To amend the Internal Revenue Code of 1986 to extend certain expiring provisions, to provide certain hurricane-related tax relief, and for other purposes.

Summary: Tax Revision Act of 2005 - Amends the Internal Revenue Code to extend through 2006 the: (1) election to include combat zone compensation as earned income for purposes of calculating the earned income tax credit; (2) increased cover over (payment) of distilled spirits excise tax to the Treasuries of Puerto Rico and the Virgin Islands; (3) authority for certain Internal Revenue Service (IRS) undercover investigative operations; and (4) authority to disclose tax return information for combined employment tax reporting, for combating terrorist activities, and for student loan repayments.

Extends eligibility for the tax deduction for domestic production activities to such activities in Puerto Rico.

Grants a limited federal guarantee of bonds issued by the states of Alabama, Louisiana, or Mississippi for Hurricane Katrina relief.

Allows a taxpayer election to base eligibility for the earned income and child tax credit on earned income reported in a year preceding the year of Hurricanes Rita and Wilma. Authorizes the Secretary of the Treasury to adjust the application of tax laws to prevent taxpayers affected by Hurricanes Rita or Wilma from losing certain tax benefits.

Expresses the sense of Congress that the Secretary should designate a series of bonds as Gulf Coast Recovery Bonds in response to Hurricanes Katrina, Rita, and Wilma.

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Revision Act 
of 2005''.
    (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 for this Act is as 
follows:

Sec. 1. Short title, etc.
Sec. 2. Election to include combat pay as earned income for purposes of 
                            earned income credit.
Sec. 3. Cover over of tax on distilled spirits.
Sec. 4. Authority for undercover operations.
Sec. 5. Disclosures of certain tax return information.
Sec. 6. Deduction allowable with respect to income attributable to 
                            domestic production activities in Puerto 
                            Rico.
Sec. 7. Federal guarantee of certain State bonds.
Sec. 8. Certain tax relief related to Hurricanes Rita and Wilma.
Sec. 9. Gulf Coast Recovery Bonds.

SEC. 2. ELECTION TO INCLUDE COMBAT PAY AS EARNED INCOME FOR PURPOSES OF 
              EARNED INCOME CREDIT.

    (a) In General.--Subclause (II) of section 32(c)(2)(B)(vi) is 
amended by striking ``January 1, 2006'' and inserting ``January 1, 
2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 3. COVER OVER OF TAX ON DISTILLED SPIRITS.

    (a) In General.--Paragraph (1) of section 7652(f) (relating to 
limitation on cover over of tax on distilled spirits) is amended by 
striking ``January 1, 2006'' and inserting ``January 1, 2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to articles brought into the United States after December 31, 
2005.

SEC. 4. AUTHORITY FOR UNDERCOVER OPERATIONS.

    Paragraph (6) of section 7608(c) (relating to application of 
section) is amended by striking ``January 1, 2006'' both places is 
appears and inserting ``January 1, 2007''.

SEC. 5. DISCLOSURES OF CERTAIN TAX RETURN INFORMATION.

    (a) Disclosures to Facilitate Combined Employment Tax Reporting.--
            (1) In general.--Subparagraph (B) of section 6103(d)(5) 
        (relating to termination) is amended by striking ``December 31, 
        2005'' and inserting ``December 31, 2006''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to disclosures after December 31, 2005.
    (b) Disclosures Relating to Terrorist Activities.--
            (1) In general.--Clause (iv) of section 6103(i)(3)(C) and 
        subparagraph (E) of section 6103(i)(7) are each amended by 
        striking ``December 31, 2005'' and inserting ``December 31, 
        2006''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to disclosures after December 31, 2005.
    (c) Disclosures Relating to Student Loans.--
            (1) In general.--Subparagraph (D) of section 6103(l)(13) 
        (relating to termination) is amended by striking ``December 31, 
        2005'' and inserting ``December 31, 2006''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to requests made after December 31, 2005.

SEC. 6. DEDUCTION ALLOWABLE WITH RESPECT TO INCOME ATTRIBUTABLE TO 
              DOMESTIC PRODUCTION ACTIVITIES IN PUERTO RICO.

    (a) In General.--Subsection (d) of section 199 (relating to 
definitions and special rules) is amended by redesignating paragraph 
(7) as paragraph (8) and by inserting after paragraph (6) the following 
new paragraph:
            ``(7) Treatment of activities in puerto rico.--In the case 
        of any taxpayer with gross receipts for any taxable year from 
        sources within the Commonwealth of Puerto Rico, if all of such 
        receipts are taxable under section 1 or 11 for such taxable 
        year, then for purposes of determining the domestic production 
        gross receipts of such taxpayer for such taxable year under 
        subsection (c)(4), the term `United States' shall include the 
        Commonwealth of Puerto Rico''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 7. FEDERAL GUARANTEE OF CERTAIN STATE BONDS.

    (a) State Bonds Described.--This section shall apply to a bond 
issued as part of an issue if--
            (1) the issue of which such bond is part is an issue of the 
        State of Alabama, Louisiana, or Mississippi,
            (2) the bond is a general obligation of the issuing State 
        and is in registered form,
            (3) the proceeds of the bond are distributed to one or more 
        political subdivisions of the issuing State,
            (4) the maturity of such bond does not exceed 5 years,
            (5) the bond is issued after the date of the enactment of 
        this Act and before January 1, 2008, and
            (6) the bond is designated by the Secretary of the Treasury 
        for purposes of this section.
    (b) Application.--
            (1) In general.--The Secretary of the Treasury may only 
        designate a bond for purposes of this section pursuant to an 
        application submitted to the Secretary by the State which 
        demonstrates the need for such designation on the basis of the 
        criteria specified in paragraph (2).
            (2) Criteria.--For purposes of paragraph (1), the criteria 
        specified in this paragraph are--
                    (A) the loss of revenue base of one or more 
                political subdivisions of the State by reason of 
                Hurricane Katrina,
                    (B) the need for resources to fund infrastructure 
                within, or operating expenses of, any such political 
                subdivision,
                    (C) the lack of access of such political 
                subdivision to capital, and
                    (D) any other criteria as may be determined by the 
                Secretary.
            (3) Guidance for submission and consideration of 
        applications.--The Secretary of the Treasury shall prescribe 
        regulations or other guidance which provide for the time and 
        manner for the submission and consideration of applications 
        under this subsection.
    (c) Federal Guarantee.--A bond described in subsection (a) is 
guaranteed by the United States in an amount equal to 50 percent of the 
outstanding principal with respect to such bond.
    (d) Aggregate Limit on Bond Designations.--The maximum aggregate 
face amount of bonds which may be issued under this section shall not 
exceed $3,000,000,000.

SEC. 8. CERTAIN TAX RELIEF RELATED TO HURRICANES RITA AND WILMA.

    (a) Special Rule for Determining Earned Income.--
            (1) In general.--In the case of a qualified individual, if 
        the earned income of the taxpayer for the taxable year which 
        includes the applicable date is less than the earned income of 
        the taxpayer for the preceding taxable year, the credits 
        allowed under sections 24(d) and 32 of the Internal Revenue 
        Code of 1986 may, at the election of the taxpayer, be 
        determined by substituting--
                    (A) such earned income for the preceding taxable 
                year, for
                    (B) such earned income for the taxable year which 
                includes the applicable date.
            (2) Qualified individual.--For purposes of this 
        subsection--
                    (A) In general.--The term ``qualified individual'' 
                means any qualified Hurricane Rita individual and any 
                qualified Hurricane Wilma individual.
                    (B) Qualified hurricane rita individual.--The term 
                ``qualified Hurricane Rita individual'' means any 
                individual (other than a qualified Hurricane Katrina 
                individual) whose principal place of abode on September 
                23, 2005, was located--
                            (i) in the Rita GO Zone, or
                            (ii) in the Hurricane Rita disaster area 
                        (but outside the Rita GO Zone) and such 
                        individual was displaced from such principal 
                        place of abode by reason of Hurricane Rita.
                    (C) Qualified hurricane wilma individual.--The term 
                ``qualified Hurricane Wilma individual'' means any 
                individual (other than a qualified Hurricane Katrina 
                individual or a qualified Hurricane Rita individual) 
                whose principal place of abode on October 23, 2005, was 
                located--
                            (i) in the Wilma GO Zone, or
                            (ii) in the Hurricane Wilma disaster area 
                        (but outside the Wilma GO Zone) and such 
                        individual was displaced from such principal 
                        place of abode by reason of Hurricane Wilma.
                    (D) Qualified hurricane katrina individual.--The 
                term ``qualified Hurricane Katrina individual'' has the 
                meaning given such term by section 406 of the Katrina 
                Emergency Tax Relief Act of 2005.
            (3) Applicable date.--For purposes of this subsection, the 
        term ``applicable date'' means--
                    (A) in the case of a qualified Hurricane Rita 
                individual, September 23, 2005, and
                    (B) in the case of a qualified Hurricane Wilma 
                individual, October 23, 2005.
            (4) Rita and wilma go zone; etc.--For purposes of this 
        subsection--
                    (A) Rita go zone.--The term ``Rita GO Zone'' means 
                that portion of the Hurricane Rita disaster area 
                determined by the President to warrant individual or 
                individual and public assistance from the Federal 
                Government under the Robert T. Stafford Disaster Relief 
                and Emergency Assistance Act by reason of Hurricane 
                Rita.
                    (B) Hurricane rita disaster area.--The term 
                ``Hurricane Rita disaster area'' means an area with 
                respect to which a major disaster has been declared by 
                the President, before October 6, 2005, under section 
                401 of such Act by reason of Hurricane Rita.
                    (C) Wilma go zone.--The term ``Wilma GO Zone'' 
                means that portion of the Hurricane Wilma disaster area 
                determined by the President to warrant individual or 
                individual and public assistance from the Federal 
                Government under such Act by reason of Hurricane Wilma.
                    (D) Hurricane wilma disaster area.--The term 
                ``Hurricane Wilma disaster area'' means an area with 
                respect to which a major disaster has been declared by 
                the President, before November 14, 2005, under section 
                401 of such Act by reason of Hurricane Wilma.
            (5) Earned income.--For purposes of this subsection, the 
        term ``earned income'' has the meaning given such term under 
        section 32(c) of the Internal Revenue Code of 1986.
            (6) Special rules.--
                    (A) Application to joint returns.--For purposes of 
                paragraph (1), in the case of a joint return for a 
                taxable year which includes the applicable date--
                            (i) such paragraph shall apply if either 
                        spouse is a qualified individual, and
                            (ii) the earned income of the taxpayer for 
                        the preceding taxable year shall be the sum of 
                        the earned income of each spouse for such 
                        preceding taxable year.
                    (B) Uniform application of election.--Any election 
                made under paragraph (1) shall apply with respect to 
                both section 24(d) and section 32 of the Internal 
                Revenue Code of 1986.
                    (C) Errors treated as mathematical error.--For 
                purposes of section 6213 of the Internal Revenue Code 
                of 1986, an incorrect use on a return of earned income 
                pursuant to paragraph (1) shall be treated as a 
                mathematical or clerical error.
                    (D) No effect on determination of gross income, 
                etc.--Except as otherwise provided in this subsection, 
                the Internal Revenue Code of 1986 shall be applied 
                without regard to any substitution under paragraph (1).
    (b) Secretarial Authority to Make Adjustments Regarding Taxpayer 
and Dependency Status.--With respect to taxable years beginning in 2005 
or 2006, the Secretary of the Treasury may make such adjustments in the 
application of the internal revenue laws as may be necessary to ensure 
that taxpayers do not lose any deduction or credit or experience a 
change of filing status by reason of temporary relocations by reason of 
Hurricane Rita or Hurricane Wilma. Any adjustments made under the 
preceding sentence shall ensure that an individual is not taken into 
account by more than one taxpayer with respect to the same tax benefit.

SEC. 9. GULF COAST RECOVERY BONDS.

    It is the sense of the Congress that the Secretary of the Treasury, 
or the Secretary's delegate, should designate one or more series of 
bonds or certificates (or any portion thereof) issued under section 
3105 of title 31, United States Code, as ``Gulf Coast Recovery Bonds'' 
in response to Hurricanes Katrina, Rita, and Wilma.