248
(relating to organizational expenditures) is amended to read as follows:
``(a) Election to Deduct.--If a <<NOTE: Regulations.>> corporation
elects the application of this subsection (in accordance with
regulations prescribed by 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-month
period beginning with the month in which the corporation begins
business.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(1) In 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 read as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection (in accordance with regulations
prescribed by the Secretary) with respect to any organizational
expenses--
[[Page 118 STAT. 1652]]
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the partnership begins
business in 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-
month period beginning with the month in which the
partnership begins business.
``(2) Dispositions 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, any deferred
expenses attributable to the partnership which were not allowed
as a deduction by reason of this section may be deducted to the
extent allowable under section 165.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting ``Deduction''
in the heading.
(d) Effective Date.--The <<NOTE: 26 USC 195 note.>> amendments made
by this section shall apply to amounts paid or incurred after the date
of the enactment of this Act.
SEC. 903. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE
SECRETARY FAILS TO CONTACT TAXPAYER.
(a) In General.--Section 6404(g) (relating to suspension of interest
and certain penalties where Secretary fails to contact taxpayer) is
amended by striking ``1-year period (18-month period in the case of
taxable years beginning before January 1, 2004)'' both places it appears
and inserting ``18-month period''.
(b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating
to exceptions) is amended by striking ``or'' at the end of subparagraph
(C), by redesignating subparagraph (D) as subparagraph (E), and by
inserting after subparagraph (C) the following new subparagraph:
``(D) any interest, penalty, addition to tax, or
additional amount with respect to any gross
misstatement; or''.
(c) Exception 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 by inserting
after subparagraph (D) the following new subparagraph:
``(E) any interest, penalty, addition to tax, or
additional amount with respect to any reportable
transaction with respect to which the requirement of
section 6664(d)(2)(A) is not met and any listed
transaction (as defined in 6707A(c)); or''.
(d) Effective <<NOTE: 26 USC 6404 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for reportable or listed transactions.--The
amendments made by subsection (c) shall apply with respect to
interest accruing after October 3, 2004.
[[Page 118 STAT. 1653]]
SEC. 904. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN
EXCESS OF $1,000,000.
(a) In General.--If an employer elects under Treasury Regulation
31.3402(g)-1 to determine the amount to be deducted and withheld from
any supplemental wage payment by using a flat percentage 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 the Internal Revenue Code of 1986 for taxable
years beginning in the calendar year in which the payment is made).
(b) Special Rule for Large Payments.--
(1) In general.--Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the
calendar year, exceeds $1,000,000, the rate used with respect to
such excess shall be equal to the maximum rate of tax in effect
under section 1 of such Code for taxable years beginning in such
calendar year.
(2) Aggregation.--All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal
Revenue Code of 1986 shall be treated as a single employer for
purposes of this subsection.
(c) Conforming Amendment.--Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103-66) <<NOTE: 107 Stat.
542.>> is repealed.
(d) Effective Date.--The provisions of, and the amendment made by,
this section shall apply to payments made after December 31, 2004.
SEC. 905. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF
STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST
REQUIREMENTS.
(a) In General.--Section 421 (relating to general rules for certain
stock options) is amended by adding at the end the following new
subsection:
``(d) Certain Sales To Comply With Conflict-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's
exercise 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 of section
422(a)(1) or 423(a)(1), whichever is applicable.''.
(b) Effective Date.--The <<NOTE: 26 USC 421 note.>> 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) In General.--Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended by
redesignating subsection (w) as subsection (x) and by inserting after
subsection (v) the following new subsection:
``(w) Application of Basis Rules to Nonresident Aliens.--
``(1) In general.--Notwithstanding any other provision of
this section, for purposes of determining the portion of any
distribution which is includible in gross income of a
distributee who is a citizen or resident of the United States,
the investment
[[Page 118 STAT. 1654]]
in the contract shall not include any applicable nontaxable
contributions or applicable nontaxable earnings.
``(2) Applicable 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
services were performed, was a nonresident alien
for purposes of the laws of the United States in
effect at such time, 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
compensation when the services were rendered) under the
laws of the United States or any foreign country.
``(3) Applicable 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 with
respect to compensation for labor or personal services
performed by an employee,
``(B) with respect to which the employee was at the
time the earnings were paid or accrued a nonresident
alien for 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) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this subsection, including regulations treating contributions
and earnings as not subject to tax under the laws of any foreign
country where appropriate to carry out the purposes of this
subsection.''.
(b) Basis.--Section 83 (relating to property transferred in
connection with the performance of services is amended by adding after
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 of
services, rules similar to the rules of section 72(w) shall
apply.''.
(c) Effective Date.--The <<NOTE: 26 USC 72 note.>> amendments made
by this section shall apply to distributions on or after the date of the
enactment of this Act.
SEC. 907. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT
EXPENSES.
(a) In General.--Paragraph (2) of section 274(e) (relating to
expenses treated as compensation) is amended to read as follows:
``(2) Expenses treated as compensation.--
``(A) In general.--Except as provided in
subparagraph (B), expenses for goods, services, and
facilities, to the extent that the expenses are treated
by the taxpayer, with respect to the recipient of the
entertainment, amusement, or recreation, as compensation
to an employee on the taxpayer's return of tax under
this chapter and as wages to such
[[Page 118 STAT. 1655]]
employee for purposes of chapter 24 (relating to
withholding of income tax at source on wages).
``(B) Specified individuals.--
``(i) In general.--
In <<NOTE: Applicability.>> the case of a
recipient who is a specified individual,
subparagraph (A) and paragraph (9) shall each be
applied by substituting `to the extent that the
expenses do not exceed the amount of the expenses
which' for `to the extent that the expenses'.
``(ii) Specified individual.--For purposes of
clause (i), the term `specified individual' means
any individual who--
``(I) is subject to the requirements
of section 16(a) of the Securities
Exchange Act of 1934 with respect to the
taxpayer, or
``(II) would be subject to such
requirements if the taxpayer were an
issuer of equity securities referred to
in such section.''.
(b) Effective Date.--The <<NOTE: 26 USC 274 note.>> amendment made
by this section shall apply to expenses incurred after the date of the
enactment of this Act.
SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED STATES
POSSESSIONS.
(a) Residence and Source Rules.--Subpart D of part III of subchapter
N of chapter 1 (relating to possessions of the United States) is amended
by adding at the end the following new section:
``SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS.
``(a) Bona Fide Resident.--For purposes of this subpart, section
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 section
7654(a), except as provided in regulations, the term `bona fide
resident' 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 second
sentence thereof) outside such specified possession during the
taxable year and does not have a closer connection (determined
under the principles of section 7701(b)(3)(B)(ii)) to the United
States or a foreign country than to such specified possession.
For purposes of paragraph (1), the determination as to whether a person
is present for any day shall be made under the principles of section
7701(b).
``(b) Source Rules.--Except as provided in regulations, for purposes
of this title--
``(1) except as <<NOTE: Applicability.>> provided in
paragraph (2), rules similar to the rules for determining
whether income is income from sources within the United States
or is effectively connected with the conduct of a trade or
business within the United States shall apply for purposes of
determining whether income is from sources within a possession
specified in subsection (a)(1) or effectively connected with the
conduct of a trade or business within any such possession, and
``(2) any income treated as income from sources within the
United States or as effectively connected with the conduct
[[Page 118 STAT. 1656]]
of a trade or business within the United States shall not be
treated as income from sources within any such possession or as
effectively connected with the conduct of a trade or business
within any such possession.
``(c) Reporting Requirement.--
``(1) In general.--If, for any taxable year, an individual
takes the position for United States income tax reporting
purposes that the individual became, or ceases to be, a bona
fide resident of a possession specified in subsection (a)(1),
such individual shall file with the Secretary, at such time and
in such manner as the Secretary may prescribe, notice of such
position.
``(2) Transition rule.--If, for any of an individual's 3
taxable years ending before the individual's first taxable year
ending after the date of the enactment of this subsection, the
individual took a position described in paragraph (1), the
individual shall file with the Secretary, at such time and in
such manner as the Secretary may prescribe, notice of such
position.''.
(b) Penalty.--Section 6688 is amended--
(1) by inserting ``under section 937(c) or'' before ``by
regulations'', and
(2) by striking ``$100'' and inserting ``$1,000''.
(c) Conforming and Clerical Amendments.--
(1) Section 931(d) is amended to read as follows:
``(d) Employees of the United States.--Amounts paid for services
performed as an employee of the United States (or any agency 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 subsection (a)(1),
(C) in subsection (b)(1)--
(i) by inserting ``(other a bona fide resident
of Guam during the entire taxable year)'' after
``United States'' 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
with the conduct of a trade or business within a
possession, or''.
[[Page 118 STAT. 1657]]
(6) The table of sections of subpart D of part III of
subchapter N of chapter 1 is amended by adding at the end the
following new item:
``Sec. 937. Residence and source rules involving
possessions.''.
(d) Effective <<NOTE: 26 USC 937 note.>> Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years ending after the date of the enactment of this
Act.
(2) 183-day rule.--Section 937(a)(1) of the Internal Revenue
Code of 1986 (as added by this section) shall apply to taxable
years beginning after the date of the enactment of this Act.
(3) Sourcing.--Section 937(b)(2) of such Code (as so added)
shall apply to income earned after the date of the enactment of
this Act.
SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY
COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.
(a) In General.--Section 451 (relating to general rule for taxable
year of inclusion) is amended by adding at the end the following new
subsection:
``(i) Special Rule for Sales or Dispositions To Implement Federal
Energy Regulatory Commission or State Electric Restructuring Policy.--
``(1) In general.--In the case of any qualifying electric
transmission transaction for which the taxpayer elects the
application of this section, qualified gain from such
transaction shall be recognized--
``(A) in the taxable year which includes the date of
such transaction to the extent the amount realized from
such transaction exceeds--
``(i) the cost of exempt utility property
which is purchased by the taxpayer during the 4-
year period beginning 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 such transaction, in the case of any such gain not
recognized under subparagraph (A).
``(2) Qualified gain.--For purposes of this subsection, the
term `qualified gain' means, with respect to any qualifying
electric transmission transaction in any taxable year--
``(A) any ordinary income derived from such
transaction which would be required to be recognized
under section 1245 or 1250 for such taxable year
(determined without regard to this subsection), and
``(B) any income derived from such transaction in
excess of the amount described in subparagraph (A) which
is required to be included in gross income for such
taxable year (determined without regard to this
subsection).
``(3) Qualifying electric transmission transaction.--For
purposes of this subsection, the term `qualifying electric
[[Page 118 STAT. 1658]]
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 trade or business consists of providing
electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
``(4) Independent 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
Commission determines in its authorization of the
transaction under section 203 of the Federal Power
Act (16 U.S.C. 824b) or by declaratory order is
not a market participant within the meaning of
such Commission's rules applicable to independent
transmission providers, and
``(ii) whose transmission facilities to which
the election under this subsection applies are
under the operational control of a Federal Energy
Regulatory Commission-approved independent
transmission provider before the close of the
period specified in such authorization, but not
later than the close of the period applicable
under subsection (a)(2)(B) as extended under
paragraph (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 independent transmission provider, or
``(ii) a political subdivision or affiliate
thereof whose transmission facilities are under
the operational control of a person described in
clause (i).
``(5) Exempt utility property.--For purposes of this
subsection:
``(A) In 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) Nonrecognition of gain by reason of
acquisition of stock.--Acquisition of control of a
corporation shall be taken into account under this
subsection with respect to a qualifying electric
transmission transaction only if the principal trade or
business of such corporation is a trade or business
referred to in subparagraph (A).
``(6) Special rule for consolidated groups.--In the case of
a corporation which is a member of an affiliated group filing a
consolidated return, any exempt utility property purchased by
another member of such group shall be treated
[[Page 118 STAT. 1659]]
as purchased by such corporation for purposes of applying
paragraph (1)(A).
``(7) Time for assessment of deficiencies.--If the taxpayer
has made the election under paragraph (1) and any gain 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
the gain on the transaction is realized, attributable to
such gain shall not expire prior to the expiration of 3
years from the date the Secretary is notified by the
taxpayer (in such manner as the Secretary may by
regulations prescribe) of the purchase of exempt utility
property or of an intention not to purchase such
property, and
``(B) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding any law
or rule of law which would otherwise prevent such
assessment.
``(8) Purchase.--For purposes of this subsection, the
taxpayer shall be considered to have purchased any property if
the unadjusted basis of such property is its cost within the
meaning of section 1012.
``(9) Election.--An election under paragraph (1) shall be
made at such time and in such manner as the Secretary may
require and, once made, shall be irrevocable.
``(10) Nonapplication of installment sales treatment.--
Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.''.
(b) Effective Date.--The <<NOTE: 26 USC 451 note.>> amendments made
by this section shall apply to transactions occurring after the date of
the enactment of this Act, in taxable years ending after such date.
SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER
AUTOMOBILES.
(a) In General.--Section 179(b) (relating to limitations) is amended
by adding at the end the following new paragraph:
``(6) Limitation on cost taken into account for certain
passenger vehicles.--
``(A) In general.--The cost of any sport utility
vehicle for any taxable year which may be taken into
account under this section shall not exceed $25,000.
``(B) Sport utility vehicle.--For purposes of
subparagraph (A)--
``(i) In 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 operated exclusively
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) Certain 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,
[[Page 118 STAT. 1660]]
``(II) is equipped with a cargo area
of at least 6 feet in interior length
which is an open area or is designed for
use as an open area but is enclosed by a
cap and is not readily accessible
directly 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's seat,
and has no body section protruding more
than 30 inches ahead of the leading edge
of the windshield.''.
(b) Effective Date.--The <<NOTE: 26 USC 179 note.>> amendment made
by this section shall apply to property placed in service after the date
of the enactment of this Act.
Approved October 22, 2004.
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.
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