49–008 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–330 

PROVIDING FOR CONSIDERATION OF H.R. 4297, TAX 

RELIEF EXTENSION RECONCILIATION ACT OF 2005 

DECEMBER 7, 2005.—Referred to the House Calendar and ordered to be printed 

Mr. PUTNAM, from the Committee on Rules, 

submitted the following 

R E P O R T 

[To accompany H. Res. 588] 

The Committee on Rules, having had under consideration House 

Resolution 588, by a nonrecord vote, report the same to the House 

with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for the consideration of H.R. 4297, the 

Tax Relief Extension Reconciliation Act of 2005, under a structured 

rule. The rule provides one hour of debate in the House equally divided and controlled by the chairman and ranking minority member of the Committee on Ways and Means. The rule waives all 

points of order against consideration of the bill. 

The rule provides that the amendment in the nature of a substitute recommended by the Committee on Ways and Means now 

printed in the bill shall be considered as adopted. The rule makes 

in order the amendment in the nature of a substitute printed in 

this report, if offered by Representative Rangel of New York or his 

designee, which shall be considered as read, and shall be separately debatable for one hour equally divided and controlled by the 

proponent and an opponent. The rule waives all points of order 

against the amendment in the nature of a substitute printed in this 

report. Finally, the rule provides on motion to recommit with or 

without instructions. 

EXPLANATION OF WAIVERS

The waiver of all points of order against consideration of the bill 

includes a waiver of Section 303 of the Congressional Budget Act, 

which prohibits consideration of legislation, as reported, providing 

new budget authority, change in revenues, change in public debt, 

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new entitlement authority, or new credit authority for a fiscal year 

until the budget resolution for that year has been agreed to. This 

is necessary because some of the programs affecting revenue contained in H.R. 4297 first take effect in fiscal year 2007 and there 

is currently no budget resolution agreed to governing that fiscal 

year. 

Swnmary of the Amendment in the Nature of a Substitute Made in 

Order to H.R. 4297—Tax Relief Extension Reconciliation Act of 

2005 

(Summary derived from information provided by amendment 

sponsor.) 

Rangel: Amendment in the Nature of a Substitute. The amendment would extend for one year all expiring provisions contained 

in Title I of H.R. 4297, including the deduction for state and local 

retail sales taxes, the deduction for college tuition expenses, tax incentives for the District of Columbia and Indian reservations, 15 

year depreciation period for leasehold and restaurant improvements, qualified zone academy bonds, the Brownfields cleanup tax 

incentive, and several other more minor provisions. The amendment makes no substantive changes to the expiring provisions, except for the research credit, work opportunity tax credit, and welfare-to-work tax credit, which are expanded to match the Thomas 

bill. In addition to the one-year extensions that are retained by the 

amendment, the amendment also would extend the temporary provision that terminates at the end of this calendar year and that 

provides a larger earned income tax credit for the families of those 

serving in Iraq. 

In addition the amendment would totally eliminate all individual 

minimum tax liability for individuals with incomes below $200,000 

for joint returns, $100,000 in other cases, for taxable year 2006. 

This provision would reduce the number of AMT taxpayers from 19 

million under current law for taxable year 2006 to slightly over 3 

million. 

The amendment does not extend tax benefits that do not terminate at the end of this calendar year such as the lower rates on 

capital gains and dividends. The alternative also includes a broad 

package of additional provisions that were added by the full Committee. 

The provisions of the alternative described above would cost approximately $43 billion. The cost is offset by taking back a portion 

of the recent tax cuts from individuals with annual incomes over 

$1 million for joint returns, $500,000 for other returns. (60 minutes) 

TEXT OF THE AMENDMENT IN THE NATURE OF A SUBSTITUTE MADE

IN ORDER

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE, ETC. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Tax Relief Extension Reconciliation Act of 2005’’. 

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

provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or 

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

section or other provision of the Internal Revenue Code of 1986. 

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

follows: 

Sec. 1. Short title, etc. 

TITLE I—EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006 

Sec. 101. Allowance of nonrefundable personal credits against regular and minimum tax liability. 

Sec. 102. State and local general sales taxes. 

Sec. 103. Research credit. 

Sec. 104. Qualified tuition and related expenses. 

Sec. 105. Certain expenses of elementary and secondary school teachers. 

Sec. 106. Qualified Zone Academy Bonds. 

Sec. 107. Tax incentives for business activities on Indian reservations. 

Sec. 108. Deduction for corporate donations of computer technology and equipment. 

Sec. 109. Availability of medical savings accounts. 

Sec. 110. 15-year cost recovery for leasehold improvements. 

Sec. 111. 15-year cost recovery for restaurant improvements. 

Sec. 112. Taxable income limit on percentage depletion for oil and natural gas produced from marginal properties. 

Sec. 113. District of Columbia Enterprise Zone. 

Sec. 114. Possession tax credit with respect to American Samoa. 

Sec. 115. Parity in the application of certain limits to mental health benefits. 

Sec. 116. Election to include combat pay under earned income credit. 

Sec. 117. Work opportunity credit. 

Sec. 118. Welfare-to-work credit. 

Sec. 119. Extension of expensing of environmental remediation costs. 

Sec. 120. Temporary relief from the alternative minimum tax. 

TITLE II—REDUCTION IN BENEFIT OF RATE REDUCTION FOR FAMILIES 

WITH INCOMES OVER $1,000,000 

Sec. 201. Reduction in benefit of rate reduction for families with incomes over 

$1,000,000. 

TITLE III—MISCELLANEOUS PROVISIONS 

Sec. 301. Modification of active business definition under section 355. 

Sec. 302. Veterans’ mortgage bonds. 

Sec. 303. Capital gains treatment for certain self-created musical works. 

Sec. 304. Vessel tonnage limit. 

Sec. 305. Clarification of taxation of certain settlement funds. 

TITLE I—EXTENSIONS OF CERTAIN 

PROVISIONS THROUGH 2006 

SECTION 101. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS 

AGAINST REGULAR AND MINIMUM TAX LIABILITY. 

(a) IN GENERAL.—Paragraph (2) of section 26(a) (relating to special rule for taxable years 2000 through 2005) is amended— (1) in the text by striking ‘‘or 2005’’ and inserting ‘‘2005, or 

2006’’, and 

(2) in the heading by striking ‘‘2005’’ and inserting ‘‘2006’’. 

(b) CONFORMING PROVISIONS.—

(1) Subsection (i) of section 904 (relating to coordination with 

nonrefundable personal credits) is amended by striking ‘‘or 

2005’’ and inserting ‘‘2005, or 2006’’. 

(2) The amendments made by sections 201(b), 202(f), and 

618(b) of the Economic Growth and Tax Relief Reconciliation 

Act of 2001 shall not apply to taxable years beginning during 

2006. 

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

shall apply to taxable years beginning after December 31, 2005. 

SEC. 102. STATE AND LOCAL GENERAL SALES TAXES. 

(a) IN GENERAL.—Subparagraph (I) of section 164(b)(5) (relating 

to application of paragraph) is amended by striking ‘‘January 1, 

2006’’ and inserting ‘‘January 1, 2007’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to taxable years beginning after December 31, 2005. 

SEC. 103. RESEARCH CREDIT. 

(a) EXTENSION.—

(1) IN GENERAL.—Subparagraph (B) of section 41(h)(1) (relating to termination) is amended by striking ‘‘December 31, 

2005’’ and inserting ‘‘December 31, 2006’’. 

(2) CONFORMING AMENDMENT.—Subparagraph (D) of section 

45C(b)(1) (relating to special rule) is amended by striking ‘‘December 31, 2005’’ and inserting ‘‘December 31, 2006’’. 

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to amounts paid or incurred after December 

31, 2005. 

(b) INCREASE IN RATES OF ALTERNATIVE INCREMENTAL CREDIT.—

(1) IN GENERAL.—Subparagraph (A) of section 41(c)(4) (relating to election of alternative incremental credit) is amended—

(A) by striking ‘‘2.65 percent’’ and inserting ‘‘3 percent’’, 

(B) by striking ‘‘3.2 percent’’ and inserting ‘‘4 percent’’, 

and 

(C) by striking ‘‘3.75 percent’’ and inserting ‘‘5 percent’’. 

(2) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years ending after the date of the 

enactment of this Act. 

(c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED RESEARCH

EXPENSES.—

(1) IN GENERAL.—Subsection (c) of section 41 (relating to 

base amount) is amended by redesignating paragraphs (5) and 

(6) as paragraphs (6) and (7), respectively, and by inserting 

after paragraph (4) the following new paragraph: 

‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED CREDIT.—

‘‘(A) IN GENERAL.—At the election of the taxpayer, the 

credit determined under subsection (a)(1) shall be equal to 

12 percent of so much of the qualified research expenses 

for the taxable year as exceeds 50 percent of the average 

qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. 

‘‘(B) SPECIAL RULE IN CASE OF NO QUALIFIED RESEARCH

EXPENSES IN ANY OF 3 PRECEDING TAXABLE YEARS.—

‘‘(i) TAXPAYERS TO WHICH SUBPARAGRAPH APPLIES.—

The credit under this paragraph shall be determined 

under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable 

years preceding the taxable year for which the credit 

is being determined. 

‘‘(ii) CREDIT RATE.—The credit determined under 

this subparagraph shall be equal to 6 percent of the 

qualified research expenses for the taxable year. 

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‘‘(C) ELECTION.—An election under this paragraph shall 

apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of 

the Secretary. An election under this paragraph may not 

be made for any taxable year to which an election under 

paragraph (4) applies.’’. 

(2) COORDINATION WITH ELECTION OF ALTERNATIVE INCREMENTAL CREDIT.—

(A) IN GENERAL.—Section 41(c)(4)(B) (relating to election) is amended by adding at the end the following: ‘‘An 

election under this paragraph may not be made for any 

taxable year to which an election under paragraph (5) applies.’’. 

(B) TRANSITION RULE.—In the case of an election under 

section 41(c)(4) of the Internal Revenue Code of 1986 

which applies to the taxable year which includes the date 

of the enactment of this Act, such election shall be treated 

as revoked with the consent of the Secretary of the Treasury if the taxpayer makes an election under section 

41(c)(5) of such Code (as added by subsection (a)) for such 

year. 

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years ending after the date of the 

enactment of this Act. 

SEC. 104. QUALIFIED TUITION AND RELATED EXPENSES. 

(a) IN GENERAL.—Subsection (e) of section 222 (relating to termination) is amended by striking ‘‘December 31, 2005’’ and inserting 

‘‘December 31, 2006’’. 

(b) LIMITATIONS.—Paragraph (2) of section 222(b) (relating to applicable dollar limit) is amended by striking subparagraphs (A) and 

(B), by redesignating subparagraph (C) as subparagraph (B), and 

by inserting before subparagraph (B) (as so redesignated) the following: 

‘‘(A) 2006.—In the case of a taxable year beginning in 

2006, the applicable dollar amount shall be equal to—

‘‘(i) in the case of a taxpayer whose adjusted gross 

income for the taxable year does not exceed $65,000 

($130,000 in the case of a joint return), $4,000, 

‘‘(ii) in the case of a taxpayer not described in clause 

(i) whose adjusted gross income for the taxable year 

does not exceed $80,000 ($160,000 in the case of a 

joint return), $2,000, and 

‘‘(iii) in the case of any other taxpayer, zero.’’. 

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

shall apply to payments made in taxable years beginning after December 31, 2005. 

SEC. 105. CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY 

SCHOOL TEACHERS. 

(a) IN GENERAL.—Subparagraph (D) of section 62(a)(2) (relating 

to certain expenses of elementary and secondary school teachers) is 

amended by striking ‘‘or 2005’’ and inserting ‘‘2005, or 2006’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to expenses paid or incurred in taxable years beginning 

after December 31, 2005. 

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SEC. 106. QUALIFIED ZONE ACADEMY BONDS. 

(a) IN GENERAL.—Paragraph (1) of section 1397E(e) (relating to 

national limit) is amended by striking ‘‘and 2005’’ and inserting 

‘‘2005, and 2006’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to obligations issued after December 31, 2005. 

SEC. 107. TAX INCENTIVES FOR BUSINESS ACTIVITIES ON INDIAN RESERVATIONS. 

(a) INDIAN EMPLOYMENT TAX CREDIT.—

(1) IN GENERAL.—Subsection (f) of section 45A (relating to 

termination) is amended by striking ‘‘December 31, 2005’’ and 

inserting ‘‘December 31, 2006’’. 

(2) EFFECTIVE DATE.—The amendment made by paragraph 

(1) shall apply to taxable years beginning after December 31, 

2005. 

(b) ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN RESERVATIONS.—

(1) IN GENERAL.—Paragraph (8) of section 168(j) (relating to 

termination) is amended by striking ‘‘December 31, 2005’’ and 

inserting ‘‘December 31, 2006’’. 

(2) EFFECTIVE DATE.—The amendment made by paragraph 

(1) shall apply with respect to property placed in service after 

December 31, 2005. 

SEC. 108. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER 

TECHNOLOGY AND EQUIPMENT. 

(a) IN GENERAL.—Subparagraph (G) of section 170(e)(6) (relating 

to termination) is amended by striking ‘‘December 31, 2005’’ and 

inserting ‘‘December 31, 2006’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to contributions made in taxable years beginning after 

December 31, 2005. 

SEC. 109. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS. 

(a) IN GENERAL.—Paragraphs (2) and (3)(B) of section 220(i) (defining cut-off year) are each amended by striking ‘‘2005’’ each place 

it appears in the text and headings and inserting ‘‘2006’’. 

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 220(j) is amended—

(A) in the text by striking ‘‘or 2004’’ each place it appears and inserting ‘‘2004, or 2005’’, and 

(B) in the heading by striking ‘‘OR 2004’’ and inserting ‘‘2004, OR 2005’’. (2) Subparagraph (A) of section 220(j)(4) is amended by striking ‘‘and 2004’’ and inserting ‘‘2004, and 2005’’. (c) EFFECTIVE DATE.—The amendments made by this section 

shall take effect on the date of the enactment of this Act. 

(d) TIME FOR FILING REPORTS, ETC.—

(1) The report required by section 220(j)(4) of the Internal 

Revenue Code of 1986 to be made on August 1, 2005, shall be 

treated as timely if made before the close of the 90-day period 

beginning on the date of the enactment of this Act. 

(2) The determination and publication required by section 

220(j)(5) of such Code with respect to calendar year 2005 shall 

be treated as timely if made before the close of the 120-day period beginning on the date of the enactment of this Act. If the 

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determination under the preceding sentence is that 2005 is a 

cut-off year under section 220(i) of such Code, the cut-off date 

under such section 220(i) shall be the last day of such 120-day 

period. 

SEC. 110. 15-YEAR COST RECOVERY FOR LEASEHOLD IMPROVEMENTS. 

(a) IN GENERAL.—Clause (iv) of section 168(e)(3)(E) (relating to 

15-year property) is amended by striking ‘‘January 1, 2006’’ and inserting ‘‘January 1, 2007’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to property placed in service after December 31, 2005. 

SEC. 111. 15-YEAR COST RECOVERY FOR RESTAURANT IMPROVEMENTS. 

(a) IN GENERAL.—Clause (v) of section 168(e)(3)(E) (relating to 

15-year property) is amended by striking ‘‘January 1, 2006’’ and inserting ‘‘January 1, 2007’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to property placed in service after December 31, 2005. 

SEC. 112. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 

OIL AND NATURAL GAS PRODUCED FROM MARGINAL 

PROPERTIES. 

(a) IN GENERAL.—Subparagraph (H) of section 613A(c)(6) (relating to oil and natural gas produced from marginal properties) is 

amended by striking ‘‘January 1, 2006’’ and inserting ‘‘January 1, 

2007’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to taxable years beginning after December 31, 2005. 

SEC. 113. DISTRICT OF COLUMBIA ENTERPRISE ZONE. 

(a) PERIOD FOR WHICH DESIGNATION APPLICABLE.—Subsection (f) 

of section 1400 (relating to time for which designation applicable) 

is amended by striking ‘‘December 31, 2005’’ both places it appears 

and inserting ‘‘December 31, 2006’’. (b) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.—Subsection 

(b) of section 1400A (relating to period of applicability) is amended 

by striking ‘‘December 31, 2005’’ and inserting ‘‘December 31, 

2006’’. 

(c) ZERO PERCENT CAPITAL GAINS RATE.—

(1) IN GENERAL.—Subsection (b) of section 1400B (relating to 

DC Zone Asset) is amended by striking ‘‘January 1, 2006’’ each 

place it appears and inserting ‘‘January 1, 2007’’. 

(2) CONFORMING AMENDMENTS.—

(A) Paragraph (2) of section 1400B(e) (relating to gain 

before 1998 and after 2010 not qualified) is amended—

(i) by striking ‘‘December 31, 2010’’ and inserting 

‘‘December 31, 2011’’, and 

(ii) by striking ‘‘2010’’ in the heading and inserting 

‘‘2011’’. 

(B) Paragraph (2) of section 1400B(g) (relating to sales 

and exchanges of interests in partnerships and S corporations which are DC Zone businesses) is amended by striking ‘‘December 31, 2010’’ and inserting ‘‘December 31, 

2011’’. 

(C) Subsection (d) of section 1400F (relating to certain 

rules to apply) is amended by striking ‘‘December 31, 

2010’’ and inserting ‘‘December 31, 2011’’. 

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(d) FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.—Subsection (i) of section 1400C (relating to application of section) is amended by striking ‘‘January 1, 2006’’ and inserting ‘‘January 1, 2007’’. 

(e) EFFECTIVE DATES.—

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

amendments made by this section shall take effect on January 

1, 2006. 

(2) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.—The 

amendment made by subsection (b) shall apply to obligations 

issued after the date of the enactment of this Act. 

SEC. 114. POSSESSION TAX CREDIT WITH RESPECT TO AMERICAN 

SAMOA. 

(a) IN GENERAL.—Subparagraph (A) of section 936(j)(8) (relating 

to special rules for certain possessions) is amended by inserting before the period at the end the following: ‘‘(before January 1, 2007, 

in the case of American Samoa)’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to taxable years beginning after December 31, 2005. 

SEC. 115. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH BENEFITS. 

(a) IN GENERAL.—Paragraph (3) of section 9812(f) (relating to application of section) is amended by striking ‘‘December 31, 2005’’

and inserting ‘‘December 31, 2006’’. 

(b) EFFECTIVE DATES.—The amendment made by subsection (a) 

shall take effect on the date of the enactment of this Act. 

SEC. 116. ELECTION TO INCLUDE COMBAT PAY UNDER EARNED INCOME CREDIT. 

(a) IN GENERAL.—Subclause (II) of section 32(c)(2)(B)(vi) (defining earned income) is amended by striking ‘‘January 1, 2006’’ and 

inserting ‘‘January 1, 2007’’. 

(b) SPECIAL RULE.—The amount of any refund to which an individual is entitled by reason of amendment made by subsection (a) 

shall not exceed the aggregate liability reflected in the individual’s 

tax account (determined by taking into account the taxable year 

and all prior taxable years). 

(c) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to taxable years beginning after December 31, 2005. 

SEC. 117. WORK OPPORTUNITY CREDIT. 

(a) IN GENERAL.—Subparagraph (B) of section 51(c)(4) (relating 

to termination) is amended by striking ‘‘December 31, 2005’’ and 

inserting ‘‘December 31, 2006’’. 

(b) INCREASE IN AGE LIMIT FOR FOOD STAMP RECIPIENTS.—

Clause (i) of section 51(d)(8)(A) (relating to qualified food stamp recipient) is amended by striking ‘‘25’’ and inserting ‘‘35’’. 

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

shall apply to individuals who begin work for the employer after 

December 31, 2005. 

SEC. 118. WELFARE-TO-WORK CREDIT. 

(a) IN GENERAL.—Subsection (f) of section 51A (relating to termination) is amended by striking ‘‘December 31, 2005’’ and inserting 

‘‘December 31, 2006’’. 

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(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to individuals who begin work for the employer after 

December 31, 2005. 

SEC. 119. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS. 

(a) IN GENERAL.—Subsection (h) of section 198 (relating to termination) is amended by striking ‘‘December 31, 2005’’ and inserting 

‘‘December 31, 2006’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to expenditures paid or incurred after December 31, 

2005. 

SEC. 120. TEMPORARY RELIEF FROM THE ALTERNATIVE MINIMUM 

TAX. 

(a) IN GENERAL.—Section 55 (relating to alternative minimum 

tax imposed) is amended by adding at the end the following new 

subsection: 

‘‘(f) EXEMPTION FOR INDIVIDUALS FOR TAXABLE YEARS BEGINNING

IN 2006.—For any taxable year beginning in 2006, in the case of 

an individual—

‘‘(1) IN GENERAL.—The tentative minimum tax of the taxpayer shall be zero if the adjusted gross income of the taxpayer 

(as determined for purposes of the regular tax) is equal to or 

less than the threshold amount. 

‘‘(2) PHASEIN OF LIABILITY ABOVE EXEMPTION LEVEL.—In the 

case of a taxpayer whose adjusted gross income exceeds the 

threshold amount but does not exceed $112,500 ($225,000 in 

the case of a joint return), the tax imposed by subsection (a) 

shall be the amount which bears the same ratio to such tax 

(determined without regard to this subsection) as—

‘‘(A) the excess of—

‘‘(i) the adjusted gross income of the taxpayer (as determined for purposes of the regular tax), over 

‘‘(ii) the threshold amount, bears to 

‘‘(B) $12,500 ($25,000 in the case of a joint return). 

‘‘(3) THRESHOLD AMOUNT.—For purposes of this paragraph, 

the term ‘threshold amount’ means $100,000 ($200,000 in the 

case of a joint return). 

‘‘(4) ESTATES AND TRUSTS.—This subsection shall not apply to 

any estate or trust.’’. 

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

apply to taxable years beginning after December 31, 2005. 

TITLE II—REDUCTION IN BENEFIT OF 

RATE REDUCTION FOR FAMILIES 

WITH INCOMES OVER $1,000,000 

SEC. 201. REDUCTION IN BENEFIT OF RATE REDUCTION FOR FAMILIES WITH INCOMES OVER $1,000,000. 

(a) GENERAL RULE.—Section 1 (relating to imposition of tax on 

individuals) is amended by adding at the end the following new 

subsection: 

‘‘(j) REDUCTION IN BENEFIT OF RATE REDUCTION FOR FAMILIES

WITH INCOMES OVER $1,000,000.—

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‘‘(1) IN GENERAL.—If the adjusted gross income of a taxpayer 

exceeds the threshold amount, the tax imposed by this section 

(determined without regard to this subsection) shall be increased by an amount equal to 1.45 percent of so much of the 

adjusted gross income as exceeds the threshold amount. 

‘‘(2) THRESHOLD AMOUNTS.—For purposes of this subsection, 

the term ‘threshold amount’ means—

‘‘(A) $1,000,000 in the case of a joint return, and 

‘‘(B) $500,000 in the case of any other return. 

‘‘(3) TAX NOT TO APPLY TO ESTATES AND TRUSTS.—This subsection shall not apply to an estate or trust. 

‘‘(4) SPECIAL RULE.—For purposes of section 55, the amount 

of the regular tax shall be determined without regard to this 

subsection. 

‘‘(5) TERMINATION.—This subsection shall not apply to taxable years beginning after December 31, 2010.’’. 

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

shall apply to taxable years beginning after December 31, 2005. 

(c) SECTION 15 NOT TO APPLY.—The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986. 

TITLE III—MISCELLANEOUS 

PROVISIONS 

SEC. 301. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER 

SECTION 355. 

Subsection (b) of section 355 (defining active conduct of a trade 

or business) is amended by adding at the end the following new 

paragraph: 

‘‘(3) SPECIAL RULE RELATING TO ACTIVE BUSINESS REQUIREMENT.—

‘‘(A) IN GENERAL.—In the case of any distribution made 

after the date of the enactment of this paragraph and before December 31, 2010, a corporation shall be treated as 

meeting the requirement of paragraph (2)(A) if and only if 

such corporation is engaged in the active conduct of a 

trade or business. 

‘‘(B) AFFILIATED GROUP RULE.—For purposes of subparagraph (A), all members of such corporation’s separate affiliated group shall be treated as one corporation. For purposes of the preceding sentence, a corporation’s separate 

affiliated group is the affiliated group which would be determined under section 1504(a) if such corporation were 

the common parent and section 1504(b) did not apply. 

‘‘(C) TRANSITION RULE.—Subparagraph (A) shall not 

apply to any distribution pursuant to a transaction which 

is—

‘‘(i) made pursuant to an agreement which was binding on the date of the enactment of this paragraph 

and at all times thereafter, 

‘‘(ii) described in a ruling request submitted to the 

Internal Revenue Service on or before such date, or 

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‘‘(iii) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission. 

The preceding sentence shall not apply if the distributing 

corporation elects not to have such sentence apply to distributions of such corporation. Any such election, once 

made, shall be irrevocable. 

‘‘(D) SPECIAL RULE FOR CERTAIN PRE-ENACTMENT DISTRIBUTIONS.—For purposes of determining the continued 

qualification under paragraph (2)(A) of distributions made 

before the date of the enactment of this paragraph as a result of an acquisition, disposition, or other restructuring 

after such date and before December 31, 2010, such distribution shall be treated as made after the date of the enactment of this paragraph for purposes of applying subparagraphs (A) through (C) of this paragraph.’’. 

SEC. 302. VETERANS’ MORTGAGE BONDS. 

(a) ALL VETERANS ELIGIBLE FOR STATE HOME LOAN PROGRAMS

FUNDED BY QUALIFIED VETERANS’ MORTGAGE BONDS.—

(1) IN GENERAL.—Paragraph (4) of section 143(l) (defining 

qualified veteran) is amended—

(A) by striking ‘‘at some time before January 1, 1977’’ in 

subparagraph (A), and 

(B) by striking subparagraph (B) and inserting the following: ‘‘(B) who applied for the financing before the date 25 

years after the last on which such veteran left active service.’’. (2) EFFECTIVE DATE.—The amendments made by this subsection shall apply to financing provided after the date of the 

enactment of this Act. 

(b) REVISION OF STATE VETERANS LIMIT.— (1) IN GENERAL.—Subparagraph (B) of section 143(l)(3) (relating to volume limitation) is amended to read as follows: 

‘‘(B) STATE VETERANS LIMIT.— ‘‘(i) IN GENERAL.—A State veterans limit for any calendar year is the amount equal to— ‘‘(I) $53,750,000 for the State of Texas, 

‘‘(II) $66,250,000 for the State of California, 

‘‘(III) $25,000,000 for the State of Oregon, 

‘‘(IV) $25,000,000 for the State of Wisconsin, 

and ‘‘(V) $25,000,000 for the State of Alaska. ‘‘(ii) PHASEIN.—In the case of calendar years beginning before 2010, clause (i) shall be applied by substituting for each of the dollar amounts therein by the 

applicable percentage. For purposes of the preceding 

sentence, the applicable percentage shall be determined in accordance with the following table: 

‘‘Calendar Year: Applicable percentage is: 

2006 ............................................ 20 percent

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‘‘Calendar Year: Applicable percentage is: 

2007 ............................................ 40 percent

2008 ............................................ 60 percent

2009 ............................................ 80 percent. 

‘‘(iii) TERMINATION.—The State veterans limit for 

any calendar year after 2010 is zero.’’. 

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to bonds issued after December 31, 2005. 

SEC. 303. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED 

MUSICAL WORKS. 

(a) IN GENERAL.—Subsection (b) of section 1221 (relating to capital asset defined) is amended by redesignating paragraph (3) as 

paragraph (4) and by inserting after paragraph (2) the following 

new paragraph: 

‘‘(3) SALE OR EXCHANGE OF SELF-CREATED MUSICAL WORKS.—

At the election of the taxpayer, paragraphs (1) and (3) of subsection (a) shall not apply with respect to any sale or exchange 

before January 1, 2011, of musical compositions or copyrights 

in musical works by a taxpayer described in subsection (a)(3).’’. 

(b) LIMITATION ON CHARITABLE CONTRIBUTIONS.—Subparagraph 

(A) of section 170(e)(1) is amended by inserting ‘‘(determined without regard to section 1221(b)(3))’’ after ‘‘long-term capital gain’’. 

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

shall apply to sales and exchanges in taxable years beginning after 

the date of the enactment of this Act. 

SEC. 304. VESSEL TONNAGE LIMIT. 

(a) IN GENERAL.—Paragraph (4) of section 1355(a) (relating to 

qualifying vessel) is amended by inserting ‘‘(6,000, in the case of 

taxable years beginning after December 31, 2005, and ending before January 1, 2011)’’ after ‘‘10,000’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to taxable years beginning after December 31, 2005. 

SEC. 305. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT 

FUNDS. 

(a) IN GENERAL.—Subsection (g) of section 468B (relating to clarification of taxation of certain funds) is amended to read as follows: ‘‘(g) CLARIFICATION OF TAXATION OF CERTAIN FUNDS.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2), nothing in any provision of law shall be construed as providing that 

an escrow account, settlement fund, or similar fund is not subject to current income tax. The Secretary shall prescribe regulations providing for the taxation of any such account or fund 

whether as a grantor trust or otherwise. 

‘‘(2) EXEMPTION FROM TAX FOR CERTAIN SETTLEMENT

FUNDS.—An escrow account, settlement fund, or similar fund 

shall be treated as beneficially owned by the United States and 

shall be exempt from taxation under this subtitle if— ‘‘(A) it is established pursuant to a consent decree entered by a judge of a United States District Court, ‘‘(B) it is created for the receipt of settlement payments 

as directed by a government entity for the sole purpose of 

13 

resolving or satisfying one or more claims asserting liability under the Comprehensive Environmental Response, 

Compensation, and Liability Act of 1980, ‘‘(C) the authority and control over the expenditure of 

funds therein (including the expenditure of contributions 

thereto and any net earnings thereon) is with such government entity, and ‘‘(D) upon termination, any remaining funds will be disbursed to such government entity for use in accordance 

with applicable law. 

For purposes of this paragraph, the term ‘government entity’ means the United States, any State or political subdivision 

thereof, the District of Columbia, any possession of the United 

States, and any agency or instrumentality of any of the foregoing. ‘‘(3) TERMINATION.—This subsection shall not apply to accounts and funds established after December 31, 2010.’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) 

shall apply to accounts and funds established after the date of the 

enactment of this Act. 

Æ