H. R. 2

One Hundred Eighth Congress

of the

United States of America

AT THE FIRST SESSION

Begun and held at the City of Washington on Tuesday,

the seventh day of January, two thousand and three

An Act

To provide for reconciliation pursuant to section 201 of the concurrent resolution

on the budget for fiscal year 2004.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Jobs and

Growth Tax Relief Reconciliation Act of 2003’’.

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly

provided, whenever in this Act an amendment or repeal is expressed

in terms of an amendment to, or repeal of, a section or other

provision, the reference shall be considered to be made to a section

or other provision of the Internal Revenue Code of 1986.

(c) TABLE OF CONTENTS.—The table of contents of this Act

is as follows:

Sec. 1. Short title; references; table of contents.

TITLE I—ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX

REDUCTIONS

Sec. 101. Acceleration of increase in child tax credit.

Sec. 102. Acceleration of 15-percent individual income tax rate bracket expansion

for married taxpayers filing joint returns.

Sec. 103. Acceleration of increase in standard deduction for married taxpayers filing joint returns.

Sec. 104. Acceleration of 10-percent individual income tax rate bracket expansion.

Sec. 105. Acceleration of reduction in individual income tax rates.

Sec. 106. Minimum tax relief to individuals.

Sec. 107. Application of EGTRRA sunset to this title.

TITLE II—GROWTH INCENTIVES FOR BUSINESS

Sec. 201. Increase and extension of bonus depreciation.

Sec. 202. Increased expensing for small business.

TITLE III—REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-year holding

period requirement.

Sec. 302. Dividends of individuals taxed at capital gain rates.

Sec. 303. Sunset of title.

TITLE IV—TEMPORARY STATE FISCAL RELIEF

Sec. 401. Temporary State fiscal relief.

TITLE V—CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

Sec. 501. Time for payment of corporate estimated taxes.
H. R. 2—2

TITLE I—ACCELERATION OF CERTAIN

PREVIOUSLY ENACTED TAX REDUCTIONS

SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.

(a) IN GENERAL.—The item relating to calendar years 2001

through 2004 in the table contained in paragraph (2) of section

24(a) (relating to per child amount) is amended to read as follows:

‘‘2003 or 2004 .................................................................................... $1,000’’.

(b) ADVANCE PAYMENT OF PORTION OF INCREASED CREDIT IN

2003.—

(1) IN GENERAL.—Subchapter B of chapter 65 (relating to

abatements, credits, and refunds) is amended by inserting after

section 6428 the following new section:

‘‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD

CREDIT FOR 2003.

‘‘(a) IN GENERAL.—Each taxpayer who was allowed a credit

under section 24 on the return for the taxpayer’s first taxable

year beginning in 2002 shall be treated as having made a payment

against the tax imposed by chapter 1 for such taxable year in

an amount equal to the child tax credit refund amount (if any)

for such taxable year.

‘‘(b) CHILD TAX CREDIT REFUND AMOUNT.—For purposes of

this section, the child tax credit refund amount is the amount

by which the aggregate credits allowed under part IV of subchapter

A of chapter 1 for such first taxable year would have been increased

if—

‘‘(1) the per child amount under section 24(a)(2) for such

year were $1,000,

‘‘(2) only qualifying children (as defined in section 24(c))

of the taxpayer for such year who had not attained age 17

as of December 31, 2003, were taken into account, and

‘‘(3) section 24(d)(1)(B)(ii) did not apply.

‘‘(c) TIMING OF PAYMENTS.—In the case of any overpayment

attributable to this section, the Secretary shall, subject to the

provisions of this title, refund or credit such overpayment as rapidly

as possible and, to the extent practicable, before October 1, 2003.

No refund or credit shall be made or allowed under this section

after December 31, 2003.

‘‘(d) COORDINATION WITH CHILD TAX CREDIT.—

‘‘(1) IN GENERAL.—The amount of credit which would (but

for this subsection and section 26) be allowed under section

24 for the taxpayer’s first taxable year beginning in 2003 shall

be reduced (but not below zero) by the payments made to

the taxpayer under this section. Any failure to so reduce the

credit shall be treated as arising out of a mathematical or

clerical error and assessed according to section 6213(b)(1).

‘‘(2) JOINT RETURNS.—In the case of a payment under this

section with respect to a joint return, half of such payment

shall be treated as having been made to each individual filing

such return.

‘‘(e) NO INTEREST.—No interest shall be allowed on any overpayment attributable to this section.’’.
H. R. 2—3

(2) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 65 is amended by adding at the end

the following new item:

‘‘Sec. 6429. Advance payment of portion of increased child credit for 2003.’’.

(c) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to taxable years

beginning after December 31, 2002.

(2) SUBSECTION (b).—The amendments made by subsection

(b) shall take effect on the date of the enactment of this Act.

SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX

RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS

FILING JOINT RETURNS.

(a) IN GENERAL.—The table contained in subparagraph (B)

of section 1(f )(8) (relating to applicable percentage) is amended

by inserting before the item relating to 2005 the following new

item:

‘‘2003 and 2004 ........................................................................... 200’’.

(b) CONFORMING AMENDMENTS.— (1) Section 1(f)(8)(A) is amended by striking ‘‘2004’’ and

inserting ‘‘2002’’. (2) Section 302(c) of the Economic Growth and Tax Relief

Reconciliation Act of 2001 is amended by striking ‘‘2004’’ and

inserting ‘‘2002’’. (c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2002.

SEC. 103. ACCELERATION OF INCREASE IN STANDARD DEDUCTION

FOR MARRIED TAXPAYERS FILING JOINT RETURNS.

(a) IN GENERAL.—The table contained in paragraph (7) of section 63(c) (relating to applicable percentage) is amended by inserting

before the item relating to 2005 the following new item:

‘‘2003 and 2004 ........................................................................... 200’’.

(b) CONFORMING AMENDMENT.—Section 301(d) of the Economic

Growth and Tax Relief Reconciliation Act of 2001 is amended by

striking ‘‘2004’’ and inserting ‘‘2002’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2002.

SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX

RATE BRACKET EXPANSION.

(a) IN GENERAL.—Clause (i) of section 1(i)(1)(B) (relating to

the initial bracket amount) is amended by striking ‘‘($12,000 in

the case of taxable years beginning before January 1, 2008)’’ and

inserting ‘‘($12,000 in the case of taxable years beginning after

December 31, 2004, and before January 1, 2008)’’.

(b) INFLATION ADJUSTMENT.—Subparagraph (C) of section

1(i)(1) is amended to read as follows:

‘‘(C) INFLATION ADJUSTMENT.—In prescribing the tables

under subsection (f) which apply with respect to taxable

years beginning in calendar years after 2000— ‘‘(i) except as provided in clause (ii), the Secretary

shall make no adjustment to the initial bracket

amounts for any taxable year beginning before January

1, 2009,
H. R. 2—4

‘‘(ii) there shall be an adjustment under subsection

(f) of such amounts which shall apply only to taxable

years beginning in 2004, and such adjustment shall

be determined under subsection (f)(3) by substituting

‘2002’ for ‘1992’ in subparagraph (B) thereof, ‘‘(iii) the cost-of-living adjustment used in making

adjustments to the initial bracket amounts for any

taxable year beginning after December 31, 2008, shall

be determined under subsection (f)(3) by substituting

‘2007’ for ‘1992’ in subparagraph (B) thereof, and ‘‘(iv) the adjustments under clauses (ii) and (iii)

shall not apply to the amount referred to in subparagraph (B)(iii).

If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded

to the next lowest multiple of $50.’’.

(c) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2002.

(2) TABLES FOR 2003.—The Secretary of the Treasury shall

modify each table which has been prescribed under section

1(f) of the Internal Revenue Code of 1986 for taxable years

beginning in 2003 and which relates to the amendment made

by subsection (a) to reflect such amendment.

SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX

RATES.

(a) IN GENERAL.—The table contained in paragraph (2) of section 1(i) (relating to reductions in rates after June 30, 2001) is

amended to read as follows:

‘‘In the case of taxable years

beginning during calendar year:

The corresponding percentages

shall be substituted for

the following percentages:

28% 31% 36% 39.6%

2001 ......................................................... 27.5% 30.5% 35.5% 39.1%

2002 ......................................................... 27.0% 30.0% 35.0% 38.6%

2003 and thereafter ............................... 25.0% 28.0% 33.0% 35.0%’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to taxable years beginning after December 31, 2002.

SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.

(a) IN GENERAL.—

(1) Subparagraph (A) of section 55(d)(1) is amended by

striking ‘‘$49,000 in the case of taxable years beginning in

2001, 2002, 2003, and 2004’’ and inserting ‘‘$58,000 in the

case of taxable years beginning in 2003 and 2004’’. (2) Subparagraph (B) of section 55(d)(1) is amended by

striking ‘‘$35,750 in the case of taxable years beginning in

2001, 2002, 2003, and 2004’’ and inserting ‘‘$40,250 in the

case of taxable years beginning in 2003 and 2004’’. (b) EFFECTIVE DATE.—The amendments made by subsection

(a) shall apply to taxable years beginning after December 31, 2002.

SEC. 107. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

Each amendment made by this title shall be subject to title

IX of the Economic Growth and Tax Relief Reconciliation Act of
H. R. 2—5

2001 to the same extent and in the same manner as the provision

of such Act to which such amendment relates.

TITLE II—GROWTH INCENTIVES FOR

BUSINESS

SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.

(a) IN GENERAL.—Section 168(k) (relating to special allowance

for certain property acquired after September 10, 2001, and before

September 11, 2004) is amended by adding at the end the following

new paragraph:

‘‘(4) 50-PERCENT BONUS DEPRECIATION FOR CERTAIN PROPERTY.—

‘‘(A) IN GENERAL.—In the case of 50-percent bonus

depreciation property—

‘‘(i) paragraph (1)(A) shall be applied by substituting ‘50 percent’ for ‘30 percent’, and

‘‘(ii) except as provided in paragraph (2)(C), such

property shall be treated as qualified property for purposes of this subsection.

‘‘(B) 50-PERCENT BONUS DEPRECIATION PROPERTY.—For

purposes of this subsection, the term ‘50-percent bonus

depreciation property’ means property described in paragraph (2)(A)(i)—

‘‘(i) the original use of which commences with the

taxpayer after May 5, 2003,

‘‘(ii) which is acquired by the taxpayer after May

5, 2003, and before January 1, 2005, but only if no

written binding contract for the acquisition was in

effect before May 6, 2003, and

‘‘(iii) which is placed in service by the taxpayer

before January 1, 2005, or, in the case of property

described in paragraph (2)(B) (as modified by subparagraph (C) of this paragraph), before January 1, 2006.

‘‘(C) SPECIAL RULES.—Rules similar to the rules of subparagraphs (B) and (D) of paragraph (2) shall apply for

purposes of this paragraph; except that references to September 10, 2001, shall be treated as references to May

5, 2003.

‘‘(D) AUTOMOBILES.—Paragraph (2)(E) shall be applied

by substituting ‘$7,650’ for ‘$4,600’ in the case of 50-percent

bonus depreciation property.

‘‘(E) ELECTION OF 30-PERCENT BONUS.—If a taxpayer

makes an election under this subparagraph with respect

to any class of property for any taxable year, subparagraph

(A)(i) shall not apply to all property in such class placed

in service during such taxable year.’’.

(b) EXTENSION OF CERTAIN DATES FOR 30-PERCENT BONUS

DEPRECIATION PROPERTY.—

(1) PORTION OF BASIS TAKEN INTO ACCOUNT.—

(A) Subparagraphs (B)(ii) and (D)(i) of section 168(k)(2)

are each amended by striking ‘‘September 11, 2004’’ each

place it appears in the text and inserting ‘‘January 1,

2005’’.
H. R. 2—6

(B) Clause (ii) of section 168(k)(2)(B) is amended by

striking ‘‘PRE-SEPTEMBER 11, 2004’’ in the heading and

inserting ‘‘PRE-JANUARY 1, 2005’’.

(2) ACQUISITION DATE.—Clause (iii) of section 168(k)(2)(A)

is amended by striking ‘‘September 11, 2004’’ each place it

appears and inserting ‘‘January 1, 2005’’.

(3) ELECTION.—Clause (iii) of section 168(k)(2)(C) is

amended by adding at the end the following: ‘‘The preceding

sentence shall be applied separately with respect to property

treated as qualified property by paragraph (4) and other qualified property.’’.

(c) CONFORMING AMENDMENTS.—

(1) The subsection heading for section 168(k) is amended

by striking ‘‘SEPTEMBER 11, 2004’’ and inserting ‘‘JANUARY 1,

2005’’.

(2) The heading for clause (i) of section 1400L(b)(2)(C)

is amended by striking ‘‘30-PERCENT ADDITIONAL ALLOWANCE

PROPERTY’’ and inserting ‘‘BONUS DEPRECIATION PROPERTY

UNDER SECTION 168(k)’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years ending after May 5, 2003.

SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

(a) IN GENERAL.—Paragraph (1) of section 179(b) (relating to

dollar limitation) is amended to read as follows:

‘‘(1) DOLLAR LIMITATION.—The aggregate cost which may

be taken into account under subsection (a) for any taxable

year shall not exceed $25,000 ($100,000 in the case of taxable

years beginning after 2002 and before 2006).’’.

(b) INCREASE IN QUALIFYING INVESTMENT AT WHICH PHASEOUT

BEGINS.—Paragraph (2) of section 179(b) (relating to reduction in

limitation) is amended by inserting ‘‘($400,000 in the case of taxable

years beginning after 2002 and before 2006)’’ after ‘‘$200,000’’.

(c) OFF-THE-SHELF COMPUTER SOFTWARE.—Paragraph (1) of

section 179(d) (defining section 179 property) is amended to read

as follows:

‘‘(1) SECTION 179 PROPERTY.—For purposes of this section,

the term ‘section 179 property’ means property—

‘‘(A) which is—

‘‘(i) tangible property (to which section 168

applies), or

‘‘(ii) computer software (as defined in section

197(e)(3)(B)) which is described in section

197(e)(3)(A)(i), to which section 167 applies, and which

is placed in service in a taxable year beginning after

2002 and before 2006,

‘‘(B) which is section 1245 property (as defined in section 1245(a)(3)), and

‘‘(C) which is acquired by purchase for use in the

active conduct of a trade or business.

Such term shall not include any property described in section

50(b) and shall not include air conditioning or heating units.’’.

(d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT THRESHOLD

FOR INFLATION.—Subsection (b) of section 179 (relating to limitations) is amended by adding at the end the following new paragraph:

‘‘(5) INFLATION ADJUSTMENTS.—
H. R. 2—7

‘‘(A) IN GENERAL.—In the case of any taxable year

beginning in a calendar year after 2003 and before 2006,

the $100,000 and $400,000 amounts in paragraphs (1) and

(2) shall each be increased by an amount equal to— ‘‘(i) such dollar amount, multiplied by

‘‘(ii) the cost-of-living adjustment determined

under section 1(f)(3) for the calendar year in which

the taxable year begins, by substituting ‘calendar year

2002’ for ‘calendar year 1992’ in subparagraph (B)

thereof.

‘‘(B) ROUNDING.— ‘‘(i) DOLLAR LIMITATION.—If the amount in paragraph (1) as increased under subparagraph (A) is not

a multiple of $1,000, such amount shall be rounded

to the nearest multiple of $1,000. ‘‘(ii) PHASEOUT AMOUNT.—If the amount in paragraph (2) as increased under subparagraph (A) is not

a multiple of $10,000, such amount shall be rounded

to the nearest multiple of $10,000.’’. (e) REVOCATION OF ELECTION.—Paragraph (2) of section 179(c)

(relating to election irrevocable) is amended by adding at the end

the following new sentence: ‘‘Any such election or specification

with respect to any taxable year beginning after 2002 and before

2006 may be revoked by the taxpayer with respect to any property,

and such revocation, once made, shall be irrevocable.’’. (f) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2002.

TITLE III—REDUCTION IN TAXES ON

DIVIDENDS AND CAPITAL GAINS

SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS;

REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT.

(a) IN GENERAL.— (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended

by striking ‘‘10 percent’’ and inserting ‘‘5 percent (0 percent

in the case of taxable years beginning after 2007)’’. (2) The following sections are each amended by striking ‘‘20 percent’’ and inserting ‘‘15 percent’’:

(A) Section 1(h)(1)(C).

(B) Section 55(b)(3)(C).

(C) Section 1445(e)(1).

(D) The second sentence of section 7518(g)(6)(A).

(E) The second sentence of section 607(h)(6)(A) of the

Merchant Marine Act, 1936.

(b) CONFORMING AMENDMENTS.— (1) Section 1(h) is amended— (A) by striking paragraphs (2) and (9),

(B) by redesignating paragraphs (3) through (8) as

paragraphs (2) through (7), respectively, and

(C) by redesignating paragraphs (10), (11), and (12)

as paragraphs (8), (9), and (10), respectively.

(2) Paragraph (3) of section 55(b) is amended by striking

‘‘In the case of taxable years beginning after December 31,

2000, rules similar to the rules of section 1(h)(2) shall apply

for purposes of subparagraphs (B) and (C).’’.
H. R. 2—8

(3) Paragraph (7) of section 57(a) is amended—

(A) by striking ‘‘42 percent’’ the first place it appears

and inserting ‘‘7 percent’’, and

(B) by striking the last sentence.

(c) TRANSITIONAL RULES FOR TAXABLE YEARS WHICH INCLUDE

MAY 6, 2003.—For purposes of applying section 1(h) of the Internal

Revenue Code of 1986 in the case of a taxable year which includes

May 6, 2003—

(1) The amount of tax determined under subparagraph

(B) of section 1(h)(1) of such Code shall be the sum of—

(A) 5 percent of the lesser of—

(i) the net capital gain determined by taking into

account only gain or loss properly taken into account

for the portion of the taxable year on or after May

6, 2003 (determined without regard to collectibles gain

or loss, gain described in section 1(h)(6)(A)(i) of such

Code, and section 1202 gain), or

(ii) the amount on which a tax is determined under

such subparagraph (without regard to this subsection),

(B) 8 percent of the lesser of—

(i) the qualified 5-year gain (as defined in section

1(h)(9) of the Internal Revenue Code of 1986, as in

effect on the day before the date of the enactment

of this Act) properly taken into account for the portion

of the taxable year before May 6, 2003, or

(ii) the excess (if any) of—

(I) the amount on which a tax is determined

under such subparagraph (without regard to this

subsection), over

(II) the amount on which a tax is determined

under subparagraph (A), plus

(C) 10 percent of the excess (if any) of— (i) the amount on which a tax is determined under

such subparagraph (without regard to this subsection),

over

(ii) the sum of the amounts on which a tax is

determined under subparagraphs (A) and (B).

(2) The amount of tax determined under subparagraph

(C) of section (1)(h)(1) of such Code shall be the sum of— (A) 15 percent of the lesser of— (i) the excess (if any) of the amount of net capital

gain determined under subparagraph (A)(i) of paragraph (1) of this subsection over the amount on which

a tax is determined under subparagraph (A) of paragraph (1) of this subsection, or

(ii) the amount on which a tax is determined under

such subparagraph (C) (without regard to this subsection), plus

(B) 20 percent of the excess (if any) of—

(i) the amount on which a tax is determined under

such subparagraph (C) (without regard to this subsection), over

(ii) the amount on which a tax is determined under

subparagraph (A) of this paragraph.

(3) For purposes of applying section 55(b)(3) of such Code,

rules similar to the rules of paragraphs (1) and (2) of this

subsection shall apply.
H. R. 2—9

(4) In applying this subsection with respect to any passthru entity, the determination of when gains and losses are

properly taken into account shall be made at the entity level.

(5) For purposes of applying section 1(h)(11) of such Code,

as added by section 302 of this Act, to this subsection, dividends

which are qualified dividend income shall be treated as gain

properly taken into account for the portion of the taxable year

on or after May 6, 2003.

(6) Terms used in this subsection which are also used

in section 1(h) of such Code shall have the respective meanings

that such terms have in such section.

(d) EFFECTIVE DATES.—

(1) IN GENERAL.—Except as otherwise provided by this

subsection, the amendments made by this section shall apply

to taxable years ending on or after May 6, 2003.

(2) WITHHOLDING.—The amendment made by subsection

(a)(2)(C) shall apply to amounts paid after the date of the

enactment of this Act.

(3) SMALL BUSINESS STOCK.—The amendments made by

subsection (b)(3) shall apply to dispositions on or after May

6, 2003.

SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

(a) IN GENERAL.—Section 1(h) (relating to maximum capital

gains rate), as amended by section 301, is amended by adding

at the end the following new paragraph:

‘‘(11) DIVIDENDS TAXED AS NET CAPITAL GAIN.—

‘‘(A) IN GENERAL.—For purposes of this subsection, the

term ‘net capital gain’ means net capital gain (determined

without regard to this paragraph) increased by qualified

dividend income.

‘‘(B) QUALIFIED DIVIDEND INCOME.—For purposes of

this paragraph—

‘‘(i) IN GENERAL.—The term ‘qualified dividend

income’ means dividends received during the taxable

year from—

‘‘(I) domestic corporations, and

‘‘(II) qualified foreign corporations.

‘‘(ii) CERTAIN DIVIDENDS EXCLUDED.—Such term

shall not include—

‘‘(I) any dividend from a corporation which

for the taxable year of the corporation in which

the distribution is made, or the preceding taxable

year, is a corporation exempt from tax under section 501 or 521,

‘‘(II) any amount allowed as a deduction under

section 591 (relating to deduction for dividends

paid by mutual savings banks, etc.), and

‘‘(III) any dividend described in section 404(k).

‘‘(iii) COORDINATION WITH SECTION 246(c).—Such

term shall not include any dividend on any share of

stock— ‘‘(I) with respect to which the holding period

requirements of section 246(c) are not met (determined by substituting in section 246(c)(1) ‘60 days’ for ‘45 days’ each place it appears and by substituting ‘120-day period’ for ‘90-day period’), or
H. R. 2—10

‘‘(II) to the extent that the taxpayer is under

an obligation (whether pursuant to a short sale

or otherwise) to make related payments with

respect to positions in substantially similar or

related property.

‘‘(C) QUALIFIED FOREIGN CORPORATIONS.—

‘‘(i) IN GENERAL.—Except as otherwise provided

in this paragraph, the term ‘qualified foreign corporation’ means any foreign corporation if—

‘‘(I) such corporation is incorporated in a

possession of the United States, or

‘‘(II) such corporation is eligible for benefits

of a comprehensive income tax treaty with the

United States which the Secretary determines is

satisfactory for purposes of this paragraph and

which includes an exchange of information program.

‘‘(ii) DIVIDENDS ON STOCK READILY TRADABLE ON

UNITED STATES SECURITIES MARKET.—A foreign corporation not otherwise treated as a qualified foreign

corporation under clause (i) shall be so treated with

respect to any dividend paid by such corporation if

the stock with respect to which such dividend is paid

is readily tradable on an established securities market

in the United States.

‘‘(iii) EXCLUSION OF DIVIDENDS OF CERTAIN FOREIGN

CORPORATIONS.—Such term shall not include any foreign corporation which for the taxable year of the

corporation in which the dividend was paid, or the

preceding taxable year, is a foreign personal holding

company (as defined in section 552), a foreign investment company (as defined in section 1246(b)), or a

passive foreign investment company (as defined in section 1297).

‘‘(iv) COORDINATION WITH FOREIGN TAX CREDIT

LIMITATION.—Rules similar to the rules of section

904(b)(2)(B) shall apply with respect to the dividend

rate differential under this paragraph.

‘‘(D) SPECIAL RULES.—

‘‘(i) AMOUNTS TAKEN INTO ACCOUNT AS INVESTMENT

INCOME.—Qualified dividend income shall not include

any amount which the taxpayer takes into account

as investment income under section 163(d)(4)(B).

‘‘(ii) EXTRAORDINARY DIVIDENDS.—If an individual

receives, with respect to any share of stock, qualified

dividend income from 1 or more dividends which are

extraordinary dividends (within the meaning of section

1059(c)), any loss on the sale or exchange of such

share shall, to the extent of such dividends, be treated

as long-term capital loss.

‘‘(iii) TREATMENT OF DIVIDENDS FROM REGULATED

INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT

TRUSTS.—A dividend received from a regulated investment company or a real estate investment trust shall

be subject to the limitations prescribed in sections

854 and 857.’’.
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(b) EXCLUSION OF DIVIDENDS FROM INVESTMENT INCOME.—

Subparagraph (B) of section 163(d)(4) (defining net investment

income) is amended by adding at the end the following flush sentence:

‘‘Such term shall include qualified dividend income (as

defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income

for purposes of this subsection.’’.

(c) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT

COMPANIES.—

(1) Subsection (a) of section 854 (relating to dividends

received from regulated investment companies) is amended by

inserting ‘‘section 1(h)(11) (relating to maximum rate of tax

on dividends) and’’ after ‘‘For purposes of’’.

(2) Paragraph (1) of section 854(b) (relating to other dividends) is amended by redesignating subparagraph (B) as

subparagraph (C) and by inserting after subparagraph (A) the

following new subparagraph:

‘‘(B) MAXIMUM RATE UNDER SECTION 1(h).—

‘‘(i) IN GENERAL.—If the aggregate dividends

received by a regulated investment company during

any taxable year are less than 95 percent of its gross

income, then, in computing the maximum rate under

section 1(h)(11), rules similar to the rules of subparagraph (A) shall apply.

‘‘(ii) GROSS INCOME.—For purposes of clause (i),

in the case of 1 or more sales or other dispositions

of stock or securities, the term ‘gross income’ includes

only the excess of—

‘‘(I) the net short-term capital gain from such

sales or dispositions, over

‘‘(II) the net long-term capital loss from such

sales or dispositions.

‘‘(iii) DIVIDENDS FROM REAL ESTATE INVESTMENT

TRUSTS.—For purposes of clause (i)—

‘‘(I) paragraph (3)(B)(ii) shall not apply, and

‘‘(II) in the case of a distribution from a trust

described in such paragraph, the amount of such

distribution which is a dividend shall be subject

to the limitations under section 857(c).

‘‘(iv) DIVIDENDS FROM QUALIFIED FOREIGN CORPORATIONS.—For purposes of clause (i), dividends

received from qualified foreign corporations (as defined

in section 1(h)(11)) shall also be taken into account

in computing aggregate dividends received.’’. (3) Subparagraph (C) of section 854(b)(1), as redesignated

by paragraph (2), is amended by striking ‘‘subparagraph (A)’’ and inserting ‘‘subparagraph (A) or (B)’’. (4) Paragraph (2) of section 854(b) is amended by inserting ‘‘the maximum rate under section 1(h)(11) and’’ after ‘‘for purposes of’’. (5) Subsection (b) of section 854 is amended by adding

at the end the following new paragraph:

‘‘(5) COORDINATION WITH SECTION 1(h)(11).—For purposes

of paragraph (1)(B), an amount shall be treated as a dividend

only if the amount is qualified dividend income (within the

meaning of section 1(h)(11)(B)).’’.
H. R. 2—12

(d) TREATMENT OF DIVIDENDS RECEIVED FROM REAL ESTATE

INVESTMENT TRUSTS.—Section 857(c) (relating to restrictions

applicable to dividends received from real estate investment trusts)

is amended to read as follows:

‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RECEIVED FROM

REAL ESTATE INVESTMENT TRUSTS.—

‘‘(1) SECTION 243.—For purposes of section 243 (relating

to deductions for dividends received by corporations), a dividend

received from a real estate investment trust which meets the

requirements of this part shall not be considered a dividend.

‘‘(2) SECTION 1(h)(11).—For purposes of section 1(h)(11)

(relating to maximum rate of tax on dividends)—

‘‘(A) rules similar to the rules of subparagraphs (B)

and (C) of section 854(b)(1) shall apply to dividends received

from a real estate investment trust which meets the

requirements of this part, and

‘‘(B) for purposes of such rules, such a trust shall

be treated as receiving qualified dividend income during

any taxable year in an amount equal to the sum of—

‘‘(i) the excess of real estate investment trust taxable income computed under section 857(b)(2) for the

preceding taxable year over the tax payable by the

trust under section 857(b)(1) for such preceding taxable

year, and

‘‘(ii) the excess of the income subject to tax by

reason of the application of the regulations under section 337(d) for the preceding taxable year over the

tax payable by the trust on such income for such

preceding taxable year.’’.

(e) CONFORMING AMENDMENTS.—

(1) Paragraph (3) of section 1(h), as redesignated by section

301, is amended to read as follows:

‘‘(3) ADJUSTED NET CAPITAL GAIN.—For purposes of this

subsection, the term ‘adjusted net capital gain’ means the sum

of—

‘‘(A) net capital gain (determined without regard to

paragraph (11)) reduced (but not below zero) by the sum

of—

‘‘(i) unrecaptured section 1250 gain, and

‘‘(ii) 28-percent rate gain, plus

‘‘(B) qualified dividend income (as defined in paragraph

(11)).’’.

(2) Subsection (f) of section 301 is amended adding at

the end the following new paragraph:

‘‘(4) For taxation of dividends received by individuals at

capital gain rates, see section 1(h)(11).’’.

(3) Paragraph (1) of section 306(a) is amended by adding

at the end the following new subparagraph:

‘‘(D) TREATMENT AS DIVIDEND.—For purposes of section

1(h)(11) and such other provisions as the Secretary may

specify, any amount treated as ordinary income under this

paragraph shall be treated as a dividend received from

the corporation.’’. (4)(A) Subpart C of part II of subchapter C of chapter

1 (relating to collapsible corporations) is repealed.

(B)(i) Section 338(h) is amended by striking paragraph

(14).
H. R. 2—13

(ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are each

amended by striking ‘‘, 341(e)(12),’’.

(iii) The table of subparts for part II of subchapter C

of chapter 1 is amended by striking the item related to subpart

C.

(5) Section 531 is amended by striking ‘‘equal to’’ and

all that follows and inserting ‘‘equal to 15 percent of the

accumulated taxable income.’’.

(6) Section 541 is amended by striking ‘‘equal to’’ and

all that follows and inserting ‘‘equal to 15 percent of the undistributed personal holding company income.’’.

(7) Section 584(c) is amended by adding at the end the

following new flush sentence:

‘‘The proportionate share of each participant in the amount of

dividends received by the common trust fund and to which section

1(h)(11) applies shall be considered for purposes of such paragraph

as having been received by such participant.’’.

(8) Paragraph (5) of section 702(a) is amended to read

as follows:

‘‘(5) dividends with respect to which section 1(h)(11) or

part VIII of subchapter B applies,’’.

(f) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the

amendments made by this section shall apply to taxable years

beginning after December 31, 2002.

(2) REGULATED INVESTMENT COMPANIES AND REAL ESTATE

INVESTMENT TRUSTS.—In the case of a regulated investment

company or a real estate investment trust, the amendments

made by this section shall apply to taxable years ending after

December 31, 2002; except that dividends received by such

a company or trust on or before such date shall not be treated

as qualified dividend income (as defined in section 1(h)(11)(B)

of the Internal Revenue Code of 1986, as added by this Act).

SEC. 303. SUNSET OF TITLE.

All provisions of, and amendments made by, this title shall

not apply to taxable years beginning after December 31, 2008,

and the Internal Revenue Code of 1986 shall be applied and

administered to such years as if such provisions and amendments

had never been enacted.

TITLE IV—TEMPORARY STATE FISCAL

RELIEF

SEC. 401. TEMPORARY STATE FISCAL RELIEF.

(a) $10,000,000,000 FOR A TEMPORARY INCREASE OF THE MEDICAID FMAP.—

(1) PERMITTING MAINTENANCE OF FISCAL YEAR 2002 FMAP

FOR LAST 2 CALENDAR QUARTERS OF FISCAL YEAR 2003.—Subject

to paragraph (5), if the FMAP determined without regard to

this subsection for a State for fiscal year 2003 is less than

the FMAP as so determined for fiscal year 2002, the FMAP

for the State for fiscal year 2002 shall be substituted for the

State’s FMAP for the third and fourth calendar quarters of

fiscal year 2003, before the application of this subsection.
H. R. 2—14

(2) PERMITTING MAINTENANCE OF FISCAL YEAR 2003 FMAP

FOR FIRST 3 QUARTERS OF FISCAL YEAR 2004.—Subject to paragraph (5), if the FMAP determined without regard to this

subsection for a State for fiscal year 2004 is less than the

FMAP as so determined for fiscal year 2003, the FMAP for

the State for fiscal year 2003 shall be substituted for the

State’s FMAP for the first, second, and third calendar quarters

of fiscal year 2004, before the application of this subsection.

(3) GENERAL 2.95 PERCENTAGE POINTS INCREASE FOR LAST

2 CALENDAR QUARTERS OF FISCAL YEAR 2003 AND FIRST 3 CALENDAR QUARTERS OF FISCAL YEAR 2004.—Subject to paragraphs

(5), (6), and (7), for each State for the third and fourth calendar

quarters of fiscal year 2003 and for the first, second, and

third calendar quarters of fiscal year 2004, the FMAP (taking

into account the application of paragraphs (1) and (2)) shall

be increased by 2.95 percentage points.

(4) INCREASE IN CAP ON MEDICAID PAYMENTS TO TERRITORIES.—Subject to paragraphs (6) and (7), with respect to

the third and fourth calendar quarters of fiscal year 2003

and the first, second, and third calendar quarters of fiscal

year 2004, the amounts otherwise determined for Puerto Rico,

the Virgin Islands, Guam, the Northern Mariana Islands, and

American Samoa under subsections (f) and (g) of section 1108

of the Social Security Act (42 U.S.C. 1308) shall each be

increased by an amount equal to 5.90 percent of such amounts.

(5) SCOPE OF APPLICATION.—The increases in the FMAP

for a State under this subsection shall apply only for purposes

of title XIX of the Social Security Act and shall not apply

with respect to—

(A) disproportionate share hospital payments described

in section 1923 of such Act (42 U.S.C. 1396r–4);

(B) payments under title IV or XXI of such Act (42

U.S.C. 601 et seq. and 1397aa et seq.); or

(C) any payments under XIX of such Act that are

based on the enhanced FMAP described in section 2105(b)

of such Act (42 U.S.C. 1397ee(b)).

(6) STATE ELIGIBILITY.—

(A) IN GENERAL.—Subject to subparagraph (B), a State

is eligible for an increase in its FMAP under paragraph

(3) or an increase in a cap amount under paragraph (4)

only if the eligibility under its State plan under title XIX

of the Social Security Act (including any waiver under

such title or under section 1115 of such Act (42 U.S.C.

1315)) is no more restrictive than the eligibility under

such plan (or waiver) as in effect on September 2, 2003.

(B) STATE REINSTATEMENT OF ELIGIBILITY PERMITTED.—

A State that has restricted eligibility under its State plan

under title XIX of the Social Security Act (including any

waiver under such title or under section 1115 of such

Act (42 U.S.C. 1315)) after September 2, 2003, is eligible

for an increase in its FMAP under paragraph (3) or an

increase in a cap amount under paragraph (4) in the first

calendar quarter (and subsequent calendar quarters) in

which the State has reinstated eligibility that is no more

restrictive than the eligibility under such plan (or waiver)

as in effect on September 2, 2003.
H. R. 2—15

(C) RULE OF CONSTRUCTION.—Nothing in subparagraph

(A) or (B) shall be construed as affecting a State’s flexibility

with respect to benefits offered under the State medicaid

program under title XIX of the Social Security Act (42

U.S.C. 1396 et seq.) (including any waiver under such

title or under section 1115 of such Act (42 U.S.C. 1315)).

(7) REQUIREMENT FOR CERTAIN STATES.—In the case of a

State that requires political subdivisions within the State to

contribute toward the non-Federal share of expenditures under

the State medicaid plan required under section 1902(a)(2) of

the Social Security Act (42 U.S.C. 1396a(a)(2)), the State shall

not require that such political subdivisions pay a greater

percentage of the non-Federal share of such expenditures for

the third and fourth calendar quarters of fiscal year 2003

and the first, second and third calendar quarters of fiscal year

2004, than the percentage that was required by the State

under such plan on April 1, 2003, prior to application of this

subsection.

(8) DEFINITIONS.—In this subsection:

(A) FMAP.—The term ‘‘FMAP’’ means the Federal medical assistance percentage, as defined in section 1905(b)

of the Social Security Act (42 U.S.C. 1396d(b)).

(B) STATE.—The term ‘‘State’’ has the meaning given

such term for purposes of title XIX of the Social Security

Act (42 U.S.C. 1396 et seq.).

(9) REPEAL.—Effective as of October 1, 2004, this subsection

is repealed.

(b) $10,000,000,000 TO ASSIST STATES IN PROVIDING GOVERN- MENT SERVICES.—The Social Security Act (42 U.S.C. 301 et seq.)

is amended by inserting after title V the following:

‘‘TITLE VI—TEMPORARY STATE FISCAL

RELIEF

‘‘SEC. 601. TEMPORARY STATE FISCAL RELIEF.

‘‘(a) APPROPRIATION.—There is authorized to be appropriated

and is appropriated for making payments to States under this

section, $5,000,000,000 for each of fiscal years 2003 and 2004. ‘‘(b) PAYMENTS.— ‘‘(1) FISCAL YEAR 2003.—From the amount appropriated

under subsection (a) for fiscal year 2003, the Secretary of the

Treasury shall, not later than the later of the date that is

45 days after the date of enactment of this Act or the date

that a State provides the certification required by subsection

(e) for fiscal year 2003, pay each State the amount determined

for the State for fiscal year 2003 under subsection (c). ‘‘(2) FISCAL YEAR 2004.—From the amount appropriated

under subsection (a) for fiscal year 2004, the Secretary of the

Treasury shall, not later than the later of October 1, 2003,

or the date that a State provides the certification required

by subsection (e) for fiscal year 2004, pay each State the amount

determined for the State for fiscal year 2004 under subsection

(c).

‘‘(c) PAYMENTS BASED ON POPULATION.—

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

appropriated under subsection (a) for each of fiscal years 2003
H. R. 2—16

and 2004 shall be used to pay each State an amount equal

to the relative population proportion amount described in paragraph (3) for such fiscal year.

‘‘(2) MINIMUM PAYMENT.—

‘‘(A) IN GENERAL.—No State shall receive a payment

under this section for a fiscal year that is less than—

‘‘(i) in the case of 1 of the 50 States or the District

of Columbia, 1⁄2 of 1 percent of the amount appropriated for such fiscal year under subsection (a); and

‘‘(ii) in the case of the Commonwealth of Puerto

Rico, the United States Virgin Islands, Guam, the

Commonwealth of the Northern Mariana Islands, or

American Samoa, 1⁄10 of 1 percent of the amount appropriated for such fiscal year under subsection (a).

‘‘(B) PRO RATA ADJUSTMENTS.—The Secretary of the

Treasury shall adjust on a pro rata basis the amount

of the payments to States determined under this section

without regard to this subparagraph to the extent necessary to comply with the requirements of subparagraph

(A).

‘‘(3) RELATIVE POPULATION PROPORTION AMOUNT.—The relative population proportion amount described in this paragraph

is the product of—

‘‘(A) the amount described in subsection (a) for a fiscal

year; and

‘‘(B) the relative State population proportion (as defined

in paragraph (4)).

‘‘(4) RELATIVE STATE POPULATION PROPORTION DEFINED.—

For purposes of paragraph (3)(B), the term ‘relative State population proportion’ means, with respect to a State, the amount

equal to the quotient of—

‘‘(A) the population of the State (as reported in the

most recent decennial census); and

‘‘(B) the total population of all States (as reported

in the most recent decennial census).

‘‘(d) USE OF PAYMENT.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), a State shall

use the funds provided under a payment made under this

section for a fiscal year to—

‘‘(A) provide essential government services; or

‘‘(B) cover the costs to the State of complying with

any Federal intergovernmental mandate (as defined in section 421(5) of the Congressional Budget Act of 1974) to

the extent that the mandate applies to the State, and

the Federal Government has not provided funds to cover

the costs.

‘‘(2) LIMITATION.—A State may only use funds provided

under a payment made under this section for types of expenditures permitted under the most recently approved budget for

the State.

‘‘(e) CERTIFICATION.—In order to receive a payment under this

section for a fiscal year, the State shall provide the Secretary

of the Treasury with a certification that the State’s proposed uses

of the funds are consistent with subsection (d).

‘‘(f) DEFINITION OF STATE.—In this section, the term ‘State’

means the 50 States, the District of Columbia, the Commonwealth

of Puerto Rico, the United States Virgin Islands, Guam, the
H. R. 2—17

Commonwealth of the Northern Mariana Islands, and American

Samoa.

‘‘(g) REPEAL.—Effective as of October 1, 2004, this title is

repealed.’’.

TITLE V—CORPORATE ESTIMATED TAX

PAYMENTS FOR 2003

SEC. 501. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

Notwithstanding section 6655 of the Internal Revenue Code

of 1986, 25 percent of the amount of any required installment

of corporate estimated tax which is otherwise due in September

2003 shall not be due until October 1, 2003.

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.