I 

108TH CONGRESS 

1ST SESSION H. R. 2615

To provide funding for infrastructure investment to restore the United States 

economy and to enhance the security of transportation and environmental 

facilities throughout the United States. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 26, 2003

Mr. COSTELLO (for himself, Mr. DAVIS of Tennessee, Mr. OBERSTAR, Mr. RAHALL, Mr. FILNER, Mr. MENENDEZ, Mr. CUMMINGS, Mr. LIPINSKI, Mrs. 

TAUSCHER, Mr. BISHOP of New York, Mr. BLUMENAUER, Mr. EMANUEL, Mr. NADLER, Mr. CLAY, Mr. HOLDEN, Ms. NORTON, Mr. HONDA, 

Mr. CAPUANO, Mr. BAIRD, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. 

MICHAUD, Mr. LARSEN of Washington, Mr. WEINER, Mr. DEFAZIO, Ms. 

MILLENDER-MCDONALD, Ms. BERKLEY, Mr. PASCRELL, Mr. BOSWELL, 

Ms. CORRINE BROWN of Florida, Ms. CARSON of Indiana, Mr. THOMPSON of California, Mr. HOEFFEL, Mr. LAMPSON, Mr. MATHESON, and 

Mr. CARSON of Oklahoma) introduced the following bill; which was referred to the Committee on Transportation and Infrastructure, and in addition to the Committees on Ways and Means, Energy and Commerce, 

Financial Services, and Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL

To provide funding for infrastructure investment to restore 

the United States economy and to enhance the security 

of transportation and environmental facilities throughout 

the United States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

3 ‘‘Rebuild America Act of 2003’’. 

4 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents. 

Sec. 2. Findings and purposes. 

TITLE I—HIGHWAY INFRASTRUCTURE INVESTMENT 

Sec. 101. Federal-aid highway program obligation ceiling. 

TITLE II—TRANSIT INFRASTRUCTURE INVESTMENT 

Sec. 201. Additional authorizations for formula grants. 

Sec. 202. Federal transit program obligation ceiling. 

TITLE III—AVIATION INFRASTRUCTURE INVESTMENT 

Sec. 301. Increased funding for airport planning and development. 

Sec. 302. Airport security improvement projects. 

TITLE IV—RAIL INFRASTRUCTURE INVESTMENT 

Subtitle A—Credit for Amtrak Bonds 

Sec. 401. Credit to holders of qualified Amtrak bonds. 

Subtitle B—High-Speed Rail Provisions 

Sec. 411. Department of transportation approval for qualified Amtrak projects. 

Sec. 412. Multiyear capital spending plan and oversight. 

Sec. 413. Issuance of regulations. 

Sec. 414. Sense of Congress regarding effect on Amtrak funding. 

Sec. 415. Effective date. 

Subtitle C—Amtrak Capital Investment 

Sec. 421. Authorization of appropriations. 

Subtitle D—Capital Investment for Railroad Rehabilitation 

Sec. 431. Capital grants for railroad track. 

Sec. 432. Regulatory procedure amendments. 

TITLE V—PORT SECURITY INFRASTRUCTURE INVESTMENT 

Sec. 501. Authorization of appropriations for grants to implement security 

plans. 

TITLE VI—ENVIRONMENTAL INFRASTRUCTURE INVESTMENT 

Sec. 601. General authority for capitalization grants. 

Sec. 602. Capitalization grants agreements. 

Sec. 603. Water pollution control revolving funds. 

Sec. 604. Authorization of appropriations for clean water State revolving funds. 
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Sec. 605. Wet weather. 

Sec. 606. Safe drinking water State revolving funds. 

TITLE VII—WATER RESOURCES INFRASTRUCTURE INVESTMENT 

Sec. 701. Increased funding for Corps of Engineers projects. 

TITLE VIII—ECONOMIC DEVELOPMENT INFRASTRUCTURE 

INVESTMENT 

Sec. 801. Public works and economic development. 

Sec. 802. Appalachian regional development. 

Sec. 803. Delta regional development. 

Sec. 804. Northern Great Plains regional development. 

TITLE IX—PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT 

Sec. 901. Security enhancements for GSA properties. 

TITLE X—GENERAL PROVISIONS 

Sec. 1001. Priority consideration for security projects. 

Sec. 1002. Temporary waiver of non-Federal share. 

Sec. 1003. Maintenance of effort. 

Sec. 1004. Labor standards. 

Sec. 1005. Buy America. 

TITLE XI—REVENUE OFFSETS 

Sec. 1100. Amendment of 1986 code. 

Subtitle A—Provisions Designed To Curtail Tax Shelters 

Sec. 1101. Clarification of economic substance doctrine. 

Sec. 1102. Penalty for failing to disclose reportable transaction. 

Sec. 1103. Accuracy-related penalty for listed transactions and other reportable 

transactions having a significant tax avoidance purpose. 

Sec. 1104. Penalty for understatements attributable to transactions lacking 

economic substance, etc. 

Sec. 1105. Modifications of substantial understatement penalty for nonreportable transactions. 

Sec. 1106. Tax shelter exception to confidentiality privileges relating to taxpayer communications. 

Sec. 1107. Disclosure of reportable transactions. 

Sec. 1108. Modifications to penalty for failure to register tax shelters. 

Sec. 1109. Modification of penalty for failure to maintain lists of investors. 

Sec. 1110. Modification of actions to enjoin certain conduct related to tax shelters and reportable transactions. 

Sec. 1111. Understatement of taxpayer’s liability by income tax return preparer. 

Sec. 1112. Penalty on failure to report interests in foreign financial accounts. 

Sec. 1113. Frivolous tax submissions. 

Sec. 1114. Regulation of individuals practicing before the Department of Treasury. 

Sec. 1115. Penalty on promoters of tax shelters. 

Sec. 1116. Statute of limitations for taxable years for which listed transactions 

not reported. 
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Sec. 1117. Denial of deduction for interest on underpayments attributable to 

nondisclosed reportable and noneconomic substance transactions. 

Subtitle B—OTHER PROVISIONS 

Sec. 1121. Limitation on transfer or importation of built-in losses. 

Sec. 1122. Disallowance of certain partnership loss transfers. 

Sec. 1123. No reduction of basis under section 734 in stock held by partnership 

in corporate partner. 

Sec. 1124. Repeal of special rules for FASITs. 

Sec. 1125. Expanded disallowance of deduction for interest on convertible debt. 

Sec. 1126. Expanded authority to disallow tax benefits under section 269. 

Sec. 1127. Modifications of certain rules relating to controlled foreign corporations. 

Sec. 1128. Basis for determining loss always reduced by nontaxed portion of 

dividends. 

Sec. 1129. Affirmation of consolidated return regulation authority. 

Sec. 1130. Extension of customs user fees. 

Subtitle C—Prevention of Corporate Expatriation To Avoid United States 

Income Tax 

Sec. 1131. Prevention of corporate expatriation to avoid United States income 

tax.

1 SEC. 2. FINDINGS AND PURPOSES. 

2 (a) FINDINGS.—Congress finds the following: 

3 (1) Since January 2001, the unemployment 

4 rate has increased from 4.2 percent to 6.1 percent, 

5 the highest level since July 1994. 

6 (2) Since January 2001, the number of unem7 ployed people increased from 5,950,000 people to 

8 9,000,000, an increase of more than 3,000,000, or 

9 more than 50 percent. 

10 (3) The increase in unemployment of the last 

11 two and one-half years has had a disproportionate 

12 effect on people of color. The rate of unemployment 

13 for African Americans is 10.8 percent, twice the rate 

14 for whites. The unemployment rate for Hispanic 
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1 Americans is 8.2 percent, more than 50 percent 

2 higher than the rate for whites.

3 (4) The number of unemployed private con4 struction workers is 715,000, an 80 percent increase 

5 over the comparable period in calendar year 2000. 

6 The unemployment rate for construction workers is 

7 8.4 percent, 68 percent higher than the rate in May 

8 2000. 

9 (5) Similarly, the number of unemployed manu10 facturing workers is nearly 1,200,000, an increase of 

11 more than 25 percent since January 2001. In Janu12 ary 2003, the number of production workers in man13 ufacturing dropped below 11,000,000 for the first 

14 time since February 1946, and the number con15 tinues to fall. 

16 (6) Moreover, after workers have lost their jobs, 

17 they have had more trouble finding new jobs. The 

18 average length of unemployment is almost 20 weeks, 

19 the longest it has been in almost 2 decades. In the 

20 past 2 years, the number of workers who are unem21 ployed for longer than 6 months has increased by 

22 1,300,000 to more than 1,900,000, an increase of 

23 more than 206 percent. One-half of the unemployed 

24 are out of work for more than 10 weeks and one in 

25 5 have been out of work for more than 6 months. 
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1 (7) In addition, 4,600,000 people seeking full2 time employment are working only part-time. An ad3 ditional 5,500,000 have completely dropped out of 

4 the labor force because they cannot find work, and 

5 therefore are not counted as unemployed. 

6 (8) As labor markets tightened in the late 

7 1990’s, even low- and middle-income workers seemed 

8 to gain some wage bargaining power. But, with the 

9 Bush recession, family incomes are falling across the 

10 board, and falling most rapidly among lower-income 

11 workers. 

12 (9) In 75 urban areas, highway congestion 

13 alone costs travelers 3,600,000,000 hours of delay, 

14 5,700,000,000 gallons of wasted fuel, and 

15 $67,500,000,000 in lost productivity and wasted fuel 

16 each year (more than three times the 

17 $22,000,000,000 cost in 1982). 

18 (10) Similarly, States indicate that 40 percent 

19 of assessed waters, or 20,000 discrete areas of the 

20 Nation’s lakes, rivers, streams, and coastal waters, 

21 do not meet State water quality standards. 

22 (11) States, cities, transit authorities, airport 

23 authorities, and other entities have thousands of 

24 ready-to-go infrastructure projects, which will create 
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1 long-term capital assets for the United States and 

2 which can help stimulate the Nation’s economy. 

3 (12) Each $1,000,000,000 of Federal funding 

4 invested in infrastructure construction creates ap5 proximately 47,500 jobs and $6,200,000,000 in eco6 nomic activity. 

7 (b) PURPOSES.—The purposes of this Act are as fol8 lows: 

9 (1) To invest in the Nation’s infrastructure to 

10 enhance the safety, security, and efficiency of high11 way, transit, aviation, rail, port, environmental, 

12 water resources, and public buildings infrastructure. 

13 (2) To create jobs and economic activity to put 

14 people back to work and stimulate the Nation’s 

15 economy. 

16 (3) To create long-term capital assets for the 

17 Nation that will help the United States address its 

18 enormous infrastructure needs and improve its eco19 nomic productivity. 

20 (4) To demonstrate the commitment of the 

21 Federal Government to economic recovery, thereby 

22 increasing the confidence of consumers and busi23 nesses. 
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1 TITLE I—HIGHWAY 

2 INFRASTRUCTURE INVESTMENT 

3 SEC. 101. FEDERAL-AID HIGHWAY PROGRAM OBLIGATION 

4 CEILING. 

5 Section 1102 of the Transportation Equity Act for 

6 the 21st Century (112 Stat. 115) is amended by adding 

7 at the end the following: 

8 ‘‘(j) INCREASE IN OBLIGATION LIMIT FOR FISCAL

9 YEAR 2003.—Notwithstanding any other provision of law, 

10 limitations on obligations imposed by subsection (a) for 

11 fiscal year 2003 shall be $36,600,000,000. Such sum shall 

12 be distributed in accordance with this section, except that 

13 a program subject to a reduction in funds under sub14 section (f) shall receive an amount of obligation authority 

15 equal to the amount of contract authority available for 

16 such program in such fiscal year.’’. 

17 TITLE II—TRANSIT 

18 INFRASTRUCTURE INVESTMENT 

19 SEC. 201. ADDITIONAL AUTHORIZATIONS FOR FORMULA 

20 GRANTS. 

21 (a) FROM THE TRUST FUND.—Section 

22 5338(a)(2)(A)(v) of title 49, United States Code, is 

23 amended by striking ‘‘$3,071,200,000’’ and inserting 

24 ‘‘$5,471,200,000’’. 
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1 (b) FROM THE GENERAL FUND.—Section 

2 5338(a)(2)(B)(v) of title 49, United States Code, is 

3 amended by striking ‘‘$767,800,000’’ and inserting 

4 ‘‘$1,367,800,000’’. 

5 (c) AVAILABILITY OF AMOUNTS.—Notwithstanding 

6 sections 5307(k)(2) and section 5336(i), any increase in 

7 the amounts apportioned to a recipient attributable to the 

8 amendments made by subsections (a) and (b) of this sec9 tion may be obligated by the recipient for 1 year after 

10 the last day of the fiscal year in which the amount is ap11 portioned. Not later than 30 days after the end of the 

12 1-year period, an amount that is not obligated at the end 

13 of that period shall be added to the amount that may be 

14 apportioned under the urbanized area formula program of 

15 section 5336 of title 49, United States Code. 

16 SEC. 202. FEDERAL TRANSIT PROGRAM OBLIGATION CEIL17 ING. 

18 Section 3040(5) of the Transportation Equity Act for 

19 the 21st Century (112 Stat. 394) is amended by striking 

20 ‘‘$7,226,000,000’’ and inserting ‘‘$10,226,000,000’’.
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1 TITLE III—AVIATION 

2 INFRASTRUCTURE INVESTMENT 

3 SEC. 301. INCREASED FUNDING FOR AIRPORT PLANNING 

4 AND DEVELOPMENT. 

5 (a) IN GENERAL.—Section 48103(5) of title 49, 

6 United States Code, is amended by striking 

7 ‘‘$3,400,000,000’’ and inserting ‘‘$5,400,000,000.’’. 

8 SEC. 302. AIRPORT SECURITY IMPROVEMENT PROJECTS. 

9 (a) GRANT AUTHORITY.—Subject to the require10 ments of this section, the Under Secretary for Border and 

11 Transportation Security shall make grants to airport 

12 sponsors—

13 (1) for projects to replace baggage conveyer 

14 systems related to aviation security; 

15 (2) for projects to reconfigure terminal baggage 

16 areas as needed to install explosive detection sys17 tems; and 

18 (3) for such other airport security improvement 

19 projects as the Under Secretary determines appro20 priate. 

21 (b) APPLICATIONS.—A sponsor seeking a grant 

22 under this section shall submit to the Under Secretary an 

23 application in such form and containing such information 

24 as the Under Secretary prescribes. 
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1 (c) APPROVAL.—The Under Secretary may approve 

2 an application of a sponsor for a grant under this section 

3 only if the Under Secretary determines that the project 

4 will improve security at an airport or improve the effi5 ciency of the airport without lessening security. 

6 (d) LETTERS OF INTENT.—

7 (1) ISSUANCE.—The Under Secretary may 

8 issue a letter of intent to a sponsor committing to 

9 obligate from future budget authority an amount, 

10 not more than the Federal Government’s share of 

11 the project’s cost, for an airport security improve12 ment project (including interest costs and costs of 

13 formulating the project). 

14 (2) SCHEDULE.—A letter of intent under this 

15 subsection shall establish a schedule under which the 

16 Under Secretary will reimburse the sponsor for the 

17 Government’s share of the project’s costs, as 

18 amounts become available, if the sponsor, after the 

19 Under Secretary issues the letter, carries out the 

20 project without receiving amounts under this section. 

21 (3) PRIORITY.—In making grants under this 

22 section in a fiscal year, the Under Secretary shall 

23 fulfill intentions to obligate under this subsection. 

24 (4) NOTICE TO UNDER SECRETARY.—A sponsor 

25 that has been issued a letter of intent under this 
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1 subsection shall notify the Under Secretary of the 

2 sponsors’s intent to carry out an airport security im3 provement project before the project begins. 

4 (5) NOTICE TO CONGRESS.—The Under Sec5 retary shall transmit to the Committees on Appro6 priations and Transportation and Infrastructure of 

7 the House of Representatives and the Committees 

8 on Appropriations and Commerce, Science and 

9 Transportation of the Senate a written notification 

10 at least 3 days before the issuance of a letter of in11 tent under this section. 

12 (6) LIMITATIONS.—A letter of intent issued 

13 under this subsection is not an obligation of the 

14 Government under section 1501 of title 31, and the 

15 letter is not deemed to be an administrative commit16 ment for financing. An obligation or administrative 

17 commitment may be made only as amounts are pro18 vided in authorization and appropriations laws. 

19 (7) APPLICABILITY OF CERTAIN REQUIRE20 MENTS.—The requirements that apply to grants and 

21 letters of intent issued under chapter 471 shall 

22 apply to grants and letters of intent issued under 

23 this section. 

24 (8) STATUTORY CONSTRUCTION.—Nothing in 

25 this subsection shall be construed to prohibit the ob-
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1 ligation of amounts pursuant to a letter of intent 

2 under this subsection in the same fiscal year as the 

3 letter of intent is issued. 

4 (e) FEDERAL SHARE.—The Government’s share of 

5 the cost of a project under this section shall be 90 percent 

6 for a project at an airport having at least 0.25 percent 

7 of the total number of passenger boardings each year at 

8 all airports and 95 percent for a project at any other air9 port. 

10 (f) SPONSOR DEFINED.—In this section, the term 

11 ‘‘sponsor’’ has the meaning given that term in section 

12 47102. 

13 (g) AUTHORIZATION OF APPROPRIATIONS.—There is 

14 authorized to be appropriated $1,000,000,000 for fiscal 

15 year 2003 to carry out this section.

16 TITLE IV—RAIL 

17 INFRASTRUCTURE INVESTMENT 

18 Subtitle A—Credit for Amtrak 

19 Bonds 

20 SEC. 401. CREDIT TO HOLDERS OF QUALIFIED AMTRAK 

21 BONDS. 

22 (a) IN GENERAL.—Part IV of subchapter A of chap23 ter 1 of the Internal Revenue Code of 1986 (relating to 

24 credits against tax) is amended by adding at the end the 

25 following new subpart: 
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1 ‘‘Subpart H—Nonrefundable Credit for Holders of 

2 Qualified Amtrak Bonds

‘‘Sec. 54. Credit to holders of qualified Amtrak bonds.

3 ‘‘SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK 

4 BONDS. 

5 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax6 payer who holds a qualified Amtrak bond on a credit al7 lowance date of such bond which occurs during the taxable 

8 year, there shall be allowed as a credit against the tax 

9 imposed by this chapter for such taxable year an amount 

10 equal to the sum of the credits determined under sub11 section (b) with respect to credit allowance dates during 

12 such year on which the taxpayer holds such bond. 

13 ‘‘(b) AMOUNT OF CREDIT.—

14 ‘‘(1) IN GENERAL.—The amount of the credit 

15 determined under this subsection with respect to any 

16 credit allowance date for a qualified Amtrak bond is 

17 25 percent of the annual credit determined with re18 spect to such bond. 

19 ‘‘(2) ANNUAL CREDIT.—The annual credit de20 termined with respect to any qualified Amtrak bond 

21 is the product of—

22 ‘‘(A) the applicable credit rate, multiplied 

23 by 

24 ‘‘(B) the outstanding face amount of the 

25 bond.
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1 ‘‘(3) APPLICABLE CREDIT RATE.—For purposes 

2 of paragraph (2), the applicable credit rate with re3 spect to an issue is the rate equal to an average 

4 market yield (as of the day before the date of sale 

5 of the issue) on outstanding long-term corporate 

6 debt obligations (determined under regulations pre7 scribed by the Secretary). 

8 ‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 

9 of this section, the term ‘credit allowance date’ 

10 means—

11 ‘‘(A) March 15, 

12 ‘‘(B) June 15, 

13 ‘‘(C) September 15, and 

14 ‘‘(D) December 15. 

15 Such term includes the last day on which the bond 

16 is outstanding. 

17 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE18 DEMPTION.—In the case of a bond which is issued 

19 during the 3-month period ending on a credit allow20 ance date, the amount of the credit determined 

21 under this subsection with respect to such credit al22 lowance date shall be a ratable portion of the credit 

23 otherwise determined based on the portion of the 3-

24 month period during which the bond is outstanding. 
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1 A similar rule shall apply when the bond is re2 deemed. 

3 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—

4 ‘‘(1) IN GENERAL.—The credit allowed under 

5 subsection (a) for any taxable year shall not exceed 

6 the excess of—

7 ‘‘(A) the sum of the regular tax liability 

8 (as defined in section 26(b)) plus the tax im9 posed by section 55, over 

10 ‘‘(B) the sum of the credits allowable 

11 under this part (other than this subpart and 

12 subpart C). 

13 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the 

14 credit allowable under subsection (a) exceeds the 

15 limitation imposed by paragraph (1) for such taxable 

16 year, such excess shall be carried to the succeeding 

17 taxable year and added to the credit allowable under 

18 subsection (a) for such taxable year. 

19 ‘‘(d) CREDIT INCLUDED IN GROSS INCOME.—Gross 

20 income includes the amount of the credit allowed to the 

21 taxpayer under this section (determined without regard to 

22 subsection (c)) and the amount so included shall be treat23 ed as interest income. 
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1 ‘‘(e) QUALIFIED AMTRAK BOND.—For purposes of 

2 this part, the term ‘qualified Amtrak bond’ means any 

3 bond issued as part of an issue if—

4 ‘‘(1) 95 percent or more of the proceeds from 

5 the sale of such issue are to be used for expenditures 

6 incurred after the date of the enactment of this sec7 tion for any qualified project, 

8 ‘‘(2) the bond is issued by the National Rail9 road Passenger Corporation, is in registered form, 

10 and meets the bond limitation requirements under 

11 subsection (f), 

12 ‘‘(3) the issuer designates such bond for pur13 poses of this section, 

14 ‘‘(4) the issuer certifies that it meets the State 

15 contribution requirement of subsection (k) with re16 spect to such project, as in effect on the date of the 

17 enactment of this section, 

18 ‘‘(5) the issuer certifies that it has obtained the 

19 written approval of the Secretary of Transportation 

20 for such project in accordance with section 26301 of 

21 title 49, United States Code, as in effect on the date 

22 of the enactment of this section, 

23 ‘‘(6) the term of each bond which is part of 

24 such issue does not exceed 20 years, 
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1 ‘‘(7) the payment of principal with respect to 

2 such bond is the obligation of the National Railroad 

3 Passenger Corporation, and 

4 ‘‘(8) the issue meets the requirements of sub5 section (g) (relating to arbitrage). 

6 ‘‘(f) LIMITATIONS ON AMOUNT OF BONDS DES7 IGNATED.—

8 ‘‘(1) IN GENERAL.—There is a qualified Am9 trak bond limitation for each fiscal year. Such limi10 tation is—

11 ‘‘(A) $1,400,000,000 for each of the fiscal 

12 years 2003 through 2012, and 

13 ‘‘(B) zero after fiscal year 2012. 

14 ‘‘(2) LIMITS ON BONDS FOR NORTHEAST RAIL

15 CORRIDOR AND INDIVIDUAL STATES.—

16 ‘‘(A) NORTHEAST RAIL CORRIDOR.—Not 

17 more than $3,000,000,000 of the limitation 

18 under paragraph (1) may be designated for 

19 qualified projects on the northeast rail corridor 

20 between Washington, D.C., and Boston, Massa21 chusetts. 

22 ‘‘(B) INDIVIDUAL STATES.—Not more 

23 than $3,000,000,000 of the limitation under 

24 paragraph (1) may be designated for any indi25 vidual State. The dollar limitation under this 
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1 subparagraph is in addition to the dollar limita2 tion for the qualified projects described in sub3 paragraph (A). 

4 ‘‘(3) LIMIT ON BONDS FOR OTHER

5 PROJECTS.—Not more than $100,000,000 of the 

6 limitation under paragraph (1) for any fiscal year 

7 may be designated for all qualified projects described 

8 in subsection (j)(1)(C). 

9 ‘‘(4) CARRYOVER OF UNUSED LIMITATION.—If 

10 for any fiscal year—

11 ‘‘(A) the limitation amount under para12 graph (1), exceeds 

13 ‘‘(B) the amount of bonds issued during 

14 such year which are designated under sub15 section (e)(3), 

16 the limitation amount under paragraph (1) for the 

17 following fiscal year (through fiscal year 2016) shall 

18 be increased by the amount of such excess. 

19 ‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—

20 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

21 an issue shall be treated as meeting the require22 ments of this subsection if as of the date of 

23 issuance, the issuer reasonably expects—

24 ‘‘(A) to spend at least 95 percent of the 

25 proceeds from the sale of the issue for 1 or
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1 more qualified projects within the 3-year period 

2 beginning on such date, 

3 ‘‘(B) to incur a binding commitment with 

4 a third party to spend at least 10 percent of the 

5 proceeds from the sale of the issue, or to com6 mence construction, with respect to such 

7 projects within the 6-month period beginning on 

8 such date, and 

9 ‘‘(C) to proceed with due diligence to com10 plete such projects and to spend the proceeds 

11 from the sale of the issue. 

12 ‘‘(2) RULES REGARDING CONTINUING COMPLI13 ANCE AFTER 3-YEAR DETERMINATION.—If at least 

14 95 percent of the proceeds from the sale of the issue 

15 is not expended for 1 or more qualified projects 

16 within the 3-year period beginning on the date of 

17 issuance, but the requirements of paragraph (1) are 

18 otherwise met, an issue shall be treated as con19 tinuing to meet the requirements of this subsection 

20 if either—

21 ‘‘(A) the issuer uses all unspent proceeds 

22 from the sale of the issue to redeem bonds of 

23 the issue within 90 days after the end of such 

24 3-year period, or 

25 ‘‘(B) the following requirements are met: 
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1 ‘‘(i) The issuer spends at least 75 per2 cent of the proceeds from the sale of the 

3 issue for 1 or more qualified projects with4 in the 3-year period beginning on the date 

5 of issuance.

6 ‘‘(ii) Either—

7 ‘‘(I) the issuer spends at least 95 

8 percent of the proceeds from the sale 

9 of the issue for 1 or more qualified 

10 projects within the 4-year period be11 ginning on the date of issuance, or 

12 ‘‘(II) the issuer pays to the Fed13 eral Government any earnings on the 

14 proceeds from the sale of the issue 

15 that accrue after the end of the 3-year 

16 period beginning on the date of 

17 issuance and uses all unspent pro18 ceeds from the sale of the issue to re19 deem bonds of the issue within 90 

20 days after the end of the 4-year pe21 riod beginning on the date of 

22 issuance. 

23 ‘‘(h) RECAPTURE OF PORTION OF CREDIT WHERE

24 CESSATION OF COMPLIANCE.—
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1 ‘‘(1) IN GENERAL.—If any bond which when 

2 issued purported to be a qualified Amtrak bond 

3 ceases to be such a qualified bond, the issuer shall 

4 pay to the United States (at the time required by 

5 the Secretary) an amount equal to the sum of—

6 ‘‘(A) the aggregate of the credits allowable 

7 under this section with respect to such bond 

8 (determined without regard to subsection (c)) 

9 for taxable years ending during the calendar 

10 year in which such cessation occurs and the 2 

11 preceding calendar years, and 

12 ‘‘(B) interest at the underpayment rate 

13 under section 6621 on the amount determined 

14 under subparagraph (A) for each calendar year 

15 for the period beginning on the first day of 

16 such calendar year. 

17 ‘‘(2) FAILURE TO PAY.—If the issuer fails to 

18 timely pay the amount required by paragraph (1) 

19 with respect to such bond, the tax imposed by this 

20 chapter on each holder of any such bond which is 

21 part of such issue shall be increased (for the taxable 

22 year of the holder in which such cessation occurs) by 

23 the aggregate decrease in the credits allowed under 

24 this section to such holder for taxable years begin25 ning in such 3 calendar years which would have re-
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1 sulted solely from denying any credit under this sec2 tion with respect to such issue for such taxable 

3 years. 

4 ‘‘(3) SPECIAL RULES.—

5 ‘‘(A) TAX BENEFIT RULE.—The tax for 

6 the taxable year shall be increased under para7 graph (2) only with respect to credits allowed 

8 by reason of this section which were used to re9 duce tax liability. In the case of credits not so 

10 used to reduce tax liability, the carryforwards 

11 and carrybacks under section 39 shall be appro12 priately adjusted. 

13 ‘‘(B) NO CREDITS AGAINST TAX.—Any in14 crease in tax under paragraph (2) shall not be 

15 treated as a tax imposed by this chapter for 

16 purposes of determining—

17 ‘‘(i) the amount of any credit allow18 able under this part, or 

19 ‘‘(ii) the amount of the tax imposed 

20 by section 55. 

21 ‘‘(i) TRUST ACCOUNT.—

22 ‘‘(1) IN GENERAL.—The following amounts 

23 shall be held in a trust account by a trustee inde24 pendent of the National Railroad Passenger Cor25 poration: 
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1 ‘‘(A) The proceeds from the sale of all 

2 bonds designated for purposes of this section. 

3 ‘‘(B) The amount of any matching con4 tributions with respect to such bonds. 

5 ‘‘(C) The temporary period investment 

6 earnings on proceeds from the sale of such 

7 bonds. 

8 ‘‘(D) Any earnings on any amounts de9 scribed in subparagraph (A), (B), or (C). 

10 ‘‘(2) USE OF FUNDS.—Amounts in the trust ac11 count may be used only to pay costs of qualified 

12 projects and redeem qualified Amtrak bonds, except 

13 that amounts withdrawn from the trust account to 

14 pay costs of qualified projects may not exceed the 

15 aggregate proceeds from the sale of all qualified Am16 trak bonds issued under this section. 

17 ‘‘(3) USE OF REMAINING FUNDS IN TRUST AC18 COUNT.—Upon the redemption of all qualified Am19 trak bonds issued under this section, any remaining 

20 amounts in the trust account described in paragraph 

21 (1) shall be available to the issuer for any qualified 

22 project. 

23 ‘‘(j) QUALIFIED PROJECT.—For purposes of this sec24 tion—
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•HR 2615 IH 

1 ‘‘(1) IN GENERAL.—The term ‘qualified project’ 

2 means—

3 ‘‘(A) the acquisition, financing, or refi4 nancing of equipment, rolling stock, and other 

5 capital improvements (including the introduc6 tion of new high-speed technologies such as 

7 magnetic levitation systems), including track or 

8 signal improvements or the elimination of grade 

9 crossings, for the northeast rail corridor be10 tween Washington, D.C., and Boston, Massa11 chusetts, 

12 ‘‘(B) the acquisition, financing, or refi13 nancing of equipment, rolling stock, and other 

14 capital improvements (including the introduc15 tion of new high-speed technologies such as 

16 magnetic levitation systems), including develop17 ment of intermodal facilities, track or signal im18 provements, or the elimination of grade cross19 ings, for the improvement of train speeds or 

20 safety (or both) on the high-speed rail corridors 

21 designated under section 104(d)(2) of title 23, 

22 United States Code, as in effect on the date of 

23 the enactment of this section, and 

24 ‘‘(C) the acquisition, financing, or refi25 nancing of equipment, rolling stock, and other
26

•HR 2615 IH 

1 capital improvements, including station rehabili2 tation or construction, development of inter3 modal facilities, track or signal improvements, 

4 or the elimination of grade crossings, for the 

5 improvement of train speeds or safety (or both) 

6 for other intercity passenger rail corridors and 

7 for the Alaska Railroad.

8 ‘‘(2) REFINANCING RULES.—For purposes of 

9 paragraph (1), a refinancing shall constitute a quali10 fied project only if the indebtedness being refinanced 

11 (including any obligation directly or indirectly refi12 nanced by such indebtedness) was originally incurred 

13 by the issuer—

14 ‘‘(A) after the date of the enactment of 

15 this section, 

16 ‘‘(B) for a term of not more than 3 years, 

17 ‘‘(C) to finance or acquire capital improve18 ments described in paragraph (1), and 

19 ‘‘(D) in anticipation of being refinanced 

20 with proceeds of a qualified Amtrak bond. 

21 ‘‘(k) STATE CONTRIBUTION REQUIREMENTS.—

22 ‘‘(1) IN GENERAL.—For purposes of subsection 

23 (e)(4), the State contribution requirement of this 

24 subsection is met with respect to any qualified 

25 project if the National Railroad Passenger Corpora-
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•HR 2615 IH 

1 tion has received from 1 or more States, not later 

2 than the date of issuance of the bond, matching con3 tributions of not less than 20 percent of the cost of 

4 the qualified project. 

5 ‘‘(2) NO STATE CONTRIBUTION REQUIREMENT

6 FOR CERTAIN QUALIFIED PROJECTS.—The State 

7 contribution requirement of this subsection is zero 

8 with respect to the following projects: 

9 ‘‘(A) Any qualified project for the acquisi10 tion and installation of platform facilities, per11 formance of railroad force account work nec12 essary to complete improvements below street 

13 grade, and any other necessary improvements 

14 related to construction at the railroad station at 

15 the James A. Farley Post Office Building in 

16 New York City, New York. 

17 ‘‘(B) Any project described in subsection 

18 (j)(1)(C) for the Alaska Railroad. 

19 ‘‘(3) STATE MATCHING CONTRIBUTIONS MAY

20 NOT INCLUDE FEDERAL FUNDS.—For purposes of 

21 this subsection, State matching contributions shall 

22 not be derived, directly or indirectly, from Federal 

23 funds, including any transfers from the Highway 

24 Trust Fund under section 9503. 
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1 ‘‘(l) OTHER DEFINITIONS AND SPECIAL RULES.—

2 For purposes of this section—

3 ‘‘(1) BOND.—The term ‘bond’ includes any ob4 ligation. 

5 ‘‘(2) TREATMENT OF CHANGES IN USE.—For 

6 purposes of subsection (e)(1), the proceeds from the 

7 sale of an issue shall not be treated as used for a 

8 qualified project to the extent that the issuer takes 

9 any action within its control which causes such pro10 ceeds not to be used for a qualified project. The Sec11 retary shall prescribe regulations specifying remedial 

12 actions that may be taken (including conditions to 

13 taking such remedial actions) to prevent an action 

14 described in the preceding sentence from causing a 

15 bond to fail to be a qualified Amtrak bond. 

16 ‘‘(3) PARTNERSHIP; S CORPORATION; AND

17 OTHER PASS-THRU ENTITIES.—Under regulations 

18 prescribed by the Secretary, in the case of a partner19 ship, trust, S corporation, or other pass-thru entity, 

20 rules similar to the rules of section 41(g) shall apply 

21 with respect to the credit allowable under subsection 

22 (a). 

23 ‘‘(4) BONDS HELD BY REGULATED INVEST24 MENT COMPANIES.—If any qualified Amtrak bond is 

25 held by a regulated investment company, the credit 
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•HR 2615 IH 

1 determined under subsection (a) shall be allowed to 

2 shareholders of such company under procedures pre3 scribed by the Secretary. 

4 ‘‘(5) REPORTING.—Issuers of qualified Amtrak 

5 bonds shall submit reports similar to the reports re6 quired under section 149(e).’’. 

7 (b) AMENDMENTS TO OTHER CODE SECTIONS.—

8 (1) REPORTING.—Subsection (d) of section 

9 6049 of the Internal Revenue Code of 1986 (relating 

10 to returns regarding payments of interest) is amend11 ed by adding at the end the following new para12 graph: 

13 ‘‘(8) REPORTING OF CREDIT ON QUALIFIED AM14 TRAK BONDS.—

15 ‘‘(A) IN GENERAL.—For purposes of sub16 section (a), the term ‘interest’ includes amounts 

17 includible in gross income under section 54(d) 

18 and such amounts shall be treated as paid on 

19 the credit allowance date (as defined in section 

20 54(b)(4)). 

21 ‘‘(B) REPORTING TO CORPORATIONS, 

22 ETC.—Except as otherwise provided in regula23 tions, in the case of any interest described in 

24 subparagraph (A), subsection (b)(4) shall be 
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•HR 2615 IH 

1 applied without regard to subparagraphs (A), 

2 (H), (I), (J), (K), and (L)(i) of such subsection. 

3 ‘‘(C) REGULATORY AUTHORITY.—The Sec4 retary may prescribe such regulations as are 

5 necessary or appropriate to carry out the pur6 poses of this paragraph, including regulations 

7 which require more frequent or more detailed 

8 reporting.’’. 

9 (2) TREATMENT FOR ESTIMATED TAX PUR10 POSES.—

11 (A) INDIVIDUAL.—Section 6654 of such 

12 Code (relating to failure by individual to pay es13 timated income tax) is amended by redesig14 nating subsection (m) as subsection (n) and by 

15 inserting after subsection (l) the following new 

16 subsection: 

17 ‘‘(m) SPECIAL RULE FOR HOLDERS OF QUALIFIED

18 AMTRAK BONDS.—For purposes of this section, the credit 

19 allowed by section 54 to a taxpayer by reason of holding 

20 a qualified Amtrak bond on a credit allowance date shall 

21 be treated as if it were a payment of estimated tax made 

22 by the taxpayer on such date.’’. 

23 (B) CORPORATE.—Section 6655 of such 

24 Code (relating to failure by corporation to pay 

25 estimated income tax) is amended by adding at
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•HR 2615 IH 

1 the end of subsection (g) the following new 

2 paragraph: 

3 ‘‘(5) SPECIAL RULE FOR HOLDERS OF QUALI4 FIED AMTRAK BONDS.—For purposes of this section, 

5 the credit allowed by section 54 to a taxpayer by 

6 reason of holding a qualified Amtrak bond on a 

7 credit allowance date shall be treated as if it were 

8 a payment of estimated tax made by the taxpayer on 

9 such date.’’. 

10 (3) EXCLUSION FROM GROSS INCOME OF CON11 TRIBUTIONS BY AMTRAK TO OTHER RAIL CAR12 RIERS.—

13 (A) IN GENERAL.—Section 118 of the In14 ternal Revenue Code of 1986 (relating to con15 tributions to the capital of a corporation) is 

16 amended by redesignating subsections (d) and 

17 (e) as subsections (e) and (f), respectively, and 

18 by inserting after subsection (c) the following 

19 new subsection: 

20 ‘‘(d) SPECIAL RULE FOR CONTRIBUTIONS BY AM21 TRAK TO OTHER RAIL CARRIERS.—For purposes of this 

22 section, the term ‘contribution to the capital of the tax23 payer’ does not include any contribution by the National 

24 Railroad Passenger Corporation of personal or real prop-
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•HR 2615 IH 

1 erty funded by the proceeds of qualified Amtrak bonds 

2 under section 54.’’. 

3 (B) CONFORMING AMENDMENT.—Sub4 section (b) of such section 118 is amended by 

5 striking ‘‘subsection (c)’’ and inserting ‘‘sub6 sections (c) and (d)’’. 

7 (4) PROTECTION OF HIGHWAY TRUST FUND.—

8 Section 9503 of such Code (relating to Highway 

9 Trust Fund) is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(g) SPECIAL RULE RELATING TO NATIONAL RAIL12 ROAD PASSENGER CORPORATION.—Except as provided in 

13 subsection (c), as in effect on the date of the enactment 

14 of this subsection, amounts in the Highway Trust Fund 

15 may not be used to provide funds to the National Railroad 

16 Passenger Corporation for any purpose, including issuance 

17 of any qualified Amtrak bond pursuant to section 54. The 

18 preceding sentence may not be waived by any provision 

19 of law which is not contained or referenced in this title, 

20 whether such provision of law is a subsequently enacted 

21 provision or directly or indirectly seeks to waive the appli22 cation of such sentence.’’. 

23 (c) CLERICAL AMENDMENTS.—
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1 (1) The table of subparts for part IV of sub2 chapter A of chapter 1 is amended by adding at the 

3 end the following new item:

‘‘Subpart H. Nonrefundable Credit for Holders of Qualified Amtrak Bonds.’’.

4 (2) Section 6401(b)(1) is amended by striking 

5 ‘‘and G’’ and inserting ‘‘G, and H’’. 

6 (d) ANNUAL REPORT BY TREASURY ON AMTRAK

7 TRUST ACCOUNT.—The Secretary of the Treasury shall 

8 annually report to Congress as to whether the amount de9 posited in the trust account established by the National 

10 Railroad Passenger Corporation under section 54(i) of the 

11 Internal Revenue Code of 1986, as added by this section, 

12 is sufficient to fully repay at maturity the principal of any 

13 outstanding qualified Amtrak bonds issued pursuant to 

14 section 54 of such Code (as so added), together with 

15 amounts expected to be deposited into such account, as 

16 certified by the National Railroad Passenger Corporation 

17 in accordance with procedures prescribed by the Secretary 

18 of the Treasury. 

19 (e) ISSUANCE OF REGULATIONS.—The Secretary of 

20 the Treasury shall issue regulations required under section 

21 54 of the Internal Revenue Code of 1986 (as added by 

22 this section) not later than 90 days after the date of the 

23 enactment of this Act. 
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1 (f) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to obligations issued after the date 

3 of enactment of this Act. 

4 Subtitle B—High-Speed Rail 

5 Provisions 

6 SEC. 411. DEPARTMENT OF TRANSPORTATION APPROVAL 

7 FOR QUALIFIED AMTRAK PROJECTS. 

8 (a) AMENDMENT.—Part D of subtitle V of title 49, 

9 United States Code, is amended by adding at the end the 

10 following new chapter: 

11 ‘‘CHAPTER 263—HIGH-SPEED RAIL 

12 INITIATIVES

‘‘Sec. 

‘‘26301. Department of Transportation approval for qualified high-speed rail 

projects. 

‘‘26302. Qualified projects. 

‘‘26303. State contribution requirements.’’.

13 ‘‘§ 26301. Department of Transportation approval for 

14 qualified high-speed rail projects 

15 ‘‘(a) IN GENERAL.—The written approval of a quali16 fied project by the Secretary of Transportation required 

17 for purposes of subsection (e)(5) of section 54 of the Inter18 nal Revenue Code of 1986 (relating to credit to holders 

19 of qualified Amtrak bonds) shall include—

20 ‘‘(1) the finding by the Inspector General of the 

21 Department of Transportation described in sub22 section (b); 
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•HR 2615 IH 

1 ‘‘(2) the certification by the Secretary of Trans2 portation described in subsection (c); and 

3 ‘‘(3) the agreement by the National Railroad 

4 Passenger Corporation described in subsection (d). 

5 ‘‘(b) FINDING BY INSPECTOR GENERAL.—For pur6 poses of subsection (a), the finding described in this sub7 section is a finding by the Inspector General of the De8 partment of Transportation that there is a reasonable like9 lihood that the proposed project will result in a positive 

10 financial contribution to the National Railroad Passenger 

11 Corporation and that the investment evaluation process 

12 includes consideration of a return on investment, 

13 leveraging of funds (including State capital and operating 

14 contributions), cost effectiveness, safety improvement, mo15 bility improvement, and feasibility. 

16 ‘‘(c) CERTIFICATION.—For purposes of subsection 

17 (a), the certification described in this subsection is a cer18 tification by the Secretary of Transportation that the 

19 issuer of the qualified Amtrak bond—

20 ‘‘(1) except with respect to projects described in 

21 section 54(j)(1)(C) of the Internal Revenue Code of 

22 1986, has entered into a written agreement with the 

23 owners of rail properties which are to be improved 

24 by the project to be funded by the qualified Amtrak
36

•HR 2615 IH 

1 bond, as to the scope and estimated cost of such 

2 project and the impact on rail freight capacity; and

3 ‘‘(2) has met the State contribution require4 ments described in section 26303. 

5 The National Railroad Passenger Corporation shall not 

6 exercise its rights under section 24308(a)(2) to resolve 

7 disputes with respect to a project to be funded by a quali8 fied Amtrak bond, or with respect to the cost of such a 

9 project, unless the project is intended to result in railroad 

10 speeds of 79 miles per hour or less.

11 ‘‘(d) AGREEMENT BY AMTRAK TO ISSUE ADDI12 TIONAL BONDS FOR PROJECTS OF OTHER CARRIERS.—

13 ‘‘(1) IN GENERAL.—For purposes of subsection 

14 (a), the agreement described in this subsection is an 

15 agreement by the National Railroad Passenger Cor16 poration with the Secretary of Transportation to 

17 issue bonds which meet the requirements of section 

18 54 of the Internal Revenue Code of 1986 for use in 

19 financing projects described in paragraph (2). 

20 ‘‘(2) PROJECTS COVERED.—For purposes of 

21 paragraph (1), the projects described in this para22 graph are any project described in subsection 

23 (j)(1)(B) or (j)(1)(C) of section 54 of the Internal 

24 Revenue Code of 1986 for an intercity rail passenger 
37

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1 carrier other than the National Railroad Passenger 

2 Corporation or for the Alaska Railroad. 

3 ‘‘(3) ADDITIONAL REQUIREMENTS.—Any 

4 project financed by bonds referred to in paragraph 

5 (1) shall be carried out by the intercity rail pas6 senger carrier other than the National Railroad Pas7 senger Corporation, through a contract entered into 

8 by the National Railroad Passenger Corporation 

9 with such carrier. Such other intercity rail passenger 

10 carrier, in carrying out the project, shall be subject 

11 to the provisions of this subtitle governing the Na12 tional Railroad Passenger Corporation. 

13 ‘‘(4) DEFINITION.—For purposes of this sub14 section, the term ‘intercity rail passenger carrier’ 

15 means any rail carrier (as such term is defined in 

16 section 24102(7)) that is part of the interstate sys17 tem of rail transportation and that provides intercity 

18 rail passenger transportation (as such term is de19 fined in section 24102(5)). 

20 ‘‘(e) ADDITIONAL SELECTION CRITERIA.—In deter21 mining projects to be approved under this section (other 

22 than projects for the Alaska Railroad), or to be included 

23 in an agreement under subsection (d), the Secretary of 

24 Transportation shall give preference to—
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1 ‘‘(1) any project with a State matching con2 tribution rate exceeding 20 percent; 

3 ‘‘(2) projects expected to have a significant im4 pact on air traffic congestion; 

5 ‘‘(3) projects expected to also improve com6 muter rail operations; 

7 ‘‘(4) projects that anticipate fares designed to 

8 recover costs and generate a return on investment; 

9 and 

10 ‘‘(5) projects that promote regional balance in 

11 infrastructure investment and the national interest 

12 in ensuring the development of a nationwide high13 speed rail transportation network. 

14 ‘‘§ 26302. Qualified projects 

15 ‘‘For purposes of this chapter: 

16 ‘‘(1) IN GENERAL.—The term ‘qualified project’ 

17 means—

18 ‘‘(A) the acquisition, financing, or refi19 nancing of equipment, rolling stock, and other 

20 capital improvements (including the introduc21 tion of new high-speed technologies such as 

22 magnetic levitation systems), including track or 

23 signal improvements or the elimination of grade 

24 crossings, for the northeast rail corridor be-
39

•HR 2615 IH 

1 tween Washington, D.C., and Boston, Massa2 chusetts;

3 ‘‘(B) the acquisition, financing, or refi4 nancing of equipment, rolling stock, and other 

5 capital improvements (including the introduc6 tion of new high-speed technologies such as 

7 magnetic levitation systems), including develop8 ment of intermodal facilities, track or signal im9 provements, or the elimination of grade cross10 ings, for the improvement of train speeds or 

11 safety (or both) on the high-speed rail corridors 

12 designated under section 104(d)(2) of title 23, 

13 United States Code, as in effect on the date of 

14 the enactment of this section; and 

15 ‘‘(C) the acquisition, financing, or refi16 nancing of equipment, rolling stock, and other 

17 capital improvements, including station rehabili18 tation or construction, development of inter19 modal facilities, track or signal improvements, 

20 or the elimination of grade crossings, for the 

21 improvement of train speeds or safety (or both) 

22 for other intercity passenger rail corridors and 

23 for the Alaska Railroad. 

24 ‘‘(2) REFINANCING RULES.—For purposes of 

25 paragraph (1), a refinancing shall constitute a quali-
40

•HR 2615 IH 

1 fied project only if the indebtedness being refinanced 

2 (including any obligation directly or indirectly refi3 nanced by such indebtedness) was originally incurred 

4 by the issuer—

5 ‘‘(A) after the date of the enactment of 

6 this section; 

7 ‘‘(B) for a term of not more than 3 years; 

8 ‘‘(C) to finance or acquire capital improve9 ments described in paragraph (1); and 

10 ‘‘(D) in anticipation of being refinanced 

11 with proceeds of a qualified Amtrak bond. 

12 ‘‘§ 26303. State contribution requirements 

13 ‘‘(a) IN GENERAL.—For purposes of section 

14 26301(c)(2), the State contribution requirement of this 

15 section is met with respect to any qualified project if the 

16 National Railroad Passenger Corporation has received 

17 from 1 or more States, not later than the date of issuance 

18 of the bond, matching contributions of not less than 20 

19 percent of the cost of the qualified project. 

20 ‘‘(b) NO STATE CONTRIBUTION REQUIREMENT FOR

21 CERTAIN QUALIFIED PROJECTS.—The State contribution 

22 requirement of this section is zero with respect to the fol23 lowing projects: 

24 ‘‘(1) Any qualified project for the acquisition 

25 and installation of platform facilities, performance of
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1 railroad force account work necessary to complete 

2 improvements below street grade, and any other nec3 essary improvements related to construction at the 

4 railroad station at the James A. Farley Post Office 

5 Building in New York City, New York. 

6 ‘‘(2) Any project described in subsection 

7 (j)(1)(C) of section 54 of the Internal Revenue Code 

8 of 1986 for the Alaska Railroad. 

9 ‘‘(c) STATE MATCHING CONTRIBUTIONS MAY NOT

10 INCLUDE FEDERAL FUNDS.—For purposes of this sec11 tion, State matching contributions shall not be derived, di12 rectly or indirectly, from Federal funds, including any 

13 transfers from the Highway Trust Fund under section 

14 9503 of the Internal Revenue Code of 1986.’’. 

15 (b) TABLE OF CHAPTERS AMENDMENT.—The table 

16 of chapters of subtitle V of title 49, United States Code, 

17 is amended by inserting after the item relating to chapter 

18 261 the following new item:

‘‘263. HIGH-SPEED RAIL INITIATIVES ........................................... 26301’’.

19 SEC. 412. MULTIYEAR CAPITAL SPENDING PLAN AND OVER20 SIGHT. 

21 (a) AMENDMENT.—Chapter 243 of title 49, United 

22 States Code, is amended by adding at the end the fol23 lowing new section: 
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1 ‘‘§ 24316. Multiyear capital spending plan and over2 sight 

3 ‘‘(a) AMTRAK CAPITAL SPENDING PLAN.—

4 ‘‘(1) IN GENERAL.—The National Railroad 

5 Passenger Corporation shall annually submit to the 

6 President and Congress a multiyear capital spending 

7 plan, as approved by the Board of Directors of the 

8 Corporation. 

9 ‘‘(2) CONTENTS OF PLAN.—Such plan shall 

10 identify the capital investment needs of the Corpora11 tion over a period of not less than 5 years and the 

12 funding sources available to finance such needs and 

13 shall prioritize such needs according to corporate 

14 goals and strategies. 

15 ‘‘(3) INITIAL SUBMISSION DATE.—The first 

16 plan shall be submitted before the issuance of any 

17 qualified Amtrak bonds by the National Railroad 

18 Passenger Corporation pursuant to section 54 of the 

19 Internal Revenue Code of 1986. 

20 ‘‘(b) OVERSIGHT OF QUALIFIED PROJECTS.—The 

21 Secretary of Transportation shall contract for an annual 

22 independent assessment of the costs and benefits of the 

23 qualified projects financed by qualified Amtrak bonds pur24 suant to section 54 of the Internal Revenue Code of 1986, 

25 including an assessment of the investment evaluation proc-
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1 ess of the Corporation. The annual assessment shall be 

2 included in the plan submitted under subsection (a).’’. 

3 (b) TABLE OF SECTIONS AMENDMENT.—The table of 

4 sections of chapter 243 of title 49, United States Code, 

5 is amended by adding after the item relating to section 

6 24315 the following new item:

‘‘24316. Multiyear capital spending plan and oversight.’’.

7 SEC. 413. ISSUANCE OF REGULATIONS. 

8 The Secretary of Transportation shall issue regula9 tions for carrying out chapter 263 of title 49, United 

10 States Code (as added by section 411 of this Act), not 

11 later than 90 days after the date of the enactment of this 

12 Act. 

13 SEC. 414. SENSE OF CONGRESS REGARDING EFFECT ON 

14 AMTRAK FUNDING. 

15 It is the sense of the Congress that the proceeds of 

16 qualified Amtrak bonds issued under section 54 of the In17 ternal Revenue Code of 1986 are intended to finance the 

18 construction of qualified projects (as defined in section 

19 26302 of title 49, United States Code, as added by section 

20 411 of this Act) and are not intended to meet the regular, 

21 ongoing capital funding needs of the National Railroad 

22 Passenger Corporation. 
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1 SEC. 415. EFFECTIVE DATE. 

2 The amendments made by this subtitle shall apply to 

3 obligations issued after the date of the enactment of this 

4 Act. 

5 Subtitle C—Amtrak Capital 

6 Investment 

7 SEC. 421. AUTHORIZATION OF APPROPRIATIONS. 

8 Section 24104(a) of title 49, United States Code, is 

9 amended—

10 (1) by inserting ‘‘(1)’’ after ‘‘IN GENERAL.—’’; 

11 (2) by redesignating paragraphs (1) through 

12 (5) as subparagraphs (A) through (E), respectively; 

13 and 

14 (3) by adding at the end the following new 

15 paragraph: 

16 ‘‘(2) There are authorized to be appropriated to the 

17 Secretary of Transportation $2,500,000,000 for fiscal 

18 year 2003 for the benefit of Amtrak for capital expendi19 tures including—

20 ‘‘(A) New York, Washington, D.C., and Balti21 more tunnel life safety projects; 

22 ‘‘(B) bridges, tracks, and other improvements 

23 to increase the capacity and reliability of rail pas24 senger transportation; and 
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•HR 2615 IH 

1 ‘‘(C) equipment, including acquisition of 

2 trainsets and rolling stock, for operation in federally 

3 designated corridors. 

At least 2 4 ⁄3 of amounts expended under subparagraph (C) 

5 shall be for operations outside the Northeast Corridor.’’. 

6 Subtitle D—Capital Investment for 

7 Railroad Rehabilitation 

8 SEC. 431. CAPITAL GRANTS FOR RAILROAD TRACK. 

9 (a) CHAPTER 223.—

10 (1) AMENDMENT.—Chapter 223 of title 49, 

11 United States Code, is amended to read as follows: 

12 ‘‘CHAPTER 223—CAPITAL GRANTS FOR 

13 RAILROAD TRACK

‘‘Sec. 

‘‘22301. Capital grants for railroad track.

14 ‘‘§ 22301. Capital grants for railroad track 

15 ‘‘(a) ESTABLISHMENT OF PROGRAM.—

16 ‘‘(1) ESTABLISHMENT.—The Secretary of 

17 Transportation shall establish a program of capital 

18 grants for the rehabilitation, preservation, or im19 provement of railroad track (including roadbed, 

20 bridges, and related track structures) of class II and 

21 class III railroads. Such grants shall be for rehabili22 tating, preserving, or improving track used primarily 

23 for freight transportation to a standard ensuring 

24 that the track can be operated safely and efficiently,
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1 including grants for rehabilitating, preserving, or im2 proving track to handle 286,000 pound rail cars. 

3 Grants may be provided under this chapter—

4 ‘‘(A) directly to the class II or class III 

5 railroad; or 

6 ‘‘(B) with the concurrence of the class II 

7 or class III railroad, to a State or local govern8 ment. 

9 ‘‘(2) STATE COOPERATION.—Class II and class 

10 III railroad applicants for a grant under this chap11 ter are encouraged to utilize the expertise and assist12 ance of State transportation agencies in applying for 

13 and administering such grants. State transportation 

14 agencies are encouraged to provide such expertise 

15 and assistance to such railroads.

16 ‘‘(3) INTERIM REGULATIONS.—Not later than 

17 December 31, 2003, the Secretary shall issue tem18 porary regulations to implement the program under 

19 this section. Subchapter II of chapter 5 of title 5 

20 does not apply to a temporary regulation issued 

21 under this paragraph or to an amendment to such 

22 a temporary regulation. 

23 ‘‘(4) FINAL REGULATIONS.—Not later than Oc24 tober 1, 2004, the Secretary shall issue final regula25 tions to implement the program under this section. 
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1 ‘‘(b) MAXIMUM FEDERAL SHARE.—The maximum 

2 Federal share for carrying out a project under this section 

3 shall be 80 percent of the project cost. The non-Federal 

4 share may be provided by any non-Federal source in cash, 

5 equipment, or supplies. Other in-kind contributions may 

6 be approved by the Secretary on a case by case basis con7 sistent with this chapter. 

8 ‘‘(c) PROJECT ELIGIBILITY.—For a project to be eli9 gible for assistance under this section the track must have 

10 been operated or owned by a class II or class III railroad 

11 as of the date of the enactment of this section. 

12 ‘‘(d) USE OF FUNDS.—Grants provided under this 

13 section shall be used to implement track capital projects 

14 as soon as possible. In no event shall grant funds be con15 tractually obligated for a project later than the end of the 

16 third Federal fiscal year following the year in which the 

17 grant was awarded. Any funds not so obligated by the end 

18 of such fiscal year shall be returned to the Secretary for 

19 reallocation. 

20 ‘‘(e) ADDITIONAL PURPOSE.—In addition to making 

21 grants for projects as provided in subsection (a), the Sec22 retary may also make grants to supplement direct loans 

23 or loan guarantees made under title V of the Railroad Re24 vitalization and Regulatory Reform Act of 1976 (45 

25 U.S.C. 821 et seq.), for projects described in the last sen-
48

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1 tence of section 502(d) of such title. Grants made under 

2 this subsection may be used, in whole or in part, for pay3 ing credit risk premiums, lowering rates of interest, or 

4 providing for a holiday on principal payments. Credit risk 

5 premiums funded under this section shall be exempt from 

6 the non-Federal source requirement of section 502(f)(1) 

7 of the Railroad Revitalization and Regulatory Reform Act 

8 of 1976 (45 U.S.C. 822(f)(1)). 

9 ‘‘(f) EMPLOYEE PROTECTION.—The Secretary shall 

10 require as a condition of any grant made under this sec11 tion that the recipient railroad provide a fair arrangement 

12 at least as protective of the interests of employees who 

13 are affected by the project to be funded with the grant 

14 as the terms imposed under section 11326(a), as in effect 

15 on the date of the enactment of this section. 

16 ‘‘(g) LABOR STANDARDS.—

17 ‘‘(1) PREVAILING WAGES.—The Secretary shall 

18 ensure that laborers and mechanics employed by 

19 contractors and subcontractors in construction work 

20 financed by a grant made under this section will be 

21 paid wages not less than those prevailing on similar 

22 construction in the locality, as determined by the 

23 Secretary of Labor under section 3142 of title 40 

24 (known as the Davis-Bacon Act). The Secretary 

25 shall make a grant under this section only after 
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1 being assured that required labor standards will be 

2 maintained on the construction work. 

3 ‘‘(2) WAGE RATES.—Wage rates in a collective 

4 bargaining agreement negotiated under the Railway 

5 Labor Act (45 U.S.C. 151 et seq.) are deemed for 

6 purposes of this subsection to comply with section 

7 3142 of title 40 (known as the Davis-Bacon Act). 

8 ‘‘(h) AUTHORIZATION OF APPROPRIATIONS.—There 

9 is authorized to be appropriated to the Secretary of Trans10 portation $500,000,000 for fiscal year 2003 for carrying 

11 out this section.’’. 

12 (2) CONFORMING AMENDMENT.—The item re13 lating to chapter 223 in the table of chapters of sub14 title V of title 49, United States Code, is amended 

15 to read as follows:

‘‘223. CAPITAL GRANTS FOR RAILROAD TRACK .......................... 22301’’.

16 (b) RAILROAD REHABILITATION AND IMPROVEMENT

17 FINANCING.—Section 502 of the Railroad Revitalization 

18 and Regulatory Reform Act of 1976 (45 U.S.C. 822(d)) 

19 is amended—

20 (1) in subsection (d)—

21 (A) by striking ‘‘$3,500,000,000’’ and in22 serting ‘‘$5,000,000,000’’; and 

23 (B) by striking ‘‘$1,000,000,000’’ and in24 serting ‘‘$1,500,000,000’’; and 
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1 (2) by adding at the end the following new sub2 section: 

3 ‘‘(i) GRANTS.—The Secretary may make grants to 

4 supplement direct loans or loan guarantees made under 

5 this title. Grants made under this subsection may be used, 

6 in whole or in part, for paying credit risk premiums, low7 ering rates of interest, or providing for a holiday on prin8 cipal payments. Credit risk premiums funded under this 

9 subsection shall be exempt from the non-Federal source 

10 requirement of subsection (f)(1). There is authorized to 

11 be appropriated to the Secretary for fiscal year 2003 for 

12 carrying out this subsection $250,000,000.’’. 

13 SEC. 432. REGULATORY PROCEDURE AMENDMENTS. 

14 (a) COHORTS OF LOANS.—Section 502(f) of the Rail15 road Revitalization and Regulatory Reform Act of 1976 

16 (45 U.S.C. 822(f)) is amended—

17 (1) in paragraph (2)—

18 (A) by striking ‘‘and’’ at the end of sub19 paragraph (D); 

20 (B) by redesignating subparagraph (E) as 

21 subparagraph (F); and 

22 (C) by adding after subparagraph (D) the 

23 following new subparagraph:
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1 ‘‘(E) the size and characteristics of the co2 hort of which the loan or loan guarantee is a 

3 member; and’’; and 

4 (2) by adding at the end of paragraph (4) the 

5 following: ‘‘A cohort may include loans and loan 

6 guarantees. The Secretary shall not establish any 

7 limit on the proportion of a cohort that may be used 

8 for 1 loan or loan guarantee.’’. 

9 (b) CONDITIONS OF ASSISTANCE.—Section 502 of 

10 the Railroad Revitalization and Regulatory Reform Act of 

11 1976 (45 U.S.C. 822) is amended—

12 (1) in subsection (f)(2)(A), by inserting ‘‘, if 

13 any’’ after ‘‘collateral offered’’; and 

14 (2) by adding at the end of subsection (h) the 

15 following: 

16 ‘‘The Secretary shall not require an applicant for a direct 

17 loan or loan guarantee under this section to provide collat18 eral. The Secretary shall not require that an applicant for 

19 a direct loan or loan guarantee under this section have 

20 previously sought the financial assistance requested from 

21 another source. The Secretary shall require recipients of 

22 direct loans or loan guarantees under this section to apply 

23 the standards of section 26106(a)(5) of title 49, United 

24 States Code, to their projects, except for projects primarily 

25 benefiting Class III freight railroads.’’. 
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1 (c) TIME LIMIT FOR APPROVAL OR DISAPPROVAL.—

2 Section 502 of the Railroad Revitalization and Regulatory 

3 Reform Act of 1976 (45 U.S.C. 822), as amended by this 

4 Act, is further amended by adding at the end the following 

5 new subsection: 

6 ‘‘(j) TIME LIMIT FOR APPROVAL OR DISAPPROVAL.—

7 Not later than 30 days after receiving a complete applica8 tion for a direct loan or loan guarantee under this section, 

9 the Secretary shall approve or disapprove the applica10 tion.’’. 

11 (d) FEES AND CHARGES.—Section 503 of the Rail12 road Revitalization and Regulatory Reform Act of 1976 

13 (45 U.S.C. 823) is amended by adding at the end the fol14 lowing new subsection: 

15 ‘‘(l) FEES AND CHARGES.—Except as provided in 

16 this title, the Secretary may not assess any fees, including 

17 user fees, or charges in connection with a direct loan or 

18 loan guarantee provided under section 502.’’. 

19 (e) SUBSTANTIVE CRITERIA AND STANDARDS.—Not 

20 later than 30 days after the date of the enactment of this 

21 Act, the Secretary of Transportation shall publish in the 

22 Federal Register and post on the Department of Trans23 portation web site the substantive criteria and standards 

24 used by the Secretary to determine whether to approve 

25 or disapprove applications submitted under section 502 of 
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1 the Railroad Revitalization and Regulatory Reform Act of 

2 1976 (45 U.S.C. 822).

3 TITLE V—PORT SECURITY 

4 INFRASTRUCTURE INVESTMENT 

5 SEC. 501. AUTHORIZATION OF APPROPRIATIONS FOR 

6 GRANTS TO IMPLEMENT SECURITY PLANS. 

7 For grants under section 70107 of title 46, United 

8 States Code, there is authorized to be appropriated to the 

9 Secretary of Transportation (in addition to any amounts 

10 appropriated before the date of the enactment of this Act) 

11 $2,500,000,000 for fiscal year 2003. 

12 TITLE VI—ENVIRONMENTAL 

13 INFRASTRUCTURE INVESTMENT 

14 SEC. 601. GENERAL AUTHORITY FOR CAPITALIZATION 

15 GRANTS. 

16 Section 601(a) of the Federal Water Pollution Con17 trol Act (33 U.S.C. 1381(a)) is amended by striking ‘‘(1) 

18 for construction’’ and all that follows through the period 

19 at the end and inserting ‘‘to accomplish the objectives, 

20 goals, and policies of this Act.’’. 

21 SEC. 602. CAPITALIZATION GRANTS AGREEMENTS. 

22 (a) REQUIREMENTS FOR CONSTRUCTION OF TREAT23 MENT WORKS.—Section 602(b)(6) of the Federal Water 

24 Pollution Control Act (33 U.S.C. 1382(b)(6)) is amend25 ed—
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1 (1) by striking ‘‘treatment works’’ the first 

2 place it appears and inserting ‘‘activities’’; 

3 (2) by striking ‘‘before fiscal year 1995’’ and all 

4 that follows through ‘‘section 205(m) of this Act’’ 

5 and inserting ‘‘with funds made available from a 

6 State water pollution control revolving fund under 

7 this title’’; and 

8 (3) by striking ‘‘201(b)’’ and all that follows 

9 through ‘‘218’’ and inserting ‘‘204(b)(1), 211’’. 

10 (b) ASSISTANCE FOR SMALL TREATMENT WORKS.—

11 Section 602 of the Federal Water Pollution Control Act 

12 (33 U.S.C. 1382) is amended by adding at the end the 

13 following: 

14 ‘‘(c) ASSISTANCE FOR SMALL TREATMENT

15 WORKS.—

16 ‘‘(1) SIMPLIFIED PROCEDURES.—Not later than 

17 1 year after the date of the enactment of this sub18 section, the Administrator shall assist the States in 

19 establishing simplified procedures for small treat20 ment works to obtain assistance under this title. 

21 ‘‘(2) PUBLICATION OF MANUAL.—Not later 

22 than 2 years after the date of the enactment of this 

23 subsection, and after providing notice and oppor24 tunity for public comment, the Administrator shall 

25 publish a manual to assist small treatment works in 
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1 obtaining assistance under this title and publish in 

2 the Federal Register notice of the availability of the 

3 manual. 

4 ‘‘(3) SMALL TREATMENT WORKS DEFINED.—

5 For purposes of this title, the term ‘small treatment 

6 works’ means treatment works for which a munici7 pality or intermunicipal, interstate, or State agency 

8 seeks assistance under this title and which serves a 

9 population of 20,000 or fewer.’’. 

10 SEC. 603. WATER POLLUTION CONTROL REVOLVING 

11 FUNDS. 

12 (a) PROJECTS AND ACTIVITIES ELIGIBLE FOR AS13 SISTANCE.—Section 603(c) of the Federal Water Pollution 

14 Control Act (33 U.S.C. 1383(c)) is amended to read as 

15 follows: 

16 ‘‘(c) PROJECTS AND ACTIVITIES ELIGIBLE FOR AS17 SISTANCE.—

18 ‘‘(1) IN GENERAL.—The amounts of funds 

19 available to each State water pollution control re20 volving fund shall be used only for providing finan21 cial assistance—

22 ‘‘(A) to a municipality, intermunicipal 

23 agency, interstate agency, or State agency for 

24 construction of a publicly owned treatment 

25 works (as defined in section 212 of this Act);
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1 ‘‘(B) for implementation of lake protection 

2 programs and projects under section 314; 

3 ‘‘(C) for implementation of a management 

4 program established under section 319; 

5 ‘‘(D) for implementation of a conservation 

6 and management plan established under section 

7 320; 

8 ‘‘(E) for restoration or protection of pub9 licly or privately owned riparian areas, includ10 ing acquisition of property rights; 

11 ‘‘(F) to a municipality, intermunicipal 

12 agency, interstate agency, or State agency for 

13 implementation of measures to improve the effi14 ciency of public water use; 

15 ‘‘(G) for development and implementation 

16 of plans by a public recipient to prevent water 

17 pollution; 

18 ‘‘(H) for acquisition of lands necessary to 

19 meet any mitigation requirements related to 

20 construction of a publicly owned treatment 

21 works; and 

22 ‘‘(I) for measures to increase the security 

23 of publicly owned treatment works. 

24 ‘‘(2) FUND AMOUNTS.—The water pollution 

25 control revolving fund of a State shall be established, 
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1 maintained, and credited with repayments, and the 

2 fund balance shall be available in perpetuity for pro3 viding financial assistance for activities described in 

4 paragraph (1). Fees charged by a State to recipients 

5 of such assistance may be deposited in the fund for 

6 the purpose of financing the cost of administration 

7 of this title.’’.

8 (b) EXTENDED REPAYMENT PERIOD.—Section 

9 603(d)(1) of the Federal Water Pollution Control Act (33 

10 U.S.C. 1383(d)(1)) is amended—

11 (1) in subparagraph (A) by striking ‘‘20 years’’ 

12 and inserting ‘‘the lesser of 30 years or the expected 

13 life of the project to be financed with the proceeds 

14 of the loan’’; and 

15 (2) in subparagraph (B) by striking ‘‘not later 

16 than 20 years after project completion’’ and insert17 ing ‘‘upon the expiration of the term of the loan’’. 

18 (c) ADMINISTRATIVE EXPENSES.—Section 603(d)(7) 

19 of the Federal Water Pollution Control Act (33 U.S.C. 

20 1383(d)(7)) is amended by inserting before the period at 

the end the following: ‘‘or $400,000 per year, or 1 21 ⁄5 per22 cent per year of the current valuation of the fund, which23 ever is greatest, plus the amount of any fees collected by 

24 the State for such purpose regardless of the source’’. 
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1 (d) TECHNICAL AND PLANNING ASSISTANCE FOR

2 SMALL SYSTEMS.—Section 603(d) of the Federal Water 

3 Pollution Control Act (33 U.S.C. 1383(d)) is amended—

4 (1) by striking ‘‘and’’ at the end of paragraph 

5 (6); 

6 (2) by striking the period at the end of para7 graph (7) and inserting ‘‘; and’’; and 

8 (3) by adding at the end the following: 

9 ‘‘(8) to provide to owners and operators of 

10 small treatment works (as defined in section 602(c)) 

11 with technical and planning assistance and assist12 ance in financial management, user fee analysis, 

13 budgeting, capital improvement planning, facility op14 eration and maintenance, repair schedules, and other 

15 activities to improve wastewater treatment plant op16 erations; except that such amounts shall not exceed 

17 2 percent of all grant awards to such fund under 

18 this title.’’. 

19 (e) ADDITIONAL SUBSIDIZATION.—Section 603 of 

20 the Federal Water Pollution Control Act is amended by 

21 adding at the end the following: 

22 ‘‘(i) ADDITIONAL SUBSIDIZATION.—

23 ‘‘(1) IN GENERAL.—In any case in which a 

24 State provides assistance to a municipality or inter25 municipal, interstate, or State agency under sub-
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1 section (d), the State may provide additional sub2 sidization, including forgiveness of principal and 

3 negative interest loans—

4 ‘‘(A) to benefit a municipality that—

5 ‘‘(i) meets the State’s affordability 

6 criteria established under paragraph (2); 

7 or 

8 ‘‘(ii) does not meet the State’s afford9 ability criteria if the recipient—

10 ‘‘(I) seeks additional subsidiza11 tion to benefit individual ratepayers in 

12 the residential user rate class; 

13 ‘‘(II) demonstrates to the State 

14 that such ratepayers will experience a 

15 significant hardship from the increase 

16 in rates necessary to finance the 

17 project or activity for which assistance 

18 is sought; and 

19 ‘‘(III) ensures, as part of an as20 sistance agreement between the State 

21 and the recipient, that the additional 

22 subsidization provided under this 

23 paragraph is directed through a user 

24 charge rate system (or other appro25 priate method) to such ratepayers; or 
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1 ‘‘(B) to implement alternative processes, 

2 materials, and techniques (including non3 structural protection of surface waters, new or 

4 improved methods of waste treatment, and pol5 lutant trading) that may result in increased en6 vironmental benefit when compared to standard 

7 processes, materials, and techniques. 

8 ‘‘(2) AFFORDABILITY CRITERIA.—

9 ‘‘(A) ESTABLISHMENT.—On or before Sep10 tember 30, 2004, and after providing notice 

11 and an opportunity for public comment, a State 

12 shall establish affordability criteria to assist in 

13 identifying municipalities that would experience 

14 a significant hardship raising the revenue nec15 essary to finance a project or activity eligible 

16 for assistance under section 603(c)(1) if addi17 tional subsidization is not provided. Such cri18 teria shall be based on income data, population 

19 trends, and other data determined relevant by 

20 the State. 

21 ‘‘(B) EXISTING CRITERIA.—If a State has 

22 previously established, after providing notice 

23 and an opportunity for public comment, afford24 ability criteria that meet the requirements of 

25 subparagraph (A), the State may use the cri-
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1 teria for the purposes of this subsection. For 

2 purposes of this Act, any such criteria shall be 

3 treated as affordability criteria established 

4 under this paragraph. 

5 ‘‘(C) INFORMATION TO ASSIST STATES.—

6 The Administrator may publish information to 

7 assist States in establishing affordability cri8 teria under subparagraph (A). 

9 ‘‘(3) PRIORITY.—A State may give priority to a 

10 recipient for a project or activity eligible for funding 

11 under section 603(c)(1) if the recipient meets the 

12 State’s affordability criteria.’’. 

13 SEC. 604. AUTHORIZATION OF APPROPRIATIONS FOR 

14 CLEAN WATER STATE REVOLVING FUNDS. 

15 Section 607 of the Federal Water Pollution Control 

16 Act (33 U.S.C. 1387) is amended—

17 (1) by striking ‘‘and’’ at the end of paragraph 

18 (4); 

19 (2) by striking the period at the end of para20 graph (5) and inserting ‘‘; and’’; and 

21 (3) by adding at the end the following: 

22 ‘‘(6) $8,500,000,000 for fiscal year 2003.’’. 

23 SEC. 605. WET WEATHER. 

24 Section 221(f) of the Federal Water Pollution Con25 trol Act (33 U.S.C. 1301(f)) is amended by inserting after
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1 the first sentence the following: ‘‘In addition, there is au2 thorized to be appropriated to carry out this section an 

3 additional $1,500,000,000 for fiscal year 2003.’’. 

4 SEC. 606. SAFE DRINKING WATER STATE REVOLVING 

5 FUNDS. 

6 Section 1452(m) of title XIV of the Public Health 

7 Service Act (commonly known as the ‘‘Safe Drinking 

8 Water Act’’) (42 U.S.C. 300j–12(m)) is amended by in9 serting after the first sentence the following: ‘‘In addition, 

10 there is authorized to be appropriated to carry out this 

11 section an additional $1,500,000,000 for fiscal year 

12 2003.’’. 

13 TITLE VII—WATER RESOURCES 

14 INFRASTRUCTURE INVESTMENT 

15 SEC. 701. INCREASED FUNDING FOR CORPS OF ENGINEERS 

16 PROJECTS. 

17 In addition to other amounts authorized to be appro18 priated, there are authorized to be appropriated to the 

19 Secretary of the Army $1,500,000,000 for fiscal year 

20 2003, of which such sums as are necessary may be derived 

21 from the Harbor Maintenance Trust Fund and the Inland 

22 Wterways Trust Fund, to carry out construction, oper23 ation, and maintenance activities for authorized civil func24 tions under the supervision of the Chief of Engineers. 
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1 Such sums shall remain available until September 30, 

2 2004. 

3 TITLE VIII—ECONOMIC DEVEL4 OPMENT INFRASTRUCTURE 

5 INVESTMENT 

6 SEC. 801. PUBLIC WORKS AND ECONOMIC DEVELOPMENT. 

7 Section 701 of the Public Works and Economic De8 velopment Act of 1965 (42 U.S.C. 3231) is amended—

9 (1) by inserting ‘‘(a) IN GENERAL.—’’ before 

10 ‘‘There are authorized’’; and 

11 (2) by adding at the end the following: 

12 ‘‘(b) ADDITIONAL AUTHORIZATION.—In addition to 

13 amounts authorized by subsection (a), there are author14 ized to be appropriated to carry out this Act 

15 $1,025,000,000 for fiscal year 2003. Such sums shall re16 main available until September 30, 2004.’’. 

17 SEC. 802. APPALACHIAN REGIONAL DEVELOPMENT. 

18 Section 401 of the Appalachian Regional Develop19 ment Act of 1965 (40 U.S.C. App.) is amended by adding 

20 at the end the following: 

21 ‘‘(c) ADDITIONAL AUTHORIZATION.—In addition to 

22 amounts authorized by subsection (a), there are author23 ized to be appropriated to the Commission to carry out 

24 this Act $175,000,000 for fiscal year 2003. Such sums 

25 shall remain available until September 30, 2004.’’. 
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1 SEC. 803. DELTA REGIONAL DEVELOPMENT. 

2 Section 382M of the Consolidated Farm and Rural 

3 Development Act (7 U.S.C. 2009aa–12) is amended—

4 (1) by redesignating subsection (b) as sub5 section (c); 

6 (2) by inserting after subsection (a) the fol7 lowing: 

8 ‘‘(b) ADDITIONAL AUTHORIZATION.—In addition to 

9 amounts authorized by subsection (a), there are author10 ized to be appropriated to the Authority to carry out this 

11 subtitle $175,000,000 for fiscal year 2003. Such sums 

12 shall remain available until September 30, 2004.’’; and 

13 (3) in subsection (c) (as so redesignated) by 

14 striking ‘‘subsection (a)’’ and inserting ‘‘subsections 

15 (a) and (b)’’.

16 SEC. 804. NORTHERN GREAT PLAINS REGIONAL DEVELOP17 MENT. 

18 Section 383M of the Consolidated Farm and Rural 

19 Development Act (7 U.S.C. 2009bb–12) is amended—

20 (1) in subsection (b) by striking ‘‘subsection 

21 (a)’’ and inserting ‘‘this section’’; and 

22 (2) by adding at the end the following: 

23 ‘‘(d) ADDITIONAL AUTHORIZATION FOR FISCAL

24 YEAR 2003.—In addition to amounts authorized by sub25 section (a), there is authorized to be appropriated to the 

26 Authority to carry out this subtitle $175,000,000 for fiscal 
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1 year 2003. Such sums shall remain available until Sep2 tember 30, 2004.’’.

3 TITLE IX—PUBLIC BUILDINGS 

4 INFRASTRUCTURE INVESTMENT 

5 SEC. 901. SECURITY ENHANCEMENTS FOR GSA PROP6 ERTIES. 

7 (a) AUTHORIZATION OF APPROPRIATIONS.—In addi8 tion to other amounts credited to the Federal Buildings 

9 Fund established pursuant to section 210(f) of the Fed10 eral Property and Administrative Services Act of 1949 (40 

11 U.S.C. 490(f)), there is authorized to be appropriated 

12 $500,000,000 for fiscal year 2003 to be credited to the 

13 Fund. Such sums shall remain available until September 

14 30, 2004. 

15 (b) USE OF FUNDS.—Amounts credited to the Fund 

16 under this section shall be available to the Administrator 

17 of General Services to carry out projects and activities for 

18 enhancing the security of properties under the control of 

19 the General Services Administration, including general 

20 purpose office space, courthouses, and border crossing sta21 tions, and for other repair and alteration purposes. 
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1 TITLE X—GENERAL PROVISIONS 

2 SEC. 1001. PRIORITY CONSIDERATION FOR SECURITY 

3 PROJECTS. 

4 The head of a Federal department or agency may 

5 provide financial assistance with any increase in funds au6 thorized or made available by, or with any increase in obli7 gation authority made available by, this Act (including the 

8 amendments made by this Act) only if the recipient of 

9 such assistance certifies to the head of such department 

10 or agency that the recipient will give priority consideration 

11 to programs or projects that enhance security, to the ex12 tent that such programs or projects are immediately ready 

13 to be implemented. 

14 SEC. 1002. TEMPORARY WAIVER OF NON-FEDERAL SHARE. 

15 (a) IN GENERAL.—Notwithstanding any other provi16 sion of law and subject to subsection (b), in providing fi17 nancial assistance for a program or project with any in18 crease in funds authorized or made available by, or with 

19 any increase in obligation authority made available by, this 

20 Act (including the amendments made by this Act (other 

21 than subtitle A of title I of this Act)), the head of a Fed22 eral department or agency, upon request of the recipient 

23 of such assistance, may increase the Federal share of the 

24 cost of the program or project to not to exceed 100 percent 

25 of such cost.
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1 (b) REPAYMENTS.—Before increasing the Federal 

2 share of the cost of a program or project under subsection 

3 (a), the head of a Federal department or agency shall 

4 enter into a legally binding agreement with the recipient 

5 of financial assistance for the program or project under 

6 which the recipient agrees to repay the United States for 

7 the increased Federal share of the program or project on 

8 or before September 30, 2005. 

9 SEC. 1003. MAINTENANCE OF EFFORT. 

10 The head of a Federal department or agency may 

11 provide financial assistance for a program or project with 

12 any increase in funds authorized or made available by, or 

13 with any increase in obligation authority made available 

14 by, this Act (including the amendments made by this Act) 

15 for a fiscal year only if the recipient of such assistance 

16 certifies to the head of such department or agency that 

17 the aggregate expenditure of funds of the recipient, exclu18 sive of Federal funds, for such program or project will be 

19 maintained at a level that does not fall below the average 

20 level of such expenditure for the preceding 2 fiscal years 

21 of the recipient. 

22 SEC. 1004. LABOR STANDARDS. 

23 (a) PREVAILING WAGES.—The head of a Federal de24 partment or agency providing financial assistance with 

25 any increase in funds authorized or made available by, or 
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1 with any increase in obligation authority made available 

2 by, this Act (including the amendments made by this Act) 

3 shall ensure that laborers and mechanics employed by con4 tractors and subcontractors in construction work financed 

5 by such financial assistance will be paid wages not less 

6 than those prevailing on similar construction in the local7 ity, as determined by section 3142 of title 40, United 

8 States Code (known as the Davis-Bacon Act). The head 

9 of the department or agency shall provide such financial 

10 assistance only after being assured that required labor 

11 standards will be maintained on the construction work. 

12 (b) WAGE RATES.—Wage rates in a collective bar13 gaining agreement negotiated under the Railway Labor 

14 Act (45 U.S.C. 151 et seq.) are deemed for purposes of 

15 this section to comply with section 3142 of title 40, United 

16 States Code (known as the Davis-Bacon Act). 

17 SEC. 1005. BUY AMERICA. 

18 (a) PREFERENCE.—The head of a Federal depart19 ment or agency may provide financial assistance for a 

20 project with any increase in funds authorized or made 

21 available by, or with any increase in obligation authority 

22 made available by, this Act (including the amendments 

23 made by this Act) only if steel and manufactured goods 

24 used in the project are produced in the United States. 
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1 (b) WAIVER.—The head of a Federal department or 

2 agency may waive subsection (a) if the head of the Federal 

3 department or agency finds that—

4 (1) applying subsection (a) would be incon5 sistent with the public interest; 

6 (2) the steel and goods produced in the United 

7 States are not produced in a sufficient and reason8 ably available amount or are not of a satisfactory 

9 quality; 

10 (3) when procuring a facility or equipment with 

11 any increase in funds or obligation authority de12 scribed in subsection (a)—

13 (A) the cost of components and subcompo14 nents produced in the United States is more 

15 than 60 percent of the cost of all components 

16 of the facility or equipment; and 

17 (B) final assembly of the facility or equip18 ment has occurred in the United States; or 

19 (4) including domestic material will increase the 

20 cost of the overall project by more than 25 percent. 

21 (c) LABOR COSTS.—In this section, labor costs in22 volved in final assembly are not included in calculating the 

23 cost of components. 
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1 TITLE XI—REVENUE OFFSETS 

2 SEC. 1100. AMENDMENT OF 1986 CODE. 

3 Except as otherwise expressly provided, whenever in 

4 this title an amendment or repeal is expressed in terms 

5 of an amendment to, or repeal of, a section or other provi6 sion, the reference shall be considered to be made to a 

7 section or other provision of the Internal Revenue Code 

8 of 1986. 

9 Subtitle A—Provisions Designed To 

10 Curtail Tax Shelters 

11 SEC. 1101. CLARIFICATION OF ECONOMIC SUBSTANCE DOC12 TRINE. 

13 (a) IN GENERAL.—Section 7701 is amended by re14 designating subsection (m) as subsection (n) and by in15 serting after subsection (l) the following new subsection: 

16 ‘‘(m) CLARIFICATION OF ECONOMIC SUBSTANCE

17 DOCTRINE; ETC.—

18 ‘‘(1) GENERAL RULES.—

19 ‘‘(A) IN GENERAL.—In applying the eco20 nomic substance doctrine, the determination of 

21 whether a transaction has economic substance 

22 shall be made as provided in this paragraph. 

23 ‘‘(B) DEFINITION OF ECONOMIC SUB24 STANCE.—For purposes of subparagraph (A)—
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1 ‘‘(i) IN GENERAL.—A transaction has 

2 economic substance only if—

3 ‘‘(I) the transaction changes in a 

4 meaningful way (apart from Federal 

5 tax effects and, if there are any Fed6 eral tax effects, also apart from any 

7 foreign, State, or local tax effects) the 

8 taxpayer’s economic position, and

9 ‘‘(II) the taxpayer has a substan10 tial nontax purpose for entering into 

11 such transaction and the transaction 

12 is a reasonable means of accom13 plishing such purpose. 

14 ‘‘(ii) SPECIAL RULE WHERE TAX15 PAYER RELIES ON PROFIT POTENTIAL.—A 

16 transaction shall not be treated as having 

17 economic substance by reason of having a 

18 potential for profit unless—

19 ‘‘(I) the present value of the rea20 sonably expected pre-tax profit from 

21 the transaction is substantial in rela22 tion to the present value of the ex23 pected net tax benefits that would be 

24 allowed if the transaction were re25 spected, and
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1 ‘‘(II) the reasonably expected 

2 pre-tax profit from the transaction ex3 ceeds a risk-free rate of return.

4 ‘‘(C) TREATMENT OF FEES AND FOREIGN

5 TAXES.—Fees and other transaction expenses 

6 and foreign taxes shall be taken into account as 

7 expenses in determining pre-tax profit under 

8 subparagraph (B)(ii). 

9 ‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH

10 TAX-INDIFFERENT PARTIES.—

11 ‘‘(A) SPECIAL RULES FOR FINANCING

12 TRANSACTIONS.—The form of a transaction 

13 which is in substance the borrowing of money 

14 or the acquisition of financial capital directly or 

15 indirectly from a tax-indifferent party shall not 

16 be respected if the present value of the deduc17 tions to be claimed with respect to the trans18 action is substantially in excess of the present 

19 value of the anticipated economic returns of the 

20 person lending the money or providing the fi21 nancial capital. A public offering shall be treat22 ed as a borrowing, or an acquisition of financial 

23 capital, from a tax-indifferent party if it is rea24 sonably expected that at least 50 percent of the 
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1 offering will be placed with tax-indifferent par2 ties. 

3 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

4 BASIS ADJUSTMENTS.—The form of a trans5 action with a tax-indifferent party shall not be 

6 respected if—

7 ‘‘(i) it results in an allocation of in8 come or gain to the tax-indifferent party in 

9 excess of such party’s economic income or 

10 gain, or 

11 ‘‘(ii) it results in a basis adjustment 

12 or shifting of basis on account of over13 stating the income or gain of the tax-indif14 ferent party. 

15 ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For 

16 purposes of this subsection—

17 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—

18 The term ‘economic substance doctrine’ means 

19 the common law doctrine under which tax bene20 fits under subtitle A with respect to a trans21 action are not allowable if the transaction does 

22 not have economic substance or lacks a business 

23 purpose. 

24 ‘‘(B) TAX-INDIFFERENT PARTY.—The 

25 term ‘tax-indifferent party’ means any person 
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1 or entity not subject to tax imposed by subtitle 

2 A. A person shall be treated as a tax-indifferent 

3 party with respect to a transaction if the items 

4 taken into account with respect to the trans5 action have no substantial impact on such per6 son’s liability under subtitle A. 

7 ‘‘(C) SUBSTANTIAL NONTAX PURPOSE.—In 

8 applying subclause (II) of paragraph (1)(B)(i), 

9 a purpose of achieving a financial accounting 

10 benefit shall not be taken into account in deter11 mining whether a transaction has a substantial 

12 nontax purpose if the origin of such financial 

13 accounting benefit is a reduction of income tax. 

14 ‘‘(D) EXCEPTION FOR PERSONAL TRANS15 ACTIONS OF INDIVIDUALS.—In the case of an 

16 individual, this subsection shall apply only to 

17 transactions entered into in connection with a 

18 trade or business or an activity engaged in for 

19 the production of income. 

20 ‘‘(E) TREATMENT OF LESSORS.—In apply21 ing subclause (I) of paragraph (1)(B)(ii) to the 

22 lessor of tangible property subject to a lease, 

23 the expected net tax benefits shall not include 

24 the benefits of depreciation, or any tax credit, 

25 with respect to the leased property and sub-
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1 clause (II) of paragraph (1)(B)(ii) shall be dis2 regarded in determining whether any of such 

3 benefits are allowable.

4 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF5 FECTED.—Except as specifically provided in this 

6 subsection, the provisions of this subsection shall not 

7 be construed as altering or supplanting any other 

8 rule of law, and the requirements of this subsection 

9 shall be construed as being in addition to any such 

10 other rule of law. 

11 ‘‘(5) REGULATIONS.—The Secretary shall pre12 scribe such regulations as may be necessary or ap13 propriate to carry out the purposes of this sub14 section. Such regulations may include exemptions 

15 from the application of this subsection.’’

16 (b) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to transactions entered into after 

18 February 13, 2003. 

19 SEC. 1102. PENALTY FOR FAILING TO DISCLOSE REPORT20 ABLE TRANSACTION. 

21 (a) IN GENERAL.—Part I of subchapter B of chapter 

22 68 (relating to assessable penalties) is amended by insert23 ing after section 6707 the following new section: 
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1 ‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT2 ABLE TRANSACTION INFORMATION WITH RE3 TURN OR STATEMENT. 

4 ‘‘(a) IMPOSITION OF PENALTY.—Any person who 

5 fails to include on any return or statement any informa6 tion with respect to a reportable transaction which is re7 quired under section 6011 to be included with such return 

8 or statement shall pay a penalty in the amount determined 

9 under subsection (b). 

10 ‘‘(b) AMOUNT OF PENALTY.—

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graphs (2) and (3), the amount of the penalty under 

13 subsection (a) shall be $50,000. 

14 ‘‘(2) LISTED TRANSACTION.—The amount of 

15 the penalty under subsection (a) with respect to a 

16 listed transaction shall be $100,000. 

17 ‘‘(3) INCREASE IN PENALTY FOR LARGE ENTI18 TIES AND HIGH NET WORTH INDIVIDUALS.—

19 ‘‘(A) IN GENERAL.—In the case of a fail20 ure under subsection (a) by—

21 ‘‘(i) a large entity, or 

22 ‘‘(ii) a high net worth individual, 

23 the penalty under paragraph (1) or (2) shall be 

24 twice the amount determined without regard to 

25 this paragraph.
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1 ‘‘(B) LARGE ENTITY.—For purposes of 

2 subparagraph (A), the term ‘large entity’ 

3 means, with respect to any taxable year, a per4 son (other than a natural person) with gross re5 ceipts in excess of $10,000,000 for the taxable 

6 year in which the reportable transaction occurs 

7 or the preceding taxable year. Rules similar to 

8 the rules of paragraph (2) and subparagraphs 

9 (B), (C), and (D) of paragraph (3) of section 

10 448(c) shall apply for purposes of this subpara11 graph. 

12 ‘‘(C) HIGH NET WORTH INDIVIDUAL.—For 

13 purposes of subparagraph (A), the term ‘high 

14 net worth individual’ means, with respect to a 

15 reportable transaction, a natural person whose 

16 net worth exceeds $2,000,000 immediately be17 fore the transaction. 

18 ‘‘(c) DEFINITIONS.—For purposes of this section—

19 ‘‘(1) REPORTABLE TRANSACTION.—The term 

20 ‘reportable transaction’ means any transaction with 

21 respect to which information is required to be in22 cluded with a return or statement because, as deter23 mined under regulations prescribed under section 

24 6011, such transaction is of a type which the Sec-
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1 retary determines as having a potential for tax 

2 avoidance or evasion. 

3 ‘‘(2) LISTED TRANSACTION.—Except as pro4 vided in regulations, the term ‘listed transaction’ 

5 means a reportable transaction which is the same as, 

6 or substantially similar to, a transaction specifically 

7 identified by the Secretary as a tax avoidance trans8 action for purposes of section 6011. 

9 ‘‘(d) AUTHORITY TO RESCIND PENALTY.—

10 ‘‘(1) IN GENERAL.—The Commissioner of In11 ternal Revenue may rescind all or any portion of any 

12 penalty imposed by this section with respect to any 

13 violation if—

14 ‘‘(A) the violation is with respect to a re15 portable transaction other than a listed trans16 action, 

17 ‘‘(B) the person on whom the penalty is 

18 imposed has a history of complying with the re19 quirements of this title, 

20 ‘‘(C) it is shown that the violation is due 

21 to an unintentional mistake of fact; 

22 ‘‘(D) imposing the penalty would be 

23 against equity and good conscience, and 
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1 ‘‘(E) rescinding the penalty would promote 

2 compliance with the requirements of this title 

3 and effective tax administration. 

4 ‘‘(2) DISCRETION.—The exercise of authority 

5 under paragraph (1) shall be at the sole discretion 

6 of the Commissioner and may be delegated only to 

7 the head of the Office of Tax Shelter Analysis. The 

8 Commissioner, in the Commissioner’s sole discretion, 

9 may establish a procedure to determine if a penalty 

10 should be referred to the Commissioner or the head 

11 of such Office for a determination under paragraph 

12 (1). 

13 ‘‘(3) NO APPEAL.—Notwithstanding any other 

14 provision of law, any determination under this sub15 section may not be reviewed in any administrative or 

16 judicial proceeding. 

17 ‘‘(4) RECORDS.—If a penalty is rescinded under 

18 paragraph (1), the Commissioner shall place in the 

19 file in the Office of the Commissioner the opinion of 

20 the Commissioner or the head of the Office of Tax 

21 Shelter Analysis with respect to the determination, 

22 including—

23 ‘‘(A) the facts and circumstances of the 

24 transaction, 

25 ‘‘(B) the reasons for the rescission, and 
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1 ‘‘(C) the amount of the penalty rescinded. 

2 ‘‘(5) REPORT.—The Commissioner shall each 

3 year report to the Committee on Ways and Means 

4 of the House of Representatives and the Committee 

5 on Finance of the Senate—

6 ‘‘(A) a summary of the total number and 

7 aggregate amount of penalties imposed, and re8 scinded, under this section, and 

9 ‘‘(B) a description of each penalty re10 scinded under this subsection and the reasons 

11 therefor. 

12 ‘‘(e) PENALTY REPORTED TO SEC.—In the case of 

13 a person—

14 ‘‘(1) which is required to file periodic reports 

15 under section 13 or 15(d) of the Securities Ex16 change Act of 1934 or is required to be consolidated 

17 with another person for purposes of such reports, 

18 and 

19 ‘‘(2) which— 

20 ‘‘(A) is required to pay a penalty under 

21 this section with respect to a listed transaction, 

22 ‘‘(B) is required to pay a penalty under 

23 section 6662A with respect to any reportable 

24 transaction at a rate prescribed under section 

25 6662A(c), or 
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1 ‘‘(C) is required to pay a penalty under 

2 section 6662B with respect to any noneconomic 

3 substance transaction, 

4 the requirement to pay such penalty shall be disclosed in 

5 such reports filed by such person for such periods as the 

6 Secretary shall specify. Failure to make a disclosure in 

7 accordance with the preceding sentence shall be treated 

8 as a failure to which the penalty under subsection (b)(2) 

9 applies. 

10 ‘‘(f) COORDINATION WITH OTHER PENALTIES.—The 

11 penalty imposed by this section is in addition to any pen12 alty imposed under this title.’’. 

13 (b) CONFORMING AMENDMENT.—The table of sec14 tions for part I of subchapter B of chapter 68 is amended 

15 by inserting after the item relating to section 6707 the 

16 following:

‘‘Sec. 6707A. Penalty for failure to include reportable transaction 

information with return or statement.’’.

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

18 this section shall apply to returns and statements the due 

19 date for which is after the date of the enactment of this 

20 Act.
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1 SEC. 1103. ACCURACY-RELATED PENALTY FOR LISTED 

2 TRANSACTIONS AND OTHER REPORTABLE 

3 TRANSACTIONS HAVING A SIGNIFICANT TAX 

4 AVOIDANCE PURPOSE. 

5 (a) IN GENERAL.—Subchapter A of chapter 68 is 

6 amended by inserting after section 6662 the following new 

7 section: 

8 ‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PEN9 ALTY ON UNDERSTATEMENTS WITH RESPECT 

10 TO REPORTABLE TRANSACTIONS. 

11 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a 

12 reportable transaction understatement for any taxable 

13 year, there shall be added to the tax an amount equal to 

14 20 percent of the amount of such understatement. 

15 ‘‘(b) REPORTABLE TRANSACTION UNDERSTATE16 MENT.—For purposes of this section—

17 ‘‘(1) IN GENERAL.—The term ‘reportable trans18 action understatement’ means the sum of—

19 ‘‘(A) the product of—

20 ‘‘(i) the amount of the increase (if 

21 any) in taxable income which results from 

22 a difference between the proper tax treat23 ment of an item to which this section ap24 plies and the taxpayer’s treatment of such 

25 item (as shown on the taxpayer’s return of 

26 tax), and 
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1 ‘‘(ii) the highest rate of tax imposed 

2 by section 1 (section 11 in the case of a 

3 taxpayer which is a corporation), and 

4 ‘‘(B) the amount of the decrease (if any) 

5 in the aggregate amount of credits determined 

6 under subtitle A which results from a difference 

7 between the taxpayer’s treatment of an item to 

8 which this section applies (as shown on the tax9 payer’s return of tax) and the proper tax treat10 ment of such item. 

11 For purposes of subparagraph (A), any reduction of 

12 the excess of deductions allowed for the taxable year 

13 over gross income for such year, and any reduction 

14 in the amount of capital losses which would (without 

15 regard to section 1211) be allowed for such year, 

16 shall be treated as an increase in taxable income. 

17 ‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This 

18 section shall apply to any item which is attributable 

19 to—

20 ‘‘(A) any listed transaction, and 

21 ‘‘(B) any reportable transaction (other 

22 than a listed transaction) if a significant pur23 pose of such transaction is the avoidance or 

24 evasion of Federal income tax. 
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1 ‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED

2 AND OTHER AVOIDANCE TRANSACTIONS.—

3 ‘‘(1) IN GENERAL.—Subsection (a) shall be ap4 plied by substituting ‘30 percent’ for ‘20 percent’ 

5 with respect to the portion of any reportable trans6 action understatement with respect to which the re7 quirement of section 6664(d)(2)(A) is not met. 

8 ‘‘(2) RULES APPLICABLE TO COMPROMISE OF

9 PENALTY.—

10 ‘‘(A) IN GENERAL.—If the 1st letter of 

11 proposed deficiency which allows the taxpayer 

12 an opportunity for administrative review in the 

13 Internal Revenue Service Office of Appeals has 

14 been sent with respect to a penalty to which 

15 paragraph (1) applies, only the Commissioner 

16 of Internal Revenue may compromise all or any 

17 portion of such penalty. 

18 ‘‘(B) APPLICABLE RULES.—The rules of 

19 paragraphs (3), (4), and (5) of section 

20 6707A(d) shall apply for purposes of subpara21 graph (A). 

22 ‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED

23 TRANSACTIONS.—For purposes of this section, the terms 

24 ‘reportable transaction’ and ‘listed transaction’ have the 
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1 respective meanings given to such terms by section 

2 6707A(c). 

3 ‘‘(e) SPECIAL RULES.—

4 ‘‘(1) COORDINATION WITH PENALTIES, ETC., 

5 ON OTHER UNDERSTATEMENTS.—In the case of an 

6 understatement (as defined in section 6662(d)(2))—

7 ‘‘(A) the amount of such understatement 

8 (determined without regard to this paragraph) 

9 shall be increased by the aggregate amount of 

10 reportable transaction understatements and 

11 noneconomic substance transaction understate12 ments for purposes of determining whether 

13 such understatement is a substantial under14 statement under section 6662(d)(1), and 

15 ‘‘(B) the addition to tax under section 

16 6662(a) shall apply only to the excess of the 

17 amount of the substantial understatement (if 

18 any) after the application of subparagraph (A) 

19 over the aggregate amount of reportable trans20 action understatements and noneconomic sub21 stance transaction understatements. 

22 ‘‘(2) COORDINATION WITH OTHER PEN23 ALTIES.—

24 ‘‘(A) APPLICATION OF FRAUD PENALTY.—

25 References to an underpayment in section 6663 
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1 shall be treated as including references to a re2 portable transaction understatement and a non3 economic substance transaction understatement. 

4 ‘‘(B) NO DOUBLE PENALTY.—This section 

5 shall not apply to any portion of an understate6 ment on which a penalty is imposed under sec7 tion 6662B or 6663.

8 ‘‘(3) SPECIAL RULE FOR AMENDED RE9 TURNS.—Except as provided in regulations, in no 

10 event shall any tax treatment included with an 

11 amendment or supplement to a return of tax be 

12 taken into account in determining the amount of any 

13 reportable transaction understatement or non14 economic substance transaction understatement if 

15 the amendment or supplement is filed after the ear16 lier of the date the taxpayer is first contacted by the 

17 Secretary regarding the examination of the return or 

18 such other date as is specified by the Secretary. 

19 ‘‘(4) NONECONOMIC SUBSTANCE TRANS20 ACTION UNDERSTATEMENT.—For purposes of 

21 this subsection, the term ‘noneconomic sub22 stance transaction understatement’ has the 

23 meaning given such term by section 6662B(c). 
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1 ‘‘(5) CROSS REFERENCE.—

‘‘For reporting of section 6662A(c) penalty to the 

Securities and Exchange Commission, see section 

6707A(e).’’

2 (b) DETERMINATION OF OTHER UNDERSTATE3 MENTS.—Subparagraph (A) of section 6662(d)(2) is 

4 amended by adding at the end the following flush sen5 tence: 

6 ‘‘The excess under the preceding sentence shall 

7 be determined without regard to items to which 

8 section 6662A applies and without regard to 

9 items with respect to which a penalty is im10 posed by section 6662B.’’

11 (c) REASONABLE CAUSE EXCEPTION.—

12 (1) IN GENERAL.—Section 6664 is amended by 

13 adding at the end the following new subsection: 

14 ‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORT15 ABLE TRANSACTION UNDERSTATEMENTS.— 

16 ‘‘(1) IN GENERAL.—No penalty shall be im17 posed under section 6662A with respect to any por18 tion of a reportable transaction understatement if it 

19 is shown that there was a reasonable cause for such 

20 portion and that the taxpayer acted in good faith 

21 with respect to such portion. 

22 ‘‘(2) SPECIAL RULES.—Paragraph (1) shall not 

23 apply to any reportable transaction understatement 

24 unless—
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1 ‘‘(A) the relevant facts affecting the tax 

2 treatment of the item are adequately disclosed 

3 in accordance with the regulations prescribed 

4 under section 6011, 

5 ‘‘(B) there is or was substantial authority 

6 for such treatment, and 

7 ‘‘(C) the taxpayer reasonably believed that 

8 such treatment was more likely than not the 

9 proper treatment. 

10 A taxpayer failing to adequately disclose in accord11 ance with section 6011 shall be treated as meeting 

12 the requirements of subparagraph (A) if the penalty 

13 for such failure was rescinded under section 

14 6707A(d). 

15 ‘‘(3) RULES RELATING TO REASONABLE BE16 LIEF.—For purposes of paragraph (2)(C)—

17 ‘‘(A) IN GENERAL.—A taxpayer shall be 

18 treated as having a reasonable belief with re19 spect to the tax treatment of an item only if 

20 such belief—

21 ‘‘(i) is based on the facts and law that 

22 exist at the time the return of tax which 

23 includes such tax treatment is filed, and 

24 ‘‘(ii) relates solely to the taxpayer’s 

25 chances of success on the merits of such 
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1 treatment and does not take into account 

2 the possibility that a return will not be au3 dited, such treatment will not be raised on 

4 audit, or such treatment will be resolved 

5 through settlement if it is raised. 

6 ‘‘(B) CERTAIN OPINIONS MAY NOT BE RE7 LIED UPON.—

8 ‘‘(i) IN GENERAL.—An opinion of a 

9 tax advisor may not be relied upon to es10 tablish the reasonable belief of a taxpayer 

11 if—

12 ‘‘(I) the tax advisor is described 

13 in clause (ii), or 

14 ‘‘(II) the opinion is described in 

15 clause (iii). 

16 ‘‘(ii) DISQUALIFIED TAX ADVISORS.—

17 A tax advisor is described in this clause if 

18 the tax advisor—

19 ‘‘(I) is a material advisor (within 

20 the meaning of section 6111(b)(1)) 

21 who participates in the organization, 

22 management, promotion, or sale of 

23 the transaction or who is related 

24 (within the meaning of section 267(b) 
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1 or 707(b)(1)) to any person who so 

2 participates, 

3 ‘‘(II) is compensated directly or 

4 indirectly by a material advisor with 

5 respect to the transaction, 

6 ‘‘(III) has a fee arrangement 

7 with respect to the transaction which 

8 is contingent on all or part of the in9 tended tax benefits from the trans10 action being sustained, or 

11 ‘‘(IV) as determined under regu12 lations prescribed by the Secretary, 

13 has a continuing financial interest 

14 with respect to the transaction. 

15 ‘‘(iii) DISQUALIFIED OPINIONS.—For 

16 purposes of clause (i), an opinion is dis17 qualified if the opinion—

18 ‘‘(I) is based on unreasonable 

19 factual or legal assumptions (includ20 ing assumptions as to future events), 

21 ‘‘(II) unreasonably relies on rep22 resentations, statements, findings, or 

23 agreements of the taxpayer or any 

24 other person, 
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1 ‘‘(III) does not identify and con2 sider all relevant facts, or 

3 ‘‘(IV) fails to meet any other re4 quirement as the Secretary may pre5 scribe.’’

6 (2) CONFORMING AMENDMENT.—The heading 

7 for subsection (c) of section 6664 is amended by in8 serting ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEP9 TION’’. 

10 (d) CONFORMING AMENDMENTS.—

11 (1) Subparagraph (C) of section 461(i)(3) is 

12 amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ 

13 and inserting ‘‘section 1274(b)(3)(C)’’. 

14 (2) Paragraph (3) of section 1274(b) is amend15 ed—

16 (A) by striking ‘‘(as defined in section 

17 6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), 

18 and 

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

20 subparagraph: 

21 ‘‘(C) TAX SHELTER.—For purposes of sub22 paragraph (B), the term ‘tax shelter’ means—

23 ‘‘(i) a partnership or other entity, 

24 ‘‘(ii) any investment plan or arrange25 ment, or 
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1 ‘‘(iii) any other plan or arrangement, 

2 if a significant purpose of such partnership, en3 tity, plan, or arrangement is the avoidance or 

4 evasion of Federal income tax.’’

5 (3) Section 6662(d)(2) is amended by striking 

6 subparagraphs (C) and (D). 

7 (4) Section 6664(c)(1) is amended by striking 

8 ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’. 

9 (5) Subsection (b) of section 7525 is amended 

10 by striking ‘‘section 6662(d)(2)(C)(iii)’’ and insert11 ing ‘‘section 1274(b)(3)(C)’’. 

12 (6)(A) The heading for section 6662 is amend13 ed to read as follows: 

14 ‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY 

15 ON UNDERPAYMENTS.’’

16 (B) The table of sections for part II of sub17 chapter A of chapter 68 is amended by striking the 

18 item relating to section 6662 and inserting the fol19 lowing new items:

‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments. 

‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements with respect to reportable transactions.’’

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years ending after the 

22 date of the enactment of this Act. 
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1 SEC. 1104. PENALTY FOR UNDERSTATEMENTS ATTRIB2 UTABLE TO TRANSACTIONS LACKING ECO3 NOMIC SUBSTANCE, ETC. 

4 (a) IN GENERAL.—Subchapter A of chapter 68 is 

5 amended by inserting after section 6662A the following 

6 new section: 

7 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB8 UTABLE TO TRANSACTIONS LACKING ECO9 NOMIC SUBSTANCE, ETC. 

10 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 

11 noneconomic substance transaction understatement for 

12 any taxable year, there shall be added to the tax an 

13 amount equal to 40 percent of the amount of such under14 statement. 

15 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

16 TRANSACTIONS.—Subsection (a) shall be applied by sub17 stituting ‘20 percent’ for ‘40 percent’ with respect to the 

18 portion of any noneconomic substance transaction under19 statement with respect to which the relevant facts affect20 ing the tax treatment of the item are adequately disclosed 

21 in the return or a statement attached to the return. 

22 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN23 DERSTATEMENT.—For purposes of this section—

24 ‘‘(1) IN GENERAL.—The term ‘noneconomic 

25 substance transaction understatement’ means any 

26 amount which would be an understatement under
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1 section 6662A(b)(1) if section 6662A were applied 

2 by taking into account items attributable to non3 economic substance transactions rather than items 

4 to which section 6662A would apply without regard 

5 to this paragraph. 

6 ‘‘(2) NONECONOMIC SUBSTANCE TRANS7 ACTION.—The term ‘noneconomic substance trans8 action’ means any transaction if—

9 ‘‘(A) there is a lack of economic substance 

10 (within the meaning of section 7701(m)(1)) for 

11 the transaction giving rise to the claimed tax 

12 benefit or the transaction was not respected 

13 under section 7701(m)(2), or 

14 ‘‘(B) the transaction fails to meet the re15 quirements of any similar rule of law. 

16 ‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN17 ALTY.—

18 ‘‘(1) IN GENERAL.—If the 1st letter of pro19 posed deficiency which allows the taxpayer an oppor20 tunity for administrative review in the Internal Rev21 enue Service Office of Appeals has been sent with 

22 respect to a penalty to which this section applies, 

23 only the Commissioner of Internal Revenue may 

24 compromise all or any portion of such penalty. 
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1 ‘‘(2) APPLICABLE RULES.—The rules of para2 graphs (3), (4), and (5) of section 6707A(d) shall 

3 apply for purposes of paragraph (1). 

4 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex5 cept as otherwise provided in this part, the penalty im6 posed by this section shall be in addition to any other pen7 alty imposed by this title. 

8 ‘‘(f) CROSS REFERENCES.—

‘‘(1) For coordination of penalty with understatements under section 6662 and other special rules, 

see section 6662A(e). 

‘‘(2) For reporting of penalty imposed under this 

section to the Securities and Exchange Commission, 

see section 6707A(e).’’

9 (b) CLERICAL AMENDMENT.—The table of sections 

10 for part II of subchapter A of chapter 68 is amended by 

11 inserting after the item relating to section 6662A the fol12 lowing new item:

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.’’

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

14 this section shall apply to transactions entered into after 

15 February 13, 2003. 

16 SEC. 1105. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE17 MENT PENALTY FOR NONREPORTABLE 

18 TRANSACTIONS. 

19 (a) SUBSTANTIAL UNDERSTATEMENT OF CORPORA20 TIONS.—Section 6662(d)(1)(B) (relating to special rule 

21 for corporations) is amended to read as follows: 
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1 ‘‘(B) SPECIAL RULE FOR CORPORA2 TIONS.—In the case of a corporation other than 

3 an S corporation or a personal holding company 

4 (as defined in section 542), there is a substan5 tial understatement of income tax for any tax6 able year if the amount of the understatement 

7 for the taxable year exceeds the lesser of—

8 ‘‘(i) 10 percent of the tax required to 

9 be shown on the return for the taxable 

10 year (or, if greater, $10,000), or 

11 ‘‘(ii) $10,000,000.’’

12 (b) REDUCTION FOR UNDERSTATEMENT OF TAX13 PAYER DUE TO POSITION OF TAXPAYER OR DISCLOSED

14 ITEM.—

15 (1) IN GENERAL.—Section 6662(d)(2)(B)(i) 

16 (relating to substantial authority) is amended to 

17 read as follows: 

18 ‘‘(i) the tax treatment of any item by 

19 the taxpayer if the taxpayer had reason20 able belief that the tax treatment was more 

21 likely than not the proper treatment, or’’. 

22 (2) CONFORMING AMENDMENT.—Section 

23 6662(d) is amended by adding at the end the fol24 lowing new paragraph: 
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1 ‘‘(3) SECRETARIAL LIST.—For purposes of this 

2 subsection, section 6664(d)(2), and section 

3 6694(a)(1), the Secretary may prescribe a list of po4 sitions for which the Secretary believes there is not 

5 substantial authority or there is no reasonable belief 

6 that the tax treatment is more likely than not the 

7 proper tax treatment. Such list (and any revisions 

8 thereof) shall be published in the Federal Register 

9 or the Internal Revenue Bulletin.’’

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

11 this section shall apply to taxable years beginning after 

12 the date of the enactment of this Act. 

13 SEC. 1106. TAX SHELTER EXCEPTION TO CONFIDENTIALITY 

14 PRIVILEGES RELATING TO TAXPAYER COM15 MUNICATIONS. 

16 (a) IN GENERAL.—Section 7525(b) (relating to sec17 tion not to apply to communications regarding corporate 

18 tax shelters) is amended to read as follows: 

19 ‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS

20 REGARDING TAX SHELTERS.—The privilege under sub21 section (a) shall not apply to any written communication 

22 which is—

23 ‘‘(1) between a federally authorized tax practi24 tioner and—

25 ‘‘(A) any person, 
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1 ‘‘(B) any director, officer, employee, agent, 

2 or representative of the person, or 

3 ‘‘(C) any other person holding a capital or 

4 profits interest in the person, and 

5 ‘‘(2) in connection with the promotion of the di6 rect or indirect participation of the person in any 

7 tax shelter (as defined in section 1274(b)(3)(C)).’’

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

9 this section shall apply to communications made on or 

10 after the date of the enactment of this Act. 

11 SEC. 1107. DISCLOSURE OF REPORTABLE TRANSACTIONS. 

12 (a) IN GENERAL.—Section 6111 (relating to registra13 tion of tax shelters) is amended to read as follows: 

14 ‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS. 

15 ‘‘(a) IN GENERAL.—Each material advisor with re16 spect to any reportable transaction shall make a return 

17 (in such form as the Secretary may prescribe) setting 

18 forth—

19 ‘‘(1) information identifying and describing the 

20 transaction, 

21 ‘‘(2) information describing any potential tax 

22 benefits expected to result from the transaction, and 

23 ‘‘(3) such other information as the Secretary 

24 may prescribe.
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1 Such return shall be filed not later than the date specified 

2 by the Secretary. 

3 ‘‘(b) DEFINITIONS.—For purposes of this section—

4 ‘‘(1) MATERIAL ADVISOR.—

5 ‘‘(A) IN GENERAL.—The term ‘material 

6 advisor’ means any person—

7 ‘‘(i) who provides any material aid, 

8 assistance, or advice with respect to orga9 nizing, promoting, selling, implementing, 

10 or carrying out any reportable transaction, 

11 and 

12 ‘‘(ii) who directly or indirectly derives 

13 gross income in excess of the threshold 

14 amount for such aid, assistance, or advice. 

15 ‘‘(B) THRESHOLD AMOUNT.—For purposes 

16 of subparagraph (A), the threshold amount is—

17 ‘‘(i) $50,000 in the case of a report18 able transaction substantially all of the tax 

19 benefits from which are provided to nat20 ural persons, and 

21 ‘‘(ii) $250,000 in any other case. 

22 ‘‘(2) REPORTABLE TRANSACTION.—The term 

23 ‘reportable transaction’ has the meaning given to 

24 such term by section 6707A(c). 
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1 ‘‘(c) REGULATIONS.—The Secretary may prescribe 

2 regulations which provide—

3 ‘‘(1) that only 1 person shall be required to 

4 meet the requirements of subsection (a) in cases in 

5 which 2 or more persons would otherwise be re6 quired to meet such requirements, 

7 ‘‘(2) exemptions from the requirements of this 

8 section, and 

9 ‘‘(3) such rules as may be necessary or appro10 priate to carry out the purposes of this section.’’

11 (b) CONFORMING AMENDMENTS.—

12 (1) The item relating to section 6111 in the 

13 table of sections for subchapter B of chapter 61 is 

14 amended to read as follows:

‘‘Sec. 6111. Disclosure of reportable transactions.’’

15 (2)(A) So much of section 6112 as precedes 

16 subsection (c) thereof is amended to read as follows: 

17 ‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANS18 ACTIONS MUST KEEP LISTS OF ADVISEES. 

19 ‘‘(a) IN GENERAL.—Each material advisor (as de20 fined in section 6111) with respect to any reportable 

21 transaction (as defined in section 6707A(c)) shall main22 tain, in such manner as the Secretary may by regulations 

23 prescribe, a list—
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1 ‘‘(1) identifying each person with respect to 

2 whom such advisor acted as such a material advisor 

3 with respect to such transaction, and 

4 ‘‘(2) containing such other information as the 

5 Secretary may by regulations require. 

6 This section shall apply without regard to whether a mate7 rial advisor is required to file a return under section 6111 

8 with respect to such transaction.’’

9 (B) Section 6112 is amended by redesignating 

10 subsection (c) as subsection (b).

11 (C) Section 6112(b), as redesignated by sub12 paragraph (B), is amended—

13 (i) by inserting ‘‘written’’ before ‘‘request’’ 

14 in paragraph (1)(A), and 

15 (ii) by striking ‘‘shall prescribe’’ in para16 graph (2) and inserting ‘‘may prescribe’’. 

17 (D) The item relating to section 6112 in the 

18 table of sections for subchapter B of chapter 61 is 

19 amended to read as follows:

‘‘Sec. 6112. Material advisors of reportable transactions must 

keep lists of advisees.’’

20 (3)(A) The heading for section 6708 is amend21 ed to read as follows: 
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1 ‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES 

2 WITH RESPECT TO REPORTABLE TRANS3 ACTIONS.’’

4 (B) The item relating to section 6708 in the 

5 table of sections for part I of subchapter B of chap6 ter 68 is amended to read as follows:

‘‘Sec. 6708. Failure to maintain lists of advisees with respect to 

reportable transactions.’’

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

8 this section shall apply to transactions with respect to 

9 which material aid, assistance, or advice referred to in sec10 tion 6111(b)(1)(A)(i) of the Internal Revenue Code of 

11 1986 (as added by this section) is provided after the date 

12 of the enactment of this Act. 

13 SEC. 1108. MODIFICATIONS TO PENALTY FOR FAILURE TO 

14 REGISTER TAX SHELTERS. 

15 (a) IN GENERAL.—Section 6707 (relating to failure 

16 to furnish information regarding tax shelters) is amended 

17 to read as follows: 

18 ‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARD19 ING REPORTABLE TRANSACTIONS. 

20 ‘‘(a) IN GENERAL.—If a person who is required to 

21 file a return under section 6111(a) with respect to any 

22 reportable transaction—

23 ‘‘(1) fails to file such return on or before the 

24 date prescribed therefor, or 
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1 ‘‘(2) files false or incomplete information with 

2 the Secretary with respect to such transaction, 

3 such person shall pay a penalty with respect to such return 

4 in the amount determined under subsection (b). 

5 ‘‘(b) AMOUNT OF PENALTY.—

6 ‘‘(1) IN GENERAL.—Except as provided in para7 graph (2), the penalty imposed under subsection (a) 

8 with respect to any failure shall be $50,000. 

9 ‘‘(2) LISTED TRANSACTIONS.—The penalty im10 posed under subsection (a) with respect to any listed 

11 transaction shall be an amount equal to the greater 

12 of—

13 ‘‘(A) $200,000, or 

14 ‘‘(B) 50 percent of the gross income de15 rived by such person with respect to aid, assist16 ance, or advice which is provided with respect 

17 to the reportable transaction before the date the 

18 return including the transaction is filed under 

19 section 6111. 

20 Subparagraph (B) shall be applied by substituting 

21 ‘75 percent’ for ‘50 percent’ in the case of an inten22 tional failure or act described in subsection (a). 

23 ‘‘(c) RESCISSION AUTHORITY.—The provisions of 

24 section 6707A(d) (relating to authority of Commissioner
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1 to rescind penalty) shall apply to any penalty imposed 

2 under this section. 

3 ‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—

4 The terms ‘reportable transaction’ and ‘listed transaction’ 

5 have the respective meanings given to such terms by sec6 tion 6707A(c).’’. 

7 (b) CLERICAL AMENDMENT.—The item relating to 

8 section 6707 in the table of sections for part I of sub9 chapter B of chapter 68 is amended by striking ‘‘tax shel10 ters’’ and inserting ‘‘reportable transactions’’. 

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

12 this section shall apply to returns the due date for which 

13 is after the date of the enactment of this Act. 

14 SEC. 1109. MODIFICATION OF PENALTY FOR FAILURE TO 

15 MAINTAIN LISTS OF INVESTORS. 

16 (a) IN GENERAL.—Subsection (a) of section 6708 is 

17 amended to read as follows: 

18 ‘‘(a) IMPOSITION OF PENALTY.—

19 ‘‘(1) IN GENERAL.—If any person who is re20 quired to maintain a list under section 6112(a) fails 

21 to make such list available upon written request to 

22 the Secretary in accordance with section 

23 6112(b)(1)(A) within 20 business days after the 

24 date of the Secretary’s request, such person shall 
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1 pay a penalty of $10,000 for each day of such fail2 ure after such 20th day. 

3 ‘‘(2) REASONABLE CAUSE EXCEPTION.—No 

4 penalty shall be imposed by paragraph (1) with re5 spect to the failure on any day if such failure is due 

6 to reasonable cause.’’

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

8 this section shall apply to requests made after the date 

9 of the enactment of this Act. 

10 SEC. 1110. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN 

11 CONDUCT RELATED TO TAX SHELTERS AND 

12 REPORTABLE TRANSACTIONS. 

13 (a) IN GENERAL.—Section 7408 (relating to action 

14 to enjoin promoters of abusive tax shelters, etc.) is amend15 ed by redesignating subsection (c) as subsection (d) and 

16 by striking subsections (a) and (b) and inserting the fol17 lowing new subsections: 

18 ‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil ac19 tion in the name of the United States to enjoin any person 

20 from further engaging in specified conduct may be com21 menced at the request of the Secretary. Any action under 

22 this section shall be brought in the district court of the 

23 United States for the district in which such person resides, 

24 has his principal place of business, or has engaged in spec25 ified conduct. The court may exercise its jurisdiction over 
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1 such action (as provided in section 7402(a)) separate and 

2 apart from any other action brought by the United States 

3 against such person. 

4 ‘‘(b) ADJUDICATION AND DECREE.—In any action 

5 under subsection (a), if the court finds—

6 ‘‘(1) that the person has engaged in any speci7 fied conduct, and 

8 ‘‘(2) that injunctive relief is appropriate to pre9 vent recurrence of such conduct, 

10 the court may enjoin such person from engaging in such 

11 conduct or in any other activity subject to penalty under 

12 this title. 

13 ‘‘(c) SPECIFIED CONDUCT.—For purposes of this 

14 section, the term ‘specified conduct’ means any action, or 

15 failure to take action, subject to penalty under section 

16 6700, 6701, 6707, or 6708.’’

17 (b) CONFORMING AMENDMENTS.—

18 (1) The heading for section 7408 is amended to 

19 read as follows: 

20 ‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RE21 LATED TO TAX SHELTERS AND REPORTABLE 

22 TRANSACTIONS.’’

23 (2) The table of sections for subchapter A of 

24 chapter 67 is amended by striking the item relating 
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1 to section 7408 and inserting the following new 

2 item:

‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and 

reportable transactions.’’

3 (c) EFFECTIVE DATE.—The amendment made by 

4 this section shall take effect on the day after the date of 

5 the enactment of this Act.

6 SEC. 1111. UNDERSTATEMENT OF TAXPAYER’S LIABILITY 

7 BY INCOME TAX RETURN PREPARER. 

8 (a) STANDARDS CONFORMED TO TAXPAYER STAND9 ARDS.—Section 6694(a) (relating to understatements due 

10 to unrealistic positions) is amended—

11 (1) by striking ‘‘realistic possibility of being 

12 sustained on its merits’’ in paragraph (1) and in13 serting ‘‘reasonable belief that the tax treatment in 

14 such position was more likely than not the proper 

15 treatment’’, 

16 (2) by striking ‘‘or was frivolous’’ in paragraph 

17 (3) and inserting ‘‘or there was no reasonable basis 

18 for the tax treatment of such position’’, and 

19 (3) by striking ‘‘UNREALISTIC’’ in the heading 

20 and inserting ‘‘IMPROPER’’. 

21 (b) AMOUNT OF PENALTY.—Section 6694 is amend22 ed—

23 (1) by striking ‘‘$250’’ in subsection (a) and in24 serting ‘‘$1,000’’, and 
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1 (2) by striking ‘‘$1,000’’ in subsection (b) and 

2 inserting ‘‘$5,000’’. 

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

4 this section shall apply to documents prepared after the 

5 date of the enactment of this Act. 

6 SEC. 1112. PENALTY ON FAILURE TO REPORT INTERESTS 

7 IN FOREIGN FINANCIAL ACCOUNTS. 

8 (a) IN GENERAL.—Section 5321(a)(5) of title 31, 

9 United States Code, is amended to read as follows: 

10 ‘‘(5) FOREIGN FINANCIAL AGENCY TRANS11 ACTION VIOLATION.—

12 ‘‘(A) PENALTY AUTHORIZED.—The Sec13 retary of the Treasury may impose a civil 

14 money penalty on any person who violates, or 

15 causes any violation of, any provision of section 

16 5314. 

17 ‘‘(B) AMOUNT OF PENALTY.—

18 ‘‘(i) IN GENERAL.—Except as pro19 vided in subparagraph (C), the amount of 

20 any civil penalty imposed under subpara21 graph (A) shall not exceed $5,000. 

22 ‘‘(ii) REASONABLE CAUSE EXCEP23 TION.—No penalty shall be imposed under 

24 subparagraph (A) with respect to any vio25 lation if—
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1 ‘‘(I) such violation was due to 

2 reasonable cause, and 

3 ‘‘(II) the amount of the trans4 action or the balance in the account 

5 at the time of the transaction was 

6 properly reported. 

7 ‘‘(C) WILLFUL VIOLATIONS.—In the case 

8 of any person willfully violating, or willfully 

9 causing any violation of, any provision of sec10 tion 5314—

11 ‘‘(i) the maximum penalty under sub12 paragraph (B)(i) shall be increased to the 

13 greater of—

14 ‘‘(I) $25,000, or 

15 ‘‘(II) the amount (not exceeding 

16 $100,000) determined under subpara17 graph (D), and 

18 ‘‘(ii) subparagraph (B)(ii) shall not 

19 apply. 

20 ‘‘(D) AMOUNT.—The amount determined 

21 under this subparagraph is—

22 ‘‘(i) in the case of a violation involving 

23 a transaction, the amount of the trans24 action, or 
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1 ‘‘(ii) in the case of a violation involv2 ing a failure to report the existence of an 

3 account or any identifying information re4 quired to be provided with respect to an 

5 account, the balance in the account at the 

6 time of the violation.’’

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

8 this section shall apply to violations occurring after the 

9 date of the enactment of this Act. 

10 SEC. 1113. FRIVOLOUS TAX SUBMISSIONS. 

11 (a) CIVIL PENALTIES.—Section 6702 is amended to 

12 read as follows: 

13 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 

14 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE15 TURNS.—A person shall pay a penalty of $5,000 if—

16 ‘‘(1) such person files what purports to be a re17 turn of a tax imposed by this title but which—

18 ‘‘(A) does not contain information on 

19 which the substantial correctness of the self-as20 sessment may be judged, or 

21 ‘‘(B) contains information that on its face 

22 indicates that the self-assessment is substan23 tially incorrect; and 

24 ‘‘(2) the conduct referred to in paragraph (1)— 
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1 ‘‘(A) is based on a position which the Sec2 retary has identified as frivolous under sub3 section (c), or 

4 ‘‘(B) reflects a desire to delay or impede 

5 the administration of Federal tax laws. 

6 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS

7 SUBMISSIONS.—

8 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro9 vided in paragraph (3), any person who submits a 

10 specified frivolous submission shall pay a penalty of 

11 $5,000. 

12 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For 

13 purposes of this section—

14 ‘‘(A) SPECIFIED FRIVOLOUS SUBMIS15 SION.—The term ‘specified frivolous submis16 sion’ means a specified submission if any por17 tion of such submission—

18 ‘‘(i) is based on a position which the 

19 Secretary has identified as frivolous under 

20 subsection (c), or 

21 ‘‘(ii) reflects a desire to delay or im22 pede the administration of Federal tax 

23 laws. 

24 ‘‘(B) SPECIFIED SUBMISSION.—The term 

25 ‘specified submission’ means—
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1 ‘‘(i) a request for a hearing under—

2 ‘‘(I) section 6320 (relating to no3 tice and opportunity for hearing upon 

4 filing of notice of lien), or 

5 ‘‘(II) section 6330 (relating to 

6 notice and opportunity for hearing be7 fore levy), and

8 ‘‘(ii) an application under— 

9 ‘‘(I) section 6159 (relating to 

10 agreements for payment of tax liabil11 ity in installments), 

12 ‘‘(II) section 7122 (relating to 

13 compromises), or 

14 ‘‘(III) section 7811 (relating to 

15 taxpayer assistance orders). 

16 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS17 SION.—If the Secretary provides a person with no18 tice that a submission is a specified frivolous sub19 mission and such person withdraws such submission 

20 within 30 days after such notice, the penalty im21 posed under paragraph (1) shall not apply with re22 spect to such submission. 

23 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec24 retary shall prescribe (and periodically revise) a list of po25 sitions which the Secretary has identified as being frivo-
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1 lous for purposes of this subsection. The Secretary shall 

2 not include in such list any position that the Secretary 

3 determines meets the requirement of section 

4 6662(d)(2)(B)(ii)(II). 

5 ‘‘(d) REDUCTION OF PENALTY.—The Secretary may 

6 reduce the amount of any penalty imposed under this sec7 tion if the Secretary determines that such reduction would 

8 promote compliance with and administration of the Fed9 eral tax laws. 

10 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN11 ALTIES.—The penalties imposed by this section shall be 

12 in addition to any other penalty provided by law.’’

13 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR

14 HEARINGS BEFORE LEVY.—

15 (1) FRIVOLOUS REQUESTS DISREGARDED.—

16 Section 6330 (relating to notice and opportunity for 

17 hearing before levy) is amended by adding at the 

18 end the following new subsection: 

19 ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—

20 Notwithstanding any other provision of this section, if the 

21 Secretary determines that any portion of a request for a 

22 hearing under this section or section 6320 meets the re23 quirement of clause (i) or (ii) of section 6702(b)(2)(A), 

24 then the Secretary may treat such portion as if it were
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1 never submitted and such portion shall not be subject to 

2 any further administrative or judicial review.’’

3 (2) PRECLUSION FROM RAISING FRIVOLOUS

4 ISSUES AT HEARING.—Section 6330(c)(4) is amend5 ed—

6 (A) by striking ‘‘(A)’’ and inserting 

7 ‘‘(A)(i)’’; 

8 (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 

9 (C) by striking the period at the end of the 

10 first sentence and inserting ‘‘; or’’; and 

11 (D) by inserting after subparagraph (A)(ii) 

12 (as so redesignated) the following: 

13 ‘‘(B) the issue meets the requirement of 

14 clause (i) or (ii) of section 6702(b)(2)(A).’’

15 (3) STATEMENT OF GROUNDS.—Section 

16 6330(b)(1) is amended by striking ‘‘under sub17 section (a)(3)(B)’’ and inserting ‘‘in writing under 

18 subsection (a)(3)(B) and states the grounds for the 

19 requested hearing’’. 

20 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR

21 HEARINGS UPON FILING OF NOTICE OF LIEN.—Section 

22 6320 is amended—

23 (1) in subsection (b)(1), by striking ‘‘under sub24 section (a)(3)(B)’’ and inserting ‘‘in writing under 
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1 subsection (a)(3)(B) and states the grounds for the 

2 requested hearing’’, and 

3 (2) in subsection (c), by striking ‘‘and (e)’’ and 

4 inserting ‘‘(e), and (g)’’. 

5 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

6 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE7 MENTS.—Section 7122 is amended by adding at the end 

8 the following new subsection: 

9 ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith10 standing any other provision of this section, if the Sec11 retary determines that any portion of an application for 

12 an offer-in-compromise or installment agreement sub13 mitted under this section or section 6159 meets the re14 quirement of clause (i) or (ii) of section 6702(b)(2)(A), 

15 then the Secretary may treat such portion as if it were 

16 never submitted and such portion shall not be subject to 

17 any further administrative or judicial review.’’

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

19 for part I of subchapter B of chapter 68 is amended by 

20 striking the item relating to section 6702 and inserting 

21 the following new item:

‘‘Sec. 6702. Frivolous tax submissions.’’

22 (f) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to submissions made and issues 

24 raised after the date on which the Secretary first pre-
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1 scribes a list under section 6702(c) of the Internal Rev2 enue Code of 1986, as amended by subsection (a). 

3 SEC. 1114. REGULATION OF INDIVIDUALS PRACTICING BE4 FORE THE DEPARTMENT OF TREASURY. 

5 (a) CENSURE; IMPOSITION OF PENALTY.—

6 (1) IN GENERAL.—Section 330(b) of title 31, 

7 United States Code, is amended—

8 (A) by inserting ‘‘, or censure,’’ after ‘‘De9 partment’’, and

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

11 flush sentence: 

12 ‘‘The Secretary may impose a monetary penalty on any 

13 representative described in the preceding sentence. If the 

14 representative was acting on behalf of an employer or any 

15 firm or other entity in connection with the conduct giving 

16 rise to such penalty, the Secretary may impose a monetary 

17 penalty on such employer, firm, or entity if it knew, or 

18 reasonably should have known, of such conduct. Such pen19 alty shall not exceed the gross income derived (or to be 

20 derived) from the conduct giving rise to the penalty and 

21 may be in addition to, or in lieu of, any suspension, disbar22 ment, or censure.’’

23 (2) EFFECTIVE DATE.—The amendments made 

24 by this subsection shall apply to actions taken after 

25 the date of the enactment of this Act. 
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1 (b) TAX SHELTER OPINIONS, ETC.—Section 330 of 

2 such title 31 is amended by adding at the end the fol3 lowing new subsection: 

4 ‘‘(d) Nothing in this section or in any other provision 

5 of law shall be construed to limit the authority of the Sec6 retary of the Treasury to impose standards applicable to 

7 the rendering of written advice with respect to any entity, 

8 transaction plan or arrangement, or other plan or arrange9 ment, which is of a type which the Secretary determines 

10 as having a potential for tax avoidance or evasion.’’

11 SEC. 1115. PENALTY ON PROMOTERS OF TAX SHELTERS. 

12 (a) PENALTY ON PROMOTING ABUSIVE TAX SHEL13 TERS.—Section 6700(a) is amended by adding at the end 

14 the following new sentence: ‘‘Notwithstanding the first 

15 sentence, if an activity with respect to which a penalty 

16 imposed under this subsection involves a statement de17 scribed in paragraph (2)(A), the amount of the penalty 

18 shall be equal to 50 percent of the gross income derived 

19 (or to be derived) from such activity by the person on 

20 which the penalty is imposed.’’

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

22 this section shall apply to activities after the date of the 

23 enactment of this Act. 
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1 SEC. 1116. STATUTE OF LIMITATIONS FOR TAXABLE YEARS 

2 FOR WHICH LISTED TRANSACTIONS NOT RE3 PORTED. 

4 (a) IN GENERAL.—Section 6501(e)(1) (relating to 

5 substantial omission of items for income taxes) is amended 

6 by adding at the end the following new subparagraph: 

7 ‘‘(C) LISTED TRANSACTIONS.—If a tax8 payer fails to include on any return or state9 ment for any taxable year any information with 

10 respect to a listed transaction (as defined in 

11 section 6707A(c)(2)) which is required under 

12 section 6011 to be included with such return or 

13 statement, the tax for such taxable year may be 

14 assessed, or a proceeding in court for collection 

15 of such tax may be begun without assessment, 

16 at any time within 6 years after the time the 

17 return is filed. This subparagraph shall not 

18 apply to any taxable year if the time for assess19 ment or beginning the proceeding in court has 

20 expired before the time a transaction is treated 

21 as a listed transaction under section 6011.’’ 

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

23 this section shall apply to transactions after the date of 

24 the enactment of this Act in taxable years ending after 

25 such date.
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1 SEC. 1117. DENIAL OF DEDUCTION FOR INTEREST ON UN2 DERPAYMENTS ATTRIBUTABLE TO NONDIS3 CLOSED REPORTABLE AND NONECONOMIC 

4 SUBSTANCE TRANSACTIONS. 

5 (a) IN GENERAL.—Section 163 (relating to deduction 

6 for interest) is amended by redesignating subsection (m) 

7 as subsection (n) and by inserting after subsection (l) the 

8 following new subsection: 

9 ‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE

10 TO NONDISCLOSED REPORTABLE TRANSACTIONS AND

11 NONECONOMIC SUBSTANCE TRANSACTIONS.—No deduc12 tion shall be allowed under this chapter for any interest 

13 paid or accrued under section 6601 on any underpayment 

14 of tax which is attributable to—

15 ‘‘(1) the portion of any reportable transaction 

16 understatement (as defined in section 6662A(b)) 

17 with respect to which the requirement of section 

18 6664(d)(2)(A) is not met, or 

19 ‘‘(2) any noneconomic substance transaction 

20 understatement (as defined in section 6662B(c)).’’

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to transactions after the date of 

23 the enactment of this Act in taxable years ending after 

24 such date. 
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1 Subtitle B—OTHER PROVISIONS 

2 SEC. 1121. LIMITATION ON TRANSFER OR IMPORTATION OF 

3 BUILT-IN LOSSES. 

4 (a) IN GENERAL.—Section 362 (relating to basis to 

5 corporations) is amended by adding at the end the fol6 lowing new subsection: 

7 ‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.—

8 ‘‘(1) LIMITATION ON IMPORTATION OF BUILT9 IN LOSSES.—

10 ‘‘(A) IN GENERAL.—If in any transaction 

11 described in subsection (a) or (b) there would 

12 (but for this subsection) be an importation of a 

13 net built-in loss, the basis of each property de14 scribed in subparagraph (B) which is acquired 

15 in such transaction shall (notwithstanding sub16 sections (a) and (b)) be its fair market value 

17 immediately after such transaction. 

18 ‘‘(B) PROPERTY DESCRIBED.—For pur19 poses of subparagraph (A), property is de20 scribed in this paragraph if—

21 ‘‘(i) gain or loss with respect to such 

22 property is not subject to tax under this 

23 subtitle in the hands of the transferor im24 mediately before the transfer, and 
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1 ‘‘(ii) gain or loss with respect to such 

2 property is subject to such tax in the 

3 hands of the transferee immediately after 

4 such transfer. 

5 In any case in which the transferor is a part6 nership, the preceding sentence shall be applied 

7 by treating each partner in such partnership as 

8 holding such partner’s proportionate share of 

9 the property of such partnership. 

10 ‘‘(C) IMPORTATION OF NET BUILT-IN

11 LOSS.—For purposes of subparagraph (A), 

12 there is an importation of a net built-in loss in 

13 a transaction if the transferee’s aggregate ad14 justed bases of property described in subpara15 graph (B) which is transferred in such trans16 action would (but for this paragraph) exceed 

17 the fair market value of such property imme18 diately after such transaction.’’

19 ‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN

20 LOSSES IN SECTION 351 TRANSACTIONS.—

21 ‘‘(A) IN GENERAL.—If—

22 ‘‘(i) property is transferred in any 

23 transaction which is described in sub24 section (a) and which is not described in 

25 paragraph (1) of this subsection, and 
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1 ‘‘(ii) the transferee’s aggregate ad2 justed bases of the property so transferred 

3 would (but for this paragraph) exceed the 

4 fair market value of such property imme5 diately after such transaction, 

6 then, notwithstanding subsection (a), the trans7 feree’s aggregate adjusted bases of the property 

8 so transferred shall not exceed the fair market 

9 value of such property immediately after such 

10 transaction. 

11 ‘‘(B) ALLOCATION OF BASIS REDUC12 TION.—The aggregate reduction in basis by 

13 reason of subparagraph (A) shall be allocated 

14 among the property so transferred in proportion 

15 to their respective built-in losses immediately 

16 before the transaction. 

17 ‘‘(C) EXCEPTION FOR TRANSFERS WITHIN

18 AFFILIATED GROUP.—Subparagraph (A) shall 

19 not apply to any transaction if the transferor 

20 owns stock in the transferee meeting the re21 quirements of section 1504(a)(2). In the case of 

22 property to which subparagraph (A) does not 

23 apply by reason of the preceding sentence, the 

24 transferor’s basis in the stock received for such 
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1 property shall not exceed its fair market value 

2 immediately after the transfer.’’ 

3 (b) COMPARABLE TREATMENT WHERE LIQUIDA4 TION.—Paragraph (1) of section 334(b) (relating to liq5 uidation of subsidiary) is amended to read as follows: 

6 ‘‘(1) IN GENERAL.—If property is received by a 

7 corporate distributee in a distribution in a complete 

8 liquidation to which section 332 applies (or in a 

9 transfer described in section 337(b)(1)), the basis of 

10 such property in the hands of such distributee shall 

11 be the same as it would be in the hands of the trans12 feror; except that the basis of such property in the 

13 hands of such distributee shall be the fair market 

14 value of the property at the time of the distribu15 tion—

16 ‘‘(A) in any case in which gain or loss is 

17 recognized by the liquidating corporation with 

18 respect to such property, or 

19 ‘‘(B) in any case in which the liquidating 

20 corporation is a foreign corporation, the cor21 porate distributee is a domestic corporation, 

22 and the corporate distributee’s aggregate ad23 justed bases of property described in section 

24 362(e)(1)(B) which is distributed in such liq25 uidation would (but for this subparagraph) ex-
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1 ceed the fair market value of such property im2 mediately after such liquidation.’’

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

4 this section shall apply to transactions after the date of 

5 the enactment of this Act. 

6 SEC. 1122. DISALLOWANCE OF CERTAIN PARTNERSHIP 

7 LOSS TRANSFERS. 

8 (a) TREATMENT OF CONTRIBUTED PROPERTY WITH

9 BUILT-IN LOSS.—Paragraph (1) of section 704(c) is 

10 amended by striking ‘‘and’’ at the end of subparagraph 

11 (A), by striking the period at the end of subparagraph 

12 (B) and inserting ‘‘, and’’, and by adding at the end the 

13 following: 

14 ‘‘(C) if any property so contributed has a 

15 built-in loss—

16 ‘‘(i) such built-in loss shall be taken 

17 into account only in determining the 

18 amount of items allocated to the contrib19 uting partner, and 

20 ‘‘(ii) except as provided in regulations, 

21 in determining the amount of items allo22 cated to other partners, the basis of the 

23 contributed property in the hands of the 

24 partnership shall be treated as being equal
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1 to its fair market value immediately after 

2 the contribution. 

3 For purposes of subparagraph (C), the term ‘built4 in loss’ means the excess of the adjusted basis of the 

5 property (determined without regard to subpara6 graph (C)(ii)) over its fair market value immediately 

7 after the contribution.’’

8 (b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROP9 ERTY ON TRANSFER OF PARTNERSHIP INTEREST IF

10 THERE IS SUBSTANTIAL BUILT-IN LOSS.—

11 (1) ADJUSTMENT REQUIRED.—Subsection (a) 

12 of section 743 (relating to optional adjustment to 

13 basis of partnership property) is amended by insert14 ing before the period ‘‘or unless the partnership has 

15 a substantial built-in loss immediately after such 

16 transfer’’. 

17 (2) ADJUSTMENT.—Subsection (b) of section 

18 743 is amended by inserting ‘‘or with respect to 

19 which there is a substantial built-in loss immediately 

20 after such transfer’’ after ‘‘section 754 is in effect’’. 

21 (3) SUBSTANTIAL BUILT-IN LOSS.—Section 743 

22 is amended by adding at the end the following new 

23 subsection: 

24 ‘‘(d) SUBSTANTIAL BUILT-IN LOSS.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, a partnership has a substantial built-in loss 

3 with respect to a transfer of an interest in a part4 nership if the transferee partner’s proportionate 

5 share of the adjusted basis of the partnership prop6 erty exceeds by more than $250,000 the basis of 

7 such partner’s interest in the partnership. 

8 ‘‘(2) REGULATIONS.—The Secretary shall pre9 scribe such regulations as may be appropriate to 

10 carry out the purposes of paragraph (1) and section 

11 734(d), including regulations aggregating related 

12 partnerships and disregarding property acquired by 

13 the partnership in an attempt to avoid such pur14 poses.’’

15 (4) CLERICAL AMENDMENTS.—

16 (A) The section heading for section 743 is 

17 amended to read as follows: 

18 ‘‘SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROP19 ERTY WHERE SECTION 754 ELECTION OR 

20 SUBSTANTIAL BUILT-IN LOSS.’’

21 (B) The table of sections for subpart C of 

22 part II of subchapter K of chapter 1 is amend23 ed by striking the item relating to section 743 

24 and inserting the following new item:

‘‘Sec. 743. Adjustment to basis of partnership property where section 754 election or substantial built-in loss.’’
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1 (c) ADJUSTMENT TO BASIS OF UNDISTRIBUTED

2 PARTNERSHIP PROPERTY IF THERE IS SUBSTANTIAL

3 BASIS REDUCTION.—

4 (1) ADJUSTMENT REQUIRED.—Subsection (a) 

5 of section 734 (relating to optional adjustment to 

6 basis of undistributed partnership property) is 

7 amended by inserting before the period ‘‘or unless 

8 there is a substantial basis reduction’’. 

9 (2) ADJUSTMENT.—Subsection (b) of section 

10 734 is amended by inserting ‘‘or unless there is a 

11 substantial basis reduction’’ after ‘‘section 754 is in 

12 effect’’. 

13 (3) SUBSTANTIAL BASIS REDUCTION.—Section 

14 734 is amended by adding at the end the following 

15 new subsection: 

16 ‘‘(d) SUBSTANTIAL BASIS REDUCTION.—

17 ‘‘(1) IN GENERAL.—For purposes of this sec18 tion, there is a substantial basis reduction with re19 spect to a distribution if the sum of the amounts de20 scribed in subparagraphs (A) and (B) of subsection 

21 (b)(2) exceeds $250,000. 

22 ‘‘(2) REGULATIONS.—

‘‘For regulations to carry out this subsection, see 

section 743(d)(2).’’

23 (4) CLERICAL AMENDMENTS.—
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1 (A) The section heading for section 734 is 

2 amended to read as follows: 

3 ‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED 

4 PARTNERSHIP PROPERTY WHERE SECTION 

5 754 ELECTION OR SUBSTANTIAL BASIS RE6 DUCTION.’’

7 (B) The table of sections for subpart B of 

8 part II of subchapter K of chapter 1 is amend9 ed by striking the item relating to section 734 

10 and inserting the following new item:

‘‘Sec. 734. Adjustment to basis of undistributed partnership property where section 754 election or substantial basis 

reduction.’’

11 (d) EFFECTIVE DATES.—

12 (1) SUBSECTION (a).—The amendment made 

13 by subsection (a) shall apply to contributions made 

14 after the date of the enactment of this Act. 

15 (2) SUBSECTION (b).—The amendments made 

16 by subsection (b) shall apply to transfers after the 

17 date of the enactment of this Act. 

18 (3) SUBSECTION (c).—The amendments made 

19 by subsection (c) shall apply to distributions after 

20 the date of the enactment of this Act. 
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1 SEC. 1123. NO REDUCTION OF BASIS UNDER SECTION 734 IN 

2 STOCK HELD BY PARTNERSHIP IN COR3 PORATE PARTNER. 

4 (a) IN GENERAL.—Section 755 is amended by adding 

5 at the end the following new subsection: 

6 ‘‘(c) NO ALLOCATION OF BASIS DECREASE TO

7 STOCK OF CORPORATE PARTNER.—In making an alloca8 tion under subsection (a) of any decrease in the adjusted 

9 basis of partnership property under section 734(b)—

10 ‘‘(1) no allocation may be made to stock in a 

11 corporation which is a partner in the partnership, 

12 and 

13 ‘‘(2) any amount not allocable to stock by rea14 son of paragraph (1) shall be allocated under sub15 section (a) to other partnership property. 

16 Gain shall be recognized to the partnership to the extent 

17 that the amount required to be allocated under paragraph 

18 (2) to other partnership property exceeds the aggregate 

19 adjusted basis of such other property immediately before 

20 the allocation required by paragraph (2).’’

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

22 this section shall apply to distributions after the date of 

23 the enactment of this Act.
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1 SEC. 1124. REPEAL OF SPECIAL RULES FOR FASITS. 

2 (a) IN GENERAL.—Part V of subchapter M of chap3 ter 1 (relating to financial asset securitization investment 

4 trusts) is hereby repealed. 

5 (b) CONFORMING AMENDMENTS.—

6 (1) Paragraph (6) of section 56(g) is amended 

7 by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 

8 REMIC’’. 

9 (2) Clause (ii) of section 382(l)(4)(B) is amend10 ed by striking ‘‘a REMIC to which part IV of sub11 chapter M applies, or a FASIT to which part V of 

12 subchapter M applies,’’ and inserting ‘‘or a REMIC 

13 to which part IV of subchapter M applies,’’. 

14 (3) Paragraph (1) of section 582(c) is amended 

15 by striking ‘‘, and any regular interest in a 

16 FASIT,’’. 

17 (4) Subparagraph (E) of section 856(c)(5) is 

18 amended by striking the last sentence. 

19 (5) Paragraph (5) of section 860G(a) is amend20 ed by adding ‘‘and’’ at the end of subparagraph (B), 

21 by striking ‘‘, and’’ at the end of subparagraph (C) 

22 and inserting a period, and by striking subparagraph 

23 (D). 

24 (6) Subparagraph (C) of section 1202(e)(4) is 

25 amended by striking ‘‘REMIC, or FASIT’’ and in26 serting ‘‘or REMIC’’. 
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1 (7) Subparagraph (C) of section 7701(a)(19) is 

2 amended by adding ‘‘and’’ at the end of clause (ix), 

3 by striking ‘‘, and’’ at the end of clause (x) and in4 serting a period, and by striking clause (xi). 

5 (8) The table of parts for subchapter M of 

6 chapter 1 is amended by striking the item relating 

7 to part V. 

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section 

11 shall apply to taxable years beginning after Decem12 ber 31, 2003. 

13 (2) EXCEPTION FOR EXISTING FASITS.—

14 (A) IN GENERAL.—Paragraph (1) shall not 

15 apply to any FASIT in existence on the date of 

16 the enactment of this Act. 

17 (B) TRANSFER OF ADDITIONAL ASSETS

18 NOT PERMITTED.—Except as provided in regu19 lations prescribed by the Secretary of the 

20 Treasury or the Secretary’s delegate, subpara21 graph (A) shall cease to apply as of the earliest 

22 date after the date of the enactment of this Act 

23 that any property is transferred to the FASIT. 
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1 SEC. 1125. EXPANDED DISALLOWANCE OF DEDUCTION FOR 

2 INTEREST ON CONVERTIBLE DEBT. 

3 (a) IN GENERAL.—Paragraph (2) of section 163(l) 

4 is amended by striking ‘‘or a related party’’ and inserting 

5 ‘‘or equity held by the issuer (or any related party) in any 

6 other person’’. 

7 (b) CONFORMING AMENDMENT.—Paragraph (3) of 

8 section 163(l) is amended by striking ‘‘or a related party’’ 

9 in the material preceding subparagraph (A) and inserting 

10 ‘‘or any other person’’. 

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

12 this section shall apply to debt instruments issued after 

13 the date of the enactment of this Act. 

14 SEC. 1126. EXPANDED AUTHORITY TO DISALLOW TAX BENE15 FITS UNDER SECTION 269. 

16 (a) IN GENERAL.—Subsection (a) of section 269 (re17 lating to acquisitions made to evade or avoid income tax) 

18 is amended to read as follows: 

19 ‘‘(a) IN GENERAL.—If—

20 ‘‘(1)(A) any person acquires stock in a corpora21 tion, or 

22 ‘‘(B) any corporation acquires, directly or indi23 rectly, property of another corporation and the basis 

24 of such property, in the hands of the acquiring cor25 poration, is determined by reference to the basis in 

26 the hands of the transferor corporation, and 
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1 ‘‘(2) the principal purpose for which such acqui2 sition was made is evasion or avoidance of Federal 

3 income tax by securing the benefit of a deduction, 

4 credit, or other allowance, 

5 then the Secretary may disallow such deduction, credit, 

6 or other allowance.’’

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

8 this section shall apply to stock and property acquired 

9 after February 13, 2003. 

10 SEC. 1127. MODIFICATIONS OF CERTAIN RULES RELATING 

11 TO CONTROLLED FOREIGN CORPORATIONS. 

12 (a) LIMITATION ON EXCEPTION FROM PFIC RULES

13 FOR UNITED STATES SHAREHOLDERS OF CONTROLLED

14 FOREIGN CORPORATIONS.—Paragraph (2) of section 

15 1297(e) (relating to passive investment company) is 

16 amended by adding at the end the following flush sen17 tence: 

18 ‘‘Such term shall not include any period if there is 

19 only a remote likelihood of an inclusion in gross in20 come under section 951(a)(1)(A)(i) of subpart F in21 come of such corporation for such period.’’

22 (b) DETERMINATION OF PRO RATA SHARE OF SUB23 PART F INCOME.—Subsection (a) of section 951 (relating 

24 to amounts included in gross income of United States 
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1 shareholders) is amended by adding at the end the fol2 lowing new paragraph: 

3 ‘‘(4) SPECIAL RULES FOR DETERMINING PRO

4 RATA SHARE OF SUBPART F INCOME.—The pro rata 

5 share under paragraph (2) shall be determined by 

6 disregarding—

7 ‘‘(A) any rights lacking substantial eco8 nomic effect, and 

9 ‘‘(B) stock owned by a shareholder who is 

10 a tax-indifferent party (as defined in section 

11 7701(m)(3)) if the amount which would (but 

12 for this paragraph) be allocated to such share13 holder does not reflect such shareholder’s eco14 nomic share of the earnings and profits of the 

15 corporation.’’

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

17 this section shall apply to taxable years on controlled for18 eign corporation beginning after February 13, 2003, and 

19 to taxable years of United States shareholder in which or 

20 with which such taxable years of controlled foreign cor21 porations end.
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1 SEC. 1128. BASIS FOR DETERMINING LOSS ALWAYS RE2 DUCED BY NONTAXED PORTION OF DIVI3 DENDS. 

4 (a) IN GENERAL.—Section 1059 (relating to cor5 porate shareholder’s basis in stock reduced by nontaxed 

6 portion of extraordinary dividends) is amended by redesig7 nating subsection (g) as subsection (h) and by inserting 

8 after subsection (f) the following new subsection: 

9 ‘‘(g) BASIS FOR DETERMINING LOSS ALWAYS RE10 DUCED BY NONTAXED PORTION OF DIVIDENDS.—The 

11 basis of stock in a corporation (for purposes of deter12 mining loss) shall be reduced by the nontaxed portion of 

13 any dividend received with respect to such stock if this 

14 section does not otherwise apply to such dividend.’’

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

16 this section shall apply to dividends received after the date 

17 of the enactment of this Act. 

18 SEC. 1129. AFFIRMATION OF CONSOLIDATED RETURN REG19 ULATION AUTHORITY. 

20 (a) IN GENERAL.—Section 1502 (relating to consoli21 dated return regulations) is amended by adding at the end 

22 the following new sentence: ‘‘In prescribing such regula23 tions, the Secretary may prescribe rules applicable to cor24 porations filing consolidated returns under section 1501 

25 that are different from other provisions of this title that 

26 would apply if such corporations filed separate returns.’’
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1 (b) RESULT NOT OVERTURNED.—Notwithstanding 

2 subsection (a), the Internal Revenue Code of 1986 shall 

3 be construed by treating Treasury regulation § 1.1502–

4 20(c)(1)(iii) (as in effect on January 1, 2001) as being 

5 inapplicable to the type of factual situation in 255 F.3d 

6 1357 (Fed. Cir. 2001). 

7 (c) EFFECTIVE DATE.—The provisions of this section 

8 shall apply to taxable years beginning before, on, or after 

9 the date of the enactment of this Act. 

10 SEC. 1130. EXTENSION OF CUSTOMS USER FEES. 

11 Section 13031(j)(3) of the Consolidated Omnibus 

12 Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) 

13 is amended by striking ‘‘September 30, 2003’’ and insert14 ing ‘‘March 31, 2010’’. 

15 Subtitle C—Prevention of Cor16 porate Expatriation To Avoid 

17 United States Income Tax 

18 SEC. 1131. PREVENTION OF CORPORATE EXPATRIATION TO 

19 AVOID UNITED STATES INCOME TAX. 

20 (a) IN GENERAL.—Paragraph (4) of section 7701(a) 

21 (defining domestic) is amended to read as follows: 

22 ‘‘(4) DOMESTIC.—

23 ‘‘(A) IN GENERAL.—Except as provided in 

24 subparagraph (B), the term ‘domestic’ when ap25 plied to a corporation or partnership means cre-
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1 ated or organized in the United States or under 

2 the law of the United States or of any State 

3 unless, in the case of a partnership, the Sec4 retary provides otherwise by regulations. 

5 ‘‘(B) CERTAIN CORPORATIONS TREATED

6 AS DOMESTIC.—

7 ‘‘(i) IN GENERAL.—The acquiring cor8 poration in a corporate expatriation trans9 action shall be treated as a domestic cor10 poration. 

11 ‘‘(ii) CORPORATE EXPATRIATION

12 TRANSACTION.—For purposes of this sub13 paragraph, the term ‘corporate expatria14 tion transaction’ means any transaction 

15 if—

16 ‘‘(I) a nominally foreign corpora17 tion (referred to in this subparagraph 

18 as the ‘acquiring corporation’) ac19 quires, as a result of such transaction, 

20 directly or indirectly substantially all 

21 of the properties held directly or indi22 rectly by a domestic corporation, and 

23 ‘‘(II) immediately after the trans24 action, more than 80 percent of the 

25 stock (by vote or value) of the acquir-
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1 ing corporation is held by former 

2 shareholders of the domestic corpora3 tion by reason of holding stock in the 

4 domestic corporation. 

5 ‘‘(iii) LOWER STOCK OWNERSHIP RE6 QUIREMENT IN CERTAIN CASES.—Sub7 clause (II) of clause (ii) shall be applied by 

8 substituting ‘50 percent’ for ‘80 percent’ 

9 with respect to any nominally foreign cor10 poration if—

11 ‘‘(I) such corporation does not 

12 have substantial business activities 

13 (when compared to the total business 

14 activities of the expanded affiliated 

15 group) in the foreign country in which 

16 or under the law of which the corpora17 tion is created or organized, and 

18 ‘‘(II) the stock of the corporation 

19 is publicly traded and the principal 

20 market for the public trading of such 

21 stock is in the United States. 

22 ‘‘(iv) PARTNERSHIP TRANSACTIONS.—

23 The term ‘corporate expatriation trans24 action’ includes any transaction if—
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1 ‘‘(I) a nominally foreign corpora2 tion (referred to in this subparagraph 

3 as the ‘acquiring corporation’) ac4 quires, as a result of such transaction, 

5 directly or indirectly properties consti6 tuting a trade or business of a domes7 tic partnership, 

8 ‘‘(II) immediately after the trans9 action, more than 80 percent of the 

10 stock (by vote or value) of the acquir11 ing corporation is held by former 

12 partners of the domestic partnership 

13 or related foreign partnerships (deter14 mined without regard to stock of the 

15 acquiring corporation which is sold in 

16 a public offering related to the trans17 action), and 

18 ‘‘(III) the acquiring corporation 

19 meets the requirements of subclauses 

20 (I) and (II) of clause (iii). 

21 ‘‘(v) SPECIAL RULES.—For purposes 

22 of this subparagraph—

23 ‘‘(I) a series of related trans24 actions shall be treated as 1 trans25 action, and 
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1 ‘‘(II) stock held by members of 

2 the expanded affiliated group which 

3 includes the acquiring corporation 

4 shall not be taken into account in de5 termining ownership. 

6 ‘‘(vi) OTHER DEFINITIONS.—For pur7 poses of this subparagraph—

8 ‘‘(I) NOMINALLY FOREIGN COR9 PORATION.—The term ‘nominally for10 eign corporation’ means any corpora11 tion which would (but for this sub12 paragraph) be treated as a foreign 

13 corporation. 

14 ‘‘(II) EXPANDED AFFILIATED

15 GROUP.—The term ‘expanded affili16 ated group’ means an affiliated group 

17 (as defined in section 1504(a) without 

18 regard to section 1504(b)). 

19 ‘‘(III) RELATED FOREIGN PART20 NERSHIP.—A foreign partnership is 

21 related to a domestic partnership if 

22 they are under common control (with23 in the meaning of section 482), or 

24 they shared the same trademark or 

25 tradename.’’
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1 (b) EFFECTIVE DATES.—

2 (1) IN GENERAL.—The amendment made by 

3 this section shall apply to corporate expatriation 

4 transactions completed after September 11, 2001. 

5 (2) SPECIAL RULE.—The amendment made by 

6 this section shall also apply to corporate expatriation 

7 transactions completed on or before September 11, 

8 2001, but only with respect to taxable years of the 

9 acquiring corporation beginning after December 31, 

10 2003.

Æ