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[110th Congress Public Law 142]
[From the U.S. Government Printing Office]

[DOCID: f:publ142.110]

[[Page 121 STAT. 1803]]

Public Law 110-142
110th Congress

                                 An Act

 
  To amend the Internal Revenue Code of 1986 to exclude discharges of 
 indebtedness on principal residences from gross income, and for other 
            purposes. <<NOTE: Dec. 20, 2007 -  [H.R. 3648]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress <<NOTE: Mortgage Forgiveness Debt 
Relief Act of 2007.>> assembled,

SECTION 1. <<NOTE: 26 USC 1 note.>> SHORT TITLE.

    This Act may be cited as the ``Mortgage Forgiveness Debt Relief Act 
of 2007''.

SEC. 2. DISCHARGES OF INDEBTEDNESS ON PRINCIPAL RESIDENCE EXCLUDED FROM 
            GROSS INCOME.

    (a) In General.--Paragraph (1) of section 108(a) of the Internal 
Revenue Code of 1986 is <<NOTE: 26 USC 108.>> amended by striking ``or'' 
at the end of subparagraph (C), by striking the period at the end of 
subparagraph (D) and inserting ``, or'', and by inserting after 
subparagraph (D) the following new subparagraph:
                    ``(E) the indebtedness discharged is qualified 
                principal residence indebtedness which is discharged 
                before January 1, 2010.''.

    (b) Special Rules Relating to Qualified Principal Residence 
Indebtedness.--Section 108 of such Code is amended by adding at the end 
the following new subsection:
    ``(h) Special Rules Relating to Qualified Principal Residence 
Indebtedness.--
            ``(1) Basis reduction.--The amount excluded from gross 
        income by reason of subsection (a)(1)(E) shall be applied to 
        reduce (but not below zero) the basis of the principal residence 
        of the taxpayer.
            ``(2) Qualified principal residence indebtedness.--For 
        purposes of this section, the term `qualified principal 
        residence indebtedness' means acquisition indebtedness (within 
        the meaning of section 163(h)(3)(B), applied by substituting 
        `$2,000,000 ($1,000,000' for `$1,000,000 ($500,000' in clause 
        (ii) thereof) with respect to the principal residence of the 
        taxpayer.
            ``(3) Exception for certain discharges not related to 
        taxpayer's financial condition.--Subsection (a)(1)(E) shall not 
        apply to the discharge of a loan if the discharge is on account 
        of services performed for the lender or any other factor not 
        directly related to a decline in the value of the residence or 
        to the financial condition of the taxpayer.
            ``(4) Ordering rule.--If any loan is discharged, in whole or 
        in part, and only a portion of such loan is qualified principal 
        residence indebtedness, subsection (a)(1)(E) shall apply only to 
        so much of the amount discharged as exceeds the amount

[[Page 121 STAT. 1804]]

        of the loan (as determined immediately before such discharge) 
        which is not qualified principal residence indebtedness.
            ``(5) Principal residence.--For purposes of this subsection, 
        the term `principal residence' has the same meaning as when used 
        in section 121.''.

    (c) Coordination.--
            (1) Subparagraph (A) of section 108(a)(2) <<NOTE: 26 USC 
        108.>> of such Code is amended by striking ``and (D)'' and 
        inserting ``(D), and (E)''.
            (2) Paragraph (2) of section 108(a) of such Code is amended 
        by adding at the end the following new subparagraph:
                    ``(C) Principal residence exclusion takes precedence 
                over insolvency exclusion unless elected otherwise.--
                Paragraph (1)(B) shall not apply to a discharge to which 
                paragraph (1)(E) applies unless the taxpayer elects to 
                apply paragraph (1)(B) in lieu of paragraph (1)(E).''.

    (d) Effective Date.--The <<NOTE: 26 USC 108 note.>> amendments made 
by this section shall apply to discharges of indebtedness on or after 
January 1, 2007.

SEC. 3. EXTENSION OF TREATMENT OF MORTGAGE INSURANCE PREMIUMS AS 
            INTEREST.

    (a) In General.--Subclause (I) of section 163(h)(3)(E)(iv) of the 
Internal Revenue Code of 1986 (relating to termination) is amended by 
striking ``December 31, 2007'' and inserting ``December 31, 2010''.
    (b) Effective Date.--The <<NOTE: 26 USC 163 note.>> amendment made 
by this section shall apply to amounts paid or accrued after December 
31, 2007.

SEC. 4. ALTERNATIVE TESTS FOR QUALIFYING AS COOPERATIVE HOUSING 
            CORPORATION.

    (a) In General.--Subparagraph (D) of section 216(b)(1) of the 
Internal Revenue Code of 1986 (defining cooperative housing corporation) 
is amended to read as follows:
                    ``(D) meeting 1 or more of the following 
                requirements for the taxable year in which the taxes and 
                interest described in subsection (a) are paid or 
                incurred:
                          ``(i) 80 percent or more of the corporation's 
                      gross income for such taxable year is derived from 
                      tenant-stockholders.
                          ``(ii) At all times during such taxable year, 
                      80 percent or more of the total square footage of 
                      the corporation's property is used or available 
                      for use by the tenant-stockholders for residential 
                      purposes or purposes ancillary to such residential 
                      use.
                          ``(iii) 90 percent or more of the expenditures 
                      of the corporation paid or incurred during such 
                      taxable year are paid or incurred for the 
                      acquisition, construction, management, 
                      maintenance, or care of the corporation's property 
                      for the benefit of the tenant-stockholders.''.

    (b) Effective Date.--The <<NOTE: 26 USC 216 note.>> amendment made 
by this section shall apply to taxable years ending after the date of 
the enactment of this Act.

[[Page 121 STAT. 1805]]

SEC. 5. EXCLUSION FROM INCOME FOR BENEFITS PROVIDED TO VOLUNTEER 
            FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 139A the 
following new section:

``SEC. 139B. <<NOTE: 26 USC 139B.>> BENEFITS PROVIDED TO VOLUNTEER 
            FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS.

    ``(a) In General.--In the case of any member of a qualified 
volunteer emergency response organization, gross income shall not 
include--
            ``(1) any qualified State and local tax benefit, and
            ``(2) any qualified payment.

    ``(b) Denial of Double Benefits.--In the case of any member of a 
qualified volunteer emergency response organization--
            ``(1) the deduction under 164 shall be determined with 
        regard to any qualified State and local tax benefit, and
            ``(2) expenses paid or incurred by the taxpayer in 
        connection with the performance of services as such a member 
        shall be taken into account under section 170 only to the extent 
        such expenses exceed the amount of any qualified payment 
        excluded from gross income under subsection (a).

    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified state and local tax benefit.--The term 
        `qualified state and local tax benefit' means any reduction or 
        rebate of a tax described in paragraph (1), (2), or (3) of 
        section 164(a) provided by a State or political division thereof 
        on account of services performed as a member of a qualified 
        volunteer emergency response organization.
            ``(2) Qualified payment.--
                    ``(A) In general.--The term `qualified payment' 
                means any payment (whether reimbursement or otherwise) 
                provided by a State or political division thereof on 
                account of the performance of services as a member of a 
                qualified volunteer emergency response organization.
                    ``(B) Applicable dollar limitation.--The amount 
                determined under subparagraph (A) for any taxable year 
                shall not exceed $30 multiplied by the number of months 
                during such year that the taxpayer performs such 
                services.
            ``(3) Qualified volunteer emergency response organization.--
        The term `qualified volunteer emergency response organization' 
        means any volunteer organization--
                    ``(A) which is organized and operated to provide 
                firefighting or emergency medical services for persons 
                in the State or political subdivision, as the case may 
                be, and
                    ``(B) which is required (by written agreement) by 
                the State or political subdivision to furnish 
                firefighting or emergency medical services in such State 
                or political subdivision.

    ``(d) Termination.--This section shall not apply with respect to 
taxable years beginning after December 31, 2010.''.

[[Page 121 STAT. 1806]]

    (b) Clerical Amendment.--The table of sections for such part is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. Benefits provided to volunteer firefighters and emergency 
           medical responders.''.

    (c) Effective Date.--The <<NOTE: 26 USC 139B note.>> amendments made 
by this section shall apply to taxable years beginning after December 
31, 2007.

SEC. 6. CLARIFICATION OF STUDENT HOUSING ELIGIBLE FOR LOW-INCOME HOUSING 
            CREDIT.

    (a) In General.--Subclause (I) of section 42(i)(3)(D)(ii) of the 
Internal Revenue Code of <<NOTE: 26 USC 42.>> 1986 (relating to certain 
students not to disqualify unit) is amended to read as follows:
                                    ``(I) single parents and their 
                                children and such parents are not 
                                dependents (as defined in section 152, 
                                determined without regard to subsections 
                                (b)(1), (b)(2), and (d)(1)(B) thereof) 
                                of another individual and such children 
                                are not dependents (as so defined) of 
                                another individual other than a parent 
                                of such children, or.''.

    (b) Effective Date.--The <<NOTE: 26 USC 42 note.>> amendment made by 
this section shall apply to--
            (1) housing credit amounts allocated before, on, or after 
        the date of the enactment of this Act, and
            (2) buildings placed in service before, on, or after such 
        date to the extent paragraph (1) of section 42(h) of the 
        Internal Revenue Code of 1986 does not apply to any building by 
        reason of paragraph (4) thereof.

SEC. 7. APPLICATION OF JOINT RETURN LIMITATION FOR CAPITAL GAINS 
            EXCLUSION TO CERTAIN POST-MARRIAGE SALES OF PRINCIPAL 
            RESIDENCES BY SURVIVING SPOUSES.

    (a) Sale Within 2 Years of Spouse's Death.--Section 121(b) of the 
Internal Revenue Code of 1986 (relating to limitations) is amended by 
adding at the end the following new paragraph:
            ``(4) Special rule for certain sales by surviving spouses.--
        In the case of a sale or exchange of property by an unmarried 
        individual whose spouse is deceased on the date of such sale, 
        paragraph (1) shall be applied by substituting `$500,000' for 
        `$250,000' if such sale occurs not later than 2 years after the 
        date of death of such spouse and the requirements of paragraph 
        (2)(A) were met immediately before such date of death.''.

    (b) Effective Date.--The <<NOTE: 26 USC 121 note.>> amendment made 
by this section shall apply to sales or exchanges after December 31, 
2007.

SEC. 8. MODIFICATION OF PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURNS; 
            LIMITATION ON DISCLOSURE.

    (a) Extension of Time Limitation.--Section 6698(a) of the Internal 
Revenue Code of 1986 (relating to failure to file partnership returns) 
is amended by striking ``5 months'' and inserting ``12 months''.
    (b) Increase in Penalty Amount.--Paragraph (1) of section 6698(b) of 
such Code is amended by striking ``$50'' and inserting ``$85''.

[[Page 121 STAT. 1807]]

    (c) Limitation on Disclosure of Taxpayer Returns to Partners, S 
Corporation Shareholders, Trust Beneficiaries, and Estate 
Beneficiaries.--
            (1) In general.--Section 6103(e) of such <<NOTE: 26 USC 
        6103.>> Code (relating to disclosure to persons having material 
        interest) is amended by adding at the end the following new 
        paragraph:
            ``(10) Limitation on certain disclosures under this 
        subsection.--In the case of an inspection or disclosure under 
        this subsection relating to the return of a partnership, S 
        corporation, trust, or an estate, the information inspected or 
        disclosed shall not include any supporting schedule, attachment, 
        or list which includes the taxpayer identity information of a 
        person other than the entity making the return or the person 
        conducting the inspection or to whom the disclosure is made.''.
            (2) Effective date.--The amendment made by this subsection 
        shall take effect on the date of the enactment of this Act.

    (d) Effective Date.--The <<NOTE: 26 USC 6103 note.>> amendments made 
by subsections (a) and (b) shall apply to returns required to be filed 
after the date of the enactment of this Act.

SEC. 9. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.

    (a) In General.--Part I of subchapter B of chapter 68 of the 
Internal Revenue Code of 1986 (relating to assessable penalties) is 
amended by adding at the end the following new section:

``SEC. 6699. <<NOTE: Penalties. 26 USC 6699.>> FAILURE TO FILE S 
            CORPORATION RETURN.

    ``(a) General Rule.--In addition to the penalty imposed by section 
7203 (relating to willful failure to file return, supply information, or 
pay tax), if any S corporation required to file a return under section 
6037 for any taxable year--
            ``(1) fails to file such return at the time prescribed 
        therefor (determined with regard to any extension of time for 
        filing), or
            ``(2) files a return which fails to show the information 
        required under section 6037,

such S corporation shall be liable for a penalty determined under 
subsection (b) for each month (or fraction thereof) during which such 
failure continues (but not to exceed 12 months), unless it is shown that 
such failure is due to reasonable cause.
    ``(b) Amount Per Month.--For purposes of subsection (a), the amount 
determined under this subsection for any month is the product of--
            ``(1) $85, multiplied by
            ``(2) the number of persons who were shareholders in the S 
        corporation during any part of the taxable year.

    ``(c) Assessment of Penalty.--The penalty imposed by subsection (a) 
shall be assessed against the S corporation.
    ``(d) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by subsection (a).''.
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 of such Code is amended by adding at the end 
the following new item:

``Sec. 6699. Failure to file S corporation return.''.

[[Page 121 STAT. 1808]]

    (c) Effective Date.--The <<NOTE: 26 USC 6699 note.>> amendments made 
by this section shall apply to returns required to be filed after the 
date of the enactment of this Act.

SEC. 10. <<NOTE: 26 USC 6655 note.>> MODIFICATION OF REQUIRED 
            INSTALLMENT OF CORPORATE ESTIMATED TAXES WITH RESPECT TO 
            CERTAIN DATES.

    The percentage under subparagraph (B) of section 401(1) of the Tax 
Increase Prevention and Reconciliation Act of 2005 in effect on the date 
of the enactment of this Act is increased by 1.50 percentage points.

    Approved December 20, 2007.

LEGISLATIVE HISTORY--H.R. 3648:
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HOUSE REPORTS: No. 110-356 (Comm. on Ways and Means).
CONGRESSIONAL RECORD, Vol. 153 (2007):
            Oct. 4, considered and passed House.
            Dec. 14, considered and passed Senate, amended.
            Dec. 18, House concurred in Senate amendment.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 43 (2007):
            Dec. 20, Presidential remarks.

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