I 

109TH CONGRESS 

1ST SESSION H. R. 2950

To amend the Internal Revenue Code of 1986 to provide a revenue-neutral 

simplification of the individual income tax. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 16, 2005

Mr. NEAL of Massachusetts introduced the following bill; which was referred 

to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

a revenue-neutral simplification of the individual income tax.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Individual Tax Simplification Act of 2005’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 (c) TABLE OF CONTENTS.—

Sec. 1. Short title. 

TITLE I—SIMPLIFICATION RELATING TO NONREFUNDABLE 

PERSONAL CREDITS 

Sec. 101. Repeal of interaction with alternative minimum tax. 

Sec. 102. Uniform phaseout of credits for adoption, children, and education. 

TITLE II—SIMPLIFICATION OF CAPITAL GAINS TAX 

Sec. 201. Simplification of capital gains tax. 

TITLE III—REPEAL OF CERTAIN HIDDEN MARGINAL RATE 

INCREASES; REPEAL OF INDIVIDUAL MINIMUM TAX 

Subtitle A—Repeals 

Sec. 301. Repeal of overall limitation on itemized deductions. 

Sec. 302. Repeal of phaseout of personal exemptions. 

Sec. 303. Repeal of alternative minimum tax on individuals. 

Subtitle B—Revenue Offsets 

Sec. 311. Additional income tax.

4 TITLE I—SIMPLIFICATION RE5 LATING TO NONREFUNDABLE 

6 PERSONAL CREDITS 

7 SEC. 101. REPEAL OF INTERACTION WITH ALTERNATIVE 

8 MINIMUM TAX. 

9 (a) GENERAL RULE.—Subsection (a) of section 26 

10 (relating to limitation based on amount of tax) is amended 

11 to read as follows: 

12 ‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The 

13 aggregate amount of credits allowed by this subpart for 

14 the taxable year shall not exceed the tax imposed by this 

15 chapter for the taxable year.’’. 
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (2) of section 26(b) is amended 

3 by inserting ‘‘subsection (a) and’’ before ‘‘paragraph 

4 (1)’’. 

5 (2) Section 23 is amended—

6 (A) in subsection (b) by striking paragraph 

7 (4), and 

8 (B) in subsection (c) by striking ‘‘sub9 section (b)(4) for such taxable year’’ and insert10 ing ‘‘section 26(a) for such taxable year re11 duced by the sum of the credits allowable under 

12 this subpart (other than this section and sec13 tions 24 and 1400C)’’. 

14 (3) Section 24 is amended—

15 (A) in subsection (b) by striking paragraph 

16 (3), and 

17 (B) in subsection (d)(1) by striking ‘‘sub18 section (b)(3)’’ each place it appears and insert19 ing ‘‘section 26(a)’’. 

20 (4) Section 25B is amended by striking sub21 section (g) and redesignating subsection (h) as sub22 section (g). 

23 (5) Section 904(i) is amended by striking 

24 ‘‘2004, or 2005’’ and inserting ‘‘or 2004’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2005. 

4 SEC. 102. UNIFORM PHASEOUT OF CREDITS FOR ADOP5 TION, CHILDREN, AND EDUCATION. 

6 (a) IN GENERAL.—Section 26 is amended by redesig7 nating subsections (b) and (c) as subsections (c) and (d), 

8 respectively, and by inserting after subsection (a) the fol9 lowing new subsection: 

10 ‘‘(b) UNIFORM PHASEOUT OF ADOPTION EXPENSE

11 CREDIT, CHILD CREDIT, AND HOPE AND LIFETIME

12 LEARNING CREDITS.—

13 ‘‘(1) IN GENERAL.—The aggregate amount 

14 which would (but for subsection (a) and this sub15 section) be allowed as a credit under sections 23, 24, 

16 and 25A shall be reduced (but not below zero) by 10 

17 percent of the amount by which the taxpayer’s modi18 fied adjusted gross income exceeds the threshold 

19 amount. For purposes of the preceding sentence, the 

20 term ‘modified adjusted gross income’ means ad21 justed gross income increased by any amount ex22 cluded from gross income under section 911, 931, or 

23 933. 

24 ‘‘(2) THRESHOLD AMOUNT.—For purposes of 

25 paragraph (1), the term ‘threshold amount’ means—
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1 ‘‘(A) $110,000 in the case of a joint re2 turn, 

3 ‘‘(B) $75,000 in the case of an individual 

4 who is not married, and 

5 ‘‘(C) $55,000 in the case of a married in6 dividual filing a separate return. 

7 For purposes of this paragraph, marital status shall 

8 be determined under section 7703.’’. 

9 (b) CONFORMING AMENDMENTS.—

10 (1) Paragraph (2) of section 23(b) is amended 

11 to read as follows: 

12 ‘‘(2) LIMITATION BASED ON ADJUSTED GROSS IN13 COME.—For limitation based on adjusted gross income, 

14 see section 26(b).’’. 

15 (2) Subsection (c) of section 23 is amended—

16 (A) by inserting ‘‘(as reduced under sec17 tion 26(b))’’ before ‘‘exceeds’’, and 

18 (B) by adding at the end the following new 

19 sentence: ‘‘For purposes of this subsection, the 

20 reduction under section 26(b) shall first be ap21 plied to the credits under sections 24 and 25A 

22 and then to the credit under this section.’’. 

23 (3) Subsection (b) of section 24 is amended to 

24 read as follows: 
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1 ‘‘(b) LIMITATION BASED ON ADJUSTED GROSS.—

2 For limitation based on adjusted gross income, see section 

3 26(b).’’. 

4 (4) Subsection (d) of section 25A is amended to 

5 read as follows: 

6 ‘‘(d) LIMITATION BASED ON ADJUSTED GROSS.—

7 For limitation based on adjusted gross income, see section 

8 26(b).’’. 

9 (5) Subsection (h) of section 25A is amended to 

10 read as follows: 

11 ‘‘(h) INFLATION ADJUSTMENTS.—

12 ‘‘(1) IN GENERAL.—In the case of a taxable 

13 year beginning after 2006, each of the $1,000 

14 amounts under subsection (b)(1) shall be increased 

15 by an amount equal to—

16 ‘‘(A) such dollar amount, multiplied by 

17 ‘‘(B) the cost-of-living adjustment deter18 mined under section 1(f)(3) for the calendar 

19 year in which the taxable year begins, deter20 mined by substituting ‘calendar year 2005’ for 

21 ‘calendar year 1992’ in subparagraph (B) 

22 thereof. 

23 ‘‘(2) ROUNDING.—If any amount as adjusted 

24 under paragraph (1) is not a multiple of $100, such 
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1 amount shall be rounded to the next lowest multiple 

2 of $100.’’. 

3 (6) The section heading for section 26 is 

4 amended by inserting before the period ‘‘; PHASE5 OUT OF CERTAIN CREDITS BASED ON INCOME; 

6 DEFINITIONS’’. 

7 (7) The item relating to section 26 in the table 

8 of sections for subpart A of part IV of subchapter 

9 A of chapter 1 is amended by inserting before the 

10 period ‘‘; phaseout of certain credits based on in11 come; definitions’’. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 December 31, 2005. 

15 TITLE II—SIMPLIFICATION OF 

16 CAPITAL GAINS TAX 

17 SEC. 201. SIMPLIFICATION OF CAPITAL GAINS TAX. 

18 (a) IN GENERAL.—Part I of subchapter P of chapter 

19 1 (relating to treatment of capital gains) is amended by 

20 adding at the end the following new section: 

21 ‘‘SEC. 1203. CAPITAL GAINS DEDUCTION. 

22 ‘‘If for any taxable year a taxpayer other than a cor23 poration has a net capital gain, 38 percent of such gain 

24 shall be a deduction from gross income.’’. 
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1 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

2 TAXPAYER ITEMIZES OTHER DEDUCTIONS.—

3 (1) Subsection (b) of section 63 is amended by 

4 striking ‘‘and’’ at the end of paragraph (1), by strik5 ing the period at the end of paragraph (2) and in6 serting ‘‘, and’’, and by adding at the end the fol7 lowing new paragraph: 

8 ‘‘(3) the deduction allowed by section 1203.’’. 

9 (2) Subsection (d) of section 63 is amended by 

10 striking ‘‘and’’ at the end of paragraph (1), by strik11 ing the period at the end of paragraph (2) and in12 serting ‘‘, and’’, and by adding at the end the fol13 lowing new paragraph: 

14 ‘‘(3) the deduction allowed by section 1203.’’. 

15 (c) TREATMENT OF COLLECTIBLES.—

16 (1) IN GENERAL.—Section 1222 is amended by 

17 inserting after paragraph (11) the following new 

18 paragraph: 

19 ‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—

20 ‘‘(A) IN GENERAL.—Any gain or loss from 

21 the sale or exchange of a collectible shall be 

22 treated as a short-term capital gain or loss (as 

23 the case may be), without regard to the period 

24 such asset was held. The preceding sentence 

25 shall apply only to the extent the gain or loss 
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1 is taken into account in computing taxable in2 come. 

3 ‘‘(B) TREATMENT OF CERTAIN SALES OF

4 INTERESTS IN PARTNERSHIPS, ETC.—For pur5 poses of subparagraph (A), any gain from the 

6 sale or exchange of an interest in a partnership, 

7 S corporation, or trust which is attributable to 

8 unrealized appreciation in the value of collect9 ibles held by such entity shall be treated as gain 

10 from the sale or exchange of a collectible. Rules 

11 similar to the rules of section 751(f) shall apply 

12 for purposes of the preceding sentence. 

13 ‘‘(C) COLLECTIBLE.—For purposes of this 

14 paragraph, the term ‘collectible’ means any cap15 ital asset which is a collectible (as defined in 

16 section 408(m) without regard to paragraph (3) 

17 thereof).’’. 

18 (2) CHARITABLE DEDUCTION NOT AF19 FECTED.—

20 (A) Paragraph (1) of section 170(e) is 

21 amended by adding at the end thereof the fol22 lowing new sentence: ‘‘For purposes of this 

23 paragraph, section 1222 shall be applied with24 out regard to paragraph (12) thereof (relating 

25 to special rule for collectibles).’’. 
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1 (B) Clause (iv) of section 170(b)(1)(C) is 

2 amended by inserting before the period at the 

3 end thereof the following: ‘‘and section 1222 

4 shall be applied without regard to paragraph 

5 (12) thereof (relating to special rule for collect6 ibles)’’. 

7 (d) TECHNICAL AND CONFORMING CHANGES.—

8 (1) Section 1 is amended by striking subsection 

9 (h). 

10 (2) Section 163(d)(4) is amended—

11 (A) by striking the last sentence of sub12 paragraph (B), and 

13 (B) by amending subparagraph (E) to read 

14 as follows: 

15 ‘‘(E) COORDINATION WITH CAPITAL GAINS

16 DEDUCTION.—The net capital gain taken into 

17 account under section 1203 for any taxable 

18 year shall be reduced (but not below zero) by 

19 the amount which the taxpayer takes into ac20 count as investment income under subpara21 graph (B)(iii) for such year.’’. 

22 (3) Paragraph (1) of section 170(e) is amended 

23 by striking ‘‘the amount of gain’’ in the material fol24 lowing subparagraph (B)(ii) and inserting ‘‘62 per-
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1 cent (100 percent in the case of a corporation) of 

2 the amount of gain’’. 

3 (4) Subparagraph (B) of section 172(d)(2) is 

4 amended to read as follows: 

5 ‘‘(B) the exclusion under section 1202 and 

6 the deduction under section 1203 shall not be 

7 allowed.’’. 

8 (5) The last sentence of section 453A(c)(3) is 

9 amended by striking all that follows ‘‘long-term cap10 ital gain,’’ and inserting ‘‘the maximum rate on net 

11 capital gain under section 1201 or the deduction 

12 under section 1203 (whichever is appropriate) shall 

13 be taken into account.’’. 

14 (6)(A) Section 641(c)(2)(A) is amended by 

15 striking ‘‘Except as provided in section 1(h), the’’ 

16 and inserting ‘‘The’’. 

17 (B) Section 641(c)(2)(C) is amended by insert18 ing after clause (iii) the following new clause: 

19 ‘‘(iv) The deduction under section 

20 1203.’’. 

21 (7) Paragraph (4) of section 642(c) is amended 

22 to read as follows: 

23 ‘‘(4) ADJUSTMENTS.—To the extent that the 

24 amount otherwise allowable as a deduction under 

25 this subsection consists of gain from the sale or ex-
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1 change of capital assets held for more than 1 year, 

2 proper adjustment shall be made for any exclusion 

3 allowable under section 1202 and any deduction al4 lowable under section 1203 to the estate or trust. In 

5 the case of a trust, the deduction allowed by this 

6 subsection shall be subject to section 681 (relating 

7 to unrelated business income).’’. 

8 (8) Section 642 is amended by adding at the 

9 end the following new subsection: 

10 ‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction 

11 under section 1203 to an estate or trust shall be computed 

12 by excluding the portion (if any) of the gains for the tax13 able year which is includible by the income beneficiaries 

14 under sections 652 and 662 (relating to inclusions of 

15 amounts in gross income of beneficiaries of trusts) as gain 

16 derived from the sale or exchange of capital assets.’’. 

17 (9) The last sentence of section 643(a)(3) is 

18 amended to read as follows: ‘‘The exclusion under 

19 section 1202 and the deduction under section 1203 

20 shall not be taken into account.’’. 

21 (10) Subparagraph (C) of section 643(a)(6) is 

22 amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and 

23 by inserting before the period ‘‘, and (ii) the deduc24 tion under section 1203 (relating to capital gains de25 duction) shall not be taken into account’’. 
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1 (11) Paragraph (4) of section 691(c) is amend2 ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’ 

3 after ‘‘1202,’’. 

4 (12) The second sentence of paragraph (2) of 

5 section 871(a) is amended by striking ‘‘section 

6 1202’’ and inserting ‘‘sections 1202 and 1203’’. 

7 (13)(A) Paragraph (2) of section 904(b) is 

8 amended by striking subparagraphs (A) and (C), by 

9 redesignating subparagraph (B) as subparagraph 

10 (A), and by inserting after subparagraph (A) (as so 

11 redesignated) the following new subparagraph: 

12 ‘‘(B) OTHER TAXPAYERS.—In the case of 

13 a taxpayer other than a corporation, taxable in14 come from sources outside the United States 

15 shall include gain from the sale or exchange of 

16 capital assets only to the extent of foreign 

17 source capital gain net income.’’. 

18 (B) Subparagraph (A) of section 904(b)(2), as 

19 so redesignated, is amended—

20 (i) by striking all that precedes clause (i) 

21 and inserting the following: 

22 ‘‘(A) CORPORATIONS.—In the case of a 

23 corporation—’’, and 

24 (ii) by striking in clause (i) ‘‘in lieu of ap25 plying subparagraph (A),’’. 
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1 (C) Paragraph (3) of section 904(b) is amended 

2 by striking subparagraphs (D) and (E) and inserting 

3 the following new subparagraph: 

4 ‘‘(D) RATE DIFFERENTIAL PORTION.—The 

5 rate differential portion of foreign source net 

6 capital gain, net capital gain, or the excess of 

7 net capital gain from sources within the United 

8 States over net capital gain, as the case may 

9 be, is the same proportion of such amount as 

10 the excess of the highest rate of tax specified in 

11 section 11(b) over the alternative rate of tax 

12 under section 1201(a) bears to the highest rate 

13 of tax specified in section 11(b).’’. 

14 (14) Paragraph (1) of section 1402(i) is amend15 ed by inserting ‘‘, and the deduction provided by sec16 tion 1203 shall not apply’’ before the period at the 

17 end thereof. 

18 (15) Paragraph (1) of section 1445(e) is 

19 amended by striking ‘‘15 percent’’ and inserting 

20 ‘‘24.5 percent’’. 

21 (16)(A) The second sentence of section 

22 7518(g)(6)(A) is amended—

23 (i) by striking ‘‘during a taxable year to 

24 which section 1(h) or 1201(a) applies’’, and 
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1 (ii) by striking ‘‘15 percent’’ and inserting 

2 ‘‘24.5 percent’’. 

3 (B) The second sentence of section 

4 607(h)(6)(A) of the Merchant Marine Act, 1936, is 

5 amended—

6 (i) by striking ‘‘during a taxable year to 

7 which section 1(h) or 1201(a) of such Code ap8 plies’’, and 

9 (ii) by striking ‘‘15 percent’’ and inserting 

10 ‘‘24.5 percent’’. 

11 (e) CLERICAL AMENDMENT.—The table of sections 

12 for part I of subchapter P of chapter 1 is amended by 

13 adding at the end the following new item:

‘‘Sec. 1203. Capital gains deduction.’’.

14 (f) EFFECTIVE DATES.—

15 (1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the amendments made by 

17 this section shall apply to taxable years beginning 

18 after December 31, 2005. 

19 (2) WITHHOLDING.—The amendments made by 

20 subsection (d)(15) shall apply only to amounts paid 

21 after December 31, 2005. 

22 (3) COORDINATION WITH PRIOR TRANSITION

23 RULE.—Any amount treated as long-term capital 

24 gain by reason of paragraph (3) of section 1122(h) 

25 of the Tax Reform Act of 1986 shall not be taken 
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1 into account for purposes of applying section 1203 

2 of the Internal Revenue Code of 1986 (as added by 

3 this section). 

4 TITLE III—REPEAL OF CERTAIN 

5 HIDDEN MARGINAL RATE IN6 CREASES; REPEAL OF INDI7 VIDUAL MINIMUM TAX 

8 Subtitle A—Repeals 

9 SEC. 301. REPEAL OF OVERALL LIMITATION ON ITEMIZED 

10 DEDUCTIONS. 

11 (a) IN GENERAL.—Section 68 (relating to overall 

12 limitation on itemized deductions) is hereby repealed. 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subparagraph (A) of section 1(f)(6) is 

15 amended by striking ‘‘section 68(b)(2)’’. 

16 (2) Paragraph (1) of section 56(b) is amended 

17 by striking subparagraph (F). 

18 (3) Subclause (III) of section 164(b)(5)(H)(ii) 

19 is amended by striking ‘‘section 68(b))’’ and insert20 ing ‘‘, as in effect on the date of the enactment of 

21 the Individual Tax Simplification Act of 2005)’’. 

22 (4) Subparagraph (B) of section 773(a)(3) is 

23 amended by striking clause (i) and by redesignating 

24 clauses (ii), (iii), and (iv), as clauses (i), (ii), and 

25 (iii), respectively. 
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1 (5) The table of sections for subchapter B of 

2 chapter 1 is amended by striking the item relating 

3 to section 68. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2005. 

7 SEC. 302. REPEAL OF PHASEOUT OF PERSONAL EXEMP8 TIONS. 

9 (a) IN GENERAL.—Subsection (d) of section 151 (re10 lating to allowance of deductions for personal exemptions) 

11 is amended by striking paragraph (3) and by redesig12 nating paragraph (4) as paragraph (3). 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Paragraph (6) of section 1(f) is amended—

15 (A) by striking ‘‘section 151(d)(4)’’ in sub16 paragraph (A) and inserting ‘‘section 

17 151(d)(3)’’, and 

18 (B) by striking ‘‘section 151(d)(4)(A)’’ in 

19 subparagraph (B) and inserting ‘‘section 

20 151(d)(3)’’. 

21 (2) Paragraph (3) of section 151(d), as redesig22 nated by subsection (a), is amended to read as fol23 lows: 

24 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 

25 any taxable year beginning in a calendar year after 
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1 1989, the dollar amount contained in paragraph (1) 

2 shall be increased by an amount equal to—

3 ‘‘(A) such dollar amount, multiplied by 

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for the calendar 

6 year in which the taxable year begins, by sub7 stituting ‘calendar year 1988’ for ‘calendar year 

8 1992’ in subparagraph (B) thereof.’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to taxable years beginning after 

11 December 31, 2005. 

12 SEC. 303. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDI13 VIDUALS. 

14 (a) IN GENERAL.—Subsection (a) of section 55 (re15 lating to alternative minimum tax imposed) is amended 

16 by adding at the end the following new flush sentence: 

17 ‘‘Except in the case of a corporation, no tax shall be im18 posed by this section for any taxable year beginning after 

19 December 31, 2005, and the tentative minimum tax of any 

20 taxpayer other than a corporation shall be zero for pur21 poses of this title.’’. 

22 (b) CONFORMING AMENDMENTS.—

23 (1) Subparagraph (B) of section 1(g)(7) is 

24 amended by adding ‘‘and’’ at the end of clause (i), 
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1 by striking ‘‘, and’’ at the end of clause (ii) and in2 serting a period, and by striking clause (iii). 

3 (2) Section 2(d) is amended by striking ‘‘sec4 tions 1 and 55’’ and inserting ‘‘section 1’’. 

5 (3) Section 5(a) is amended by striking para6 graph (4). 

7 (4) Subsection (d) of section 26 (as redesig8 nated by section 102) is amended by inserting before 

9 the period ‘‘; except that such amount shall be treat10 ed as being zero in the case of a taxpayer other than 

11 a corporation’’. 

12 (5) Paragraph (6) of section 29(b) is amended 

13 to read as follows: 

14 ‘‘(6) APPLICATION WITH OTHER CREDITS.—

15 The credit allowed by subsection (a) for any taxable 

16 year shall not exceed the regular tax for the taxable 

17 year reduced by the sum of the credits allowable 

18 under subpart A and section 27. In the case of a 

19 corporation, the limitation under the preceding sen20 tence shall be reduced (but not below zero) by the 

21 tentative minimum tax for the taxable year.’’. 

22 (6) Paragraph (3) of section 30(b) is amended 

23 to read as follows: 

24 ‘‘(3) APPLICATION WITH OTHER CREDITS.—

25 The credit allowed by subsection (a) for any taxable 
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1 year shall not exceed the regular tax for the taxable 

2 year reduced by the sum of the credits allowable 

3 under subpart A and sections 27 and 29. In the case 

4 of a corporation, the limitation under the preceding 

5 sentence shall be reduced (but not below zero) by the 

6 tentative minimum tax for the taxable year.’’. 

7 (7) Subsection (d) of section 53 is amended to 

8 read as follows: 

9 ‘‘(d) DEFINITIONS.—For purposes of this section—

10 ‘‘(1) NET MINIMUM TAX.—The term ‘net min11 imum tax’ means the tax imposed by section 55 in12 creased by the amount of the credit not allowed 

13 under section 29 (relating to credit for producing 

14 fuel from a nonconventional source) solely by reason 

15 of the application of the last sentence of section 

16 29(b)(6), or not allowed under section 30 solely by 

17 reason of the application of the last sentence of sec18 tion 30(b)(3). 

19 ‘‘(2) TENTATIVE MINIMUM TAX.—The term 

20 ‘tentative minimum tax’ has the meaning given to 

21 such term by section 55(b); except that such tax 

22 shall be treated as being zero in the case of a tax23 payer other than a corporation.’’. 
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1 (8)(A) Subsection (b) of section 55 (relating to 

2 alternative minimum tax imposed) is amended to 

3 read as follows: 

4 ‘‘(b) TENTATIVE MINIMUM TAX.—For purposes of 

5 this part—

6 ‘‘(1) AMOUNT OF TENTATIVE TAX.—The ten7 tative minimum tax for the taxable year is—

8 ‘‘(A) 20 percent of so much of the alter9 native minimum taxable income for the taxable 

10 year as exceeds the exemption amount, reduced 

11 by 

12 ‘‘(B) the alternative minimum tax foreign 

13 tax credit for the taxable year. 

14 ‘‘(2) ALTERNATIVE MINIMUM TAXABLE IN15 COME.—The term ‘alternative minimum taxable in16 come’ means the taxable income of the taxpayer for 

17 the taxable year—

18 ‘‘(A) determined with the adjustments pro19 vided in section 56, and 

20 ‘‘(B) increased by the amount of the items 

21 of tax preference described in section 57. 

22 If a taxpayer is subject to the regular tax, such tax23 payer shall be subject to the tax imposed by this sec24 tion (and, if the regular tax is determined by ref25 erence to an amount other than taxable income, such 
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1 amount shall be treated as the taxable income of 

2 such taxpayer for purposes of the preceding sen3 tence).’’. 

4 (B) Subsection (d) of section 55 is amended to 

5 read as follows: 

6 ‘‘(d) EXEMPTION AMOUNT.—For purposes of this 

7 section—

8 ‘‘(1) IN GENERAL.—The term ‘exemption 

9 amount’ means $40,000. 

10 ‘‘(2) PHASE-OUT OF EXEMPTION AMOUNT.—

11 The exemption amount of any taxpayer shall be re12 duced (but not below zero) by an amount equal to 

13 25 percent of the amount by which the alternative 

14 minimum taxable income of the taxpayer exceeds 

15 $150,000.’’. 

16 (9)(A) Paragraph (6) of section 56(a) is 

17 amended to read as follows: 

18 ‘‘(6) ADJUSTED BASIS.—The adjusted basis of 

19 any property to which paragraph (1) or (5) applies 

20 (or with respect to which there are any expenditures 

21 to which paragraph (2) applies) shall be determined 

22 on the basis of the treatment prescribed in para23 graph (1), (2), or (5), whichever applies.’’. 

24 (B) Section 56 is amended by striking sub25 section (b). 
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1 (C) Subsection (c) of section 56 is amended by 

2 striking so much of the subsection as precedes para3 graph (1), by redesignating paragraphs (1), (2), and 

4 (3) as paragraphs (8), (9), and (10), respectively, 

5 and moving them to the end of subsection (a). 

6 (D) Paragraph (8) of section 56(a), as redesig7 nated by subparagraph (C), is amended by striking 

8 ‘‘subsection (g)’’ and inserting ‘‘subsection (c)’’. 

9 (E) Section 56 is amended by striking sub10 section (e) and by redesignating subsections (d) and 

11 (g) as subsections (b) and (c), respectively. 

12 (10)(A) Section 58 is hereby repealed. 

13 (B) Clause (i) of section 56(b)(2)(A) (as redes14 ignated by subparagraph (E), is amended by insert15 ing ‘‘, in the case of taxable years beginning before 

16 January 1, 2006,’’ before ‘‘section 58’’. 

17 (C) Subsection (h) of section 59 is amended—

18 (i) by striking ‘‘, 465, and 1366(d)’’ and 

19 inserting ‘‘and 465’’, and 

20 (ii) by striking ‘‘56, 57, and 58’’ and in21 serting ‘‘56 and 57’’. 

22 (11)(A) Subparagraph (C) of section 59(a)(1) 

23 is amended by striking ‘‘subparagraph (A)(i) or 

24 (B)(i) of section 55(b)(1) (whichever applies)’’ and 

25 inserting ‘‘section 55(b)(1)(A)’’. 
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1 (B) Paragraph (3) of section 59(a) is amended 

2 to read as follows: 

3 ‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—

4 For purposes of this subsection, the term ‘pre-credit 

5 tentative minimum tax’ means the amount deter6 mined under section 55(b)(1)(A).’’. 

7 (C) Section 59 is amended by striking sub8 section (c). 

9 (D) Section 59 is amended by striking sub10 section (j). 

11 (12) Paragraph (7) of section 382(l) is amend12 ed by striking ‘‘section 56(d)’’ and inserting ‘‘section 

13 56(b)’’. 

14 (13) Paragraph (2) of section 641(c) is amend15 ed by striking subparagraph (B) and by redesig16 nating subparagraphs (C) and (D) as subparagraphs 

17 (B) and (C), respectively. 

18 (14) Subsections (b) and (c) of section 666 are 

19 each amended by striking ‘‘(other than the tax im20 posed by section 55)’’. 

21 (15) Subsections (c)(5) and (d)(3)(B) of section 

22 772 are each amended by striking ‘‘56, 57, and 58’’ 

23 and inserting ‘‘56 and 57’’. 
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1 (16) Sections 847(9) and 848(i) are each 

2 amended by striking ‘‘section 56(g)’’ and inserting 

3 ‘‘section 56(c)’’. 

4 (17) Sections 871(b)(1) and 877(b) are each 

5 amended by striking ‘‘or 55’’. 

6 (18) Subsection (a) of section 897 is amended 

7 to read as follows: 

8 ‘‘(a) GENERAL RULE.—For purposes of this title, 

9 gain or loss of a nonresident alien individual or a foreign 

10 corporation from the disposition of a United States real 

11 property interest shall be taken into account—

12 ‘‘(1) in the case of a nonresident alien indi13 vidual, under section 871(b)(1), or 

14 ‘‘(2) in the case of a foreign corporation, under 

15 section 882(a)(1), 

16 as if the taxpayer were engaged in a trade or business 

17 within the United States during the taxable year and as 

18 if such gain or loss were effectively connected with such 

19 trade or business.’’. 

20 (19) Paragraph (1) of section 962(a) is amend21 ed by striking ‘‘sections 1 and 55’’ and inserting 

22 ‘‘section 1’’. 

23 (20) Paragraph (1) of section 1397E(c) is 

24 amended to read as follows: 
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1 ‘‘(1) the regular tax liability (as defined in sec2 tion 26(b), over’’. 

3 (21) The last sentence of section 1561(a) is 

4 amended by striking ‘‘section 55(d)(3)’’ and insert5 ing ‘‘section 55(d)(2)’’. 

6 (22) Subparagraph (B) of section 6015(d)(2) is 

7 amended by striking ‘‘or 55’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2005. 

11 (d) TRANSITIONAL RULE RELATING TO MINIMUM

12 TAX CREDIT.—

13 (1) IN GENERAL.—The pre-effective date min14 imum tax credit of a taxpayer other than a corpora15 tion shall not be allowed under section 53 of the In16 ternal Revenue Code of 1986 but shall be allowed 

17 under this subsection. 

18 (2) PRE-EFFECTIVE DATE MINIMUM TAX CRED19 IT.—For purposes of this subsection, the term ‘‘pre20 effective date minimum tax credit’’ means the 

21 amount determined under section 53(b) of such 

22 Code for the first taxable year beginning after De23 cember 31, 2005. 

24 (3) AMOUNT OF CREDIT.—
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1 (A) IN GENERAL.—The pre-effective date 

2 minimum tax credit of a taxpayer other than a 

3 corporation shall be allowed ratably over the pe4 riod of 10 taxable years beginning with the first 

5 taxable year beginning after December 31, 

6 2005. 

7 (B) LIMITATION.—The credit allowable by 

8 this subsection for any taxable year shall not 

9 exceed the regular tax liability of the taxpayer 

10 for such taxable year reduced by the sum of the 

11 credits allowable under subparts A, B, D, E, 

12 and F of part IV of subchapter A of chapter 1 

13 of the Internal Revenue Code of 1986. 

14 (C) CARRYFORWARD.—If the credit allow15 able by this subsection exceeds the limitation 

16 imposed by subparagraph (B), such excess shall 

17 be carried to the succeeding taxable year and 

18 added to the credit allowable under this sub19 section for such succeeding taxable year. 

20 (4) ACCELERATION OF CREDIT WHERE PRE21 VIOUSLY TAXED INCOME.—

22 (A) IN GENERAL.—The credit allowed 

23 under this subsection for any taxable year shall 

24 not be less than so much of the limitation de25 scribed in paragraph (3)(B) for the taxable year 
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1 as is attributable to previously taxed incentive 

2 stock option gain. Proper adjustments shall be 

3 made in the amount allowed under this sub4 section for subsequent taxable years to take 

5 into account any increased credit allowed by 

6 reason of this paragraph. 

7 (B) INCENTIVE STOCK OPTION GAIN.—For 

8 purposes of subparagraph (A), the term ‘‘pre9 viously taxed incentive stock option gain’’ 

10 means the amount of gain recognized during 

11 the taxable year on account of the disposition of 

12 stock acquired by exercising an incentive stock 

13 option (as defined in section 422 of such Code) 

14 to the extent such gain does not exceed the 

15 amount of gain previously taken into account 

16 by reason of section 56(b)(3) of such Code (as 

17 in effect on the day before the date of the en18 actment of this Act) with respect to such op19 tion. 

20 (5) DEFINITIONS.—Terms used in this sub21 section which are also used in section 53 of such 

22 Code shall have the respective meanings given to 

23 such terms by such section 53. 
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1 Subtitle B—Revenue Offsets 

2 SEC. 311. ADDITIONAL INCOME TAX. 

3 (a) IN GENERAL.—Section 1 is amended by adding 

4 at the end the following new subsection: 

5 ‘‘(j) ADDITIONAL INCOME TAX.—

6 ‘‘(1) IN GENERAL.—If the adjusted gross in7 come of an individual exceeds the initial threshold 

8 amount, the tax imposed by this section (determined 

9 without regard to this subsection) shall be increased 

10 by an amount equal to the sum of—

11 ‘‘(A) the applicable rate of so much of the 

12 adjusted gross income as exceeds the initial 

13 threshold amount but does not exceed the sec14 ond threshold amount, and 

15 ‘‘(B) twice the applicable rate of so much 

16 of the adjusted gross income as exceeds the sec17 ond threshold amount. 

18 ‘‘(2) APPLICABLE RATE.—For purposes of this 

19 section, the applicable rate is the rate estimated by 

20 the Secretary which will result in the Individual Tax 

21 Simplification Act of 2005 being revenue neutral 

22 over the first 10 years after its enactment. 

23 ‘‘(3) THRESHOLD AMOUNTS.—For purposes of 

24 this subsection—
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1 ‘‘(A) INITIAL THRESHOLD AMOUNT.—The 

2 initial threshold amount is—

3 ‘‘(i) $120,000 in the case of a joint 

4 return, 

5 ‘‘(ii) $90,000 in the case of an indi6 vidual who is not married, and 

‘‘(iii) 1 7 ⁄2 the dollar amount applicable 

8 under clause (i) in the case of a married 

9 individual filing a separate return. 

10 ‘‘(B) SECOND THRESHOLD AMOUNT.—The 

11 second threshold amount is—

12 ‘‘(i) $150,000 in the case of a joint 

13 return, 

14 ‘‘(ii) $112,000 in the case of an indi15 vidual who is not married, and 

‘‘(iii) 1 16 ⁄2 the dollar amount applicable 

17 under clause (i) in the case of a married 

18 individual filing a separate return. 

19 ‘‘(C) MARITAL STATUS.—For purposes of 

20 this paragraph, marital status shall be deter21 mined under section 7703. 

22 ‘‘(4) INFLATION ADJUSTMENT.—In the case of 

23 any taxable year beginning in a calendar year after 

24 2006, each dollar amount contained in paragraph 

25 (2) shall be increased by an amount equal to—
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1 ‘‘(A) such dollar amount, multiplied by 

2 ‘‘(B) the cost-of-living adjustment deter3 mined under subsection (f)(3) for the calendar 

4 year in which the taxable year begins, by sub5 stituting ‘calendar year 2005’ for ‘calendar year 

6 1992’ in subparagraph (B) thereof. 

7 If any increase under the preceding sentence is not 

8 a multiple of $50, such increase shall be rounded to 

9 the nearest multiple of $50. 

10 ‘‘(5) TAX NOT TO APPLY TO ESTATES AND

11 TRUSTS.—This subsection shall not apply to an es12 tate or trust.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2005. 

16 (c) SECTION 15 NOT TO APPLY.—The amendment 

17 made by this section shall not be treated as a change in 

18 a rate of tax for purposes of section 15 of such Code.

Æ