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[House Report 108-270]
[From the U.S. Government Publishing Office]

108th Congress                                            Rept. 108-270
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================

 
                     CHARITABLE GIVING ACT OF 2003

                                _______
                                

 September 16, 2003.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                         [To accompany H.R. 7]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 7) to amend the Internal Revenue Code of 1986 to 
provide incentives for charitable contributions by individuals 
and businesses, and for other purposes, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background...........................................19
        A. Purpose and Summary...................................    19
        B. Background and Need for Legislation...................    20
        C. Legislative History...................................    20
II. Explanation of the Bill..........................................20
    Title I. Charitable Giving Incentives............................20
        A. Charitable Deduction for Nonitemizers (sec. 101 of the 
            bill and secs. 63 and 170 of the Code)...............    20
        B. Tax-Free Distributions From IRAs for Charitable 
            Purposes (sec. 102 of the bill and secs. 408 and 6034 
            of the Code).........................................    22
        C. Increase Percentage Limitation for Corporate 
            Charitable Contributions (sec. 103 of the bill and 
            sec. 170 of the Code)................................    29
        D. Charitable Deduction for Contributions of Food 
            Inventory (sec. 104 of the bill and sec. 170 of the 
            Code)................................................    30
        E. Reform of Excise Tax Based on Net Investment Income of 
            Private Foundations (sec. 105 of the bill and sec. 
            4940 of the Code)....................................    32
        F. Reform of Excise Taxes for Minimum Payout and Self 
            Dealing (sec. 105 of the bill and secs. 4941 and 4942 
            of the Code).........................................    33
        G. Modify Tax on Unrelated Business Taxable Income of 
            Charitable Remainder Trusts (sec. 106 of the bill and 
            sec. 664 of the Code)................................    36
        H. Expand Charitable Contribution Allowed for Scientific 
            Property Used for Research and for Computer 
            Technology and Equipment (sec. 107 of the bill and 
            sec. 170 of the Code)................................    38
        I. Basis Adjustment to Stock of S Corporation 
            Contributing Property (sec. 108 of the bill and sec. 
            1367 of the Code)....................................    39
        J. Charitable Organizations Permitted To Make Certain 
            Collegiate Housing Grants (sec. 109 of the bill and 
            sec. 501 of the Code)................................    40
        K. Proceeds From Certain Games of Chance Treated as 
            Income Related to Exempt Purposes (sec. 110 of the 
            bill and sec. 513 of the Code).......................    42
        L. Excise Taxes Exemption for Blood Collector 
            Organizations (sec. 111 of the bill and secs. 4041, 
            4221, 4253, 6416, and 7701 of the Code)..............    43
        M. Nonrecognition of Gain on the Sale of Property Used in 
            the Performance of an Exempt Function (sec. 112 of 
            the bill and sec. 512 of the Code)...................    47
        N. Qualified 501(c)(3) Bonds for Nursing Homes Exempt 
            From Federal Guarantee Prohibition (sec. 113 of the 
            bill)................................................    48
    Title II. Tax Reform and Improvements Relating to Charitable 
    Organizations and Programs.......................................50
        A. Suspension of Tax-Exempt Status of Terrorist 
            Organizations (sec. 201 of the bill and sec. 501 of 
            the Code)............................................    50
        B. Clarification of Definition of Church Tax Inquiry 
            (sec. 202 of the bill and sec. 7611 of the Code).....    52
        C. Extension of Declaratory Judgment Procedures to Non-
            501(c)(3) Tax-Exempt Organizations (sec. 203 of the 
            bill and sec. 7428 of the Code)......................    53
        D. Exclusion From Income of Certain Landowner Initiatives 
            Program Payments (sec. 204 of the bill and sec. 126 
            of the Code).........................................    55
        E. Modify Tax Treatment of Certain Payments to 
            Controlling Exempt Organizations (sec. 205 of the 
            bill and sec. 512 of the Code).......................    56
        F. Simplification of Lobbying Expenditure Limitation 
            (sec. 206 of the bill and secs. 501 and 4911 of the 
            Code)................................................    58
        G. Pilot Project for Forest Conservation Activities (sec. 
            207 of the bill).....................................    62
    Title III. Other Provisions......................................67
        A. Compassion Capital Fund (sec. 301 of the bill)........    67
        B. Individual Development Accounts (sec. 302 of the bill)    68
        C. Maternity Group Homes (sec. 304 of the bill)..........    70
        D. Transfers From the Temporary Assistance for Needy 
            Families Block Grant to the Social Services Block 
            Grant (sec. 305 of the bill).........................    71
III.Votes of the Committee...........................................71

IV. Budget Effects of the Bill.......................................72
        A. Committee Estimate of Budgetary Effects...............    72
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................    75
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    75
        D. Macroeconomic Impact Analysis.........................    79
 V. Other Matters To Be Discussed Under the Rules of the House.......79
        A. Committee Oversight Findings and Recommendations......    79
        B. Statement of General Performance Goals and Objectives.    80
        C. Constitutional Authority Statement....................    80
        D. Information Relating to Unfunded Mandates.............    80
        E. Applicability of House Rule XXI 5(b)..................    80
        F. Tax Complexity Analysis...............................    80
VI. Changes in Existing Law Made by the Bill, as Reported............83

  The amendment is as follows:
  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 ``Charitable Giving 
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.--

Sec. 1. Short title; etc.

                 TITLE I--CHARITABLE GIVING INCENTIVES

Sec. 101. Deduction for portion of charitable contributions to be 
allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement plans for 
charitable purposes.
Sec. 103. Increase in cap on corporate charitable contributions.
Sec. 104. Charitable deduction for contributions of food inventory.
Sec. 105. Reform of certain excise taxes related to private 
foundations.
Sec. 106. Excise tax on unrelated business taxable income of charitable 
remainder trusts.
Sec. 107. Expansion of charitable contribution allowed for scientific 
property used for research and for computer technology and equipment 
used for educational purposes.
Sec. 108. Adjustment to basis of S corporation stock for certain 
charitable contributions.
Sec. 109. Charitable organizations permitted to make collegiate housing 
and infrastructure grants.
Sec. 110. Conduct of certain games of chance not treated as unrelated 
trade or business.
Sec. 111. Excise taxes exemption for blood collector organizations.
Sec. 112. Nonrecognition of gain on the sale of property used in 
performance of an exempt function.
Sec. 113. Exemption of qualified 501(c)(3) bonds for nursing homes from 
Federal guarantee prohibitions.

     TITLE II--TAX REFORM AND IMPROVEMENTS RELATING TO CHARITABLE 
                       ORGANIZATIONS AND PROGRAMS

Sec. 201. Suspension of tax-exempt status of terrorist organizations.
Sec. 202. Clarification of definition of church tax inquiry.
Sec. 203. Extension of declaratory judgment remedy to tax-exempt 
organizations.
Sec. 204. Landowner incentives programs.
Sec. 205. Modifications to section 512(b)(13).
Sec. 206. Simplification of lobbying expenditure limitation.
Sec. 207. Pilot project for forest conservation activities.

                      TITLE III--OTHER PROVISIONS

Sec. 301. Compassion capital fund.
Sec. 302. Reauthorization of assets for independence demonstration.
Sec. 303. Sense of the Congress regarding corporate contributions to 
faith-based organizations, etc.
Sec. 304. Maternity group homes.
Sec. 305. Authority of States to use 10 percent of their TANF funds to 
carry out social services block grant programs.

                 TITLE I--CHARITABLE GIVING INCENTIVES

SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE 
                    ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE 
                    DEDUCTIONS.

  (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts) is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the following new 
subsection:
  ``(m) Deduction for Individuals Not Itemizing Deductions.--
          ``(1) In general.--In the case of an individual who does not 
        itemize deductions for a taxable year, there shall be taken 
        into account as a direct charitable deduction under section 63 
        an amount equal to the amount allowable under subsection (a) 
        for the taxable year for cash contributions (determined without 
        regard to any carryover), to the extent that such contributions 
        exceed $250 ($500 in the case of a joint return) but do not 
        exceed $500 ($1,000 in the case of a joint return).
          ``(2) Termination.--Paragraph (1) shall not apply to any 
        taxable year beginning after December 31, 2005.''.
  (b) Direct Charitable Deduction.--
          (1) In general.--Subsection (b) of section 63 (defining 
        taxable income) is amended by striking ``and'' at the end of 
        paragraph (1), by striking the period at the end of paragraph 
        (2) and inserting ``, and'', and by adding at the end the 
        following new paragraph:
          ``(3) the direct charitable deduction.''.
          (2) Definition.--Section 63 is amended by redesignating 
        subsection (g) as subsection (h) and by inserting after 
        subsection (f) the following new subsection:
  ``(g) Direct Charitable Deduction.--For purposes of this section, the 
term `direct charitable deduction' means that portion of the amount 
allowable under section 170(a) which is taken as a direct charitable 
deduction for the taxable year under section 170(m).''.
          (3) Conforming amendment.--Subsection (d) of section 63 is 
        amended by striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
          ``(3) the direct charitable deduction.''.
  (c) Study.--
          (1) In general.--The Secretary of the Treasury shall study 
        the effect of the amendments made by this section on increased 
        charitable giving and taxpayer compliance, including a 
        comparison of taxpayer compliance between taxpayers who itemize 
        their charitable contributions and taxpayers who claim a direct 
        charitable deduction.
          (2) Report.--Not later than December 31, 2006, the Secretary 
        of the Treasury shall report on the study required under 
        paragraph (1) to the Committee on Finance of the Senate and the 
        Committee on Ways and Means of the House of Representatives.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR 
                    CHARITABLE PURPOSES.

  (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
          ``(8) Distributions for charitable purposes.--
                  ``(A) In general.--No amount shall be includible in 
                gross income by reason of a qualified charitable 
                distribution.
                  ``(B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement plan other than a plan described 
                in subsection (k) or (p) of section 408--
                          ``(i) which is made on or after the date that 
                        the individual for whose benefit the plan is 
                        maintained has attained age 70 \1/2\, and
                          ``(ii) which is made directly by the 
                        trustee--
                                  ``(I) to an organization described in 
                                section 170(c), or
                                  ``(II) to a split-interest entity.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that the 
                distribution would be includible in gross income 
                without regard to subparagraph (A) and, in the case of 
                a distribution to a split-interest entity, only if no 
                person holds an income interest in the amounts in the 
                split-interest entity attributable to such distribution 
                other than one or more of the following: the individual 
                for whose benefit such plan is maintained, the spouse 
                of such individual, or any organization described in 
                section 170(c).
                  ``(C) Contributions must be otherwise deductible.--
                For purposes of this paragraph--
                          ``(i) Direct contributions.--A distribution 
                        to an organization described in section 170(c) 
                        shall be treated as a qualified charitable 
                        distribution only if a deduction for the entire 
                        distribution would be allowable under section 
                        170 (determined without regard to subsection 
                        (b) thereof and this paragraph).
                          ``(ii) Split-interest gifts.--A distribution 
                        to a split-interest entity shall be treated as 
                        a qualified charitable distribution only if a 
                        deduction for the entire value of the interest 
                        in the distribution for the use of an 
                        organization described in section 170(c) would 
                        be allowable under section 170 (determined 
                        without regard to subsection (b) thereof and 
                        this paragraph).
                  ``(D) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which a 
                distribution is a qualified charitable distribution, 
                the entire amount of the distribution shall be treated 
                as includible in gross income without regard to 
                subparagraph (A) to the extent that such amount does 
                not exceed the aggregate amount which would have been 
                so includible if all amounts distributed from all 
                individual retirement plans were treated as 1 contract 
                under paragraph (2)(A) for purposes of determining the 
                inclusion of such distribution under section 72. Proper 
                adjustments shall be made in applying section 72 to 
                other distributions in such taxable year and subsequent 
                taxable years.
                  ``(E) Special rules for split-interest entities.--
                          ``(i) Charitable remainder trusts.--
                        Notwithstanding section 664(b), distributions 
                        made from a trust described in subparagraph 
                        (G)(i) shall be treated as ordinary income in 
                        the hands of the beneficiary to whom is paid 
                        the annuity described in section 664(d)(1)(A) 
                        or the payment described in section 
                        664(d)(2)(A).
                          ``(ii) Pooled income funds.--No amount shall 
                        be includible in the gross income of a pooled 
                        income fund (as defined in subparagraph 
                        (G)(ii)) by reason of a qualified charitable 
                        distribution to such fund, and all 
                        distributions from the fund which are 
                        attributable to qualified charitable 
                        distributions shall be treated as ordinary 
                        income to the beneficiary.
                          ``(iii) Charitable gift annuities.--Qualified 
                        charitable distributions made for a charitable 
                        gift annuity shall not be treated as an 
                        investment in the contract.
                  ``(F) Denial of deduction.--Qualified charitable 
                distributions shall not be taken into account in 
                determining the deduction under section 170.
                  ``(G) Split-interest entity defined.--For purposes of 
                this paragraph, the term `split-interest entity' 
                means--
                          ``(i) a charitable remainder annuity trust or 
                        a charitable remainder unitrust (as such terms 
                        are defined in section 664(d)) which must be 
                        funded exclusively by qualified charitable 
                        distributions,
                          ``(ii) a pooled income fund (as defined in 
                        section 642(c)(5)), but only if the fund 
                        accounts separately for amounts attributable to 
                        qualified charitable distributions, and
                          ``(iii) a charitable gift annuity (as defined 
                        in section 501(m)(5)).''.
  (b) Modifications Relating to Information Returns by Certain 
Trusts.--
          (1) Returns.--Section 6034 (relating to returns by trusts 
        described in section 4947(a)(2) or claiming charitable 
        deductions under section 642(c)) is amended to read as follows:

``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  ``(a) Trusts Described in Section 4947(a)(2).--Every trust described 
in section 4947(a)(2) shall furnish such information with respect to 
the taxable year as the Secretary may by forms or regulations require.
  ``(b) Trusts Claiming a Charitable Deduction Under Section 642(c).--
          ``(1) In general.--Every trust not required to file a return 
        under subsection (a) but claiming a deduction under section 
        642(c) for the taxable year shall furnish such information with 
        respect to such taxable year as the Secretary may by forms or 
        regulations prescribe, including--
                  ``(A) the amount of the deduction taken under section 
                642(c) within such year,
                  ``(B) the amount paid out within such year which 
                represents amounts for which deductions under section 
                642(c) have been taken in prior years,
                  ``(C) the amount for which such deductions have been 
                taken in prior years but which has not been paid out at 
                the beginning of such year,
                  ``(D) the amount paid out of principal in the current 
                and prior years for the purposes described in section 
                642(c),
                  ``(E) the total income of the trust within such year 
                and the expenses attributable thereto, and
                  ``(F) a balance sheet showing the assets, 
                liabilities, and net worth of the trust as of the 
                beginning of such year.
          ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
        for any taxable year if--
                  ``(A) all the net income for such year, determined 
                under the applicable principles of the law of trusts, 
                is required to be distributed currently to the 
                beneficiaries, or
                  ``(B) the trust is described in section 
                4947(a)(1).''.
          (2) Increase in penalty relating to filing of information 
        return by split-interest trusts.--Paragraph (2) of section 
        6652(c) (relating to returns by exempt organizations and by 
        certain trusts) is amended by adding at the end the following 
        new subparagraph:
                  ``(C) Split-interest trusts.--In the case of a trust 
                which is required to file a return under section 
                6034(a), subparagraphs (A) and (B) of this paragraph 
                shall not apply and paragraph (1) shall apply in the 
                same manner as if such return were required under 
                section 6033, except that--
                          ``(i) the 5 percent limitation in the second 
                        sentence of paragraph (1)(A) shall not apply,
                          ``(ii) in the case of any trust with gross 
                        income in excess of $250,000, the first 
                        sentence of paragraph (1)(A) shall be applied 
                        by substituting `$100' for `$20', and the 
                        second sentence thereof shall be applied by 
                        substituting `$50,000' for `$10,000', and
                          ``(iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                In addition to any penalty imposed on the trust 
                pursuant to this subparagraph, if the person required 
                to file such return knowingly fails to file the return, 
                such penalty shall also be imposed on such person who 
                shall be personally liable for such penalty.''.
          (3) Confidentiality of noncharitable beneficiaries.--
        Subsection (b) of section 6104 (relating to inspection of 
        annual information returns) is amended by adding at the end the 
        following new sentence: ``In the case of a trust which is 
        required to file a return under section 6034(a), this 
        subsection shall not apply to information regarding 
        beneficiaries which are not organizations described in section 
        170(c).''.
  (c) Effective Dates.--
          (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to distributions made after December 31, 2003.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to returns for taxable years beginning after 
        December 31, 2003.

SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE CONTRIBUTIONS.

  (a) In General.--Paragraph (2) of section 170(b) (relating to 
corporations) is amended by striking ``10 percent'' and inserting ``the 
applicable percentage''.
  (b) Applicable Percentage.--Subsection (b) of section 170 is amended 
by adding at the end the following new paragraph:
          ``(3) Applicable percentage defined.--For purposes of 
        paragraph (2), the applicable percentage shall be determined in 
        accordance with the following table:

                ``For taxable years beginning
                                                         The applicable
                  in calendar year--
                                                        percentage is--
                  2004.....................................         11 
                  2005.....................................         12 
                  2006.....................................         13 
                  2007.....................................         14 
                  2008 through 2011........................         15 
                  2012 and thereafter......................      20.''.
  (c) Conforming Amendments.--
          (1) Sections 512(b)(10) and 805(b)(2)(A) are each amended by 
        striking ``10 percent'' each place it occurs and inserting 
        ``the applicable percentage (determined under section 
        170(b)(3))''.
          (2) Sections 545(b)(2) and 556(b)(2) are each amended by 
        striking ``10-percent limitation'' and inserting ``applicable 
        percentage limitation''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD INVENTORY.

  (a) In General.--Paragraph (3) of section 170(e) (relating to special 
rule for certain contributions of inventory and other property) is 
amended by redesignating subparagraph (C) as subparagraph (D) and by 
inserting after subparagraph (B) the following new subparagraph:
                  ``(C) Special rule for contributions of food 
                inventory.--
                          ``(i) General rule.--In the case of a 
                        charitable contribution of food from any trade 
                        or business (or interest therein) of the 
                        taxpayer, this paragraph shall be applied--
                                  ``(I) without regard to whether the 
                                contribution is made by a C 
                                corporation, and
                                  ``(II) only to food that is 
                                apparently wholesome food.
                          ``(ii) Limitation.--In the case of a taxpayer 
                        other than a C corporation, the aggregate 
                        amount of such contributions for any taxable 
                        year which may be taken into account under this 
                        section shall not exceed the applicable 
                        percentage (within the meaning of subsection 
                        (b)(3)) of the taxpayer's aggregate net income 
                        for such taxable year from all trades or 
                        businesses from which such contributions were 
                        made for such year, computed without regard to 
                        this section.
                          ``(iii) Determination of fair market value.--
                        In the case of a qualified contribution of 
                        apparently wholesome food to which this 
                        paragraph applies and which, solely by reason 
                        of internal standards of the taxpayer or lack 
                        of market, cannot or will not be sold, the fair 
                        market value of such food shall be determined 
                        by taking into account the price at which the 
                        same or substantially the same food items (as 
                        to both type and quality) are sold by the 
                        taxpayer at the time of the contribution (or, 
                        if not so sold at such time, in the recent 
                        past).
                          ``(iv) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        `apparently wholesome food' has the meaning 
                        given to such term by section 22(b)(2) of the 
                        Bill Emerson Good Samaritan Food Donation Act 
                        (42 U.S.C. 1791(b)(2)), as in effect on the 
                        date of the enactment of this subparagraph.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 105. REFORM OF CERTAIN EXCISE TAXES RELATED TO PRIVATE 
                    FOUNDATIONS.

  (a) Reduction of Tax on Net Investment Income.--Section 4940(a) 
(relating to tax-exempt foundations) is amended by striking ``2 
percent'' and inserting ``1 percent''.
  (b) Repeal of Reduction in Tax Where Private Foundation Meets Certain 
Distribution Requirements.--Section 4940 (relating to excise tax based 
on investment income) is amended by striking subsection (e).
  (c) Modification of Excise Tax on Self-Dealing.--The second sentence 
of section 4941(a)(1) (relating to initial excise tax imposed on self-
dealer) is amended by striking ``5 percent'' and inserting ``25 
percent''.
  (d) Modification of Excise Tax on Failure To Distribute Income.--
          (1) Certain administrative expenses not treated as 
        distributions.--Section 4942(g) is amended by striking 
        paragraph (4) and inserting the following new paragraphs:
          ``(4) Limitation on administrative expenses treated as 
        distributions.--
                  ``(A) In general.--For purposes of paragraph (1)(A), 
                the following administrative expenses shall not be 
                treated as qualifying distributions:
                          ``(i) Any administrative expense which is not 
                        directly attributable to direct charitable 
                        activities, grant selection activities, grant 
                        monitoring and administration activities, 
                        compliance with applicable Federal, State, or 
                        local law, or furthering public accountability 
                        of the private foundation.
                          ``(ii) Any compensation paid to a 
                        disqualified person to the extent that such 
                        compensation exceeds an annual rate of 
                        $100,000.
                          ``(iii) Any expense incurred for 
                        transportation by air unless such 
                        transportation is regularly-scheduled 
                        commercial air transportation.
                          ``(iv) Any expense incurred for regularly-
                        scheduled commercial air transportation to the 
                        extent that such expense exceeds the cost of 
                        such transportation in coach-class 
                        accommodations.
                  ``(B) Adjustment for inflation.--In the case of a 
                taxable year beginning after December 31, 2004, the 
                $100,000 amount in subparagraph (A)(ii) shall 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, 
                        determined by substituting `calendar year 2003' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                If any amount as increased under the preceding sentence 
                is not a multiple of $50, such amount shall be rounded 
                to the next lowest multiple of $50.
          ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        paragraph (4). Such regulations shall provide that 
        administrative expenses which are excluded from qualifying 
        distributions solely by reason of the limitations in paragraph 
        (4) shall not for such reason subject a private foundation to 
        any other excise taxes imposed by this subchapter.''.
          (2) Disallowance not to apply to certain private 
        foundations.--
                  (A) In general.--Section 4942(j)(3) (defining 
                operating foundation) is amended--
                          (i) by striking ``(within the meaning of 
                        paragraph (1) or (2) of subsection (g))'' each 
                        place it appears, and
                          (ii) by adding at the end the following new 
                        sentence: ``For purposes of this paragraph, the 
                        term `qualifying distributions' means 
                        qualifying distributions within the meaning of 
                        paragraph (1) or (2) of subsection (g) 
                        (determined without regard to subsection 
                        (g)(4)).''.
                  (B) Conforming amendment.--Section 4942(f)(2)(C)(i) 
                is amended by inserting ``(determined without regard to 
                subsection (g)(4))'' after ``within the meaning of 
                subsection (g)(1)(A)''.
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 106. EXCISE TAX ON UNRELATED BUSINESS TAXABLE INCOME OF CHARITABLE 
                    REMAINDER TRUSTS.

  (a) In General.--Subsection (c) of section 664 (relating to exemption 
from income taxes) is amended to read as follows:
  ``(c) Taxation of Trusts.--
          ``(1) Income tax.--A charitable remainder annuity trust and a 
        charitable remainder unitrust shall, for any taxable year, not 
        be subject to any tax imposed by this subtitle.
          ``(2) Excise tax.--
                  ``(A) In general.--In the case of a charitable 
                remainder annuity trust or a charitable remainder 
                unitrust that has unrelated business taxable income 
                (within the meaning of section 512, determined as if 
                part III of subchapter F applied to such trust) for a 
                taxable year, there is hereby imposed on such trust or 
                unitrust an excise tax equal to the amount of such 
                unrelated business taxable income.
                  ``(B) Certain rules to apply.--The tax imposed by 
                subparagraph (A) shall be treated as imposed by chapter 
                42 for purposes of this title other than subchapter E 
                of chapter 42.
                  ``(C) Character of distributions and coordination 
                with distribution requirements.--The amounts taken into 
                account in determining unrelated business taxable 
                income (as defined in subparagraph (A)) shall not be 
                taken into account for purposes of--
                          ``(i) subsection (b),
                          ``(ii) determining the value of trust assets 
                        under subsection (d)(2), and
                          ``(iii) determining income under subsection 
                        (d)(3).
                  ``(D) Tax court proceedings.--For purposes of this 
                paragraph, the references in section 6212(c)(1) to 
                section 4940 shall be deemed to include references to 
                this paragraph.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 107. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR SCIENTIFIC 
                    PROPERTY USED FOR RESEARCH AND FOR COMPUTER 
                    TECHNOLOGY AND EQUIPMENT USED FOR EDUCATIONAL 
                    PURPOSES.

  (a) Scientific Property Used for Research.--
          (1) In general.--Clause (ii) of section 170(e)(4)(B) 
        (defining qualified research contributions) is amended by 
        inserting ``or assembled'' after ``constructed''.
          (2) Conforming amendment.--Clause (iii) of section 
        170(e)(4)(B) is amended by inserting ``or assembling'' after 
        ``construction''.
  (b) Computer Technology and Equipment for Educational Purposes.--
          (1) In general.--Clause (ii) of section 170(e)(6)(B) is 
        amended by inserting ``or assembled'' after ``constructed'' and 
        ``or assembling'' after ``construction''.
          (2) Special rule made permanent.--Section 170(e)(6) is 
        amended by striking subparagraph (G).
          (3) Conforming amendments.--Subparagraph (D) of section 
        170(e)(6) is amended by inserting ``or assembled'' after 
        ``constructed'' and ``or assembling'' after ``construction''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 108. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR CERTAIN 
                    CHARITABLE CONTRIBUTIONS.

  (a) In General.--Paragraph (2) of section 1367(a) (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end the following new flush sentence:
        ``The decrease under subparagraph (B) by reason of a charitable 
        contribution (as defined in section 170(c)) of property shall 
        be the amount equal to the shareholder's pro rata share of the 
        adjusted basis of such property.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 109. CHARITABLE ORGANIZATIONS PERMITTED TO MAKE COLLEGIATE HOUSING 
                    AND INFRASTRUCTURE GRANTS.

  (a) In General.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.), as amended by section 201, is 
further amended by redesignating subsection (q) as subsection (r) and 
by inserting after subsection (p) the following new subsection:
  ``(q) Treatment of Organizations Making Collegiate Housing and 
Infrastructure Improvement Grants.--
          ``(1) In general.--For purposes of subsection (c)(3) and 
        sections 170(c)(2)(B), 2055(a), and 2522(a)(2), an organization 
        shall not fail to be treated as organized and operated 
        exclusively for charitable or educational purposes solely 
        because such organization makes collegiate housing and 
        infrastructure grants to an organization described in 
        subsection (c)(7), so long as, at the time of the grant, 
        substantially all of the active members of the recipient 
        organization are full-time students at the college or 
        university with which such recipient organization is 
        associated.
          ``(2) Housing and infrastructure grants.--For purposes of 
        paragraph (1), collegiate housing and infrastructure grants are 
        grants to provide, improve, operate, or maintain collegiate 
        housing that may involve more than incidental social, 
        recreational, or private purposes, so long as such grants are 
        for purposes that would be permissible for a dormitory of the 
        college or university referred to in paragraph (1). A grant 
        shall not be treated as a collegiate housing and infrastructure 
        grant for purposes of paragraph (1) to the extent that such 
        grant is used to provide physical fitness equipment.
          ``(3) Grants to certain organizations holding title to 
        property, etc.--For purposes of this subsection, a collegiate 
        housing and infrastructure grant to an organization described 
        in subsection (c)(2) or (c)(7) holding title to property 
        exclusively for the benefit of an organization described in 
        subsection (c)(7) shall be considered a grant to the 
        organization described in subsection (c)(7) for whose benefit 
        such property is held.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to grants made after December 31, 2003.

SEC. 110. CONDUCT OF CERTAIN GAMES OF CHANCE NOT TREATED AS UNRELATED 
                    TRADE OR BUSINESS.

  (a) In General.--Paragraph (1) of section 513(f) (relating to certain 
bingo games) is amended to read as follows:
          ``(1) In general.--The term `unrelated trade or business' 
        does not include--
                  ``(A) any trade or business which consists of 
                conducting bingo games, and
                  ``(B) any trade or business which consists of 
                conducting qualified games of chance if the net 
                proceeds from such trade or business are paid or set 
                aside for payment for purposes described in section 
                170(c)(2)(B), for the promotion of social welfare 
                (within the meaning of section 501(c)(4)), or for a 
                purpose for which State law specifically authorizes the 
                expenditure of such proceeds.''.
  (b) Qualified Games of Chance.--Subsection (f) of section 513 is 
amended by adding at the end the following new paragraph:
          ``(3) Qualified games of chance.--For purposes of paragraph 
        (1), the term `qualified game of chance' means any game of 
        chance (other than bingo) conducted by an organization if--
                  ``(A) such organization is licensed pursuant to State 
                law to conduct such game,
                  ``(B) only organizations which are organized as 
                nonprofit corporations or are exempt from tax under 
                section 501(a) may be so licensed to conduct such game 
                within the State, and
                  ``(C) the conduct of such game does not violate State 
                or local law.''
  (c) Clerical Amendment.--The subsection heading of section 513(f) is 
amended by striking ``Bingo Games'' and inserting ``Games of Chance''.
  (d) Effective Date.-- The amendments made by this section shall apply 
to games conducted after December 31, 2003.

SEC. 111. EXCISE TAXES EXEMPTION FOR BLOOD COLLECTOR ORGANIZATIONS.

  (a) Exemption From Imposition of Special Fuels Tax.--Section 4041(g) 
(relating to other exemptions) is amended by striking ``and'' at the 
end of paragraph (3), by striking the period in paragraph (4) and 
inserting ``; and'', and by inserting after paragraph (4) the following 
new paragraph:
          ``(5) with respect to the sale of any liquid to a qualified 
        blood collector organization (as defined in section 
        7701(a)(48)) for such organization's exclusive use, or with 
        respect to the use by a qualified blood collector organization 
        of any liquid as a fuel.''.
  (b) Exemption From Manufacturers Excise Tax.--
          (1) In general.--Section 4221(a) (relating to certain tax-
        free sales) is amended by striking ``or'' at the end of 
        paragraph (4), by adding ``or'' at the end of paragraph (5), 
        and by inserting after paragraph (5) the following new 
        paragraph:
          ``(6) to a qualified blood collector organization (as defined 
        in section 7701(a)(48)) for such organization's exclusive 
        use,''.
          (2) Conforming amendments.--
                  (A) The second sentence of section 4221(a) is amended 
                by striking ``Paragraphs (4) and (5)'' and inserting 
                ``Paragraphs (4), (5), and (6)''.
                  (B) Section 6421(c) is amended by striking ``or (5)'' 
                and inserting ``(5), or (6)''.
  (c) Exemption From Communication Excise Tax.--
          (1) In general.--Section 4253 (relating to exemptions) is 
        amended by redesignating subsection (k) as subsection (l) and 
        inserting after subsection (j) the following new subsection:
  ``(k) Exemption for Qualified Blood Collector Organizations.--Under 
regulations provided by the Secretary, no tax shall be imposed under 
section 4251 on any amount paid by a qualified blood collector 
organization (as defined in section 7701(a)(48)) for services or 
facilities furnished to such organization.''.
          (2) Conforming amendment.--Section 4253(l), as redesignated 
        by paragraph (1), is amended by striking ``or (j)'' and 
        inserting ``(j), or (k)''.
  (d) Credit for Refund for Certain Taxes on Sales and Services.--
          (1) Deemed overpayment.--
                  (A) In general.--Section 6416(b)(2) is amended by 
                redesignating subparagraphs (E) and (F) as 
                subparagraphs (F) and (G), respectively, and by 
                inserting after subparagraph (D) the following new 
                subparagraph:
                  ``(E) sold to a qualified blood collector 
                organization (as defined in section 7701(a)(48)) for 
                such organization's exclusive use;''.
                  (B) Conforming amendments.--Section 6416(b)(2) is 
                amended--
                          (i) by striking ``Subparagraphs (C) and (D)'' 
                        and inserting ``Subparagraphs (C), (D), and 
                        (E)'', and
                          (ii) by striking ``(C), and (D)'' and 
                        inserting ``(C), (D), and (E)''.
          (2) Sales of tires.--Clause (ii) of section 6416(b)(4)(B) is 
        amended by inserting ``sold to a qualified blood collector 
        organization (as defined in section 7701(a)(48)) for its 
        exclusive use,'' after ``for its exclusive use,''.
  (e) Definition of Qualified Blood Collector Organization.--Section 
7701(a) is amended by inserting at the end the following new paragraph:
          ``(48) Qualified blood collector organization.--The term 
        `qualified blood collector organization' means an organization 
        which is--
                  ``(A) described in section 501(c)(3) and exempt from 
                tax under section 501(a),
                  ``(B) registered by the Food and Drug Administration 
                to collect blood, and
                  ``(C) primarily engaged in the activity of the 
                collection of blood.''.
  (f) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2004.

SEC. 112. NONRECOGNITION OF GAIN ON THE SALE OF PROPERTY USED IN 
                    PERFORMANCE OF AN EXEMPT FUNCTION.

  (a) In General.--Subparagraph (D) of section 512(a)(3) is amended to 
read as follows:
                  ``(D) Nonrecognition of gain.--
                          ``(i) In general.--If property used directly 
                        in the performance of the exempt function of an 
                        organization described in paragraph (7), (9), 
                        (17), or (20) of section 501(c) is sold by such 
                        organization, and within a period beginning 1 
                        year before the date of such sale, and ending 3 
                        years (10 years, in the case of an organization 
                        described in section 501(c)(7)) after such 
                        date, other property is purchased and used by 
                        such organization directly in the performance 
                        of its exempt function, gain (if any) from such 
                        sale shall be recognized only to the extent 
                        that such organization's sales price of the old 
                        property exceeds the organization's cost of 
                        purchasing the other property.
                          ``(ii) Statute of limitations.--If an 
                        organization described in section 501(c)(7) 
                        sells property on which gain is not recognized, 
                        in whole or in part, by reason of clause (i), 
                        then the statutory period for the assessment of 
                        any deficiency attributable to such gain shall 
                        not expire until the end of the 3-year period 
                        beginning on the date that the Secretary is 
                        notified by such organization (in such manner 
                        as the Secretary may prescribe) that--
                                  ``(I) the organization has met the 
                                requirements of clause (i) with respect 
                                to gain which was not recognized,
                                  ``(II) the organization does not 
                                intend to meet such requirements, or
                                  ``(III) the organization failed to 
                                meet such requirements within the 
                                prescribed period.
                        For the purposes of this clause, any deficiency 
                        may be assessed before the expiration of such 
                        3-year period notwithstanding the provisions of 
                        any other law or rule of law which would 
                        otherwise prevent such assessment.
                          ``(iii) Destruction and loss.--For purposes 
                        of this subparagraph, the destruction in whole 
                        or in part, theft, seizure, requisition, or 
                        condemnation of property, shall be treated as 
                        the sale of such property, and rules similar to 
                        the rules provided by subsections (b), (c), 
                        (e), and (j) of section 1034 (as in effect on 
                        the day before the date of the enactment of the 
                        Taxpayer Relief Act of 1997) shall apply.''.
  (b) Effective Date.--The amendment made by this section shall apply 
with respect to the sale of any property for which the 3-year period 
for offsetting gain by purchasing other property under subparagraph (D) 
of section 512(a)(3) of the Internal Revenue Code (as in effect on the 
day before the date of the enactment of this Act) had not expired as of 
January 1, 2001.

SEC. 113. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING HOMES FROM 
                    FEDERAL GUARANTEE PROHIBITIONS.

  (a) In General.--For purposes of section 149(b)(1) of the Internal 
Revenue Code of 1986, any qualified 501(c)(3) bond (as defined in 
section 145 of such Code) shall not be treated as federally guaranteed 
solely because such bond is part of an issue supported by a letter of 
credit, if such bond--
          (1) is issued after December 31, 2003, and before the date 
        which is 1 year after the date of the enactment of this Act, 
        and
          (2) is part of an issue 95 percent or more of the net 
        proceeds of which are to be used to finance 1 or more of the 
        following facilities primarily for the benefit of the elderly:
                  (A) Licensed nursing home facility.
                  (B) Licensed or certified assisted living facility.
                  (C) Licensed personal care facility.
                  (D) Continuing care retirement community.
  (b) Limitation on Issuer.--Subsection (a) shall not apply to any bond 
described in such subsection if the aggregate authorized face amount of 
the issue of which such bond is a part, when increased by the 
outstanding amount of such bonds issued by the issuer during the period 
described in subsection (a)(1) exceeds $15,000,000.
  (c) Limitation on Beneficiary.--Rules similar to the rules of section 
144(a)(10) of the Internal Revenue Code of 1986 shall apply for 
purposes of this section, except that--
          (1) ``$15,000,000'' shall be substituted for ``$40,000,000'' 
        in subparagraph (A) thereof, and
          (2) such rules shall be applied--
                  (A) only with respect to bonds described in this 
                section, and
                  (B) with respect to the aggregate authorized face 
                amount of all issues of such bonds which are allocable 
                to the beneficiary.
  (d) Continuing Care Retirement Community.--For purposes of this 
section, the term ``continuing care retirement community'' means a 
community which provides, on the same campus, a consortium of 
residential living options and support services to persons at least 60 
years of age under a written agreement. For purposes of the preceding 
sentence, the residential living options shall include independent 
living units, nursing home beds, and either assisted living units or 
personal care beds.

     TITLE II--TAX REFORM AND IMPROVEMENTS RELATING TO CHARITABLE 
                       ORGANIZATIONS AND PROGRAMS

SEC. 201. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.

  (a) In General.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
  ``(p) Suspension of Tax-Exempt Status of Terrorist Organizations.--
          ``(1) In general.--The exemption from tax under subsection 
        (a) with respect to any organization described in paragraph 
        (2), and the eligibility of any organization described in 
        paragraph (2) to apply for recognition of exemption under 
        subsection (a), shall be suspended during the period described 
        in paragraph (3).
          ``(2) Terrorist organizations.--An organization is described 
        in this paragraph if such organization is designated or 
        otherwise individually identified--
                  ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of 
                the Immigration and Nationality Act as a terrorist 
                organization or foreign terrorist organization,
                  ``(B) in or pursuant to an Executive order which is 
                related to terrorism and issued under the authority of 
                the International Emergency Economic Powers Act or 
                section 5 of the United Nations Participation Act of 
                1945 for the purpose of imposing on such organization 
                an economic or other sanction, or
                  ``(C) in or pursuant to an Executive order issued 
                under the authority of any Federal law if--
                          ``(i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as supporting 
                        or engaging in terrorist activity (as defined 
                        in section 212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting terrorism (as 
                        defined in section 140(d)(2) of the Foreign 
                        Relations Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          ``(ii) such Executive order refers to this 
                        subsection.
          ``(3) Period of suspension.--With respect to any organization 
        described in paragraph (2), the period of suspension--
                  ``(A) begins on the later of--
                          ``(i) the date of the first publication of a 
                        designation or identification described in 
                        paragraph (2) with respect to such 
                        organization, or
                          ``(ii) the date of the enactment of this 
                        subsection, and
                  ``(B) ends on the first date that all designations 
                and identifications described in paragraph (2) with 
                respect to such organization are rescinded pursuant to 
                the law or Executive order under which such designation 
                or identification was made.
          ``(4) Denial of deduction.--No deduction shall be allowed 
        under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
        2106(a)(2), or 2522 for any contribution to an organization 
        described in paragraph (2) during the period described in 
        paragraph (3).
          ``(5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding section 
        7428 or any other provision of law, no organization or other 
        person may challenge a suspension under paragraph (1), a 
        designation or identification described in paragraph (2), the 
        period of suspension described in paragraph (3), or a denial of 
        a deduction under paragraph (4) in any administrative or 
        judicial proceeding relating to the Federal tax liability of 
        such organization or other person.
          ``(6) Erroneous designation.--
                  ``(A) In general.--If--
                          ``(i) the tax exemption of any organization 
                        described in paragraph (2) is suspended under 
                        paragraph (1),
                          ``(ii) each designation and identification 
                        described in paragraph (2) which has been made 
                        with respect to such organization is determined 
                        to be erroneous pursuant to the law or 
                        Executive order under which such designation or 
                        identification was made, and
                          ``(iii) the erroneous designations and 
                        identifications result in an overpayment of 
                        income tax for any taxable year by such 
                        organization,
                credit or refund (with interest) with respect to such 
                overpayment shall be made.
                  ``(B) Waiver of limitations.--If the credit or refund 
                of any overpayment of tax described in subparagraph 
                (A)(iii) is prevented at any time by the operation of 
                any law or rule of law (including res judicata), such 
                credit or refund may nevertheless be allowed or made if 
                the claim therefor is filed before the close of the 1-
                year period beginning on the date of the last 
                determination described in subparagraph (A)(ii).
          ``(7) Notice of suspensions.--If the tax exemption of any 
        organization is suspended under this subsection, the Internal 
        Revenue Service shall update the listings of tax-exempt 
        organizations and shall publish appropriate notice to taxpayers 
        of such suspension and of the fact that contributions to such 
        organization are not deductible during the period of such 
        suspension.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to designations made before, on, or after the date of the enactment of 
this Act.

SEC. 202. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

  Subsection (i) of section 7611 (relating to section not to apply to 
criminal investigations, etc.) is amended by striking ``or'' at the end 
of paragraph (4), by striking the period at the end of paragraph (5) 
and inserting ``, or'', and by inserting after paragraph (5) the 
following:
          ``(6) information provided by the Secretary related to the 
        standards for exemption from tax under this title and the 
        requirements under this title relating to unrelated business 
        taxable income.''.

SEC. 203. EXTENSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Paragraph (1) of section 7428(a) (relating to 
creation of remedy) is amended--
          (1) in subparagraph (B) by inserting after ``509(a))'' the 
        following: ``or as a private operating foundation (as defined 
        in section 4942(j)(3))''; and
          (2) by amending subparagraph (C) to read as follows:
                  ``(C) with respect to the initial qualification or 
                continuing qualification of an organization as an 
                organization described in subsection (c) (other than 
                paragraph (3)) or (d) of section 501 which is exempt 
                from tax under section 501(a), or''.
  (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended in 
the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
  (c) Effective Date.--The amendments made by this section shall apply 
to pleadings filed with respect to determinations (or requests for 
determinations) made after the date of the enactment of this Act.

SEC. 204. LANDOWNER INCENTIVES PROGRAMS.

  (a) In General.--Subsection (a) of section 126 is amended by 
redesignating paragraph (10) as paragraph (11) and by inserting after 
paragraph (9) the following new paragraph:
          ``(10) Landowner initiatives programs to conserve threatened, 
        endangered, or imperiled species, or protect or restore habitat 
        carried out under--
                  ``(A) the Fish and Wildlife Coordination Act (16 
                U.S.C. 661 et seq.),
                  ``(B) the Fish and Wildlife Act of 1956 (16 U.S.C. 
                742f), or
                  ``(C) section 6 of the Endangered Species Act (16 
                U.S.C. 11531 et seq.).''.
  (b) Excludable Portion.--Subparagraph (A) of section 126(b)(1) is 
amended by inserting after ``Secretary of Agriculture'' the following: 
``(the Secretary of the Interior, in the case of the landowner 
incentives programs described in subsection (a)(10) and the programs 
described in subsection (a)(11) that are implemented by the Department 
of the Interior)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to amounts received after December 31, 2003, in taxable years ending 
after such date.

SEC. 205. MODIFICATIONS TO SECTION 512(B)(13).

  (a) In General.--Paragraph (13) of section 512(b) (relating to 
special rules for certain amounts received from controlled entities) is 
amended by redesignating subparagraph (E) as subparagraph (F) and by 
inserting after subparagraph (D) the following new subparagraph:
                  ``(E) Paragraph to apply only to excess payments.--
                          ``(i) In general.--Subparagraph (A) shall 
                        apply only to the portion of a specified 
                        payment received or accrued by the controlling 
                        organization that exceeds the amount which 
                        would have been paid or accrued if such payment 
                        met the requirements prescribed under section 
                        482.
                          ``(ii) Addition to tax for valuation 
                        misstatements.--The tax imposed by this chapter 
                        on the controlling organization shall be 
                        increased by an amount equal to 20 percent of 
                        the larger of--
                                  ``(I) such excess determined without 
                                regard to any amendment or supplement 
                                to a return of tax, or
                                  ``(II) such excess determined with 
                                regard to all such amendments and 
                                supplements.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by this section shall 
        apply to payments received or accrued after December 31, 2003.
          (2) Payments subject to binding contract transition rule.--If 
        the amendments made by section 1041 of the Taxpayer Relief Act 
        of 1997 did not apply to any amount received or accrued in the 
        first 2 taxable years beginning on or after the date of the 
        enactment of the Taxpayer Relief Act of 1997 under any contract 
        described in subsection (b)(2) of such section, such amendments 
        also shall not apply to amounts received or accrued under such 
        contract before January 1, 2001.

SEC. 206. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.

  (a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) of section 
501(h) (relating to expenditures by public charities to influence 
legislation) is amended to read as follows:
          ``(1) General rule.--In the case of an organization to which 
        this subsection applies, exemption from taxation under 
        subsection (a) shall be denied because a substantial part of 
        the activities of such organization consists of carrying on 
        propaganda, or otherwise attempting, to influence legislation, 
        but only if such organization normally makes lobbying 
        expenditures in excess of the lobbying ceiling amount for such 
        organization for each taxable year.''.
  (b) Excess Lobbying Expenditures.--Section 4911(b) is amended to read 
as follows:
  ``(b) Excess Lobbying Expenditures.--For purposes of this section, 
the term `excess lobbying expenditures' means, for a taxable year, the 
amount by which the lobbying expenditures made by the organization 
during the taxable year exceed the lobbying nontaxable amount for such 
organization for such taxable year.''.
  (c) Conforming Amendments.--
          (1) Section 501(h)(2) is amended by striking subparagraphs 
        (C) and (D).
          (2) Section 4911(c) is amended by striking paragraphs (3) and 
        (4).
          (3) Paragraph (1)(A) of section 4911(f) is amended by 
        striking ``limits of section 501(h)(1) have'' and inserting 
        ``limit of section 501(h)(1) has''.
          (4) Paragraph (1)(C) of section 4911(f) is amended by 
        striking ``limits of section 501(h)(1) are'' and inserting 
        ``limit of section 501(h)(1) is''.
          (5) Paragraphs (4)(A) and (4)(B) of section 4911(f) are each 
        amended by striking ``limits of section 501(h)(1)'' and 
        inserting ``limit of section 501(h)(1)''.
          (6) Paragraph (8) of section 6033(b) (relating to certain 
        organizations described in section 501(c)(3)) is amended by 
        inserting ``and'' at the end of subparagraph (A) and by 
        striking subparagraphs (C) and (D).
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 207. PILOT PROJECT FOR FOREST CONSERVATION ACTIVITIES.

  (a) Tax-Exempt Bond Financing.--
          (1) In general.--For purposes of the Internal Revenue Code of 
        1986, any qualified forest conservation bond shall be treated 
        as an exempt facility bond under section 142 of such Code.
          (2) Qualified forest conservation bond.--For purposes of this 
        section, the term ``qualified forest conservation bond'' means 
        any bond issued as part of an issue if--
                  (A) 95 percent or more of the net proceeds (as 
                defined in section 150(a)(3) of such Code) of such 
                issue are to be used for qualified project costs,
                  (B) such bond is an obligation of the State of 
                Washington or any political subdivision thereof, and
                  (C) such bond is issued for a qualified organization 
                before December 31, 2006.
          (3) Limitation on aggregate amount issued.--The maximum 
        aggregate face amount of bonds which may be issued under this 
        subsection shall not exceed $250,000,000.
          (4) Qualified project costs.--For purposes of this 
        subsection, the term ``qualified project costs'' means the sum 
        of--
                  (A) the cost of acquisition by the qualified 
                organization from an unrelated person of forests and 
                forest land located in the State of Washington which at 
                the time of acquisition or immediately thereafter are 
                subject to a conservation restriction described in 
                subsection (c)(2),
                  (B) interest on the qualified forest conservation 
                bonds for the 3-year period beginning on the date of 
                issuance of such bonds, and
                  (C) credit enhancement fees which constitute 
                qualified guarantee fees (within the meaning of section 
                148 of such Code).
          (5) Special rules.--In applying the Internal Revenue Code of 
        1986 to any qualified forest conservation bond, the following 
        modifications shall apply:
                  (A) Section 146 of such Code (relating to volume cap) 
                shall not apply.
                  (B) For purposes of section 147(b) of such Code 
                (relating to maturity may not exceed 120 percent of 
                economic life), the land and standing timber acquired 
                with proceeds of qualified forest conservation bonds 
                shall have an economic life of 35 years.
                  (C) Subsections (c) and (d) of section 147 of such 
                Code (relating to limitations on acquisition of land 
                and existing property) shall not apply.
                  (D) Section 57(a)(5) of such Code (relating to tax-
                exempt interest) shall not apply to interest on 
                qualified forest conservation bonds.
          (6) Treatment of current refunding bonds.--Paragraphs (2)(C) 
        and (3) shall not apply to any bond (or series of bonds) issued 
        to refund a qualified forest conservation bond issued before 
        December 31, 2006, if--
                  (A) the average maturity date of the issue of which 
                the refunding bond is a part is not later than the 
                average maturity date of the bonds to be refunded by 
                such issue,
                  (B) the amount of the refunding bond does not exceed 
                the outstanding amount of the refunded bond, and
                  (C) the net proceeds of the refunding bond are used 
                to redeem the refunded bond not later than 90 days 
                after the date of the issuance of the refunding bond.
        For purposes of subparagraph (A), average maturity shall be 
        determined in accordance with section 147(b)(2)(A) of such 
        Code.
          (7) Effective date.--This subsection shall apply to 
        obligations issued on or after the date of enactment of this 
        Act.
  (b) Items From Qualified Harvesting Activities Not Subject to Tax or 
Taken Into Account.--
          (1) In general.--Income, gains, deductions, losses, or 
        credits from a qualified harvesting activity conducted by a 
        qualified organization shall not be subject to tax or taken 
        into account under subtitle A of the Internal Revenue Code of 
        1986.
          (2) Limitation.--The amount of income excluded from gross 
        income under paragraph (1) for any taxable year shall not 
        exceed the amount used by the qualified organization to make 
        debt service payments during such taxable year for qualified 
        forest conservation bonds.
          (3) Qualified harvesting activity.--For purposes of paragraph 
        (1)--
                  (A) In general.--The term ``qualified harvesting 
                activity'' means the sale, lease, or harvesting, of 
                standing timber--
                          (i) on land owned by a qualified organization 
                        which was acquired with proceeds of qualified 
                        forest conservation bonds, and
                          (ii) pursuant to a qualified conservation 
                        plan adopted by the qualified organization.
                  (B) Exceptions.--
                          (i) Cessation as qualified organization.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting for 
                        any period during which the organization ceases 
                        to qualify as a qualified organization.
                          (ii) Exceeding limits on harvesting.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting of 
                        standing timber on land acquired with proceeds 
                        of qualified forest conservation bonds to the 
                        extent that--
                                  (I) the average annual area of timber 
                                harvested from such land exceeds 2.5 
                                percent of the total area of such land, 
                                or
                                  (II) the quantity of timber removed 
                                from such land exceeds the quantity 
                                which can be removed from such land 
                                annually in perpetuity on a sustained-
                                yield basis with respect to such land.
                        The limitations under subclauses (I) and (II) 
                        shall not apply to post-fire restoration and 
                        rehabilitation or sanitation harvesting of 
                        timber stands which are substantially damaged 
                        by fire, windthrow, or other catastrophes, or 
                        which are in imminent danger from insect or 
                        disease attack.
          (4) Termination.--This subsection shall not apply to any 
        qualified harvesting activity occurring after the date on which 
        there is no outstanding qualified forest conservation bond or 
        any such bond ceases to be a tax-exempt bond.
          (5) Partial recapture of benefits if harvesting limit 
        exceeded.--If, as of the date that this subsection ceases to 
        apply under paragraph (4), the average annual area of timber 
        harvested from the land exceeds the requirement of paragraph 
        (3)(B)(ii)(I), the tax imposed by chapter 1 of such Code shall 
        be increased, under rules prescribed by the Secretary of the 
        Treasury, by the sum of the tax benefits attributable to such 
        excess and interest at the underpayment rate under section 6621 
        of such Code for the period of the underpayment.
  (c) Definitions.--For purposes of this section--
          (1) Qualified conservation plan.--The term ``qualified 
        conservation plan'' means a multiple land use program or plan 
        which--
                  (A) is designed and administered primarily for the 
                purposes of protecting and enhancing wildlife and fish, 
                timber, scenic attributes, recreation, and soil and 
                water quality of the forest and forest land,
                  (B) mandates that conservation of forest and forest 
                land is the single-most significant use of the forest 
                and forest land, and
                  (C) requires that timber harvesting be consistent 
                with--
                          (i) restoring and maintaining reference 
                        conditions for the region's ecotype,
                          (ii) restoring and maintaining a 
                        representative sample of young, mid, and late 
                        successional forest age classes,
                          (iii) maintaining or restoring the resources' 
                        ecological health for purposes of preventing 
                        damage from fire, insect, or disease,
                          (iv) maintaining or enhancing wildlife or 
                        fish habitat, or
                          (v) enhancing research opportunities in 
                        sustainable renewable resource uses.
          (2) Conservation restriction.--The conservation restriction 
        described in this paragraph is a restriction which--
                  (A) is granted in perpetuity to an unrelated person 
                which is described in section 170(h)(3) of such Code 
                and which, in the case of a nongovernmental unit, is 
                organized and operated for conservation purposes,
                  (B) meets the requirements of clause (ii) or 
                (iii)(II) of section 170(h)(4)(A) of such Code,
                  (C) obligates the qualified organization to pay the 
                costs incurred by the holder of the conservation 
                restriction in monitoring compliance with such 
                restriction, and
                  (D) requires an increasing level of conservation 
                benefits to be provided whenever circumstances allow 
                it.
          (3) Qualified organization.--The term ``qualified 
        organization'' means an organization--
                  (A) which is a nonprofit organization substantially 
                all the activities of which are charitable, scientific, 
                or educational, including acquiring, protecting, 
                restoring, managing, and developing forest lands and 
                other renewable resources for the long-term charitable, 
                educational, scientific and public benefit,
                  (B) more than half of the value of the property of 
                which consists of forests and forest land acquired with 
                the proceeds from qualified forest conservation bonds,
                  (C) which periodically conducts educational programs 
                designed to inform the public of environmentally 
                sensitive forestry management and conservation 
                techniques,
                  (D) which has at all times a board of directors--
                          (i) at least 20 percent of the members of 
                        which represent the holders of the conservation 
                        restriction described in paragraph (2),
                          (ii) at least 20 percent of the members of 
                        which are public officials, and
                          (iii) not more than one-third of the members 
                        of which are individuals who are or were at any 
                        time within 5 years before the beginning of a 
                        term of membership on the board, an employee 
                        of, independent contractor with respect to, 
                        officer of, director of, or held a material 
                        financial interest in, a commercial forest 
                        products enterprise with which the qualified 
                        organization has a contractual or other 
                        financial arrangement,
                  (E) the bylaws of which require at least two-thirds 
                of the members of the board of directors to vote 
                affirmatively to approve the qualified conservation 
                plan and any change thereto, and
                  (F) upon dissolution, is required to dedicate its 
                assets to--
                          (i) an organization described in section 
                        501(c)(3) of such Code which is organized and 
                        operated for conservation purposes, or
                          (ii) a governmental unit described in section 
                        170(c)(1) of such Code.
          (4) Unrelated person.--The term ``unrelated person'' means a 
        person who is not a related person.
          (5) Related person.--A person shall be treated as related to 
        another person if--
                  (A) such person bears a relationship to such other 
                person described in section 267(b) (determined without 
                regard to paragraph (9) thereof), or 707(b)(1), of such 
                Code, determined by substituting ``25 percent'' for 
                ``50 percent'' each place it appears therein, and
                  (B) in the case such other person is a nonprofit 
                organization, if such person controls directly or 
                indirectly more than 25 percent of the governing body 
                of such organization.
  (d) Report.--
          (1) In general.--The Comptroller General of the United States 
        shall conduct a study on the pilot project for forest 
        conservation activities under this section. Such study shall 
        examine the extent to which forests and forest lands were 
        managed during the 5-year period beginning on the date of the 
        enactment of this Act to achieve the goals of such project.
          (2) Submission of report to congress.--Not later than six 
        years after the date of the enactment of this Act, the 
        Comptroller General shall submit a report of such study to the 
        Committee on Ways and Means and the Committee on Resources of 
        the House of Representatives and the Committee on Finance and 
        the Committee on Energy and Natural Resources of the Senate.

                      TITLE III--OTHER PROVISIONS

SEC. 301. COMPASSION CAPITAL FUND.

  Title IV of the Social Security Act (42 U.S.C. 601-679b) is amended 
by adding at the end the following:

                   ``PART F--COMPASSION CAPITAL FUND

``SEC. 481. SECRETARY'S FUND TO SUPPORT AND REPLICATE PROMISING SOCIAL 
                    SERVICE PROGRAMS.

  ``(a) Grant Authority.--
          ``(1) In general.--The Secretary may make grants to support 
        any private entity that operates a promising social services 
        program.
          ``(2) Applications.--An entity desiring to receive a grant 
        under paragraph (1) shall submit to the Secretary an 
        application for the grant, which shall contain such information 
        as the Secretary may require.
  ``(b) Contract Authority, Etc.--The Secretary may enter into a grant, 
contract, or cooperative agreement with any entity under which the 
entity would provide technical assistance to another entity to operate 
a social service program that assists persons and families in need, 
including by--
          ``(1) providing the other entity with--
                  ``(A) technical assistance and information, including 
                legal assistance and other business assistance;
                  ``(B) information on capacity-building;
                  ``(C) information and assistance in identifying and 
                using best practices for serving persons and families 
                in need; or
                  ``(D) assistance in replicating programs with 
                demonstrated effectiveness in assisting persons and 
                families in need; or
          ``(2) supporting research on the best practices of social 
        service organizations.
  ``(c) Guidance and Technical Assistance.--The Secretary may use not 
more than 25 percent of the amount appropriated under this section for 
a fiscal year to provide guidance and technical assistance to States 
and political subdivisions of States with respect to the implementation 
of any social service program.
  ``(d) Social Services Program Defined.--In this section, the term 
`social services program' means a program that provides benefits or 
services of any kind to persons and families in need.
  ``(e) Limitations on Authorization of Appropriations.--To carry out 
this section, there are authorized to be appropriated to the Secretary 
$150,000,000 for fiscal year 2004, and such sums as may be necessary 
for fiscal years 2005 through 2008.''.

SEC. 302. REAUTHORIZATION OF ASSETS FOR INDEPENDENCE DEMONSTRATION.

  (a) In General.--Section 416 of the Assets for Independence Act 
(title IV of Public Law 105-285; 42 U.S.C. 604 note) is amended by 
striking ``and 2003'' and inserting ``2003, 2004, 2005, 2006, 2007, and 
2008''.
  (b) Removal of Economic Literacy Activities From Limitation on Use of 
Amounts in the Reserve Fund.--Section 407(c)(3) of such Act (title IV 
of Public Law 105-285; 42 U.S.C. 604 note) is amended by adding at the 
end the following: ``The preceding sentences of this paragraph shall 
not apply to amounts used by an entity for any activity described in 
paragraph (1)(A).''.
  (c) Eligibility Expanded to Include Individuals In Households With 
Income Not Exceeding 50 Percent of Area Median Income.--Section 
408(a)(1) of such Act (title IV of Public Law 105-285; 42 U.S.C. 604 
note) is amended to read as follows:
          ``(1) Income test.--The adjusted gross income of the 
        household--
                  ``(A) does not exceed 200 percent of the poverty line 
                (as determined by the Office of Management and Budget) 
                or the earned income amount described in section 32 of 
                the Internal Revenue Code of 1986 (taking into account 
                the size of the household); or
                  ``(B) does not exceed 50 percent of the area median 
                income (as determined by the Secretary of Housing and 
                Urban Development) for the area in which the household 
                is located.''.
  (d) Extension of Time for Account Holders to Access Federal Funds.--
Section 407(d) of such Act (title IV of Public Law 105-285; 42 U.S.C. 
604 note) is amended--
          (1) in the subsection heading, by striking ``When Project 
        Terminates''; and
          (2) by striking ``upon'' and inserting ``on the date that is 
        6 months after''.
  (e) Verification of Postsecondary Education Expenses.--Section 
404(8)(A) of such Act (title IV of Public Law 105-285; 42 U.S.C. 604 
note) is amended in the 1st sentence by inserting ``or a vendor, but 
only to the extent that the expenses are described in a document which 
explains the educational items to be purchased, and the document and 
the expenses are approved by the qualified entity'' before the period.
  (f) Authority to Use Excess Interest to Fund Other Individual 
Development Accounts.--Section 410 of such Act (title IV of Public Law 
105-285; 42 U.S.C. 604 note) is amended--
          (1) in subsection (a)(3)--
                  (A) by striking ``any interest that has accrued'' and 
                inserting ``interest that has accrued during that 
                period''; and
                  (B) by striking the period and inserting ``, but only 
                to the extent that the amount of the interest does not 
                exceed the amount of interest that has accrued during 
                that period on amounts deposited in the account by that 
                individual.''; and
          (2) by adding at the end the following:
  ``(f) Use of Excess Interest to Fund Other Individual Development 
Accounts.--To the extent that a qualified entity has an amount that, 
but for the limitation in subsection (a)(3), would be required by that 
subsection to be deposited into the individual development account of 
an individual or into a parallel account maintained by the qualified 
entity, the qualified entity may deposit the amount into the individual 
development account of any individual or into any such parallel account 
maintained by the qualified entity.''.

SEC. 303. SENSE OF THE CONGRESS REGARDING CORPORATE CONTRIBUTIONS TO 
                    FAITH-BASED ORGANIZATIONS, ETC.

  (a) Findings.--The Congress finds as follows:
          (1) America's community of faith has long played a leading 
        role in dealing with difficult societal problems that might 
        otherwise have gone unaddressed.
          (2) President Bush has called upon Americans ``to revive the 
        spirit of citizenship . . . to marshal the compassion of our 
        people to meet the continuing needs of our Nation''.
          (3) Although the work of faith-based organizations should not 
        be used by government as an excuse for backing away from its 
        historic and rightful commitment to help those who are 
        disadvantaged and in need, such organizations can and should be 
        seen as a valuable partner with government in meeting societal 
        challenges.
          (4) Every day faith-based organizations in the United States 
        help people recover from drug and alcohol addiction, provide 
        food and shelter for the homeless, rehabilitate prison inmates 
        so that they can break free from the cycle of recidivism, and 
        teach people job skills that will allow them to move from 
        poverty to productivity.
          (5) Faith-based organizations are often more successful in 
        dealing with difficult societal problems than government and 
        non-sectarian organizations.
          (6) As President Bush has stated, ``It is not sufficient to 
        praise charities and community groups; we must support them. 
        And this is both a public obligation and a personal 
        responsibility.''.
          (7) Corporate foundations contribute billions of dollars each 
        year to a variety of philanthropic causes.
          (8) According to a study produced by the Capital Research 
        Center, the 10 largest corporate foundations in the United 
        States contributed $1,900,000,000 to such causes.
          (9) According to the same study, faith-based organizations 
        only receive a small fraction of the contributions made by 
        corporations in the United States, and 6 of the 10 corporations 
        that give the most to philanthropic causes explicitly ban or 
        restrict contributions to faith-based organizations.
  (b) Corporations Encouraged To Contribute to Faith-Based 
Organizations.--The Congress calls on corporations in the United 
States, in the words of the President, ``to give more and to give 
better'' by making greater contributions to faith-based organizations 
that are on the front lines battling some of the great societal 
challenges of our day.
  (c) Sense of the Congress.--It is the sense of Congress that--
          (1) corporations in the United States are important partners 
        with government in efforts to overcome difficult societal 
        problems; and
          (2) no corporation in the United States should adopt policies 
        that prohibit the corporation from contributing to an 
        organization that is successfully advancing a philanthropic 
        cause merely because such organization is faith based.

SEC. 304. MATERNITY GROUP HOMES.

  (a) Permissible Use of Funds.--Section 322 of the Runaway and 
Homeless Youth Act (42 U.S.C. 5714-2) is amended--
          (1) in subsection (a)(1), by inserting ``(including maternity 
        group homes)'' after ``group homes''; and
          (2) by adding at the end the following:
  ``(c) Maternity Group Home.--In this part, the term `maternity group 
home' means a community-based, adult-supervised group home that 
provides--
          ``(1) young mothers and their children with a supportive and 
        supervised living arrangement in which such mothers are 
        required to learn parenting skills, including child 
        development, family budgeting, health and nutrition, and other 
        skills to promote their long-term economic independence and the 
        well-being of their children; and
          ``(2) pregnant women with--
                  ``(A) information regarding the option of placing 
                children for adoption through licensed adoption service 
                providers;
                  ``(B) assistance with prenatal care and child 
                birthing; and
                  ``(C) pre- and post-placement adoption counseling.''.
  (b) Contract for Evaluation.--Part B of the Runaway and Homeless 
Youth Act (42 U.S.C. 5701 et seq.) is amended by adding at the end the 
following:

``SEC. 323. CONTRACT FOR EVALUATION.

  ``(a) In General.--The Secretary shall enter into a contract with a 
public or private entity for an evaluation of the maternity group homes 
that are supported by grant funds under this Act.
  ``(b) Information.--The evaluation described in subsection (a) shall 
include the collection of information about the relevant 
characteristics of individuals who benefit from maternity group homes 
such as those that are supported by grant funds under this Act and what 
services provided by those maternity group homes are most beneficial to 
such individuals.
  ``(c) Report.--Not later than 2 years after the date on which the 
Secretary enters into a contract for an evaluation under subsection 
(a), and biennially thereafter, the entity conducting the evaluation 
under this section shall submit to Congress a report on the status, 
activities, and accomplishments of maternity group homes that are 
supported by grant funds under this Act.''.
  (c) Authorization of Appropriations.--Section 388 of the Runaway and 
Homeless Youth Act (42 U.S.C. 5751) is amended--
          (1) in subsection (a)(1)--
                  (A) by striking ``There'' and inserting the 
                following:
                  ``(A) In general.--There'';
                  (B) in subparagraph (A), as redesignated, by 
                inserting ``and the purpose described in subparagraph 
                (B)'' after ``other than part E''; and
                  (C) by adding at the end the following:
                  ``(B) Maternity group homes.--There is authorized to 
                be appropriated, for maternity group homes eligible for 
                assistance under section 322(a)(1)--
                          ``(i) $33,000,000 for fiscal year 2003; and
                          ``(ii) such sums as may be necessary for 
                        fiscal year 2004.''; and
          (2) in subsection (a)(2)(A), by striking ``paragraph (1)'' 
        and inserting ``paragraph (1)(A)''.

SEC. 305. AUTHORITY OF STATES TO USE 10 PERCENT OF THEIR TANF FUNDS TO 
                    CARRY OUT SOCIAL SERVICES BLOCK GRANT PROGRAMS.

  Section 404(d)(2) of the Social Security Act (42 U.S.C. 604(d)(2)) is 
amended to read as follows:
          ``(2) Limitation on amount transferable to title xx 
        programs.--A State may use not more than 10 percent of the 
        amount of any grant made to the State under section 403(a) for 
        a fiscal year to carry out State programs pursuant to title 
        XX.''.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    The bill, H.R. 7, as amended, provides incentives for 
charitable giving, implements tax reform and improvements 
relating to charitable organizations and programs, and 
authorizes appropriations for important social service 
programs.
    The bill provides a charitable contribution deduction for 
individuals taking the standard deduction, facilitates 
transfers to charity from individual retirement arrangements, 
increases the percentage limitation on corporate charitable 
contributions, encourages charitable contributions of food 
inventory, scientific property used for research, and computer 
technology and equipment used for educational purposes, reforms 
certain private foundation excise taxes leaving such 
foundations with more funds to spend on charitable activities, 
and provides a more appropriate remedy on charitable remainder 
trusts that have unrelated business income. The bill makes 
certain charitable contributions by S corporations more 
attractive, permits charities to make collegiate housing 
grants, treats proceeds of certain games of chance like bingo 
proceeds for purposes of the unrelated business income tax, 
provides excise tax relief for certain blood collection 
organizations, extends the nonrecognition period for certain 
property sales by social clubs, and exempts qualified 501(c)(3) 
bonds for nursing homes from the Federal guarantee prohibition. 
In addition, the bill suspends the tax-exempt status of 
terrorist organizations, clarifies the definition of a church 
tax inquiry, extends the declaratory judgment procedures to non 
charitable exempt organizations, provides an exclusion for 
payments from certain landowner incentives programs, modifies 
the treatment of payments by a controlled entity to a tax-
exempt parent, simplifies the grass-roots lobbying expenditure 
limitation, and initiates a pilot project for forest 
conservation activities. Finally, the bill authorizes funding 
for the compassion capital fund, reauthorizes appropriations 
for the Individual Development Account matched savings program, 
affords pregnant and parenting mothers access to transitional 
living opportunities, and allows States to transfer up to 10 
percent of their annual Federal Temporary Assistance for Needy 
Families block grant funds to the Social Services Block Grant.

                 B. Background and Need for Legislation

    The provisions approved by the Committee will stimulate 
charitable giving and therefore provide more funds to 
charitable organizations, many of which will perform activities 
that otherwise would have to be performed by the Federal 
government.

                         C. Legislative History

    The House Committee on Ways and Means marked up the 
Charitable Giving Act of 2003 on September 9, 2003, and ordered 
the bill, as amended, favorably reported by a voice vote (with 
a quorum being present). The House Committee on Ways and Means 
marked up a similar bill, the Community Solutions Act of 2001, 
on July 11, 2001, and reported the provisions, as amended, by a 
rollcall vote of 23 yeas and 16 nays (with a quorum being 
present).

                      II. EXPLANATION OF THE BILL

                 TITLE I. CHARITABLE GIVING INCENTIVES

                A. Charitable Deduction for Nonitemizers

(Sec. 101 of the bill and secs. 63 and 170 of the Code)

                              PRESENT LAW

    An individual taxpayer who itemizes deductions generally is 
allowed to deduct the amount of cash and up to the fair market 
value of property contributed to a charity described in section 
501(c)(3),\1\ to certain veterans' organizations, fraternal 
societies, and cemetery companies,\2\ or to a Federal, State, 
or local governmental entity for exclusively public 
purposes.\3\ The deduction also is allowed for purposes of 
calculating alternative minimum taxable income.
---------------------------------------------------------------------------
    \1\ All section references are to the Internal Revenue Code of 
1986, unless otherwise indicated.
    \2\ Secs. 170(c)(3)-(5).
    \3\ Sec. 170(c)(1).
---------------------------------------------------------------------------
    The amount of the charitable deduction allowable for a 
taxable year with respect to a contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\4\
---------------------------------------------------------------------------
    \4\ Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A taxpayer who takes the standard deduction (i.e., who does 
not itemize deductions) may not take a separate deduction for 
charitable contributions.\5\
---------------------------------------------------------------------------
    \5\ Sec. 170(a). The Economic Recovery Tax Act of 1981 adopted a 
temporary provision that permitted individual taxpayers who did not 
itemize income tax deductions to claim a deduction from gross income 
for a specified percentage of their charitable contributions. The 
maximum deduction was $25 for 1982 and 1983, $75 for 1984, 50 percent 
of the amount of the contribution for 1985, and 100 percent of the 
amount of the contribution for 1986. The nonitemizer deduction 
terminated for contributions made after 1986.
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate that the payment exceeds the fair 
market value of the benefit received from the charity. To 
facilitate distinguishing charitable contributions from 
purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service) to the taxpayer inconsideration for 
the contribution.\6\ In addition, present law requires that any charity 
that receives a contribution exceeding $75 made partly as a gift and 
partly as consideration for goods or services furnished by the charity 
(a ``quid pro quo'' contribution) is required to inform the contributor 
in writing of an estimate of the value of the goods or services 
furnished by the charity and that only the portion exceeding the value 
of the goods or services is deductible as a charitable contribution.\7\
---------------------------------------------------------------------------
    \6\ Sec. 170(f)(8).
    \7\ Sec. 6115.
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                           REASONS FOR CHANGE

    The Committee believes that allowing a charitable deduction 
to taxpayers who do not itemize deductions will stimulate 
charitable giving, thereby providing more funds for worthwhile 
nonprofit organizations, many of which provide services that 
otherwise might have to be provided by the Federal government. 
The provision is for a two-year period. To provide Congress 
adequate information in considering extending the provision, 
the Committee requires the Secretary of the Treasury to submit 
a report on the effectiveness of the provision. The report 
should consider the extent to which charitable giving has 
increased, the burdens of complexity to taxpayers, and the 
impact on tax compliance.

                        EXPLANATION OF PROVISION

    In the case of an individual taxpayer who does not itemize 
deductions, the provision allows a ``direct charitable 
deduction'' from adjusted gross income for charitable 
contributions paid in cash during the taxable year. This 
deduction is allowed in addition to the standard deduction. The 
deduction is allowed only for that portion of contributions 
actually made during the year that in the aggregate exceed $250 
($500 in the case of a joint return). The maximum deduction is 
$250 ($500 in the case of a joint return). Thus, under the 
provision, an individual who does not file a joint return is 
not entitled to a charitable deduction for the first $250 of 
cash contributions made during the tax year, is entitled to a 
deduction on a dollar-for-dollar basis for contributions of 
$251 to $500 (e.g., a $1 contribution deduction in the case of 
$251 of contributions, and a $250 deduction in the case of $500 
of contributions), and is not entitled to a deduction for 
contributions exceeding $500. Contributions may not be carried 
over for purposes of a subsequent taxable year's calculation of 
the direct charitable deduction.\8\
---------------------------------------------------------------------------
    \8\ The provision does not alter present-law rules regarding the 
carryover of contributions to or from a taxable year, including a 
taxable year in which the taxpayer elects the standard deduction.
---------------------------------------------------------------------------
    The direct charitable deduction generally is subject to the 
tax rules normally governing charitable contribution 
deductions, such as the substantiation requirements. The 
deduction is allowed in computing alternative minimum taxable 
income.
    The provision requires the Secretary of the Treasury to 
complete a study by December 31, 2006, of the effect of the 
provision on increased charitable giving, and of taxpayer 
compliance, for example, by comparing compliance by taxpayers 
who itemize their charitable contributions with compliance by 
those who claim the direct charitable deduction. The Secretary 
shall report on the study to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the House of 
Representatives.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003, and before January 1, 2006.

      B. Tax-Free Distributions From IRAs for Charitable Purposes

(Sec. 102 of the bill and secs. 408 and 6034 of the Code)

                              PRESENT LAW

In general

    If an amount withdrawn from a traditional individual 
retirement arrangement (``IRA'') or a Roth IRA is donated to a 
charitable organization, the rules relating to the tax 
treatment of withdrawals from IRAs apply to the amount 
withdrawn and the charitable contribution is subject to the 
normally applicable limitations on deductibility of such 
contributions.

Charitable contributions

    In computing taxable income, an individual taxpayer who 
itemizes deductions generally is allowed to deduct the amount 
of cash and up to the fair market value of property contributed 
to a charity described in section 501(c)(3), to certain 
veterans' organizations, fraternal societies, and cemetery 
companies,\9\ or to a Federal, State, or local governmental 
entity for exclusively public purposes.\10\ The deduction also 
is allowed for purposes of calculating alternative minimum 
taxable income.
---------------------------------------------------------------------------
    \9\ Secs. 170(c)(3)-(5).
    \10\ Sec. 170(c)(1).
---------------------------------------------------------------------------
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\11\
---------------------------------------------------------------------------
    \11\ Secs. 170(b) and (e).
---------------------------------------------------------------------------
    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations may not exceed 50 percent of the taxpayer's 
contribution base, which is the taxpayer's adjusted gross 
income for a taxable year (disregarding any net operating loss 
carryback). Contributions of capital gain property to public 
charities, and contributions of cash to private foundations and 
certain other charitable organizations, generally may be 
deducted up to 30 percent of the taxpayer's contribution base. 
Contributions of capital gain property to private foundations 
and certain other charitable organizations generally may be 
deducted up to 20 percent of the taxpayer's contribution base.
    Contributions by individuals in excess of the 50-percent, 
30-percent, and 20-percent limit may be carried over and 
deducted over the next five taxable years, subject to the 
relevant percentage limitations on the deduction in each of 
those years.
    In addition to the percentage limitations imposed 
specifically on charitable contributions, present law imposes a 
reduction on most itemized deductions, including charitable 
contributiondeductions, for taxpayers with adjusted gross 
income in excess of a threshold amount, which is indexed annually for 
inflation. The threshold amount for 2003 is $139,500 ($69,750 for 
married individuals filing separate returns). For those deductions that 
are subject to the limit, the total amount of itemized deductions is 
reduced by three percent of adjusted gross income over the threshold 
amount, but not by more than 80 percent of itemized deductions subject 
to the limit. Beginning in 2006, the overall limitation on itemized 
deductions phases-out for all taxpayers. The overall limitation on 
itemized deductions is reduced by one-third in taxable years beginning 
in 2006 and 2007, and by two-thirds in taxable years beginning in 2008 
and 2009. The overall limitation on itemized deductions is eliminated 
for taxable years beginning after December 31, 2009; however, this 
elimination of the limitation sunsets on December 31, 2010.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity (e.g., a remainder) while 
also either retaining an interest in that property (e.g., an 
income interest) or transferring an interest in that property 
to a noncharity for less than full and adequate 
consideration.\12\ Exceptions to this general rule are provided 
for, among other interests, remainder interests in charitable 
remainder annuity trusts, charitable remainder unitrusts, and 
pooled income funds, and present interests in the form of a 
guaranteed annuity or a fixed percentage of the annual value of 
the property.\13\ For such interests, a charitable deduction is 
allowed to the extent of the present value of the interest 
transferred to a charitable organization.
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    \12\ Secs. 170(f), 2055(e)(2), and 2522(c)(2).
    \13\ Sec. 170(f)(2).
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IRA rules

    Within limits, individuals may make deductible and 
nondeductible contributions to a traditional IRA. Amounts in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal represents a return of 
nondeductible contributions). Individuals also may make 
nondeductible contributions to a Roth IRA. Qualified 
withdrawals from a Roth IRA are excludable from gross income. 
Withdrawals from a Roth IRA that are not qualified withdrawals 
are includible in gross income to the extent attributable to 
earnings. Includible amounts withdrawn from a traditional IRA 
or a Roth IRA before attainment of age 59\1/2\ are subject to 
an additional 10-percent early withdrawal tax, unless an 
exception applies. Under present law, minimum distributions are 
required to be made from tax-favored retirement vehicles, 
including IRAs. Minimum required distributions from an IRA must 
generally begin by the April 1 of the calendar year following 
the year in which the IRA owner attains age 70\1/2\.\14\
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    \14\ Minimum distribution rules also apply in the case of 
distributions after the death of the IRA owner.
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    If an individual has made nondeductible contributions to a 
traditional IRA, a portion of each distribution from an IRA is 
nontaxable, until the total amount of nondeductible 
contributions has been received. In general, the amount of a 
distribution that is nontaxable is determined by multiplying 
the amount of the distribution by the ratio of the remaining 
nondeductible contributions to the account balance. In making 
the calculation, all traditional IRAs of an individual are 
treated as a single IRA, all distributions during any taxable 
year are treated as a single distribution, and the value of the 
contract, income on the contract, and investment in the 
contract are computed as of the close of the calendar year.
    In the case of a distribution from a Roth IRA that is not a 
qualified distribution, in determining the portion of the 
distribution attributable to earnings, contributions and 
distributions are deemed to be distributed in the following 
order: (1) Regular Roth IRA contributions; (2) taxable 
conversion contributions;\15\ (3) nontaxable conversion 
contributions; and (4) earnings. In determining the amount of 
taxable distributions from a Roth IRA, all Roth IRA 
distributions in the same taxable year are treated as a single 
distribution, all regular Roth IRA contributions for a year are 
treated as a single contribution, and all conversion 
contributions during the year are treated as a single 
contribution.
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    \15\ Conversion contributions refer to conversions of amounts in a 
traditional IRA to a Roth IRA.
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    Distributions from an IRA (other than a Roth IRA) are 
generally subject to withholding, unless the individual elects 
not to have withholding apply.\16\ Elections not to have 
withholding apply are to be made in the time and manner 
prescribed by the Secretary.
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    \16\ Sec. 3405.
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Split-interest trust filing requirements

    Split-interest trusts, including charitable remainder 
annuity trusts, charitable remainder unitrusts, and pooled 
income funds, are required to file an annual information return 
\17\ (Form 1041-A). Trusts that are not split-interest trusts 
but that claim a charitable deduction for amounts permanently 
set aside for a charitable purpose also are required to file 
Form 1041-A.\18\ The returns are required to be made publicly 
available.\19\ A trust that is required to distribute all trust 
net income currently to trust beneficiaries in a taxable year 
is exempt from this return requirement for such taxable year. A 
failure to file the required return may result in a penalty on 
the trust of $10 a day for as long as the failure continues, up 
to a maximum of $5,000 per return.
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    \17\ Sec. 6034. This requirement applies to all split-interest 
trusts described in section 4947(a)(2).
    \18\ Secs. 642(c) and 6034.
    \19\ Sec. 6104(b).
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    In addition, split-interest trusts are required to file 
annually Form 5227.\20\ Form 5227 requires disclosure of 
information regarding a trust's noncharitable beneficiaries. 
The penalty for failure to file this return is calculated based 
on the amount of tax owed. A split-interest trust generally is 
not subject to tax and therefore, a penalty generally may not 
be imposed for the failure to file Form 5227. Form 5227 is not 
required to be made publicly available.
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    \20\ Sec. 6011; Treas. Reg. sec. 53.6011-1(d).
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                           REASONS FOR CHANGE

    Under present law, an individual who wants to use IRA 
proceeds to make charitable contributions must treat the IRA 
distribution as a withdrawal subject to IRA income recognition 
rules and is subject to deduction limitation provisions on the 
contributions made to the charity. In some cases, due to the 
limitations on charitable contributions, this can result in 
taxable income even though the individual used the entire IRA 
distribution to make the charitable contribution. The Committee 
believes that taxpayers who want to make charitable 
contributions from IRAs generally should be permitted to do so 
without recognizing income because of the distribution from the 
IRA, whether such contribution is made directly to the 
charitable organization or indirectly through the use of a 
split-interest entity. The Committee believes that facilitating 
charitable contributions from IRAs will help increase giving to 
charitable organizations. The Committee believes that the tax-
free treatment for charitable contributions from IRAs should be 
limited to distributions after age 70\1/2\, i.e., distributions 
after the minimum distribution rules apply, to prevent erosion 
of funds that may be needed for retirement income.

                        EXPLANATION OF PROVISION

Qualified charitable distributions from IRAs

    The provision provides an exclusion from gross income for 
otherwise taxable IRA distributions from a traditional or a 
Roth IRA in the case of qualified charitable distributions.\21\ 
Special rules apply in determining the amount of an IRA 
distribution that is otherwise taxable. The present-law rules 
regarding taxation of IRA distributions and the deduction of 
charitable contributions continue to apply to distributions 
from an IRA that are not qualified charitable distributions. 
Qualified charitable distributions are taken into account for 
purposes of the minimum distribution rules applicable to IRAs 
to the same extent the distribution would have been taken into 
account under such rules had the distribution not been directly 
distributed under the provision. An IRA does not fail to 
qualify as an IRA merely because qualified charitable 
distributions have been made from the IRA. It is intended that 
the Secretary will prescribe rules under which IRA owners are 
deemed to elect out of withholding if they designate that a 
distribution is intended to be a qualified charitable 
distribution.
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    \21\ The provision does not apply to distributions from employer 
sponsored retirement plans, including SIMPLE IRAs and simplified 
employee pensions (``SEPs'').
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    A qualified charitable distribution is defined as any 
distribution from an IRA that is made directly by the IRA 
trustee either to (1) an organization to which deductible 
contributions can be made (a ``direct distribution'') or (2) a 
``split-interest entity.'' A split-interest entity means a 
charitable remainder annuity trust or charitable remainder 
unitrust (together referred to as a ``charitable remainder 
trust''), a pooled income fund, or a charitable gift annuity. 
Distributions are eligible for the exclusion only if made on or 
after the date the IRA owner attains age 70\1/2\, to correspond 
with the time at which minimum distributions must begin. In the 
case of split-interest distributions, no person may hold an 
income interest in the amounts in the split-interest entity 
attributable to the charitable distribution other than the IRA 
owner, the IRA owner's spouse, or a charitable organization.
    The exclusion applies to direct distributions only if a 
charitable contribution deduction for the entire distribution 
otherwise would be allowable, determined without regard to the 
generally applicable percentage limitations. Thus, for example, 
if the deductible amount is reduced because of a benefit 
received in exchange, or if a deduction is not allowable 
because the donor did not obtain sufficient substantiation, the 
exclusion is not available with respect to any part of the IRA 
distribution. Similarly, the exclusion applies in the case of a 
distribution directly to a split-interest entity only if a 
charitable contribution deduction for the entire present value 
of the charitable interest (for example, a remainder interest) 
otherwise would be allowable, determined without regard to the 
generally applicable percentage limitations.
    If the IRA owner has any IRA that includes nondeductible 
contributions, a special rule applies in determining the 
portion of a distribution that is includible in gross income 
(but for the provision) and thus is eligible for qualified 
charitable distribution treatment. In such case, the IRA owner 
aggregates all IRAs to determine eligibility for the exclusion. 
Under the special rule, the distribution is treated as 
consisting of income first, up to the aggregate amount that 
would be includible in gross income (but for the provision) if 
the aggregate balance of all IRAs having the same owners were 
distributed during the same year. In determining the amount of 
subsequent IRA distributions includible in income, proper 
adjustments are made to reflect the amount treated as a 
qualified charitable distribution under the special rule.
    Special rules apply for distributions to split-interest 
entities. For distributions to charitable remainder trusts, the 
provision provides that subsequent distributions from the 
charitable remainder trust are treated as ordinary income in 
the hands of the beneficiary, notwithstanding how such amounts 
normally are treated under section 664(b). In addition, for a 
charitable remainder trust to be eligible to receive qualified 
charitable distributions, the charitable remainder trust has to 
be funded exclusively by such distributions. For example, an 
IRA owner may not make qualified charitable distributions to an 
existing charitable remainder trust any part of which was 
funded with assets that were not qualified charitable 
distributions.
    Under the provision, a pooled income fund is eligible to 
receive qualified charitable distributions only if the fund 
accounts separately for amounts attributable to such 
distributions. In addition, all distributions from the pooled 
income fund that are attributable to qualified charitable 
distributions are treated as ordinary income to the 
beneficiary. Qualified charitable distributions to a pooled 
income fund are not includible in the fund's gross income.
    In determining the amount includible in gross income by 
reason of a payment from a charitable gift annuity purchased 
with a qualified charitable distribution from an IRA, the 
portion of the distribution from the IRA used to purchase the 
annuity is not an investment in the annuity contract.
    Any amount excluded from gross income by reason of the 
provision is not taken into account in determining the 
deduction for charitable contributions under section 170.

Qualified charitable distribution examples

    The following examples illustrate the determination of the 
portion of an IRA distribution that is a qualified charitable 
distribution and the application of the special rules for a 
qualified charitable distribution to a split-interest entity. 
In each example, it is assumed that the requirements for 
qualified charitable distribution treatment are otherwise met 
(e.g., the applicable age requirement and the requirement that 
contributions are otherwise deductible) and that no other IRA 
distributions occur during the year.
    Example 1.--Individual A has a traditional IRA with a 
balance of $100,000, consisting solely of deductible 
contributions and earnings. Individual A has no other IRA. The 
entire IRA balance is distributed in a direct distribution to a 
charitable organization. Under present law, the entire 
distribution of $100,000 would be includible in Individual A's 
income. Accordingly, under the provision, the entire 
distribution of $100,000 is a qualified charitable 
distribution. As a result, no amount is included in Individual 
A's income as a result of the distribution and the distribution 
is not taken into account in determining the amount of 
Individual A's charitable deduction for the year.
    Example 2.--The facts are the same as in Example 1, except 
that the entire IRA balance of $100,000 is distributed to a 
charitable remainder unitrust, which contains no other assets 
and which must be funded exclusively by qualified charitable 
distributions. Under the terms of the trust, Individual A is 
entitled to receive five percent of the value of the trust each 
year. As explained in Example 1, the entire $100,000 
distribution is a qualified charitable distribution, no amount 
is included in Individual A's income as a result of the 
distribution, and the distribution is not taken into account in 
determining the amount of Individual A's charitable deduction 
for the year. In addition, under a special rule in the 
provision for charitable remainder trusts, any distribution 
from the charitable remainder unitrust to Individual A is 
includible in gross income as ordinary income, regardless of 
the character of the distribution under the usual rules for the 
taxation of distributions from such a trust.
    Example 3.--Individual B has a traditional IRA with a 
balance of $100,000, consisting of $20,000 of nondeductible 
contributions and $80,000 of deductible contributions and 
earnings. Individual B has no other IRA. In a direct 
distribution to a charitable organization, $80,000 is 
distributed from the IRA. Under present law, a portion of the 
distribution from the IRA would be treated as a nontaxable 
return of nondeductible contributions. The nontaxable portion 
of the distribution would be $16,000, determined by multiplying 
the amount of the distribution ($80,000) by the ratio of the 
nondeductible contributions to the account balance ($20,000/
$100,000). Accordingly, under present law, $64,000 of the 
distribution ($80,000 minus $16,000) would be includible in 
Individual B's income.
    Under the provision, notwithstanding the present-law tax 
treatment of IRA distributions, the distribution is treated as 
consisting of income first, up to the total amount that would 
be includible in gross income (but for the provision) if all 
amounts were distributed from all IRAs otherwise taken into 
account in determining the amount of IRA distributions. The 
total amount that would be includible in income if all amounts 
were distributed from the IRA is $80,000. Accordingly, under 
the provision, the entire $80,000 distributed to the charitable 
organization is treated as includible in income (before 
application of the provision) and is a qualified charitable 
distribution. As a result, no amount is included in Individual 
B's income as a result of the distribution and the distribution 
is not taken into account in determining the amount of 
Individual B's charitable deduction for the year. In addition, 
for purposes of determining the tax treatment of other 
distributions from the IRA, $20,000 of the amount remaining in 
the IRA is treated as Individual B's nondeductible 
contributions (i.e., not subject to tax upon distribution).

Split-interest trust filing requirements

    The provision increases the penalty on split-interest 
trusts for failure to: (1) File a return; (2) include any of 
the information required to be shown on such return; and (3) 
show the correct information on the return. The penalty for 
each return is $20 for each day the failure continues up to a 
maximum of $10,000. In the case of a split-interest trust with 
gross income in excess of $250,000, the penalty is $100 for 
each day the failure continues up to a maximum of $50,000. In 
addition, if a person (meaning any officer, director, trustee, 
employee, or other individual who is under a duty to file the 
return or include required information) \22\ knowingly failed 
to file the return or include required information, then that 
person is personally liable for such a penalty, which would be 
imposed in addition to the penalty that is paid by the 
organization. Information regarding beneficiaries that are not 
charitable organizations as described in section 170(c) is 
exempt from the requirement to make information publicly 
available. In addition, the provision repeals the present-law 
exception to the filing requirement for split-interest trusts 
that are required in a taxable year to distribute all net 
income currently to beneficiaries. Such exception remains 
available to trusts other than split-interest trusts that are 
otherwise subject to the filing requirement.
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    \22\ Sec. 6652(c)(4)(C).
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                             EFFECTIVE DATE

    The qualified charitable distribution provision is 
effective for distributions made after December 31, 2003. The 
provision relating to information returns of split-interest 
trusts is effective for returns for taxable years beginning 
after December 31, 2003.

      C. Increase Percentage Limitation for Corporate Charitable 
                             Contributions

(Sec. 103 of the bill and sec. 170 of the Code)

                              PRESENT LAW

    Under present law, a corporation is allowed to deduct 
charitable contributions up to 10 percent of the corporation's 
modified taxable income for the year. For this purpose, taxable 
income is determined without regard to (1) the charitable 
contributions deduction, (2) any net operating loss carryback, 
(3) deductions for dividends received, and (4) any capital loss 
carryback for the taxable year.\23\ Any charitable contribution 
by a corporation that is not currently deductible because of 
the percentage limitation may be carried forward for up to five 
taxable years.
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    \23\ Sec. 170(b)(2).
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                           REASONS FOR CHANGE

    The Committee believes that increasing the annual 
limitation on the allowable corporate charitable contribution 
deduction will encourage more charitable giving by 
corporations.

                        EXPLANATION OF PROVISION

    The provision increases the percentage limitation on 
corporate charitable deductions from 10 percent to 20 percent. 
The provision is phased-in, beginning in taxable years 
beginning after December 31, 2003. The percentage limitation on 
corporate charitable deductions is determined in accordance 
with the following table:

Taxable years beginning in calendar year           Applicable percentage
    2004......................................................        11
    2005......................................................        12
    2006......................................................        13
    2007......................................................        14
    2008 through 2011.........................................        15
    2012 and thereafter.......................................        20

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

      D. Charitable Deduction for Contributions of Food Inventory

(Sec. 104 of the bill and sec. 170 of the Code)

                              PRESENT LAW

    Under present law, a taxpayer's deduction for charitable 
contributions of inventory generally is limited to the 
taxpayer's basis (typically, cost) in the inventory.
    However, for certain contributions of inventory, C 
corporations may claim an enhanced deduction equal to the 
lesser of (1) basis plus one-half of the item's appreciated 
value (i.e., basis plus one half of fair market value in excess 
of basis) or (2) two times basis.\24\ To be eligible for the 
enhanced deduction, the contributed property generally must be 
inventory of the taxpayer, contributed to a charitable 
organization described in section 501(c)(3) (except for private 
nonoperating foundations), and the donee must (1) use the 
property consistent with the donee's exempt purpose and solely 
for the care of the ill, the needy, or infants, (2) not 
transfer the property in exchange for money, other property, or 
services, and (3) provide the taxpayer a written statement that 
the donee's use of the property will be consistent with such 
requirements. In the case of contributed property subject to 
the Federal Food, Drug, and Cosmetic Act, the property must 
satisfy the applicable requirements of such Act on the date of 
transfer and for 180 days prior to the transfer. To use the 
enhanced deduction, the taxpayer must establish that the fair 
market value of the donated item exceeds basis.
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    \24\ Sec. 170(e)(3). In general, a C corporation's charitable 
contribution deduction for a year may not exceed 10 percent of the 
corporation's taxable income. Sec. 170(b)(2).
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                           REASONS FOR CHANGE

    The Committee believes that more should be done to 
encourage contributions of food inventory to charitable 
organizations that provide food for the hungry. The Committee 
believes that extending the availability of the enhanced 
deduction for contributions of food inventory to any taxpayer 
engaged in a trade or business will increase donations of food 
inventory and thereby help nourish more of our nation's 
underprivileged. The Committee also recognizes that the growing 
population of senior citizens with unique dietary and 
nutritional food needs who receive meals through government 
sponsored meal programs necessitates creative solutions, and 
that the policies set forth in the bill are designed to 
encourage the nation's food sector, working together with such 
meal programs, to utilize innovative approaches to supplement 
the limited funds that may be available in the future to meet 
such critical demands.

                        EXPLANATION OF PROVISION

    Under the provision, any taxpayer, whether or not a C 
corporation, engaged in a trade or business is eligible to 
claim an enhanced deduction for donations of food inventory. 
Under the provision, an enhanced deduction for food inventory 
is available only for food that qualifies as ``apparently 
wholesome food.'' For taxpayers other than C corporations, the 
total deduction for donations of food inventory in a taxable 
year generally may not exceed the applicable percentage of the 
taxpayer's aggregate net income for such taxable year from all 
sole proprietorships, S corporations, or partnerships from 
which contributions of apparently wholesome food are made.The 
applicable percentage equals the percentage limitation on corporate 
charitable contributions.\25\ For example, assuming an applicable 
percentage of 11 percent, a taxpayer who is a sole proprietor, a 
shareholder in an S corporation, and a partner in a partnership, and 
who makes charitable contributions of food inventory from each, the 
taxpayer's deduction for donations of food inventory is limited to 11 
percent of the taxpayer's net income from the sole proprietorship and 
the taxpayer's interests in the S corporation and partnership. However, 
if only the sole proprietorship and the S corporation made charitable 
contributions of food inventory, the taxpayer's deduction would be 
limited to 11 percent of the net income of the sole proprietorship and 
the S corporation, but not the partnership.
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    \25\ Under a separate provision, the applicable percentage is 11 
percent for taxable years beginning in 2004, 12 percent for taxable 
years beginning in 2005, 13 percent for taxable years beginning in 
2006, 14 percent for taxable years beginning in 2007, 15 percent for 
taxable years beginning in 2008 through 2011, and 20 percent for 
taxable years beginning in 2012 and thereafter.
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    The percentage limitation does not affect the application 
of the generally applicable percentage limitations. For 
example, if the applicable percentage is 11 percent, and 11 
percent of a sole proprietor's net income from the sole 
proprietorship was greater than 50 percent of the proprietor's 
contribution base, the available deduction for the taxable year 
(with respect to contributions to public charities) would be 50 
percent of the proprietor's contribution base. Consistent with 
present law, such contributions may be carried forward because 
they exceed the 50 percent limitation. Contributions of food 
inventory by a taxpayer that is not a C corporation that exceed 
the applicable percentage but not the 50 percent limitation 
could not be carried forward.
    ``Apparently wholesome food'' is defined as food intended 
for human consumption that meets all quality and labeling 
standards imposed by Federal, State, and local laws and 
regulations even though the food may not be readily marketable 
due to appearance, age, freshness, grade, size, surplus, or 
other conditions.
    The provision provides that the fair market value of 
donated apparently wholesome food that cannot or will not be 
sold solely due to internal standards of the taxpayer or lack 
of market is determined by taking into account the price at 
which the same or substantially the same food items (as to both 
type and quality) are sold by the taxpayer at the time of the 
contribution or, if not so sold at such time, in the recent 
past.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

   E. Reform of Excise Tax Based on Net Investment Income of Private 
                              Foundations

(Sec. 105 of the bill and sec. 4940 of the Code)

                              PRESENT LAW

In general

    In general, a private foundation is an organization 
organized and operated exclusively for charitable purposes.\26\ 
Private foundations that are recognized as exempt from Federal 
income tax under section 501 (a) of the Code are subject to a 
two-percent excise tax on their net investment income.\27\ 
Private foundations that are not exempt from tax, such as 
certain charitable trusts, also are subject to an excise 
tax.\28\
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    \26\ Secs. 509(a) and 501(c)(3).
    \27\ Sec. 4940(a). Net investment income is determined under the 
principles of Subtitle A of the Code, except to the extent those 
principles are inconsistent with section 4940. Net investment income is 
defined as the amount by which the sum of gross investment income and 
capital gain net income exceeds the deductions relating to the 
production of gross investment income. Net investment income also is 
determined by applying section 103 (generally providing an exclusion 
for interest on certain State and local bonds) and section 265 
(generally disallowing the deduction for interest and certain other 
expenses with respect to tax-exempt income). Special definitions of 
gross investment income and capital gain net income are provided for 
purposes of the excise tax. Sec. 4940(c).
    \28\ Secs. 4940(b) and 4947.
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    The two-percent rate of tax is reduced to one-percent if 
certain requirements are met in a taxable year.\29\ The 
requirements are that the foundation must make a certain 
minimum amount of qualifying distributions (generally, amounts 
paid to accomplish exempt purposes) \30\ and the foundation 
cannot have been subject to tax for failure to make sufficient 
qualifying distributions for any of the five years preceding 
the taxable year (the ``base period''). The required amount of 
qualifying distributions is the sum of two elements: (1) The 
amount of the foundation's assets for the taxable year 
multiplied by the average over the base period of the 
percentage of assets distributed as qualifying distributions in 
a year divided by the assets of the foundation for the year 
(the ``average percentage payout for the base period'') plus 
(2) one percent of the net investment income of the foundation 
for the taxable year.\31\
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    \29\ Sec. 4940(e).
    \30\ Sec. 4942(g).
    \31\ Sec. 4940(e).
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    The tax on taxable private foundations is equal to the 
excess of the sum of the excise tax that would have been 
imposed if the foundation were tax exempt and the amount of the 
unrelatedbusiness income tax that would have been imposed if 
the foundation were tax exempt, over the income tax imposed on the 
foundation under subtitle A of the Code.
    Private foundations (taxable and tax exempt) are required 
to pay estimated taxes of the section 4940 tax in quarterly 
installments in the same manner as corporate estimated tax 
payments.\32\ Exempt operating foundations are exempt from the 
section 4940 tax.\33\
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    \32\ Treas. Reg. sec. 1.6302-1.
    \33\ Sec. 4940(d)(1). To be an exempt operating foundation, an 
organization must (1) be an operating foundation (as defined in section 
4942(j)(3)), (2) be publicly supported for at least 10 taxable years, 
(3) have a governing body no more than 25 percent of whom are 
disqualified persons and that is broadly representative of the general 
public, and (4) have no officers who are disqualified persons. Sec. 
4940(d)(2). Exempt operating foundations generally include 
organizations such as museums or libraries that devote their assets to 
operating charitable programs but have difficulty meeting the ``public 
support'' tests necessary not to be classified as a private foundation. 
For an organization to qualify as an exempt operating foundation it 
must obtain a ruling letter from the IRS. IRS Announcement 85-88.
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    The amount of tax paid under section 4940 reduces a 
foundation's distributable amount under section 4942.\34\ 
Accordingly, the minimum amount of qualifying distributions a 
foundation must make to avoid tax under section 4942 is reduced 
by the amount of section 4940 excise taxes paid.
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    \34\ Sec. 4942(d)(2).
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                           REASONS FOR CHANGE

    The Committee believes that reforming the excise tax based 
on the investment income of private foundations will result in 
increased charitable activity and simplify the tax laws. The 
reduction in the rate of tax will increase the required minimum 
charitable distributions for many private foundations, leading 
private foundations to increase their charitable activity. In 
addition, elimination of the two-tiered nature of the tax will 
simplify the Code and reduce the compliance burden for private 
foundations.

                        EXPLANATION OF PROVISION

    The provision replaces the two rates of tax under present 
law with a single rate of tax based on net investment income 
and establishes such rate of tax at one percent. Thus, a 
taxexempt private foundation is subject to tax on one percent 
of net investment income and does not have to calculate its 
average percentage payout for the base period to determine 
eligibility for a different rate of tax. A taxable private 
foundation is subject to tax on the excess of the sum of one 
percent of net investment income and the amount of the 
unrelated business income tax (both calculated as if the 
foundation were tax-exempt) over the income tax imposed on the 
foundation under subtitle A of the Code.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

     F. Reform of Excise Taxes for Minimum Payout and Self Dealing

Sec. 105 of the bill and secs. 4941 and 4942 of the Code)

                              PRESENT LAW

Private nonoperating foundations

    Private nonoperating foundations are required to pay out a 
minimum amount each year as qualifying distributions. Failure 
to pay out the minimum results in an excise tax of up to 100 
percent of the undistributed amount.\35\ In general, a 
qualifying distribution means any amount paid to accomplish one 
or more of the organization's exempt purposes, including that 
portion of reasonable and necessary administrative 
expenses.\36\ Thus, under present law, a foundation may include 
as a qualifying distribution the salaries, occupancy expenses, 
travel costs, and other reasonable and necessary administrative 
expenses that the foundation incurs in operating a grant 
program. A qualifying distribution also includes any amount 
paid to acquire an asset used (or held for use) directly in 
carrying out one or more of the organization's exempt purposes 
and certain amounts set-aside for exempt purposes.\37\
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    \35\ Sec. 4942(a) and (b).
    \36\ Sec. 4942(g)(1)(A).
    \37\ Sec. 4942(g)(1)(B) and 4942(g)(2). In general, an organization 
is permitted to adjust the distributable amount in those cases where 
distributions during the five preceding years have exceeded the payout 
requirements. Sec. 4942(i).
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Private operating foundations

    Private operating foundations are not subject to the payout 
requirements. However, private operating foundations use the 
definition of a qualifying distribution in order to meet the 
``income test,'' pursuant to which a foundation qualifies as an 
operating foundation. The income test requires that a certain 
portion of the foundation's qualifying distributions (defined 
the same as for nonoperating foundations) must be made directly 
for the active conduct of the activities constituting the 
purpose or function for which the organization is organized and 
operated,\38\ i.e., for a ``direct charitable activity.'' For 
this purpose, a direct charitable activity means the active 
conduct of an activity constituting the organization's 
charitable, educational, or other similar exempt purpose, and 
does not include the making of grants to other organizations to 
assist such organizations in conducting activities that help to 
accomplish the exempt purposes of the grantee organization.\39\
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    \38\ Sec. 4942(j)(3)(A). The Treasury regulations use slightly 
different words from that of the Code, and describe when distributions 
are made ``directly for the active conduct of the activities 
constituting its charitable, educational or similar exempt purpose.'' 
Treas. Reg. sec. 53.4942(b)-1(b)(1). The instructions to IRS Form 990-
PF use the term ``direct charitable activity'' to implement, for 
reporting purposes, the provisions of the Code and regulations.
    \39\ This is the case regardless of whether the exempt activities 
of the grantee organization may assist the grantor foundation in 
carrying out its own exempt activities. Treas. Reg. 53.4942(b)-
1(b)(1)(1).
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Conduit foundations

    Private foundations described in section 170(b)(1)(E)(ii) 
(sometimes referred to as ``conduit foundations'') must make 
each year, in general, qualifying distributions equal to the 
amount of contributions received. Non corporate donors to a 
conduit foundation are subject to more favorable percentage 
limitations for charitable contributions than are non corporate 
donors to a nonoperating foundation that is not a conduit 
foundation.\40\ A foundation that qualifies as a conduit 
foundation may elect each year to be treated as a conduit 
foundation.
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    \40\ A charitable contribution by an individual to a private 
nonoperating foundation that is not a conduit foundation is subject to 
a limitation of 30 percent of the donor's contribution base for the 
taxable year; whereas, a charitable contribution by an individual to a 
conduit foundation is subject to a limitation of 50 percent of the 
donor's contribution base for the taxable year. Secs. 170(b)(1)(B) and 
170(b)(1)(A)(vii). Contributions by a corporation are subject to a 10 
percent of modified taxable income limitation, irrespective of the 
classification of the donee. Sec. 170(b)(2).
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Self-dealing

    Excise taxes are imposed on acts of self-dealing between a 
disqualified person (as defined in section 4946(a)) and a 
private foundation.\41\ An initial tax of 5 percent of the 
amount involved with respect to the act of self-dealing is 
imposed on any disqualified person (other than a foundation 
manager acting only as such) who participates in the act of 
self-dealing. The tax is imposed for each year in the taxable 
period, which begins on the date the act of self-dealing occurs 
and ends on the earliest of the date of mailing of a notice of 
deficiency for the tax, the date on which the tax is assessed, 
or the date on which correction of the act of self-dealing is 
completed. A government official (as defined in section 
4946(c)) is subject to such initial tax only if the official 
participates in the act of self-dealing knowing it is such an 
act.
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    \41\ Sec. 4941.
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                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to strengthen 
the minimum charitable payout requirement of private 
foundations to ensure that a distribution that qualifies as a 
charitable payment actually is used directly in the performance 
of a charitable function. Accordingly, the Committee believes 
that, in general, only those expenses that are directly 
attributable to charitable activities should qualify for 
purposes of meeting the payout requirement. In addition, the 
Committee believes that compensation to disqualified persons 
above a certain threshold, and certain travel expenses, should 
not be considered as charitablepayments under any 
circumstances. The Committee also believes that it is appropriate to 
increase the initial tax on self-dealers to further discourage self-
dealing with private foundations.

                        EXPLANATION OF PROVISION

Modification of excise tax on failure to distribute income

    The provision modifies the definition of qualifying 
distributions of private foundations, including nonoperating 
foundations and conduit foundations, by excluding certain 
administrative expenses. The provision does not alter the 
treatment of qualifying distributions made by private operating 
foundations, or change the meaning of qualifying distributions 
with respect to amounts paid to acquire an asset used (or held 
for use) directly in carrying out one or more of the 
foundation's exempt purposes, or with respect to amounts set-
aside for the foundation's exempt purposes.
    The provision provides that qualifying distributions 
include that portion of reasonable and necessary administrative 
expenses that are directly attributable to direct charitable 
activities,\42\ grant selection activities, grant monitoring 
and administration activities, compliance with applicable 
Federal, State, or local law, or furthering public 
accountability of the private foundation. Expenses that relate 
to multiple activities must be allocated to each activity. No 
specific method of allocation is required. However, the method 
used must be reasonable and used consistently by the 
organization.
---------------------------------------------------------------------------
    \42\ As used in the provision, the term ``direct charitable 
activity'' has the same meaning as under present law, i.e., the direct 
active conduct of activities constituting the purpose or function for 
which the organization is organized and operated. Sec. 4942(j)(3)(A); 
Treas. Reg. sec. 53.4942(b)-1(b)(1). See also Instructions to Form 990-
PF (2002), at 20-21.
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    The provision provides that the following administrative 
expenses shall not be treated as qualifying distributions even 
if they are directly attributable to one or more of the 
activities described above: (1) Compensation paid to persons 
who are disqualified persons within the meaning of section 
4946(a), to the extent such compensation exceeds an annual rate 
of $100,000 (indexed for inflation); (2) air transportation 
expenses unless such transportation is regularly-scheduled 
commercial air transportation; and (3) air transportation 
expenses incurred for regularly-scheduled commercial air 
transportation to the extent that such expenses exceed the cost 
of such transportation for coach class accommodations. Actual 
cost for ground travel is allowed.
    The provision provides that the Secretary of the Treasury 
shall prescribe regulations as may be necessary to carry out 
the purposes of the provision. Such regulations shall provide 
that administrative expenses that are excluded from qualifying 
distributions solely by reason of the limitations imposed by 
the provision shall not for such reason subject a private 
foundation to any other excise taxes imposed by Subchapter A of 
Chapter 42 of the Code (i.e., sections 4940 through 4948).

Modification of excise tax on self-dealing

    The provision increases the initial excise tax imposed on a 
self-dealer from five percent to 25 percent of the amount 
involved with respect to the act of self-dealing for each year 
(or part thereof) in the taxable period.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

   G. Modify Tax on Unrelated Business Taxable Income of Charitable 
                            Remainder Trusts

(Sec. 106 of the bill and sec. 664 of the Code)

                              PRESENT LAW

    Charitable remainder annuity trusts and charitable 
remainder unitrusts are exempt from Federal income tax for a 
tax year unless the trust has any unrelated business taxable 
income for the year (including certain debt financed income). A 
charitable remainder trust that loses its exemption from income 
tax for a taxable year is taxed as a complex trust. As such, 
the trust is allowed a deduction in computing taxable income 
for amounts required to be distributed in a taxable year, not 
to exceed the amount of the trust's distributable net income 
for the year. Taxes imposed on the trust are required to be 
allocated to corpus.\43\
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    \43\ Treas. Reg. sec. 1.664-1(d)(2).
---------------------------------------------------------------------------
    Distributions from a charitable remainder annuity trust or 
charitable remainder unitrust are treated in the following 
order as: (1) ordinary income to the extent of the trust's 
current and previously undistributed ordinary income for the 
trust's year in which the distribution occurred, (2) capital 
gains to the extent of the trust's current capital gain and 
previously undistributed capital gain for the trust's year in 
which the distribution occurred, (3) other income (e.g., tax-
exempt income) to the extent of the trust's current and 
previously undistributed other income for the trust's year in 
which the distribution occurred, and (4) corpus.\44\
---------------------------------------------------------------------------
    \44\ Sec. 664(b).
---------------------------------------------------------------------------
    In general, distributions to the extent they are 
characterized as income are includible in the income of the 
beneficiary for the year that the annuity or unitrust amount is 
required to be distributed even though the annuity or unitrust 
amount is not distributed until after the close of the trust's 
taxable year.\45\
---------------------------------------------------------------------------
    \45\ Treas. Reg. sec. 1.664-1(d)(4).
---------------------------------------------------------------------------
    A charitable remainder annuity trust is a trust that is 
required to pay, at least annually, a fixed dollar amount of at 
least five percent of the initial value of the trust to a 
noncharity for the life of an individual or for a period of 20 
years or less, with the remainder passing to charity. A 
charitable remainder unitrust is a trust that generally is 
required to pay, at least annually, a fixed percentage of at 
least five percent of the fair market value of the trust's 
assets determined at least annually to a noncharity for the 
life of an individual or for a period of 20 years or less, with 
the remainder passing to charity.\46\
---------------------------------------------------------------------------
    \46\ Sec. 664(d).
---------------------------------------------------------------------------
    A trust does not qualify as a charitable remainder annuity 
trust if the annuity for a year is greater than 50 percent of 
the initial fair market value of the trust's assets. A trust 
does not qualify as a charitable remainder unitrust if the 
percentage of assets that are required to be distributed at 
least annually is greater than 50 percent. A trust does not 
qualify as a charitableremainder annuity trust or a charitable 
remainder unitrust unless the value of the remainder interest in the 
trust is at least 10 percent of the value of the assets contributed to 
the trust.

                           REASONS FOR CHANGE

    The Committee believes that in years that a charitable 
remainder trust has unrelated business income, an excise tax of 
100 percent on such income is a more appropriate remedy than 
loss of tax exemption for the year.

                        EXPLANATION OF PROVISION

    Under the provision, in lieu of removing the income tax 
exemption of a charitable remainder trust for any taxable year 
in which the trust has any unrelated business taxable income, a 
100-percent excise tax is imposed on the unrelated business 
taxable income of the trust. Because the effect of the excise 
tax is the same as if the unrelated business taxable income was 
not incurred by the charitable remainder annuity trust or 
charitable remainder unitrust, the provision excludes such 
income from the determination of (1) the value of a charitable 
remainder unitrust's assets,\47\ (2) the amount of charitable 
remainder unitrust income for purposes of determining the 
unitrust's required distributions, and (3) the effect on the 
income character of any distributions to beneficiaries by a 
charitable remainder annuity trust or charitable remainder 
unitrust.
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    \47\ See Treas. Reg. sec. 1.664-3(a)(iv), which requires that all 
assets and liabilities of the trust are taken into account in 
determining their net fair market value.
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                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

H. Expand Charitable Contribution Allowed for Scientific Property Used 
         for Research and for Computer Technology and Equipment

(Sec. 107 of the bill and sec. 170 of the Code)

                              PRESENT LAW

    In the case of a charitable contribution of inventory or 
other ordinary-income or short-term capital gain property, the 
amount of the charitable deduction generally is limited to the 
taxpayer's basis in the property. In the case of a charitable 
contribution of tangible personal property, the deduction is 
limited to the taxpayer's basis in such property if the use by 
the recipient charitable organization is unrelated to the 
organization's tax-exempt purpose. In cases involving 
contributions to a private foundation (other than certain 
private operating foundations), the amount of the deduction is 
limited to the taxpayer's basis in the property.\48\
---------------------------------------------------------------------------
    \48\ Sec. 170(e)(1).
---------------------------------------------------------------------------
    Under present law, a taxpayer's deduction for charitable 
contributions of scientific property used for research and for 
contributions of computer technology and equipment generally is 
limited to the taxpayer's basis (typically, cost) in the 
property. However, certain corporations may claim a deduction 
in excess of basis for a ``qualified research contribution'' or 
a ``qualified computer contribution.'' \49\ This enhanced 
deduction is equal to the lesser of (1) basis plus one-half of 
the item's appreciated value (i.e., basis plus one half of fair 
market value minus basis) or (2) two times basis. The enhanced 
deduction for qualified computer contributions expires for any 
contribution made during any taxable year beginning after 
December 31, 2003.
---------------------------------------------------------------------------
    \49\ Secs. 170(e)(4) and 170(e)(6).
---------------------------------------------------------------------------
    A qualified research contribution means a charitable 
contribution of inventory that is tangible personal property 
and that satisfies other requirements. The contribution must be 
to a qualified educational or scientific organization and be 
made not later than two years after construction of the 
property is substantially completed. The original use of the 
property must be by the donee, and the property must be used 
substantially for research or experimentation, or for research 
training, in the U.S. in the physical or biological sciences. 
The property must be scientific equipment or apparatus, 
constructed by the taxpayer, and may not be transferred by the 
donee in exchange for money, other property, or services. The 
donee must provide the taxpayer with a written statement 
representing that it will use the property in accordance with 
the conditions for the deduction. For purposes of the enhanced 
deduction, property is considered constructed by the taxpayer 
only if the cost of the parts used in the construction of the 
property (other than parts manufactured by the taxpayer or a 
related person) do not exceed 50 percent of the taxpayer's 
basis in the property.
    A qualified computer contribution means a charitable 
contribution of any computer technology or equipment, which 
meets standards of functionality and suitability as established 
by the Secretary of the Treasury. The contribution must be to 
certain educational organizations or public libraries and made 
not later than three years after the taxpayer acquired the 
property or, if the taxpayer constructed the property, not 
later than the date construction of the property 
issubstantially completed.\50\ The original use of the property must be 
by the donor or the donee,\51\ and in the case of the donee, the 
property must be used substantially for educational purposes related to 
the function or purpose of the donee. The property must fit 
productively into the donee's education plan. The donee may not 
transfer the property in exchange for money, other property, or 
services, except for shipping, installation, and transfer costs. To 
determine whether property is constructed by the taxpayer, the rules 
applicable to qualified research contributions apply. Contributions may 
be made to private foundations under certain conditions.\52\
---------------------------------------------------------------------------
    \50\ If the taxpayer constructed the property and reacquired such 
property, the contribution must be within three years of the date the 
original construction was substantially completed. Sec. 
170(e)(6)(D)(i).
    \51\ This requirement does not apply if the property was reacquired 
by the manufacturer and contributed. Sec. 170(e)(6)(D)(ii).
    \52\ Sec. 170(e)(6)(C).
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                           REASONS FOR CHANGE

    The Committee believes that extension of the enhanced 
deduction to include property assembled by the taxpayer will 
lead to increased charitable contributions of scientific 
property used for research and computer technology and 
equipment and will help to eliminate confusion in determining 
whether property is ``constructed'' or ``assembled'' for 
purposes of claiming the enhanced deduction. The Committee 
believes it is appropriate to make permanent the enhanced 
deduction for qualified computer contributions.

                        EXPLANATION OF PROVISION

    Under the provision, property assembled by the taxpayer, in 
addition to property constructed by the taxpayer, is eligible 
for either enhanced deduction.
    The provision makes permanent the enhanced deduction for 
qualified computer contributions.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

  I. Basis Adjustment to Stock of S Corporation Contributing Property

(Sec. 108 of the bill and sec. 1367 of the Code)

                              PRESENT LAW

    Under present law, if an S corporation contributes money or 
other property to a charity, each shareholder takes into 
account the shareholder's pro rata share of the contribution in 
determining its own income tax liability.\53\ A shareholder of 
an S corporation reduces the basis in the stock of the S 
corporation by the amount of the charitable contribution that 
flows through to the shareholder.\54\
---------------------------------------------------------------------------
    \53\ Sec. 1366(a)(1)(A).
    \54\ Sec. 1367(a)(2)(B).
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                           REASONS FOR CHANGE

    Under present law, if an S corporation makes a charitable 
contribution of appreciated property, the shareholder may be 
taxed on an amount equal to the appreciation in the contributed 
property when the S corporation stock is sold. Thus, under 
present law, a charitable contribution of appreciated property 
made by an S corporation receives less favorable tax treatment 
than other contributions of appreciated property.
    The Committee wishes to preserve the benefit of providing a 
charitable contribution deduction for contributions of property 
by an S corporation with a fair market value in excess of its 
adjusted basis. Thus, the bill provides that the basis 
adjustment to the stock of an S corporation for charitable 
contributions made by the corporation will be in an amount 
equal to the shareholder's pro rata share of the adjusted basis 
of the property contributed. This adjustment will prevent the 
later recognition of gain attributable to the appreciation in 
the contributed property on the disposition of the S 
corporation stock.

                        EXPLANATION OF PROVISION

    The provision provides that the amount of a shareholder's 
basis reduction in the stock of an S corporation by reason of a 
charitable contribution made by the corporation equals the 
shareholder's pro rata share of the adjusted basis of the 
contributed property.\55\
---------------------------------------------------------------------------
    \55\ See Rev. Rul. 96-11 (1996-1 C.B. 140) for a rule reaching a 
similar result in the case of charitable contributions made by a 
partnership.
---------------------------------------------------------------------------
    Thus, for example, assume an S corporation with one 
individual shareholder makes a charitable contribution of stock 
with a basis of $200 and a fair market value of $500. The 
shareholder is treated as having made a $500 charitable 
contribution (or a lesser amount if the special rules of 
section 170(e) apply), and reduces the basis of the S 
corporation stock by $200.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

   J. Charitable Organizations Permitted To Make Certain Collegiate 
                             Housing Grants

(Sec. 109 of the bill and sec. 501 of the Code)

                              PRESENT LAW

    Social clubs described in section 501(c)(7) are 
organizations generally exempt from tax that are organized for 
pleasure, recreation, and other nonprofitable purposes, 
substantially all of the activities of which are for such 
purposes and no part of the net earnings of which inures to the 
benefit of any person having a personal and private interest in 
the activities of the organization.\56\ In general, 
fraternities and sororities provide fraternal, recreational, 
and social activities for their members who are students that 
attend a college or university and qualify as exempt social 
clubs.\57\
---------------------------------------------------------------------------
    \56\ Sec. 501(c)(7); Treas. Reg. sec. 1.501(a)-1(c).
    \57\ Rev. Rul. 69-573, 1969-2 C.B. 125; Rev. Rul. 64-118, 1964-1 
C.B. (Part 1) 182.
---------------------------------------------------------------------------
    Under present law, a charitable organization described in 
section 501(c)(3) may provide, consistent with its exempt 
purposes, financial assistance to support the charitable and 
educational purposes of social clubs, such as fraternities and 
sororities. Social and recreational purposes of a fraternity or 
sorority, however, are not charitable or educational purposes 
within the meaning of section 501(c)(3).\58\
---------------------------------------------------------------------------
    \58\ Rev. Rul. 69-573, 1969-2 C.B. 125 (noting that although the 
typical college fraternity does in some degree contribute to the 
cultural and educational growth of its members during their student 
years, this is not its primary purpose, which is fraternal, 
recreational and social in nature).
---------------------------------------------------------------------------
    In computing taxable income, a taxpayer who itemizes 
deductions generally is allowed to deduct the amount of cash 
and the fair market value of property contributed to an 
organization described in section 501(c)(3).\59\ Within certain 
limitations, donors also are entitled to deduct their 
contributions to section 501(c)(3) organizations for Federal 
estate and gift tax purposes.\60\
---------------------------------------------------------------------------
    \59\ Sec. 170(c)(2). The deduction also is allowed for purposes of 
calculating alternative minimum taxable income. The amount of the 
deduction allowable for a taxable year with respect to a charitable 
contribution of property may be reduced depending on the type of 
property contributed, the type of charitable organization to which the 
property is contributed, and the income of the taxpayer. Secs. 170(b) 
and (e).
    \60\ Secs. 2055(a)(2) and 2522(a)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Under present law, taxpayers generally may deduct 
charitable contributions to colleges and universities, that, 
consistent with their exempt purposes, may use such 
contributions for student facilities such as dormitories, 
dining halls, study areas, libraries, computers, laundry 
facilities, physical fitness facilities, and social or 
recreational areas. The Committee recognizes that colleges and 
universities do not, and cannot, provide all of the housing and 
related student facilities for their student bodies, and that 
collegiate organizations such as student associations and 
organizations that are exempt from tax as social clubs 
(including fraternities and sororities), rather than as 
charitable or educational organizations, provide a significant 
portion of the required collegiate housing and related 
facilities. The Committee believes that making grants to such 
student organizations to provide housing and related student 
facilities furthers charitable and educational purposes, even 
though doing so may involve more than incidental social, 
recreational, or private purposes, provided that the grants are 
used for purposes that would be permissible for a college or 
university that is described in section 501(c)(3).

                        EXPLANATION OF PROVISION

    The provision provides that for purposes of sections 
501(c)(3), 170(c)(2)(B), 2055(a), and 2522(a)(2), an 
organization shall not fail to be treated as organized and 
operated exclusively for charitable or educational purposes 
solely because such organization makes certain collegiate 
housing and infrastructure grants to qualifying recipient 
organizations. The provision applies to grants to provide, 
improve, operate, or maintain collegiate housing that may 
involve more than incidental social, recreational, or private 
purposes, so long as the grants are to be used by the recipient 
organization for purposes that would be permissible for a 
dormitory of the college or university described in section 
501(c)(3) with which such organization is associated.\61\ The 
grant recipient must be an organization described in section 
501(c)(7), or a title holding company described in section 
501(c)(2) that holds property exclusively for the benefit of an 
organization described in section 501(c)(7). Further, at the 
time the grant is made, substantially all of the active members 
of the recipient organization (or, if the recipient is a title 
holding company, the affiliated social club) must be full-time 
students at the college or university with which such 
organization is associated.
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    \61\ The provision does not apply to the portion of a grant made 
for use by the recipient organization for physical fitness equipment.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for grants made after December 
31, 2003.

 K. Proceeds From Certain Games of Chance Treated as Income Related to 
                            Exempt Purposes

(Sec. 110 of the bill and sec. 513 of the Code)

                              PRESENT LAW

    Charitable and other organizations generally exempt from 
tax are subject to tax on their unrelated business taxable 
income.\62\ In general, unrelated business taxable income is 
the gross income derived from an unrelated trade or business 
regularly carried on by the organization, less deductions that 
are directly connected with carrying on the business. An 
unrelated trade or business does not include any trade or 
business that consists of conducting bingo games.\63\ A bingo 
game is any game of bingo of a type in which usually: (1) The 
wagers are placed, the winners are determined, and the 
distribution of prizes or other property is made in the 
presence of all persons placing wagers in such game; (2) the 
conducting of which is not an activity ordinarily carried out 
on a commercial basis; (3) and the conducting of which does not 
violate any State or local law.
---------------------------------------------------------------------------
    \62\ Sec. 511.
    \63\ Sec. 513(f).
---------------------------------------------------------------------------
    Gaming activities other than bingo generally are treated as 
an unrelated trade or business and the proceeds therefore are 
subject to the unrelated business income tax. However, 
consistent with the IRS's acquiescence in the result of South 
End Italian Independent Club, Inc. v. Commissioner,\64\ 
organizations may under present law deduct certain expenditures 
of gaming proceeds in calculating unrelated business income tax 
liability, thus enabling organizations to reduce, and in some 
cases eliminate, unrelated business income tax liability. 
Deductible expenditures generally do not include gaming 
proceeds that are accumulated for future use or transferred to 
the organization's general fund,\65\ but do include amounts 
disbursed to further charitable purposes that are required by 
State law as a condition of conducting the gaming activity.
---------------------------------------------------------------------------
    \64\ 87 T.C. 168 (1986), acq. in result, 1987-2 C.B. 1.
    \65\ See, e.g., Women of the Motion Picture Indus. v. Commissioner, 
T.C. Memo 1997-518.
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                           REASONS FOR CHANGE

    The Committee believes that certain games of chance should 
be treated the same as bingo for purposes of the unrelated 
business income tax, as long as the net proceeds from such 
games are paid (or set aside for payment) by the organization 
for charitable or social welfare purposes, or purposes 
authorized by State law with respect to such proceeds.

                        EXPLANATION OF PROVISION

    The provision provides that any trade or business that 
consists of conducting qualifying games of chance is not an 
unrelated trade or business, so long as the net proceeds from 
the games of chance are paid or set aside for payment for 
purposes described in section 170(c)(2)(B), the promotion of 
social welfare as described in section 501(c)(4), or for a 
purpose for which State law specifically authorizes the 
expenditure of such proceeds. A qualified game of chance means 
any game of chance (other than bingo) conducted by an 
organization if: (1) Such organization is licensed pursuant to 
State law to conduct such game; (2) only organizations that are 
organized as nonprofit corporations or are exempt from tax 
under section 501 (a) may be so licensed to conduct such game 
within the State; and (3) the conduct of such game does not 
violate State or local law.

                             EFFECTIVE DATE

    The provision is effective for games conducted after 
December 31, 2003.

      L. Excise Taxes Exemption for Blood Collector Organizations

(Sec. 111 of the bill and secs. 4041, 4221, 4253, 6416, and 7701 of the 
        Code)

                              PRESENT LAW

American National Red Cross

    The American National Red Cross (``Red Cross'') is a 
Congressionally chartered corporation. It is responsible for 
giving aid to members of the U.S. Armed Forces, to disaster 
victims in the United States and abroad to help people prevent, 
prepare for, and respond to emergencies.\66\ The Red Cross is 
responsible for half of the nation's blood supply and blood 
products.\67\
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    \66\ See 36 U.S.C. sec. 300102.
    \67\ American Red Cross, Frequently Asked Questions http://
www.redcross.org/sys/search/fanew.asp (April 11, 2003).
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            Exemption from certain retail and manufacturers excise 
                    taxes
    The Code permits the Secretary to exempt from excise tax 
certain articles and services to be purchased for the exclusive 
use of the United States. This authority is conditioned upon 
the Secretary determining (1) that the imposition of such taxes 
will cause substantial burden or expense which can be avoided 
by granting tax exemption and (2) that full benefit of such 
exemption, if granted, will accrue to the United States.
    On April 18, 1979, the Secretary exercised this authority 
to exempt, with limited exceptions, the Red Cross from the 
taxes imposed by chapters 31 and 32 of the Code with respect to 
articles sold to the Red Cross for its exclusive use.\68\ An 
exemption is also authorized from the taxes imposed with 
respect to tires and inner tubes if such tire or inner tube is 
sold by any person on or in connection with the sale of any 
article to the American National Red Cross, for its exclusive 
use.\69\ No exemption is provided from the gas guzzler tax 
(sec. 4064), and the taxes imposed on aviation fuel, on fuel 
used on inland waterways (sec. 4042), and on coal (sec. 
4121).\70\ The exemption is subject to registration 
requirements for tax-free sales contained in Treasury 
regulations. Credit and refund of tax is subject to the 
requirements set forth is section 6416 relating to the 
exemption for taxable articles sold for the exclusive use of 
State and local governments.
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    \68\ Department of the Treasury, Notice-Manufacturers and Retailers 
Excise Taxes--Exemption from Tax of Sales of Certain Articles to the 
American Red Cross, 44 F.R. 23407, 1979-1 C.B. 478 (1979). At the time 
the notice was issued the following taxes were covered in Chapters 31 
and 32: special fuels, automotive and related items (motor vehicles, 
tires and tubes, petroleum products, coal, and recreational equipment 
(sporting goods and firearms). Chapter 32 now covers aviation fuel 
taxes under section 4091 and the taxes under section 4041(c) serve 
today as a backup tax.
    \69\ Under present law, there is no longer a tax on inner tubes.
    \70\ Id. The Treasury notice also exempts the Red Cross from tax on 
aircraft tires and tubes, however, present law currently limits the tax 
to highway vehicle tires (sec. 4071(a)).
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            Exemption from heavy highway motor vehicle use tax
    An annual use tax is imposed on highway motor vehicles, at 
the rates below (sec. 4481).

Under 55,000 pounds..................  No tax.
55,000-75,000 pounds.................  $100 plus $22 per 1,000 pounds over 55,000.
Over 75,000 pounds...................  $550.

    The Code provides that the Secretary may authorize 
exemption from the heavy highway vehicle use tax as to the use 
by the United States of any particular highway motor vehicle or 
class of highway motor vehicles if the Secretary determines 
that the imposition of such tax with respect to such use will 
cause substantial burden or expense which can be avoided by 
granting tax exemption and that the full benefit of such 
exemption, if granted will accrue to the United States (sec. 
4483(b)). The IRS has ruled that the Red Cross comes within the 
term ``United States'' for purposes of the exemption from the 
heavy highway motor vehicle use tax (Rev. Rul. 76-510).
            Exemption from communications excise tax
    The Code imposes a three-percent tax on amounts paid for 
local telephone service; toll telephone service and 
teletypewriter exchange service (sec. 4251). These taxes do not 
apply to amounts paid for services furnished to the Red Cross 
(sec. 4253(c)).

Certain other tax-free sales

            Exemption from certain manufacturer and retail sale excise 
                    taxes
    The following sales generally are exempt from certain 
manufacturer and retail sale excise taxes: (1) For use by the 
purchaser for further manufacture, or for resale to a second 
purchaser in further manufacture; (2) for export or for resale 
to a second purchaser for export; (3) for use by the purchaser 
as supplies for vessels or aircraft; (4) to a State or local 
government for the exclusive use of a State or local 
government; and (5) to a nonprofit educational organization for 
its exclusive use (sec. 4221). The exemption generally applies 
to manufacturers taxes imposed by chapter 32 of the Code (the 
gas guzzlers tax, and the taxes imposed on tires, certain 
vaccines, and recreational equipment) and the tax on retail 
sales of heavy trucks and trailers.\71\
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    \71\ The tax imposed by subchapter A of chapter 31 (relating to 
luxury passenger vehicles) are also exempt pursuant to this provision, 
however, this tax expired on December 31, 2002. (sec. 4001(g).)
---------------------------------------------------------------------------
    The manufacturers excise taxes on coal (sec. 4121), on 
gasoline, diesel fuel, and kerosene (sec. 4081) and on aviation 
fuel (sec. 4091) are not covered by the exemption. The 
exemption for a sale to a State or local government for their 
exclusive use and the exemption for sales to a nonprofit 
educational organization does not apply to the gas guzzlers 
tax, and the tax onvaccines. In addition, the exemption of 
sales for use as supplies for vessels and aircraft does not apply to 
the vaccine tax.
            Exempt sales of special fuels
    A retail excise tax is imposed on special fuels such as 
propane, compressed natural gas, and certain alcohol mixtures 
(sec. 4041). No tax is imposed on these fuels: (1) Sold for use 
or used as supplies for vessels or aircraft, (2) sold for the 
exclusive use of any State, any political subdivision of a 
State, or the District of Columbia or is used by such entity as 
fuel, (3) sold for export, or for shipment to a possession of 
the United States and is actually exported or shipped, (4) sold 
to a nonprofit educational organization for its exclusive use, 
or used by such entity as fuel (sec. 4041(g)).

Credits and refunds

            In general
    A credit or refund is allowed for overpayment of 
manufacturers or retail excise taxes (sec. 6416). Overpayments 
include (1) certain uses and resales, (2) price adjustments, 
and (3) further manufacture.
            Specified uses and resales
    The special fuel taxes, the retail tax on heavy trucks and 
trailers, and any of the manufacturers excise taxes paid on any 
article will be a deemed overpayment subject to credit or 
refund if sold for certain specified uses (sec. 6416(b)(2)). 
These uses are (1) export, (2) used or sold for use as supplies 
for vessels or aircraft, (3) sold to a State or local 
government for the exclusive use of a State or local 
government, (4) sold to a nonprofit educational organization 
for its exclusive use; (5) taxable tires sold to any person for 
use in connection with a qualified bus, or (6) the case of 
gasoline used or sold for use in the production of a special 
fuel. Certain exceptions apply in that this deemed overpayment 
rule does not apply to diesel fuel (sec. 4041(a)(1)), kerosene 
(sec. 4081), aviation fuel (sec. 4091), and coal taxes (sec. 
4121). Additionally, the deemed overpayment rule does not apply 
to the gas guzzler tax in the case of an article sold to a 
state or local government for its exclusive use or sold to an 
educational organization for its exclusive use.
            Special rule for tires sold in connection with other 
                    articles
    If the tax imposed on tires (sec. 4071) has been paid with 
respect to the sale of any tire by the manufacturer, producer, 
or importer, and such tire is sold by any person in connection 
with the sale of any other article, such tax will be deemed an 
overpayment by person if such other article (1) is an 
automobile bus chassis or an automobile bus body, or (2) is by 
any person exported, sold to a State or local government for 
exclusive use of a State or local government, sold to a 
nonprofit educational organization for its exclusive use, or 
used or sold for use as supplies for vessels or aircraft (sec. 
6416(b)(4)).
            Gasoline used for exempt purposes
    If gasoline is sold to any person for certain specified 
purposes, the Secretary is required to pay (without interest) 
to such person an amount equal to the product of the number of 
gallons of gasoline so sold multiplied by the rate at which tax 
was imposed on such gasoline under section 4081 (sec. 6421(c)). 
Under this provision, the specified purposes are (1) for export 
or for resale to a second purchaser for export; (2) for use by 
the purchaser as supplies for vessels or aircraft; (3) to a 
State or local government for exclusive use of a State or local 
government; and (4) to a nonprofit educational organization for 
its exclusive use (sec. 4221(a), 6421(c)).
            Diesel fuel, kerosene and aviation fuel used in a 
                    nontaxable use
    If diesel fuel, kerosene, or aviation fuel, upon which tax 
has been imposed is used by any person in a nontaxable use, the 
Code authorizes the Secretary to pay (without interest) to the 
ultimate purchaser of such fuel an amount equal to the 
aggregate amount of tax imposed on such fuel (sec. 6427(1)). 
Nontaxable uses include any exemption under the rules governing 
special fuels (except prior taxation).

                           REASONS FOR CHANGE

    The Red Cross is given an exemption from certain excise 
taxes generally because the full benefit of the exemption 
accrues to the United States. The Red Cross performs several 
functions that benefit the United States, including giving aid 
to the U.S. Armed Forces and assisting disaster victims. In 
addition, a major function of the Red Cross is to collect 
blood. The Committee believes it is appropriate to extend 
similar tax exemption to registered 501(c)(3) entities 
primarily engaged in the collection of blood.

                        EXPLANATION OF PROVISION

    The provision exempts qualified blood collector 
organizations from certain retail and manufacturers excise 
taxes to the extent such items are for the exclusive use of 
such an organization. A qualified blood collector organization 
means an organization that is (1) described in section 
501(c)(3) and exempt from tax under section 501(a), (2) 
registered by the Food and Drug Administration to collect 
blood, and (3) primarily engaged in the activity of the 
collection of blood.
    Under the provision, qualified blood collector 
organizations are exempt from the communications excise tax as 
provided by Treasury regulations. The provision also provides 
an exemption from the special fuels tax, and certain taxes 
imposed by chapter 32 and subchapter A and C of chapter 31 of 
the Code (i.e., the retail excise tax on heavy trucks and 
trailers, and the manufacturers excise taxes on tires, 
vaccines, and recreational equipment (sport fishing equipment, 
bows, arrow components, and firearms)).\72\ The provision also 
makes conforming amendments to allow for the credit or refund 
of these taxes and any tax paid on gasoline for the exclusive 
use of the blood collector organization. The provision also 
permits a refund of tax for diesel fuel, kerosene or aviation 
fuel used by a qualified blood collector organization.
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    \72\ Such organizations are also exempt from the expired retail 
excise tax on luxury passenger vehicles. No exemption is provided from 
the gas guzzler tax (sec. 4064), and the taxes imposed on fuel used on 
inland waterways (sec. 4042), and on coal (sec. 4121).
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                             EFFECTIVE DATE

    The provision is effective on January 1, 2004.

     M. Nonrecognition of Gain on the Sale of Property Used in the 
                   Performance of an Exempt Function

(Sec. 112 of the bill and sec. 512 of the Code)

                              PRESENT LAW

    The unrelated business taxable income of organizations 
described in sections 501(c)(7) (social clubs), 501(c)(9) 
(voluntary employees' beneficiary associations), and 501(c)(17) 
(supplemental unemployment compensation benefit organizations) 
includes all gross income, less deductions directly connected 
with producing that income, but not including exempt function 
income.\73\ For this purpose, exempt function income is gross 
income from dues, fees, charges, or similar items paid by 
members to an organization for the purposes for which exempt 
status was granted to such organization. Investment income of 
such organizations generally is not taxed if set aside to be 
used for religious, charitable, scientific, literary, or 
educational purposes or for the prevention of cruelty to 
children or animals.\74\
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    \73\ Sec. 512(a)(3). Present law refers to section 510(c)(20) 
organizations (group legal services plans). Section 501(c)(20) is not 
effective for taxable years beginning after June 30, 1992.
    \74\ Subject to certain limitations, the investment income of 
organizations described in section 501(c)(17) generally is not taxed if 
it is set aside to provide for the payment of life, sick, accident, or 
other benefits. Secs. 512(a)(3)(B)(ii) and 512(a)(3)(E).
---------------------------------------------------------------------------
    Gain on the sale of property by an organization described 
in sections 501(c)(7), 501(c)(9), or 501(c)(17) that was used 
directly in performing an exempt function of the organization 
generally is taxed as unrelated business taxable income. An 
organization may reduce the amount of gain to be recognized 
from such sales, however, if the organization purchases other 
property that is used directly in performing an exempt 
function.\75\ In such cases, gain is recognized only to the 
extent that the sales price of the sold property exceeds the 
cost of purchasing the replacement property. The replacement 
property must be acquired by the organization within the period 
beginning one year before, and ending three years after, the 
date of sale of the sold property. For these purposes, a sale 
of property includes the property's destruction in whole or in 
part, theft, seizure, requisition, or condemnation.
---------------------------------------------------------------------------
    \75\ Sec. 512(a)(3)(D).
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                           REASONS FOR CHANGE

    The Committee believes that the present-law replacement 
period often does not provide social clubs that are described 
in section 501(c)(7) sufficient time to explore and acquire 
suitable replacement property that will best further the 
organization's exempt purposes.

                        EXPLANATION OF PROVISION

    The provision extends the replacement period for 
acquisitions of replacement property from four years to eleven 
years with respect to the sales of property by social clubs 
described in section 501(c)(7). A social club that sells 
property used directly in the performance of its exempt 
function recognizes gain from such a sale only to the extent 
that the organization's sales price of such property exceeds 
the organization's cost of purchasing other property, during a 
period beginning one year before the date of sale and ending 
ten years after such date, that is used directly in the 
performance of the exempt function of the organization.
    The provision provides an extended limitations period with 
respect to the assessment of a deficiency in such cases.

                             EFFECTIVE DATE

    The provision is effective for the sale of property for 
which the three-year period for offsetting gain by purchasing 
other property under section 512(a)(3)(D) (as in effect on the 
day before the date of enactment of the provision) had not 
expired as of January 1, 2001.

  N. Qualified 501(c)(3) Bonds for Nursing Homes Exempt From Federal 
                         Guarantee Prohibition

(Sec. 113 of the bill)

                              PRESENT LAW

Qualified 501(c)(3) bonds

    Interest on State or local government bonds is tax-exempt 
when the proceeds of the bonds are used to finance activities 
carried out by or paid for by those governmental units. 
Interest on bonds issued by State or local governments acting 
as conduit borrowers for private businesses is taxable unless a 
specific exception is included in the Code. One such exception 
allows taxexempt bonds to be issued to finance activities of 
non-profit organizations described in section 501(c)(3) 
(``qualified 501(c)(3) bonds''). A 501(c)(3) organization could 
provide, among other things, low-income housing facilities, 
assisted living facilities, nursing homes, hospitals, and homes 
for the aged.
    For a bond to be a qualified 501(c)(3) bond, the bond must 
meet certain requirements. The property that is to be provided 
by the net proceeds of the issue must be owned by a 501(c)(3) 
organization, or by a government unit. In addition, a bond 
failing both a modified private business use test and a 
modified private security or payment test would not be a 
qualified 501(c)(3) bond. Under the modified private business 
use test at least 95 percent of the net proceeds of the bond 
must be used by a 501(c)(3) organization in furtherance of its 
exempt purpose. Under a modified private security or payment 
test, the debt service on not more than 5 percent of the net 
proceeds of the bond issue can be (1) secured by an interest in 
property, or payments in respect of property, used by a 
501(c)(3) organization in furtherance of an unrelated trade or 
business or by a private user, or (2) derived from payments in 
respect of property, or borrowed money, used by a 501(c)(3) 
organization in furtherance of an unrelated trade or business 
or by a private user.

Federal guarantee prohibition

    Subject to exceptions for certain Federal programs in 
existence before 1984, interest on any obligation is not tax-
exempt if the obligation is Federally guaranteed. An obligation 
is treated as Federally guaranteed if (1) the payment of the 
principal or interest on the obligation is guaranteed (directly 
or indirectly), in whole or in part, by the United States or 
any agency or instrumentality thereof, or (2) five percent or 
more of the proceeds of the issue of which the obligation is a 
part is to be (i) used in making loans the payment of principal 
or interest on which are guaranteed in whole or in part by the 
United States or any agency or instrumentality thereof or, (ii) 
invested, directly or indirectly, in Federally insured deposits 
or accounts in a financial institution.
    The Code provides exceptions to the Federal guarantee 
prohibition for certain insurance programs. Specifically, a 
bond is not treated as Federally guaranteed by reason of any 
guarantee by the Federal Housing Administration, the Veterans' 
Administration, the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, or the Government 
National Mortgage Association, any guarantee of student loans 
and any guarantee by the Student Loan Marketing Association to 
finance student loans, or any guarantee by the Bonneville Power 
Authority pursuant to the Northwest Power Act (16 U.S.C. 839d) 
as in effect on the date of the enactment of the Tax Reform Act 
of 1984.
    The Code also excludes certain housing-related bond issues, 
proceeds invested for an initial temporary period until needed 
for the purpose for which such issue was issued, bona fide debt 
service fund investments, investments in a reasonably required 
reserve fund, investments in United States Treasury 
obligations, and other investments permitted by regulation.

                           REASONS FOR CHANGE

    The present-law Federal guarantee prohibition on tax-exempt 
bonds serves the important policy objective of denying Federal 
income tax-exemption to interest on debt issued by State or 
local governments when such debt enjoys a direct or indirect 
Federal guarantee. Absent this prohibition, State and local 
Federally guaranteed tax-exempt debt would hold an unfair 
advantage over debt instruments issued directly by the Federal 
government and its instrumentalities. While some grandfathered 
exceptions to the prohibition on Federal guarantees for State 
and local issues exist, the Congress has a long-standing 
concern about creating any new exceptions to the Federal 
guarantee prohibition. In this instance, given the limited 
nature of the exception and a degree of uncertainty regarding 
the status of certain letters of credit under present law, the 
Committee feels that a short-term exception is appropriate in 
order to provide time for review and clarification of the rules 
regarding such letters of credit.

                        EXPLANATION OF PROVISION

    Under the provision, the Federal guarantee prohibition will 
not apply to qualified 501(c)(3) bonds supported by a letter of 
credit and issued for the benefit of an organization described 
in subsection 501(c)(3), if such bonds are part of an issue, 
the proceeds of which are used to finance one or more of the 
following facilities primarily for the benefit of the elderly: 
(1) licensed nursing home facilities, (2) licensed or certified 
assisted living facilities, (3) licensed personal care 
facilities, or (4) continuing care retirement communities. The 
provision is limited to $15 million or less of aggregate bond 
issuance per issuer per calendar year. Also, no more than $15 
million of eligible debt may be outstanding per user under this 
provision.
    ``Continuing care retirement community'' means a community 
that provides, on the same campus, a continuum of residential 
living options and support services to persons sixty (60) years 
of age or older under a written agreement. The residential 
living options shall include independent living units, nursing 
home beds, and either assisted living units or personal care 
beds.

                             EFFECTIVE DATE

    The provision is effective for bonds issued after December 
31, 2003, and before the date which is one year after the date 
of enactment.

     TITLE II. TAX REFORM AND IMPROVEMENTS RELATING TO CHARITABLE 
                       ORGANIZATIONS AND PROGRAMS

     A. Suspension of Tax-Exempt Status of Terrorist Organizations

(Sec. 201 of the bill and sec. 501 of the Code)

                              PRESENT LAW

    Under present law, the Internal Revenue Service generally 
issues a letter revoking recognition of an organization's tax-
exempt status only after (1) conducting an examination of the 
organization, (2) issuing a letter to the organization 
proposing revocation, and (3) allowing the organization to 
exhaust the administrative appeal rights that follow the 
issuance of the proposed revocation letter. In the case of an 
organization described in section 501(c)(3), the revocation 
letter immediately is subject to judicial review under the 
declaratory judgment procedures of section 7428. To sustain a 
revocation of tax-exempt status under section 7428, the IRS 
must demonstrate that the organization is no longer entitled to 
exemption. There is no procedure under current law for the IRS 
to suspend the tax-exempt status of an organization.
    To combat terrorism, the Federal government has designated 
a number of organizations as terrorist organizations or 
supporters of terrorism under the Immigration and Nationality 
Act, the International Emergency Economic Powers Act, and the 
United Nations Participation Act of 1945.

                           REASONS FOR CHANGE

    An organization that has been designated or otherwise 
identified by the Federal government as a terrorist 
organization pursuant to certain authority should not be exempt 
from Federal income tax and contributions to such organizations 
should not be deductible for Federal income tax purposes. The 
Committee believes that the Federal government's designation or 
identification of an organization as a terrorist organization 
is ground for suspension of tax-exempt status, and that in such 
cases a separate investigation of the organization by the 
Internal Revenue Service is not necessary. Further, because a 
terrorist organization may challenge the Federal government's 
designation or identification of the organization under the law 
authorizing the designation or identification, recourse to the 
declaratory judgment procedures of the Internal Revenue Code to 
challenge the suspension of tax-exemption is not appropriate.

                        EXPLANATION OF PROVISION

    The provision suspends the tax-exempt status of an 
organization that is exempt from tax under section 501(a) for 
any period during which the organization is designated or 
identified by U.S. Federal authorities as a terrorist 
organization or supporter of terrorism. The provision also 
makes such an organization ineligible to apply for tax 
exemption under section 501(a). The period of suspension runs 
from the date the organization is first designated or 
identified (or from the date of enactment of the provision, 
whichever is later) to the date when all designations or 
identifications with respect to the organization have been 
rescinded pursuant to the law or Executive order under which 
the designation or identification was made.
    The provision describes a terrorist organization as an 
organization that has been designated or otherwise individually 
identified (1) as a terrorist organization or foreign terrorist 
organization under the authority of section 
212(a)(3)(B)(vi)(II) or section 219 of the Immigration and 
Nationality Act; (2) in or pursuant to an Executive order that 
is related to terrorism and issued under the authority of the 
International Emergency Economic Powers Act or section 5 of the 
United Nations Participation Act for the purpose of imposing on 
such organization an economic or other sanction; or (3) in or 
pursuant to an Executive order that refers to the provision and 
is issued under the authority of any Federal law if the 
organization is designated or otherwise individually identified 
in or pursuant to such Executive order as supporting or 
engaging in terrorist activity (as defined in section 
212(a)(3)(B) of the Immigration and Nationality Act) or 
supporting terrorism (as defined in section 140(d)(2) of the 
Foreign Relations Authorization Act, Fiscal Years 1988 and 
1989). During the period of suspension, no deduction for any 
contribution to a terrorist organization is allowed under 
section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 
2522.
    No organization or other person may challenge, under 
section 7428 or any other provision of law, in any 
administrative or judicial proceeding relating to the Federal 
tax liability of such organization or other person, the 
suspension of tax-exemption, the ineligibility to apply for 
tax-exemption, a designation or identification described above, 
the period of suspension, or a denial of a deduction described 
above. The suspended organization may maintain other suits or 
administrative actions against the agency or agencies that 
designated or identified the organization, for the purpose of 
challenging such designation or identification (but not the 
suspension of tax-exempt status under this provision).
    If the tax-exemption of an organization is suspended and 
each designation and identification that has been made with 
respect to the organization is determined to be erroneous 
pursuant to the law or Executive order making the designation 
or identification, and such erroneous designation results in an 
overpayment of income tax for any taxable year with respect to 
such organization, a credit or refund (with interest) with 
respect to such overpayment shall be made. If the operation of 
any law or rule of law (including res judicata) prevents the 
credit or refund at any time, the credit or refund may 
nevertheless be allowed or made if the claim for such credit or 
refund is filed before the close of the one-year period 
beginning on the date that the last remaining designation or 
identification with respect to the organization is determined 
to be erroneous.
    The provision directs the IRS to update the listings of 
tax-exempt organizations to take account of organizations that 
have had their exemption suspended and to publish notice to 
taxpayers of the suspension of an organization's tax-exemption 
and the fact that contributions to such organization are not 
deductible during the period of suspension.

                             EFFECTIVE DATE

    The provision is effective for designations made before, 
on, or after the date of enactment.

          B. Clarification of Definition of Church Tax Inquiry

(Sec. 202 of the bill and sec. 7611 of the Code)

                              PRESENT LAW

    Under present law, the IRS may begin a church tax inquiry 
only if an appropriate highlevel Treasury official reasonably 
believes, on the basis of the facts and circumstances recorded 
in writing, that an organization (1) may not qualify for tax 
exemption as a church, (2) may be carrying on an unrelated 
trade or business, or (3) otherwise may be engaged in taxable 
activities.\76\ A church tax inquiry is defined as any inquiry 
to a church (other than an examination) that serves as a basis 
for determining whether the organization qualified for tax 
exemption as a church or whether it is carrying on an unrelated 
trade or business or otherwise is engaged in taxable 
activities. An inquiry is considered to commence when the IRS 
requests information or materials from a church of a type 
contained in church records, other than routine requests for 
information or inquiries regarding matters that do not 
primarily concern the tax status or liability of the church 
itself.
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    \76\ Sec. 7611.
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                           REASONS FOR CHANGE

    The Committee believes that the present-law church tax 
inquiry procedures provide important safeguards against the IRS 
engaging in unnecessary and intrusive examinations of churches. 
However, the church tax inquiry procedures also have the effect 
of hampering IRS efforts to educate churches with respect to 
actions that are not permissible under section 501(c)(3). The 
Committee believes that a clarification of the scope of the 
church tax inquiry procedures to make it clear that the IRS may 
undertake educational outreach efforts with respect to specific 
churches (e.g., initiating meetings with representatives of a 
particular church to discuss the rules that apply to such 
church) will improve compliance with the law by churches.

                        EXPLANATION OF PROVISION

    The provision clarifies that the church tax inquiry 
procedures do not apply to contacts made by the IRS for the 
purpose of educating churches with respect to the federal 
income tax law governing tax-exempt organizations. For example, 
the IRS does not violate the church tax inquiry procedures when 
written materials are provided to a church or churches for the 
purpose of educating such church or churches with respect to 
the types of activities that are not permissible under section 
501(c)(3).

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 C. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
                          Exempt Organizations

(Sec. 203 of the bill and sec. 7428 of the Code)

                              PRESENT LAW

    In order for an organization to be granted tax exemption as 
a charitable entity described in section 501(c)(3), it 
generally must file an application for recognition of exemption 
with the IRS and receive a favorable determination of its 
status. Similarly, for most organizations, a charitable 
organization's eligibility to receive tax-deductible 
contributions is dependent upon its receipt of a favorable 
determination from the IRS. In general, a section 501(c)(3) 
organization can rely on a determination letter or ruling from 
the IRS regarding its tax-exempt status, unless there is a 
material change in its character, purposes, or methods of 
operation. In cases in which an organization violates one or 
more of the requirements for tax exemption under section 
501(c)(3), the IRS is authorized to revoke an organization's 
tax exemption, notwithstanding an earlier favorable 
determination.
    In situations in which the IRS denies an organization's 
application for recognition of exemption under section 
501(c)(3) or fails to act on such application, or in which the 
IRS informs a section 501(c)(3) organization that it is 
considering revoking or adversely modifying its tax-exempt 
status, present law authorizes the organization to seek a 
declaratory judgment regarding its tax status (sec. 7428). 
Section 7428 provides a remedy in the case of a dispute 
involving a determination by the IRS with respect to: (1) The 
initial qualification or continuing qualification of an 
organization as a charitable organization for tax exemption 
purposes or for charitable contribution deduction purposes; (2) 
the initial classification or continuing classification of an 
organization as a private foundation; (3) the initial 
classification or continuing classification of an organization 
as a private operating foundation; or (4) the failure of the 
IRS to make a determination with respect to (1), (2), or (3). A 
``determination'' in this context generally means a final 
decision by the IRS affecting the tax qualification of a 
charitable organization, although it also can include a 
proposed revocation of an organization's tax-exempt status or 
public charity classification. Section 7428 vests jurisdiction 
over controversies involving such a determination in the U.S. 
District Court for the District of Columbia, the U.S. Court of 
Federal Claims, and the U.S. Tax Court.
    Prior to utilizing the declaratory judgment procedure, an 
organization must have exhausted all administrative remedies 
available to it within the IRS. An organization is deemed to 
have exhausted its administrative remedies at the expiration of 
270 days after the date on which the request for a 
determination was made if the organization has taken, in a 
timely manner, all reasonable steps to secure such 
determination.
    If an organization (other than a section 501(c)(3) 
organization) files an application for recognition of exemption 
and receives a favorable determination from the IRS, the 
determination of tax-exempt status is usually effective as of 
the date of formation of the organization if its purposes and 
activities during the period prior to the date of the 
determination letter were consistent with the requirements for 
exemption. However, if the organization files an application 
for recognition of exemption and later receives an adverse 
determination from the IRS, the IRS may assert that the 
organization is subject to tax on some or all of its income for 
open taxableyears. In addition, as with charitable 
organizations, the IRS may revoke or modify an earlier favorable 
determination regarding an organization's tax-exempt status.
    Under present law, a non-charity (i.e., an organization not 
described in section 501(c)(3)) may not seek a declaratory 
judgment with respect to an IRS determination regarding its 
tax-exempt status. The only remedies available to such an 
organization are to petition the U.S. Tax Court for relief 
following the issuance of a notice of deficiency or to pay any 
tax owed and sue for refund in Federal district court or the 
U.S. Court of Federal Claims.

                           REASONS FOR CHANGE

    The Committee believes that it is important to provide 
certainty for organizations that have sought a determination of 
their tax-exempt status. Thus, the Committee finds it 
appropriate to extend the present-law declaratory judgment 
procedures to all organizations that apply for tax exempt 
status as organizations described in section 501(c) or 501(d).

                        EXPLANATION OF PROVISION

    The provision extends declaratory judgment procedures 
similar to those currently available only to charities under 
section 7428 to other section 501(c) and 501(d) determinations. 
The provision limits jurisdiction over controversies involving 
such other determinations to the United States Tax Court.\77\
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    \77\ This limitation currently applies to declaratory judgments 
relating to tax qualification for certain employee retirement plans 
(sec. 7476).
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                             EFFECTIVE DATE

    The extension of the declaratory judgment procedures to 
organizations other than section 501(c)(3) organizations is 
effective for pleadings filed with respect to determinations 
(or requests for determinations) made after the date of 
enactment.

   D. Exclusion From Income of Certain Landowner Initiatives Program 
                                Payments

(Sec. 204 of the bill and sec. 126 of the Code)

                              PRESENT LAW

    Under present law, gross income does not include the 
excludable portion of payments made to taxpayers by Federal and 
state governments for a share of the cost of improvements to 
property under certain conservation programs. These programs 
include payments received under (1) the rural clean water 
program authorized by section 208(j) of the Federal Water 
Pollution Control Act; (2) the rural abandoned mine program 
authorized by section 406 of the Surface Mining Control and 
Reclamation Act of 1977; (3) the water bank program authorized 
by the Water Bank Act; (4) the emergency conservation measures 
program authorized by title IV of the Agricultural Credit Act 
of 1978; (5) the agriculture conservation program authorized by 
the Soil Conservation and Domestic Allotment Act; (6) the great 
plains conservation program authorized by section 16 of the 
Soil Conservation and Domestic Policy Act; (7) the resource 
conservation and development program authorized by the 
Bankhead-Jones Farm Tenant Act and by the Soil Conservation and 
Domestic Allotment Act; (8) the forestry incentives program 
authorized by section 4 of the Cooperative Forestry Assistance 
Act of 1978; (9) any small watershed program administered by 
the Secretary of Agriculture which is determined by the 
Secretary of the Treasury or his delegate to be substantially 
similar to the type of programs described in items (1) through 
(8); and (10) any program of a State, possession of the United 
States, a political subdivision of any of the foregoing, or the 
District of Columbia under which payments are made to 
individuals primarily for the purpose of conserving soil, 
protecting or restoring the environment, improving forests, or 
providing a habitat for wildlife.\78\
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    \78\ Sec. 126.
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    Under present law, the excludable portion of a program 
payment means that portion (or all) of a payment made to any 
person under the program that is determined by the Secretary of 
Agriculture to be made primarily for the purpose of conserving 
soil and water resources, protecting or restoring the 
environment, improving forests, or providing a habitat for 
wildlife, and is determined by the Secretary of the Treasury or 
his delegate as not increasing substantially the annual income 
derived from the property.

                           REASONS FOR CHANGE

    The Committee believes that certain qualified cost-sharing 
payments received by taxpayers under the Fish and Wildlife 
Coordination Act, the Fish and Wildlife Act, and the Endangered 
Species Act, are similar to payments made under other 
government programs that are excludable from gross income under 
present law. Accordingly, the Committee believes it is 
appropriate to extend the present-law exclusion to payments 
under such programs.

                        EXPLANATION OF PROVISION

    The provision expands the types of qualified cost-sharing 
payments described in section 126 to include payments received 
under landowner initiatives programs to conserve threatened, 
endangered, or imperiled species, or protect or restore habitat 
carried out under: (1) the Fish and Wildlife Coordination Act 
(16 U.S.C. 661 et seq.); (2) the Fish and Wildlife Act of 1956 
(16 U.S.C. 742f); or (3) section 6 of the Endangered Species 
Act (16 U.S.C. 11531 et seq.).
    The provision provides that the determination of the 
excludable portion of the landowner initiatives program 
payments described in the provision shall be made by the 
Secretary of the Interior, rather than by the Secretary of 
Agriculture, if the programs are implemented by the Department 
of Interior.\79\
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    \79\ The provision also provides that the excludable portion of 
payments received under a program described in present law section 
126(a)(10), under which payments are made to individuals primarily for 
the purpose of conserving soil, protecting or restoring the 
environment, improving forests, or providing a habitat for wildlife, 
shall be determined by the Secretary of Interior, rather than by the 
Secretary of Agriculture, if the program is implemented by the 
Department of Interior.
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                             EFFECTIVE DATE

    The provision is effective for amounts received after 
December 31, 2003, in taxable years ending after such date.

   E. Modify Tax Treatment of Certain Payments to Controlling Exempt 
                             Organizations

(Sec. 205 of the bill and sec. 512 of the Code)

                              PRESENT LAW

    In general, interest, rents, royalties, and annuities are 
excluded from the unrelated business income of tax-exempt 
organizations. However, section 512(b)(13) generally treats 
otherwise excluded rent, royalty, annuity, and interest income 
as unrelated business income if such income is received from a 
taxable or tax-exempt subsidiary that is 50 percent controlled 
by the parent tax-exempt organization. In the case of a stock 
subsidiary, ``control'' means ownership by vote or value of 
more than 50 percent of the stock. In the case of a partnership 
or other entity, control means ownership of more than 50 
percent of the profits, capital or beneficial interests. In 
addition, present law applies the constructive ownership rules 
of section 318 for purposes of section 512(b)(13). Thus, a 
parent exempt organization is deemed to control any subsidiary 
in which it holds more than 50 percent of the voting power or 
value, directly (as in the case of a first-tier subsidiary) or 
indirectly (as in the case of a second-tier subsidiary).
    Under present law, interest, rent, annuity, or royalty 
payments made by a controlled entity to a tax-exempt 
organization are includable in the latter organization's 
unrelated business income and are subject to the unrelated 
business income tax to the extent the payment reduces the net 
unrelated income (or increases any net unrelated loss) of the 
controlled entity (determined as if the entity were tax 
exempt).
    The Taxpayer Relief Act of 1997 (the ``1997 Act'') made 
several modifications to the control requirement of section 
512(b)(13). In order to provide transitional relief, the 
changes made by the 1997 Act do not apply to any payment 
received or accrued during the first two taxable years 
beginning on or after the date of enactment of the 1997 Act 
(August 5, 1997) if such payment is received or accrued 
pursuant to a binding written contract in effect on June 8, 
1997, and at all times thereafter before such payment (but not 
pursuant to any contract provision that permits optional 
accelerated payments).

                           REASONS FOR CHANGE

    The present-law rule that requires a controlling entity to 
include as unrelated business income certain payments made by a 
controlled entity applies without regard to whether the amount 
of the payment is fair and reasonable under the circumstances 
or would otherwise constitute unrelated business income if paid 
by an organization not controlled by the exempt organization. 
The Committee believes that the controlling organization should 
not be subject to the unrelated business income tax if the 
amount of the payment from the controlled entity is determined 
in accordance with established arm's-length principles. The 
Committee intends that the controlling organization be subject 
to the present-law rule only to the extent that a payment made 
by a controlled entity exceeds the amount that would have been 
paid if the payment had been determined under established 
arm's-length principles. In order to discourage controlled 
entities from claiming deductions in excess of the arm's-length 
amount, the Committee believes that it is appropriate to 
subject the controlling organization to a penalty tax for 
making excess payments.

                        EXPLANATION OF PROVISION

    The provision provides that the general rule of section 
512(b)(13), which includes interest, rent, annuity, or royalty 
payments made by a controlled entity to a tax-exempt 
organization in the latter organization's unrelated business 
income to the extent the payment reduces the net unrelated 
income (or increases any net unrelated loss) of the controlled 
entity, applies only to the portion of payments received or 
accrued in a taxable year that exceeds the amount of the 
specified payment that would have been paid or accrued if such 
payment had satisfied the requirements prescribed under section 
482. Thus, if a payment of rent by a controlled subsidiary to 
its tax-exempt parent organization exceeds fair market value, 
the excess amount of such payment over fair market value (as 
determined in accordance with section 482) is included in the 
parent organization's unrelated business income, to the extent 
that such excess reduced the net unrelated income (or increased 
any net unrelated loss) of the controlled entity (determined as 
if the entity were tax exempt). In addition, the provision 
imposes a 20-percent addition to tax on the larger of such 
excess determined without regard to any amendment or supplement 
to a return of tax, or such excess determined with regard to 
all such amendments and supplements.
    The provision provides that if modifications to section 
512(b)(13) made by the 1997 Act did not apply to a contract 
because of the transitional relief provided by the 1997 Act, 
then such modifications also do not apply to amounts received 
or accrued under such contract before January 1, 2001.

                             EFFECTIVE DATE

    The provision applies to payments received or accrued after 
December 31, 2003.

          F. Simplification of Lobbying Expenditure Limitation

(Sec. 206 of the bill and secs. 501 and 4911 of the Code)

                              PRESENT LAW

In general

    An organization does not qualify for tax-exempt status 
under section 501(c)(3) unless ``no substantial part'' of the 
activities of the organization is ``carrying on propaganda, or 
otherwise attempting, to influence legislation,'' except as 
provided by section 501(h).\80\ Carrying on propaganda and 
attempting to influence legislation commonly are referred to as 
``lobbying'' activities. Thus, section 501(c)(3) permits a 
limited amount of lobbying activity without loss of tax-exempt 
status.
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    \80\ Sec. 501(c)(3).
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    For purposes of determining whether lobbying activities are 
a substantial part of an organization's overall functions, an 
organization generally may choose between two standards, the 
``no substantial part'' test of section 501(c)(3) or the 
``expenditure'' test of section 501(h).
    Whether an organization meets the ``no substantial part'' 
test is based on all the facts and circumstances. There is no 
statutory or regulatory guidance, and it is not clear whether 
the determination is based on the organization's activities, 
its expenditures, or both. Alternatively, under section 501(h), 
certain organizations described in section 501(c)(3) can elect 
to be subject to the expenditure test,\81\ which consists of 
bright-line rules that specify the dollar amount of permitted 
expenditures on lobbying activities.
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    \81\ Organizations that do not make a section 501 (h) election are 
subject to the ``no substantial part'' test.
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Consequences of excess lobbying under section 501(h)

    Organizations that make a section 501(h) election 
(``electing charities'') are subject to tax if the electing 
charity makes either ``lobbying expenditures'' or ``grass roots 
expenditures'' in excess of a certain amount established for 
each type of expenditure for each taxable year. Lobbying 
expenditures are the sum of grass-roots expenditures and 
``direct lobbying'' expenditures.\82\
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    \82\ Secs. 501(h)(2)(A), 4911(c)(1), 4911(d).
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    The expenditure limits are based on a ``lobbying nontaxable 
amount'' for the taxable year and a ``grass roots nontaxable 
amount'' for the taxable year. The lobbying nontaxable amount 
is the lesser of $1 million or an amount determined as a 
percentage of an organization's exempt purpose 
expenditures.\83\ The grass-roots nontaxable amount is 25 
percent of the organization's lobbying nontaxable amount. An 
electing charity that exceeds either of the spending 
limitations is subject to a 25 percent tax on the excess. An 
electing charity that exceeds both of the spending limitations 
is subject to a 25 percent tax on the greater of the excess of 
the lobbying expenditures or the grass-roots expenditures.
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    \83\ Exempt purpose expenditures generally are expenses incurred 
for exempt purposes, such as amounts paid to accomplish exempt 
purposes, administrative expenses such as overhead, lobbying expenses, 
and certain fundraising expenses. Exempt purpose expenditures do not 
include, for example, expenses not for exempt purposes, payments of 
unrelated business income tax, or capital expenses in connection with 
an unrelated business. See Treas. Reg. sec. 56.49114.
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    An electing charity that normally exceeds either of two 
``ceiling amounts,'' which are based on the expenditure limits, 
will lose its tax exemption.\84\ The ``lobbying ceiling 
amount'' is 150 percent of the electing charity's lobbying 
nontaxable amount for the taxable year and the ``grass roots 
ceiling amount'' is 150 percent of the grass-roots nontaxable 
amount for the taxable year. For this purpose, ``normal'' 
expenditures are calculated based on a four-year averaging 
mechanism.\85\
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    \84\ Sec. 501(h)(1).
    \85\ Treas. Reg. sec. 1.501(h)-3.
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Definitions

    Grass-roots expenditures are defined as ``any attempt to 
influence any legislation through an attempt to affect the 
opinions of the general public or any segment thereof.'' \86\ a 
For a communication to constitute grass-roots lobbying, it must 
refer to ``specific legislation,'' reflect a view on such 
legislation, and encourage the recipient of the communication 
to take action with respect to such legislation (a ``call to 
action'').\87\ A communication includes a call to action if it 
incorporates one of four elements: (1) It urges the recipient 
to contact a legislator, employee of a government body, or any 
other government official or employee who may participate in 
the formulation of legislation with the principal purpose of 
influencing legislation; (2) it states the address, telephone 
number, or similar information of a legislator or an employee 
of a legislative body; (3) it provides a petition, tear-off 
postcard, or similar device for the recipient to communicate 
with government officials or employees who participate in the 
formulation of legislation with the principal purpose of 
influencing legislation; or (4) it states the position of one 
or more legislators on the legislation, except that a 
communication may name the main sponsors of legislation for 
purposes of identifying the legislation without constituting a 
call to action.\88\ In addition, a communication is presumed to 
be grass-roots lobbying if the communication is a paid 
advertisement that: (1) Appears in the mass media within two 
weeks before a vote by a legislative body or committee (but not 
a subcommittee) on a highly publicized piece of legislation; 
(2) reflects a view on the general subject of the legislation; 
and (3) either refers to the legislation or encourages the 
public to communicate with legislators on the general subject 
of such legislation.\89\ The presumption is rebuttable if the 
electing charity demonstrates that the timing of the 
communication was not related to the legislation or that the 
advertisement was of a type regularly made by the electing 
charity without regard to the timing of the legislation (a 
customary course of business exception).\90\
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    \86\ Secs. 501(h)(2)(C) & 4911(d)(1)(A).
    \87\ Treas. Reg. sec. 56.4911-2(b)(2)(i).
    \88\ Treas. Reg. sec. 56.4911-2(b)(2)(iii). The regulations provide 
that the first three elements constitute ``direct'' encouragement, 
whereas the fourth element is ``indirect'' encouragement. This 
distinction becomes relevant in determining whether a communication 
meets one of the prescribed exceptions to lobbying, i.e., an indirect 
call to action in a grass-roots communication may qualify as 
``nonpartisan analysis, study or research'' (Treas. Reg. sec. 56.4911-
2(b)(2)(iv)), and in determining the proper allocation of expenses 
between grass-roots and direct lobbying. Treas. Reg. sec. 56.4911-5(e).
    \89\ Treas. Reg. sec. 56.4911-2(b)(5)(ii).
    \90\ Id.
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    Direct lobbying expenditures are ``any attempt to influence 
any legislation through communication with any member or 
employee of a legislative body, or with any government official 
or employee who may participate in the formulation of the 
legislation'' if the principal purpose of the communication is 
to influence legislation.\91\ A communication would constitute 
direct lobbying only if the communication ``refers to specific 
legislation'' and reflects a view on such legislation.
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    \91\ Secs. 501(h)(2)(A) and 4911(d)(1)(13) and Treas. Reg. sec. 
56.4911-2(b)(1).
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    Certain specified activities do not constitute attempts to 
influence legislation and therefore expenditures for such 
activities are not subject to the expenditure limits for 
lobbying expenditures or grass-roots expenditures. In general, 
such activities include: (1) Making available the results of 
nonpartisan analysis, study, or research; (2) providing 
technical advice or assistance to a governmental body or to a 
committee in response to a written request; (3) appearances 
before, or communications to, any legislative body with respect 
to a possible decision of such body that might affect the 
existence of the organization, its powers and duties, tax-
exempt status, or the deduction of contributions to the 
organization (so-called ``self-defense'' expenditures); (4) 
certain communications to members of the electing charity; and 
(5) communications with governmental officials or employees 
that are not intended to influence legislation.\92\
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    \92\ Sec. 4911(d)(2).
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Special rules for mixed lobbying expenditures

    Expenses that serve both direct and grass-roots lobbying 
purposes, e.g., communications that are sent to members and 
nonmembers, or ``mixed lobbying'' expenditures, are subject to 
special rules. The regulations specify how an electing charity 
is to allocate mixed lobbying expenditures between direct and 
grass-roots lobbying purposes.\93\ For example, for a mixed 
lobbying communication that is designed primarily for members 
(i.e., more than half the recipients are members) and that 
directly encourages grass-roots lobbying (even if it also 
encourages direct lobbying), the grass-roots expenditure amount 
includes all the costs of preparing the material used for 
purposes of grass-roots lobbying plus the mechanical and 
distributional costs associated with the communication. If a 
mixed lobbying communication encourages direct lobbying, but 
only indirectly encourages grass-roots lobbying, then the 
entire costs of the communication are allocated based on the 
proportion of members and nonmembers receiving the 
communication.
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    \93\ Treas. Reg. sec. 56.4911-5(e).
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Disclosure of lobbying expenditures

    An electing charity must disclose lobbying expenditures 
annually on Schedule A of Form 990. In order to meet disclosure 
requirements, electing charities are required to keep detailed 
records of direct and grass-roots lobbying expenditures. 
Required records of grass-roots expenditures include: (1) All 
amounts directly paid or incurred for grass-roots lobbying; (2) 
payments to other organizations earmarked for grass-roots 
lobbying; (3) fees and expenses paid for grass-roots lobbying; 
(4) the printing, mailing, and other costs of reproducing and 
distributing materials used in grass-roots lobbying; (5) the 
portion of amounts paid or incurred as current or deferred 
compensation for an employee's grass-roots lobbying services; 
(6) any amount paid for out-of-pocket expenditures incurred on 
behalf of the electing charity for grass-roots lobbying; (7) 
the allocable portion of administrative, overhead and other 
general expenditures attributable to grass-roots lobbying; and 
(8) expenditures for grass-roots lobbying of a controlled 
organization.\94\
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    \94\ See Treas. Reg. sec. 56.4911-6.
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                           REASONS FOR CHANGE

    The Committee believes that the separate limitation on 
grass-roots lobbying expenditures is an unnecessary 
complication for electing charities. The Committee believes 
that the overall limit on lobbying expenditures is a sufficient 
ceiling on the lobbying activities of electing charities, 
irrespective of the proportion of lobbying activities that are 
grass-roots lobbying or direct lobbying.

                        EXPLANATION OF PROVISION

    The provision eliminates the separate limitation for grass-
roots lobbying expenditures applicable to electing charities. 
Electing charities remain subject to the overall limitation on 
lobbying expenditures, which does not change in amount, but 
electing charities are not required to limit grass roots 
expenditures as a percentage of overall lobbying. Thus, an 
electing charity is able to make tax-free any combination of 
grass-roots and direct lobbying expenditures up to the lobbying 
non-taxable amount and does not risk loss of tax-exemption as a 
result of such expenditures until total lobbying expenditures 
normally exceed the lobbying ceiling amount. For purposes of 
the section 501(h) election, electing charities are not 
required to distinguish between grass-roots lobbying and direct 
lobbying, whether for mixed lobbying expenditures or otherwise.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

          G. Pilot Project for Forest Conservation Activities

(Sec. 207 of the bill)

                              PRESENT LAW

Tax-exempt bonds

            In general
    Interest on debt incurred by States or local governments is 
excluded from income if the proceeds of the borrowing are used 
to carry out governmental functions of those entities or the 
debt is repaid with governmental funds (section 103). Interest 
on bonds that nominally are issued by States or local 
governments, but the proceeds of which are used (directly or 
indirectly) by a private person and payment of which is derived 
from funds of such a private person, is taxable unless the 
purpose of the borrowing is approved specifically in the Code 
or in a non-Code provision of a revenue act. Such bonds are 
called ``private activity bonds.'' The term ``private person'' 
includes the Federal Government and all other individuals and 
entities other than States or local governments.
            Private activities eligible for financing with tax-exempt 
                    private activity bonds
    Present law includes several exceptions permitting States 
or local governments to act as conduits providing tax-exempt 
financing for private activities. Both capital expenditures and 
limited working capital expenditures of charitable 
organizations described in section 501(c)(3) of the Code may be 
financed with tax-exempt bonds (``qualified 501(c)(3) bonds'').
    States or local governments may issue tax-exempt ``exempt-
facility bonds'' to finance property for certain private 
businesses. Business facilities eligible for this financing 
include transportation (airports, ports, local mass commuting, 
and high speed intercity rail facilities); privately owned and/
or privately operated public works facilities (sewage, solid 
waste disposal, local district heating or cooling, and 
hazardous waste disposal facilities); privately owned and/or 
operated low-income rental housing;\95\ and certain private 
facilities for the local furnishing of electricity or gas. A 
further provision allows tax-exempt financing for 
``environmental enhancements of hydro-electric generating 
facilities.'' Tax-exempt financing also is authorized for 
capital expenditures for small manufacturing facilities and 
land and equipment for first-time farmers (``qualified small-
issue bonds''), local redevelopment activities (``qualified 
redevelopment bonds''), and eligible empowerment zone and 
enterprise community businesses. Tax-exempt private activity 
bonds also may be issued to finance limited non-business 
purposes: certain student loans and mortgage loans for owner-
occupied housing (``qualified mortgage bonds'' and ``qualified 
veterans'' mortgage bonds'').
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    \95\ Residential rental projects must satisfy low-income tenant 
occupancy requirements for a minimum period of 15 years.
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    With the exception of qualified 501(c)(3) bonds, private 
activity bonds may not be issued to finance working capital 
requirements of private businesses. In most cases, the 
aggregate volume of tax-exempt private activity bonds that may 
be issued in a State is restricted by annual volume limits.
    Several additional restrictions apply to the issuance of 
tax-exempt bonds. First, private activity bonds (other than 
qualified 501(c)(3) bonds) may not be advance refunded. 
Governmental bonds and qualified 501(c)(3) bonds may be advance 
refunded one time. An advance refunding occurs when the 
refunded bonds are not retired within 90 days of issuance of 
the refunding bonds.
    Issuance of private activity bonds is subject to 
restrictions on use of proceeds for the acquisition of land and 
existing property, use of proceeds to finance certain specified 
facilities (e.g., airplanes, skyboxes, other luxury boxes, 
health club facilities, gambling facilities, and liquor 
stores), and use of proceeds to pay costs of issuance (e.g., 
bond counsel and underwriter fees). Additionally, the term of 
the bonds generally may not exceed 120 percent of the economic 
life of the property being financed, and certain public 
approval requirements (similar to requirements that typically 
apply under State law to issuance of governmental debt) apply 
under Federal law to issuance of private activity bonds. 
Present law precludes substantial users of property financed 
with private activity bonds from owning the bonds to prevent 
their deducting tax-exempt interest paid to themselves. 
Finally, owners of most private-activity-bond-financed property 
are subject to special ``change-in-use'' penalties if the use 
of the bond-financed property changes to a use that is not 
eligible for tax-exempt financing while the bonds are 
outstanding.

Taxation of income from timber harvesting

    In general, gross income for Federal income tax purposes 
means all income from whatever source derived, including gross 
income derived from a trade or business. An organization exempt 
from taxation generally is subject to tax on its unrelated 
business taxable income, generally defined to mean gross income 
(less deductions) derived from a trade or business, the conduct 
of which is not substantially related to the exercise or 
performance of the organization's exempt purposes or functions, 
that is regularly carried on by the organization. Special 
unrelated trade or business income rules applicable to the 
cutting of timber are contained in sections 512(b)(5) and 631. 
Under these rules, the determination of whether income derived 
from the cutting of timber constitutes unrelated trade or 
business income depends upon a variety of factors.

                           REASONS FOR CHANGE

    Many forests have a higher fair market value as land to be 
developed for residential purposes than as working forests or 
as forests dedicated to conservation purposes. These increased 
fair market values oftentimes make it difficult or impossible 
for nonprofit conservation organizations or governments to 
acquire forests so that they can be used and managed consistent 
with long-term conservation purposes. The Committee believes 
that providing tax-exempt financing to nonprofit organizations 
for the purpose of acquiring forests and forest lands to be 
dedicated to qualified conservation purposes will increase 
their ability to purchase such properties from commercial 
owners and operators, and that providing limited exclusions 
from income tax to such nonprofit organizations will enable 
them to conduct charitable and conservation activities as they 
make debt service payments on the bonds. The Committeebelieves 
that it is appropriate to evaluate whether providing such tax 
incentives would further the goal of permanently setting aside working 
forests for qualified conservation purposes. The Committee believes 
that the provision of such tax incentives initially should be made 
available on a limited basis, and that a pilot project, combined with a 
study and report examining the extent to which forests and forest lands 
are managed under the pilot project, should be implemented for this 
purpose.

                        EXPLANATION OF PROVISION

Overview

            In general
    The provision establishes a pilot project for forest 
conservation activities by providing two types of tax benefits 
available to qualified organizations that acquire forest and 
forest lands for conservation management. First, the provision 
provides for the treatment of qualified forest conservation 
bonds as exempt facility bonds within the meaning of section 
142. Second, the provision provides for the exclusion from 
gross income of income from certain timber harvesting 
activities conducted by a qualified organization on lands 
acquired with proceeds from qualified forest conservation 
bonds.
            Qualified organizations
    Under the provision, an organization must be a qualified 
organization to be eligible for the tax-exempt financing 
benefit, and must be a qualified organization for whom 
qualified forest conservation bonds have been issued (and 
remain outstanding as tax-exempt bonds) to be eligible for the 
income exclusion. Under the provision, a qualified organization 
means a nonprofit organization: (1) Substantially all the 
activities of which are charitable, scientific, or educational, 
including acquiring, protecting, restoring, managing, and 
developing forest lands and other renewable resources for the 
long-term charitable, educational, scientific, and public 
benefit; (2) more than one half of the value of the property of 
which consists of forests and forest land acquired with the 
proceeds from qualified forest conservation bonds; (3) that 
periodically conducts educational programs designed to inform 
the public of environmentally sensitive forestry management and 
conservation techniques; (4) whose board satisfies certain 
board composition requirements designed to ensure that it 
represents public conservation interests;\96\ (5) with 
governance provisions contained in its bylaws that provide a 
supermajority vote of at least two-thirds of the members of the 
board of directors is required to approve and amend the 
qualified organization's qualified conservation plan; and (6) 
that upon dissolution, its assets are required to be dedicated 
to an organization exempt from tax under section 501(c)(3) that 
is organized and operated for conservation purposes, or to a 
governmental unit.
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    \96\ The provision requires that at least 20 percent of the board 
members be comprised of representatives of the holders of the 
conservation restriction, and that at least 20 percent of the board 
members be public officials. Not more than one-third of the board 
members may be comprised of individuals who have or had (during a 
prescribed five year period) certain types of financial or contractual 
relationships with a commercial forest products enterprise.
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Qualified forest conservation bonds

            In general
    The provision creates a new category of tax-exempt bonds, 
the ``qualified forest conservation bond.'' For purposes of the 
Code, qualified forest conservation bonds are treated as exempt 
facility bonds, and therefore, unless otherwise provided, are 
governed by the same rules as exempt facility bonds. A 
qualified forest conservation bond means any bond issued as 
part of an issue if: (1) 95 percent or more of the net proceeds 
of such issue are to be used for qualified project costs; (2) 
such bond is an obligation of the State of Washington or any 
political subdivision thereof, and (3) such bond is issued for 
a qualified organization before December 31, 2006. The maximum 
aggregate face amount of bonds that may be issued under the 
pilot program is $250 million.
            Qualified project costs
    Qualified project costs include the cost of acquisition by 
the qualified organization, from an unrelated person, of 
forests and forest land located in the State of Washington that 
at the time of acquisition or immediately thereafter are 
subject to a conservation restriction that meets certain 
requirements.\97\ Qualified project costs also include interest 
on the qualified forest conservation bonds for the three-year 
period beginning on the date of issuance of such bonds, and 
credit enhancement fees that constitute qualified guarantee 
fees within the meaning of section 148. The conservation 
restriction must: (1) Be granted in perpetuity to an unrelated 
charitable organization (other than a private foundation) that 
is organized and operated for conservation purposes, or to a 
governmental unit; (2) protect a relatively natural habitat of 
fish, wildlife, or plants, or similar ecosystem, or preserve 
open space (including farmland and forest land) pursuant to a 
clearly delineated Federal, State, or local governmental 
conservation policy and yield a significant public benefit; (3) 
obligate the qualified organization to pay the costs incurred 
by the holder of the conservation restriction in monitoring 
compliance with such restriction; and (4) require that an 
increasing level of conservation benefits be provided whenever 
circumstances allow it.
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    \97\ For this purpose, a person is related to another person if 
such person bears a relationship to such other person described in 
section 267(b) (determined without regard to paragraph (9) thereof), or 
section 707(b)(1), determined by substituting 25 percent for 50 percent 
for purposes of those determinations. If such other person is a 
nonprofit organization, a person is related to such nonprofit 
organization if such person controls directly or indirectly more than 
25 percent of the governing body of such nonprofit organization.
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            Special rules
    Subject to the following exceptions and modifications, 
issuance of qualified forest conservation bonds is subject to 
the general rules applicable to issuance of exempt-facility 
private activity bonds:
          (1) Issuance of the bonds is not subject to the 
        aggregate annual State private activity bond volume 
        limits (section 146);
         (2) The restrictions on acquisition of land and 
        existing property do not apply (section 147(c) and 
        (d));
         (3) For purposes of section 147(b) (relating to the 
        rule that maturity may not exceed 120 percent of 
        economic life) the land and standing timber acquired 
        with the proceeds of the bonds is treated as having an 
        economic life of 35 years; and
         (4) Interest on the bonds is not a preference item for 
        purposes of the alternative minimum tax preference for 
        private activity bond interest (section 57(a)(5)).
    Qualified forest conservation bonds may be currently 
refunded if certain requirements are satisfied, but may not be 
advance refunded.

Exclusion of certain qualified harvesting activity income from tax

            Income from qualified harvesting activities
    Under the provision, income, gains, deductions, losses, or 
credits from a qualified harvesting activity conducted by a 
qualified organization generally are not subject to tax or 
taken into account for Federal income tax purposes. A qualified 
harvesting activity means the sale, lease, or harvesting of 
standing timber: (1) On land owned by a qualified organization 
that it acquired with proceeds of qualified forest conservation 
bonds; and (2) pursuant to a qualified conservation plan 
adopted by the organization. Qualified harvesting activity does 
not include any sale, lease, or harvesting for any period 
during which the organization ceases to qualify as a qualified 
organization.
    Timber cutting and the sale or lease of timber is not a 
qualified harvesting activity to the extent the timber 
harvesting or removal exceeds prescribed limits. For this 
purpose, the average annual area of timber harvested cannot 
exceed 2.5 percent of the total area of the land acquired with 
the proceeds of qualified forest conservation bonds. Further, 
the quantity of timber removed from such land cannot exceed the 
quantity that can be removed from such land annually in 
perpetuity on a sustained-yield basis determined only with 
respect to such land. Certain deviations from these 
restrictions are permitted to protect the forest from 
catastrophic danger, such as by fire or windthrow, or from 
imminent danger from insect or disease attack.
    The amount of income from a qualified harvesting activity 
that may be excluded from gross income for a taxable year may 
not exceed the amount used by the qualified organization to 
make debt service payments during such taxable year for 
qualified forest conservation bonds.\98\ The exclusion of 
income from a qualified harvesting activity does not apply 
during any period the organization fails to qualify as a 
qualified organization, or after the bonds are no longer 
outstanding or fail to qualify as tax-exempt bonds.
---------------------------------------------------------------------------
    \98\ This debt service limitation does not apply to income that 
otherwise is not subject to tax under other provisions of the Code 
(e.g., income from harvesting if such harvesting activity is not an 
unrelated trade or business within the meaning of section 513 with 
respect to the qualified organization).
---------------------------------------------------------------------------
            Qualified conservation plan
    A qualified conservation plan means a multiple land use 
plan (a) designed and administered primarily for the purposes 
of protecting and enhancing wildlife, fish, timber, scenic 
attributes, recreation, and soil and water quality of the 
forest and forest land, (b) mandates that conservation of the 
forest and forest land is the single-most significant use of 
the forest and land, and (c) requires that timber harvesting be 
consistent with (1) restoring and maintaining reference 
conditions for the region's ecotype (such as with respect to 
types of trees), (2) restoring and maintaining a representative 
sample of young, mid, and late successional forest age classes, 
(3) maintaining or restoring the resources' ecological health 
for purposes of preventing damage from fire, insect, or 
disease, (4) maintaining or enhancing wildlife or fish habitat, 
or (5) enhancing research opportunities in sustainable 
renewable resource uses.

Recapture taxes

    Once the qualified forest conservation bonds issued for a 
qualified organization are no longer outstanding or cease to 
qualify as tax-exempt bonds, the qualified organization becomes 
liable for a recapture of tax benefits (plus interest) for its 
excess harvesting activities. Under the provision, if the 
average annual area of timber harvested from the land exceeds 
the applicable 2.5 percent average annual area limitation, the 
organization's income tax liability is increased by the amount 
of the tax benefits (plus interest) attributable to such excess 
harvesting.

Report on pilot project

    The provision provides that the Comptroller General of the 
United States shall conduct a study on the pilot project for 
forest conservation activities under the provision. Such study 
shall examine the extent to which forests and forest lands were 
managed during the five year period beginning on the date of 
enactment of the provision to achieve the goals of such 
project. Not later than six years after the date of enactment 
of the provision, the Comptroller General shall submit a report 
of such study to the Committee on Ways and Means and the 
Committee on Resources of the House of Representatives and the 
Committee on Finance and the Committee on Energy and Natural 
Resources of the Senate.

                             EFFECTIVE DATE

    The provision is effective for obligations issued on or 
after the date of enactment.

                      TITLE III. OTHER PROVISIONS

                       A. Compassion Capital Fund

(Sec. 301 of the bill)

                              PRESENT LAW

    There is no provision under present law. However, $35 
million was appropriated for such grants for fiscal year 2003, 
to be awarded by the Secretary of Health and Human Services 
under Section 1110 of the Social Security Act.

                           REASONS FOR CHANGE

    This provision is included to provide authorizing language 
and to outline the priorities for this program.

                        EXPLANATION OF PROVISION

    The provision creates a Secretary's Fund to support and 
replicate promising social service programs as part of the 
Social Security Act. Grants would be awarded by the Secretary 
of Health and Human Services to support any private entity that 
operates a promising social services program. These entities 
would then use these funds to provide technical assistance, 
such as legal assistance or business assistance, or to provide 
support to other entities that operate social service programs 
that assist persons and families in need.
    Up to 25 percent of the funds appropriated also could be 
used by the Secretary of Health and Human Services to provide 
guidance and technical assistance on program implementation to 
States and political subdivisions of States.
    The provision authorizes $150 million for fiscal year 2004 
and such sums as may be necessary for fiscal year 2005 through 
fiscal year 2008.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                   B. Individual Development Accounts

(Sec. 302 of the bill)

                              PRESENT LAW

    The Assets for Independence Act \99\ authorizes $25 million 
annually for a five-year demonstration Individual Development 
Account (``IDA'') program to evaluate the effects of savings 
incentives on persons of limited means. Means-tested programs 
must disregard all funds in an IDA, including accruing 
interest, in determining an individual's eligibility. The 
demonstration program provides direct Federal funds to 
nonprofit organizations, States and localities, tribal 
governments, community-development financial institutions, and 
certain credit unions to match the amount of earnings deposited 
by eligible individuals. Grantees must provide non-Federal 
matching funds (one dollar per Federal grant dollar), and the 
maximum Federal grant is $1 million for each project year. 
Eligible persons are those (1) who are eligible under the 
Temporary Assistance for Needy Families program, or (2) whose 
household net worth is below $10,000 (``net worth test''), and 
who meet the greater of (a) the income limits of the earned 
income credit (taking into account the size of the household) 
\100\ or (b) 200 percent of the poverty guideline (``income 
test'').
---------------------------------------------------------------------------
    \99\ Title IV of Pub L. No. 105-285 (1998).
    \100\ Sec. 32(b)(2).
---------------------------------------------------------------------------
    Each participant is eligible to receive up to $2,000 in 
Federal funds plus accrued interest while they participate over 
the course of the project. Households may receive no more than 
$4,000 in Federal grant funds over the course of the project. 
The projects must create trust or custodial accounts that 
permit withdrawals of account balances only for three 
designated purposes: (1) first home purchase, (2) business 
capitalization, and (3) postsecondary education. Emergency 
withdrawals (from the account holder's own deposits only) are 
allowed for three conditions--medical expenses, prevention of 
eviction or mortgage foreclosure, and living expenses after job 
losses.
    Each grantee is required to prepare an annual report on the 
progress of its project. These reports must be submitted to the 
Secretary of Health and Human Services, and if a tribe, State 
or local government committed funds to the project, to the 
Treasurer (or equivalent official) of the State in which the 
project is conducted. The Secretary of Health and Human 
Services is required to provide the results of these reports to 
Congress every 12 months until all of the demonstration 
projects are completed, and to submit a final report, setting 
forth the results and findings of all reports and evaluations, 
not later than 12 months after the conclusion of all 
demonstration projects. The Assets for Independence Act directs 
the Secretary of Health and Human Services to enter into a 
contract with an independent research organization to evaluate 
the projects, individually, and as a group. The Secretary of 
Health and Human Services may spend up to $500,000 each fiscal 
year for evaluation expenses.
    The demonstration program expires at the end of fiscal year 
2003.

                           REASONS FOR CHANGE

    The Committee seeks to extend the availability and use of 
IDAs, which promote work and asset-building among low-income 
families, rather than dependence on cash welfare and other 
benefits. These goals are consistent with the Committee's 
extensive activities in recent years to reform welfare by 
promoting work and independence from government benefits, as 
well as the Committee's recent activities to promote savings 
and investment through tax policy changes. The changes proposed 
will provide greater flexibility to grantees and program 
participants to achieve the purposes of the IDA program.

                        EXPLANATION OF PROVISION

    The provision extends the program for an additional five 
years, through fiscal year 2008, continuing the current 
authorization of $25 million per year for the program.
    The provision also makes several technical changes designed 
to ease program administration: (1) removing the cost of 
financial literacy activities provided to IDA holders from the 
current administrative spending cap (current law bars entities 
from spending more than 15% of program dollars on 
administrative costs, including financial literacy activities); 
(2) making eligible certain households whose income does not 
exceed 50 percent of Area Median Income; (3) extending the 
availability of IDA funds for up to 6 months beyond program 
termination; (4) providing greater flexibility in how IDA funds 
can be spent for certain postsecondary expenses; and (5) 
providing grantees added flexibility in spending excess 
interest earned on IDA match funds.

                             EFFECTIVE DATE

    The provision is effective for fiscal years 2004 through 
2008.

                        C. Maternity Group Homes

(Sec. 304 of the Bill)

                              PRESENT LAW

    Part B of the Runaway and Homeless Youth Act authorizes the 
Secretary of Health and Human Services to make grants to public 
and nonprofit private agencies to establish and operate 
Transitional Living Projects for homeless youth. Grantees 
provide both services and shelter, such as group homes, host 
family homes, and supervised apartments, for homeless youth. Of 
funds appropriated for all components of the Runaway and 
Homeless Youth Act (except the Sexual Abuse Prevention Program 
under Part E), the Secretary must use no less than 90 percent 
for Runaway and Homeless Youth centers and services under Part 
A and Transitional Living Project grants under Part B. Further, 
of this 90 percent, no less than 20 percent or more than 30 
percent must be reserved for Transitional Living Project grants 
under Part B.

                           REASONS FOR CHANGE

    This provision affords pregnant and parenting mothers 
access to transitional living opportunities, an alternative to 
the environments of violence and despair that many young 
pregnant and parenting mothers face. Additionally, pregnant 
women will have access to information regarding the option of 
placing their children for adoption.

                        EXPLANATION OF PROVISION

    The provision would add ``maternity group homes'' to the 
illustrative list of types of shelter that can be supported 
through Transitional Living Project grants. The provision also 
defines ``maternity group homes'' to mean community-based, 
adult-supervised group homes that provide young mothers and 
their children with a supportive and supervised living 
arrangement in which the mothers are required to learn 
parenting and other skills to promote their long-term economic 
independence and the well-being of their children, and that 
provide pregnant women with information about the option of 
placing their children for adoption, assistance with prenatal 
care and child birthing, and pre- and post-placement adoption 
counseling.
    The provision requires the Secretary to contract for an 
evaluation of maternity group homes. The provision also 
authorizes appropriations of $33 million in fiscal year 2003 
and such sums as necessary for fiscal year 2004 for maternity 
group homes. This authorization would be separate from the 
present law authorization of appropriations for Transitional 
Living Projects and other components of the Runaway and 
Homeless Youth Act.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  D. Transfers From the Temporary Assistance for Needy Families Block 
                Grant to the Social Services Block Grant

(Sec. 305 of the bill)

                              PRESENT LAW

    The 1996 welfare reform law permitted States to transfer up 
to 10 percent of their annual Federal Temporary Assistance for 
Needy Families (TANF) welfare block grant allocations to the 
Social Services Block Grant (SSBG). In 1998, P.L. 105-178 
reduced the limit on TANF transfers to the SSBG from 10 percent 
to 4.25 percent as a matter of permanent law. Recent 
appropriations bills, including for fiscal year 2003, have 
maintained the 10 percent transfer limit only on an annual 
basis.

                           REASONS FOR CHANGE

    Since 1996, States have used the flexibility provided under 
the welfare reform law to transfer TANF funds to the SSBG and 
help provide an array of social services to low-income 
individuals. This provision will allow States to maximize the 
flexibility to transfer TANF funds to the SSBG, and provide 
States assurance this flexibility will be available on an 
ongoing basis.

                        EXPLANATION OF PROVISION

    The provision restores the TANF transfer limit to 10 
percent.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 7.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 7, as amended, was ordered favorably 
reported by a voice vote (with a quorum being present).

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Doggett, which would impose penalties 
for failing to disclose certain reportable transactions and 
increase penalties for engaging in, promoting, and aiding 
abusive tax shelters, was defeated by a rollcall vote of 15 
yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......  ........        X   .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........        X   .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    A voice vote was conducted on the following amendments to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Camp and Mr. English to allow States to 
transfer up to 10 percent of their annual Federal Temporary 
Assistance for Needy Families block grant funds to the Social 
Services Block Grant was approved by voice vote.
    An amendment by Mr. Cardin to restore funding to the Social 
Services Block Grant program was defeated by a show of hands.

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 7, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2008:

                ESTIMATED BUDGET EFFECTS OF H.R. 7, THE ``CHARITABLE GIVING ACT OF 2003,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                    [Fiscal years 2004-2008, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Provision                                      Effective                    2004      2005      2006      2007      2008     2004-08
--------------------------------------------------------------------------------------------------------------------------------------------------------
Charitable Giving Incentive Provisions:
    1. Provide charitable contribution deduction   tyba 12/31/03 & tybb 1/1/06..............      -214    -1,431    -1,244  ........  ........    -2,889
     for non-itemizers with cash contributions in
     excess of $250 for individuals and $500 for
     joint returns; cap on deduction of $250 for
     individuals and $500 for joint returns.
    2. Allow tax-free distributions from IRAs for  dma 12/31/03 & rf tyba 12/31/03..........       -97      -204      -236      -256      -242    -1,036
     charitable purposes for individuals age 70\1/
     2\ and above, apply to both direct gifts and
     split-interest gifts; modify return
     requirements and penalties for certain
     trusts.
    3. Raise the cap on corporate charitable       tyba 12/31/03............................       -40       -89      -118      -149      -156      -553
     contributions from 10% to: 11% in 2004, 12%
     in 2005, 13% in 2006, 14% in 2007, 15% in
     2008 through 2011, and 20% in 2012 and
     thereafter.
    4. Extend and modify present-law 170(e)(3)     tyba 12/31/03............................       -30       -56       -60       -63       -66      -275
     enhanced deduction for food inventory to all
     businesses; limit non-C corporation
     taxpayers to corporate cap percentage of
     their taxable income \1\.
    5. Reform of certain excise taxes related to
     private foundations:
        a. Replace 2% tax on net investment        tyba 12/31/03............................      -144      -196      -218      -225      -230    -1,012
         income with 1% tax.
        b. Modify definition of qualifying         tyba 12/31/03............................                   Negligible Revenue Effect
         distributions to exclude certain
         administrative expenses and increase
         first tier of self-dealing tax \2\.
    6. Modify tax on unrelated business taxable    tyba 12/31/03............................        -4        -4        -5        -5        -5       -23
     income of charitable remainder trusts.
    7. Expand enhanced deduction allowed for       tyba 12/31/03............................       -67      -133      -142      -149      -156      -647
     scientific property used for research and
     for computer technology and equipment to
     assembled property; permanent extension of
     enhanced deduction for qualified computer
     contributions \1\.
    8. Adjustment to basis of S corporation stock  tyba 12/31/03............................       -13       -29       -33       -37       -41      -152
     for certain charitable contributions.
    9. Charitable organizations permitted to make  gma 12/31/03.............................        -5       -12       -13       -14       -15       -59
     collegiate housing and infrastructure grants.
    10. Treat certain games of chance as a         gca 12/31/03.............................     (\3\)        -1        -1        -1        -1        -2
     related business for UBIT purposes.
    11. Federal excise tax exemptions for blood    1/1/04...................................        -1        -1        -1        -1        -1        -6
     collector organizations.
    12. Extend nonrecognition period on certain    (\4\)....................................        -8       -11        -8        -7        -7       -41
     capital gains realized by section 501(c)(7)
     organizations.
    13. One-year exemption of certain qualified    bia 12/31/03 & woyo DOE..................     (\3\)        -1        -1        -2        -2        -7
     501(c)(3) bonds for nursing homes from
     Federal guarantee prohibitions.
                                                                                             -----------------------------------------------------------
      Total of Charitable Giving Incentive         .........................................      -623    -2,168    -2,080      -909      -922    -6,702
       Provisions.
                                                                                             ===========================================================
Tax Reform and Improvements Relating to
 Charitable Organizations and Programs:
    1. Suspension of tax-exempt status of          dmbo/a DOE...............................                   Negligible Revenue Effect
     terrorist organizations.
    2. Clarify that the church tax inquiry         DOE......................................                       No Revenue Effect
     procedures do not apply to contacts made by
     the IRS for the purpose of educating
     churches with respect to tax laws governing
     exempt organizations.
    3. Extension of declaratory judgment           (\5\)....................................                   Negligible Revenue Effect
     procedures to non-501(c)(3) tax-exempt
     organizations.
    4. Exclusion from income of certain landowner  ara 12/31/03 in tyea sd..................        -2        -4        -4        -4        -4       -18
     incentives program payments.
    5. Modify tax treatment of certain payments    (\6\)....................................       -28       -13       -13       -14       -15       -84
     to controlling exempt organizations.
    6. Elimination of separate limitation on       tyba 12/31/03............................        -1        -1        -1        -1        -1        -6
     grass-roots lobbying.
    7. Pilot project for forest conservation       oia DOE ab 12/31/06......................        -5        -7        -6        -6        -6       -31
     activities.
                                                                                             -----------------------------------------------------------
      Total of Tax Reform and Improvements         .........................................       -36       -25       -24       -25       -26      -139
       Relating to Charitable Organizations and
       Programs:.
                                                                                             ===========================================================
Other Provisions:
    1. Compassion Capital Fund \7\ \8\...........  DOE......................................                       No Revenue Effect
    2. Expansion of assets for Independence Act    effy 2004 through 2008...................                       No Revenue Effect
     demonstration spending program \7\ \8\.
    3. Maternity Group Homes \7\ \8\.............  DOE......................................                       No Revenue Effect
    4. Authority of States to use 10% of their     DOE......................................      -114       -84        82        49        50       -17
     TANF funds to carry out Social Services
     Block Grant programs \7\.
                                                                                             -----------------------------------------------------------
      Total of Other Provisions..................  .........................................      -114       -84        82        49        50       -17
                                                                                             ===========================================================
      Net Total..................................  .........................................      -773    -2,277    -2,022      -885      -898   -6,858
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Includes interaction with increase in corporate charitable contribution limit.
\2\ Estimate is preliminary and subject to change upon receipt of new data.
\3\ Loss of less than $500,000.
\4\ Sales for which the 3-year nonrecognition period had not expired as of January 1, 2001.
\5\ Effective for pleadings filed with respect to determinations (or requests for determinations) made after the date of enactment.
\6\ Effective for payments received or accrued after December 31, 2003, and extends grandfather rule to certain payments received or accrued before
  January 1, 2001.
\7\ Estimate provided by the Congressional Budget Office.
\8\ Proposal provides authorization for spending subject to appropriations.

Legend for ``Effective'' column: ab = and before; ara = amounts received after; bia = bonds issued after; dma = distributions made after; dmbo/a =
  designations made before, on, or after; DOE = date of enactment; effy = effective for fiscal years; gca = games conducted after; gma = grants made
  after; oia = obligations issued after; rf = returns for; sd = such date; tyba = taxable years beginning after; tybb = taxable years beginning before;
  tyea = taxable years ending after; woyo = within one year of.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 15, 2003.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 7, the Charitable 
Giving Act of 2003, as ordered reported by the House Committee 
on Ways and Means on September 9, 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Annabelle 
Bartsch (for federal revenues) and Donna Wong (for federal 
spending).
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 7--The Charitable Giving Act of 2003

    Summary: H.R. 7 would provide taxpayers with several 
incentives for charitable giving, authorize the Compassion 
Capital Fund, reauthorize the Individual Development Account 
(IDA) program, create a new program for maternity group homes, 
and increase the amount of Temporary Assistance to Needy 
Families (TANF) funds that may be transferred to activities 
funded out of the Social Services Block Grant (SSBG).
    CBO and the Joint Committee on Taxation (JCT) estimate that 
enacting the bill would decrease governmental receipts by $659 
million in 2004, by about $6.8 billion over the 2004-2008 
period, and by about $12.7 billion over the 2004-2013 period. 
The bill would increase direct spending by $114 million in 2004 
and by $17 million over the 2004-2008 period. However, over the 
entire 2004-2013 period, there would be no net effect on 
outlays.
    The bill also would authorize the appropriation of $209 
million in 2004 and $938 million over the 2004-2008 period for 
the Compassion Capital Fund, the IDA program, and the Maternity 
Group Homes. Assuming that those amounts are appropriated, CBO 
estimates that the resulting outlays would be $838 million over 
the 2004-2008 period.
    JCT and CBO have determined that H.R. 7 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 7 is shown in Table 1. The spending 
under the bill falls in budget functions 500 (education, 
training, employment, and social services) and 600 (income 
security).

                                 TABLE 1.--ESTIMATED BUDGETARY IMPACT OF H.R. 7
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2003      2004      2005      2006      2007      2008
----------------------------------------------------------------------------------------------------------------
                                               Changes in Revenue
Estimated Revenues..................................         0      -659    -2,193    -2,104      -934      -948
                                           Changes in Direct Spending
Increase in Transfer Authority from TANF to SSBG:
    Estimated Budget Authority......................         0         0         0         0         0         0
    Estimated Outlays...............................         0       114        84       -82       -49       -50
                                  Changes in Spending Subject to Appropriation
Compassion Capital Fund:
    Estimated Authorization Level...................         0       150       153       156       159       162
    Estimated Outlays...............................         0        78       144       152       157       160
Individual Development Accounts:
    Authorization Level.............................         0        25        25        25        25        25
    Estimated Outlays...............................         0        13        24        25        25        25
Maternity Group Homes:
    Estimated Authorization Level...................         0        34         0         0         0         0
    Estimated Outlays...............................         0        17        15         2         0         0
Total:
    Estimated Authorization Level...................         0       209       178       181       184       187
    Estimated Outlays...............................         0       108       183       179       182      185
----------------------------------------------------------------------------------------------------------------
Notes.--The Joint Committee on Taxation provided the revenue estimates. TANF = Temporary Assistance for Needy
  Families; SSBG = Social Services Block Grant.

    Basis of estimate: For this estimate, CBO assumes H.R. 7 
will be enacted early in fiscal year 2004, that the authorized 
amounts for 2004 will be appropriated early in that year, and 
that the authorized amounts in later years will be appropriated 
at the beginning of those years.

Revenues

    All estimates were provided by JCT. In total, the bill's 
provisions would reduce governmental receipts by $659 million 
in 2004 and by about $6.8 billion over the 2004-2008 period. 
(See Table 2.)

                                  TABLE 2.--ESTIMATED REVENUE EFFECTS OF H.R. 7
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2003      2004      2005      2006      2007      2008
----------------------------------------------------------------------------------------------------------------
Incentives for Charitable Giving:
    Allow nonitemizers to deduct charitable                  0      -214    -1,431    -1,244         0         0
     contributions..................................
    Allow tax-free distributions from IRAs for               0       -97      -204      -236      -256      -242
     charitable purposes for persons age 70\1/2\ or
     older..........................................
    Raise caps on corporate charitable contributions         0       -40       -89      -118      -149      -156
    Reform certain excise taxes related to private           0      -144      -196      -218      -225      -230
     foundations....................................
    Expand enhanced deduction allowed for scientific         0       -67      -133      -142      -149      -156
     property.......................................
    Other provisions relating to charitable giving..         0       -61      -115      -122      -130      -138
                                                     -----------------------------------------------------------
      Subtotal......................................         0      -623    -2,168    -2,080      -909      -922
Other Revenue Provisions............................         0       -36       -25       -24       -25       -26
                                                     -----------------------------------------------------------
       Total Change in Revenues.....................         0      -659    -2,193    -2,104      -934      -948
----------------------------------------------------------------------------------------------------------------
Note.--Components may not sum to totals because of rounding.
Source: Joint Committee on Taxation.

    Much of the reduction in revenues would result from five of 
the bill's provisions. Those provisions would permit taxpayers 
who do not itemize deductions in their income tax returns to 
deduct some of their cash charitable contributions (such 
deductions are currently limited to taxpayers who itemize their 
deductions), allow tax-free distributions from individual 
retirement accounts (IRAs) for charitable purposes, raise the 
cap on corporate charitable contributions, reduce the excise 
tax rate on net investment income of private foundations, and 
expand the deduction allowed for certain scientific property. 
Together, these five provisions would reduce revenues by $562 
million in 2004, by about $6.1 billion over the 2004-2008 
period, and by about $11 billion over the 2004-2013 period. The 
remaining provisions to provide incentives to increase 
charitable giving would reduce governmental receipts by about 
$1.4 billion over the 2004-2013 period.
    H.R. 7 also contains several provisions that would alter 
existing tax law relating to charitable organizations and 
programs. Those provisions would decrease governmental receipts 
by $288 million over the 2004-2013 period.

Direct spending

    Title III would allow states to maintain the authority to 
transfer up to 10 percent of TANF funds to SSBG. The 1996 
welfare law that established the TANF program set the level of 
the transfer authority at 10 percent. Subsequent legislation 
permanently lowered the authority to 4.25 percent. However, 
recent appropriation bills, including that for fiscal year 
2003, restored the authority to 10 percent on an annual basis. 
In the absence of further legislation, the authority will fall 
to 4.25 percent in 2004 and after. (Although the TANF program 
is not authorized beyond 2003, CBO assumes that funding 
continues in its baseline in accordance with rules for 
constructing baseline projections, as set forth in section 257 
of the Balanced Budget and Emergency Deficit Control Act of 
1985.)
    In recent years, states have transferred about $1 billion 
annually. Maintaining the transfer authority at the higher 
level would make it easier for states to spend their TANF 
grants and would tend to accelerate spending relative to 
current law. Based on recent state transfers, CBO expects that 
states would transfer an additional $400 million in 2004 under 
the provision, but because some of this money would have been 
spent within the TANF program anyway, only $114 million of 
additional spending would occur in 2004. The provision would 
increase net TANF spending in 2005 (by $84 million). Because 
total TANF funding is assumed to remain fixed over the 2004-
2013 period, the increase in spending in 2004 and 2005 would be 
offset by decreased spending in subsequent years. Thus, there 
would be no net impact on TANF spending over the 2004-2013 
period as a whole.

Spending Subject to Appropriation

    CBO estimates that title III would authorize appropriations 
of $209 million in 2004 and $939 million over the 2004-2008 
period. Assuming appropriation of the authorized amounts, CBO 
estimates outlays of $108 million in 2004 and $837 million over 
the 2004-2008 period.
    Compassion Capital Fund. The bill would authorize the 
Compassion Capital Fund. The program received an appropriation 
of $35 million for 2003 and is currently administered by the 
Secretary of Health and Human Services under authority given 
under section 1110 of the Social Security Act (Cooperative 
Research or Demonstration Projects). The Compassion Capital 
Fund would provide funds to private entities that operate 
promising social service programs. Funds could be used for many 
purposes, including technical assistance, information for 
identifying best practices, and research. The bill would 
authorize $150 million in 2004 and such sums as may be 
necessary in years 2005 through 2008. CBO estimates funding 
over the 2005-2008 period at the level authorized for 2004 
adjusted for inflation.
    Individual Development Accounts. The bill would reauthorize 
the Individual Development Accounts (IDA) program and authorize 
the appropriation of $25 million in each year from 2004 through 
2008. The IDA program, administered by the Department of Health 
and Human Services, provides matching funds to qualified low-
income individuals who save in order to encourage more savings. 
Appropriations for the program were $25 million for 2003.
    Maternity Group Homes. H.R. 7 also would create a Maternity 
Group Homes program within the Runaway and Homeless Youth 
program. It would give the Runaway and Homeless Youth program 
authority to award funds to Maternity Group Homes and would 
also authorize the appropriation of an additional $33 million 
in 2003 and such sums as may be necessary in 2004 specifically 
for this purpose. However, because CBO assumes that enactment 
of this legislation will not occur until after fiscal year 2003 
has ended, the authorized amount for 2003 is not displayed in 
the tables. CBO estimates funding in 2004 at the level 
authorized for 2003 adjusted for inflation.
    The Maternity Group Homes program would fund community-
based, adult-supervised group homes for young mothers and their 
children. Activities could include providing information, 
assistance with prenatal care, and counseling.
    Effects on revenues and direct spending: The overall 
effects of H.R. 7 on revenues and direct spending over the 
2003-2013 period are displayed in Table 3.

                                                    TABLE 3.--EFFECTS ON REVENUES AND DIRECT SPENDING
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                              2003      2004      2005      2006      2007      2008      2009      2010      2011      2012      2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts.......................         0      -659    -2,193    -2,104      -934      -948      -955    -1,001    -1,134    -1,320    -1,418
Changes in outlays........................         0       114        84       -82       -49       -50       -17         0         0         0         0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
JCT and CBO have determined that H.R. 7 contains no 
intergovernmental mandates as defined in UMRA.
    Title III of the bill would benefit states by authorizing 
grants for social services programs, some of which may be run 
by state or local governments, and it would allow states to use 
up to 10 percent of their TANF funds for SSBG programs. For 
fiscal year 2004, CBO estimates that state and local 
governments would be eligible for up to $37.5 million in 
technical assistance from the Compassion Capital Fund for 
implementing social service programs and for part of the $34 
million estimated to be authorized for maternity group homes. 
In fiscal years 2005-2008, state and local governments would be 
eligible for up to 25 percent of the appropriation for the 
Compassion Capital Fund for technical assistance. Any 
obligations incurred by states would be the result of complying 
with conditions of federal grant assistance.
    Estimated impact on the private sector: JCT and CBO have 
determined that H.R. 7 contains no-private-sector mandates as 
defined in UMRA.
    Previous CBO estimate: On February 25, 2003, CBO 
transmitted a cost estimate for the CARE Act of 2003 as ordered 
reported by the Senate Committee on Finance on February 5, 
2003. While some major provisions are similar, the two bills 
contain many different revenue proposals. The CARE Act 
contained a number of tax provisions that would increase 
revenues, whereas H.R. 7 has no such provisions. H.R. 7 
contains different authorizations of discretionary spending 
and, unlike the Senate bill, would not increase the Social 
Services Block Grant appropriation. JCT determined that the tax 
shelter provisions in the Senate-reported bill contained 
private-sector mandates. Neither bill contains 
intergovernmental mandates.
    Estimate prepared by: Federal revenues: Annabelle Bartsch. 
Federal spending: Donna Wong. Impact on state, local, and 
tribal governments: Sarah Puro. Impact on the private sector: 
Bruce Vavrichek.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis; and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers and the tax rules relating to charitable giving and 
the impact of these rules on charitable organizations that the 
Committee concluded that it is appropriate and timely to enact 
the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the performance goals and 
objectives of the Individual Development Account demonstration 
program reauthorized under this legislation are to test savings 
incentives for low-income households, including as a means of 
reducing such households' need for and use of cash and other 
welfare benefits. Similarly, the performance goals and 
objectives of the Compassion Capital Fund are to support and 
replicate promising social service programs to better serve 
needy individuals and families. The performance goals and 
objectives of the Maternity Group Home program authorized under 
this bill are to afford pregnant and parenting mothers access 
to safe transitional living opportunities. (This provision is 
under the jurisdiction of the Committee on Education and the 
Workforce.)

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises . . . ''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and the Treasury 
Department regarding each of the provisions included in the 
complexity analysis, including a discussion of the likely 
effect on IRS forms and any expected impact on the IRS.

Direct charitable deduction for nonitemizers (sec. 101 of the bill)

            Summary description of provision
    In the case of an individual taxpayer who does not itemize 
deductions, the bill would allow a direct charitable deduction 
from adjusted gross income for charitable contributions paid in 
cash. This deduction would be allowed in addition to the 
standard deduction. The deduction would be available only for 
that portion of contributions that in the aggregate exceed $250 
($500 in the case of a joint return). The maximum deduction 
would be $250 ($500 in the case of a joint return). The direct 
charitable deduction generally would be subject to the tax 
rules normally governing charitable contribution deductions, 
such as the substantiation requirements. The deduction would be 
allowed in computing alternative minimum taxable income. The 
direct charitable deduction would be effective for taxable 
years beginning after December 31, 2003, and before January 1, 
2006.
            Number of affected taxpayers
    It is estimated that the provision will affect 
approximately 30 million individual income tax returns each 
year the deduction is in effect.
            Discussion
    Individuals who do not itemize their deductions will need 
to keep additional records (e.g., canceled checks, a receipt 
from the donee organization, or other reliable written records) 
in order to substantiate that a contribution was made to a 
qualified charitable organization. The information necessary to 
implement the provision should be readily available to 
taxpayers (in the form of new tax return forms and 
instructions). The direct charitable deduction is expected to 
require an additional line on the individual income tax return 
forms. The provision might result in an increase in disputes 
with the IRS for taxpayers who are unable to substantiate a 
claimed deduction. Additional regulatory guidance will not be 
necessary to emplement this provision. Any increase in tax 
preparation costs is expected to be negligible.

                        Department of the Treasury,
                                  Internal Revenue Service,
                                Washington, DC, September 11, 2003.
Mr. George K. Yin,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
    Dear Mr. Yin: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
provision for a charitable deduction for non-itemizers from the 
House Ways and Means Committee's markup of H.R. 7, the 
``Charitable Giving Act of 2003,'' that you identified for 
complexity analysis in your letter of September 9, 2003.
    Our comments are based on the statutory language for that 
provision contained in Chairman Thomas's Amendment in the 
Nature of a Substitute to H.R. 7, reprinted in Daily Tax 
Reports for September 9, 2003, and the description of that 
provision in your letter and in JCX-73-03, the Joint Committee 
on Taxation's Description of the Chairman's Amendment in the 
Nature of a Substitute to N.R. 7, September 8, 2003. Due to the 
short turnaround time, our comments are provisional and subject 
to change upon a more complete and in-depth analysis of the 
provision.
            Sincerely,
                                                 Bob Wenzel
                               (For Mark W. Everson, Commissioner).
    Enclosure.

Complexity Analysis of Provision From H.R. 7, the Charitable Giving Act 
                                of 2003

                 CHARITABLE DEDUCTION FOR NON-ITEMIZERS

    Provision: A taxpayer who does not itemize deductions would 
be allowed a direct charitable deduction from adjusted gross 
income for charitable contributions paid in cash. This 
deduction would be allowed in addition to the standard 
deduction. The deduction would be available only for that 
portion of contributions that in the aggregate exceeds $250 
($500 in the case of a joint return). The maximum deduction 
would be $250 ($500 in the case of a joint return). The direct 
charitable deduction generally would be subject to the tax 
rules normally governing charitable contribution deductions and 
would be allowed in computing alternative minimum taxable 
income. The provision would be effective for taxable years 
beginning after December 31, 2003, and before January 1, 2006.

IRS and Treasury Comments

     Two lines would have to be added to Forms 1040, 
1040A, 1040EZ, 1040NR, and 1040NR-EZ for 2004 and 2005; one for 
the allowable deduction and one to reflect the total of the 
standard deduction and the charitable contribution deduction. 
One line would be added to the TeleFile Tax Record for 2004 and 
2005 (taxpayers would enter their total contributions on the 
new line and TeleFile would calculate the allowable deduction). 
No new forms would be required.
     The new deduction would also have to be reflected 
on Form 1040-ES and in the instructions for Forms 1040X and 
1045 for 2004 and 2005.
     Information necessary for taxpayers to determine 
their eligibility for the deduction, including the AGI 
limitation applicable to cash contributions, and the 
substantiation requirements, would have to be reflected in the 
2004 and 2005 instructions for Forms 1040, 1040A, 1040EZ, 
1040NR, and 1040NR-EZ and for TeleFile.
     A worksheet (consisting of four lines) for 
taxpayers to calculate their allowable deduction would have to 
be reflected in the 2004 and 2005 instructions for Forms 1040, 
1040A, 1040EZ, 1040NR, and 1040NR-EZ.
     Changes to the TeleFile script for 2004 and 2005 
would be required to allow the deduction to taxpayers who use 
TeleFile.
     All of the above changes would have to be reversed 
for tax years beginning after December 31, 2005, to reflect the 
termination of the charitable deduction for nonitemizers (e.g., 
the lines would be removed from the Form 1040 series of 
returns, the worksheet would be removed from the instructions 
for these returns, and programming and script changes would be 
necessary to eliminate the deduction).
     Ensuring compliance with the new charitable 
deduction would be difficult. The only means of verifying 
amounts deducted would be through examination, and the normal 
examination rate for such returns is relatively low.
     Programming changes would be required to reflect 
the new deduction on the tax returns.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

Subtitle A--Income Taxes

           *       *       *       *       *       *       *

CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

Subchapter B--Computation of taxable income

           *       *       *       *       *       *       *

  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
INCOME, ETC.

           *       *       *       *       *       *       *

SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *
  (b) Individuals Who Do Not Itemize Their Deductions.--In the 
case of an individual who does not elect to itemize his 
deductions for the taxable year, for purposes of this subtitle, 
the term ``taxable income'' means adjusted gross income, 
minus--
          (1) the standard deduction, [and]
          (2) the deduction for personal exemptions provided in 
        section 151[.], and
          (3) the direct charitable deduction.

           *       *       *       *       *       *       *

  (d) Itemized Deductions.--For purposes of this subtitle, the 
term ``itemized deductions'' means the deductions allowable 
under this chapter other than--
          (1) the deductions allowable in arriving at adjusted 
        gross income, [and]
          (2) the deduction for personal exemptions provided by 
        section 151[.], and
          (3) the direct charitable deduction.

           *       *       *       *       *       *       *

  (g) Direct Charitable Deduction.--For purposes of this 
section, the term ``direct charitable deduction'' means that 
portion of the amount allowable under section 170(a) which is 
taken as a direct charitable deduction for the taxable year 
under section 170(m).
  [(g)] (h) Marital Status.--For purposes of this section, 
marital status shall be determined under section 7703.

           *       *       *       *       *       *       *

PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *

SEC. 126. CERTAIN COST-SHARING PAYMENTS.

  (a) General Rule.--Gross income does not include the 
excludable portion of payments received under--
          (1) * * *

           *       *       *       *       *       *       *

          (10) Landowner initiatives programs to conserve 
        threatened, endangered, or imperiled species, or 
        protect or restore habitat carried out under--
                  (A) the Fish and Wildlife Coordination Act 
                (16 U.S.C. 661 et seq.),
                  (B) the Fish and Wildlife Act of 1956 (16 
                U.S.C. 742f), or
                  (C) section 6 of the Endangered Species Act 
                (16 U.S.C. 11531 et seq.).
          [(10)] (11) Any program of a State, possession of the 
        United States, a political subdivision of any of the 
        foregoing, or the District of Columbia under which 
        payments are made to individuals primarily for the 
        purpose of conserving soil, protecting or restoring the 
        environment, improving forests, or providing a habitat 
        for wildlife.
  (b) Excludable Portion.--For purposes of this section--
          (1) In general.--The term ``excludable portion'' 
        means that portion (or all) of a payment made to any 
        person under any program described in subsection (a) 
        which--
                  (A) is determined by the Secretary of 
                Agriculture (the Secretary of the Interior, in 
                the case of the landowner incentives programs 
                described in subsection (a)(10) and the 
                programs described in subsection (a)(11) that 
                are implemented by the Department of the 
                Interior) to be made primarily for the purpose 
                of conserving soil and water resources, 
                protecting or restoring the environment, 
                improving forests, or providing a habitat for 
                wildlife, and

           *       *       *       *       *       *       *

PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *

SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.

  (a) * * *
  (b) Percentage Limitations.--
          (1) * * *
          (2) Corporations.--In the case of a corporation, the 
        total deductions under subsection (a) for any taxable 
        year shall not exceed [10 percent] the applicable 
        percentage of the taxpayer's taxable income computed 
        without regard to--
                  (A) * * *

           *       *       *       *       *       *       *

          (3) Applicable percentage defined.--For purposes of 
        paragraph (2), the applicable percentage shall be 
        determined in accordance with the following table:
        For taxable years beginning                       The applicable
          in calendar year--                             percentage is--
          2004................................................       11 
          2005................................................       12 
          2006................................................       13 
          2007................................................       14 
          2008 through 2011...................................       15 
          2012 and thereafter.................................      20. 
  (e) Certain Contributions of Ordinary Income and Capital Gain 
Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rule for certain contributions of 
        inventory and other property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Special rule for contributions of food 
                inventory.--
                          (i) General rule.--In the case of a 
                        charitable contribution of food from 
                        any trade or business (or interest 
                        therein) of the taxpayer, this 
                        paragraph shall be applied--
                                  (I) without regard to whether 
                                the contribution is made by a C 
                                corporation, and
                                  (II) only to food that is 
                                apparently wholesome food.
                          (ii) Limitation.--In the case of a 
                        taxpayer other than a C corporation, 
                        the aggregate amount of such 
                        contributions for any taxable year 
                        which may be taken into account under 
                        this section shall not exceed the 
                        applicable percentage (within the 
                        meaning of subsection (b)(3)) of the 
                        taxpayer's aggregate net income for 
                        such taxable year from all trades or 
                        businesses from which such 
                        contributions were made for such year, 
                        computed without regard to this 
                        section.
                          (iii) Determination of fair market 
                        value.--In the case of a qualified 
                        contribution of apparently wholesome 
                        food to which this paragraph applies 
                        and which, solely by reason of internal 
                        standards of the taxpayer or lack of 
                        market, cannot or will not be sold, the 
                        fair market value of such food shall be 
                        determined by taking into account the 
                        price at which the same or 
                        substantially the same food items (as 
                        to both type and quality) are sold by 
                        the taxpayer at the time of the 
                        contribution (or, if not so sold at 
                        such time, in the recent past).
                          (iv) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        ``apparently wholesome food'' has the 
                        meaning given to such term by section 
                        22(b)(2) of the Bill Emerson Good 
                        Samaritan Food Donation Act (42 U.S.C. 
                        1791(b)(2)), as in effect on the date 
                        of the enactment of this subparagraph.
                  [(C)] (D) This paragraph shall not apply to 
                so much of the amount of the gain described in 
                paragraph (1)(A) which would be long-term 
                capital gain but for the application of 
                sections 617, 1245, 1250, or 1252.
          (4) Special rule for contributions of scientific 
        property used for research.--
                  (A) * * *
                  (B) Qualified research contributions.--For 
                purposes of this paragraph, the term 
                ``qualified research contribution'' means a 
                charitable contribution by a corporation of 
                tangible personal property described in 
                paragraph (1) of section 1221(a), but only if--
                          (i) * * *
                          (ii) the property is constructed or 
                        assembled by the taxpayer,
                          (iii) the contribution is made not 
                        later than 2 years after the date the 
                        construction or assembling of the 
                        property is substantially completed,

           *       *       *       *       *       *       *

          (6) Special rule for contributions of computer 
        technology and equipment for educational purposes.--
                  (A) * * *
                  (B) Qualified computer contribution.--For 
                purposes of this paragraph, the term 
                ``qualified computer contribution'' means a 
                charitable contribution by a corporation of any 
                computer technology or equipment, but only if--
                          (i) * * *
                          (ii) the contribution is made not 
                        later than 3 years after the date the 
                        taxpayer acquired the property (or in 
                        the case of property constructed or 
                        assembled by the taxpayer, the date the 
                        construction or assembling of the 
                        property is substantially completed),

           *       *       *       *       *       *       *

                  (D) Donations of property reacquired by 
                manufacturer.--In the case of property which is 
                reacquired by the person who constructed or 
                assembled the property--
                          (i) subparagraph (B)(ii) shall be 
                        applied to a contribution of such 
                        property by such person by taking into 
                        account the date that the original 
                        construction or assembling of the 
                        property was substantially completed, 
                        and

           *       *       *       *       *       *       *

                  [(G) Termination.--This paragraph shall not 
                apply to any contribution made during any 
                taxable year beginning after December 31, 
                2003.]

           *       *       *       *       *       *       *

  (m) Deduction for Individuals Not Itemizing Deductions.--
          (1) In general.--In the case of an individual who 
        does not itemize deductions for a taxable year, there 
        shall be taken into account as a direct charitable 
        deduction under section 63 an amount equal to the 
        amount allowable under subsection (a) for the taxable 
        year for cash contributions (determined without regard 
        to any carryover), to the extent that such 
        contributions exceed $250 ($500 in the case of a joint 
        return) but do not exceed $500 ($1,000 in the case of a 
        joint return).
          (2) Termination.--Paragraph (1) shall not apply to 
        any taxable year beginning after December 31, 2005.
  [(m)] (n) Other Cross References.--
          (1) For treatment of certain organizations providing child 
        care, see section 501(k).

           *       *       *       *       *       *       *

Subchapter D--Deferred Compensation, Etc.

           *       *       *       *       *       *       *

PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *

Subpart A--General Rule

           *       *       *       *       *       *       *

SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Tax Treatment of Distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Distributions for charitable purposes.--
                  (A) In general.--No amount shall be 
                includible in gross income by reason of a 
                qualified charitable distribution.
                  (B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term 
                ``qualified charitable distribution'' means any 
                distribution from an individual retirement plan 
                other than a plan described in subsection (k) 
                or (p) of section 408--
                          (i) which is made on or after the 
                        date that the individual for whose 
                        benefit the plan is maintained has 
                        attained age 70 \1/2\, and
                          (ii) which is made directly by the 
                        trustee--
                                  (I) to an organization 
                                described in section 170(c), or
                                  (II) to a split-interest 
                                entity.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that 
                the distribution would be includible in gross 
                income without regard to subparagraph (A) and, 
                in the case of a distribution to a split-
                interest entity, only if no person holds an 
                income interest in the amounts in the split-
                interest entity attributable to such 
                distribution other than one or more of the 
                following: the individual for whose benefit 
                such plan is maintained, the spouse of such 
                individual, or any organization described in 
                section 170(c).
                  (C) Contributions must be otherwise 
                deductible.--For purposes of this paragraph--
                          (i) Direct contributions.--A 
                        distribution to an organization 
                        described in section 170(c) shall be 
                        treated as a qualified charitable 
                        distribution only if a deduction for 
                        the entire distribution would be 
                        allowable under section 170 (determined 
                        without regard to subsection (b) 
                        thereof and this paragraph).
                          (ii) Split-interest gifts.--A 
                        distribution to a split-interest entity 
                        shall be treated as a qualified 
                        charitable distribution only if a 
                        deduction for the entire value of the 
                        interest in the distribution for the 
                        use of an organization described in 
                        section 170(c) would be allowable under 
                        section 170 (determined without regard 
                        to subsection (b) thereof and this 
                        paragraph).
                  (D) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which a distribution is a qualified 
                charitable distribution, the entire amount of 
                the distribution shall be treated as includible 
                in gross income without regard to subparagraph 
                (A) to the extent that such amount does not 
                exceed the aggregate amount which would have 
                been so includible if all amounts distributed 
                from all individual retirement plans were 
                treated as 1 contract under paragraph (2)(A) 
                for purposes of determining the inclusion of 
                such distribution under section 72. Proper 
                adjustments shall be made in applying section 
                72 to other distributions in such taxable year 
                and subsequent taxable years.
                  (E) Special rules for split-interest 
                entities.--
                          (i) Charitable remainder trusts.--
                        Notwithstanding section 664(b), 
                        distributions made from a trust 
                        described in subparagraph (G)(i) shall 
                        be treated as ordinary income in the 
                        hands of the beneficiary to whom is 
                        paid the annuity described in section 
                        664(d)(1)(A) or the payment described 
                        in section 664(d)(2)(A).
                          (ii) Pooled income funds.--No amount 
                        shall be includible in the gross income 
                        of a pooled income fund (as defined in 
                        subparagraph (G)(ii)) by reason of a 
                        qualified charitable distribution to 
                        such fund, and all distributions from 
                        the fund which are attributable to 
                        qualified charitable distributions 
                        shall be treated as ordinary income to 
                        the beneficiary.
                          (iii) Charitable gift annuities.--
                        Qualified charitable distributions made 
                        for a charitable gift annuity shall not 
                        be treated as an investment in the 
                        contract.
                  (F) Denial of deduction.--Qualified 
                charitable distributions shall not be taken 
                into account in determining the deduction under 
                section 170.
                  (G) Split-interest entity defined.--For 
                purposes of this paragraph, the term ``split-
                interest entity'' means--
                          (i) a charitable remainder annuity 
                        trust or a charitable remainder 
                        unitrust (as such terms are defined in 
                        section 664(d)) which must be funded 
                        exclusively by qualified charitable 
                        distributions,
                          (ii) a pooled income fund (as defined 
                        in section 642(c)(5)), but only if the 
                        fund accounts separately for amounts 
                        attributable to qualified charitable 
                        distributions, and
                          (iii) a charitable gift annuity (as 
                        defined in section 501(m)(5)).

           *       *       *       *       *       *       *

Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *

PART I--GENERAL RULE

           *       *       *       *       *       *       *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Expenditures by Public Charities to Influence 
Legislation.--
          [(1) General rule.--In the case of an organization to 
        which this subsection applies, exemption from taxation 
        under subsection (a) shall be denied because a 
        substantial part of the activities of such organization 
        consists of carrying on propaganda, or otherwise 
        attempting, to influence legislation, but only if such 
        organization normally--
                  [(A) makes lobbying expenditures in excess of 
                the lobbying ceiling amount for such 
                organization for each taxable year, or
                  [(B) makes grass roots expenditures in excess 
                of the grass roots ceiling amount for such 
                organization for each taxable year.]
          (1) General rule.--In the case of an organization to 
        which this subsection applies, exemption from taxation 
        under subsection (a) shall be denied because a 
        substantial part of the activities of such organization 
        consists of carrying on propaganda, or otherwise 
        attempting, to influence legislation, but only if such 
        organization normally makes lobbying expenditures in 
        excess of the lobbying ceiling amount for such 
        organization for each taxable year.
          (2) Definitions.--For purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) Grass roots expenditures.--The term 
                ``grass roots expenditures'' means expenditures 
                for the purpose of influencing legislation (as 
                defined in section 4911(d) without regard to 
                paragraph (1)(B) thereof).
                  [(D) Grass roots ceiling amount.--The grass 
                roots ceiling amount for any organization for 
                any taxable year is 150 percent of the grass 
                roots nontaxable amount for such organization 
                for such taxable year, determined under section 
                4911.]

           *       *       *       *       *       *       *

  (p) Suspension of Tax-Exempt Status of Terrorist 
Organizations.--
          (1) In general.--The exemption from tax under 
        subsection (a) with respect to any organization 
        described in paragraph (2), and the eligibility of any 
        organization described in paragraph (2) to apply for 
        recognition of exemption under subsection (a), shall be 
        suspended during the period described in paragraph (3).
          (2) Terrorist organizations.--An organization is 
        described in this paragraph if such organization is 
        designated or otherwise individually identified--
                  (A) under section 212(a)(3)(B)(vi)(II) or 219 
                of the Immigration and Nationality Act as a 
                terrorist organization or foreign terrorist 
                organization,
                  (B) in or pursuant to an Executive order 
                which is related to terrorism and issued under 
                the authority of the International Emergency 
                Economic Powers Act or section 5 of the United 
                Nations Participation Act of 1945 for the 
                purpose of imposing on such organization an 
                economic or other sanction, or
                  (C) in or pursuant to an Executive order 
                issued under the authority of any Federal law 
                if--
                          (i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as 
                        supporting or engaging in terrorist 
                        activity (as defined in section 
                        212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting 
                        terrorism (as defined in section 
                        140(d)(2) of the Foreign Relations 
                        Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          (ii) such Executive order refers to 
                        this subsection.
          (3) Period of suspension.--With respect to any 
        organization described in paragraph (2), the period of 
        suspension--
                  (A) begins on the later of--
                          (i) the date of the first publication 
                        of a designation or identification 
                        described in paragraph (2) with respect 
                        to such organization, or
                          (ii) the date of the enactment of 
                        this subsection, and
                  (B) ends on the first date that all 
                designations and identifications described in 
                paragraph (2) with respect to such organization 
                are rescinded pursuant to the law or Executive 
                order under which such designation or 
                identification was made.
          (4) Denial of deduction.--No deduction shall be 
        allowed under section 170, 545(b)(2), 556(b)(2), 
        642(c), 2055, 2106(a)(2), or 2522 for any contribution 
        to an organization described in paragraph (2) during 
        the period described in paragraph (3).
          (5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding 
        section 7428 or any other provision of law, no 
        organization or other person may challenge a suspension 
        under paragraph (1), a designation or identification 
        described in paragraph (2), the period of suspension 
        described in paragraph (3), or a denial of a deduction 
        under paragraph (4) in any administrative or judicial 
        proceeding relating to the Federal tax liability of 
        such organization or other person.
          (6) Erroneous designation.--
                  (A) In general.--If--
                          (i) the tax exemption of any 
                        organization described in paragraph (2) 
                        is suspended under paragraph (1),
                          (ii) each designation and 
                        identification described in paragraph 
                        (2) which has been made with respect to 
                        such organization is determined to be 
                        erroneous pursuant to the law or 
                        Executive order under which such 
                        designation or identification was made, 
                        and
                          (iii) the erroneous designations and 
                        identifications result in an 
                        overpayment of income tax for any 
                        taxable year by such organization,
                credit or refund (with interest) with respect 
                to such overpayment shall be made.
                  (B) Waiver of limitations.--If the credit or 
                refund of any overpayment of tax described in 
                subparagraph (A)(iii) is prevented at any time 
                by the operation of any law or rule of law 
                (including res judicata), such credit or refund 
                may nevertheless be allowed or made if the 
                claim therefor is filed before the close of the 
                1-year period beginning on the date of the last 
                determination described in subparagraph 
                (A)(ii).
          (7) Notice of suspensions.--If the tax exemption of 
        any organization is suspended under this subsection, 
        the Internal Revenue Service shall update the listings 
        of tax-exempt organizations and shall publish 
        appropriate notice to taxpayers of such suspension and 
        of the fact that contributions to such organization are 
        not deductible during the period of such suspension.
  (q) Treatment of Organizations Making Collegiate Housing and 
Infrastructure Improvement Grants.--
          (1) In general.--For purposes of subsection (c)(3) 
        and sections 170(c)(2)(B), 2055(a), and 2522(a)(2), an 
        organization shall not fail to be treated as organized 
        and operated exclusively for charitable or educational 
        purposes solely because such organization makes 
        collegiate housing and infrastructure grants to an 
        organization described in subsection (c)(7), so long 
        as, at the time of the grant, substantially all of the 
        active members of the recipient organization are full-
        time students at the college or university with which 
        such recipient organization is associated.
          (2) Housing and infrastructure grants.--For purposes 
        of paragraph (1), collegiate housing and infrastructure 
        grants are grants to provide, improve, operate, or 
        maintain collegiate housing that may involve more than 
        incidental social, recreational, or private purposes, 
        so long as such grants are for purposes that would be 
        permissible for a dormitory of the college or 
        university referred to in paragraph (1). A grant shall 
        not be treated as a collegiate housing and 
        infrastructure grant for purposes of paragraph (1) to 
        the extent that such grant is used to provide physical 
        fitness equipment.
          (3) Grants to certain organizations holding title to 
        property, etc.--For purposes of this subsection, a 
        collegiate housing and infrastructure grant to an 
        organization described in subsection (c)(2) or (c)(7) 
        holding title to property exclusively for the benefit 
        of an organization described in subsection (c)(7) shall 
        be considered a grant to the organization described in 
        subsection (c)(7) for whose benefit such property is 
        held.
  [(p)] (r) Cross Reference.--
          For nonexemption of Communist-controlled organizations, see 
        section 11(b) of the Internal Security Act of 1950 (64 Stat. 
        997; 50 U.S.C. 790(b)).

           *       *       *       *       *       *       *

PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *

SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

  (a) Definition.--For purposes of this title--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules applicable to organizations 
        described in paragraph (7), (9), (17), or (20) of 
        section 501(c).--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) Nonrecognition of gain.--If property 
                used directly in the performance of the exempt 
                function of an organization described in 
                paragraph (7), (9), (17), or (20) of section 
                501(c) is sold by such organization, and within 
                a period beginning 1 year before the date of 
                such sale, and ending 3 years after such date, 
                other property is purchased and used by such 
                organization directly in the performance of its 
                exempt function, gain (if any) from such sale 
                shall be recognized only to the extent that 
                such organization's sales price of the old 
                property exceeds the organization's cost of 
                purchasing the other property. For purposes of 
                this subparagraph, the destruction in whole or 
                in part, theft, seizure, requisition, or 
                condemnation of property, shall be treated as 
                the sale of such property, and rules similar to 
                the rules provided by subsections (b), (c), 
                (e), and (j) of section 1034 (as in effect on 
                the day before the date of the enactment of the 
                Taxpayer Relief Act of 1997) shall apply.]
                  (D) Nonrecognition of gain.--
                          (i) In general.--If property used 
                        directly in the performance of the 
                        exempt function of an organization 
                        described in paragraph (7), (9), (17), 
                        or (20) of section 501(c) is sold by 
                        such organization, and within a period 
                        beginning 1 year before the date of 
                        such sale, and ending 3 years (10 
                        years, in the case of an organization 
                        described in section 501(c)(7)) after 
                        such date, other property is purchased 
                        and used by such organization directly 
                        in the performance of its exempt 
                        function, gain (if any) from such sale 
                        shall be recognized only to the extent 
                        that such organization's sales price of 
                        the old property exceeds the 
                        organization's cost of purchasing the 
                        other property.
                          (ii) Statute of limitations.--If an 
                        organization described in section 
                        501(c)(7) sells property on which gain 
                        is not recognized, in whole or in part, 
                        by reason of clause (i), then the 
                        statutory period for the assessment of 
                        any deficiency attributable to such 
                        gain shall not expire until the end of 
                        the 3-year period beginning on the date 
                        that the Secretary is notified by such 
                        organization (in such manner as the 
                        Secretary may prescribe) that--
                                  (I) the organization has met 
                                the requirements of clause (i) 
                                with respect to gain which was 
                                not recognized,
                                  (II) the organization does 
                                not intend to meet such 
                                requirements, or
                                  (III) the organization failed 
                                to meet such requirements 
                                within the prescribed period.
                        For the purposes of this clause, any 
                        deficiency may be assessed before the 
                        expiration of such 3-year period 
                        notwithstanding the provisions of any 
                        other law or rule of law which would 
                        otherwise prevent such assessment.
                          (iii) Destruction and loss.--For 
                        purposes of this subparagraph, the 
                        destruction in whole or in part, theft, 
                        seizure, requisition, or condemnation 
                        of property, shall be treated as the 
                        sale of such property, and rules 
                        similar to the rules provided by 
                        subsections (b), (c), (e), and (j) of 
                        section 1034 (as in effect on the day 
                        before the date of the enactment of the 
                        Taxpayer Relief Act of 1997) shall 
                        apply.

           *       *       *       *       *       *       *

  (b) Modifications.--The modifications referred to in 
subsection (a) are the following:
          (1) * * *

           *       *       *       *       *       *       *

          (10) In the case of any organization described in 
        section 511(a), the deduction allowed by section 170 
        (relating to charitable etc. contributions and gifts) 
        shall be allowed (whether or not directly connected 
        with the carrying on of the trade or business), but 
        shall not exceed [10 percent] the applicable percentage 
        (determined under section 170(b)(3)) of the unrelated 
        business taxable income computed without the benefit of 
        this paragraph.

           *       *       *       *       *       *       *

          (13) Special rules for certain amounts received from 
        controlled entities--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Paragraph to apply only to excess 
                payments.--
                          (i) In general.--Subparagraph (A) 
                        shall apply only to the portion of a 
                        specified payment received or accrued 
                        by the controlling organization that 
                        exceeds the amount which would have 
                        been paid or accrued if such payment 
                        met the requirements prescribed under 
                        section 482.
                          (ii) Addition to tax for valuation 
                        misstatements.--The tax imposed by this 
                        chapter on the controlling organization 
                        shall be increased by an amount equal 
                        to 20 percent of the larger of--
                                  (I) such excess determined 
                                without regard to any amendment 
                                or supplement to a return of 
                                tax, or
                                  (II) such excess determined 
                                with regard to all such 
                                amendments and supplements.
                  [(E)] (F) Related persons.--The Secretary 
                shall prescribe such rules as may be necessary 
                or appropriate to prevent avoidance of the 
                purposes of this paragraph through the use of 
                related persons.

           *       *       *       *       *       *       *

SEC. 513. UNRELATED TRADE OR BUSINESS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Certain [Bingo Games] Games of Chance.--
          [(1) In general.--The term ``unrelated trade or 
        business'' does not include any trade or business which 
        consists of conducting bingo games.]
          (1) In general.--The term ``unrelated trade or 
        business'' does not include--
                  (A) any trade or business which consists of 
                conducting bingo games, and
                  (B) any trade or business which consists of 
                conducting qualified games of chance if the net 
                proceeds from such trade or business are paid 
                or set aside for payment for purposes described 
                in section 170(c)(2)(B), for the promotion of 
                social welfare (within the meaning of section 
                501(c)(4)), or for a purpose for which State 
                law specifically authorizes the expenditure of 
                such proceeds.

           *       *       *       *       *       *       *

          (3) Qualified games of chance.--For purposes of 
        paragraph (1), the term ``qualified game of chance'' 
        means any game of chance (other than bingo) conducted 
        by an organization if--
                  (A) such organization is licensed pursuant to 
                State law to conduct such game,
                  (B) only organizations which are organized as 
                nonprofit corporations or are exempt from tax 
                under section 501(a) may be so licensed to 
                conduct such game within the State, and
                  (C) the conduct of such game does not violate 
                State or local law.

           *       *       *       *       *       *       *

Subchapter G--Corporations Used to Avoid Income Tax on Shareholders

           *       *       *       *       *       *       *

PART II--PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *

SEC. 545. UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME.

  (a) * * *
  (b) Adjustments to Taxable Income.--For the purposes of 
subsection (a), the taxable income shall be adjusted as 
follows:
          (1) * * *
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed, but in computing such deduction the 
        limitations in section 170(b)(1)(A), (B), and (D) shall 
        apply, and section 170(b)(2) and (d)(1) shall not 
        apply. For purposes of this paragraph, the term 
        ``contribution base'' when used in section 170(b)(1) 
        means the taxable income computed with the adjustments 
        (other than the [10-percent limitation] applicable 
        percentage limitation) provided in section 170(b)(2) 
        and (d)(1) and without deduction of the amount 
        disallowed under paragraph (6) of this subsection.

           *       *       *       *       *       *       *

PART III--FOREIGN PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *

SEC. 556. UNDISTRIBUTED FOREIGN PERSONAL HOLDING COMPANY INCOME.

  (a) * * *
  (b) Adjustments to Taxable Income.--For the purposes of 
subsection (a), the taxable income shall be adjusted as 
follows:
          (1) * * *
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed, but in computing such deduction the 
        limitations in section 170(b)(1)(A), (B), and (D) shall 
        apply, and section 170(b)(2) and (d)(1) shall not 
        apply. For purposes of this paragraph, the term 
        ``contribution base'' when used in section 170(b)(1) 
        means the taxable income computed with the adjustments 
        (other than the [10-percent limitation] applicable 
        percentage limitation) provided in section 170(b)(2) 
        and (d)(1) and without the deduction of the amounts 
        disallowed under paragraphs (5) and (6) of this 
        subsection or the inclusion in gross income of the 
        amounts includible therein as dividends by reason of 
        the application of the provisions of section 555(b) 
        (relating to the inclusion in gross income of a foreign 
        personal holding company of its distributive share of 
        the undistributed foreign personal holding company 
        income of another company in which it is a 
        shareholder).

           *       *       *       *       *       *       *

Subchapter J--Estates, Trusts, Beneficiaries, and Decedents

           *       *       *       *       *       *       *

PART I--ESTATES, TRUSTS, AND BENEFICIARIES

           *       *       *       *       *       *       *

  Subpart C--Estates and Trusts Which May Accumulate Income or Which 
Distribute Corpus

           *       *       *       *       *       *       *

SEC. 664. CHARITABLE REMAINDER TRUSTS.

  (a) * * *

           *       *       *       *       *       *       *

  [(c) Exemption from Income Taxes.--A charitable remainder 
annuity trust and a charitable remainder unitrust shall, for 
any taxable year, not be subject to any tax imposed by this 
subtitle, unless such trust, for such year, has unrelated 
business taxable income (within the meaning of section 512, 
determined as if part III of subchapter F applied to such 
trust).]
  (c) Taxation of Trusts.--
          (1) Income tax.--A charitable remainder annuity trust 
        and a charitable remainder unitrust shall, for any 
        taxable year, not be subject to any tax imposed by this 
        subtitle.
          (2) Excise tax.--
                  (A) In general.--In the case of a charitable 
                remainder annuity trust or a charitable 
                remainder unitrust that has unrelated business 
                taxable income (within the meaning of section 
                512, determined as if part III of subchapter F 
                applied to such trust) for a taxable year, 
                there is hereby imposed on such trust or 
                unitrust an excise tax equal to the amount of 
                such unrelated business taxable income.
                  (B) Certain rules to apply.--The tax imposed 
                by subparagraph (A) shall be treated as imposed 
                by chapter 42 for purposes of this title other 
                than subchapter E of chapter 42.
                  (C) Character of distributions and 
                coordination with distribution requirements.--
                The amounts taken into account in determining 
                unrelated business taxable income (as defined 
                in subparagraph (A)) shall not be taken into 
                account for purposes of--
                          (i) subsection (b),
                          (ii) determining the value of trust 
                        assets under subsection (d)(2), and
                          (iii) determining income under 
                        subsection (d)(3).
                  (D) Tax court proceedings.--For purposes of 
                this paragraph, the references in section 
                6212(c)(1) to section 4940 shall be deemed to 
                include references to this paragraph.

           *       *       *       *       *       *       *

Subchapter L--Insurance Companies

           *       *       *       *       *       *       *

PART I--LIFE INSURANCE COMPANIES

           *       *       *       *       *       *       *

Subpart C--Life Insurance Deductions

           *       *       *       *       *       *       *

SEC. 805. GENERAL DEDUCTIONS.

  (a) * * *
  (b) Modifications.--The modifications referred to in 
subsection (a)(8) are as follows:
          (1) * * *
          (2) Charitable, etc., contributions and gifts.--In 
        applying section 170--
                  (A) the limit on the total deductions under 
                such section provided by section 170(b)(2) 
                shall be [10 percent] the applicable percentage 
                (determined under section 170(b)(3)) of the 
                life insurance company taxable income computed 
                without regard to--
                          (i) * * *

           *       *       *       *       *       *       *

Subchapter S--Tax Treatment of S Corporations and Their Shareholders

           *       *       *       *       *       *       *

PART II--TAX TREATMENT OF SHAREHOLDERS

           *       *       *       *       *       *       *

SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

  (a) General Rule.--
          (1) * * *
          (2) Decreases in basis.--The basis of each 
        shareholder's stock in an S corporation shall be 
        decreased for any period (but not below zero) by the 
        sum of the following items determined with respect to 
        the shareholder for such period:
                  (A) * * *

           *       *       *       *       *       *       *

        The decrease under subparagraph (B) by reason of a 
        charitable contribution (as defined in section 170(c)) 
        of property shall be the amount equal to the 
        shareholder's pro rata share of the adjusted basis of 
        such property.

           *       *       *       *       *       *       *

Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *

CHAPTER 31--RETAIL EXCISE TAXES

           *       *       *       *       *       *       *

Subchapter B--Special Fuels

           *       *       *       *       *       *       *

SEC. 4041. IMPOSITION OF TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Other Exemptions.--Under regulations prescribed by the 
Secretary, no tax shall be imposed under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) upon the sale of any liquid for export, or for 
        shipment to a possession of the United States, and in 
        due course so exported or shipped; [and]
          (4) with respect to the sale of any liquid to a 
        nonprofit educational organization for its exclusive 
        use, or with respect to the use by a nonprofit 
        educational organization of any liquid as a fuel[.]; 
        and
          (5) with respect to the sale of any liquid to a 
        qualified blood collector organization (as defined in 
        section 7701(a)(48)) for such organization's exclusive 
        use, or with respect to the use by a qualified blood 
        collector organization of any liquid as a fuel.

           *       *       *       *       *       *       *

                 CHAPTER 32--MANUFACTURERS EXCISE TAXES

Subchapter G--Exemptions, Registration, Etc.

           *       *       *       *       *       *       *

SEC. 4221. CERTAIN TAX-FREE SALES.

  (a) General Rule.--Under regulations prescribed by the 
Secretary, no tax shall be imposed under this chapter (other 
than under section 4121, 4081, or 4091) on the sale by the 
manufacturer (or under subchapter A or C of chapter 31 on the 
first retail sale) of an article--
          (1) * * *

           *       *       *       *       *       *       *

          (4) to a State or local government for the exclusive 
        use of a State or local government, [or]
          (5) to a nonprofit educational organization for its 
        exclusive use, or
          (6) to a qualified blood collector organization (as 
        defined in section 7701(a)(48)) for such organization's 
        exclusive use,
but only if such exportation or use is to occur before any 
other use. [Paragraphs (4) and (5)] Paragraphs (4), (5), and 
(6) shall not apply to the tax imposed by section 4064. In the 
case of taxes imposed by section 4051, or 4071, paragraphs (4) 
and (5) shall not apply on and after October 1, 2005. In the 
case of the tax imposed by section 4131, paragraphs (3), (4), 
and (5) shall not apply and paragraph (2) shall apply only if 
the use of the exported vaccine meets such requirements as the 
Secretary may by regulations prescribe. In the case of taxes 
imposed by subchapter A of chapter 31, paragraphs (1), (3), 
(4), and (5) shall not apply.

           *       *       *       *       *       *       *

CHAPTER 33--FACILITIES AND SERVICES

           *       *       *       *       *       *       *

Subchapter B--Communications

           *       *       *       *       *       *       *

SEC. 4253. EXEMPTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Exemption for Qualified Blood Collector Organizations.--
Under regulations provided by the Secretary, no tax shall be 
imposed under section 4251 on any amount paid by a qualified 
blood collector organization (as defined in section 
7701(a)(48)) for services or facilities furnished to such 
organization.
  [(k)] (l) Filing of Exemption Certificates.--
          (1) In general.--In order to claim an exemption under 
        subsection (c), (h), (i), [or (j)] (j), or (k), a 
        person shall provide to the provider of communications 
        services a statement (in such form and manner as the 
        Secretary may provide) certifying that such person is 
        entitled to such exemption.

           *       *       *       *       *       *       *

CHAPTER 41--PUBLIC CHARITIES

           *       *       *       *       *       *       *

SEC. 4911. TAX ON EXCESS EXPENDITURES TO INFLUENCE LEGISLATION.

  (a) * * *
  [(b) Excess Lobbying Expenditures.--For purposes of this 
section, the term ``excess lobbying expenditures'' means, for a 
taxable year, the greater of--
          [(1) the amount by which the lobbying expenditures 
        made by the organization during the taxable year exceed 
        the lobbying nontaxable amount for such organization 
        for such taxable year, or
          [(2) the amount by which the grass roots expenditures 
        made by the organization during the taxable year exceed 
        the grass roots nontaxable amount for such organization 
        for such taxable year.]
  (b) Excess Lobbying Expenditures.--For purposes of this 
section, the term ``excess lobbying expenditures'' means, for a 
taxable year, the amount by which the lobbying expenditures 
made by the organization during the taxable year exceed the 
lobbying nontaxable amount for such organization for such 
taxable year.
  (c) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Grass roots expenditures.--The term ``grass 
        roots expenditures'' means expenditures for the purpose 
        of influencing legislation (as defined in subsection 
        (d) without regard to paragraph (1)(B) thereof).
          [(4) Grass roots nontaxable amount.--The grass roots 
        nontaxable amount for any organization for any taxable 
        year is 25 percent of the lobbying nontaxable amount 
        (determined under paragraph (2)) for such organization 
        for such taxable year.]

           *       *       *       *       *       *       *

  (f) Affiliated Organizations.--
          (1) In general.--Except as otherwise provided in 
        paragraph (4), if for a taxable year two or more 
        organizations described in section 501(c)(3) are 
        members of an affiliated group of organizations as 
        defined in paragraph (2), and an election under section 
        501(h) is effective for at least one such organization 
        for such year, then--
                  (A) the determination as to whether excess 
                lobbying expenditures have been made and the 
                determination as to whether the expenditure 
                [limits of section 501(h)(1) have] limit of 
                section 501(h)(1) has been exceeded shall be 
                made as though such affiliated group is one 
                organization,

           *       *       *       *       *       *       *

                  (C) if the expenditure [limits of section 
                501(h)(1) are] limit of section 501(h)(1) is 
                exceeded, each such organization as to which an 
                election under section 501(h) is effective for 
                such year shall be treated as an organization 
                which is not described in section 501(c)(3) by 
                reason of the application of 501(h), and

           *       *       *       *       *       *       *

          (4) Limited control.--If two or more organizations 
        are members of an affiliated group of organizations (as 
        defined in paragraph (2) without regard to subparagraph 
        (B) thereof), no two members of such affiliated group 
        are affiliated (as defined in paragraph (2) without 
        regard to subparagraph (A) thereof), and the governing 
        instrument of no such organization requires it to be 
        bound by decisions of any of the other such 
        organizations on legislative issues other than as to 
        action with respect to Acts, bills, resolutions, or 
        similar items by the Congress, then--
                  (A) in the case of any organization whose 
                decisions bind one or more members of such 
                affiliated group, directly or indirectly, the 
                determination as to whether such organization 
                has paid or incurred excess lobbying 
                expenditures and the determination as to 
                whether such organization has exceeded the 
                expenditure [limits of section 501(h)(1)] limit 
                of section 501(h)(1) shall be made as though 
                such organization has paid or incurred those 
                amounts paid or incurred by such members of 
                such affiliated group to influence legislation 
                with respect to Acts, bills, resolutions, or 
                similar items by the Congress, and
                  (B) in the case of any organization to which 
                subparagraph (A) does not apply, but which is a 
                member of such affiliated group, the 
                determination as to whether such organization 
                has paid or incurred excess lobbying 
                expenditures and the determination as to 
                whether such organization has exceeded the 
                expenditure [limits of section 501(h)(1)] limit 
                of section 501(h)(1) shall be made as though 
                such organization is not a member of such 
                affiliated group.

           *       *       *       *       *       *       *

      CHAPTER 42--PRIVATE FOUNDATIONS & CERTAIN OTHER TAX-EXEMPT 
ORGANIZATIONS

           *       *       *       *       *       *       *

Subchapter A--Private Foundations

           *       *       *       *       *       *       *

SEC. 4940. EXCISE TAX BASED ON INVESTMENT INCOME.

  (a) Tax-Exempt Foundations.--There is hereby imposed on each 
private foundation which is exempt from taxation under section 
501(a) for the taxable year, with respect to the carrying on of 
its activities, a tax equal to [2] 1 percent of the net 
investment income of such foundation for the taxable year.

           *       *       *       *       *       *       *

  [(e) Reduction in Tax Where Private Foundation Meets Certain 
Distribution Requirements.--
          [(1) In general.--In the case of any private 
        foundation which meets the requirements of paragraph 
        (2) for any taxable year, subsection (a) shall be 
        applied with respect to such taxable year by 
        substituting ``1 percent'' for ``2 percent''.
          [(2) Requirements.--A private foundation meets the 
        requirements of this paragraph for any taxable year 
        if--
                  [(A) the amount of the qualifying 
                distributions made by the private foundation 
                during such taxable year equals or exceeds the 
                sum of--
                          [(i) an amount equal to the assets of 
                        such foundation for such taxable year 
                        multiplied by the average percentage 
                        payout for the base period, plus
                          [(ii) 1 percent of the net investment 
                        income of such foundation for such 
                        taxable year, and
                  [(B) such private foundation was not liable 
                for tax under section 4942 with respect to any 
                year in the base period.
          [(3) Average percentage payout for base period.--For 
        purposes of this subsection--
                  [(A) In general.--The average percentage 
                payout for the base period is the average of 
                the percentage payouts for taxable years in the 
                base period.
                  [(B) Percentage payout.--The term 
                ``percentage payout'' means, with respect to 
                any taxable year, the percentage determined by 
                dividing--
                          [(i) the amount of the qualifying 
                        distributions made by the private 
                        foundation during the taxable year, by
                          [(ii) the assets of the private 
                        foundation for the taxable year.
                  [(C) Special rule where tax reduced under 
                this subsection.--For purposes of this 
                paragraph, if the amount of the tax imposed by 
                this section for any taxable year in the base 
                period is reduced by reason of this subsection, 
                the amount of the qualifying distributions made 
                by the private foundation during such year 
                shall be reduced by the amount of such 
                reduction in tax.
          [(4) Base period.--For purposes of this subsection--
                  [(A) In general.--The term ``base period'' 
                means, with respect to any taxable year, the 5 
                taxable years preceding such taxable year.
                  [(B) New private foundations, etc.--If an 
                organization has not been a private foundation 
                throughout the base period referred to in 
                subparagraph (A), the base period shall consist 
                of the taxable years during which such 
                foundation has been in existence.
          [(5) Other definitions.--For purposes of this 
        subsection--
                  [(A) Qualifying distribution.--The term 
                ``qualifying distribution'' has the meaning 
                given such term by section 4942(g).
                  [(B) Assets.--The assets of a private 
                foundation for any taxable year shall be 
                treated as equal to the excess determined under 
                section 4942(e)(1).
          [(6) Treatment of successor organizations, etc.--In 
        the case of--
                  [(A) a private foundation which is a 
                successor to another private foundation, this 
                subsection shall be applied with respect to 
                such successor by taking into account the 
                experience of such other foundation, and
                  [(B) a merger, reorganization, or division of 
                a private foundation, this subsection shall be 
                applied under regulations prescribed by the 
                Secretary.]

           *       *       *       *       *       *       *

SEC. 4941. TAXES ON SELF-DEALING.

  (a) Initial Taxes.--
          (1) On self-dealer.--There is hereby imposed a tax on 
        each act of self-dealing between a disqualified person 
        and a private foundation. The rate of tax shall be 
        equal to [5] 25 percent of the amount involved with 
        respect to the act of self-dealing for each year (or 
        part thereof) in the taxable period. The tax imposed by 
        this paragraph shall be paid by any disqualified person 
        (other than a foundation manager acting only as such) 
        who participates in the act of self-dealing. In the 
        case of a government official (as defined in section 
        4946(c)), a tax shall be imposed by this paragraph only 
        if such disqualified person participates in the act of 
        self-dealing knowing that it is such an act.

           *       *       *       *       *       *       *

SEC. 4942. TAXES ON FAILURE TO DISTRIBUTE INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Adjusted Net Income.--
          (1) * * *
          (2) Income modifications.--The income modifications 
        referred to in paragraph (1)(A) are as follows:
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) there shall be taken into account--
                          (i) amounts received or accrued as 
                        repayments of amounts which were taken 
                        into account as a qualifying 
                        distribution within the meaning of 
                        subsection (g)(1)(A) (determined 
                        without regard to subsection (g)(4)) 
                        for any taxable year;

           *       *       *       *       *       *       *

  (g) Qualifying distributions defined
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Limitation on administrative expenses allocable 
        to making of contributions, gifts, and grants.--
                  [(A) In general.--The amount of the grant 
                administrative expenses paid during any taxable 
                year which may be taken into account as 
                qualifying distributions shall not exceed the 
                excess (if any) of--
                          [(i) .65 percent of the sum of the 
                        net assets of the private foundation 
                        for such taxable year and the 
                        immediately preceding 2 taxable years, 
                        over
                          [(ii) the aggregate amount of grant 
                        administrative expenses paid during the 
                        2 preceding taxable years which were 
                        taken into account as qualifying 
                        distributions.
                  [(B) Grant administrative expenses.--For 
                purposes of this paragraph, the term ``grant 
                administrative expenses'' means any 
                administrative expenses which are allocable to 
                the making of qualified grants.
                  [(C) Qualified grants.--For purposes of this 
                paragraph, the term ``qualified grant'' means 
                any contribution, gift, or grant which is a 
                qualifying distribution.
                  [(D) Net asset.--For purposes of this 
                paragraph, the term ``net assets'' means, with 
                respect to any taxable year, the excess 
                determined under subsection (e)(1) for such 
                taxable year.
                  [(E) Transitional rule.--In the case of any 
                preceding taxable year which begins before 
                January 1, 1985, the amount of the grant 
                administrative expenses taken into account 
                under subparagraph (A)(ii) shall not exceed .65 
                percent of the net assets of the private 
                foundation for such taxable year.
                  [(F) Termination.--This paragraph shall not 
                apply to taxable years beginning after December 
                31, 1990.]
          (4) Limitation on administrative expenses treated as 
        distributions.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), the following administrative expenses 
                shall not be treated as qualifying 
                distributions:
                          (i) Any administrative expense which 
                        is not directly attributable to direct 
                        charitable activities, grant selection 
                        activities, grant monitoring and 
                        administration activities, compliance 
                        with applicable Federal, State, or 
                        local law, or furthering public 
                        accountability of the private 
                        foundation.
                          (ii) Any compensation paid to a 
                        disqualified person to the extent that 
                        such compensation exceeds an annual 
                        rate of $100,000.
                          (iii) Any expense incurred for 
                        transportation by air unless such 
                        transportation is regularly-scheduled 
                        commercial air transportation.
                          (iv) Any expense incurred for 
                        regularly-scheduled commercial air 
                        transportation to the extent that such 
                        expense exceeds the cost of such 
                        transportation in coach-class 
                        accommodations.
                  (B) Adjustment for inflation.--In the case of 
                a taxable year beginning after December 31, 
                2004, the $100,000 amount in subparagraph 
                (A)(ii) shall 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, determined by substituting 
                        ``calendar year 2003'' for ``calendar 
                        year 1992'' in subparagraph (B) 
                        thereof.
                If any amount as increased under the preceding 
                sentence is not a multiple of $50, such amount 
                shall be rounded to the next lowest multiple of 
                $50.
          (5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of paragraph (4). Such regulations shall 
        provide that administrative expenses which are excluded 
        from qualifying distributions solely by reason of the 
        limitations in paragraph (4) shall not for such reason 
        subject a private foundation to any other excise taxes 
        imposed by this subchapter.

           *       *       *       *       *       *       *

  (j) Other Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Operating foundation.--For purposes of this 
        section, the term ``operating foundation'' means any 
        organization--
                  (A) which makes qualifying distributions 
                [(within the meaning of paragraph (1) or (2) of 
                subsection (g))] directly for the active 
                conduct of the activities constituting the 
                purpose or function for which it is organized 
                and operated equal to substantially all of the 
                lesser of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B)(i) * * *
                  (ii) which normally makes qualifying 
                distributions [(within the meaning of paragraph 
                (1) or (2) of subsection (g))] directly for the 
                active conduct of the activities constituting 
                the purpose or function for which it is 
                organized and operated in an amount not less 
                than two-thirds of its minimum investment 
                return (as defined in subsection (e)), or

           *       *       *       *       *       *       *

        Notwithstanding the provisions of subparagraph (A), if 
        the qualifying distributions [(within the meaning of 
        paragraph (1) or (2) of subsection (g))] of an 
        organization for the taxable year exceed the minimum 
        investment return for the taxable year, clause (ii) of 
        subparagraph (A) shall not apply unless substantially 
        all of such qualifying distributions are made directly 
        for the active conduct of the activities constituting 
        the purpose or function for which it is organized and 
        operated. For purposes of this paragraph, the term 
        ``qualifying distributions'' means qualifying 
        distributions within the meaning of paragraph (1) or 
        (2) of subsection (g) (determined without regard to 
        subsection (g)(4)).

           *       *       *       *       *       *       *

Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *

CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *

Subchapter A--Returns and Records

           *       *       *       *       *       *       *

PART III--INFORMATIONAL RETURNS

           *       *       *       *       *       *       *

Subpart A--Information Concerning Persons Subject to Special Provisions

           *       *       *       *       *       *       *

SEC. 6033. RETURNS BY EXEMPT ORGANIZATIONS.

  (a) * * *
  (b) Certain organizations described in section 501(c)(3).--
Every organization described in section 501(c)(3) which is 
subject to the requirements of subsection (a) shall furnish 
annually information, at such time and in such manner as the 
Secretary may by forms or regulations prescribe, setting 
forth--
          (1) * * *

           *       *       *       *       *       *       *

          (8) in the case of an organization with respect to 
        which an election under section 501(h) is effective for 
        the taxable year, the following amounts for such 
        organization for such taxable year:
                  (A) the lobbying expenditures (as defined in 
                section 4911(c)(1)), and
                  (B) the lobbying nontaxable amount (as 
                defined in section 4911(c)(2)),
                  [(C) the grass roots expenditures (as defined 
                in section 4911(c)(3)), and
                  [(D) the grass roots nontaxable amount (as 
                defined in section 4911(c)(4)),]

           *       *       *       *       *       *       *

[SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  [(a) General Rule.--Every trust described in section 
4947(a)(2) or claiming a charitable, etc., deduction under 
section 642(c) for the taxable year shall furnish such 
information with respect to such taxable year as the Secretary 
may by forms or regulations prescribe, including--
          [(1) the amount of the charitable, etc., deduction 
        taken under section 642(c) within such year,
          [(2) the amount paid out within such year which 
        represents amounts for which charitable, etc., 
        deductions under section 642(c) have been taken in 
        prior years,
          [(3) the amount for which charitable, etc., 
        deductions have been taken in prior years but which has 
        not been paid out at the beginning of such year,
          [(4) the amount paid out of principal in the current 
        and prior years for charitable, etc., purposes,
          [(5) the total income of the trust within such year 
        and the expenses attributable thereto, and
          [(6) a balance sheet showing the assets, liabilities, 
        and net worth of the trust as of the beginning of such 
        year.
  [(b) Exceptions.--This section shall not apply in the case of 
a taxable year if all the net income for such year, determined 
under the applicable principles of the law of trusts, is 
required to be distributed currently to the beneficiaries. This 
section shall not apply in the case of a trust described in 
section 4947(a)(1).
  [(c) Cross Reference.--
          [For provisions relating to penalties for failure to file a 
        return required by this section, see section 6652(c).]

SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR 
                    CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 
                    642(C).

  (a) Trusts Described in Section 4947(a)(2).--Every trust 
described in section 4947(a)(2) shall furnish such information 
with respect to the taxable year as the Secretary may by forms 
or regulations require.
  (b) Trusts Claiming a Charitable Deduction Under Section 
642(c).--
          (1) In general.--Every trust not required to file a 
        return under subsection (a) but claiming a deduction 
        under section 642(c) for the taxable year shall furnish 
        such information with respect to such taxable year as 
        the Secretary may by forms or regulations prescribe, 
        including--
                  (A) the amount of the deduction taken under 
                section 642(c) within such year,
                  (B) the amount paid out within such year 
                which represents amounts for which deductions 
                under section 642(c) have been taken in prior 
                years,
                  (C) the amount for which such deductions have 
                been taken in prior years but which has not 
                been paid out at the beginning of such year,
                  (D) the amount paid out of principal in the 
                current and prior years for the purposes 
                described in section 642(c),
                  (E) the total income of the trust within such 
                year and the expenses attributable thereto, and
                  (F) a balance sheet showing the assets, 
                liabilities, and net worth of the trust as of 
                the beginning of such year.
          (2) Exceptions.--Paragraph (1) shall not apply to a 
        trust for any taxable year if--
                  (A) all the net income for such year, 
                determined under the applicable principles of 
                the law of trusts, is required to be 
                distributed currently to the beneficiaries, or
                  (B) the trust is described in section 
                4947(a)(1).

           *       *       *       *       *       *       *

Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *

SEC. 6104. PUBLICITY OF INFORMATION REQUIRED FROM CERTAIN EXEMPT 
                    ORGANIZATIONS AND CERTAIN TRUSTS.

  (a) * * *
  (b) Inspection of Annual Information Returns.--The 
information required to be furnished by sections 6033, 6034, 
and 6058, together with the names and addresses of such 
organizations and trusts, shall be made available to the public 
at such times and in such places as the Secretary may 
prescribe. Nothing in this subsection shall authorize the 
Secretary to disclose the name or address of any contributor to 
any organization or trust (other than a private foundation, as 
defined in section 509(a) or a political organization exempt 
from taxation under section 527) which is required to furnish 
such information. In the case of an organization described in 
section 501(d), this subsection shall not apply to copies 
referred to in section 6031(b) with respect to such 
organization. In the case of a trust which is required to file 
a return under section 6034(a), this subsection shall not apply 
to information regarding beneficiaries which are not 
organizations described in section 170(c).

           *       *       *       *       *       *       *

CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *

Subchapter B--Rules for Special Application

           *       *       *       *       *       *       *

SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES.

  (a) * * *
  (b) Special Cases in Which Tax Payments Considered 
Overpayments.--Under regulations prescribed by the Secretary, 
credit or refund (without interest) shall be allowed or made in 
respect of the overpayments determined under the following 
paragraphs:
          (1) * * *
          (2) Specified uses and resales.--The tax paid under 
        chapter 32 (or under subsection (a) or (d) of section 
        4041 in respect of sales or under section 4051) in 
        respect of any article shall be deemed to be an 
        overpayment if such article was, by any person--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) sold to a qualified blood collector 
                organization (as defined in section 
                7701(a)(48)) for such organization's exclusive 
                use;
                  [(E)] (F) in the case of any tire taxable 
                under section 4071(a), sold to any person for 
                use as described in section 4221(e)(3); or
                  [(F)] (G) in the case of gasoline, used or 
                sold for use in the production of special fuels 
                referred to in section 4041.
        [Subparagraphs (C) and (D)] Subparagraphs (C), (D), and 
        (E) shall not apply in the case of any tax paid under 
        section 4064. In the case of the tax imposed by section 
        4131, subparagraphs (B), [(C), and (D)] (C), (D), and 
        (E) shall not apply and subparagraph (A) shall apply 
        only if the use of the exported vaccine meets such 
        requirements as the Secretary may by regulations 
        prescribe. This paragraph shall not apply in the case 
        of any tax imposed under section 4041(a)(1) or 4081 on 
        diesel fuel or kerosene and any tax paid under section 
        4091 or 4121.

           *       *       *       *       *       *       *

          (4) Tires.--If--
                  (A) * * *
                  (B) such tire is sold by any person on or in 
                connection with, or with the sale of, any other 
                article, such tax shall be deemed to be an 
                overpayment by such person if such other 
                article is--
                          (i) an automobile bus chassis or an 
                        automobile bus body, or
                          (ii) by such person exported, sold to 
                        a State or local government for the 
                        exclusive use of a State or local 
                        government, sold to a nonprofit 
                        educational organization for its 
                        exclusive use, sold to a qualified 
                        blood collector organization (as 
                        defined in section 7701(a)(48)) for its 
                        exclusive use, or used or sold for use 
                        as supplies for vessels or aircraft.

           *       *       *       *       *       *       *

SEC. 6421. GASOLINE USED FOR CERTAIN NONHIGHWAY PURPOSES, USED BY LOCAL 
                    TRANSIT SYSTEMS, OR SOLD FOR CERTAIN EXEMPT 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Exempt Purposes.--If gasoline is sold to any person for 
any purpose described in paragraph (2), (3), (4) [or (5)] (5), 
or (6) of section 4221(a), the Secretary shall pay (without 
interest) to such person an amount equal to the product of the 
number of gallons of gasoline so sold multiplied by the rate at 
which tax was imposed on such gasoline by section 4081. The 
preceding sentence shall apply notwithstanding paragraphs (2) 
and (3) of subsection (f). Subsection (a) shall not apply to 
gasoline to which this subsection applies.

           *       *       *       *       *       *       *

 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *

Subchapter A--Additions to the Tax, Additional Amounts

           *       *       *       *       *       *       *

PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *

SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Returns by Exempt Organizations and by Certain Trusts.--
          (1) * * *
          (2) Returns under section 6034 or 6043(b).--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Split-interest trusts.--In the case of a 
                trust which is required to file a return under 
                section 6034(a), subparagraphs (A) and (B) of 
                this paragraph shall not apply and paragraph 
                (1) shall apply in the same manner as if such 
                return were required under section 6033, except 
                that--
                          (i) the 5 percent limitation in the 
                        second sentence of paragraph (1)(A) 
                        shall not apply,
                          (ii) in the case of any trust with 
                        gross income in excess of $250,000, the 
                        first sentence of paragraph (1)(A) 
                        shall be applied by substituting 
                        ``$100'' for ``$20'', and the second 
                        sentence thereof shall be applied by 
                        substituting ``$50,000'' for 
                        ``$10,000'', and
                          (iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                In addition to any penalty imposed on the trust 
                pursuant to this subparagraph, if the person 
                required to file such return knowingly fails to 
                file the return, such penalty shall also be 
                imposed on such person who shall be personally 
                liable for such penalty.

           *       *       *       *       *       *       *

CHAPTER 76--JUDICIAL PROCEEDINGS

           *       *       *       *       *       *       *

Subchapter B--Proceedings by Taxpayers and Third Parties

           *       *       *       *       *       *       *

SEC. 7428. DECLARATORY JUDGMENTS RELATING TO STATUS AND CLASSIFICATION 
                    OF ORGANIZATIONS UNDER SECTION 501(C)(3), ETC.

  (a) Creation of Remedy.--In a case of actual controversy 
involving--
          (1) a determination by the Secretary--
                  (A) * * *
                  (B) with respect to the initial 
                classification or continuing classification of 
                an organization as a private foundation (as 
                defined in section 509(a)) or as a private 
                operating foundation (as defined in section 
                4942(j)(3)), or
                  [(C) with respect to the initial 
                classification or continuing classification of 
                an organization as a private operating 
                foundation (as defined in section 4942(j)(3)), 
                or]
                  (C) with respect to the initial qualification 
                or continuing qualification of an organization 
                as an organization described in subsection (c) 
                (other than paragraph (3)) or (d) of section 
                501 which is exempt from tax under section 
                501(a), or
          (2) a failure by the Secretary to make a 
        determination with respect to an issue referred to in 
        paragraph (1),

upon the filing of an appropriate pleading, the [United States 
Tax Court, the United States Claims Court, or the district 
court of the United States for the District of Columbia] United 
States Tax Court (in the case of any such determination or 
failure) or the United States Claims Court or the district 
court of the United States for the District of Columbia (in the 
case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)), may 
make a declaration with respect to such initial qualification 
or continuing qualification or with respect to such initial 
classification or continuing classification. Any such 
declaration shall have the force and effect of a decision of 
the Tax Court or a final judgment or decree of the district 
court or the Claims Court, as the case may be, and shall be 
reviewable as such. For purposes of this section, a 
determination with respect to a continuing qualification or 
continuing classification includes any revocation of or other 
change in a qualification or classification.

           *       *       *       *       *       *       *

CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

           *       *       *       *       *       *       *

Subchapter A--Examination and Inspection

           *       *       *       *       *       *       *

SEC. 7611. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINATIONS.

  (a) * * *

           *       *       *       *       *       *       *

                          (i) Section Not To Apply to Criminal 
                        Investigations, Etc.--This section 
                        shall not apply to--
          (1) * * *

           *       *       *       *       *       *       *

          (4) any willful attempt to defeat or evade any tax 
        imposed by this title, [or]
          (5) any knowing failure to file a return of tax 
        imposed by this title[.], or
          (6) information provided by the Secretary related to 
        the standards for exemption from tax under this title 
        and the requirements under this title relating to 
        unrelated business taxable income.

           *       *       *       *       *       *       *

CHAPTER 79--DEFINITIONS

           *       *       *       *       *       *       *

SEC. 7701. DEFINITIONS.

  (a) When used in this title, where not otherwise distinctly 
expressed or manifestly incompatible with the intent thereof--
          (1) * * *

           *       *       *       *       *       *       *

          (48) Qualified blood collector organization.--The 
        term ``qualified blood collector organization'' means 
        an organization which is--
                  (A) described in section 501(c)(3) and exempt 
                from tax under section 501(a),
                  (B) registered by the Food and Drug 
                Administration to collect blood, and
                  (C) primarily engaged in the activity of the 
                collection of blood.

           *       *       *       *       *       *       *

                              ----------                              

SOCIAL SECURITY ACT

           *       *       *       *       *       *       *

TITLE IV--GRANTS TO STATES FOR AID AND SERVICES TO NEEDY FAMILIES WITH 
CHILDREN AND FOR CHILD-WELFARE SERVICES

           *       *       *       *       *       *       *

   PART A--BLOCK GRANTS TO STATES FOR TEMPORARY ASSISTANCE FOR NEEDY 
FAMILIES

           *       *       *       *       *       *       *

SEC. 404. USE OF GRANTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Authority To Use Portion of Grant for Other Purposes.--
          (1) * * *
          [(2) Limitation on amount transferable to title xx 
        programs.--
                  [(A) In general.--A State may use not more 
                than the applicable percent of the amount of 
                any grant made to the State under section 
                403(a) for a fiscal year to carry out State 
                programs pursuant to title XX.
                  [(B) Applicable percent.--For purposes of 
                subparagraph (A), the applicable percent is 
                4.25 percent in the case of fiscal year 2001 
                and each succeeding fiscal year.]
          (2) Limitation on amount transferable to title xx 
        programs.--A State may use not more than 10 percent of 
        the amount of any grant made to the State under section 
        403(a) for a fiscal year to carry out State programs 
        pursuant to title XX.

           *       *       *       *       *       *       *

                    PART F--COMPASSION CAPITAL FUND

SEC. 481. SECRETARY'S FUND TO SUPPORT AND REPLICATE PROMISING SOCIAL 
                    SERVICE PROGRAMS.

  (a) Grant Authority.--
          (1) In general.--The Secretary may make grants to 
        support any private entity that operates a promising 
        social services program.
          (2) Applications.--An entity desiring to receive a 
        grant under paragraph (1) shall submit to the Secretary 
        an application for the grant, which shall contain such 
        information as the Secretary may require.
  (b) Contract Authority, Etc.--The Secretary may enter into a 
grant, contract, or cooperative agreement with any entity under 
which the entity would provide technical assistance to another 
entity to operate a social service program that assists persons 
and families in need, including by--
          (1) providing the other entity with--
                  (A) technical assistance and information, 
                including legal assistance and other business 
                assistance;
                  (B) information on capacity-building;
                  (C) information and assistance in identifying 
                and using best practices for serving persons 
                and families in need; or
                  (D) assistance in replicating programs with 
                demonstrated effectiveness in assisting persons 
                and families in need; or
          (2) supporting research on the best practices of 
        social service organizations.
  (c) Guidance and Technical Assistance.--The Secretary may use 
not more than 25 percent of the amount appropriated under this 
section for a fiscal year to provide guidance and technical 
assistance to States and political subdivisions of States with 
respect to the implementation of any social service program.
  (d) Social Services Program Defined.--In this section, the 
term ``social services program'' means a program that provides 
benefits or services of any kind to persons and families in 
need.
  (e) Limitations on Authorization of Appropriations.--To carry 
out this section, there are authorized to be appropriated to 
the Secretary $150,000,000 for fiscal year 2004, and such sums 
as may be necessary for fiscal years 2005 through 2008.

           *       *       *       *       *       *       *

                              ----------                              

                      ASSETS FOR INDEPENDENCE ACT

                   TITLE IV--ASSETS FOR INDEPENDENCE

SEC. 401. SHORT TITLE.

  This title may be cited as the ``Assets for Independence 
Act''.

           *       *       *       *       *       *       *

SEC. 404. DEFINITIONS.

  In this title:
          (1) * * *

           *       *       *       *       *       *       *

          (8) Qualified expenses.--The term ``qualified 
        expenses'' means one or more of the following, as 
        provided by a qualified entity:
                  (A) Postsecondary educational expenses.--
                Postsecondary educational expenses paid from an 
                individual development account directly to an 
                eligible educational institution or a vendor, 
                but only to the extent that the expenses are 
                described in a document which explains the 
                educational items to be purchased, and the 
                document and the expenses are approved by the 
                qualified entity. In this subparagraph:
                          (i) * * *

           *       *       *       *       *       *       *

SEC. 407. RESERVE FUND.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Use of Amounts in the Reserve Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Limitation on uses.--Not more than 15 percent of 
        the amounts provided to a qualified entity under 
        section 406(b) shall be used by the qualified entity 
        for the purposes described in subparagraphs (A), (C), 
        and (D) of paragraph (1), of which not less than 2 
        percent of the amounts shall be used by the qualified 
        entity for the purposes described in paragraph (1)(D). 
        Of the total amount specified in this paragraph, not 
        more than 7.5 percent shall be used for administrative 
        functions under paragraph (1)(C), including program 
        management, reporting requirements, recruitment and 
        enrollment of individuals, and monitoring. The 
        remainder of the total amount specified in this 
        paragraph (not including the amount specified for use 
        for the purposes described in paragraph (1)(D)) shall 
        be used for nonadministrative functions described in 
        paragraph (1)(A), including case management, budgeting, 
        economic literacy, and credit counseling. If the cost 
        of nonadministrative functions described in paragraph 
        (1)(A) is less than 5.5 percent of the total amount 
        specified in this paragraph, such excess funds may be 
        used for administrative functions. If two or more 
        qualified entities are jointly administering a project, 
        no qualified entity shall use more than its 
        proportional share for the purposes described in 
        subparagraphs (A), (C), and (D) of paragraph (1). The 
        preceding sentences of this paragraph shall not apply 
        to amounts used by an entity for any activity described 
        in paragraph (1)(A).
  (d) Unused Federal Grant Funds Transferred to the Secretary 
[When Project Terminates].--Notwithstanding subsection (c), 
[upon] on the date that is 6 months after the termination of 
any demonstration project authorized under this section, the 
qualified entity conducting the project shall transfer to the 
Secretary an amount equal to--
          (1) * * *

           *       *       *       *       *       *       *

SEC. 408. ELIGIBILITY FOR PARTICIPATION.

  (a) In General.--Any individual who is a member of a 
household that is eligible for assistance under the State 
temporary assistance for needy families program established 
under part A of title IV of the Social Security Act (42 U.S.C. 
601 et seq.), or that meets each of the following requirements 
shall be eligible to participate in a demonstration project 
conducted under this title:
          [(1) Income test.--The adjusted gross income of the 
        household is equal to or less than 200 percent of the 
        poverty line (as determined by the Office of Management 
        and Budget) or the earned income amount described in 
        section 32 of the Internal Revenue Code of 1986 (taking 
        into account the size of the household).]
          (1) Income test.--The adjusted gross income of the 
        household--
                  (A) does not exceed 200 percent of the 
                poverty line (as determined by the Office of 
                Management and Budget) or the earned income 
                amount described in section 32 of the Internal 
                Revenue Code of 1986 (taking into account the 
                size of the household); or
                  (B) does not exceed 50 percent of the area 
                median income (as determined by the Secretary 
                of Housing and Urban Development) for the area 
                in which the household is located.

           *       *       *       *       *       *       *

SEC. 410. DEPOSITS BY QUALIFIED ENTITIES.

  (a) In General.--Not less than once every 3 months during 
each project year, each qualified entity under this title shall 
deposit in the individual development account of each 
individual participating in the project, or into a parallel 
account maintained by the qualified entity--
          (1) * * *

           *       *       *       *       *       *       *

          (3) [any interest that has accrued] interest that has 
        accrued during that period on amounts deposited under 
        paragraph (1) or (2) on behalf of that individual into 
        the individual development account of the individual or 
        into a parallel account maintained by the qualified 
        entity[.], but only to the extent that the amount of 
        the interest does not exceed the amount of interest 
        that has accrued during that period on amounts 
        deposited in the account by that individual.

           *       *       *       *       *       *       *

  (f) Use of Excess Interest to Fund Other Individual 
Development Accounts.--To the extent that a qualified entity 
has an amount that, but for the limitation in subsection 
(a)(3), would be required by that subsection to be deposited 
into the individual development account of an individual or 
into a parallel account maintained by the qualified entity, the 
qualified entity may deposit the amount into the individual 
development account of any individual or into any such parallel 
account maintained by the qualified entity.

           *       *       *       *       *       *       *

SEC. 416. AUTHORIZATION OF APPROPRIATIONS.

  There is authorized to be appropriated to carry out this 
title, $25,000,000 for each of fiscal years 1999, 2000, 2001, 
2002, [and 2003] 2003, 2004, 2005, 2006, 2007, and 2008, to 
remain available until expended.
                              ----------                              

                     RUNAWAY AND HOMELESS YOUTH ACT

                 TITLE III--RUNAWAY AND HOMELESS YOUTH

                              short title

    Sec. 301. This title may be cited as the ``Runaway and 
Homeless Youth Act''.

           *       *       *       *       *       *       *

Part B--Transitional Living Grant Program

           *       *       *       *       *       *       *

                              ELIGIBILITY

    Sec. 322. (a) To be eligible for assistance under this 
part, an applicant shall propose to establish, strengthen, or 
fund a transitional living youth project for homeless youth and 
shall submit to the Secretary a plan in which such applicant 
agrees, as part of such project--
          (1) to provide, directly or indirectly, shelter (such 
        as group homes (including maternity group homes), host 
        family homes, and supervised apartments) and services 
        (including information and counseling services in basic 
        life skills which shall include money management, 
        budgeting, consumer education, and use of credit, 
        interpersonal skill building, educational advancement, 
        job attainment skills, and mental and physical health 
        care) to homeless youth;

           *       *       *       *       *       *       *

  (c) Maternity Group Home.--In this part, the term ``maternity 
group home'' means a community-based, adult-supervised group 
home that provides--
          (1) young mothers and their children with a 
        supportive and supervised living arrangement in which 
        such mothers are required to learn parenting skills, 
        including child development, family budgeting, health 
        and nutrition, and other skills to promote their long-
        term economic independence and the well-being of their 
        children; and
          (2) pregnant women with--
                  (A) information regarding the option of 
                placing children for adoption through licensed 
                adoption service providers;
                  (B) assistance with prenatal care and child 
                birthing; and
                  (C) pre- and post-placement adoption 
                counseling.

SEC. 323. CONTRACT FOR EVALUATION.

  (a) In General.--The Secretary shall enter into a contract 
with a public or private entity for an evaluation of the 
maternity group homes that are supported by grant funds under 
this Act.
  (b) Information.--The evaluation described in subsection (a) 
shall include the collection of information about the relevant 
characteristics of individuals who benefit from maternity group 
homes such as those that are supported by grant funds under 
this Act and what services provided by those maternity group 
homes are most beneficial to such individuals.
  (c) Report.--Not later than 2 years after the date on which 
the Secretary enters into a contract for an evaluation under 
subsection (a), and biennially thereafter, the entity 
conducting the evaluation under this section shall submit to 
Congress a report on the status, activities, and 
accomplishments of maternity group homes that are supported by 
grant funds under this Act.

           *       *       *       *       *       *       *

Part F--General Provisions

           *       *       *       *       *       *       *

SEC. 388. AUTHORIZATION OF APPROPRIATIONS.

  (a) In General.--
          (1) Authorization.--[There]
                  (A) In general.--There is authorized to be 
                appropriated to carry out this title (other 
                than part E and the purpose described in 
                subparagraph (B)) such sums as may be necessary 
                for fiscal years 2000, 2001, 2002, and 2003.
                  (B) Maternity group homes.--There is 
                authorized to be appropriated, for maternity 
                group homes eligible for assistance under 
                section 322(a)(1)--
                          (i) $33,000,000 for fiscal year 2003; 
                        and
                          (ii) such sums as may be necessary 
                        for fiscal year 2004.
          (2) Allocation.--
                  (A) Parts a and b.--From the amount 
                appropriated under paragraph (1)(A) for a 
                fiscal year, the Secretary shall reserve not 
                less than 90 percent to carry out parts A and 
                B.

           *       *       *       *       *       *       *

                                
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