II 

Calendar No. 127 

109TH CONGRESS 

1ST SESSION S. 1230 

[Report No. 109–82] 

To amend the Internal Revenue Code of 1986 to provide for the extension 

of the Highway Trust Fund and the Aquatic Resources Trust Fund 

expenditure authority and related taxes and to provide for excise tax 

reform and simplification, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 14, 2005 

Mr. GRASSLEY from the Committee on Finance reported the following original 

bill; which was read twice and placed on the calendar 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the extension of the Highway Trust Fund and the 

Aquatic Resources Trust Fund expenditure authority and 

related taxes and to provide for excise tax reform and 

simplification, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 
2 

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1 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 

2 TABLE OF CONTENTS. 

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

4 ‘‘Highway Reauthorization and Excise Tax Simplification 

5 Act of 2005’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 

10 shall be considered to be made to a section or other provi11 sion of the Internal Revenue Code of 1986. 

12 (c) TABLE OF CONTENTS.—The table of contents for 

13 this Act is as follows: 

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

TITLE I—TRUST FUND REAUTHORIZATION 

Sec. 101. Extension of highway-related taxes and trust funds. 

Sec. 102. Modification of adjustments of apportionments. 

TITLE II—EXCISE TAX REFORM AND SIMPLIFICATION 

Subtitle A—Highway Excise Taxes 

Sec. 201. Modification of gas guzzler tax. 

Subtitle B—Aquatic Excise Taxes 

Sec. 211. Elimination of Aquatic Resources Trust Fund and transformation of 

Sport Fish Restoration Account. 

Sec. 212. Repeal of harbor maintenance tax on exports. 

Sec. 213. Cap on excise tax on certain fishing equipment. 

Subtitle C—Aerial Excise Taxes 

Sec. 221. Clarification of excise tax exemptions for agricultural aerial applicators and exemption for fixed-wing aircraft engaged in forestry 

operations. 

Sec. 222. Modification of rural airport definition. 

Sec. 223. Exemption from taxes for transportation provided by seaplanes. 

Sec. 224. Certain sightseeing flights exempt from taxes on air transportation. 

Subtitle D—Taxes Relating to Alcohol 
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Sec. 231. Repeal of special occupational taxes on producers and marketers of 

alcoholic beverages. 

Sec. 232. Modification of limitation on rate of rum excise tax cover over to 

Puerto Rico and Virgin Islands. 

Sec. 233. Income tax credit for distilled spirits wholesalers and for distilled 

spirits in control State bailment warehouses for costs of carrying Federal excise taxes on bottled distilled spirits. 

Sec. 234. Quarterly excise tax filing for small alcohol excise taxpayers. 

Subtitle E—Sport Excise Taxes 

Sec. 241. Custom gunsmiths. 

TITLE III—MISCELLANEOUS PROVISIONS 

Sec. 301. Motor Fuel Tax Enforcement Advisory Commission. 

Sec. 302. National Surface Transportation Infrastructure Financing Commission. 

Sec. 303. Expansion of Highway Trust Fund expenditure purposes to include 

funding for studies of supplemental or alternative financing for 

the Highway Trust Fund. 

Sec. 304. Delta regional transportation plan. 

Sec. 305. Build America Corporation. 

Sec. 306. Increase in dollar limitation for qualified transportation fringe benefits. 

TITLE IV—FUELS-RELATED TECHNICAL CORRECTIONS 

Sec. 401. Fuels-related technical corrections. 

TITLE V—REVENUE OFFSET PROVISIONS 

Sec. 501. Treatment of contingent payment convertible debt instruments. 

Sec. 502. Frivolous tax submissions. 

Sec. 503. Increase in certain criminal penalties. 

Sec. 504. Doubling of certain penalties, fines, and interest on underpayments 

related to certain offshore financial arrangements. 

Sec. 505. Modification of interaction between subpart F and passive foreign investment company rules. 

Sec. 506. Declaration by chief executive officer relating to Federal annual corporate income tax return. 

Sec. 507. Treasury regulations on foreign tax credit. 

1 TITLE I—TRUST FUND 

2 REAUTHORIZATION 

3 SEC. 101. EXTENSION OF HIGHWAY-RELATED TAXES AND 

4 TRUST FUNDS. 

5 (a) EXTENSION OF TAXES.— 
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1 (1) IN GENERAL.—The following provisions are 

2 each amended by striking ‘‘2005’’ each place it ap3 pears and inserting ‘‘2011’’: 

4 (A) Section 4041(a)(1)(C)(iii)(I) (relating 

5 to rate of tax on certain buses). 

6 (B) Section 4041(a)(2)(B) (relating to rate 

7 of tax on special motor fuels). 

8 (C) Section 4041(m)(1) (relating to certain 

9 alcohol fuels). 

10 (D) Section 4051(c) (relating to termi11 nation of tax on heavy trucks and trailers). 

12 (E) Section 4071(d) (relating to termi13 nation of tax on tires). 

14 (F) Section 4081(d)(1) (relating to termi15 nation of tax on gasoline, diesel fuel, and ker16 osene). 

17 (G) Section 4481(f) (relating to period tax 

18 in effect). 

19 (H) Section 4482(c)(4) (relating to taxable 

20 period). 

21 (I) Section 4482(d) (relating to special 

22 rule for taxable period in which termination 

23 date occurs). 
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1 (2) FLOOR STOCKS REFUNDS.—Section 

2 6412(a)(1) (relating to floor stocks refunds) is 

3 amended— 

4 (A) by striking ‘‘2005’’ each place it ap5 pears and inserting ‘‘2011’’, and 

6 (B) by striking ‘‘2006’’ each place it ap7 pears and inserting ‘‘2012’’. 

8 (b) EXTENSION OF CERTAIN EXEMPTIONS.—The fol9 lowing provisions are each amended by striking ‘‘2005’’ 

10 and inserting ‘‘2011’’: 

11 (1) Section 4221(a) (relating to certain tax-free 

12 sales). 

13 (2) Section 4483(h) (relating to termination of 

14 exemptions for highway use tax). 

15 (c) EXTENSION OF DEPOSITS INTO TRUST FUNDS.— 

16 (1) IN GENERAL.—Paragraphs (1) and (2) of 

17 subsection (b), and paragraphs (2) and (3) of sub18 section (c), of section 9503 (relating to the Highway 

19 Trust Fund) are each amended— 

20 (A) by striking ‘‘2005’’ each place it ap21 pears and inserting ‘‘2011’’, and 

22 (B) by striking ‘‘2006’’ each place it ap23 pears and inserting ‘‘2012’’. 

24 (2) MOTORBOAT AND SMALL-ENGINE FUEL TAX

25 TRANSFERS.— 
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1 (A) IN GENERAL.—Paragraphs (4)(A)(i) 

2 and (5)(A) of section 9503(c) are each amended 

3 by striking ‘‘2005’’ and inserting ‘‘2011’’. 

4 (B) CONFORMING AMENDMENTS TO LAND

5 AND WATER CONSERVATION FUND.—Section 

6 201(b) of the Land and Water Conservation 

7 Fund Act of 1965 (16 U.S.C. 460l–11(b)) is 

8 amended— 

9 (i) by striking ‘‘2003’’ and inserting 

10 ‘‘2009’’, and 

11 (ii) by striking ‘‘2004’’ each place it 

12 appears and inserting ‘‘2010’’. 

13 (d) EXTENSION AND EXPANSION OF EXPENDITURES

14 FROM TRUST FUNDS.— 

15 (1) HIGHWAY TRUST FUND.— 

16 (A) HIGHWAY ACCOUNT.—Paragraph (1) 

17 of section 9503(c) is amended— 

18 (i) in the matter before subparagraph 

19 (A), by striking ‘‘June 1, 2005’’ and in20 serting ‘‘October 1, 2009’’, 

21 (ii) by striking ‘‘or’’ at the end of sub22 paragraph (J), 

23 (iii) by striking the period at the end 

24 of subparagraph (K) and inserting ‘‘, or’’, 
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1 (iv) by inserting after subparagraph 

2 (K) the following new subparagraph: 

3 ‘‘(L) authorized to be paid out of the 

4 Highway Trust Fund under the Safe, Account5 able, Flexible, and Efficient Transportation Eq6 uity Act of 2005.’’, and 

7 (v) in the matter after subparagraph 

8 (L), as added by clause (iv), by striking 

9 ‘‘Surface Transportation Extension Act of 

10 2004, Part V’’ and inserting ‘‘Safe, Ac11 countable, Flexible, and Efficient Trans12 portation Equity Act of 2005’’. 

13 (B) MASS TRANSIT ACCOUNT.—Paragraph 

14 (3) of section 9503(e) is amended— 

15 (i) in the matter before subparagraph 

16 (A), by striking ‘‘June 1, 2005’’ and in17 serting ‘‘October 1, 2009’’, 

18 (ii) by striking ‘‘or’’ at the end of sub19 paragraph (H), 

20 (iii) by inserting ‘‘or’’ at the end of 

21 subparagraph (I), 

22 (iv) by inserting after subparagraph 

23 (I) the following new subparagraph: 

24 ‘‘(J) Safe, Accountable, Flexible, and Effi25 cient Transportation Equity Act of 2005,’’, and 
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1 (v) in the matter after subparagraph 

2 (J), as added by clause (iv), by striking 

3 ‘‘Surface Transportation Extension Act of 

4 2004, Part V’’ and inserting ‘‘Safe, Ac5 countable, Flexible, and Efficient Trans6 portation Equity Act of 2005’’. 

7 (C) EXCEPTION TO LIMITATION ON TRANS8 FERS.—Subparagraph (B) of section 

9 9503(b)(6) is amended by striking ‘‘June 1, 

10 2005’’ and inserting ‘‘October 1, 2009’’. 

11 (2) AQUATIC RESOURCES TRUST FUND.— 

12 (A) SPORT FISH RESTORATION AC13 COUNT.—Paragraph (2) of section 9504(b) is 

14 amended by striking ‘‘Surface Transportation 

15 Extension Act of 2004, Part V’’ each place it 

16 appears and inserting ‘‘Safe, Accountable, 

17 Flexible, and Efficient Transportation Equity 

18 Act of 2005’’ . 

19 (B) EXCEPTION TO LIMITATION ON TRANS20 FERS.—Paragraph (2) of section 9504(d) is 

21 amended by striking ‘‘June 1, 2005’’ and in22 serting ‘‘October 1, 2009’’. 

23 (e) EFFECTIVE DATE.—The amendments made by 

24 this section shall take effect on the date of the enactment 

25 of this Act. 
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1 SEC. 102. MODIFICATION OF ADJUSTMENTS OF APPOR2 TIONMENTS. 

3 (a) IN GENERAL.—Section 9503(d) (relating to ad4 justments for apportionments) is amended— 

5 (1) by striking ‘‘24-month’’ in paragraph 

6 (1)(B) and inserting ‘‘48-month’’, and 

7 (2) by striking ‘‘2 YEARS’ ’’ in the heading for 

8 paragraph (3) and inserting ‘‘4 YEARS’ ’’. 

9 (b) MEASUREMENT OF NET HIGHWAY RECEIPTS.— 

10 Section 9503(d) is amended by redesignating paragraph 

11 (6) as paragraph (7) and by inserting after paragraph (5) 

12 the following new paragraph: 

13 ‘‘(6) MEASUREMENT OF NET HIGHWAY RE14 CEIPTS.—For purposes of making any estimate 

15 under paragraph (1) of net highway receipts for pe16 riods ending after the date specified in subsection 

17 (b)(1), the Secretary shall treat— 

18 ‘‘(A) each expiring provision of subsection 

19 (b) which is related to appropriations or trans20 fers to the Highway Trust Fund to have been 

21 extended through the end of the 48-month pe22 riod referred to in paragraph (1)(B), and 

23 ‘‘(B) with respect to each tax imposed 

24 under the sections referred to in subsection 

25 (b)(1), the rate of such tax during the 48- 

26 month period referred to in paragraph (1)(B) 
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1 to be the same as the rate of such tax as in ef2 fect on the date of such estimate.’’. 

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

4 this section shall take effect on the date of the enactment 

5 of this Act. 

6 TITLE II—EXCISE TAX REFORM 

7 AND SIMPLIFICATION 

8 Subtitle A—Highway Excise Taxes 

9 SEC. 201. MODIFICATION OF GAS GUZZLER TAX. 

10 (a) UNIFORM APPLICATION OF TAX.—Subparagraph 

11 (A) of section 4064(b)(1) (defining automobile) is amend12 ed by striking the second sentence. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall take effect on October 1, 2005. 

15 Subtitle B—Aquatic Excise Taxes 

16 SEC. 211. ELIMINATION OF AQUATIC RESOURCES TRUST 

17 FUND AND TRANSFORMATION OF SPORT 

18 FISH RESTORATION ACCOUNT. 

19 (a) SIMPLIFICATION OF FUNDING FOR BOAT SAFETY

20 ACCOUNT.— 

21 (1) IN GENERAL.—Section 9503(c)(4) (relating 

22 to transfers from Trust Fund for motorboat fuel 

23 taxes) is amended— 

24 (A) by striking ‘‘Fund—’’ and all that fol25 lows through ‘‘shall be transferred’’ in subpara-
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1 graph (B) and inserting ‘‘Fund which is attrib2 utable to motorboat fuel taxes shall be trans3 ferred’’, 

4 (B) by striking subparagraph (A), and 

5 (C) by redesignating subparagraphs (B) 

6 through (E) as subparagraphs (A) through (D), 

7 respectively. 

8 (2) CONFORMING AMENDMENTS.— 

9 (A) Subparagraph (B) of section 

10 9503(c)(4), as redesignated by paragraph 

11 (1)(C), is amended— 

12 (i) by striking ‘‘ACCOUNT’’ in the 

13 heading and inserting ‘‘AND BOATING

14 TRUST FUND’’, 

15 (ii) by striking ‘‘or (B)’’ in clause (ii), 

16 and 

17 (iii) by striking ‘‘account in the 

18 Aquatic Resources’’ and inserting ‘‘and 

19 Boating’’. 

20 (B) Paragraph (5) of section 9503(c) is 

21 amended by striking ‘‘Account in the Aquatic 

22 Resources’’ in subparagraph (A) and inserting 

23 ‘‘and Boating’’. 

24 (b) MERGING OF ACCOUNTS.— 
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1 (1) IN GENERAL.—Subsection (a) of section 

2 9504 is amended to read as follows: 

3 ‘‘(a) CREATION OF TRUST FUND.—There is hereby 

4 established in the Treasury of the United States a trust 

5 fund to be known as the ‘Sport Fish Restoration and 

6 Boating Trust Fund’. Such Trust Fund shall consist of 

7 such amounts as may be appropriated, credited, or paid 

8 to it as provided in this section, section 9503(c)(4), section 

9 9503(c)(5), or section 9602(b).’’. 

10 (2) CONFORMING AMENDMENTS.— 

11 (A) Subsection (b) of section 9504, as 

12 amended by section 101 of this Act, is amend13 ed— 

14 (i) by striking ‘‘ACCOUNT’’ in the 

15 heading and inserting ‘‘AND BOATING

16 TRUST FUND’’, 

17 (ii) by striking ‘‘Account’’ both places 

18 it appears in paragraphs (1) and (2) and 

19 inserting ‘‘and Boating Trust Fund’’, and 

20 (iii) by striking ‘‘ACCOUNT’’ both 

21 places it appears in the headings for para22 graphs (1) and (2) and inserting ‘‘AND

23 BOATING TRUST FUND’’. 
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1 (B) Subsection (d) of section 9504, as 

2 amended by section 101 of this Act, is amend3 ed— 

4 (i) by striking ‘‘AQUATIC RE5 SOURCES’’ in the heading, 

6 (ii) by striking ‘‘any Account in the 

7 Aquatic Resources’’ in paragraph (1) and 

8 inserting ‘‘the Sports Fish Restoration and 

9 Boating’’, and 

10 (iii) by striking ‘‘any such Account’’ 

11 in paragraph (1) and inserting ‘‘such 

12 Trust Fund’’. 

13 (C) Subsection (e) of section 9504 is 

14 amended by striking ‘‘Boat Safety Account and 

15 Sport Fish Restoration Account’’ and inserting 

16 ‘‘Sport Fish Restoration and Boating Trust 

17 Fund’’. 

18 (D) Section 9504 is amended by striking 

19 ‘‘AQUATIC RESOURCES’’ in the heading and 

20 inserting ‘‘SPORT FISH RESTORATION AND

21 BOATING’’. 

22 (E) The item relating to section 9504 in 

23 the table of sections for subchapter A of chap24 ter 98 is amended by striking ‘‘aquatic re-
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1 sources’’ and inserting ‘‘sport fish restoration 

2 and boating’’. 

3 (c) PHASEOUT OF BOAT SAFETY ACCOUNT.—Sub4 section (c) of section 9504 is amended to read as follows: 

5 ‘‘(c) EXPENDITURES FROM BOAT SAFETY AC6 COUNT.—Amounts remaining in the Boat Safety Account 

7 on October 1, 2005, and amounts thereafter credited to 

8 the Account under section 9602(b), shall be available, 

9 without further appropriation, for making expenditures 

10 before October 1, 2010, to carry out the purposes of sec11 tion 15 of the Dingell-Johnson Sport Fish Restoration Act 

12 (as in effect on the date of the enactment of the Safe, 

13 Accountable, Flexible, and Efficient Transportation Eq14 uity Act of 2005). For purposes of section 9602, the Boat 

15 Safety Account shall be treated as a Trust Fund estab16 lished by this subchapter.’’. 

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

18 this section shall take effect on October 1, 2005. 

19 SEC. 212. REPEAL OF HARBOR MAINTENANCE TAX ON EX20 PORTS. 

21 (a) IN GENERAL.—Subsection (d) of section 4462 

22 (relating to definitions and special rules) is amended to 

23 read as follows: 

24 ‘‘(d) NONAPPLICABILITY OF TAX TO EXPORTS.—The 

25 tax imposed by section 4461(a) shall not apply to any port 
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1 use with respect to any commercial cargo to be exported 

2 from the United States.’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Section 4461(c)(1) is amended by adding 

5 ‘‘or’’ at the end of subparagraph (A), by striking 

6 subparagraph (B), and by redesignating subpara7 graph (C) as subparagraph (B). 

8 (2) Section 4461(c)(2) is amended by striking 

9 ‘‘imposed—’’ and all that follows through ‘‘in any 

10 other case,’’ and inserting ‘‘imposed’’. 

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

12 this section shall take effect before, on, and after the date 

13 of the enactment of this Act. 

14 SEC. 213. CAP ON EXCISE TAX ON CERTAIN FISHING EQUIP15 MENT. 

16 (a) IN GENERAL.—Paragraph (1) of section 4161(a) 

17 (relating to sport fishing equipment) is amended to read 

18 as follows: 

19 ‘‘(1) IMPOSITION OF TAX.— 

20 ‘‘(A) IN GENERAL.—There is hereby im21 posed on the sale of any article of sport fishing 

22 equipment by the manufacturer, producer, or 

23 importer a tax equal to 10 percent of the price 

24 for which so sold. 
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1 ‘‘(B) LIMITATION ON TAX IMPOSED ON

2 FISHING RODS AND POLES.—The tax imposed 

3 by subparagraph (A) on any fishing rod or pole 

4 shall not exceed $10.’’. 

5 (b) CONFORMING AMENDMENTS.—Section 

6 4161(a)(2) is amended by striking ‘‘paragraph (1)’’ both 

7 places it appears and inserting ‘‘paragraph (1)(A)’’. 

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

9 this section shall apply to articles sold by the manufac10 turer, producer, or importer after September 30, 2005. 

11 Subtitle C—Aerial Excise Taxes 

12 SEC. 221. CLARIFICATION OF EXCISE TAX EXEMPTIONS FOR 

13 AGRICULTURAL AERIAL APPLICATORS AND 

14 EXEMPTION FOR FIXED-WING AIRCRAFT EN15 GAGED IN FORESTRY OPERATIONS. 

16 (a) NO WAIVER BY FARM OWNER, TENANT, OR OP17 ERATOR NECESSARY.—Subparagraph (B) of section 

18 6420(c)(4) (relating to certain farming use other than by 

19 owner, etc.) is amended to read as follows: 

20 ‘‘(B) if the person so using the gasoline is 

21 an aerial or other applicator of fertilizers or 

22 other substances and is the ultimate purchaser 

23 of the gasoline, then subparagraph (A) of this 

24 paragraph shall not apply and the aerial or 
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1 other applicator shall be treated as having used 

2 such gasoline on a farm for farming purposes.’’. 

3 (b) EXEMPTION INCLUDES FUEL USED BETWEEN

4 AIRFIELD AND FARM.—Section 6420(c)(4), as amended 

5 by subsection (a), is amended by adding at the end the 

6 following new flush sentence: 

7 ‘‘In the case of an aerial applicator, gasoline shall be 

8 treated as used on a farm for farming purposes if 

9 the gasoline is used for the direct flight between the 

10 airfield and 1 or more farms.’’. 

11 (c) EXEMPTION FROM TAX ON AIR TRANSPOR12 TATION OF PERSONS FOR FORESTRY PURPOSES EX13 TENDED TO FIXED-WING AIRCRAFT.—Subsection (f) of 

14 section 4261 (relating to tax on air transportation of per15 sons) is amended to read as follows: 

16 ‘‘(f) EXEMPTION FOR CERTAIN USES.—No tax shall 

17 be imposed under subsection (a) or (b) on air transpor18 tation— 

19 ‘‘(1) by helicopter for the purpose of trans20 porting individuals, equipment, or supplies in the ex21 ploration for, or the development or removal of, hard 

22 minerals, oil, or gas, or 

23 ‘‘(2) by helicopter or by fixed-wing aircraft for 

24 the purpose of the planting, cultivation, cutting, or 
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1 transportation of, or caring for, trees (including log2 ging operations), 

3 but only if the helicopter or fixed-wing aircraft does not 

4 take off from, or land at, a facility eligible for assistance 

5 under the Airport and Airway Development Act of 1970, 

6 or otherwise use services provided pursuant to section 

7 44509 or 44913(b) or subchapter I of chapter 471 of title 

8 49, United States Code, during such use. In the case of 

9 helicopter transportation described in paragraph (1), this 

10 subsection shall be applied by treating each flight segment 

11 as a distinct flight.’’. 

12 (d) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to fuel use or air transportation 

14 after September 30, 2005. 

15 SEC. 222. MODIFICATION OF RURAL AIRPORT DEFINITION. 

16 (a) IN GENERAL.—Section 4261(e)(1)(B) (defining 

17 rural airport) is amended— 

18 (1) by inserting ‘‘(in the case of any airport de19 scribed in clause (ii)(III), on flight segments of at 

20 least 100 miles)’’ after ‘‘by air’’ in clause (i), and 

21 (2) by striking ‘‘or’’ at the end of subclause (I) 

22 of clause (ii), by striking the period at the end of 

23 subclause (II) of clause (ii) and inserting ‘‘, or’’, and 

24 by adding at the end of clause (ii) the following new 

25 subclause: 
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1 ‘‘(III) is not connected by paved 

2 roads to another airport.’’. 

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

4 this section shall take effect on October 1, 2005. 

5 SEC. 223. EXEMPTION FROM TAXES FOR TRANSPORTATION 

6 PROVIDED BY SEAPLANES. 

7 (a) IN GENERAL.—Section 4261 (relating to imposi8 tion of tax) is amended by redesignating subsection (i) as 

9 subsection (j) and by inserting after subsection (h) the fol10 lowing new subsection: 

11 ‘‘(i) EXEMPTION FOR SEAPLANES.—No tax shall be 

12 imposed by this section or section 4271 on any air trans13 portation by a seaplane with respect to any segment con14 sisting of a takeoff from, and a landing on, water, but 

15 only if the places at which such takeoff and landing occur 

16 have not received and are not receiving financial assist17 ance from the Airport and Airways Trust Fund.’’. 

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

19 this section shall apply to transportation beginning after 

20 September 30, 2005. 

21 SEC. 224. CERTAIN SIGHTSEEING FLIGHTS EXEMPT FROM 

22 TAXES ON AIR TRANSPORTATION. 

23 (a) IN GENERAL.—Section 4281 (relating to small 

24 aircraft on nonestablished lines) is amended by adding at 

25 the end the following new sentence: ‘‘For purposes of this 
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1 section, an aircraft shall not be considered as operated on 

2 an established line at any time during which such aircraft 

3 is being operated on a flight the sole purpose of which 

4 is sightseeing.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply with respect to transportation be7 ginning after September 30, 2005, but shall not apply to 

8 any amount paid before such date for such transportation. 

9 Subtitle D—Taxes Relating to 

10 Alcohol 

11 SEC. 231. REPEAL OF SPECIAL OCCUPATIONAL TAXES ON 

12 PRODUCERS AND MARKETERS OF ALCO13 HOLIC BEVERAGES. 

14 (a) REPEAL OF OCCUPATIONAL TAXES.— 

15 (1) IN GENERAL.—The following provisions of 

16 part II of subchapter A of chapter 51 (relating to 

17 occupational taxes) are hereby repealed: 

18 (A) Subpart A (relating to proprietors of 

19 distilled spirits plants, bonded wine cellars, 

20 etc.). 

21 (B) Subpart B (relating to brewer). 

22 (C) Subpart D (relating to wholesale deal23 ers) (other than sections 5114 and 5116). 

24 (D) Subpart E (relating to retail dealers) 

25 (other than section 5124). 
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1 (E) Subpart G (relating to general provi2 sions) (other than sections 5142, 5143, 5145, 

3 and 5146). 

4 (2) NONBEVERAGE DOMESTIC DRAWBACK.— 

5 Section 5131 is amended by striking ‘‘, on payment 

6 of a special tax per annum,’’. 

7 (3) INDUSTRIAL USE OF DISTILLED SPIRITS.— 

8 Section 5276 is hereby repealed. 

9 (b) CONFORMING AMENDMENTS.— 

10 (1)(A) The heading for part II of subchapter A 

11 of chapter 51 and the table of subparts for such 

12 part are amended to read as follows: 

13 ‘‘PART II—MISCELLANEOUS PROVISIONS 

‘‘Subpart A. Manufacturers of stills. 

‘‘Subpart B. Nonbeverage domestic drawback claimants. 

‘‘Subpart C. Recordkeeping and registration by dealers. 

‘‘Subpart D. Other provisions.’’. 

14 (B) The table of parts for such subchapter A 

15 is amended by striking the item relating to part II 

16 and inserting the following new item: 

‘‘Part II. Miscellaneous provisions.’’. 

17 (2) Subpart C of part II of such subchapter 

18 (relating to manufacturers of stills) is redesignated 

19 as subpart A. 

20 (3)(A) Subpart F of such part II (relating to 

21 nonbeverage domestic drawback claimants) is redes22 ignated as subpart B and sections 5131 through 
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1 5134 are redesignated as sections 5111 through 

2 5114, respectively. 

3 (B) The table of sections for such subpart B, 

4 as so redesignated, is amended— 

5 (i) by redesignating the items relating to 

6 sections 5131 through 5134 as relating to sec7 tions 5111 through 5114, respectively, and 

8 (ii) by striking ‘‘and rate of tax’’ in the 

9 item relating to section 5111, as so redesig10 nated. 

11 (C) Section 5111, as redesignated by subpara12 graph (A), is amended— 

13 (i) by striking ‘‘AND RATE OF TAX’’ in 

14 the section heading, 

15 (ii) by striking the subsection heading for 

16 subsection (a), and 

17 (iii) by striking subsection (b). 

18 (4) Part II of subchapter A of chapter 51 is 

19 amended by adding after subpart B, as redesignated 

20 by paragraph (3), the following new subpart: 

21 ‘‘Subpart C—Recordkeeping and Registration by 

22 Dealers 

‘‘Sec. 5121. Recordkeeping by wholesale dealers. 

‘‘Sec. 5122. Recordkeeping by retail dealers. 

‘‘Sec. 5123. Preservation and inspection of records, and entry of premises 

for inspection. 

‘‘Sec. 5124. Registration by dealers.’’. 
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1 (5)(A) Section 5114 (relating to records) is 

2 moved to subpart C of such part II and inserted 

3 after the table of sections for such subpart. 

4 (B) Section 5114 is amended— 

5 (i) by striking the section heading and in6 serting the following new heading: 

7 ‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’, 

8 and 

9 (ii) by redesignating subsection (c) as sub10 section (d) and by inserting after subsection (b) the 

11 following new subsection: 

12 ‘‘(c) WHOLESALE DEALERS.—For purposes of this 

13 part— 

14 ‘‘(1) WHOLESALE DEALER IN LIQUORS.—The 

15 term ‘wholesale dealer in liquors’ means any dealer 

16 (other than a wholesale dealer in beer) who sells, or 

17 offers for sale, distilled spirits, wines, or beer, to an18 other dealer. 

19 ‘‘(2) WHOLESALE DEALER IN BEER.—The term 

20 ‘wholesale dealer in beer’ means any dealer who 

21 sells, or offers for sale, beer, but not distilled spirits 

22 or wines, to another dealer. 

23 ‘‘(3) DEALER.—The term ‘dealer’ means any 

24 person who sells, or offers for sale, any distilled spir25 its, wines, or beer. 
24 

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1 ‘‘(4) PRESUMPTION IN CASE OF SALE OF 20

2 WINE GALLONS OR MORE.—The sale, or offer for 

3 sale, of distilled spirits, wines, or beer, in quantities 

4 of 20 wine gallons or more to the same person at 

5 the same time, shall be presumptive evidence that 

6 the person making such sale, or offer for sale, is en7 gaged in or carrying on the business of a wholesale 

8 dealer in liquors or a wholesale dealer in beer, as the 

9 case may be. Such presumption may be overcome by 

10 evidence satisfactorily showing that such sale, or 

11 offer for sale, was made to a person other than a 

12 dealer.’’. 

13 (C) Paragraph (3) of section 5121(d), as so re14 designated, is amended by striking ‘‘section 5146’’ 

15 and inserting ‘‘section 5123’’. 

16 (6)(A) Section 5124 (relating to records) is 

17 moved to subpart C of part II of subchapter A of 

18 chapter 51 and inserted after section 5121. 

19 (B) Section 5124 is amended— 

20 (i) by striking the section heading and in21 serting the following new heading: 

22 ‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’, 

23 (ii) by striking ‘‘section 5146’’ in subsection (c) 

24 and inserting ‘‘section 5123’’, and 
25 

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1 (iii) by redesignating subsection (c) as sub2 section (d) and inserting after subsection (b) the fol3 lowing new subsection: 

4 ‘‘(c) RETAIL DEALERS.—For purposes of this sec5 tion— 

6 ‘‘(1) RETAIL DEALER IN LIQUORS.—The term 

7 ‘retail dealer in liquors’ means any dealer (other 

8 than a retail dealer in beer or a limited retail dealer) 

9 who sells, or offers for sale, distilled spirits, wines, 

10 or beer, to any person other than a dealer. 

11 ‘‘(2) RETAIL DEALER IN BEER.—The term ‘re12 tail dealer in beer’ means any dealer (other than a 

13 limited retail dealer) who sells, or offers for sale, 

14 beer, but not distilled spirits or wines, to any person 

15 other than a dealer. 

16 ‘‘(3) LIMITED RETAIL DEALER.—The term ‘lim17 ited retail dealer’ means any fraternal, civic, church, 

18 labor, charitable, benevolent, or ex-servicemen’s or19 ganization making sales of distilled spirits, wine or 

20 beer on the occasion of any kind of entertainment, 

21 dance, picnic, bazaar, or festival held by it, or any 

22 person making sales of distilled spirits, wine or beer 

23 to the members, guests, or patrons of bona fide 

24 fairs, reunions, picnics, carnivals, or other similar 
26 

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1 outings, if such organization or person is not other2 wise engaged in business as a dealer. 

3 ‘‘(4) DEALER.—The term ‘dealer’ has the 

4 meaning given such term by section 5121(c)(3).’’. 

5 (7) Section 5146 is moved to subpart C of part 

6 II of subchapter A of chapter 51, inserted after sec7 tion 5122, and redesignated as section 5123. 

8 (8) Subpart C of part II of subchapter A of 

9 chapter 51, as amended by paragraph (7), is amend10 ed by adding at the end the following new section: 

11 ‘‘SEC. 5124. REGISTRATION BY DEALERS. 

12 ‘‘Every dealer who is subject to the recordkeeping re13 quirements under section 5121 or 5122 shall register with 

14 the Secretary such dealer’s name or style, place of resi15 dence, trade or business, and the place where such trade 

16 or business is to be carried on. In case of a firm or com17 pany, the names of the several persons constituting the 

18 same, and the places of residence, shall be so registered.’’. 

19 (9) Section 7012 is amended by redesignating 

20 paragraphs (4) and (5) as paragraphs (5) and (6), 

21 respectively, and by inserting after paragraph (3) 

22 the following new paragraph: 

23 ‘‘(4) For provisions relating to registration by 

24 dealers in distilled spirits, wines, and beer, see sec25 tion 5124.’’. 
27 

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1 (10) Part II of subchapter A of chapter 51 is 

2 amended by inserting after subpart C the following 

3 new subpart: 

4 ‘‘Subpart D—Other Provisions 

‘‘Sec. 5131. Packaging distilled spirits for industrial uses. 

‘‘Sec. 5132. Prohibited purchases by dealers.’’. 

5 (11) Section 5116 is moved to subpart D of 

6 part II of subchapter A of chapter 51, inserted after 

7 the table of sections, redesignated as section 5131, 

8 and amended by inserting ‘‘(as defined in section 

9 5121(c))’’ after ‘‘dealer’’ in subsection (a). 

10 (12) Subpart D of part II of subchapter A of 

11 chapter 51 is amended by adding at the end the fol12 lowing new section: 

13 ‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS. 

14 ‘‘(a) IN GENERAL.—Except as provided in regula15 tions prescribed by the Secretary, it shall be unlawful for 

16 a dealer to purchase distilled spirits for resale from any 

17 person other than a wholesale dealer in liquors who is re18 quired to keep the records prescribed by section 5121. 

19 ‘‘(b) LIMITED RETAIL DEALERS.—A limited retail 

20 dealer may lawfully purchase distilled spirits for resale 

21 from a retail dealer in liquors. 

22 ‘‘(c) PENALTY AND FORFEITURE.— 

‘‘For penalty and forfeiture provisions applicable to violations of subsection (a), 

see sections 5687 and 7302.’’. 
28 

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1 (13) Subsection (b) of section 5002 is amend2 ed— 

3 (A) by striking ‘‘section 5112(a)’’ and in4 serting ‘‘section 5121(c)(3)’’, 

5 (B) by striking ‘‘section 5112’’ and insert6 ing ‘‘section 5121(c)’’, 

7 (C) by striking ‘‘section 5122’’ and insert8 ing ‘‘section 5122(c)’’. 

9 (14) Subparagraph (A) of section 5010(c)(2) is 

10 amended by striking ‘‘section 5134’’ and inserting 

11 ‘‘section 5114’’. 

12 (15) Subsection (d) of section 5052 is amended 

13 to read as follows: 

14 ‘‘(d) BREWER.—For purposes of this chapter, the 

15 term ‘brewer’ means any person who brews beer or pro16 duces beer for sale. Such term shall not include any person 

17 who produces only beer exempt from tax under section 

18 5053(e).’’. 

19 (16) The text of section 5182 is amended to 

20 read as follows: 

‘‘For provisions requiring recordkeeping by wholesale liquor dealers, see 

section 5112, and by retail liquor dealers, see section 

5122.’’. 

21 (17) Subsection (b) of section 5402 is amended 

22 by striking ‘‘section 5092’’ and inserting ‘‘section 

23 5052(d)’’. 
29 

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1 (18) Section 5671 is amended by striking ‘‘or 

2 5091’’. 

3 (19)(A) Part V of subchapter J of chapter 51 

4 is hereby repealed. 

5 (B) The table of parts for such subchapter J is 

6 amended by striking the item relating to part V. 

7 (20)(A) Sections 5142, 5143, and 5145 are 

8 moved to subchapter D of chapter 52, inserted after 

9 section 5731, redesignated as sections 5732, 5733, 

10 and 5734, respectively, and amended by striking 

11 ‘‘this part’’ each place it appears and inserting ‘‘this 

12 subchapter’’. 

13 (B) Section 5732, as redesignated by subpara14 graph (A), is amended by striking ‘‘(except the tax 

15 imposed by section 5131)’’ each place it appears. 

16 (C) Paragraph (2) of section 5733(c), as redes17 ignated by subparagraph (A), is amended by striking 

18 ‘‘liquors’’ both places it appears and inserting ‘‘to19 bacco products and cigarette papers and tubes’’. 

20 (D) The table of sections for subchapter D of 

21 chapter 52 is amended by adding at the end the fol22 lowing: 

‘‘Sec. 5732. Payment of tax. 

‘‘Sec. 5733. Provisions relating to liability for occupational taxes. 

‘‘Sec. 5734. Application of State laws.’’. 
30 

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1 (E) Section 5731 is amended by striking sub2 section (c) and by redesignating subsection (d) as 

3 subsection (c). 

4 (21) Subsection (c) of section 6071 is amended 

5 by striking ‘‘section 5142’’ and inserting ‘‘section 

6 5732’’. 

7 (22) Paragraph (1) of section 7652(g) is 

8 amended— 

9 (A) by striking ‘‘subpart F’’ and inserting 

10 ‘‘subpart B’’, and 

11 (B) by striking ‘‘section 5131(a)’’ and in12 serting ‘‘section 5111’’. 

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

14 this section shall take effect on July 1, 2008, but shall 

15 not apply to taxes imposed for periods before such date. 

16 SEC. 232. MODIFICATION OF LIMITATION ON RATE OF RUM 

17 EXCISE TAX COVER OVER TO PUERTO RICO 

18 AND VIRGIN ISLANDS. 

19 (a) IN GENERAL.—Section 7652(f)(1) (relating to 

20 limitation on cover over of tax on distilled spirits) is 

21 amended by inserting ‘‘, and $13.50 in the case of distilled 

22 spirits brought into the United States after December 31, 

23 2005, and before January 1, 2007’’ after ‘‘2006’’. 

24 (b) SPECIAL RULE.— 
31 

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1 (1) IN GENERAL.—After December 31, 2005, 

2 and before January 1, 2007, the Commonwealth of 

3 Puerto Rico shall make a Conservation Trust Fund 

4 transfer from the treasury of Puerto Rico within 30 

5 days from the date of each cover overpayment to 

6 such treasury under section 7652(e) of the Internal 

7 Revenue Code of 1986. 

8 (2) CONSERVATION TRUST FUND TRANSFER.— 

9 (A) IN GENERAL.—For purposes of this 

10 subsection, the term ‘‘Conservation Trust Fund 

11 transfer’’ means a transfer to the Puerto Rico 

12 Conservation Trust Fund of an amount equal 

13 to 50 cents per proof gallon of the taxes im14 posed under section 5001 or section 7652 of 

15 such Code on distilled spirits that are covered 

16 over to the treasury of Puerto Rico under sec17 tion 7652(e) of such Code. 

18 (B) TREATMENT OF TRANSFER.—Each 

19 Conservation Trust Fund transfer shall be 

20 treated as principal for an endowment, the in21 come from which to be available for use by the 

22 Puerto Rico Conservation Trust Fund for the 

23 purposes for which the Trust Fund was estab24 lished. 

25 (C) RESULT OF NONTRANSFER.— 
32 

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1 (i) IN GENERAL.—Upon notification 

2 by the Secretary of the Interior that a 

3 Conservation Trust Fund transfer has not 

4 been made by the Commonwealth of Puer5 to Rico, the Secretary of the Treasury 

6 shall, except as provided in clause (ii), de7 duct and withhold from the next cover 

8 overpayment to be made to the treasury of 

9 Puerto Rico under section 7652(e) of such 

10 Code an amount equal to the appropriate 

11 Conservation Trust Fund transfer and in12 terest thereon at the underpayment rate 

13 established under section 6621 of such 

14 Code as of the due date of such transfer. 

15 The Secretary of the Treasury shall trans16 fer such amount deducted and withheld, 

17 and the interest thereon, directly to the 

18 Puerto Rico Conservation Trust Fund. 

19 (ii) GOOD-CAUSE EXCEPTION.—If the 

20 Secretary of the Interior finds, after con21 sultation with the Governor of Puerto 

22 Rico, that the failure by the Common23 wealth of Puerto Rico to make a required 

24 transfer was for good cause, and notifies 

25 the Secretary of the Treasury of the find-
33 

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1 ing of such good cause before the due date 

2 of the next cover overpayment following 

3 the notification of nontransfer, then the 

4 Secretary of the Treasury shall not deduct 

5 the amount of such nontransfer from any 

6 cover overpayment. 

7 (3) PUERTO RICO CONSERVATION TRUST

8 FUND.—For purposes of this subsection, the term 

9 ‘‘Puerto Rico Conservation Trust Fund’’ means the 

10 fund established pursuant to a Memorandum of Un11 derstanding between the United States Department 

12 of the Interior and the Commonwealth of Puerto 

13 Rico, dated December 24, 1968. 

14 SEC. 233. INCOME TAX CREDIT FOR DISTILLED SPIRITS 

15 WHOLESALERS AND FOR DISTILLED SPIRITS 

16 IN CONTROL STATE BAILMENT WAREHOUSES 

17 FOR COSTS OF CARRYING FEDERAL EXCISE 

18 TAXES ON BOTTLED DISTILLED SPIRITS. 

19 (a) IN GENERAL.—Subpart A of part I of subchapter 

20 A of chapter 51 (relating to gallonage and occupational 

21 taxes) is amended by adding at the end the following new 

22 section: 
34 

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1 ‘‘SEC. 5011. INCOME TAX CREDIT FOR AVERAGE COST OF 

2 CARRYING EXCISE TAX. 

3 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

4 amount of the distilled spirits credit for any taxable year 

5 is the amount equal to the product of— 

6 ‘‘(1) in the case of— 

7 ‘‘(A) any eligible wholesaler, the number of 

8 cases of bottled distilled spirits— 

9 ‘‘(i) which were bottled in the United 

10 States, and 

11 ‘‘(ii) which are purchased by such 

12 wholesaler during the taxable year directly 

13 from the bottler of such spirits, or 

14 ‘‘(B) any person which is subject to section 

15 5005 and which is not an eligible wholesaler, 

16 the number of cases of bottled distilled spirits 

17 which are stored in a warehouse operated by, or 

18 on behalf of, a State or political subdivision 

19 thereof, or an agency of either, on which title 

20 has not passed on an unconditional sale basis, 

21 and 

22 ‘‘(2) the average tax-financing cost per case for 

23 the most recent calendar year ending before the be24 ginning of such taxable year. 

25 ‘‘(b) ELIGIBLE WHOLESALER.—For purposes of this 

26 section, the term ‘eligible wholesaler’ means any person 
35 

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1 which holds a permit under the Federal Alcohol Adminis2 tration Act as a wholesaler of distilled spirits which is not 

3 a State or political subdivision thereof, or an agency of 

4 either. 

5 ‘‘(c) AVERAGE TAX-FINANCING COST.— 

6 ‘‘(1) IN GENERAL.—For purposes of this sec7 tion, the average tax-financing cost per case for any 

8 calendar year is the amount of interest which would 

9 accrue at the deemed financing rate during a 60-day 

10 period on an amount equal to the deemed Federal 

11 excise tax per case. 

12 ‘‘(2) DEEMED FINANCING RATE.—For purposes 

13 of paragraph (1), the deemed financing rate for any 

14 calendar year is the average of the corporate over15 payment rates under paragraph (1) of section 

16 6621(a) (determined without regard to the last sen17 tence of such paragraph) for calendar quarters of 

18 such year. 

19 ‘‘(3) DEEMED FEDERAL EXCISE TAX PER

20 CASE.—For purposes of paragraph (1), the deemed 

21 Federal excise tax per case is $25.68. 

22 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 

23 For purposes of this section— 

24 ‘‘(1) CASE.—The term ‘case’ means 12 80- 

25 proof 750-milliliter bottles. 
36 

•S 1230 PCS

1 ‘‘(2) NUMBER OF CASES IN LOT.—The number 

2 of cases in any lot of distilled spirits shall be deter3 mined by dividing the number of liters in such lot 

4 by 9.’’. 

5 (b) CREDIT TREATED AS PART OF GENERAL BUSI6 NESS CREDIT.—Section 38(b) (relating to current year 

7 business credit) is amended by striking ‘‘plus’’ at the end 

8 of paragraph (18), by striking the period at the end of 

9 paragraph (19), and inserting ‘‘, plus’’, and by adding at 

10 the end the following new paragraph: 

11 ‘‘(20) the distilled spirits credit determined 

12 under section 5011(a).’’. 

13 (c) CONFORMING AMENDMENT.—The table of sec14 tions for subpart A of part I of subchapter A of chapter 

15 51 is amended by adding at the end the following new 

16 item: 

‘‘Sec. 5011. Income tax credit for average cost of carrying excise tax.’’. 

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

18 this section shall apply to taxable years beginning after 

19 September 30, 2005. 

20 SEC. 234. QUARTERLY EXCISE TAX FILING FOR SMALL AL21 COHOL EXCISE TAXPAYERS. 

22 (a) IN GENERAL.—Subsection (d) of section 5061 

23 (relating to time for collecting tax on distilled spirits, 

24 wines, and beer) is amended by redesignating paragraphs 

25 (4) and (5) as paragraphs (5) and (6), respectively, and 
37 

•S 1230 PCS

1 by inserting after paragraph (3) the following new para2 graph: 

3 ‘‘(4) TAXPAYERS LIABLE FOR TAXES OF NOT

4 MORE THAN $50,000.— 

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

6 taxpayer who reasonably expects to be liable for 

7 not more than $50,000 in taxes imposed with 

8 respect to distilled spirits, wines, and beer 

9 under subparts A, C, and D for the calendar 

10 year and who was liable for not more than 

11 $50,000 in such taxes in the preceding calendar 

12 year, the last day for the payment of tax shall 

13 be the 14th day after the last day of the cal14 endar quarter during which the action giving 

15 rise to the imposition of such tax occurs. 

16 ‘‘(B) NO APPLICATION AFTER LIMIT EX17 CEEDED.—Subparagraph (A) shall not apply to 

18 any taxpayer for any portion of the calendar 

19 year following the first date on which the aggre20 gate amount of tax due under subparts A, C, 

21 and D from such taxpayer during such calendar 

22 year exceeds $50,000, and any tax under such 

23 subparts which has not been paid on such date 

24 shall be due on the 14th day after the last day 
38 

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1 of the semimonthly period in which such date 

2 occurs. 

3 ‘‘(C) CALENDAR QUARTER.—For purposes 

4 of this paragraph, the term ‘calendar quarter’ 

5 means the three-month period ending on March 

6 31, June 30, September 30, or December 31.’’. 

7 (b) CONFORMING AMENDMENT.—Section 

8 5061(d)(6), as redesignated by subsection (a), is amended 

9 by striking ‘‘paragraph (4)’’ and inserting ‘‘paragraph 

10 (5)’’. 

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

12 this section shall apply with respect to quarterly periods 

13 beginning on and after January 1, 2006. 

14 Subtitle E—Sport Excise Taxes 

15 SEC. 241. CUSTOM GUNSMITHS. 

16 (a) SMALL MANUFACTURERS EXEMPT FROM FIRE17 ARMS EXCISE TAX.—Section 4182 (relating to exemp18 tions) is amended by redesignating subsection (c) as sub19 section (d) and by inserting after subsection (b) the fol20 lowing new subsection: 

21 ‘‘(c) SMALL MANUFACTURERS, ETC.— 

22 ‘‘(1) IN GENERAL.—The tax imposed by section 

23 4181 shall not apply to any pistol, revolver, or fire24 arm described in such section if manufactured, pro25 duced, or imported by a person who manufactures, 
39 

•S 1230 PCS

1 produces, and imports less than an aggregate of 50 

2 of such articles during the calendar year. 

3 ‘‘(2) CONTROLLED GROUPS.—All persons treat4 ed as a single employer for purposes of subsection 

5 (a) or (b) of section 52 shall be treated as one per6 son for purposes of paragraph (1).’’. 

7 (b) EFFECTIVE DATE.— 

8 (1) IN GENERAL.—The amendments made by 

9 this section shall apply to articles sold by the manu10 facturer, producer, or importer after September 30, 

11 2005. 

12 (2) NO INFERENCE.—Nothing in the amend13 ments made by this section shall be construed to 

14 create any inference with respect to the proper tax 

15 treatment of any sales before the effective date of 

16 such amendments. 

17 TITLE III—MISCELLANEOUS 

18 PROVISIONS 

19 SEC. 301. MOTOR FUEL TAX ENFORCEMENT ADVISORY 

20 COMMISSION. 

21 (a) ESTABLISHMENT.—There is established a Motor 

22 Fuel Tax Enforcement Advisory Commission (in this sec23 tion referred to as the ‘‘Commission’’). 

24 (b) FUNCTION.—The Commission shall— 
40 

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1 (1) review motor fuel revenue collections, histor2 ical and current; 

3 (2) review the progress of investigations; 

4 (3) develop and review legislative proposals with 

5 respect to motor fuel taxes; 

6 (4) monitor the progress of administrative regu7 lation projects relating to motor fuel taxes; 

8 (5) review the results of Federal and State 

9 agency cooperative efforts regarding motor fuel 

10 taxes; 

11 (6) review the results of Federal interagency co12 operative efforts regarding motor fuel taxes; and 

13 (7) evaluate and make recommendations to the 

14 President and Congress regarding— 

15 (A) the effectiveness of existing Federal 

16 enforcement programs regarding motor fuel 

17 taxes, 

18 (B) enforcement personnel allocation, and 

19 (C) proposals for regulatory projects, legis20 lation, and funding. 

21 (c) MEMBERSHIP.— 

22 (1) APPOINTMENT.—The Commission shall be 

23 composed of the following representatives appointed 

24 by the Chairmen and the Ranking Members of the 

25 Committee on Finance of the Senate and the Com-
41 

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1 mittee on Ways and Means of the House of Rep2 resentatives: 

3 (A) At least 1 representative from each of 

4 the following Federal entities: the Department 

5 of Homeland Security, the Department of 

6 Transportation—Office of Inspector General, 

7 the Federal Highway Administration, the De8 partment of Defense, and the Department of 

9 Justice. 

10 (B) At least 1 representative from the 

11 Federation of State Tax Administrators. 

12 (C) At least 1 representative from any 

13 State department of transportation. 

14 (D) 2 representatives from the highway 

15 construction industry. 

16 (E) 6 representatives from industries relat17 ing to fuel distribution — refiners (2 represent18 atives), distributors (1 representative), pipelines 

19 (1 representative), and terminal operators (2 

20 representatives). 

21 (F) 1 representative from the retail fuel in22 dustry. 

23 (G) 2 representatives from the staff of the 

24 Committee on Finance of the Senate and 2 rep25 resentatives from the staff of the Committee on 
42 

•S 1230 PCS

1 Ways and Means of the House of Representa2 tives. 

3 (2) TERMS.—Members shall be appointed for 

4 the life of the Commission. 

5 (3) VACANCIES.—A vacancy in the Commission 

6 shall be filled in the manner in which the original 

7 appointment was made. 

8 (4) TRAVEL EXPENSES.—Members shall serve 

9 without pay but shall receive travel expenses, includ10 ing per diem in lieu of subsistence, in accordance 

11 with sections 5702 and 5703 of title 5, United 

12 States Code. 

13 (5) CHAIRMAN.—The Chairman of the Commis14 sion shall be elected by the members. 

15 (d) FUNDING.—Such sums as are necessary shall be 

16 available from the Highway Trust fund for the expenses 

17 of the Commission. 

18 (e) CONSULTATION.—Upon request of the Commis19 sion, representatives of the Department of the Treasury 

20 and the Internal Revenue Service shall be available for 

21 consultation to assist the Commission in carrying out its 

22 duties under this section. 

23 (f) OBTAINING DATA.—The Commission may secure 

24 directly from any department or agency of the United 

25 States, information (other than information required by 
43 

•S 1230 PCS

1 any law to be kept confidential by such department or 

2 agency) necessary for the Commission to carry out its du3 ties under this section. Upon request of the Commission, 

4 the head of that department or agency shall furnish such 

5 nonconfidential information to the Commission. The Com6 mission shall also gather evidence through such means as 

7 it may deem appropriate, including through holding hear8 ings and soliciting comments by means of Federal Reg9 ister notices. 

10 (g) TERMINATION.—The Commission shall terminate 

11 as of the close of September 30, 2009. 

12 SEC. 302. NATIONAL SURFACE TRANSPORTATION INFRA13 STRUCTURE FINANCING COMMISSION. 

14 (a) ESTABLISHMENT.—There is established a Na15 tional Surface Transportation Infrastructure Financing 

16 Commission (in this section referred to as the ‘‘Commis17 sion’’). The Commission shall hold its first meeting within 

18 90 days of the appointment of the eighth individual to be 

19 named to the Commission. 

20 (b) FUNCTION.— 

21 (1) IN GENERAL.—The Commission shall, with 

22 respect to the period beginning on the date of the 

23 enactment of this Act and ending before 2016— 

24 (A) make a thorough investigation and 

25 study of revenues flowing into the Highway 
44 

•S 1230 PCS

1 Trust Fund under current law, including the in2 dividual components of the overall flow of such 

3 revenues; 

4 (B) consider whether the amount of such 

5 revenues is likely to increase, decline, or remain 

6 unchanged, absent changes in the law, particu7 larly by taking into account the impact of pos8 sible changes in public vehicular choice, fuel 

9 use, or travel alternatives that could be ex10 pected to reduce or increase revenues into the 

11 Highway Trust Fund; 

12 (C) consider alternative approaches to gen13 erating revenues for the Highway Trust Fund, 

14 and the level of revenues that such alternatives 

15 would yield; 

16 (D) consider highway and transit needs 

17 and whether additional revenues into the High18 way Trust Fund, or other Federal revenues 

19 dedicated to highway and transit infrastructure, 

20 would be required in order to meet such needs; 

21 and 

22 (E) study such other matters closely re23 lated to the subjects described in the preceding 

24 subparagraphs as it may deem appropriate. 
45 

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1 (2) PREPARATION OF REPORT.—Based on such 

2 investigation and study, the Commission shall de3 velop a final report, with recommendations and the 

4 bases for those recommendations, indicating policies 

5 that should be adopted, or not adopted, to achieve 

6 various levels of annual revenue for the Highway 

7 Trust Fund and to enable the Highway Trust Fund 

8 to receive revenues sufficient to meet highway and 

9 transit needs. Such recommendations shall address, 

10 among other matters as the Commission may deem 

11 appropriate— 

12 (A) what levels of revenue are required by 

13 the Federal Highway Trust Fund in order for 

14 it to meet needs to maintain and improve the 

15 condition and performance of the Nation’s high16 way and transit systems; 

17 (B) what levels of revenue are required by 

18 the Federal Highway Trust Fund in order to 

19 ensure that Federal levels of investment in 

20 highways and transit do not decline in real 

21 terms; and 

22 (C) the extent, if any, to which the High23 way Trust Fund should be augmented by other 

24 mechanisms or funds as a Federal means of fi-
46 

•S 1230 PCS

1 nancing highway and transit infrastructure in2 vestments. 

3 (c) MEMBERSHIP.— 

4 (1) APPOINTMENT.—The Commission shall be 

5 composed of 15 members, appointed as follows: 

6 (A) 7 members appointed by the Secretary 

7 of Transportation, in consultation with the Sec8 retary of the Treasury. 

9 (B) 2 members appointed by the Chairman 

10 of the Committee on Ways and Means of the 

11 House of Representatives. 

12 (C) 2 members appointed by the Ranking 

13 Minority Member of the Committee on Ways 

14 and Means of the House of Representatives. 

15 (D) 2 members appointed by the Chairman 

16 of the Committee on Finance of the Senate. 

17 (E) 2 members appointed by the Ranking 

18 Minority Member of the Committee on Finance 

19 of the Senate. 

20 (2) QUALIFICATIONS.—Members appointed pur21 suant to paragraph (1) shall be appointed from 

22 among individuals knowledgeable in the fields of 

23 public transportation finance or highway and transit 

24 programs, policy, and needs, and may include rep25 resentatives of interested parties, such as State and 
47 

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1 local governments or other public transportation au2 thorities or agencies, representatives of the transpor3 tation construction industry (including suppliers of 

4 technology, machinery and materials), transportation 

5 labor (including construction and providers), trans6 portation providers, the financial community, and 

7 users of highway and transit systems. 

8 (3) TERMS.—Members shall be appointed for 

9 the life of the Commission. 

10 (4) VACANCIES.—A vacancy in the Commission 

11 shall be filled in the manner in which the original 

12 appointment was made. 

13 (5) TRAVEL EXPENSES.—Members shall serve 

14 without pay but shall receive travel expenses, includ15 ing per diem in lieu of subsistence, in accordance 

16 with sections 5702 and 5703 of title 5, United 

17 States Code. 

18 (6) CHAIRMAN.—The Chairman of the Commis19 sion shall be elected by the members. 

20 (d) STAFF.—The Commission may appoint and fix 

21 the pay of such personnel as it considers appropriate. 

22 (e) FUNDING.—Funding for the Commission shall be 

23 provided by the Secretary of the Treasury and by the Sec24 retary of Transportation, out of funds available to those 

25 agencies for administrative and policy functions. 
48 

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1 (f) STAFF OF FEDERAL AGENCIES.—Upon request 

2 of the Commission, the head of any department or agency 

3 of the United States may detail any of the personnel of 

4 that department or agency to the Commission to assist 

5 in carrying out its duties under this section. 

6 (g) OBTAINING DATA.—The Commission may secure 

7 directly from any department or agency of the United 

8 States, information (other than information required by 

9 any law to be kept confidential by such department or 

10 agency) necessary for the Commission to carry out its du11 ties under this section. Upon request of the Commission, 

12 the head of that department or agency shall furnish such 

13 nonconfidential information to the Commission. The Com14 mission shall also gather evidence through such means as 

15 it may deem appropriate, including through holding hear16 ings and soliciting comments by means of Federal Reg17 ister notices. 

18 (h) REPORT.—Not later than 2 years after the date 

19 of its first meeting, the Commission shall transmit its final 

20 report, including recommendations, to the Secretary of 

21 Transportation, the Secretary of the Treasury, and the 

22 Committee on Ways and Means of the House of Rep23 resentatives, the Committee on Finance of the Senate, the 

24 Committee on Transportation and Infrastructure of the 

25 House of Representatives, the Committee on Environment 
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1 and Public Works of the Senate, and the Committee on 

2 Banking, Housing, and Urban Affairs of the Senate. 

3 (i) TERMINATION.—The Commission shall terminate 

4 on the 180th day following the date of transmittal of the 

5 report under subsection (h). All records and papers of the 

6 Commission shall thereupon be delivered to the Adminis7 trator of General Services for deposit in the National Ar8 chives. 

9 SEC. 303. EXPANSION OF HIGHWAY TRUST FUND EXPENDI10 TURE PURPOSES TO INCLUDE FUNDING FOR 

11 STUDIES OF SUPPLEMENTAL OR ALTER12 NATIVE FINANCING FOR THE HIGHWAY 

13 TRUST FUND. 

14 (a) IN GENERAL.—From amounts available in the 

15 Highway Trust Fund, there is authorized to be expended 

16 for 2 comprehensive studies of supplemental or alternative 

17 funding sources for the Highway Trust Fund— 

18 (1) $1,000,000 to the Western Transportation 

19 Institute of the College of Engineering at Montana 

20 State University for the study and report described 

21 in subsection (b), and 

22 (2) $16,500,000 to the Public Policy Center of 

23 the University of Iowa for the study and report de24 scribed in subsection (c). 
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1 (b) STUDY OF FUNDING MECHANISMS.—Not later 

2 than December 31, 2006, the Western Transportation In3 stitute of the College of Engineering at Montana State 

4 University shall report to the Secretary of the Treasury 

5 and the Secretary of Transportation on a study of highway 

6 funding mechanisms of other industrialized nations, an ex7 amination of the viability of alternative funding proposals, 

8 including congestion pricing, greater reliance on tolls, pri9 vatization of facilities, and bonding for construction of 

10 added capacity, and an examination of increasing the rates 

11 of motor fuels taxes in effect on the date of the enactment 

12 of this Act, including the indexation of such rates. 

13 (c) STUDY ON FIELD TEST OF ONBOARD COMPUTER

14 ASSESSMENT OF HIGHWAY USE TAXES.—Not later than 

15 December 31, 2011, the Public Policy Center of the Uni16 versity of Iowa shall direct, analyze, and report to the Sec17 retary of the Treasury and the Secretary of Transpor18 tation on a long-term field test of an approach to assessing 

19 highway use taxes based upon actual mileage driven by 

20 a specific vehicle on specific types of highways by use of 

21 an onboard computer— 

22 (1) which is linked to satellites to calculate 

23 highway mileage traversed, 

24 (2) which computes the appropriate highway 

25 use tax for each of the Federal, State, and local gov-
51 

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1 ernments as the vehicle makes use of the highways, 

2 and 

3 (3) the data from which is periodically 

4 downloaded by the vehicle owner to a collection cen5 ter for an assessment of highway use taxes due in 

6 each jurisdiction traversed. The components of the 

7 field test shall include 2 years for preparation, in8 cluding selection of vendors and test participants, 

9 and 3-year testing period. 

10 SEC. 304. DELTA REGIONAL TRANSPORTATION PLAN. 

11 (a) STUDY.—The Delta Regional Authority shall con12 duct a study of the transportation assets and needs in the 

13 States of Alabama, Arkansas, Illinois, Kentucky, Lou14 isiana, Mississippi, Missouri, and Tennessee which com15 prise the Delta region. 

16 (b) REGIONAL STRATEGIC TRANSPORTATION

17 PLAN.—Upon completion of the study required under sub18 section (a), the Delta Regional Authority shall establish 

19 a regional strategic transportation plan to achieve efficient 

20 transportation systems in the Delta region. In developing 

21 the regional strategic transportation plan, the Delta Re22 gional Authority shall consult with local planning and de23 velopment districts, local and regional governments, met24 ropolitan planning organizations, State transportation en25 tities, and Federal transportation agencies. 
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1 (c) ELEMENTS OF STUDY AND PLAN.—The study 

2 and plan under this section shall include the following 

3 transportation modes and systems: transit, rail, highway, 

4 interstate, bridges, air, airports, waterways, and ports. 

5 (d) AUTHORIZATION OF APPROPRIATIONS.—There is 

6 authorized to be appropriated to the Delta Regional Au7 thority $500,000 for each of the fiscal years 2005 and 

8 2006 to carry out the purposes of this section, to remain 

9 available until expended. 

10 SEC. 305. BUILD AMERICA CORPORATION. 

11 (a) ESTABLISHMENT OF BUILD AMERICA CORPORA12 TION.—There is established a nonprofit corporation, to be 

13 known as the ‘‘Build America Corporation’’. The Build 

14 America Corporation is not an agency or establishment of 

15 the United States Government. The purpose of the Cor16 poration is to issue Build America bonds. The Corporation 

17 shall be subject, to the extent consistent with this section, 

18 to the laws of the State of Delaware applicable to corpora19 tions not for profit. 

20 (b) USE OF BUILD AMERICA BOND PROCEEDS.—The 

21 proceeds from the sale of any Build America bonds issued 

22 by the Build America Corporation as authorized by sub23 section (a) may be used to fund any qualified project. 

24 (c) QUALIFIED PROJECTS.—For purposes of this sec25 tion— 
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1 (1) IN GENERAL.—With respect to any Build 

2 America bonds issued by the Build America Cor3 poration as authorized by subsection (a), the term 

4 ‘‘qualified project’’ means any— 

5 (A) qualified highway project, 

6 (B) qualified public transportation project, 

7 and 

8 (C) congestion relief project, 

9 proposed by 1 or more States and approved by the 

10 Build America Corporation, which meets the require11 ments under subparagraphs (A), (B), and (C) of 

12 paragraph (5). 

13 (2) QUALIFIED HIGHWAY PROJECT.—The term 

14 ‘‘qualified highway project’’ means a project for 

15 highway facilities or other facilities which are eligible 

16 for assistance under title 23, United States Code. 

17 (3) QUALIFIED PUBLIC TRANSPORTATION

18 PROJECT.—The term ‘‘qualified public transpor19 tation project’’ means a project for public transpor20 tation facilities or other facilities which are eligible 

21 for assistance under title 49, United States Code. 

22 (4) CONGESTION RELIEF PROJECT.—The term 

23 ‘‘congestion relief project’’ means an intermodal 

24 freight transfer facility, freight rail facility, freight 

25 movement corridor, intercity passenger rail facility, 
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1 intercity bus facility, border crossing facility, or 

2 other public or private facility approved as a conges3 tion relief project by the Secretary of Transpor4 tation. In making such approvals, the Secretary of 

5 Transportation shall— 

6 (A) consider the economic, environmental, 

7 mobility, and national security improvements to 

8 be realized through the project, and 

9 (B) give preference to projects with na10 tional or regional significance, including any 

11 projects sponsored by a coalition of States or a 

12 combination of States and private sector enti13 ties, in terms of generating economic benefits, 

14 supporting international commerce, or otherwise 

15 enhancing the national transportation system. 

16 (5) ADDITIONAL REQUIREMENTS FOR QUALI17 FIED PROJECTS.—For purposes of paragraph (1)— 

18 (A) COSTS OF QUALIFIED PROJECTS.—The 

19 requirement of this subparagraph is met if the 

20 costs of the qualified project funded by Build 

21 America bonds only relate to capital invest22 ments and do not include any costs relating to 

23 operations, maintenance, or rolling stock. 

24 (B) APPLICABILITY OF FEDERAL LAW.— 

25 The requirement of this subparagraph is met if 
55 

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1 the requirements of any Federal law, including 

2 titles 23, 40, and 49 of the United States Code, 

3 which would otherwise apply to projects to 

4 which the United States is a party or to funds 

5 made available under such law and projects as6 sisted with those funds are applied to— 

7 (i) funds made available under Build 

8 America bonds for similar qualified 

9 projects, and 

10 (ii) similar qualified projects assisted 

11 by the Build America Corporation through 

12 the use of such funds. 

13 (C) UTILIZATION OF UPDATED CONSTRUC14 TION TECHNOLOGY FOR QUALIFIED

15 PROJECTS.—The requirement of this subpara16 graph is met if the appropriate State agency re17 lating to the qualified project has updated its 

18 accepted construction technologies to match a 

19 list prescribed by the Secretary of Transpor20 tation and in effect on the date of the approval 

21 of the project as a qualified project. 

22 SEC. 306. INCREASE IN DOLLAR LIMITATION FOR QUALI23 FIED TRANSPORTATION FRINGE BENEFITS. 

24 (a) IN GENERAL.—Section 132(f)(2) (relating to lim25 itation on exclusion) is amended— 
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1 (1) by striking ‘‘$100’’ in subparagraph (A) 

2 and inserting ‘‘$155’’, and 

3 (2) by striking ‘‘$175’’ in subparagraph (B) 

4 and inserting ‘‘$200’’. 

5 (b) INFLATION ADJUSTMENT CONFORMING AMEND6 MENTS.—Subparagraph (A) of section 132(f)(6) (relating 

7 to inflation adjustment) is amended— 

8 (1) by striking the last sentence, 

9 (2) by striking ‘‘1999’’ and inserting ‘‘2008’’, 

10 and 

11 (3) by striking ‘‘1998’’ and inserting ‘‘2007’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2005. 

15 TITLE IV—FUELS-RELATED 

16 TECHNICAL CORRECTIONS 

17 SEC. 401. FUELS-RELATED TECHNICAL CORRECTIONS. 

18 (a) AMENDMENTS RELATED TO SECTION 301 OF

19 THE AMERICAN JOBS CREATION ACT OF 2004.—Section 

20 6427 is amended— 

21 (1) by striking subsection (f), and 

22 (2) by striking subsection (o) and redesignating 

23 subsection (p) as subsection (o). 

24 (b) AMENDMENTS RELATED TO SECTION 853 OF

25 THE AMERICAN JOBS CREATION ACT OF 2004.— 
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1 (1) Subparagraph (C) of section 4081(a)(2) is 

2 amended by striking ‘‘for use in commercial avia3 tion’’ and inserting ‘‘for use in commercial aviation 

4 by a person registered for such use under section 

5 4101’’. 

6 (2) So much of paragraph (2) of section 

7 4081(d) as precedes subparagraph (A) is amended 

8 to read as follows: 

9 ‘‘(2) AVIATION FUELS.—The rates of tax speci10 fied in clauses (ii) and (iv) of subsection (a)(2)(A) 

11 shall be 4.3 cents per gallon—’’. 

12 (c) AMENDMENT RELATED TO SECTION 9005 OF

13 THE TRANSPORTATION EQUITY ACT FOR THE 21ST CEN14 TURY.—The last sentence of paragraph (2) of section 

15 9504(b) is amended by striking ‘‘subparagraph (B)’’, and 

16 inserting ‘‘subparagraph (C)’’. 

17 (d) EFFECTIVE DATES.— 

18 (1) AMERICAN JOBS CREATION ACT OF 2004.— 

19 The amendments made by subsections (a) and (b) 

20 shall take effect as if included in the provisions of 

21 the American Jobs Creation Act of 2004 to which 

22 they relate. 

23 (2) TRANSPORTATION EQUITY ACT FOR THE

24 21ST CENTURY.—The amendment made by sub25 section (c) shall take effect as if included in the pro-
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1 vision of the Transportation Equity Act for the 21st 

2 Century to which it relates. 

3 TITLE V—REVENUE OFFSET 

4 PROVISIONS 

5 SEC. 501. TREATMENT OF CONTINGENT PAYMENT CON6 VERTIBLE DEBT INSTRUMENTS. 

7 (a) IN GENERAL.—Section 1275(d) (relating to regu8 lation authority) is amended— 

9 (1) by striking ‘‘The Secretary’’ and inserting 

10 the following: 

11 ‘‘(1) IN GENERAL.—The Secretary’’, and 

12 (2) by adding at the end the following new 

13 paragraph: 

14 ‘‘(2) TREATMENT OF CONTINGENT PAYMENT

15 CONVERTIBLE DEBT.— 

16 ‘‘(A) IN GENERAL.—In the case of a debt 

17 instrument which— 

18 ‘‘(i) is convertible into stock of the 

19 issuing corporation, into stock or debt of a 

20 related party (within the meaning of sec21 tion 267(b) or 707(b)(1)), or into cash or 

22 other property in an amount equal to the 

23 approximate value of such stock or debt, 

24 and 
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1 ‘‘(ii) provides for contingent pay2 ments, 

3 any regulations which require original issue dis4 count to be determined by reference to the com5 parable yield of a noncontingent fixed-rate debt 

6 instrument shall be applied as if the regulations 

7 require that such comparable yield be deter8 mined by reference to a noncontingent fixed9 rate debt instrument which is convertible into 

10 stock. 

11 ‘‘(B) SPECIAL RULE.—For purposes of 

12 subparagraph (A), the comparable yield shall be 

13 determined without taking into account the 

14 yield resulting from the conversion of a debt in15 strument into stock.’’. 

16 (b) CROSS REFERENCE.—Section 163(e)(6) (relating 

17 to cross references) is amended by adding at the end the 

18 following: 

19 ‘‘For the treatment of contingent payment con20 vertible debt, see section 1275(d)(2).’’. 

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

22 this section shall apply to debt instruments issued on or 

23 after the date of the enactment of this Act. 
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1 SEC. 502. FRIVOLOUS TAX SUBMISSIONS. 

2 (a) CIVIL PENALTIES.—Section 6702 is amended to 

3 read as follows: 

4 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 

5 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE6 TURNS.—A person shall pay a penalty of $5,000 if— 

7 ‘‘(1) such person files what purports to be a re8 turn of a tax imposed by this title but which— 

9 ‘‘(A) does not contain information on 

10 which the substantial correctness of the self-as11 sessment may be judged, or 

12 ‘‘(B) contains information that on its face 

13 indicates that the self-assessment is substan14 tially incorrect; and 

15 ‘‘(2) the conduct referred to in paragraph (1)— 

16 ‘‘(A) is based on a position which the Sec17 retary has identified as frivolous under sub18 section (c), or 

19 ‘‘(B) reflects a desire to delay or impede 

20 the administration of Federal tax laws. 

21 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS

22 SUBMISSIONS.— 

23 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro24 vided in paragraph (3), any person who submits a 

25 specified frivolous submission shall pay a penalty of 

26 $5,000. 
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1 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For 

2 purposes of this section— 

3 ‘‘(A) SPECIFIED FRIVOLOUS SUBMIS4 SION.—The term ‘specified frivolous submis5 sion’ means a specified submission if any por6 tion of such submission— 

7 ‘‘(i) is based on a position which the 

8 Secretary has identified as frivolous under 

9 subsection (c), or 

10 ‘‘(ii) reflects a desire to delay or im11 pede the administration of Federal tax 

12 laws. 

13 ‘‘(B) SPECIFIED SUBMISSION.—The term 

14 ‘specified submission’ means— 

15 ‘‘(i) a request for a hearing under— 

16 ‘‘(I) section 6320 (relating to no17 tice and opportunity for hearing upon 

18 filing of notice of lien), or 

19 ‘‘(II) section 6330 (relating to 

20 notice and opportunity for hearing be21 fore levy), and 

22 ‘‘(ii) an application under— 

23 ‘‘(I) section 6159 (relating to 

24 agreements for payment of tax liabil25 ity in installments), 
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1 ‘‘(II) section 7122 (relating to 

2 compromises), or 

3 ‘‘(III) section 7811 (relating to 

4 taxpayer assistance orders). 

5 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS6 SION.—If the Secretary provides a person with no7 tice that a submission is a specified frivolous sub8 mission and such person withdraws such submission 

9 within 30 days after such notice, the penalty im10 posed under paragraph (1) shall not apply with re11 spect to such submission. 

12 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec13 retary shall prescribe (and periodically revise) a list of po14 sitions which the Secretary has identified as being frivo15 lous for purposes of this subsection. The Secretary shall 

16 not include in such list any position that the Secretary 

17 determines meets the requirement of section 

18 6662(d)(2)(B)(ii)(II). 

19 ‘‘(d) REDUCTION OF PENALTY.—The Secretary may 

20 reduce the amount of any penalty imposed under this sec21 tion if the Secretary determines that such reduction would 

22 promote compliance with and administration of the Fed23 eral tax laws. 
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1 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN2 ALTIES.—The penalties imposed by this section shall be 

3 in addition to any other penalty provided by law.’’. 

4 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR

5 HEARINGS BEFORE LEVY.— 

6 (1) FRIVOLOUS REQUESTS DISREGARDED.— 

7 Section 6330 (relating to notice and opportunity for 

8 hearing before levy) is amended by adding at the 

9 end the following new subsection: 

10 ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.— 

11 Notwithstanding any other provision of this section, if the 

12 Secretary determines that any portion of a request for a 

13 hearing under this section or section 6320 meets the re14 quirement of clause (i) or (ii) of section 6702(b)(2)(A), 

15 then the Secretary may treat such portion as if it were 

16 never submitted and such portion shall not be subject to 

17 any further administrative or judicial review.’’. 

18 (2) PRECLUSION FROM RAISING FRIVOLOUS

19 ISSUES AT HEARING.—Section 6330(c)(4) is amend20 ed— 

21 (A) by striking ‘‘(A)’’ and inserting 

22 ‘‘(A)(i)’’; 

23 (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 

24 (C) by striking the period at the end of the 

25 first sentence and inserting ‘‘; or’’; and 
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1 (D) by inserting after subparagraph (A)(ii) 

2 (as so redesignated) the following: 

3 ‘‘(B) the issue meets the requirement of 

4 clause (i) or (ii) of section 6702(b)(2)(A).’’. 

5 (3) STATEMENT OF GROUNDS.—Section 

6 6330(b)(1) is amended by striking ‘‘under sub7 section (a)(3)(B)’’ and inserting ‘‘in writing under 

8 subsection (a)(3)(B) and states the grounds for the 

9 requested hearing’’. 

10 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR

11 HEARINGS UPON FILING OF NOTICE OF LIEN.—Section 

12 6320 is amended— 

13 (1) in subsection (b)(1), by striking ‘‘under sub14 section (a)(3)(B)’’ and inserting ‘‘in writing under 

15 subsection (a)(3)(B) and states the grounds for the 

16 requested hearing’’, and 

17 (2) in subsection (c), by striking ‘‘and (e)’’ and 

18 inserting ‘‘(e), and (g)’’. 

19 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

20 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE21 MENTS.—Section 7122 is amended by adding at the end 

22 the following new subsection: 

23 ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith24 standing any other provision of this section, if the Sec25 retary determines that any portion of an application for 
65 

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1 an offer-in-compromise or installment agreement sub2 mitted under this section or section 6159 meets the re3 quirement of clause (i) or (ii) of section 6702(b)(2)(A), 

4 then the Secretary may treat such portion as if it were 

5 never submitted and such portion shall not be subject to 

6 any further administrative or judicial review.’’. 

7 (e) CLERICAL AMENDMENT.—The table of sections 

8 for part I of subchapter B of chapter 68 is amended by 

9 striking the item relating to section 6702 and inserting 

10 the following new item: 

‘‘Sec. 6702. Frivolous tax submissions.’’. 

11 (f) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to submissions made and issues 

13 raised after the date on which the Secretary first pre14 scribes a list under section 6702(c) of the Internal Rev15 enue Code of 1986, as amended by subsection (a). 

16 SEC. 503. INCREASE IN CERTAIN CRIMINAL PENALTIES. 

17 (a) IN GENERAL.—Section 7206 (relating to fraud 

18 and false statements) is amended— 

19 (1) by striking ‘‘Any person who—’’ and insert20 ing ‘‘(a) IN GENERAL.—Any person who—’’, and 

21 (2) by adding at the end the following new sub22 section: 

23 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN24 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO

25 FRAUD.—If any portion of any underpayment (as defined 
66 

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1 in section 6664(a)) or overpayment (as defined in section 

2 6401(a)) of tax required to be shown on a return is attrib3 utable to fraudulent action described in subsection (a), the 

4 applicable dollar amount under subsection (a) shall in no 

5 event be less than an amount equal to such portion. A 

6 rule similar to the rule under section 6663(b) shall apply 

7 for purposes of determining the portion so attributable.’’. 

8 (b) INCREASE IN PENALTIES.— 

9 (1) ATTEMPT TO EVADE OR DEFEAT TAX.— 

10 Section 7201 is amended— 

11 (A) by striking ‘‘$100,000’’ and inserting 

12 ‘‘$500,000’’, 

13 (B) by striking ‘‘$500,000’’ and inserting 

14 ‘‘$1,000,000’’, and 

15 (C) by striking ‘‘5 years’’ and inserting 

16 ‘‘10 years’’. 

17 (2) WILLFUL FAILURE TO FILE RETURN, SUP18 PLY INFORMATION, OR PAY TAX.—Section 7203 is 

19 amended— 

20 (A) in the first sentence— 

21 (i) by striking ‘‘Any person’’ and in22 serting the following: 

23 ‘‘(a) IN GENERAL.—Any person’’, and 

24 (ii) by striking ‘‘$25,000’’ and insert25 ing ‘‘$50,000’’, 
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1 (B) in the third sentence, by striking ‘‘sec2 tion’’ and inserting ‘‘subsection’’, and 

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

4 subsection: 

5 ‘‘(b) AGGRAVATED FAILURE TO FILE.— 

6 ‘‘(1) IN GENERAL.—In the case of any failure 

7 described in paragraph (2), the first sentence of sub8 section (a) shall be applied by substituting— 

9 ‘‘(A) ‘felony’ for ‘misdemeanor’, 

10 ‘‘(B) ‘$500,000 ($1,000,000’ for ‘$25,000 

11 ($100,000’, and 

12 ‘‘(C) ‘10 years’ for ‘1 year’. 

13 ‘‘(2) FAILURE DESCRIBED.—A failure described 

14 in this paragraph is a failure to make a return de15 scribed in subsection (a) for a period of 3 or more 

16 consecutive taxable years and the aggregated tax li17 ability for such period is at least $100,000.’’. 

18 (3) FRAUD AND FALSE STATEMENTS.—Section 

19 7206(a) (as redesignated by subsection (a)) is 

20 amended— 

21 (A) by striking ‘‘$100,000’’ and inserting 

22 ‘‘$500,000’’, 

23 (B) by striking ‘‘$500,000’’ and inserting 

24 ‘‘$1,000,000’’, and 
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1 (C) by striking ‘‘3 years’’ and inserting ‘‘5 

2 years’’. 

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

4 this section shall apply to actions, and failures to act, oc5 curring after the date of the enactment of this Act. 

6 SEC. 504. DOUBLING OF CERTAIN PENALTIES, FINES, AND 

7 INTEREST ON UNDERPAYMENTS RELATED TO 

8 CERTAIN OFFSHORE FINANCIAL ARRANGE9 MENTS. 

10 (a) DETERMINATION OF PENALTY.— 

11 (1) IN GENERAL.—Notwithstanding any other 

12 provision of law, in the case of an applicable tax13 payer— 

14 (A) the determination as to whether any 

15 interest or applicable penalty is to be imposed 

16 with respect to any arrangement to which any 

17 initiative described in paragraph (2) applied, or 

18 to any underpayment of Federal income tax at19 tributable to items arising in connection with 

20 any arrangement described in paragraph (2), 

21 shall be made without regard to section 6664 of 

22 the Internal Revenue Code of 1986, and 

23 (B) if any such interest or applicable pen24 alty is imposed, the amount of such interest or 
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1 penalty shall be equal to twice that determined 

2 without regard to this section. 

3 (2) APPLICABLE TAXPAYER.—For purposes of 

4 this subsection, the term ‘‘applicable taxpayer’’ 

5 means a taxpayer who was eligible to participate in, 

6 but did not participate in— 

7 (A) the Department of the Treasury’s Off8 shore Voluntary Compliance Initiative, or 

9 (B) the Department of the Treasury’s vol10 untary disclosure initiative which applies to the 

11 taxpayer by reason of the taxpayer’s under12 reporting of United States income tax liability 

13 through financial arrangements which rely on 

14 the use of offshore arrangements which were 

15 the subject of the initiative described in sub16 paragraph (A). 

17 (b) DEFINITIONS AND RULES.—For purposes of this 

18 section— 

19 (1) APPLICABLE PENALTY.—The term ‘‘appli20 cable penalty’’ means any penalty, addition to tax, 

21 or fine imposed under chapter 68 of the Internal 

22 Revenue Code of 1986. 

23 (2) VOLUNTARY OFFSHORE COMPLIANCE INI24 TIATIVE.—The term ‘‘Voluntary Offshore Compli25 ance Initiative’’ means the program established by 
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1 the Department of the Treasury in January 2003, 

2 under which any taxpayer was eligible to voluntarily 

3 disclose previously undisclosed income on assets 

4 placed in offshore accounts and accessed through 

5 credit card and other financial arrangements. 

6 (3) PARTICIPATION.—A taxpayer shall be treat7 ed as having participated in the Voluntary Offshore 

8 Compliance Initiative if the taxpayer submitted the 

9 request in a timely manner and all information re10 quested by the Secretary of the Treasury or his dele11 gate within a reasonable period of time following the 

12 request. 

13 (c) EFFECTIVE DATE.—The provisions of this section 

14 shall apply to interest, penalties, additions to tax, and 

15 fines with respect to any taxable year if, as of the date 

16 of the enactment of this Act, the assessment of any tax, 

17 penalty, or interest with respect to such taxable year is 

18 not prevented by the operation of any law or rule of law. 

19 SEC. 505. MODIFICATION OF INTERACTION BETWEEN SUB20 PART F AND PASSIVE FOREIGN INVESTMENT 

21 COMPANY RULES. 

22 (a) LIMITATION ON EXCEPTION FROM PFIC RULES

23 FOR UNITED STATES SHAREHOLDERS OF CONTROLLED

24 FOREIGN CORPORATIONS.—Paragraph (2) of section 

25 1297(e) (relating to passive foreign investment company) 
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1 is amended by adding at the end the following flush sen2 tence: 

3 ‘‘Such term shall not include any period if the earn4 ing of subpart F income by such corporation during 

5 such period would result in only a remote likelihood 

6 of an inclusion in gross income under section 

7 951(a)(1)(A)(i).’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to taxable years of controlled for10 eign corporations beginning after March 2, 2005, and to 

11 taxable years of United States shareholders with or within 

12 which such taxable years of controlled foreign corporations 

13 end. 

14 SEC. 506. DECLARATION BY CHIEF EXECUTIVE OFFICER 

15 RELATING TO FEDERAL ANNUAL CORPORATE 

16 INCOME TAX RETURN. 

17 (a) IN GENERAL.—The Federal annual tax return of 

18 a corporation with respect to income shall also include a 

19 declaration signed by the chief executive officer of such 

20 corporation (or other such officer of the corporation as 

21 the Secretary of the Treasury may designate if the cor22 poration does not have a chief executive officer), under 

23 penalties of perjury, that the corporation has in place 

24 processes and procedures that ensure that such return 

25 complies with the Internal Revenue Code of 1986 and that 
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1 the chief executive officer was provided reasonable assur2 ance of the accuracy of all material aspects of such return. 

3 The preceding sentence shall not apply to any return of 

4 a regulated investment company (within the meaning of 

5 section 851 of such Code). 

6 (b) EFFECTIVE DATE.—This section shall apply to 

7 Federal annual tax returns for taxable years ending after 

8 the date of the enactment of this Act. 

9 SEC. 507. TREASURY REGULATIONS ON FOREIGN TAX 

10 CREDIT. 

11 Section 901 (relating to taxes of foreign countries 

12 and of possessions of United States) is amended by redes13 ignating subsection (m) as subsection (n) and by inserting 

14 after subsection (l) the following new subsection: 

15 ‘‘(m) REGULATIONS.—The Secretary may prescribe 

16 regulations disallowing a credit under subsection (a) for 

17 all or a portion of any foreign tax, or allocating a foreign 

18 tax among 2 or more persons, in cases where the foreign 

19 tax is imposed on any person in respect of income of an20 other person or in other cases involving the inappropriate 

21 separation of the foreign tax from the related foreign in22 come.’’. 

Calendar No. 127 

109TH CONGRESS 

1ST SESSION S. 1230 

[Report No. 109–82] 

A BILL 

To amend the Internal Revenue Code of 1986 to 

for other purposes. vide for excise tax reform and simplification, and penditure authority and related taxes and to proFund and the Aquatic Resources Trust Fund exprovide for the extension of the Highway Trust 

JUNE 14, 2005 

Read twice and placed on the calendar