[109th Congress Public Law 222]
[From the U.S. Government Printing Office]
[DOCID: f:publ222.109]
[[Page 120 STAT. 345]]
Public Law 109-222
109th Congress
An Act
To provide for reconciliation pursuant to section 201(b) of the
concurrent resolution on the budget for <<NOTE: May 17, 2006 - [H.R.
4297]>> fiscal year 2006.
Be it enacted by the Senate and House of Representatives of the
United States of America in <<NOTE: Tax Increase Prevention and
Reconciliation Act of 2005.>> Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This <<NOTE: 26 USC 1 note.>> Act may be cited as
the ``Tax Increase Prevention and Reconciliation Act of 2005''.
(b) Amendment of 1986 Code.--Except as <<NOTE: 26 USC 1 et.
seq.>> otherwise expressly provided, whenever in this Act an amendment
or repeal is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered to be made
to a section or other provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
TITLE I--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS
Sec. 101. Increased expensing for small business.
Sec. 102. Capital gains and dividends rates.
Sec. 103. Controlled foreign corporations.
TITLE II--OTHER PROVISIONS
Sec. 201. Clarification of taxation of certain settlement funds.
Sec. 202. Modification of active business definition under section 355.
Sec. 203. Veterans' mortgage bonds.
Sec. 204. Capital gains treatment for certain self-created musical
works.
Sec. 205. Vessel tonnage limit.
Sec. 206. Modification of special arbitrage rule for certain funds.
Sec. 207. Amortization of expenses incurred in creating or acquiring
music or music copyrights.
Sec. 208. Modification of effective date of disregard of certain capital
expenditures for purposes of qualified small issue bonds.
Sec. 209. Modification of treatment of loans to qualified continuing
care facilities.
TITLE III--ALTERNATIVE MINIMUM TAX RELIEF
Sec. 301. Increase in alternative minimum tax exemption amount for 2006.
Sec. 302. Allowance of nonrefundable personal credits against regular
and alternative minimum tax liability.
TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS
Sec. 401. Time for payment of corporate estimated taxes.
TITLE V--REVENUE OFFSET PROVISIONS
Sec. 501. Application of earnings stripping rules to partners which are
corporations.
Sec. 502. Reporting of interest on tax-exempt bonds.
Sec. 503. 5-year amortization of geological and geophysical expenditures
for certain major integrated oil companies.
Sec. 504. Application of FIRPTA to regulated investment companies.
[[Page 120 STAT. 346]]
Sec. 505. Treatment of distributions attributable to FIRPTA gains.
Sec. 506. Prevention of avoidance of tax on investments of foreign
persons in United States real property through wash sale
transactions.
Sec. 507. Section 355 not to apply to distributions involving
disqualified investment companies.
Sec. 508. Loan and redemption requirements on pooled financing
requirements.
Sec. 509. Partial payments required with submission of offers-in-
compromise.
Sec. 510. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 511. Imposition of withholding on certain payments made by
government entities.
Sec. 512. Conversions to Roth IRAs.
Sec. 513. Repeal of FSC/ETI binding contract relief.
Sec. 514. Only wages attributable to domestic production taken into
account in determining deduction for domestic production.
Sec. 515. Modification of exclusion for citizens living abroad.
Sec. 516. Tax involvement of accommodation parties in tax shelter
transactions.
TITLE I--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS
SEC. 101. INCREASED EXPENSING FOR SMALL BUSINESS.
Subsections (b)(1), (b)(2), (b)(5), (c)(2), and (d)(1)(A)(ii) of
section 179 (relating to <<NOTE: 26 USC 179.>> election to expense
certain depreciable business assets) are each amended by striking
``2008'' and inserting ``2010''.
SEC. 102. CAPITAL GAINS AND DIVIDENDS RATES.
Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of
2003 is <<NOTE: 26 USC 1 note.>> amended by striking ``December 31,
2008'' and inserting ``December 31, 2010''.
SEC. 103. CONTROLLED FOREIGN CORPORATIONS.
(a) Subpart F Exception for Active Financing.--
(1) Exempt insurance income.--Paragraph (10) of section
953(e) (relating to application) is amended--
(A) by striking ``January 1, 2007'' and inserting
``January 1, 2009'', and
(B) by striking ``December 31, 2006'' and inserting
``December 31, 2008''.
(2) Exception to treatment as foreign personal holding
company income.--Paragraph (9) of section 954(h) (relating to
application) is amended by striking ``January 1, 2007'' and
inserting ``January 1, 2009''.
(b) Look-Through Treatment of Payments Between Related Controlled
Foreign Corporations Under the Foreign Personal Holding Company Rules.--
(1) In general.--Subsection (c) of section 954 (relating to
foreign personal holding company income) is amended by adding at
the end the following new paragraph:
``(6) Look-thru rule for related controlled foreign
corporations.--
``(A) In general.--For purposes of this subsection,
dividends, interest, rents, and royalties received or
accrued from a controlled foreign corporation which is a
related person shall not be treated as foreign personal
holding company income to the extent attributable or
properly allocable (determined under rules similar to
the rules of subparagraphs (C) and (D) of section
904(d)(3)) to income of the related person which is not
subpart F income. For
[[Page 120 STAT. 347]]
purposes of this subparagraph, interest shall include
factoring income which is treated as income equivalent
to interest for purposes of paragraph (1)(E). The
Secretary shall prescribe such regulations as may be
appropriate to prevent the abuse of the purposes of this
paragraph.
``(B) Application.--Subparagraph (A) shall apply to
taxable years of foreign corporations beginning after
December 31, 2005, and before January 1, 2009, and to
taxable years of United States shareholders with or
within which such taxable years of foreign corporations
end.''.
(2) Effective date.--The <<NOTE: 26 USC 954
note.>> amendment made by this subsection shall apply to taxable
years of foreign corporations beginning after December 31, 2005,
and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
TITLE II--OTHER PROVISIONS
SEC. 201. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT FUNDS.
(a) In General.--Subsection (g) of <<NOTE: 26 USC 468B.>> section
468B (relating to clarification of taxation of certain funds) is amended
to read as follows:
``(g) Clarification of Taxation of Certain Funds.--
``(1) In general.--Except as provided in paragraph (2),
nothing in any provision of law shall be construed as providing
that an escrow account, settlement fund, or similar fund is not
subject to current income tax. <<NOTE: Regulations.>> The
Secretary shall prescribe regulations providing for the taxation
of any such account or fund whether as a grantor trust or
otherwise.
``(2) Exemption from tax for certain settlement funds.--An
escrow account, settlement fund, or similar fund shall be
treated as beneficially owned by the United States and shall be
exempt from taxation under this subtitle if--
``(A) it is established pursuant to a consent decree
entered by a judge of a United States District Court,
``(B) it is created for the receipt of settlement
payments as directed by a government entity for the sole
purpose of resolving or satisfying one or more claims
asserting liability under the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980,
``(C) the authority and control over the expenditure
of funds therein (including the expenditure of
contributions thereto and any net earnings thereon) is
with such government entity, and
``(D) upon termination, any remaining funds will be
disbursed to such government entity for use in
accordance with applicable law.
For purposes of this paragraph, the term `government entity'
means the United States, any State or political subdivision
thereof, the District of Columbia, any possession of the United
States, and any agency or instrumentality of any of the
foregoing.
``(3) Termination.--Paragraph (2) shall not apply to
accounts and funds established after December 31, 2010.''.
[[Page 120 STAT. 348]]
(b) Effective Date.--The <<NOTE: 26 USC 468B note.>> amendment made
by subsection (a) shall apply to accounts and funds established after
the date of the enactment of this Act.
SEC. 202. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.
Subsection (b) of <<NOTE: 26 USC 355.>> section 355 (defining active
conduct of a trade or business) is amended by adding at the end the
following new paragraph:
``(3) Special rule relating to active business
requirement.--
``(A) In general.--In the case of any distribution
made after the date of the enactment of this paragraph
and on or before December 31, 2010, a corporation shall
be treated as meeting the requirement of paragraph
(2)(A) if and only if such corporation is engaged in the
active conduct of a trade or business.
``(B) Affiliated group rule.--For purposes of
subparagraph (A), all members of such corporation's
separate affiliated group shall be treated as one
corporation. For purposes of the preceding sentence, a
corporation's separate affiliated group is the
affiliated group which would be determined under section
1504(a) if such corporation were the common parent and
section 1504(b) did not apply.
``(C) Transition rule.--Subparagraph (A) shall not
apply to any distribution pursuant to a transaction
which is--
``(i) made pursuant to an agreement which was
binding on the date of the enactment of this
paragraph and at all times thereafter,
``(ii) described in a ruling request submitted
to the Internal Revenue Service on or before such
date, or
``(iii) described on or before such date in a
public announcement or in a filing with the
Securities and Exchange Commission.
The preceding sentence shall not apply if the
distributing corporation elects not to have such
sentence apply to distributions of such corporation. Any
such election, once made, shall be irrevocable.
``(D) Special rule for certain pre-enactment
distributions.--For purposes of determining the
continued qualification under paragraph (2)(A) of
distributions made on or before the date of the
enactment of this paragraph as a result of an
acquisition, disposition, or other restructuring after
such date and on or before December 31, 2010, such
distribution shall be treated as made on the date of
such acquisition, disposition, or restructuring for
purposes of applying subparagraphs (A) through (C) of
this paragraph.''.
SEC. 203. VETERANS' MORTGAGE BONDS.
(a) Expansion of Definition of Veterans Eligible for State Home Loan
Programs Funded by Qualified Veterans' Mortgage Bonds.--
(1) In general.--Paragraph (4) of section 143(l) (defining
qualified veteran) is amended to read as follows:
[[Page 120 STAT. 349]]
``(4) Qualified veteran.--For purposes of this subsection,
the term `qualified veteran' means--
``(A) in the case of the States of Alaska, Oregon,
and Wisconsin, any veteran--
``(i) who served on active duty, and
``(ii) who applied for the financing before
the date 25 years after the last date on which
such veteran left active service, and
``(B) in the case of any other State, any veteran--
``(i) who served on active duty at some time
before January 1, 1977, and
``(ii) who applied for the financing before
the later of--
``(I) the date 30 years after the
last date on which such veteran left
active service, or
``(II) January 31, 1985.''.
(2) Effective date.--The <<NOTE: 26 USC 143
note.>> amendments made by this subsection shall apply to bonds
issued on or after the date of the enactment of this Act.
(b) Revision of State Veterans Limit.--
(1) In general.--Subparagraph (B) of <<NOTE: 26 USC
143.>> section 143(l)(3) (relating to volume limitation) is
amended--
(A) by redesignating clauses (i) and (ii) as
subclauses (I) and (II), respectively, and moving such
clauses 2 ems to the right,
(B) by amending the matter preceding subclause (I),
as designated by subparagraph (A), to read as follows:
``(B) State veterans limit.--
``(i) In general.--In the case of any State to
which clause (ii) does not apply, the State
veterans limit for any calendar year is the amount
equal to--'', and
(C) by adding at the end the following new clauses:
``(ii) Alaska, oregon, and wisconsin.--In the
case of the following States, the State veterans
limit for any calendar year is the amount equal
to--
``(I) $25,000,000 for the State of
Alaska,
``(II) $25,000,000 for the State of
Oregon, and
``(III) $25,000,000 for the State of
Wisconsin.
``(iii) Phasein.--In
the <<NOTE: Applicability.>> case of calendar
years beginning before 2010, clause (ii) shall be
applied by substituting for each of the dollar
amounts therein an amount equal to the applicable
percentage of such dollar amount. For purposes of
the preceding sentence, the applicable percentage
shall be determined in accordance with the
following table:
Applicable percentage
``For Calendar Year: is:
2006........................................... 20 percent
2007........................................... 40 percent
2008........................................... 60 percent
2009........................................... 80 percent.
``(iv) Termination.--The State veterans limit
for the States specified in clause (ii) for any
calendar year after 2010 is zero.''.
[[Page 120 STAT. 350]]
(2) Effective date.--The <<NOTE: 26 USC 143
note.>> amendments made by this subsection shall apply to
allocations of State volume limit after April 5, 2006.
SEC. 204. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED MUSICAL
WORKS.
(a) In General.--Subsection (b) of <<NOTE: 26 USC 1221.>> section
1221 (relating to capital asset defined) is amended by redesignating
paragraph (3) as paragraph (4) and by inserting after paragraph (2) the
following new paragraph:
``(3) Sale or exchange of self-created musical works.--At
the election of the taxpayer, paragraphs (1) and (3) of
subsection (a) shall not apply to musical compositions or
copyrights in musical works sold or exchanged before January 1,
2011, by a taxpayer described in subsection (a)(3).''.
(b) Limitation on Charitable Contributions.--Subparagraph (A) of
section 170(e)(1) is amended by inserting ``(determined without regard
to section 1221(b)(3))'' after ``long-term capital gain''.
(c) Effective Date.--The <<NOTE: 26 USC 170 note.>> amendments made
by this section shall apply to sales and exchanges in taxable years
beginning after the date of the enactment of this Act.
SEC. 205. VESSEL TONNAGE LIMIT.
(a) In General.--Paragraph (4) of section 1355(a) (relating to
qualifying vessel) is amended by inserting ``(6,000, in the case of
taxable years beginning after December 31, 2005, and ending before
January 1, 2011)'' after ``10,000''.
(b) Effective Date.--The <<NOTE: 26 USC 1355 note.>> amendment made
by subsection (a) shall apply to taxable years beginning after December
31, 2005.
SEC. 206. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.
In the case of bonds issued after the date of the enactment of this
Act and before August 31, 2009--
(1) the requirement of paragraph (1) of section 648 of the
Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated as
met with respect to the securities or obligations referred to in
such section if such securities or obligations are held in a
fund the annual distributions from which cannot exceed 7 percent
of the average fair market value of the assets held in such fund
except to the extent distributions are necessary to pay debt
service on the bond issue, and
(2) <<NOTE: Applicability.>> paragraph (3) of such section
shall be applied by substituting ``distributions from'' for
``the investment earnings of'' both places it appears.
SEC. 207. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR ACQUIRING
MUSIC OR MUSIC COPYRIGHTS.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(8) Special rules for certain musical works and
copyrights.--
``(A) In general.--If an election is in effect under
this paragraph for any taxable year, then,
notwithstanding paragraph (1), any expense which--
[[Page 120 STAT. 351]]
``(i) is paid or incurred by the taxpayer in
creating or acquiring any applicable musical
property placed in service during the taxable
year, and
``(ii) is otherwise properly chargeable to
capital account,
shall be amortized ratably over the 5-year period
beginning with the month in which the property was
placed in service. The preceding sentence shall not
apply to any expense which, without regard to this
paragraph, would not be allowable as a deduction.
``(B) Exclusive method.--Except as provided in this
paragraph, no depreciation or amortization deduction
shall be allowed with respect to any expense to which
subparagraph (A) applies.
``(C) Applicable musical property.--For purposes of
this paragraph--
``(i) In general.--The term `applicable
musical property' means any musical composition
(including any accompanying words), or any
copyright with respect to a musical composition,
which is property to which this subsection applies
without regard to this paragraph.
``(ii) Exceptions.--Such term shall not
include any property--
``(I) with respect to which expenses
are treated as qualified creative
expenses to which section 263A(h)
applies,
``(II) to which a simplified
procedure established under section
263A(j)(2) applies, or
``(III) which is an amortizable
section 197 intangible (as defined in
section 197(c)).
``(D) Election.--
An <<NOTE: Applicability.>> election under this
paragraph shall be made at such time and in such form as
the Secretary may prescribe and shall apply to all
applicable musical property placed in service during the
taxable year for which the election applies.
``(E) Termination.--An election may not be made
under this paragraph for any taxable year beginning
after December 31, 2010.''.
(b) Effective Date.--The <<NOTE: 26 USC 167 note.>> amendments made
by this section shall apply to expenses paid or incurred with respect to
property placed in service in taxable years beginning after December 31,
2005.
SEC. 208. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CERTAIN CAPITAL
EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL ISSUE BONDS.
(a) In General.--Section 144(a)(4)(G) is amended by striking
``September 30, 2009'' and inserting ``December 31, 2006''.
(b) Conforming Amendment.--Section 144(a)(4)(F) is amended by
striking ``September 30, 2009'' and inserting ``December 31, 2006''.
SEC. 209. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED CONTINUING
CARE FACILITIES.
(a) In General.--Section 7872 is amended by redesignating subsection
(h) as subsection (i) and inserting after subsection (g) the following
new subsection:
[[Page 120 STAT. 352]]
``(h) Exception for Loans to Qualified Continuing Care Facilities.--
``(1) In general.--This section shall not apply for any
calendar year to any below-market loan owed by a facility which
on the last day of such year is a qualified continuing care
facility, if such loan was made pursuant to a continuing care
contract and if the lender (or the lender's spouse) attains age
62 before the close of such year.
``(2) Continuing care contract.--For purposes of this
section, the term `continuing care contract' means a written
contract between an individual and a qualified continuing care
facility under which--
``(A) the individual or individual's spouse may use
a qualified continuing care facility for their life or
lives,
``(B) the individual or individual's spouse will be
provided with housing, as appropriate for the health of
such individual or individual's spouse--
``(i) in an independent living unit (which has
additional available facilities outside such unit
for the provision of meals and other personal
care), and
``(ii) in an assisted living facility or a
nursing facility, as is available in the
continuing care facility, and
``(C) the individual or individual's spouse will be
provided assisted living or nursing care as the health
of such individual or individual's spouse requires, and
as is available in the continuing care facility.
The <<NOTE: Guidelines.>> Secretary shall issue guidance which
limits such term to contracts which provide only facilities,
care, and services described in this paragraph.
``(3) Qualified continuing care facility.--
``(A) In general.--For purposes of this section, the
term `qualified continuing care facility' means 1 or
more facilities--
``(i) which are designed to provide services
under continuing care contracts,
``(ii) which include an independent living
unit, plus an assisted living or nursing facility,
or both, and
``(iii) substantially all of the independent
living unit residents of which are covered by
continuing care contracts.
``(B) Nursing homes excluded.--The term `qualified
continuing care facility' shall not include any facility
which is of a type which is traditionally considered a
nursing home.
``(4) Termination.--This subsection shall not apply to any
calendar year after 2010.''.
(b) Conforming Amendments.--
(1) Section 7872(g) is <<NOTE: 26 USC 7872.>> amended by
adding at the end the following new paragraph:
``(6) Suspension of application.--Paragraph (1) shall not
apply for any calendar year to which subsection (h) applies.''.
(2) Section 142(d)(2)(B) is amended by striking ``Section
7872(g)'' and inserting ``Subsections (g) and (h) of section
7872''.
(c) Effective Date.--The <<NOTE: 26 USC 142 note.>> amendment made
by this section shall apply to calendar years beginning after December
31, 2005, with respect to loans made before, on, or after such date.
[[Page 120 STAT. 353]]
TITLE III--ALTERNATIVE MINIMUM TAX RELIEF
SEC. 301. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR 2006.
(a) In General.--Section <<NOTE: 26 USC 55.>> 55(d)(1) (relating to
exemption amount for taxpayers other than corporations) is amended--
(1) by striking ``$58,000'' and all that follows through
``2005'' in subparagraph (A) and inserting ``$62,550 in the case
of taxable years beginning in 2006'', and
(2) by striking ``$40,250'' and all that follows through
``2005'' in subparagraph (B) and inserting ``$42,500 in the case
of taxable years beginning in 2006''.
(b) Effective Date.--The <<NOTE: 26 USC 55 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2005.
SEC. 302. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR
AND ALTERNATIVE MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``2005'' in the heading thereof and
inserting ``2006'', and
(2) by striking ``or 2005'' and inserting ``2005, or 2006''.
(b) Effective Date.--The <<NOTE: 26 USC 26 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2005.
TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS
SEC. 401. <<NOTE: 26 USC 6655 note.>> TIME FOR PAYMENT OF CORPORATE
ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code of 1986--
(1) in the case of a corporation with assets of not less
than $1,000,000,000 (determined as of the end of the preceding
taxable year)--
(A) the amount of any required installment of
corporate estimated tax which is otherwise due in July,
August, or September of 2006 shall be 105 percent of
such amount,
(B) the amount of any required installment of
corporate estimated tax which is otherwise due in July,
August, or September of 2012 shall be 106.25 percent of
such amount,
(C) the amount of any required installment of
corporate estimated tax which is otherwise due in July,
August, or September of 2013 shall be 100.75 percent of
such amount, and
(D) the amount of the next required installment
after an installment referred to in subparagraph (A),
(B), or (C) shall be appropriately reduced to reflect
the amount of the increase by reason of such
subparagraph,
(2) 20.5 percent of the amount of any required installment
of corporate estimated tax which is otherwise due in September
2010 shall not be due until October 1, 2010, and
[[Page 120 STAT. 354]]
(3) 27.5 percent of the amount of any required installment
of corporate estimated tax which is otherwise due in September
2011 shall not be due until October 1, 2011.
TITLE V--REVENUE OFFSET PROVISIONS
SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE
CORPORATIONS.
(a) In General.--Section <<NOTE: 26 USC 163.>> 163(j) (relating to
limitation on deduction for interest on certain indebtedness) is amended
by redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(8) Treatment of corporate partners.--Except to the extent
provided by regulations, in applying this subsection to a
corporation which owns (directly or indirectly) an interest in a
partnership--
``(A) such corporation's distributive share of
interest income paid or accrued to such partnership
shall be treated as interest income paid or accrued to
such corporation,
``(B) such corporation's distributive share of
interest paid or accrued by such partnership shall be
treated as interest paid or accrued by such corporation,
and
``(C) such corporation's share of the liabilities of
such partnership shall be treated as liabilities of such
corporation.''.
(b) Additional Regulatory Authority.--Section 163(j)(9) (relating to
regulations), as redesignated by subsection (a), is amended by striking
``and'' at the end of subparagraph (B), by striking the period at the
end of subparagraph (C) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(D) regulations providing for the reallocation of
shares of partnership indebtedness, or distributive
shares of the partnership's interest income or interest
expense.''.
(c) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendments made
by this section shall apply to taxable years beginning on or after the
date of the enactment of this Act.
SEC. 502. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.
(a) In General.--Section 6049(b)(2) (relating to exceptions) is
amended by striking subparagraph (B) and by redesignating subparagraphs
(C) and (D) as subparagraphs (B) and (C), respectively.
(b) Conforming Amendment.--Section 6049(b)(2)(C), as redesignated by
subsection (a), is amended by striking ``subparagraph (C)'' and
inserting ``subparagraph (B)''.
(c) Effective Date.--The <<NOTE: 26 USC 6049 note.>> amendments made
by this section shall apply to interest paid after December 31, 2005.
SEC. 503. 5-YEAR AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES
FOR CERTAIN MAJOR INTEGRATED OIL COMPANIES.
(a) In General.--Section 167(h) (relating to amortization of
geological and geophysical expenditures) is amended by adding at the end
the following new paragraph:
[[Page 120 STAT. 355]]
``(5) Special rule for major integrated oil companies.--
``(A) In general.--In <<NOTE: Applicability.>> the
case of a major integrated oil company, paragraphs (1)
and (4) shall be applied by substituting `5-year' for
`24 month'.
``(B) Major integrated oil company.--For purposes of
this paragraph, the term `major integrated oil company'
means, with respect to any taxable year, a producer of
crude oil--
``(i) which has an average daily worldwide
production of crude oil of at least 500,000
barrels for the taxable year,
``(ii) which had gross receipts in excess of
$1,000,000,000 for its last taxable year ending
during calendar year 2005, and
``(iii) to which subsection (c) of section
613A does not apply by reason of paragraph (4) of
section 613A(d), determined--
``(I) by substituting `15 percent'
for `5 percent' each place it occurs in
paragraph (3) of section 613A(d), and
``(II) without regard to whether
subsection (c) of section 613A does not
apply by reason of paragraph (2) of
section 613A(d).
For purposes of <<NOTE: Applicability.>> clauses (i) and
(ii), all persons treated as a single employer under
subsections (a) and (b) of section 52 shall be treated
as 1 person and, in case of a short taxable year, the
rule under section 448(c)(3)(B) shall apply.''.
(b) Effective Date.--The <<NOTE: 26 USC 167 note.>> amendment made
by this section shall apply to amounts paid or incurred after the date
of the enactment of this Act.
SEC. 504. APPLICATION OF FIRPTA TO REGULATED INVESTMENT COMPANIES.
(a) In General.--Subclause (II) of <<NOTE: 26 USC 897.>> section
897(h)(4)(A)(i) (defining qualified investment entity) is amended by
inserting ``which is a United States real property holding corporation
or which would be a United States real property holding corporation if
the exceptions provided in subsections (c)(3) and (h)(2) did not apply
to interests in any real estate investment trust or regulated investment
company'' after ``regulated investment company''.
(b) Effective Date.--The <<NOTE: 26 USC 897 note.>> amendment made
by this section shall take effect as if included in the provisions of
section 411 of the American Jobs Creation Act of 2004 to which it
relates.
SEC. 505. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.
(a) Qualified Investment Entity.--
(1) In general.--Section 897(h)(1) is amended--
(A) by striking ``a nonresident alien individual or
a foreign corporation'' in the first sentence and
inserting ``a nonresident alien individual, a foreign
corporation, or other qualified investment entity'',
(B) by striking ``such nonresident alien individual
or foreign corporation'' in the first sentence and
inserting ``such nonresident alien individual, foreign
corporation, or other qualified investment entity'', and
[[Page 120 STAT. 356]]
(C) by striking the second sentence and inserting
the following new sentence: ``Notwithstanding the
preceding sentence, any distribution by a qualified
investment entity to a nonresident alien individual or a
foreign corporation 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 such individual or
corporation did not own more than 5 percent of such
class of stock at any time during the 1-year period
ending on the date of such distribution.''.
(2) Exception to termination of application of section 897
rules to regulated investment companies.--Clause (ii) of section
897(h)(4)(A) is <<NOTE: 26 USC 897.>> amended by adding at the
end the following new sentence: ``Notwithstanding the preceding
sentence, an entity described in clause (i)(II) shall be treated
as a qualified investment entity for purposes of applying
paragraphs (1) and (5) and section 1445 with respect to any
distribution by the entity to a nonresident alien individual or
a foreign corporation which is attributable directly or
indirectly to a distribution to the entity from a real estate
investment trust.''.
(b) Withholding on Distributions Treated as Gain From United States
Real Property Interests.--Section 1445(e) (relating to special rules for
distributions, etc. by corporations, partnerships, trusts, or estates)
is amended by redesignating paragraph (6) as paragraph (7) and by
inserting after paragraph (5) the following new paragraph:
``(6) Distributions by regulated investment companies and
real estate investment trusts.--If any portion of a distribution
from a qualified investment entity (as defined in section
897(h)(4)) to a nonresident alien individual or a foreign
corporation is treated under section 897(h)(1) as gain realized
by such individual or corporation from the sale or exchange of a
United States real property interest, the qualified investment
entity shall deduct and withhold under subsection (a) a tax
equal to 35 percent (or, to the extent provided in regulations,
15 percent (20 percent in the case of taxable years beginning
after December 31, 2010)) of the amount so treated.''.
(c) Treatment of Certain Distributions as Dividends.--
(1) In general.--Section 852(b)(3) (relating to capital
gains) is amended by adding at the end the following new
subparagraph:
``(E) Certain distributions.--In the case of a
distribution to which section 897 does not apply by
reason of the second sentence of section 897(h)(1), the
amount of such distribution which would be included in
computing long-term capital gains for the 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 regulated
investment company.''.
(2) Conforming amendment.--Section 871(k)(2) (relating to
short-term capital gain dividends) is amended by adding at the
end the following new subparagraph:
[[Page 120 STAT. 357]]
``(E) Certain distributions.--In the case of a
distribution to which section 897 does not apply by
reason of the second sentence of section 897(h)(1), the
amount which would be treated as a short-term capital
gain dividend to the shareholder (without regard to this
subparagraph)--
``(i) shall not be treated as a short-term
capital gain dividend, and
``(ii) shall be included in such shareholder's
gross income as a dividend from the regulated
investment company.''.
(d) Effective Dates.--The <<NOTE: 26 USC 852 note.>> amendments made
by this section shall apply to taxable years of qualified investment
entities beginning after December 31, 2005, except that no amount shall
be required to be withheld under section 1441, 1442, or 1445 of the
Internal Revenue Code of 1986 with respect to any distribution before
the date of the enactment of this Act if such amount was not otherwise
required to be withheld under any such section as in effect before such
amendments.
SEC. 506. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF FOREIGN
PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE
TRANSACTIONS.
(a) In General.--Section <<NOTE: 26 USC 897.>> 897(h) (relating to
special rules for certain investment entities) is amended by adding at
the end the following new paragraph:
``(5) Treatment of certain wash sale transactions.--
``(A) In general.--If an interest in a domestically
controlled qualified investment entity is disposed of in
an applicable wash sale transaction, the taxpayer shall,
for purposes of this section, be treated as having gain
from the sale or exchange of a United States real
property interest in an amount equal to the portion of
the distribution described in subparagraph (B) with
respect to such interest which, but for the disposition,
would have been treated by the taxpayer as gain from the
sale or exchange of a United States real property
interest under paragraph (1).
``(B) Applicable wash sales transaction.--For
purposes of this paragraph--
``(i) In general.--The term `applicable wash
sales transaction' means any transaction (or
series of transactions) under which a nonresident
alien individual, foreign corporation, or
qualified investment entity--
``(I) disposes of an interest in a
domestically controlled qualified
investment entity during the 30-day
period preceding the ex-dividend date of
a distribution which is to be made with
respect to the interest and any portion
of which, but for the disposition, would
have been treated by the taxpayer as
gain from the sale or exchange of a
United States real property interest
under paragraph (1), and
``(II) acquires, or enters into a
contract or option to acquire, a
substantially identical interest in such
entity during the 61-day period
beginning with the 1st day of the 30-day
period described in subclause (I).
[[Page 120 STAT. 358]]
For purposes of subclause (II), a nonresident
alien individual, foreign corporation, or
qualified investment entity shall be treated as
having acquired any interest acquired by a person
related (within the meaning of section 267(b) or
707(b)(1)) to the individual, corporation, or
entity, and any interest which such person has
entered into any contract or option to acquire.
``(ii) Application to substitute dividend and
similar payments.--Subparagraph (A) shall apply
to--
``(I) any substitute dividend
payment (within the meaning of section
861), or
``(II) any other similar payment
specified in regulations which the
Secretary determines necessary to
prevent avoidance of the purposes of
this paragraph.
The portion of any such payment treated by the
taxpayer as gain from the sale or exchange of a
United States real property interest under
subparagraph (A) by reason of this clause shall be
equal to the portion of the distribution such
payment is in lieu of which would have been so
treated but for the transaction giving rise to
such payment.
``(iii) Exception where distribution actually
received.--A transaction shall not be treated as
an applicable wash sales transaction if the
nonresident alien individual, foreign corporation,
or qualified investment entity receives the
distribution described in clause (i)(I) with
respect to either the interest which was disposed
of, or acquired, in the transaction.
``(iv) Exception for certain publicly traded
stock.--A transaction shall not be treated as an
applicable wash sales transaction if it involves
the disposition of any class of stock in a
qualified investment entity which is regularly
traded on an established securities market within
the United States but only if the nonresident
alien individual, foreign corporation, or
qualified investment entity did not own more than
5 percent of such class of stock at any time
during the 1-year period ending on the date of the
distribution described in clause (i)(I).''.
(b) No Withholding Required.--Section <<NOTE: 26 USC 1445.>> 1445(b)
(relating to exemptions) is amended by adding at the end the following
new paragraph:
``(8) Applicable wash sales transactions.--No person shall
be required to deduct and withhold any amount under subsection
(a) with respect to a disposition which is treated as a
disposition of a United States real property interest solely by
reason of section 897(h)(5).''.
(c) Effective Date.--The <<NOTE: 26 USC 897 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2005, except that such amendments shall not apply to any
distribution, or substitute dividend payment, occurring before the date
that is 30 days after the date of the enactment of this Act.
SEC. 507. SECTION 355 NOT TO APPLY TO DISTRIBUTIONS INVOLVING
DISQUALIFIED INVESTMENT COMPANIES.
(a) In General.--
[[Page 120 STAT. 359]]
Section <<NOTE: 26 USC 355.>> 355 (relating to distributions
of stock and securities of a controlled corporation) is amended
by adding at the end the following new subsection:
``(g) Section Not to Apply to Distributions Involving Disqualified
Investment Corporations.--
``(1) In general.--This section (and so much of section 356
as relates to this section) shall not apply to any distribution
which is part of a transaction if--
``(A) either the distributing corporation or
controlled corporation is, immediately after the
transaction, a disqualified investment corporation, and
``(B) any person holds, immediately after the
transaction, a 50-percent or greater interest in any
disqualified investment corporation, but only if such
person did not hold such an interest in such corporation
immediately before the transaction.
``(2) Disqualified investment corporation.--For purposes of
this subsection--
``(A) In general.--The term `disqualified investment
corporation' means any distributing or controlled
corporation if the fair market value of the investment
assets of the corporation is--
``(i) in the case of distributions after the
end of the 1-year period beginning on the date of
the enactment of this subsection, \2/3\ or more of
the fair market value of all assets of the
corporation, and
``(ii) in the case of distributions during
such 1-year period, \3/4\ or more of the fair
market value of all assets of the corporation.
``(B) Investment assets.--
``(i) In general.--Except as otherwise
provided in this subparagraph, the term
`investment assets' means--
``(I) cash,
``(II) any stock or securities in a
corporation,
``(III) any interest in a
partnership,
``(IV) any debt instrument or other
evidence of indebtedness,
``(V) any option, forward or futures
contract, notional principal contract,
or derivative,
``(VI) foreign currency, or
``(VII) any similar asset.
``(ii) Exception for assets used in active
conduct of certain financial trades or
businesses.--Such term shall not include any asset
which is held for use in the active and regular
conduct of--
``(I) a lending or finance business
(within the meaning of section
954(h)(4)),
``(II) a banking business through a
bank (as defined in section 581), a
domestic building and loan association
(within the meaning of section
7701(a)(19)), or any similar institution
specified by the Secretary, or
``(III) an insurance business if the
conduct of the business is licensed,
authorized, or regulated by an
applicable insurance regulatory body.
[[Page 120 STAT. 360]]
This clause <<NOTE: Applicability.>> shall only
apply with respect to any business if
substantially all of the income of the business is
derived from persons who are not related (within
the meaning of section 267(b) or 707(b)(1)) to the
person conducting the business.
``(iii) Exception for securities marked to
market.--Such term shall not include any security
(as defined in section 475(c)(2)) which is held by
a dealer in securities and to which section 475(a)
applies.
``(iv) Stock or securities in a 20-percent
controlled entity.--
``(I) In general.--Such term shall
not include any stock and securities in,
or any asset described in subclause (IV)
or (V) of clause (i) issued by, a
corporation which is a 20-percent
controlled entity with respect to the
distributing or controlled corporation.
``(II) Look-thru rule.--The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any 20-
percent controlled entity.
``(III) <<NOTE: Applicability.>> 20-
percent controlled entity.--For purposes
of this clause, the term `20-percent
controlled entity' means, with respect
to any distributing or controlled
corporation, any corporation with
respect to which the distributing or
controlled corporation owns directly or
indirectly stock meeting the
requirements of section 1504(a)(2),
except that such section shall be
applied by substituting `20 percent' for
`80 percent' and without regard to stock
described in section 1504(a)(4).
``(v) Interests in certain partnerships.--
``(I) In general.--Such term shall
not include any interest in a
partnership, or any debt instrument or
other evidence of indebtedness, issued
by the partnership, if 1 or more of the
trades or businesses of the partnership
are (or, without regard to the 5-year
requirement under subsection (b)(2)(B),
would be) taken into account by the
distributing or controlled corporation,
as the case may be, in determining
whether the requirements of subsection
(b) are met with respect to the
distribution.
``(II) Look-thru rule.--The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any
partnership described in subclause (I).
``(3) 50-percent or greater interest.--For purposes of this
subsection--
``(A) In general.--The term `50-percent or greater
interest' has the meaning given such term by subsection
(d)(4).
``(B) Attribution rules.--
The <<NOTE: Applicability.>> rules of section 318 shall
apply for purposes of determining ownership of stock for
purposes of this paragraph.
[[Page 120 STAT. 361]]
``(4) Transaction.--For purposes of this subsection, the
term `transaction' includes a series of transactions.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out, or prevent the
avoidance of, the purposes of this subsection, including
regulations--
``(A) to carry out, or prevent the avoidance of, the
purposes of this subsection in cases involving--
``(i) the use of related persons,
intermediaries, pass-thru entities, options, or
other arrangements, and
``(ii) the treatment of assets unrelated to
the trade or business of a corporation as
investment assets if, prior to the distribution,
investment assets were used to acquire such
unrelated assets,
``(B) which in appropriate cases exclude from the
application of this subsection a distribution which does
not have the character of a redemption which would be
treated as a sale or exchange under section 302, and
``(C) which modify the application of the
attribution rules applied for purposes of this
subsection.''.
(b) Effective <<NOTE: 26 USC 355 note.>> Dates.--
(1) In general.--The amendments made by this section shall
apply to distributions after the date of the enactment of this
Act.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution pursuant to a transaction
which is--
(A) made pursuant to an agreement which was binding
on such date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
SEC. 508. LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING
REQUIREMENTS.
(a) Strengthened Reasonable Expectation Requirement.--Subparagraph
(A) of <<NOTE: 26 USC 149.>> section 149(f)(2) (relating to reasonable
expectation requirement) is amended to read as follows:
``(A) In general.--The requirements of this
paragraph are met with respect to an issue if the issuer
reasonably expects that--
``(i) as of the close of the 1-year period
beginning on the date of issuance of the issue, at
least 30 percent of the net proceeds of the issue
(as of the close of such period) will have been
used directly or indirectly to make or finance
loans to ultimate borrowers, and
``(ii) as of the close of the 3-year period
beginning on such date of issuance, at least 95
percent of the net proceeds of the issue (as of
the close of such period) will have been so
used.''.
(b) Written Loan Commitment and Redemption Requirements.--Section
149(f) (relating to treatment of certain pooled financing bonds) is
amended by redesignating paragraphs (4) and (5) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (3) the following
new paragraphs:
[[Page 120 STAT. 362]]
``(4) Written loan commitment requirement.--
``(A) In general.--The requirement of this paragraph
is met with respect to an issue if the issuer receives
prior to issuance written loan commitments identifying
the ultimate potential borrowers of at least 30 percent
of the net proceeds of such issue.
``(B) Exception.--Subparagraph (A) shall not apply
with respect to any issuer which--
``(i) is a State (or an integral part of a
State) issuing pooled financing bonds to make or
finance loans to subordinate governmental units of
such State, or
``(ii) is a State-created entity providing
financing for water-infrastructure projects
through the federally-sponsored State revolving
fund program.
``(5) Redemption requirement.--The requirement of this
paragraph is met if to the extent that less than the percentage
of the proceeds of an issue required to be used under clause (i)
or (ii) of paragraph (2)(A) is used by the close of the period
identified in such clause, the issuer uses an amount of proceeds
equal to the excess of--
``(A) the amount required to be used under such
clause, over
``(B) the amount actually used by the close of such
period,
to redeem outstanding bonds within 90 days after the end of such
period.''.
(c) Elimination of Disregard of Pooled Bonds in Determining
Eligibility for Small Issuer Exception to Arbitrage Rebate.--
Section <<NOTE: 26 USC 148.>> 148(f)(4)(D)(ii) (relating to aggregation
of issuers) is amended by striking subclause (II) and by redesignating
subclauses (III) and (IV) as subclauses (II) and (III), respectively.
(d) Conforming Amendments.--
(1) Section 149(f)(1) is amended by striking ``paragraphs
(2) and (3)'' and inserting ``paragraphs (2), (3), (4), and
(5)''.
(2) Section 149(f)(7)(B), as redesignated by subsection (b),
is amended by striking ``paragraph (4)(A)'' and inserting
``paragraph (6)(A)''.
(3) Section 54(l)(2) is amended by striking ``section
149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
(e) Effective Date.--The <<NOTE: 26 USC 54 note.>> amendments made
by this section shall apply to bonds issued after the date of the
enactment of this Act.
SEC. 509. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-
COMPROMISE.
(a) In General.--Section 7122 (relating to compromises) is amended
by redesignating subsections (c) and (d) as subsections (d) and (e),
respectively, and by inserting after subsection (b) the following new
subsection:
``(c) Rules for Submission of Offers-in-Compromise.--
``(1) Partial payment required with submission.--
``(A) Lump-sum offers.--
``(i) In general.--The submission of any lump-
sum offer-in-compromise shall be accompanied by
the payment of 20 percent of the amount of such
offer.
[[Page 120 STAT. 363]]
``(ii) Lump-sum offer-in-compromise.--For
purposes of this section, the term `lump-sum
offer-in-compromise' means any offer of payments
made in 5 or fewer installments.
``(B) Periodic payment offers.--
``(i) In general.--The submission of any
periodic payment offer-in-compromise shall be
accompanied by the payment of the amount of the
first proposed installment.
``(ii) Failure to make installment during
pendency of offer.--Any failure to make an
installment (other than the first installment) due
under such offer-in-compromise during the period
such offer is being evaluated by the Secretary may
be treated by the Secretary as a withdrawal of
such offer-in-compromise.
``(2) Rules of application.--
``(A) Use of payment.--The application of any
payment made under this subsection to the assessed tax
or other amounts imposed under this title with respect
to such tax may be specified by the taxpayer.
``(B) Application of user fee.--In the case of any
assessed tax or other amounts imposed under this title
with respect to such tax which is the subject of an
offer-in-compromise to which this subsection applies,
such tax or other amounts shall be reduced by any user
fee imposed under this title with respect to such offer-
in-compromise.
``(C) Waiver authority.--The Secretary may issue
regulations waiving any payment required under paragraph
(1) in a manner consistent with the practices
established in accordance with the requirements under
subsection (d)(3).''.
(b) Additional Rules Relating to Treatment of Offers.--
(1) Unprocessable offer if payment requirements are not
met.--Paragraph (3) of <<NOTE: 26 USC 7122.>> section 7122(d)
(relating to standards for evaluation of offers), as
redesignated by subsection (a), is amended by striking ``; and''
at the end of subparagraph (A) and inserting a comma, by
striking the period at the end of subparagraph (B) and inserting
``, and'', and by adding at the end the following new
subparagraph:
``(C) any offer-in-compromise which does not meet
the requirements of subparagraph (A)(i) or (B)(i), as
the case may be, of subsection (c)(1) may be returned to
the taxpayer as unprocessable.''.
(2) Deemed acceptance of offer not rejected within certain
period.--Section 7122, as amended by subsection (a), is amended
by adding at the end the following new subsection:
``(f) Deemed Acceptance of Offer Not Rejected Within Certain
Period.--Any offer-in-compromise submitted under this section shall be
deemed to be accepted by the Secretary if such offer is not rejected by
the Secretary before the date which is 24 months after the date of the
submission of such offer. For purposes of the preceding sentence, any
period during which any tax liability which is the subject of such
offer-in-compromise is in dispute in any judicial proceeding shall not
be taken into account in determining the expiration of the 24-month
period.''.
(c) Conforming Amendment.--Section 6159(f) is amended by striking
``section 7122(d)'' and inserting ``section 7122(e)''.
[[Page 120 STAT. 364]]
(d) Effective Date.--The <<NOTE: 26 USC 6159 note.>> amendments made
by this section shall apply to offers-in-compromise submitted on and
after the date which is 60 days after the date of the enactment of this
Act.
SEC. 510. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS
TAXED AS IF PARENT'S INCOME.
(a) In General.--Section <<NOTE: 26 USC 1.>> 1(g)(2)(A) (relating to
child to whom subsection applies) is amended by striking ``age 14'' and
inserting ``age 18''.
(b) Treatment of Distributions From Qualified Disability Trusts.--
Section 1(g)(4) (relating to net unearned income) is amended by adding
at the end the following new subparagraph:
``(C) Treatment of distributions from qualified
disability trusts.--For purposes of this subsection, in
the case of any child who is a beneficiary of a
qualified disability trust (as defined in section
642(b)(2)(C)(ii)), any amount included in the income of
such child under sections 652 and 662 during a taxable
year shall be considered earned income of such child for
such taxable year.''.
(c) Conforming Amendment.--Section 1(g)(2) 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 inserting after
subparagraph (B) the following new subparagraph:
``(C) such child does not file a joint return for
the taxable year.''.
(d) Effective Date.--The <<NOTE: 26 USC 1 note.>> amendments made by
this section shall apply to taxable years beginning after December 31,
2005.
SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY
GOVERNMENT ENTITIES.
(a) In General.--Section 3402 is amended by adding at the end the
following new subsection:
``(t) Extension of Withholding to Certain Payments Made by
Government Entities.--
``(1) General rule.--The Government of the United States,
every State, every political subdivision thereof, and every
instrumentality of the foregoing (including multi-State
agencies) making any payment to any person providing any
property or services (including any payment made in connection
with a government voucher or certificate program which functions
as a payment for property or services) shall deduct and withhold
from such payment a tax in an amount equal to 3 percent of such
payment.
``(2) Property and services subject to withholding.--
Paragraph (1) shall not apply to any payment--
``(A) except as provided in subparagraph (B), which
is subject to withholding under any other provision of
this chapter or chapter 3,
``(B) which is subject to withholding under section
3406 and from which amounts are being withheld under
such section,
``(C) of interest,
``(D) for real property,
``(E) to any governmental entity subject to the
requirements of paragraph (1), any tax-exempt entity, or
any foreign government,
[[Page 120 STAT. 365]]
``(F) made pursuant to a classified or confidential
contract described in section 6050M(e)(3),
``(G) made by a political subdivision of a State (or
any instrumentality thereof) which makes less than
$100,000,000 of such payments annually,
``(H) which is in connection with a public
assistance or public welfare program for which
eligibility is determined by a needs or income test, and
``(I) to any government employee not otherwise
excludable with respect to their services as an
employee.
``(3) Coordination with other sections.--For purposes of
sections 3403 and 3404 and for purposes of so much of subtitle F
(except section 7205) as relates to this chapter, payments to
any person for property or services which are subject to
withholding shall be treated as if such payments were wages paid
by an employer to an employee.''.
(b) Effective Date.--The <<NOTE: 26 USC 3402 note.>> amendment made
by this section shall apply to payments made after December 31, 2010.
SEC. 512. CONVERSIONS TO ROTH IRAS.
(a) Repeal of Income Limitations.--
(1) In general.--Paragraph (3) of <<NOTE: 26 USC
408A.>> section 408A(c) (relating to limits based on modified
adjusted gross income) is amended by striking subparagraph (B)
and redesignating subparagraphs (C) and (D) as subparagraphs (B)
and (C), respectively.
(2) Conforming amendment.--Clause (i) of section
408A(c)(3)(B) (as redesignated by paragraph (1)) is amended by
striking ``except that--'' and all that follows and inserting
``except that any amount included in gross income under
subsection (d)(3) shall not be taken into account, and''.
(b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA.--
(1) In general.--Clause (iii) of section 408A(d)(3)(A)
(relating to rollovers from an IRA other than a Roth IRA) is
amended to read as follows:
``(iii) unless the taxpayer elects not to have
this clause apply, any amount required to be
included in gross income for any taxable year
beginning in 2010 by reason of this paragraph
shall be so included ratably over the 2-taxable-
year period beginning with the first taxable year
beginning in 2011.''.
(2) Conforming amendments.--
(A) Clause (i) of section 408A(d)(3)(E) is amended
to read as follows:
``(i) Acceleration of inclusion.--
``(I) In general.--The amount
otherwise required to be included in
gross income for any taxable year
beginning in 2010 or the first taxable
year in the 2-year period under
subparagraph (A)(iii) shall be increased
by the aggregate distributions from Roth
IRAs for such taxable year which are
allocable under paragraph (4) to the
portion of such qualified rollover
contribution required to be included in
gross income under subparagraph (A)(i).
``(II) Limitation on aggregate
amount included.--The amount required to
be included
[[Page 120 STAT. 366]]
in gross income for any taxable year
under subparagraph (A)(iii) shall not
exceed the aggregate amount required to
be included in gross income under
subparagraph (A)(iii) for all taxable
years in the 2-year period (without
regard to subclause (I)) reduced by
amounts included for all preceding
taxable years.''.
(B) The heading for <<NOTE: 26 USC 408A.>> section
408A(d)(3)(E) is amended by striking ``4-year'' and
inserting ``2-year''.
(c) Effective Date.--The <<NOTE: 26 USC 408A note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2009.
SEC. 513. REPEAL OF FSC/ETI BINDING CONTRACT RELIEF.
(a) FSC Provisions.--Paragraph (1) of section 5(c) of the FSC Repeal
and Extraterritorial Income Exclusion Act <<NOTE: 26 USC 56 note.>> of
2000 is amended by striking ``which occurs--'' and all that follows and
inserting ``which occurs before January 1, 2002.''.
(b) ETI Provisions.--Section 101 of the American Jobs Creation Act
of 2004 is <<NOTE: 26 USC 114 note.>> amended by striking subsection
(f).
(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.
SEC. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION TAKEN INTO
ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.
(a) In General.--Paragraph (2) of section 199(b) (relating to W-2
wages) is amended to read as follows:
``(2) W-2 wages.--For purposes of this section--
``(A) In general.--The term `W-2 wages' means, with
respect to any person for any taxable year of such
person, the sum of the amounts described in paragraphs
(3) and (8) of section 6051(a) paid by such person with
respect to employment of employees by such person during
the calendar year ending during such taxable year.
``(B) Limitation to wages attributable to domestic
production.--Such term shall not include any amount
which is not properly allocable to domestic production
gross receipts for purposes of subsection (c)(1).
``(C) Return requirement.--Such term shall not
include any amount which is not properly included in a
return filed with the Social Security Administration on
or before the 60th day after the due date (including
extensions) for such return.''.
(b) Simplification of Rules for Determining W-2 Wages of Partners
and S Corporation Shareholders.--
(1) In general.--Clause (iii) of section 199(d)(1)(A) is
amended to read as follows:
``(iii) each partner or shareholder shall be
treated for purposes of subsection (b) as having
W-2 wages for the taxable year in an amount equal
to such person's allocable share of the W-2 wages
of the partnership or S corporation for the
taxable year (as determined under regulations
prescribed by the Secretary).''.
(2) Conforming amendment.--Paragraph (2) of section 199(a)
is amended by striking ``and subsection (d)(1)''.
[[Page 120 STAT. 367]]
(c) Effective Date.--The <<NOTE: 26 USC 199 note.>> amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING ABROAD.
(a) Inflation Adjustment of Foreign Earned Income Limitation.--
Clause (ii) of <<NOTE: 26 USC 911.>> section 911(b)(2)(D) (relating to
inflation adjustment) is amended--
(1) by striking ``2007'' and inserting ``2005'', and
(2) by striking ``2006'' in subclause (II) and inserting
``2004''.
(b) Modification of Housing Cost Amount.--
(1) Modification of housing cost floor.--Clause (i) of
section 911(c)(1)(B) is amended to read as follows:
``(i) 16 percent of the amount (computed on a
daily basis) in effect under subsection (b)(2)(D)
for the calendar year in which such taxable year
begins, multiplied by''.
(2) Maximum amount of exclusion.--
(A) In general.--Subparagraph (A) of section
911(c)(1) is amended by inserting ``to the extent such
expenses do not exceed the amount determined under
paragraph (2)'' after ``the taxable year''.
(B) Limitation.--Subsection (c) of section 911 is
amended by redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
``(2) Limitation.--
``(A) In general.--The amount determined under this
paragraph is an amount equal to the product of--
``(i) 30 percent (adjusted as may be provided
under subparagraph (B)) of the amount (computed on
a daily basis) in effect under subsection
(b)(2)(D) for the calendar year in which the
taxable year of the individual begins, multiplied
by
``(ii) the number of days of such taxable year
within the applicable period described in
subparagraph (A) or (B) of subsection (d)(1).
``(B) Regulations.--The Secretary may issue
regulations or other guidance providing for the
adjustment of the percentage under subparagraph (A)(i)
on the basis of geographic differences in housing costs
relative to housing costs in the United States.''.
(C) Conforming amendments.--
(i) Section 911(d)(4) is amended by striking
``and (c)(1)(B)(ii)'' and inserting ``,
(c)(1)(B)(ii), and (c)(2)(A)(ii)''.
(ii) Section 911(d)(7) is amended by striking
``subsection (c)(3)'' and inserting ``subsection
(c)(4)''.
(c) Rates of Tax Applicable to Nonexcluded Income.--Section 911
(relating to exclusion of certain income of citizens and residents of
the United States living abroad) is amended by redesignating subsection
(f) as subsection (g) and by inserting after subsection (e) the
following new subsection:
``(f) Determination of Tax Liability on Nonexcluded Amounts.--For
purposes of this chapter, if any amount is excluded
[[Page 120 STAT. 368]]
from the gross income of a taxpayer under subsection (a) for any taxable
year, then, notwithstanding section 1 or 55--
``(1) the tax imposed by section 1 on the taxpayer for such
taxable year shall be equal to the excess (if any) of--
``(A) the tax which would be imposed by section 1
for the taxable year if the taxpayer's taxable income
were increased by the amount excluded under subsection
(a) for the taxable year, over
``(B) the tax which would be imposed by section 1
for the taxable year if the taxpayer's taxable income
were equal to the amount excluded under subsection (a)
for the taxable year, and
``(2) the tentative minimum tax under section 55 for such
taxable year shall be equal to the excess (if any) of--
``(A) the amount which would be such tentative
minimum tax for the taxable year if the taxpayer's
taxable excess were increased by the amount excluded
under subsection (a) for the taxable year, over
``(B) the amount which would be such tentative
minimum tax for the taxable year if the taxpayer's
taxable excess were equal to the amount excluded under
subsection (a) for the taxable year.
For purposes of this subsection, the amount excluded under subsection
(a) shall be reduced by the aggregate amount of any deductions or
exclusions disallowed under subsection (d)(6) with respect to such
excluded amount.''.
(d) Effective Date.--The <<NOTE: 26 USC 911 note.>> amendments made
by this section shall apply to taxable years beginning after December
31, 2005.
SEC. 516. TAX INVOLVEMENT OF ACCOMMODATION PARTIES IN TAX SHELTER
TRANSACTIONS.
(a) Imposition of Excise Tax.--
(1) In general.--Chapter 42 (relating to private foundations
and certain other tax-exempt organizations) is amended by adding
at the end the following new subchapter:
``Subchapter F--Tax Shelter Transactions
``Sec. 4965. Excise tax on certain tax-exempt entities entering into
prohibited tax shelter transactions.
``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING INTO
PROHIBITED TAX SHELTER TRANSACTIONS.
``(a) Being a Party to and Approval of Prohibited Transactions.--
``(1) Tax-exempt entity.--
``(A) In general.--If a transaction is a prohibited
tax shelter transaction at the time any tax-exempt
entity described in paragraph (1), (2), or (3) of
subsection (c) becomes a party to the transaction, such
entity shall pay a tax for the taxable year in which the
entity becomes such a party and any subsequent taxable
year in the amount determined under subsection (b)(1).
``(B) Post-transaction determination.--If any tax-
exempt entity described in paragraph (1), (2), or (3) of
subsection (c) is a party to a subsequently listed
transaction at any time during a taxable year, such
entity shall pay
[[Page 120 STAT. 369]]
a tax for such taxable year in the amount determined
under subsection (b)(1).
``(2) Entity manager.--If any entity manager of a tax-exempt
entity approves such entity as (or otherwise causes such entity
to be) a party to a prohibited tax shelter transaction at any
time during the taxable year and knows or has reason to know
that the transaction is a prohibited tax shelter transaction,
such manager shall pay a tax for such taxable year in the amount
determined under subsection (b)(2).
``(b) Amount of Tax.--
``(1) Entity.--In the case of a tax-exempt entity--
``(A) In general.--Except as provided in
subparagraph (B), the amount of the tax imposed under
subsection (a)(1) with respect to any transaction for a
taxable year shall be an amount equal to the product of
the highest rate of tax under section 11, and the
greater of--
``(i) the entity's net income (after taking
into account any tax imposed by this subtitle
(other than by this section) with respect to such
transaction) for such taxable year which--
``(I) in the case of a prohibited
tax shelter transaction (other than a
subsequently listed transaction), is
attributable to such transaction, or
``(II) in the case of a subsequently
listed transaction, is attributable to
such transaction and which is properly
allocable to the period beginning on the
later of the date such transaction is
identified by guidance as a listed
transaction by the Secretary or the
first day of the taxable year, or
``(ii) 75 percent of the proceeds received by
the entity for the taxable year which--
``(I) in the case of a prohibited
tax shelter transaction (other than a
subsequently listed transaction), are
attributable to such transaction, or
``(II) in the case of a subsequently
listed transaction, are attributable to
such transaction and which are properly
allocable to the period beginning on the
later of the date such transaction is
identified by guidance as a listed
transaction by the Secretary or the
first day of the taxable year.
``(B) Increase in tax for certain knowing
transactions.--In the case of a tax-exempt entity which
knew, or had reason to know, a transaction was a
prohibited tax shelter transaction at the time the
entity became a party to the transaction, the amount of
the tax imposed under subsection (a)(1)(A) with respect
to any transaction for a taxable year shall be the
greater of--
``(i) 100 percent of the entity's net income
(after taking into account any tax imposed by this
subtitle (other than by this section) with respect
to the prohibited tax shelter transaction) for
such taxable year which is attributable to the
prohibited tax shelter transaction, or
[[Page 120 STAT. 370]]
``(ii) 75 percent of the proceeds received by
the entity for the taxable year which are
attributable to the prohibited tax shelter
transaction.
This subparagraph shall not apply to any prohibited tax
shelter transaction to which a tax-exempt entity became
a party on or before the date of the enactment of this
section.
``(2) Entity manager.--In the case of each entity manager,
the amount of the tax imposed under subsection (a)(2) shall be
$20,000 for each approval (or other act causing participation)
described in subsection (a)(2).
``(c) Tax-Exempt Entity.--For purposes of this section, the term
`tax-exempt entity' means an entity which is--
``(1) described in section 501(c) or 501(d),
``(2) described in section 170(c) (other than the United
States),
``(3) an Indian tribal government (within the meaning of
section 7701(a)(40)),
``(4) described in paragraph (1), (2), or (3) of section
4979(e),
``(5) a program described in section 529,
``(6) an eligible deferred compensation plan described in
section 457(b) which is maintained by an employer described in
section 4457(e)(1)(A), or
``(7) an arrangement described in section 4973(a).
``(d) Entity Manager.--For purposes of this section, the term
`entity manager' means--
``(1) in the case of an entity described in paragraph (1),
(2), or (3) of subsection (c)--
``(A) the person with authority or responsibility
similar to that exercised by an officer, director, or
trustee of an organization, and
``(B) with respect to any act, the person having
authority or responsibility with respect to such act,
and
``(2) in the case of an entity described in paragraph (4),
(5), (6), or (7) of subsection (c), the person who approves or
otherwise causes the entity to be a party to the prohibited tax
shelter transaction.
``(e) Prohibited Tax Shelter Transaction; Subsequently Listed
Transaction.--For purposes of this section--
``(1) Prohibited tax shelter transaction.--
``(A) In general.--The term `prohibited tax shelter
transaction' means--
``(i) any listed transaction, and
``(ii) any prohibited reportable transaction.
``(B) Listed transaction.--The term `listed
transaction' has the meaning given such term by section
6707A(c)(2).
``(C) Prohibited reportable transaction.--The term
`prohibited reportable transaction' means any
confidential transaction or any transaction with
contractual protection (as defined under regulations
prescribed by the Secretary) which is a reportable
transaction (as defined in section 6707A(c)(1)).
``(2) Subsequently listed transaction.--The term
`subsequently listed transaction' means any transaction to which
a tax-exempt entity is a party and which is determined by the
Secretary to be a listed transaction at any time after
[[Page 120 STAT. 371]]
the entity has become a party to the transaction. Such term
shall not include a transaction which is a prohibited reportable
transaction at the time the entity became a party to the
transaction.
``(f) Regulatory Authority.--The Secretary is authorized to
promulgate regulations which provide guidance regarding the
determination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods,
including before and after the listing of the transaction or the date
which is 90 days after the date of the enactment of this section.
``(g) Coordination With Other Taxes and Penalties.--The tax imposed
by this section is in addition to any other tax, addition to tax, or
penalty imposed under this title.''.
(2) Conforming amendment.--The table of subchapters for
chapter 42 is amended by adding at the end the following new
item:
``subchapter f. tax shelter transactions.''.
(b) Disclosure Requirements.--
(1) Disclosure by entity to the internal revenue service.--
(A) In general.--Section <<NOTE: 26 USC
6033.>> 6033(a) (relating to organizations required to
file) is amended by redesignating paragraph (2) as
paragraph (3) and by inserting after paragraph (1) the
following new paragraph:
``(2) Being a party to certain reportable transactions.--
Every tax-exempt entity described in section 4965(c) shall file
(in such form and manner and at such time as determined by the
Secretary) a disclosure of--
``(A) such entity's being a party to any prohibited
tax shelter transaction (as defined in section 4965(e)),
and
``(B) the identity of any other party to such
transaction which is known by such tax-exempt entity.''.
(B) Conforming amendment.--Section 6033(a)(1) is
amended by striking ``paragraph (2)'' and inserting
``paragraph (3)''.
(2) Disclosure by other taxpayers to the tax-exempt
entity.--Section 6011 (relating to general requirement of
return, statement, or list) is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined in
section 4965(e)(1)) shall by statement disclose to any tax-exempt entity
(as defined in section 4965(c)) which is a party to such transaction
that such transaction is such a prohibited tax shelter transaction.''.
(c) Penalty for Nondisclosure.--
(1) In general.--Section 6652(c) (relating to returns by
exempt organizations and by certain trusts) is amended by
redesignating paragraphs (3) and (4) as paragraphs (4) and (5),
respectively, and by inserting after paragraph (2) the following
new paragraph:
``(3) Disclosure under section 6033(a)(2).--
``(A) Penalty on entities.--In the case of a failure
to file a disclosure required under section 6033(a)(2),
there shall be paid by the tax-exempt entity (the entity
manager
[[Page 120 STAT. 372]]
in the case of a tax-exempt entity described in
paragraph (4), (5), (6), or (7) of section 4965(c)) $100
for each day during which such failure continues. The
maximum penalty under this subparagraph on failures with
respect to any 1 disclosure shall not exceed $50,000.
``(B) Written demand.--
``(i) In general.--The Secretary may make a
written demand on any entity or manager subject to
penalty under subparagraph (A) specifying therein
a reasonable future date by which the disclosure
shall be filed for purposes of this subparagraph.
``(ii) Failure to comply with demand.--If any
entity or manager fails to comply with any demand
under clause (i) on or before the date specified
in such demand, there shall be paid by such entity
or manager failing to so comply $100 for each day
after the expiration of the time specified in such
demand during which such failure continues. The
maximum penalty imposed under this subparagraph on
all entities and managers for failures with
respect to any 1 disclosure shall not exceed
$10,000.
``(C) Definitions.--Any term used in this section
which is also used in section 4965 shall have the
meaning given such term under section 4965.''.
(2) Conforming amendment.--Paragraph (1) of section 6652(c)
is <<NOTE: 26 USC 6652.>> amended by striking ``6033'' each
place it appears in the text and heading thereof and inserting
``6033(a)(1)''.
(d) Effective <<NOTE: 26 USC 4965 note.>> Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after the date of the enactment of this Act, with respect
to transactions before, on, or after such date, except that no
tax under section 4965(a) of the Internal Revenue Code of 1986
(as added by this section) shall apply with respect to income or
proceeds that are properly allocable to any period ending on or
before the date which is 90 days after such date of enactment.
[[Page 120 STAT. 373]]
(2) Disclosure.--The amendments made by subsections (b) and
(c) shall apply to disclosures the due date for which are after
the date of the enactment of this Act.
Approved May 17, 2006.
LEGISLATIVE HISTORY--H.R. 4297 (S. 2020):
---------------------------------------------------------------------------
HOUSE REPORTS: Nos. 109-304 (Comm. on Ways and Means) and 109-455 (Comm.
of Conference).
CONGRESSIONAL RECORD:
Vol. 151 (2005):
Dec. 8, considered and passed House.
Vol. 152 (2006):
Feb. 1, 2, considered and passed
Senate, amended.
May 10, House agreed to conference
report.
May 11, Senate agreed to conference
report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 42 (2006):
May 17, Presidential remarks.
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