109TH CONGRESS

1ST SESSION S. 2020

AN ACT

To provide for reconciliation pursuant to section 202(b) of

the concurrent resolution on the budget for fiscal year 2006.

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

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

4 TABLE OF CONTENTS.

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

6 ‘‘Tax Relief Act of 2005’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

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

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

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

8 this Act is as follows:

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

TITLE I—TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES

KATRINA, RITA, AND WILMA

Subtitle A—Gulf Opportunity Zone Benefits

Sec. 101. Gulf Opportunity Zone benefits.

Sec. 102. Expansion of Hope Scholarship and Lifetime Learning Credit for students in the Gulf Opportunity Zone.

Sec. 103. Extension of special rules for mortgage revenue bonds.

Sec. 104. Housing relief for individuals affected by Hurricane Katrina.

Subtitle B—Tax Benefits Related to Hurricanes Rita and Wilma

Sec. 111. Extension of certain emergency tax relief for Hurricane Katrina to

Hurricanes Rita and Wilma.

TITLE II—EXTENSION OF EXPIRING PROVISIONS

Subtitle A—Multi-Year Extensions

Sec. 201. Extension of increased expensing for small business.

Sec. 202. Credit for elective deferrals and IRA contributions.

Sec. 203. Above-the-line deduction for higher education.

Sec. 204. Extension and modification of new markets tax credit.

Subtitle B—One-Year Extensions

Sec. 211. Election to deduct State and local general sales taxes.

Sec. 212. Extension and increase in minimum tax relief to individuals.

Sec. 213. Allowance of nonrefundable personal credits against regular and alternative minimum tax liability.

Sec. 214. Extension and modification of research credit.

Sec. 215. Work Opportunity Tax credit and Welfare-to-Work credit.

Sec. 216. Qualified zone academy bonds.

Sec. 217. Deduction for corporate donations of computer technology and equipment.

Sec. 218. Above-the-line deduction for certain expenses of elementary and secondary school teachers.
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Sec. 219. Expensing of Brownfields remediation costs.

Sec. 220. Tax incentives for investment in the District of Columbia.

Sec. 221. Indian employment tax credit.

Sec. 222. Accelerated depreciation for business property on Indian reservation.

Sec. 223. Fifteen-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements.

Sec. 224. Extension of full credit for qualified electric vehicles.

Subtitle C—Application of EGTRRA Sunset

Sec. 231. Application of EGTRRA sunset to this title.

TITLE III—PROVISIONS RELATING TO CHARITABLE DONATIONS

Subtitle A—Charitable Giving Incentives

Sec. 301. Charitable deduction for nonitemizers.

Sec. 302. Tax-free distributions from individual retirement plans for charitable

purposes.

Sec. 303. Modification of charitable deduction for contributions of food inventory.

Sec. 304. Basis adjustment to stock of S corporation contributing property.

Sec. 305. Modification of charitable deduction for contributions of book inventory.

Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations and public disclosure of information relating to unrelated business income.

Sec. 307. Encouragement of contributions of capital gain real property made

for conservation purposes.

Sec. 308. Enhanced deduction for charitable contribution of literary, musical,

artistic, and scholarly compositions.

Sec. 309. Mileage reimbursements to charitable volunteers excluded from gross

income.

Sec. 310. Alternative percentage limitation for corporate charitable contributions to the mathematics and science partnership program.

Subtitle B—Reforming Charitable Organizations

PART I—GENERAL REFORMS

Sec. 311. Tax involvement by exempt organizations in tax shelter transactions.

Sec. 312. Excise tax on certain acquisitions of interests in insurance contracts

in which certain exempt organizations hold an interest.

Sec. 313. Increase in penalty excise taxes on public charities, social welfare organizations, and private foundations.

Sec. 314. Reform of charitable contributions of certain easements on buildings

in registered historic districts.

Sec. 315. Charitable contributions of taxidermy property.

Sec. 316. Recapture of tax benefit for charitable contributions of exempt use

property not used for an exempt use.

Sec. 317. Limitation of deduction for charitable contributions of clothing and

household items.

Sec. 318. Modification of recordkeeping requirements for certain charitable contributions.

Sec. 319. Contributions of fractional interests in tangible personal property.

Sec. 320. Provisions relating to substantial and gross overstatements of valuations of charitable deduction property.
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Sec. 321. Additional standards for credit counseling organizations.

Sec. 322. Expansion of the base of tax on private foundation net investment

income.

Sec. 323. Definition of convention or association of churches.

Sec. 324. Notification requirement for entities not currently required to file.

Sec. 325. Disclosure to State officials of proposed actions related to exempt organizations.

PART II—IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

Sec. 331. Excise tax on sponsoring organizations of donor advised funds for

failure to meet distribution requirements.

Sec. 332. Prohibited transactions.

Sec. 333. Treatment of charitable contribution deductions to donor advised

funds.

Sec. 334. Returns of, and applications for recognition by, sponsoring organizations.

PART III—IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

Sec. 341. Requirements for supporting organizations.

Sec. 342. Excise tax on supporting organizations for failure to meet distribution requirements.

Sec. 343. Excess benefit transactions.

Sec. 344. Excess business holdings of supporting organizations.

Sec. 345. Treatment of amounts paid to supporting organizations by private

foundations.

Sec. 346. Returns of supporting organizations.

TITLE IV—MISCELLANEOUS PROVISIONS

Sec. 401. Restructuring of New York Liberty Zone tax credits.

Sec. 402. Modification to S corporation passive investment income rules.

Sec. 403. Modification of effective date of disregard of certain capital expenditures for purposes of qualified small issue bonds.

Sec. 404. Premiums for mortgage insurance.

Sec. 405. Sense of the Senate on use of no-bid contracting by Federal Emergency Management Agency.

Sec. 406. Disability preference program for tax collection contracts.

Sec. 407. Sense of Congress regarding Doha Round.

Sec. 408. Modification of bond rule.

Sec. 409. Treatment of certain stock option plans under nonqualified deferred

compensation rules.

Sec. 410. Sense of the Senate regarding the dedication of excess funds.

TITLE V—REVENUE OFFSET PROVISIONS

Subtitle A—Provisions Designed To Curtail Tax Shelters

Sec. 501. Understatement of taxpayer’s liability by income tax return preparer.

Sec. 502. Modification of effective date of exception from suspension rules for

certain listed and reportable transactions.

Sec. 503. Frivolous tax submissions.

Sec. 504. Penalty for promoting abusive tax shelters.

Sec. 505. Penalty for aiding and abetting the understatement of tax liability.

Subtitle B—Economic Substance Doctrine
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Sec. 511. Clarification of economic substance doctrine.

Sec. 512. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 513. Denial of deduction for interest on underpayments attributable to

noneconomic substance transactions.

Subtitle C—Improvements in Efficiency and Safeguards in Internal Revenue

Service Collection

Sec. 521. Waiver of user fee for installment agreements using automated withdrawals.

Sec. 522. Termination of installment agreements.

Sec. 523. Partial payments required with submission of offers-in-compromise.

Subtitle D—Penalties and Fines

Sec. 531. Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud.

Sec. 532. Doubling of certain penalties, fines, and interest on underpayments

related to certain offshore financial arrangements.

Sec. 533. Denial of deduction for certain fines, penalties, and other amounts.

Sec. 534. Denial of deduction for punitive damages.

Sec. 535. Increase in penalty for bad checks and money orders.

Subtitle E—Provisions To Discourage Expatriation

Sec. 541. Tax treatment of inverted entities.

Sec. 542. Revision of tax rules on expatriation of individuals.

Subtitle F—Miscellaneous Provisions

Sec. 551. Treatment of contingent payment convertible debt instruments.

Sec. 552. Grant of Treasury regulatory authority to address foreign tax credit

transactions involving inappropriate separation of foreign taxes

from related foreign income.

Sec. 553. Repeal of special property exception to leasing provisions of the

American Jobs Creation Act of 2004.

Sec. 554. Application of earnings stripping rules to partners which are corporations.

Sec. 555. Limitation of employer deduction for certain entertainment expenses.

Sec. 556. Increase in age of minor children whose unearned income is taxed as

if parent’s income.

Sec. 557. Loan and redemption requirements on pooled financing requirements.

Sec. 558. Reporting of interest on tax-exempt bonds.

Sec. 559. Modification of credit for producing fuel from a nonconventional

source.

Sec. 560. Modification of individual estimated tax safe harbor.

Sec. 561. Revaluation of LIFO inventories of large integrated oil companies.

Sec. 562. Elimination of amortization of geological and geophysical expenditures for major integrated oil companies.

Sec. 563. Valuation of employee personal use of noncommercial aircraft.

Sec. 564. Application of FIRPTA to regulated investment companies.

Sec. 565. Treatment of distributions attributable to FIRPTA gains.

Sec. 566. Prevention of avoidance of tax on investments of foreign persons in

United States real property through wash sale transactions.

Sec. 567. Modifications to rules relating to taxation of distributions of stock

and securities of a controlled corporation.
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Sec. 568. Amortization of expenses incurred in creating or acquiring music or

music copyrights.

Sec. 569. Credit to holders of rural renaissance bonds.

Sec. 570. Modification of treatment of loans to qualified continuing care facilities.

Sec. 571. Modifications of foreign tax credit rules applicable to large integrated

oil companies which are dual capacity taxpayers.

Sec. 572. Exclusion of gain from sale of a principal residence by certain employees of the intelligence community.

Sec. 573. Disability preference program for tax collection contracts.

TITLE VI—COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 601. Sunset of certain provisions and amendments.

1 TITLE I—TAX BENEFITS FOR

2 AREAS AFFECTED BY HURRI3 CANES KATRINA, RITA, AND

4 WILMA

5 Subtitle A—Gulf Opportunity Zone

6 Benefits

7 SEC. 101. GULF OPPORTUNITY ZONE BENEFITS.

8 (a) IN GENERAL.—Chapter 1 is amended by adding

9 at the end the following new subchapter:

10 ‘‘Subchapter Z—Hurricane Relief Benefits

‘‘Sec. 1400N. Definitions.

‘‘Sec. 1400O. Tax benefits for Gulf Opportunity Zone.

11 ‘‘SEC. 1400N. DEFINITIONS.

12 ‘‘For purposes of this subchapter—

13 ‘‘(1) GULF OPPORTUNITY ZONE.—The term

14 ‘Gulf Opportunity Zone’ or ‘GO Zone’ means that

15 portion of the Hurricane Katrina disaster area de16 termined by the President to warrant individual or

17 individual and public assistance from the Federal
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1 Government under the Robert T. Stafford Disaster

2 Relief and Emergency Assistance Act by reason of

3 Hurricane Katrina.

4 ‘‘(2) HURRICANE KATRINA DISASTER AREA.—

5 The term ‘Hurricane Katrina disaster area’ means

6 an area with respect to which a major disaster has

7 been declared by the President before September 14,

8 2005, under section 401 of such Act by reason of

9 Hurricane Katrina.

10 ‘‘(3) RITA GO ZONE.—The term ‘Rita GO Zone’

11 means that portion of the Hurricane Rita disaster

12 area determined by the President to warrant indi13 vidual or individual and public assistance from the

14 Federal Government under such Act by reason of

15 Hurricane Rita.

16 ‘‘(4) HURRICANE RITA DISASTER AREA.—The

17 term ‘Hurricane Rita disaster area’ means an area

18 with respect to which a major disaster has been de19 clared by the President before October 6, 2005,

20 under section 401 of such Act by reason of Hurri21 cane Rita.

22 ‘‘(5) WILMA GO ZONE.—The term ‘Wilma GO

23 Zone’ means that portion of the Hurricane Wilma

24 disaster area determined by the President to war25 rant individual or individual and public assistance
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1 from the Federal Government under such Act by

2 reason of Hurricane Wilma.

3 ‘‘(6) HURRICANE WILMA DISASTER AREA.—The

4 term ‘Hurricane Wilma disaster area’ means an area

5 with respect to which a major disaster has been de6 clared by the President before October 25, 2005,

7 under section 401 of such Act by reason of Hurri8 cane Wilma.

9 ‘‘SEC. 1400O. TAX BENEFITS FOR GULF OPPORTUNITY

10 ZONE.

11 ‘‘(a) SPECIAL ALLOWANCE FOR CERTAIN PROPERTY

12 ACQUIRED AFTER AUGUST 27, 2005.—

13 ‘‘(1) ADDITIONAL ALLOWANCE.—In the case of

14 any qualified Gulf Opportunity Zone property—

15 ‘‘(A) the depreciation deduction provided

16 by section 167(a) for the taxable year in which

17 such property is placed in service shall include

18 an allowance equal to 50 percent of the ad19 justed basis of such property, and

20 ‘‘(B) the adjusted basis of the qualified

21 Gulf Opportunity Zone property shall be re22 duced by the amount of such deduction before

23 computing the amount otherwise allowable as a

24 depreciation deduction under this chapter for
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1 such taxable year and any subsequent taxable

2 year.

3 ‘‘(2) QUALIFIED GULF OPPORTUNITY ZONE

4 PROPERTY.—For purposes of this subsection—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 Gulf Opportunity Zone property’ means

7 property—

8 ‘‘(i)(I) which is described in section

9 168(k)(2)(A)(i), or

10 ‘‘(II) which is nonresidential real

11 property or residential rental property,

12 ‘‘(ii) substantially all of the use of

13 which is in the Gulf Opportunity Zone and

14 is in the active conduct of a trade or busi15 ness by the taxpayer in such Zone,

16 ‘‘(iii) the original use of which in the

17 Gulf Opportunity Zone commences with

18 the taxpayer after August 27, 2005,

19 ‘‘(iv) which is acquired by the tax20 payer by purchase (as defined in section

21 179(d)) after August 27, 2005, but only if

22 no written binding contract for the acquisi23 tion was in effect before August 28, 2005,

24 and
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1 ‘‘(v) which is placed in service by the

2 taxpayer on or before the termination date.

3 The term ‘termination date’ means December

4 31, 2007 (December 31, 2008, in the case of

5 nonresidential real property and residential

6 rental property).

7 ‘‘(B) EXCEPTIONS.—

8 ‘‘(i) ALTERNATIVE DEPRECIATION

9 PROPERTY.—The term ‘qualified Gulf Op10 portunity Zone property’ shall not include

11 any property described in section

12 168(k)(2)(D)(i).

13 ‘‘(ii) TAX-EXEMPT BOND-FINANCED

14 PROPERTY.—Such term shall not include

15 any property any portion of which is fi16 nanced with the proceeds of any obligation

17 the interest on which is exempt from tax

18 under section 103.

19 ‘‘(iii) QUALIFIED REVITALIZATION

20 BUILDINGS.—Such term shall not include

21 any qualified revitalization building with

22 respect to which the taxpayer has elected

23 the application of paragraph (1) or (2) of

24 section 1400I(a).
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1 ‘‘(iv) ELECTION OUT.—For purposes

2 of this subsection, rules similar to the rules

3 of section 168(k)(2)(D)(iii) shall apply.

4 ‘‘(C) SPECIAL RULES.—For purposes of

5 this subsection, rules similar to the rules of sec6 tion 168(k)(2)(E) shall apply, except that—

7 ‘‘(i) clause (i) thereof shall be applied

8 by substituting ‘after August 27, 2005,

9 and before the termination date (as de10 fined in section 1400O(a)(2))’ for ‘after

11 September 10, 2001, and before January

12 1, 2005’,

13 ‘‘(ii) clauses (ii), (iii), and (iv) thereof

14 shall be applied by substituting ‘August

15 27, 2005’ for ‘September 10, 2001’ each

16 place it appears, and

17 ‘‘(iii) clause (iv) thereof shall be ap18 plied by substituting ‘qualified Gulf Oppor19 tunity Zone property’ for ‘qualified prop20 erty’.

21 ‘‘(D) ALLOWANCE AGAINST ALTERNATIVE

22 MINIMUM TAX.—For purposes of this sub23 section, rules similar to the rules of section

24 168(k)(2)(G) shall apply.
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1 ‘‘(3) RECAPTURE.—For purposes of this sub2 section, rules similar to the rules under section

3 179(d)(10) shall apply with respect to any qualified

4 Gulf Opportunity Zone property which ceases to be

5 qualified Gulf Opportunity Zone property.

6 ‘‘(b) INCREASE IN EXPENSING UNDER SECTION

7 179.—

8 ‘‘(1) IN GENERAL.—For purposes of section

9 179—

10 ‘‘(A) the $100,000 amount in section

11 179(b)(1) for the taxable year shall be in12 creased by the lesser of—

13 ‘‘(i) $100,000, or

14 ‘‘(ii) the cost of section 179 property

15 (as defined in section 179(d)) which is

16 qualified Gulf Opportunity Zone property

17 placed in service during the taxable year,

18 and

19 ‘‘(B) the $400,000 amount in section

20 179(b)(2) for the taxable year shall be in21 creased by the lesser of—

22 ‘‘(i) $600,000, or

23 ‘‘(ii) the cost of section 179 property

24 (as so defined) which is qualified Gulf Op-
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1 portunity Zone property placed in service

2 during the taxable year.

3 ‘‘(2) QUALIFIED GULF OPPORTUNITY ZONE

4 PROPERTY.—For purposes of this subsection, the

5 term ‘qualified Gulf Opportunity Zone property’ has

6 the meaning given such term by subsection (a)(2).

7 ‘‘(3) COORDINATION WITH EMPOWERMENT

8 ZONES AND RENEWAL COMMUNITIES.—For purposes

9 of sections 1397A and 1400J, qualified Gulf Oppor10 tunity Zone property shall not be treated as quali11 fied zone property or qualified renewal property for

12 any taxable year, unless the taxpayer elects not to

13 have this subsection apply to all such qualified Gulf

14 Opportunity Zone property placed in service by the

15 taxpayer during the taxable year.

16 ‘‘(4) RECAPTURE.—Rules similar to the rules

17 under section 179(d)(10) shall apply with respect to

18 any qualified Gulf Opportunity Zone property which

19 ceases to be Gulf Opportunity Zone property.

20 ‘‘(c) TAX-EXEMPT BOND FINANCING.—

21 ‘‘(1) IN GENERAL.—For purposes of this title,

22 any qualified Gulf Opportunity Zone Bond shall be

23 treated as a qualified bond.

24 ‘‘(2) QUALIFIED GULF OPPORTUNITY ZONE

25 BOND.—For purposes of this subsection, the term
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1 ‘qualified Gulf Opportunity Zone Bond’ means any

2 bond issued as part of an issue if—

3 ‘‘(A) except as provided in paragraph (4),

4 such bond meets the applicable requirements of

5 part IV of subchapter B of this chapter,

6 ‘‘(B) such bond is issued by the State of

7 Alabama, Louisiana, or Mississippi (or any po8 litical subdivision thereof),

9 ‘‘(C) the Governor of such State designates

10 such bond for purposes of this section, and

11 ‘‘(D) such bond is issued after the date of

12 the enactment of this section and before Janu13 ary 1, 2011.

14 ‘‘(3) LIMITATION ON AGGREGATE AMOUNT OF

15 BONDS DESIGNATED.—The maximum aggregate face

16 amount of bonds which may be designated under

17 this subsection shall not exceed the product of

18 $2,500 multiplied by the portion of the State popu19 lation which is in the Gulf Opportunity Zone (as de20 termined on the basis of the most recent census esti21 mate of resident population released by the Bureau

22 of Census before August 28, 2005).

23 ‘‘(4) SPECIAL RULES.—In applying this title to

24 any qualified Gulf Opportunity Zone Bond, the fol25 lowing modifications shall apply:
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1 ‘‘(A) Section 143 (relating to mortgage

2 revenue bonds: qualified mortgage bond and

3 qualified veterans’ mortgage bond) shall be

4 applied—

5 ‘‘(i) by treating any residence in the

6 Gulf Opportunity Zone as a targeted area

7 residence,

8 ‘‘(ii) by applying subsection (f)(3)

9 without regard to subparagraph (A) there10 of, and

11 ‘‘(iii) by substituting ‘$150,000’ for

12 ‘$15,000’ in subsection (k)(4) thereof.

13 ‘‘(B) Section 146 (relating to volume cap)

14 shall not apply.

15 ‘‘(C) Section 57(a)(5) shall not apply.

16 ‘‘(5) SEPARATE ISSUE TREATMENT OF POR17 TIONS OF AN ISSUE.—This subsection shall not

18 apply to the portion of an issue which (if issued as

19 a separate issue) would be treated as a qualified

20 bond or as a bond that is not a private activity bond

21 (determined without regard to paragraph (1)), if the

22 issuer elects to so treat such portion.

23 ‘‘(d) ADVANCE REFUNDINGS OF CERTAIN TAX-EX24 EMPT BONDS.—
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1 ‘‘(1) IN GENERAL.—With respect to a bond de2 scribed in paragraph (2) issued as part of an issue

3 90 percent (95 percent in the case of a bond de4 scribed in paragraph (2)(B)) or more of the net pro5 ceeds (as defined in section 150(a)(3)) of which were

6 used to finance facilities located within the Gulf Op7 portunity Zone (or property which is functionally re8 lated and subordinate to facilities located within the

9 Gulf Opportunity Zone), one additional advanced re10 funding after the date of the enactment of this sec11 tion and before January 1, 2007, shall be allowed

12 under the applicable rules of section 149(d) if—

13 ‘‘(A) the chief executive officer of the

14 issuer of the bond designates the advance re15 funding bond for purposes of this subsection,

16 and

17 ‘‘(B) the requirements of paragraph (3)

18 are met.

19 ‘‘(2) BONDS DESCRIBED.—A bond is described

20 in this paragraph if such bond was outstanding on

21 August 27, 2005, and is—

22 ‘‘(A) a State or local bond (as defined in

23 section 103(c)(1)) other than a private activity

24 bond (as defined in section 141(a)) issued by
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1 the State of Alabama, Louisiana, or Mississippi

2 (or any political subdivision thereof), or

3 ‘‘(B) a qualified 501(c)(3) bond (as de4 fined in section 145(a)) issued by or on behalf

5 of any such State or political subdivision.

6 ‘‘(3) ADDITIONAL REQUIREMENTS.—The re7 quirements of this paragraph are met with respect

8 to any advance refunding of a bond described in

9 paragraph (2) if—

10 ‘‘(A) no advance refundings of such bond

11 would be allowed under any provision of law

12 after August 27, 2005,

13 ‘‘(B) the advance refunding bond is the

14 only other outstanding bond with respect to the

15 refunded bond, and

16 ‘‘(C) the requirements of section 148 are

17 met with respect to all bonds issued under this

18 subsection.

19 ‘‘(e) LOW-INCOME HOUSING CREDIT.—

20 ‘‘(1) INCREASE IN STATE HOUSING CREDIT

21 CEILING.—

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

23 State of Alabama, Louisiana, or Mississippi—

24 ‘‘(i) the amount otherwise determined

25 under subclause (I) of section
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1 42(h)(3)(C)(ii) for each calendar year be2 ginning after 2005 and before 2010 shall

3 be increased by an amount equal to 3

4 times the dollar amount otherwise specified

5 for such calendar year under such sub6 clause multiplied by the State population

7 located in the Gulf Opportunity Zone (as

8 determined on the basis of the most recent

9 census estimate of resident population re10 leased by the Bureau of Census before Au11 gust 28, 2005), and

12 ‘‘(ii) the unused State housing credit

13 ceiling for such State for any calendar year

14 under section 42(h)(3)(C)(i) shall be deter15 mined without regard to the amount of the

16 increase determined under clause (i).

17 ‘‘(B) ELECTIVE CARRYFORWARD OF UN18 USED INCREASED CEILING.—

19 ‘‘(i) IN GENERAL.—If the amount de20 termined under section 42(h)(3)(C)(ii)(I),

21 as increased under subparagraph (A)(i),

22 for any calendar year for any State de23 scribed in subparagraph (A) exceeds the

24 aggregate housing credit dollar amount al25 located during such calendar year by such
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1 State, such State may elect to treat as a

2 carryforward to the following calendar year

3 an amount equal to lesser of—

4 ‘‘(I) the amount of such excess,

5 or

6 ‘‘(II) the amount by which the

7 amount determined under section

8 42(h)(3)(C)(ii)(I) for such calendar

9 year was increased under subpara10 graph (A)(i)).

11 ‘‘(ii) USE OF CARRYFORWARD.—If

12 any State elects a carryforward under

13 clause (i), any housing credit dollar

14 amount allocated by such State during the

15 calendar year following the calendar year

16 in which the carryforward arose shall not

17 be considered so allocated for purposes of

18 section 42(h)(3)(C) and section

19 42(h)(3)(D) to the extent such housing

20 credit dollar amount does not exceed the

21 amount of the carryforward elected.

22 ‘‘(2) DIFFICULT DEVELOPMENT AREA.—

23 ‘‘(A) IN GENERAL.—For purposes of sec24 tion 42—
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1 ‘‘(i) in the case of property placed in

2 service during 2006, 2007, or 2008, the

3 Gulf Opportunity Zone—

4 ‘‘(I) shall be treated as a difficult

5 development area designated under

6 subclause (I) of section

7 42(d)(5)(C)(iii), and

8 ‘‘(II) shall not be taken into ac9 count for purposes of applying the

10 limitation under subclause (II) of such

11 section, and

12 ‘‘(ii) subsection (b)(2)(B) thereof shall

13 be applied with respect to any such prop14 erty placed in service in the Gulf Oppor15 tunity Zone by substituting ‘91 percent’

16 and ‘39 percent’ for ‘70 percent’ and ‘30

17 percent’, respectively.

18 ‘‘(B) APPLICATION.—Subparagraph (A)

19 shall apply only to—

20 ‘‘(i) housing credit dollar amounts al21 located during the period beginning on

22 January 1, 2006, and ending on December

23 31, 2008, and

24 ‘‘(ii) buildings placed in service during

25 such period to the extent that paragraph
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1 (1) of section 42(h) does not apply to any

2 building by reason of paragraph (4) there3 of, but only with respect to bonds issued

4 after December 31, 2005.

5 ‘‘(f) TREATMENT OF REPRESENTATIONS REGARDING

6 INCOME ELIGIBILITY FOR PURPOSES OF QUALIFIED RES7 IDENTIAL RENTAL PROJECT REQUIREMENTS.—For pur8 poses of determining if any residential rental project meets

9 the requirements of section 142(d)(1) and if any certifi10 cation with respect to such project meets the requirements

11 under section 142(d)(7), the operator of the project may

12 rely on the representations of any individual applying for

13 tenancy in such project that such individual’s income will

14 not exceed the applicable income limits of section

15 142(d)(1) upon commencement of the individual’s tenancy

16 if such tenancy begins during the 6-month period begin17 ning on and after the date such individual was displaced

18 by reason of Hurricane Katrina.

19 ‘‘(g) APPLICATION OF NEW MARKETS TAX CREDIT

20 TO INVESTMENTS IN COMMUNITY DEVELOPMENT ENTI21 TIES SERVING GULF OPPORTUNITY ZONE.—For purposes

22 of section 45D—

23 ‘‘(1) a qualified community development entity

24 shall be eligible for an allocation under subsection

25 (f)(2) thereof of the increase in the new markets tax
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1 credit limitation described in paragraph (2) only if

2 a significant mission of such entity is the recovery

3 and redevelopment of the Gulf Opportunity Zone,

4 ‘‘(2) the new markets tax credit limitation oth5 erwise determined under subsection (f)(1) thereof

6 shall be increased by an amount equal to—

7 ‘‘(A) $300,000,000 for 2005 and 2006, to

8 be allocated among qualified community devel9 opment entities to make qualified low-income

10 community investments within the Gulf Oppor11 tunity Zone, and

12 ‘‘(B) $400,000,000 for 2007, to be so allo13 cated, and

14 ‘‘(3) subsection (f)(3) thereof shall be applied

15 separately with respect to the amount of the increase

16 under paragraph (2).

17 ‘‘(h) TREATMENT OF NET OPERATING LOSSES AT18 TRIBUTABLE TO GULF OPPORTUNITY ZONE LOSSES.—

19 ‘‘(1) IN GENERAL.—If a portion of any net op20 erating loss of the taxpayer for any taxable year is

21 a qualified Gulf Opportunity Zone loss, the following

22 rules shall apply:

23 ‘‘(A) EXTENSION OF CARRYBACK PE24 RIOD.—Section 172(b)(1) shall be applied with

25 respect to such portion—
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1 ‘‘(i) by substituting ‘5 taxable years’

2 for ‘2 taxable years’ in subparagraph

3 (A)(i), and

4 ‘‘(ii) by not taking such portion into

5 account in determining any eligible loss of

6 the taxpayer under subparagraph (F) for

7 the taxable year.

8 ‘‘(B) SUSPENSION OF 90 PERCENT AMT

9 LIMITATION.—Section 56(d)(1) shall be applied

10 by increasing the amount determined under

11 subparagraph (A)(ii)(I) thereof by the sum of

12 the carrybacks and carryovers of any net oper13 ating loss attributable to such portion.

14 ‘‘(2) QUALIFIED GULF OPPORTUNITY ZONE

15 LOSS.—For purposes of paragraph (1), the term

16 ‘qualified Gulf Opportunity Zone loss’ means the

17 lesser of—

18 ‘‘(A) the amount of the net operating loss

19 for the taxable year, or

20 ‘‘(B) the aggregate amount of the fol21 lowing deductions for such taxable year:

22 ‘‘(i) Any deduction for any qualified

23 Gulf Opportunity Zone casualty loss.

24 ‘‘(ii) Any deduction for moving ex25 penses paid or incurred after August 27,
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1 2005, and before January 1, 2008, and al2 lowable under this chapter to any taxpayer

3 in connection with the employment of any

4 individual—

5 ‘‘(I) whose principal place of

6 abode was located in the Gulf Oppor7 tunity Zone before August 28, 2005,

8 ‘‘(II) who was unable to remain

9 in such abode as the result of Hurri10 cane Katrina, and

11 ‘‘(III) whose principal place of

12 employment with the taxpayer after

13 such expense is located in the Gulf

14 Opportunity Zone.

15 For purposes of this clause, the term ‘mov16 ing expenses’ has the meaning given such

17 term by section 217(b), except that the

18 taxpayer’s former residence and new resi19 dence may be the same residence if the ini20 tial vacating of the residence was as the

21 result of Hurricane Katrina.

22 ‘‘(iii) Any deduction for expenses paid

23 or incurred after August 27, 2005, and be24 fore January 1, 2008, and allowable under

25 this chapter to temporarily house any em-
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1 ployee of the taxpayer whose principal

2 place of employment is in the Gulf Oppor3 tunity Zone.

4 ‘‘(iv) Any deduction for depreciation

5 (or amortization in lieu of depreciation) al6 lowable under this chapter with respect to

7 any qualified Gulf Opportunity Zone prop8 erty (as defined in subsection (a)(2)) for

9 the taxable year such property is placed in

10 service.

11 ‘‘(v) Any deduction for repair ex12 penses (including expenses for removal of

13 debris) allowable under this chapter paid

14 or incurred after August 27, 2005, and be15 fore January 1, 2008, with respect to any

16 damage attributable to Hurricane Katrina

17 and in connection with property which is

18 located in the Gulf Opportunity Zone.

19 ‘‘(3) QUALIFIED GULF OPPORTUNITY ZONE

20 CASUALTY LOSS.—

21 ‘‘(A) IN GENERAL.—For purposes of para22 graph (2)(B)(i), the term ‘qualified Gulf Oppor23 tunity Zone casualty loss’ means any uncom24 pensated section 1231 loss (as defined in sec-
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1 tion 1231(a)(3)(B)) of property located in the

2 Gulf Opportunity Zone if—

3 ‘‘(i) such loss is allowed as a deduc4 tion under section 165 for the taxable

5 year, and

6 ‘‘(ii) such loss is attributable to Hur7 ricane Katrina.

8 ‘‘(B) REDUCTION FOR GAINS FROM INVOL9 UNTARY CONVERSION.—The amount of quali10 fied Gulf Opportunity Zone casualty loss which

11 would (but for this subparagraph) be taken into

12 account under subparagraph (A) for any tax13 able year shall be reduced by the amount of any

14 gain recognized by the taxpayer for such year

15 from the involuntary conversion by reason of

16 Hurricane Katrina of property located in the

17 Gulf Opportunity Zone.

18 ‘‘(C) COORDINATION WITH GENERAL DIS19 ASTER LOSS RULES.—Subsection (j) and section

20 165(i) shall not apply to any qualified Gulf Op21 portunity Zone casualty loss to the extent such

22 loss is taken into account under this subsection.

23 ‘‘(4) SPECIAL RULES.—For purposes of para24 graph (1), rules similar to the rules of paragraphs
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1 (2) and (3) of section 172(i) shall apply with respect

2 to such portion.

3 ‘‘(i) TREATMENT OF PUBLIC UTILITY PROPERTY

4 DISASTER LOSSES.—

5 ‘‘(1) IN GENERAL.—Upon the election of the

6 taxpayer, in the case of any eligible public utility

7 property loss—

8 ‘‘(A) section 165(i) shall be applied by sub9 stituting ‘the fifth taxable year immediately

10 preceding’ for ‘the taxable year immediately

11 preceding’,

12 ‘‘(B) an application for a tentative

13 carryback adjustment of the tax for any prior

14 taxable year affected by the application of sub15 paragraph (A) may be made under section

16 6411, and

17 ‘‘(C) section 6611 shall not apply to any

18 overpayment attributable to such loss.

19 ‘‘(2) ELIGIBLE PUBLIC UTILITY PROPERTY

20 LOSS.—For purposes of this subsection—

21 ‘‘(A) IN GENERAL.—The term ‘eligible

22 public utility property loss’ means any loss with

23 respect to public utility property located in the

24 Gulf Opportunity Zone and attributable to Hur25 ricane Katrina.
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1 ‘‘(B) PUBLIC UTILITY PROPERTY.—The

2 term ‘public utility property’ has the meaning

3 given such term by section 168(i)(10) without

4 regard to the matter following subparagraph

5 (D) thereof.

6 ‘‘(3) WAIVER OF LIMITATIONS.—If refund or

7 credit of any overpayment of tax resulting from the

8 application of paragraph (1) is prevented at any

9 time before the close of the 1-year period beginning

10 on the date of the enactment of this section by the

11 operation of any law or rule of law (including res ju12 dicata), such refund or credit may nevertheless be

13 made or allowed if claim therefor is filed before the

14 close of such period.

15 ‘‘(j) SPECIAL RULE FOR GULF OPPORTUNITY ZONE

16 PUBLIC UTILITY CASUALTY LOSSES.—

17 ‘‘(1) IN GENERAL.—The amount described in

18 section 172(f)(1)(A) for any taxable year shall be in19 creased by the amount of the Gulf Opportunity Zone

20 public utility casualty loss for such year.

21 ‘‘(2) GULF OPPORTUNITY ZONE PUBLIC UTIL22 ITY CASUALTY LOSS.—For purposes of this sub23 section, the term ‘Gulf Opportunity Zone public util24 ity casualty loss’ means any casualty loss of public
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1 utility property (as defined in section 168(i)(10)) lo2 cated in the Gulf Opportunity Zone if—

3 ‘‘(A) such loss is allowed as a deduction

4 under section 165 for the taxable year,

5 ‘‘(B) such loss is attributable to Hurricane

6 Katrina, and

7 ‘‘(C) the taxpayer elects the application of

8 this subsection with respect to such loss.

9 ‘‘(3) REDUCTION FOR GAINS FROM INVOLUN10 TARY CONVERSION.—The amount of Gulf Oppor11 tunity Zone public utility casualty loss which would

12 (but for this paragraph) be taken into account under

13 paragraph (1) for any taxable year shall be reduced

14 by the amount of any gain recognized by the tax15 payer for such year from the involuntary conversion

16 by reason of Hurricane Katrina of public utility

17 property (as so defined) located in the Gulf Oppor18 tunity Zone.

19 ‘‘(4) COORDINATION WITH GENERAL DISASTER

20 LOSS RULES.—Subsection (h) and section 165(i)

21 shall not apply to any Gulf Opportunity Zone public

22 utility casualty loss to the extent such loss is taken

23 into account under paragraph (1).

24 ‘‘(5) ELECTION.—Any election under paragraph

25 (2)(C) shall be made in such manner as may be pre-
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1 scribed by the Secretary and shall be made by the

2 due date (including extensions of time) for filing the

3 taxpayer’s return for the taxable year of the loss.

4 Such election, once made for any taxable year, shall

5 be irrevocable for such taxable year.

6 ‘‘(k) SPECIAL RULES FOR SMALL TIMBER PRO7 DUCERS.—

8 ‘‘(1) INCREASED EXPENSING FOR QUALIFIED

9 TIMBER PROPERTY.—In the case of qualified timber

10 property any portion of which is located in the Gulf

11 Opportunity Zone, in that portion of the Rita GO

12 Zone which is not part of the Gulf Opportunity

13 Zone, or in the Wilma GO Zone, the limitation

14 under subparagraph (B) of section 194(b)(1) shall

15 be increased by the lesser of—

16 ‘‘(A) the limitation which would (but for

17 this subsection) apply under such subpara18 graph, or

19 ‘‘(B) the amount of reforestation expendi20 tures (as defined in section 194(c)(3)) paid or

21 incurred by the taxpayer with respect to such

22 qualified timber property during the specified

23 portion of the taxable year.

24 ‘‘(2) 5 YEAR NOL CARRYBACK OF CERTAIN TIM25 BER LOSSES.—For purposes of determining farming
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1 loss under section 172(i), income and deductions

2 which are allocable to the specified portion of the

3 taxable year and which are attributable to qualified

4 timber property any portion of which is located in

5 the Gulf Opportunity Zone, in that portion of the

6 Rita GO Zone which is not part of the Gulf Oppor7 tunity Zone, or in the Wilma GO Zone shall be

8 treated as attributable to farming businesses.

9 ‘‘(3) RULES NOT APPLICABLE TO CERTAIN EN10 TITIES.—Paragraphs (1) and (2) shall not apply to

11 any taxpayer which—

12 ‘‘(A) is a corporation the stock of which is

13 publicly traded on an established securities

14 market, or

15 ‘‘(B) is a real estate investment trust.

16 ‘‘(4) RULES NOT APPLICABLE TO LARGE TIM17 BER PRODUCERS.—Paragraphs (1) and (2) shall not

18 apply with respect to any qualified timber property

19 unless—

20 ‘‘(A) such property was held by the

21 taxpayer—

22 ‘‘(i) on August 28, 2005, in the case

23 of qualified timber property any portion of

24 which is located in the Gulf Opportunity

25 Zone,
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1 ‘‘(ii) on September 23, 2005, in the

2 case of qualified timber property (other

3 than property described in subclause (I))

4 any portion of which is located in that por5 tion of the Rita GO Zone which is not part

6 of the Gulf Opportunity Zone, or

7 ‘‘(iii) on October 23, 2005, in the case

8 of qualified timber property (other than

9 property described in subclause (I) or (II))

10 any portion of which is located in the

11 Wilma GO Zone, and

12 ‘‘(B) such taxpayer held not more than

13 500 acres of qualified timber property on such

14 date.

15 ‘‘(5) DEFINITIONS.—For purposes of this

16 subsection—

17 ‘‘(A) SPECIFIED PORTION.—The term

18 ‘specified portion’ means—

19 ‘‘(i) in the case of qualified timber

20 property located in the Gulf Opportunity

21 Zone, that portion of the taxable year

22 which is on or after August 28, 2005, and

23 before January 1, 2007,

24 ‘‘(ii) in the case of qualified timber

25 property located in the Rita GO Zone and
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1 no part of which is located in the Gulf Op2 portunity Zone, that portion of the taxable

3 year which is on or after September 23,

4 2005, and before January 1, 2007, and

5 ‘‘(iii) in the case of qualified timber

6 property located in the Wilma GO Zone,

7 that portion of the taxable year which is on

8 or after October 23, 2005, and before Jan9 uary 1, 2007.

10 ‘‘(B) QUALIFIED TIMBER PROPERTY.—The

11 term ‘qualified timber property’ has the mean12 ing given such term in section 194(c)(1).

13 ‘‘(l) EXPENSING FOR CERTAIN DEMOLITION AND

14 CLEAN-UP COSTS.—

15 ‘‘(1) IN GENERAL.—A taxpayer may elect to

16 treat 50 percent of any qualified Gulf Opportunity

17 Zone clean-up cost as an expense which is not

18 chargeable to capital account. Any cost so treated

19 shall be allowed as a deduction for the taxable year

20 in which such cost is paid or incurred.

21 ‘‘(2) GULF OPPORTUNITY ZONE CLEAN-UP

22 COST.—For purposes of this subsection, the term

23 ‘Gulf Opportunity Zone clean-up cost’ means any

24 amount paid or incurred during the period beginning

25 on August 28, 2005, and ending on December 31,
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1 2007, for the removal of debris from, or the demoli2 tion of structures on, real property which is located

3 in the Gulf Opportunity Zone and which is—

4 ‘‘(A) held by the taxpayer for use in a

5 trade or business or for the production of in6 come, or

7 ‘‘(B) property described in section

8 1221(a)(1) in the hands of the taxpayer.

9 For purposes of the preceding sentence, amounts

10 paid or incurred shall be taken into account only to

11 the extent that such amount would (but for para12 graph (1)) be chargeable to capital account.

13 ‘‘(m) EXTENSION OF EXPENSING FOR ENVIRON14 MENTAL REMEDIATION COSTS.—With respect to any

15 qualified environmental remediation expenditure (as de16 fined in section 198(b)) paid or incurred on or after Au17 gust 28, 2005, in connection with a qualified contaminated

18 site located in the Gulf Opportunity Zone, section 198 (re19 lating to expensing of environmental remediation costs)

20 shall be applied—

21 ‘‘(1) by substituting ‘December 31, 2007’ for

22 ‘December 31, 2006’ in subsection (h) thereof, and

23 ‘‘(2) except as provided in section 198(d)(2), by

24 treating petroleum products (as defined in section

25 4612(a)(3)) as a hazardous substance.
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1 ‘‘(n) GULF OPPORTUNITY ZONE.—For purposes of

2 this section, the term ‘Gulf Opportunity Zone’ means an

3 area—

4 ‘‘(1) with respect to which a major disaster has

5 been declared by the President under section 401 of

6 the Robert T. Stafford Disaster Relief and Emer7 gency Assistance Act as a result of Hurricane

8 Katrina, and

9 ‘‘(2) which is determined by the President to

10 warrant individual assistance, or individual and pub11 lic assistance, from the Federal Government under

12 such Act.’’

13 (b) CLERICAL AMENDMENTS.—The table of sub14 chapters for chapter 1 is amended by adding at the end

15 the following new item:

‘‘SUBCHAPTER Z—HURRICANE RELIEF BENEFITS.’’.

16 SEC. 102. EXPANSION OF HOPE SCHOLARSHIP AND LIFE17 TIME LEARNING CREDIT FOR STUDENTS IN

18 THE GULF OPPORTUNITY ZONE.

19 In the case of an individual who attends an eligible

20 educational institution (as defined in section 25A(f)(2) of

21 the Internal Revenue Code of 1986) located in the Gulf

22 Opportunity Zone (as defined in section 1400N(1) of such

23 Code) for any taxable year beginning during 2005 or

24 2006—
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1 (1) in applying section 25A of the Internal Rev2 enue Code of 1986, the term ‘‘qualified tuition and

3 related expenses’’ shall include any costs which are

4 qualified higher education expenses (as defined in

5 section 529(e)(3) of such Code),

6 (2) each of the dollar amounts in effect under

7 of subparagraphs (A) and (B) of section 25A(b)(1)

8 of such Code shall be twice the amount otherwise in

9 effect before the application of this subsection, and

10 (3) section 25A(c)(1) of such Code shall be ap11 plied by substituting ‘‘40 percent’’ for ‘‘20 percent’’.

12 SEC. 103. EXTENSION OF SPECIAL RULES FOR MORTGAGE

13 REVENUE BONDS.

14 Section 404(d) of the Katrina Emergency Tax Relief

15 Act of 2005 is amended by striking ‘‘December 31, 2007’’

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

17 SEC. 104. HOUSING RELIEF FOR INDIVIDUALS AFFECTED

18 BY HURRICANE KATRINA.

19 (a) EXCLUSION OF EMPLOYER PROVIDED HOUSING

20 FOR INDIVIDUAL AFFECTED BY HURRICANE KATRINA.—

21 (1) IN GENERAL.—For purposes of the Internal

22 Revenue Code of 1986, gross income of a qualified

23 employee shall not include the value of any lodging

24 furnished to such employee, such employee’s spouse,

25 or any of such employee’s dependents by or on be-
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1 half of a qualified employer for any month during

2 the taxable year.

3 (2) LIMITATION.—The amount which may be

4 excluded under subsection (a) for any month for

5 which lodging is furnished during the taxable year

6 shall not exceed $600.

7 (3) TREATMENT OF EXCLUSION.—For purposes

8 of the Internal Revenue Code of 1986 (other than

9 sections 3121(a)(19) and 3306(b)(14), an exclusion

10 under subsection (a) shall be treated as an exclusion

11 under section 119 of such Code.

12 (b) EMPLOYER CREDIT FOR HOUSING EMPLOYEES

13 AFFECTED BY HURRICANE KATRINA.—

14 (1) IN GENERAL.—In the case of a qualified

15 employer, there shall be allowed as a credit against

16 the tax imposed by chapter 1 of the Internal Rev17 enue Code of 1986 for any month during the taxable

18 year an amount equal to 30 percent of any amount

19 which is excludable from the gross income of a quali20 fied employee of such employer under subsection (a).

21 (2) CERTAIN RULES TO APPLY.—For purposes

22 of this section, rules similar to the rules of section

23 280C(a) of such Code shall apply.

24 (3) CREDIT TO BE PART OF GENERAL BUSI25 NESS CREDIT.—The credit allowed under this sec-
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1 tion shall be added to the current year business

2 credit under section 38(b) of such Code and shall be

3 treated as a credit allowed under subpart D of part

4 IV of subchapter A of such Code.

5 (c) QUALIFIED EMPLOYEE.—For purposes of this

6 section, the term ‘‘qualified employee’’ means, with respect

7 to any month, an individual—

8 (1) who had a principal residence (as defined in

9 section 121 of the Internal Revenue Code of 1986)

10 in the GO Zone (as defined in section 1400N(1) of

11 such Code) on August 28, 2005, and

12 (2) who performs not less than 80 percent of

13 the employment services for a qualified employer in

14 the Hurricane Katrina disaster area (as so defined).

15 (d) QUALIFIED EMPLOYER.—For purposes of this

16 section, the term ‘‘qualified employer’’ means any em17 ployer with a trade or business located in the Hurricane

18 Katrina disaster area (as so defined).

19 (e) APPLICATION OF SECTION.—This section shall

20 apply to lodging provided—

21 (1) after the date of the enactment of this Act,

22 (2) before the date which is 6 months after the

23 date of the enactment of this Act, and

24 (3) no credit with respect to such lodging shall

25 be claimed before October 1, 2006.
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1 Subtitle B—Tax Benefits Related to

2 Hurricanes Rita and Wilma

3 SEC. 111. EXTENSION OF CERTAIN EMERGENCY TAX RE4 LIEF FOR HURRICANE KATRINA TO HURRI5 CANES RITA AND WILMA.

6 (a) IN GENERAL.—Subchapter Z of chapter 1, as

7 added by this Act, is amended by adding at the end the

8 following new sections:

9 ‘‘SEC. 1400P. SPECIAL RULES FOR MORTGAGE REVENUE

10 BONDS.

11 ‘‘(a) IN GENERAL.—In the case of financing provided

12 with respect to residences in the GO Zone, the Rita GO

13 Zone, or the Wilma GO Zone, section 143 shall be

14 applied—

15 ‘‘(1) by treating any residence in the GO Zone,

16 the Rita GO Zone, or the Wilma GO Zone as a tar17 geted area residence,

18 ‘‘(2) by applying subsection (f)(3) without re19 gard to subparagraph (A) thereof, and

20 ‘‘(3) by substituting ‘$150,000’ for ‘$15,000’ in

21 subsection (k)(4) thereof.

22 ‘‘(b) APPLICATION.—Subsection (a) shall not apply

23 to financing provided after December 31, 2010.
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1 ‘‘SEC. 1400Q. SPECIAL RULES FOR USE OF RETIREMENT

2 FUNDS.

3 ‘‘(a) TAX-FAVORED WITHDRAWALS FROM RETIRE4 MENT PLANS.—

5 ‘‘(1) IN GENERAL.—Section 72(t) shall not

6 apply to any qualified hurricane distribution.

7 ‘‘(2) AGGREGATE DOLLAR LIMITATION.—

8 ‘‘(A) IN GENERAL.—For purposes of this

9 subsection, the aggregate amount of distribu10 tions received by an individual which may be

11 treated as qualified hurricane distributions for

12 any taxable year shall not exceed the excess (if

13 any) of—

14 ‘‘(i) $100,000, over

15 ‘‘(ii) the aggregate amounts treated as

16 qualified hurricane distributions received

17 by such individual for all prior taxable

18 years.

19 ‘‘(B) TREATMENT OF PLAN DISTRIBU20 TIONS.—If a distribution to an individual would

21 (without regard to subparagraph (A)) be a

22 qualified hurricane distribution, a plan shall not

23 be treated as violating any requirement of this

24 title merely because the plan treats such dis25 tribution as a qualified hurricane distribution,

26 unless the aggregate amount of such distribu-
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1 tions from all plans maintained by the employer

2 (and any member of any controlled group which

3 includes the employer) to such individual ex4 ceeds $100,000.

5 ‘‘(C) CONTROLLED GROUP.—For purposes

6 of subparagraph (B), the term ‘controlled

7 group’ means any group treated as a single em8 ployer under subsection (b), (c), (m), or (o) of

9 section 414.

10 ‘‘(3) AMOUNT DISTRIBUTED MAY BE REPAID.—

11 ‘‘(A) IN GENERAL.—Any individual who

12 receives a qualified hurricane distribution may,

13 at any time during the 3-year period beginning

14 on the day after the date on which such dis15 tribution was received, make one or more con16 tributions in an aggregate amount not to exceed

17 the amount of such distribution to an eligible

18 retirement plan of which such individual is a

19 beneficiary and to which a rollover contribution

20 of such distribution could be made under sec21 tion 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or

22 457(e)(16), as the case may be.

23 ‘‘(B) TREATMENT OF REPAYMENTS OF

24 DISTRIBUTIONS FROM ELIGIBLE RETIREMENT

25 PLANS OTHER THAN IRAS.—For purposes of
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1 this title, if a contribution is made pursuant to

2 subparagraph (A) with respect to a qualified

3 hurricane distribution from an eligible retire4 ment plan other than an individual retirement

5 plan, then the taxpayer shall, to the extent of

6 the amount of the contribution, be treated as

7 having received the qualified hurricane distribu8 tion in an eligible rollover distribution (as de9 fined in section 402(c)(4)) and as having trans10 ferred the amount to the eligible retirement

11 plan in a direct trustee to trustee transfer with12 in 60 days of the distribution.

13 ‘‘(C) TREATMENT OF REPAYMENTS FOR

14 DISTRIBUTIONS FROM IRAS.—For purposes of

15 this title, if a contribution is made pursuant to

16 subparagraph (A) with respect to a qualified

17 hurricane distribution from an individual retire18 ment plan (as defined by section 7701(a)(37)),

19 then, to the extent of the amount of the con20 tribution, the qualified hurricane distribution

21 shall be treated as a distribution described in

22 section 408(d)(3) and as having been trans23 ferred to the eligible retirement plan in a direct

24 trustee to trustee transfer within 60 days of the

25 distribution.
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1 ‘‘(4) DEFINITIONS.—For purposes of this

2 subsection—

3 ‘‘(A) QUALIFIED HURRICANE DISTRIBU4 TION.—Except as provided in paragraph (2),

5 the term ‘qualified hurricane distribution’

6 means—

7 ‘‘(i) any distribution from an eligible

8 retirement plan made on or after August

9 25, 2005, and before January 1, 2007, to

10 an individual whose principal place of

11 abode on August 28, 2005, is located in

12 the Hurricane Katrina disaster area and

13 who has sustained an economic loss by rea14 son of Hurricane Katrina,

15 ‘‘(ii) any distribution (which is not de16 scribed in clause (i)) from an eligible re17 tirement plan made on or after September

18 23, 2005, and before January 1, 2007, to

19 an individual whose principal place of

20 abode on September 23, 2005, is located in

21 the Hurricane Rita disaster area and who

22 has sustained an economic loss by reason

23 of Hurricane Rita, and

24 ‘‘(iii) any distribution (which is not

25 described in clause (i) or (ii)) from an eli-
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1 gible retirement plan made on or after Oc2 tober 23, 2005, and before January 1,

3 2007, to an individual whose principal

4 place of abode on October 23, 2005, is lo5 cated in the Hurricane Wilma disaster

6 area and who has sustained an economic

7 loss by reason of Hurricane Wilma.

8 ‘‘(B) ELIGIBLE RETIREMENT PLAN.—The

9 term ‘eligible retirement plan’ shall have the

10 meaning given such term by section

11 402(c)(8)(B).

12 ‘‘(5) INCOME INCLUSION SPREAD OVER 3-YEAR

13 PERIOD.—

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

15 qualified hurricane distribution, unless the tax16 payer elects not to have this paragraph apply

17 for any taxable year, any amount required to be

18 included in gross income for such taxable year

19 shall be so included ratably over the 3-taxable

20 year period beginning with such taxable year.

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

22 subparagraph (A), rules similar to the rules of

23 subparagraph (E) of section 408A(d)(3) shall

24 apply.

25 ‘‘(6) SPECIAL RULES.—
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1 ‘‘(A) EXEMPTION OF DISTRIBUTIONS FROM

2 TRUSTEE TO TRUSTEE TRANSFER AND WITH3 HOLDING RULES.—For purposes of sections

4 401(a)(31), 402(f), and 3405, qualified hurri5 cane distributions shall not be treated as eligi6 ble rollover distributions.

7 ‘‘(B) QUALIFIED HURRICANE DISTRIBU8 TIONS TREATED AS MEETING PLAN DISTRIBU9 TION REQUIREMENTS.—For purposes this title,

10 a qualified hurricane distribution shall be treat11 ed as meeting the requirements of sections

12 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11),

13 and 457(d)(1)(A).

14 ‘‘(b) RECONTRIBUTIONS OF WITHDRAWALS FOR

15 HOME PURCHASES.—

16 ‘‘(1) RECONTRIBUTIONS.—

17 ‘‘(A) IN GENERAL.—Any individual who

18 received a qualified distribution may, during the

19 applicable period, make one or more contribu20 tions in an aggregate amount not to exceed the

21 amount of such qualified distribution to an eli22 gible retirement plan (as defined in section

23 402(c)(8)(B)) of which such individual is a ben24 eficiary and to which a rollover contribution of

25 such distribution could be made under section
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1 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as

2 the case may be.

3 ‘‘(B) TREATMENT OF REPAYMENTS.—

4 Rules similar to the rules of subparagraphs (B)

5 and (C) of subsection (a)(3) shall apply for pur6 poses of this subsection.

7 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes

8 of this subsection—

9 ‘‘(A) IN GENERAL.—The term ‘qualified

10 distribution’ means any qualified Katrina dis11 tribution, any qualified Rita distribution, and

12 any qualified Wilma distribution.

13 ‘‘(B) QUALIFIED KATRINA DISTRIBU14 TION.—The term ‘qualified Katrina distribu15 tion’ means any distribution—

16 ‘‘(i) described in section

17 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but

18 only to the extent such distribution relates

19 to financial hardship), 403(b)(11)(B), or

20 72(t)(2)(F),

21 ‘‘(ii) received after February 28,

22 2005, and before August 29, 2005, and

23 ‘‘(iii) which was to be used to pur24 chase or construct a principal residence in

25 the Hurricane Katrina disaster area, but
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1 which was not so purchased or constructed

2 on account of Hurricane Katrina.

3 ‘‘(C) QUALIFIED RITA DISTRIBUTION.—

4 The term ‘qualified Rita distribution’ means

5 any distribution (other than a qualified Katrina

6 distribution)—

7 ‘‘(i) described in section

8 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but

9 only to the extent such distribution relates

10 to financial hardship), 403(b)(11)(B), or

11 72(t)(2)(F),

12 ‘‘(ii) received after February 28,

13 2005, and before September 24, 2005, and

14 ‘‘(iii) which was to be used to pur15 chase or construct a principal residence in

16 the Hurricane Rita disaster area, but

17 which was not so purchased or constructed

18 on account of Hurricane Rita.

19 ‘‘(D) QUALIFIED WILMA DISTRIBUTION.—

20 The term ‘qualified Wilma distribution’ means

21 any distribution (other than a qualified Katrina

22 distribution or a qualified Rita distribution)—

23 ‘‘(i) described in section

24 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but

25 only to the extent such distribution relates
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1 to financial hardship), 403(b)(11)(B), or

2 72(t)(2)(F),

3 ‘‘(ii) received after February 28,

4 2005, and before October 24, 2005, and

5 ‘‘(iii) which was to be used to pur6 chase or construct a principal residence in

7 the Hurricane Wilma disaster area, but

8 which was not so purchased or constructed

9 on account of Hurricane Wilma.

10 ‘‘(3) APPLICABLE PERIOD.—For purposes of

11 this subsection, the term ‘applicable period’ means—

12 ‘‘(A) with respect to any qualified Katrina

13 distribution, the period beginning on August

14 25, 2005, and ending on February 28, 2006,

15 ‘‘(B) with respect to any qualified Rita dis16 tribution, the period beginning on September

17 23, 2005, and ending on February 28, 2006,

18 and

19 ‘‘(C) with respect to any qualified Wilma

20 distribution, the period beginning on October

21 23, 2005, and ending on February 28, 2006.

22 ‘‘(c) LOANS FROM QUALIFIED PLANS.—

23 ‘‘(1) INCREASE IN LIMIT ON LOANS NOT TREAT24 ED AS DISTRIBUTIONS.—In the case of any loan

25 from a qualified employer plan (as defined under
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1 section 72(p)(4)) to a qualified individual made dur2 ing the applicable period—

3 ‘‘(A) clause (i) of section 72(p)(2)(A) shall

4 be applied by substituting ‘$100,000’ for

5 ‘$50,000’, and

6 ‘‘(B) clause (ii) of such section shall be ap7 plied by substituting ‘the present value of the

8 nonforfeitable accrued benefit of the employee

9 under the plan’ for ‘one-half of the present

10 value of the nonforfeitable accrued benefit of

11 the employee under the plan’.

12 ‘‘(2) DELAY OF REPAYMENT.—In the case of a

13 qualified individual with an outstanding loan on or

14 after the qualified beginning date from a qualified

15 employer plan (as defined in section 72(p)(4))—

16 ‘‘(A) if the due date pursuant to subpara17 graph (B) or (C) of section 72(p)(2) for any re18 payment with respect to such loan occurs dur19 ing the period beginning on the qualified begin20 ning date and ending on December 31, 2006,

21 such due date shall be delayed for 1 year,

22 ‘‘(B) any subsequent repayments with re23 spect to any such loan shall be appropriately

24 adjusted to reflect the delay in the due date
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1 under paragraph (1) and any interest accruing

2 during such delay, and

3 ‘‘(C) in determining the 5-year period and

4 the term of a loan under subparagraph (B) or

5 (C) of section 72(p)(2), the period described in

6 subparagraph (A) shall be disregarded.

7 ‘‘(3) QUALIFIED INDIVIDUAL.—For purposes of

8 this subsection—

9 ‘‘(A) IN GENERAL.—The term ‘qualified

10 individual’ means any qualified Hurricane

11 Katrina individual, any qualified Hurricane

12 Rita individual, and any qualified Hurricane

13 Wilma individual.

14 ‘‘(B) QUALIFIED HURRICANE KATRINA IN15 DIVIDUAL.—The term ‘qualified Hurricane

16 Katrina individual’ means an individual whose

17 principal place of abode on August 28, 2005, is

18 located in the Hurricane Katrina disaster area

19 and who has sustained an economic loss by rea20 son of Hurricane Katrina.

21 ‘‘(C) QUALIFIED HURRICANE RITA INDI22 VIDUAL.—The term ‘qualified Hurricane Rita

23 individual’ means an individual (other than a

24 qualified Hurricane Katrina individual) whose

25 principal place of abode on September 23,
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1 2005, is located in the Hurricane Rita disaster

2 area and who has sustained an economic loss by

3 reason of Hurricane Rita.

4 ‘‘(D) QUALIFIED HURRICANE WILMA INDI5 VIDUAL.—The term ‘qualified Hurricane Wilma

6 individual’ means an individual (other than a

7 qualified Hurricane Katrina individual or a

8 qualified Hurricane Rita individual) whose prin9 cipal place of abode on October 23, 2005, is lo10 cated in the Hurricane Wilma disaster area and

11 who has sustained an economic loss by reason

12 of Hurricane Wilma.

13 ‘‘(4) APPLICABLE PERIOD; QUALIFIED BEGIN14 NING DATE.—For purposes of this subsection—

15 ‘‘(A) HURRICANE KATRINA.—In the case

16 of any qualified Hurricane Katrina individual—

17 ‘‘(i) the applicable period is the period

18 beginning on September 24, 2005, and

19 ending on December 31, 2006, and

20 ‘‘(ii) the qualified beginning date is

21 August 25, 2005.

22 ‘‘(B) HURRICANE RITA.—In the case of

23 any qualified Hurricane Rita individual—

24 ‘‘(i) the applicable period is the period

25 beginning on the date of the enactment of
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1 this subsection and ending on December

2 31, 2006, and

3 ‘‘(ii) the qualified beginning date is

4 September 23, 2005.

5 ‘‘(C) HURRICANE WILMA.—In the case of

6 any qualified Hurricane Wilma individual—

7 ‘‘(i) the applicable period is the period

8 beginning on the date of the enactment of

9 this subsection and ending on December

10 31, 2006, and

11 ‘‘(ii) the qualified beginning date is

12 October 23, 2005.

13 ‘‘SEC. 1400R. EMPLOYMENT RELIEF.

14 ‘‘(a) EMPLOYEE RETENTION CREDIT FOR EMPLOY15 ERS AFFECTED BY HURRICANE KATRINA.—

16 ‘‘(1) IN GENERAL.—For purposes of section 38,

17 in the case of an eligible employer, the Hurricane

18 Katrina employee retention credit for any taxable

19 year is an amount equal to 40 percent of the quali20 fied wages with respect to each eligible employee of

21 such employer for such taxable year. For purposes

22 of the preceding sentence, the amount of qualified

23 wages which may be taken into account with respect

24 to any individual shall not exceed $6,000.
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1 ‘‘(2) DEFINITIONS.—For purposes of this

2 subsection—

3 ‘‘(A) ELIGIBLE EMPLOYER.—The term ‘eli4 gible employer’ means any employer—

5 ‘‘(i) which conducted an active trade

6 or business on August 28, 2005, in the

7 Gulf Opportunity Zone, and

8 ‘‘(ii) with respect to whom the trade

9 or business described in clause (i) is inop10 erable on any day after August 28, 2005,

11 and before January 1, 2006, as a result of

12 damage sustained by reason of Hurricane

13 Katrina.

14 ‘‘(B) ELIGIBLE EMPLOYEE.—The term ‘el15 igible employee’ means with respect to an eligi16 ble employer an employee whose principal place

17 of employment on August 28, 2005, with such

18 eligible employer was in the Gulf Opportunity

19 Zone.

20 ‘‘(C) QUALIFIED WAGES.—The term

21 ‘qualified wages’ means wages (as defined in

22 section 51(c)(1), but without regard to section

23 3306(b)(2)(B)) paid or incurred by an eligible

24 employer with respect to an eligible employee on
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1 any day after August 28, 2005, and before Jan2 uary 1, 2006, which occurs during the period—

3 ‘‘(i) beginning on the date on which

4 the trade or business described in subpara5 graph (A) first became inoperable at the

6 principal place of employment of the em7 ployee immediately before Hurricane

8 Katrina, and

9 ‘‘(ii) ending on the date on which such

10 trade or business has resumed significant

11 operations at such principal place of em12 ployment.

13 Such term shall include wages paid without re14 gard to whether the employee performs no serv15 ices, performs services at a different place of

16 employment than such principal place of em17 ployment, or performs services at such principal

18 place of employment before significant oper19 ations have resumed.

20 ‘‘(3) CERTAIN RULES TO APPLY.—For purposes

21 of this subsection, rules similar to the rules of sec22 tions 51(i)(1), 52, and 280C(a) shall apply.

23 ‘‘(4) EMPLOYEE NOT TAKEN INTO ACCOUNT

24 MORE THAN ONCE.—An employee shall not be treat25 ed as an eligible employee for purposes of this sub-
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1 section for any period with respect to any employer

2 if such employer is allowed a credit under section 51

3 with respect to such employee for such period.

4 ‘‘(b) EMPLOYEE RETENTION CREDIT FOR EMPLOY5 ERS AFFECTED BY HURRICANE RITA.—

6 ‘‘(1) IN GENERAL.—For purposes of section 38,

7 in the case of an eligible employer, the Hurricane

8 Rita employee retention credit for any taxable year

9 is an amount equal to 40 percent of the qualified

10 wages with respect to each eligible employee of such

11 employer for such taxable year. For purposes of the

12 preceding sentence, the amount of qualified wages

13 which may be taken into account with respect to any

14 individual shall not exceed $6,000.

15 ‘‘(2) DEFINITIONS.—For purposes of this

16 subsection—

17 ‘‘(A) ELIGIBLE EMPLOYER.—The term ‘eli18 gible employer’ means any employer—

19 ‘‘(i) which conducted an active trade

20 or business on September 23, 2005, in the

21 Rita GO Zone, and

22 ‘‘(ii) with respect to whom the trade

23 or business described in clause (i) is inop24 erable on any day after September 23,

25 2005, and before January 1, 2006, as a re-
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1 sult of damage sustained by reason of

2 Hurricane Rita.

3 ‘‘(B) ELIGIBLE EMPLOYEE.—The term ‘el4 igible employee’ means with respect to an eligi5 ble employer an employee whose principal place

6 of employment on September 23, 2005, with

7 such eligible employer was in the Rita GO

8 Zone.

9 ‘‘(C) QUALIFIED WAGES.—The term

10 ‘qualified wages’ means wages (as defined in

11 section 51(c)(1), but without regard to section

12 3306(b)(2)(B)) paid or incurred by an eligible

13 employer with respect to an eligible employee on

14 any day after September 23, 2005, and before

15 January 1, 2006, which occurs during the

16 period—

17 ‘‘(i) beginning on the date on which

18 the trade or business described in subpara19 graph (A) first became inoperable at the

20 principal place of employment of the em21 ployee immediately before Hurricane Rita,

22 and

23 ‘‘(ii) ending on the date on which such

24 trade or business has resumed significant
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1 operations at such principal place of em2 ployment.

3 Such term shall include wages paid without re4 gard to whether the employee performs no serv5 ices, performs services at a different place of

6 employment than such principal place of em7 ployment, or performs services at such principal

8 place of employment before significant oper9 ations have resumed.

10 ‘‘(3) CERTAIN RULES TO APPLY.—For purposes

11 of this subsection, rules similar to the rules of sec12 tions 51(i)(1), 52, and 280C(a) shall apply.

13 ‘‘(4) EMPLOYEE NOT TAKEN INTO ACCOUNT

14 MORE THAN ONCE.—An employee shall not be treat15 ed as an eligible employee for purposes of this sub16 section for any period with respect to any employer

17 if such employer is allowed a credit under subsection

18 (a) or section 51 with respect to such employee for

19 such period.

20 ‘‘(c) EMPLOYEE RETENTION CREDIT FOR EMPLOY21 ERS AFFECTED BY HURRICANE WILMA.—

22 ‘‘(1) IN GENERAL.—For purposes of section 38,

23 in the case of an eligible employer, the Hurricane

24 Wilma employee retention credit for any taxable year

25 is an amount equal to 40 percent of the qualified
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1 wages with respect to each eligible employee of such

2 employer for such taxable year. For purposes of the

3 preceding sentence, the amount of qualified wages

4 which may be taken into account with respect to any

5 individual shall not exceed $6,000.

6 ‘‘(2) DEFINITIONS.—For purposes of this

7 subsection—

8 ‘‘(A) ELIGIBLE EMPLOYER.—The term ‘eli9 gible employer’ means any employer—

10 ‘‘(i) which conducted an active trade

11 or business on October 23, 2005, in the

12 Wilma GO Zone, and

13 ‘‘(ii) with respect to whom the trade

14 or business described in clause (i) is inop15 erable on any day after October 23, 2005,

16 and before January 1, 2006, as a result of

17 damage sustained by reason of Hurricane

18 Wilma.

19 ‘‘(B) ELIGIBLE EMPLOYEE.—The term ‘el20 igible employee’ means with respect to an eligi21 ble employer an employee whose principal place

22 of employment on October 23, 2005, with such

23 eligible employer was in the Wilma GO Zone.

24 ‘‘(C) QUALIFIED WAGES.—The term

25 ‘qualified wages’ means wages (as defined in
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1 section 51(c)(1), but without regard to section

2 3306(b)(2)(B)) paid or incurred by an eligible

3 employer with respect to an eligible employee on

4 any day after October 23, 2005, and before

5 January 1, 2006, which occurs during the

6 period—

7 ‘‘(i) beginning on the date on which

8 the trade or business described in subpara9 graph (A) first became inoperable at the

10 principal place of employment of the em11 ployee immediately before Hurricane

12 Wilma, and

13 ‘‘(ii) ending on the date on which such

14 trade or business has resumed significant

15 operations at such principal place of em16 ployment.

17 Such term shall include wages paid without re18 gard to whether the employee performs no serv19 ices, performs services at a different place of

20 employment than such principal place of em21 ployment, or performs services at such principal

22 place of employment before significant oper23 ations have resumed.
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1 ‘‘(3) CERTAIN RULES TO APPLY.—For purposes

2 of this subsection, rules similar to the rules of sec3 tions 51(i)(1), 52, and 280C(a) shall apply.

4 ‘‘(4) EMPLOYEE NOT TAKEN INTO ACCOUNT

5 MORE THAN ONCE.—An employee shall not be treat6 ed as an eligible employee for purposes of this sub7 section for any period with respect to any employer

8 if such employer is allowed a credit under subsection

9 (a) or section 51 with respect to such employee for

10 such period.

11 ‘‘SEC. 1400S. ADDITIONAL TAX RELIEF PROVISIONS.

12 ‘‘(a) TEMPORARY SUSPENSION OF LIMITATIONS ON

13 CHARITABLE CONTRIBUTIONS.—

14 ‘‘(1) IN GENERAL.—Except as otherwise pro15 vided in paragraph (2), section 170(b) shall not

16 apply to qualified contributions and such contribu17 tions shall not be taken into account for purposes of

18 applying subsections (b) and (d) of section 170 to

19 other contributions.

20 ‘‘(2) TREATMENT OF EXCESS CONTRIBU21 TIONS.—For purposes of section 170—

22 ‘‘(A) INDIVIDUALS.—In the case of an

23 individual—

24 ‘‘(i) LIMITATION.—Any qualified con25 tribution shall be allowed only to the ex-
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1 tent that the aggregate of such contribu2 tions does not exceed the excess of the tax3 payer’s contribution base (as defined in

4 subparagraph (F) of section 170(b)(1))

5 over the amount of all other charitable

6 contributions allowed under section

7 170(b)(1).

8 ‘‘(ii) CARRYOVER.—If the aggregate

9 amount of qualified contributions made in

10 the contribution year (within the meaning

11 of section 170(d)(1)) exceeds the limitation

12 of clause (i), such excess shall be added to

13 the excess described in the portion of sub14 paragraph (A) of such section which pre15 cedes clause (i) thereof for purposes of ap16 plying such section.

17 ‘‘(B) CORPORATIONS.—In the case of a

18 corporation—

19 ‘‘(i) LIMITATION.—Any qualified con20 tribution shall be allowed only to the ex21 tent that the aggregate of such contribu22 tions does not exceed the excess of the tax23 payer’s taxable income (as determined

24 under paragraph (2) of section 170(b))

25 over the amount of all other charitable
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1 contributions allowed under such para2 graph.

3 ‘‘(ii) CARRYOVER.—Rules similar to

4 the rules of subparagraph (A)(ii) shall

5 apply for purposes of this subparagraph.

6 ‘‘(3) EXCEPTION TO OVERALL LIMITATION ON

7 ITEMIZED DEDUCTIONS.—So much of any deduction

8 allowed under section 170 as does not exceed the

9 qualified contributions paid during the taxable year

10 shall not be treated as an itemized deduction for

11 purposes of section 68.

12 ‘‘(4) QUALIFIED CONTRIBUTIONS.—

13 ‘‘(A) IN GENERAL.—For purposes of this

14 subsection, the term ‘qualified contribution’

15 means any charitable contribution (as defined

16 in section 170(c)) if—

17 ‘‘(i) such contribution is paid during

18 the period beginning on August 28, 2005,

19 and ending on December 31, 2005, in cash

20 to an organization described in section

21 170(b)(1)(A) (other than an organization

22 described in section 509(a)(3)),

23 ‘‘(ii) in the case of a contribution paid

24 by a corporation, such contribution is for
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1 relief efforts related to Hurricane Katrina,

2 Hurricane Rita, or Hurricane Wilma, and

3 ‘‘(iii) the taxpayer has elected the ap4 plication of this subsection with respect to

5 such contribution.

6 ‘‘(B) EXCEPTION.—Such term shall not in7 clude a contribution if the contribution is for

8 establishment of a new, or maintenance in an

9 existing, segregated fund or account with re10 spect to which the donor (or any person ap11 pointed or designated by such donor) has, or

12 reasonably expects to have, advisory privileges

13 with respect to distributions or investments by

14 reason of the donor’s status as a donor.

15 ‘‘(C) APPLICATION OF ELECTION TO PART16 NERSHIPS AND S CORPORATIONS.—In the case

17 of a partnership or S corporation, the election

18 under subparagraph (A)(iii) shall be made sepa19 rately by each partner or shareholder.

20 ‘‘(b) SUSPENSION OF CERTAIN LIMITATIONS ON

21 PERSONAL CASUALTY LOSSES.—Paragraphs (1) and

22 (2)(A) of section 165(h) shall not apply to losses described

23 in section 165(c)(3)—
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1 ‘‘(1) which arise in the Hurricane Katrina dis2 aster area on or after August 25, 2005, and which

3 are attributable to Hurricane Katrina,

4 ‘‘(2) which arise in the Hurricane Rita disaster

5 area on or after September 23, 2005, and which are

6 attributable to Hurricane Rita, or

7 ‘‘(3) which arise in the Hurricane Wilma dis8 aster area on or after October 23, 2005, and which

9 are attributable to Hurricane Wilma.

10 In the case of any other losses, section 165(h)(2)(A) shall

11 be applied without regard to the losses referred to in the

12 preceding sentence.’’.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subsection (b) of section 38 is amended by

15 striking ‘‘and’’ at the end of paragraph (25), by

16 striking the period at the end of paragraph (26) and

17 inserting a comma, and by adding at the end the fol18 lowing new paragraphs:

19 ‘‘(27) the Hurricane Katrina employee reten20 tion credit determined under section 1400R(a),

21 ‘‘(28) the Hurricane Rita employee retention

22 credit determined under section 1400R(b), and

23 ‘‘(29) the Hurricane Wilma employee retention

24 credit determined under section 1400R(c).’’.
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1 (2) The table of sections for subchapter Z of

2 chapter 1 is amended by adding at the end the fol3 lowing new items:

‘‘Sec. 1400P. Special rules for mortgage revenue bonds.

‘‘Sec. 1400Q. Special rules for use of retirement funds.

‘‘Sec. 1400R. Employment relief.

‘‘Sec. 1400S. Additional tax relief provisions.’’.

4 (3) The following provisions of the Katrina

5 Emergency Tax Relief Act of 2005 are hereby re6 pealed:

7 (A) Title I.

8 (B) Sections 202, 301, and 402.

9 TITLE II—EXTENSION OF

10 EXPIRING PROVISIONS

11 Subtitle A—Multi-Year Extensions

12 SEC. 201. EXTENSION OF INCREASED EXPENSING FOR

13 SMALL BUSINESS.

14 Section 179 is amended by striking ‘‘2008’’ each

15 place it appears and inserting ‘‘2010’’.

16 SEC. 202. CREDIT FOR ELECTIVE DEFERRALS AND IRA

17 CONTRIBUTIONS.

18 Section 25B(h) is amended by striking ‘‘2006’’ and

19 inserting ‘‘2009’’.

20 SEC. 203. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDU21 CATION.

22 (a) IN GENERAL.—Section 222(e) is amended by

23 striking ‘‘2005’’and inserting ‘‘2009’’.
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1 (b) CONFORMING AMENDMENTS.—Section

2 222(b)(2)(B) is amended—

3 (1) by striking ‘‘a taxable year beginning in

4 2004 or 2005’’ and inserting ‘‘any taxable year be5 ginning after 2003’’, and

6 (2) by striking ‘‘2004 AND 2005’’ and inserting

7 ‘‘AFTER 2003’’.

8 SEC. 204. EXTENSION AND MODIFICATION OF NEW MAR9 KETS TAX CREDIT.

10 (a) EXTENSION.—Section 45D(f)(1)(D) is amended

11 by striking ‘‘and 2007’’ and inserting ‘‘, 2007, and 2008’’.

12 (b) REGULATIONS REGARDING NON-METROPOLITAN

13 COUNTIES.—Section 45D(i) is amended by striking ‘‘and’’

14 at the end of paragraph (4), by striking the period at the

15 end of paragraph (5) and inserting ‘‘, and’’, and by adding

16 at the end by the following new paragraph:

17 ‘‘(6) which ensure that non-metropolitan coun18 ties receive a proportional allocation of qualified eq19 uity investments.’’.

20 Subtitle B—One-Year Extensions

21 SEC. 211. ELECTION TO DEDUCT STATE AND LOCAL GEN22 ERAL SALES TAXES.

23 Section 164(b)(5)(I) is amended by striking ‘‘2006’’

24 and inserting ‘‘2007’’.
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1 SEC. 212. EXTENSION AND INCREASE IN MINIMUM TAX RE2 LIEF TO INDIVIDUALS.

3 (a) IN GENERAL.—Section 55(d)(1) is amended—

4 (1) by striking ‘‘$58,000’’ and all that follows

5 through ‘‘2005’’ in subparagraph (A) and inserting

6 ‘‘$62,550 in the case of taxable years beginning in

7 2006’’, and

8 (2) by striking ‘‘$40,250’’ and all that follows

9 through ‘‘2005’’ in subparagraph (B) and inserting

10 ‘‘$42,500 in the case of taxable years beginning in

11 2006’’.

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

13 this section shall apply to taxable years beginning after

14 December 31, 2005.

15 SEC. 213. ALLOWANCE OF NONREFUNDABLE PERSONAL

16 CREDITS AGAINST REGULAR AND ALTER17 NATIVE MINIMUM TAX LIABILITY.

18 (a) IN GENERAL.—Paragraph (2) of section 26(a) is

19 amended—

20 (1) by striking ‘‘2005’’ in the heading and in21 serting ‘‘2006’’, and

22 (2) by striking ‘‘or 2005’’ and inserting ‘‘2005,

23 or 2006’’.

24 (b) CONFORMING PROVISIONS.—

25 (1) Section 30B(g) is amended by adding at the

26 end the following new paragraph:
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1 ‘‘(3) SPECIAL RULE FOR 2006.—For purposes of

2 any taxable year beginning during 2006, the credit

3 allowed under subsection (a) (after the application of

4 paragraph (1)) shall not exceed the excess of—

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

6 (as defined in section 26(b)) plus the tax im7 posed by section 55, over

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

9 under subpart A and this subpart (other than

10 this section and section 30C).’’.

11 (2) Section 30C(d) is amended by adding at the

12 end the following new paragraph:

13 ‘‘(3) SPECIAL RULE FOR 2006.—For purposes of

14 any taxable year beginning during 2006, the credit

15 allowed under subsection (a) (after the application of

16 paragraph (1)) shall not exceed the excess of—

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

18 (as defined in section 26(b)) plus the tax im19 posed by section 55, over

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

21 under subpart A and this subpart (other than

22 this section).’’.

23 (3) Section 904(h) is amended by striking ‘‘or

24 2005’’ and inserting ‘‘2005, or 2006’’.
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1 (4) The amendments made by sections 201(b),

2 202(f), and 618(b) of the Economic Growth and Tax

3 Relief Reconciliation Act of 2001 shall not apply to

4 taxable years beginning during 2006.

5 SEC. 214. EXTENSION AND MODIFICATION OF RESEARCH

6 CREDIT.

7 (a) EXTENSION.—

8 (1) IN GENERAL.—Section 41(h)(1)(B) is

9 amended by striking ‘‘2005’’ and inserting ‘‘2006’’.

10 (2) CONFORMING AMENDMENT.—Section

11 45C(b)(1)(D) is amended by striking ‘‘2005’’ and

12 inserting ‘‘2006’’.

13 (b) INCREASE IN RATES OF ALTERNATIVE INCRE14 MENTAL CREDIT.—Subparagraph (A) of section 41(c)(4)

15 (relating to election of alternative incremental credit) is

16 amended—

17 (1) by striking ‘‘2.65 percent’’ and inserting ‘‘3

18 percent’’,

19 (2) by striking ‘‘3.2 percent’’ and inserting ‘‘4

20 percent’’, and

21 (3) by striking ‘‘3.75 percent’’ and inserting ‘‘5

22 percent’’.

23 (c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALI24 FIED RESEARCH EXPENSES.—
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1 (1) IN GENERAL.—Subsection (c) of section 41

2 (relating to base amount) is amended by redesig3 nating paragraphs (5) and (6) as paragraphs (6)

4 and (7), respectively, and by inserting after para5 graph (4) the following new paragraph:

6 ‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED

7 CREDIT.—

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

9 taxpayer, the credit determined under sub10 section (a)(1) shall be equal to 12 percent of so

11 much of the qualified research expenses for the

12 taxable year as exceeds 50 percent of the aver13 age qualified research expenses for the 3 tax14 able years preceding the taxable year for which

15 the credit is being determined.

16 ‘‘(B) SPECIAL RULE IN CASE OF NO

17 QUALIFIED RESEARCH EXPENSES IN ANY OF 3

18 PRECEDING TAXABLE YEARS.—

19 ‘‘(i) TAXPAYERS TO WHICH SUBPARA20 GRAPH APPLIES.—The credit under this

21 paragraph shall be determined under this

22 subparagraph if the taxpayer has no quali23 fied research expenses in any 1 of the 3

24 taxable years preceding the taxable year

25 for which the credit is being determined.
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1 ‘‘(ii) CREDIT RATE.—The credit de2 termined under this subparagraph shall be

3 equal to 6 percent of the qualified research

4 expenses for the taxable year.

5 ‘‘(C) ELECTION.—An election under this

6 paragraph shall apply to the taxable year for

7 which made and all succeeding taxable years

8 unless revoked with the consent of the Sec9 retary. An election under this paragraph may

10 not be made for any taxable year to which an

11 election under paragraph (4) applies.’’.

12 (2) COORDINATION WITH ELECTION OF ALTER13 NATIVE INCREMENTAL CREDIT.—

14 (A) IN GENERAL.—Section 41(c)(4)(B)

15 (relating to election) is amended by adding at

16 the end the following: ‘‘An election under this

17 paragraph may not be made for any taxable

18 year to which an election under paragraph (5)

19 applies.’’.

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

21 election under section 41(c)(4) of the Internal

22 Revenue Code of 1986 which applies to the tax23 able year which includes the date of the enact24 ment of this Act, such election shall be treated

25 as revoked with the consent of the Secretary of
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1 the Treasury if the taxpayer makes an election

2 under section 41(c)(5) of such Code (as added

3 by subsection (a)) for such year.

4 (d) EXPANSION OF CREDIT TO EXPENSES OF GEN5 ERAL COLLABORATIVE RESEARCH CONSORTIA.—Section

6 41 is amended—

7 (1) by striking ‘‘an energy research consor8 tium’’ in subsections (a)(3) and (b)(3)(C)(i) and in9 serting ‘‘a research consortium’’,

10 (2) by striking ‘‘energy’’ each place it appears

11 in subsection (f)(6)(A),

12 (3) by inserting ‘‘or 501(c)(6)’’ after ‘‘section

13 501(c)(3)’’ in subsection (f)(6)(A)(i)(I), and

14 (4) by striking ‘‘ENERGY RESEARCH’’ in the

15 heading for subsection (f)(6)(A) and inserting ‘‘RE16 SEARCH’’.

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

18 this section shall apply to taxable years ending after De19 cember 31, 2005.

20 SEC. 215. WORK OPPORTUNITY TAX CREDIT AND WELFARE21 TO-WORK CREDIT.

22 (a) IN GENERAL.—Section 51(c)(4)(B) is amended

23 by striking ‘‘2005’’ and inserting ‘‘2006’’.

24 (b) ELIGIBILITY OF EX-FELONS DETERMINED

25 WITHOUT REGARD TO FAMILY INCOME.—Paragraph (4)
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1 of section 51(d) is amended by adding ‘‘and’’ at the end

2 of subparagraph (A), by striking ‘‘, and’’ at the end of

3 subparagraph (B) and inserting a period, and by striking

4 all that follows subparagraph (B).

5 (c) INCREASE IN MAXIMUM AGE FOR ELIGIBILITY OF

6 FOOD STAMP RECIPIENTS.—Clause (i) of section

7 51(d)(8)(A) is amended by striking ‘‘25’’ and inserting

8 ‘‘40’’.

9 (d) INCREASE IN MAXIMUM AGE FOR DESIGNATED

10 COMMUNITY RESIDENTS.—

11 (1) IN GENERAL.—Paragraph (5) of section

12 51(d) is amended to read as follows:

13 ‘‘(5) DESIGNATED COMMUNITY RESIDENTS.—

14 ‘‘(A) IN GENERAL.—The term ‘designated

15 community resident’ means any individual who

16 is certified by the designated local agency—

17 ‘‘(i) as having attained age 18 but not

18 age 40 on the hiring date, and

19 ‘‘(ii) as having his principal place of

20 abode within an empowerment zone, enter21 prise community, or renewal community.

22 ‘‘(B) INDIVIDUAL MUST CONTINUE TO RE23 SIDE IN ZONE OR COMMUNITY.—In the case of

24 a designated community resident, the term

25 ‘qualified wages’ shall not include wages paid or
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1 incurred for services performed while the indi2 vidual’s principal place of abode is outside an

3 empowerment zone, enterprise community, or

4 renewal community.’’

5 (2) CONFORMING AMENDMENT.—Subparagraph

6 (D) of section 51(d)(1) is amended to read as fol7 lows:

8 ‘‘(D) a designated community resident,’’.

9 (e) CONSOLIDATION OF WORK OPPORTUNITY CRED10 IT WITH WELFARE-TO-WORK CREDIT.—

11 (1) IN GENERAL.—Paragraph (1) of section

12 51(d) is amended by striking ‘‘or’’ at the end of sub13 paragraph (G), by striking the period at the end of

14 subparagraph (H) and inserting ‘‘, or’’, and by add15 ing at the end the following new subparagraph:

16 ‘‘(I) a long-term family assistance recipi17 ent.’’

18 (2) LONG-TERM FAMILY ASSISTANCE RECIPI19 ENT.—Subsection (d) of section 51 is amended by

20 redesignating paragraphs (10) through (12) as para21 graphs (11) through (13), respectively, and by in22 serting after paragraph (9) the following new para23 graph:

24 ‘‘(10) LONG-TERM FAMILY ASSISTANCE RECIPI25 ENT.—The term ‘long-term family assistance recipi-
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1 ent’ means any individual who is certified by the

2 designated local agency—

3 ‘‘(A) as being a member of a family receiv4 ing assistance under a IV–A program (as de5 fined in paragraph (2)(B)) for at least the 18-

6 month period ending on the hiring date,

7 ‘‘(B)(i) as being a member of a family re8 ceiving such assistance for 18 months beginning

9 after August 5, 1997, and

10 ‘‘(ii) as having a hiring date which is not

11 more than 2 years after the end of the earliest

12 such 18-month period, or

13 ‘‘(C)(i) as being a member of a family

14 which ceased to be eligible for such assistance

15 by reason of any limitation imposed by Federal

16 or State law on the maximum period such as17 sistance is payable to a family, and

18 ‘‘(ii) as having a hiring date which is not

19 more than 2 years after the date of such ces20 sation.’’

21 (3) INCREASED CREDIT FOR EMPLOYMENT OF

22 LONG-TERM FAMILY ASSISTANCE RECIPIENTS.—Sec23 tion 51 is amended by inserting after subsection (d)

24 the following new subsection:
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1 ‘‘(e) CREDIT FOR SECOND-YEAR WAGES FOR EM2 PLOYMENT OF LONG-TERM FAMILY ASSISTANCE RECIPI3 ENTS.—

4 ‘‘(1) IN GENERAL.—With respect to the em5 ployment of a long-term family assistance

6 recipient—

7 ‘‘(A) the amount of the work opportunity

8 credit determined under this section for the tax9 able year shall include 50 percent of the quali10 fied second-year wages for such year, and

11 ‘‘(B) in lieu of applying subsection (b)(3),

12 the amount of the qualified first-year wages,

13 and the amount of qualified second-year wages,

14 which may be taken into account with respect

15 to such a recipient shall not exceed $10,000 per

16 year.

17 ‘‘(2) QUALIFIED SECOND-YEAR WAGES.—For

18 purposes of this subsection, the term ‘qualified sec19 ond-year wages’ means qualified wages—

20 ‘‘(A) which are paid to a long-term family

21 assistance recipient, and

22 ‘‘(B) which are attributable to service ren23 dered during the 1-year period beginning on the

24 day after the last day of the 1-year period with
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1 respect to such recipient determined under sub2 section (b)(2).

3 ‘‘(3) SPECIAL RULES FOR AGRICULTURAL AND

4 RAILWAY LABOR.—If such recipient is an employee

5 to whom subparagraph (A) or (B) of subsection

6 (h)(1) applies, rules similar to the rules of such sub7 paragraphs shall apply except that—

8 ‘‘(A) such subparagraph (A) shall be ap9 plied by substituting ‘$10,000’ for ‘$6,000’, and

10 ‘‘(B) such subparagraph (B) shall be ap11 plied by substituting ‘$833.33’ for ‘$500’.’’

12 (4) REPEAL OF SEPARATE WELFARE-TO-WORK

13 CREDIT.—

14 (A) IN GENERAL.—Section 51A is hereby

15 repealed.

16 (B) CLERICAL AMENDMENT.—The table of

17 sections for subpart F of part IV of subchapter

18 A of chapter 1 is amended by striking the item

19 relating to section 51A.

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

21 this section shall apply to individuals who begin work for

22 the employer after December 31, 2005.
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1 SEC. 216. QUALIFIED ZONE ACADEMY BONDS.

2 (a) IN GENERAL.—Paragraph (1) of section

3 1397E(e) is amended by striking ‘‘and 2005’’ and insert4 ing ‘‘2005, and 2006’’.

5 (b) FORM OF PRIVATE BUSINESS CONTRIBUTIONS.—

6 Section 1397E(d)(2)(B) is amended by striking ‘‘any con7 tribution’’ and all that follows and inserting ‘‘any cash or

8 cash equivalent contribution’’.

9 (c) SPECIAL RULES RELATING TO AMORTIZATION,

10 EXPENDITURES, ARBITRAGE, AND REPORTING.—

11 (1) IN GENERAL.—Section 1397E is

12 amended—

13 (A) in subsection (d)(1), by striking ‘‘and’’

14 at the end of subparagraph (C)(iii), by striking

15 the period at the end of subparagraph (D) and

16 inserting ‘‘, and’’, and by adding at the end the

17 following new subparagraph:

18 ‘‘(E) the issue meets the requirements of

19 subsections (f), (g), (h), and (i).’’, and

20 (B) by redesignating subsections (f), (g),

21 (h), and (i) as subsection (j), (k), (l), and (m),

22 respectively, and by inserting after subsection

23 (e) the following new subsections:

24 ‘‘(f) RATABLE PRINCIPAL AMORTIZATION RE25 QUIRED.—An issue shall be treated as meeting the re26 quirements of this subsection if such issue provides for
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1 an equal amount of principal to be paid by the issuer dur2 ing each calendar year that the issue is outstanding.

3 ‘‘(g) SPECIAL RULES RELATING TO EXPENDI4 TURES.—

5 ‘‘(1) IN GENERAL.—An issue shall be treated as

6 meeting the requirements of this subsection if, as of

7 the date of issuance, the issuer reasonably expects—

8 ‘‘(A) at least 95 percent of the proceeds

9 from the sale of the issue are to be spent for

10 1 or more qualified purposes with respect to

11 qualified zone academies within the 5-year pe12 riod beginning on the date of issuance of the

13 qualified zone academy bond,

14 ‘‘(B) a binding commitment with a third

15 party to spend at least 10 percent of the pro16 ceeds from the sale of the issue will be incurred

17 within the 6-month period beginning on the

18 date of issuance of the qualified zone academy

19 bond, and

20 ‘‘(C) such purposes will be completed with

21 due diligence and the proceeds from the sale of

22 the issue will be spent with due diligence.

23 ‘‘(2) EXTENSION OF PERIOD.—Upon submis24 sion of a request prior to the expiration of the period

25 described in paragraph (1)(A), the Secretary may
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1 extend such period if the issuer establishes that the

2 failure to satisfy the 5-year requirement is due to

3 reasonable cause and the related purposes will con4 tinue to proceed with due diligence.

5 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

6 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex7 tent that less than 95 percent of the proceeds of

8 such issue are expended by the close of the 5-year

9 period beginning on the date of issuance (or if an

10 extension has been obtained under paragraph (2), by

11 the close of the extended period), the issuer shall re12 deem all of the nonqualified bonds within 90 days

13 after the end of such period. For purposes of this

14 paragraph, the amount of the nonqualified bonds re15 quired to be redeemed shall be determined in the

16 same manner as under section 142.

17 ‘‘(h) SPECIAL RULES RELATING TO ARBITRAGE.—

18 An issue shall be treated as meeting the requirements of

19 this subsection if the issuer satisfies the arbitrage require20 ments of section 148 with respect to proceeds of the issue.

21 ‘‘(i) REPORTING.—Issuers of qualified academy zone

22 bonds shall submit reports similar to the reports required

23 under section 149(e).’’.

24 (2) CONFORMING AMENDMENTS.—
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1 (A) Section 1397E(d)(3) is amended by in2 serting ‘‘without regard to the requirements of

3 subsection (f) and’’ after ‘‘Such present value

4 shall be determined’’.

5 (B) Section 54(l)(3)(B) is amended by

6 striking ‘‘section 1397E(i)’’ and inserting ‘‘sec7 tion 1397E(l)’’.

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

9 this section shall apply to obligations issued after Decem10 ber 31, 2005.

11 SEC. 217. DEDUCTION FOR CORPORATE DONATIONS OF

12 COMPUTER TECHNOLOGY AND EQUIPMENT.

13 Section 170(e)(6)(G) is amended by striking ‘‘2005’’

14 and inserting ‘‘2006’’.

15 SEC. 218. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EX16 PENSES OF ELEMENTARY AND SECONDARY

17 SCHOOL TEACHERS.

18 Subparagraph (D) of section 62(a)(2) is amended by

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

20 SEC. 219. EXPENSING OF BROWNFIELDS REMEDIATION

21 COSTS.

22 (a) EXTENSION.—Subsection (h) of section 198 is

23 amended by striking ‘‘2005’’ and inserting ‘‘2006’’.

24 (b) EXPANSION.—
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1 (1) IN GENERAL.—Section 198(d)(1) (defining

2 hazardous substance) is amended by striking ‘‘and’’

3 at the end of subparagraph (A), by striking the pe4 riod at the end of subparagraph (B) and inserting

5 ‘‘, and’’, and by adding at the end the following new

6 subparagraph:

7 ‘‘(C) any petroleum product (as defined in

8 section 4612(a)(3)).’’.

9 (2) EFFECTIVE DATE.—The amendments made

10 by this subsection shall apply to expenditures paid

11 or incurred after December 31, 2005.

12 SEC. 220. TAX INCENTIVES FOR INVESTMENT IN THE DIS13 TRICT OF COLUMBIA.

14 (a) DESIGNATION OF ZONE.—Subsection (f) of sec15 tion 1400 is amended by striking ‘‘2005’’ both places it

16 appears and inserting ‘‘2006’’.

17 (b) TAX-EXEMPT ECONOMIC DEVELOPMENT

18 BONDS.—Subsection (b) of section 1400A is amended by

19 striking ‘‘2005’’ and inserting ‘‘2006’’.

20 (c) ZERO PERCENT CAPITAL GAINS RATE.—

21 (1) IN GENERAL.—Subsection (b) of section

22 1400B is amended by striking ‘‘2006’’ each place it

23 appears and inserting ‘‘2007’’.

24 (2) CONFORMING AMENDMENTS.—

25 (A) Section 1400B(e)(2) is amended—
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1 (i) by striking ‘‘2010’’ and inserting

2 ‘‘2011’’, and

3 (ii) by striking ‘‘2010’’ in the heading

4 and inserting ‘‘2011’’.

5 (B) Section 1400B(g)(2) is amended by

6 striking ‘‘2010’’ and inserting ‘‘2011’’.

7 (C) Section 1400F(d) is amended by strik8 ing ‘‘2010’’ and inserting ‘‘2011’’.

9 (d) FIRST-TIME HOMEBUYER CREDIT.—Subsection

10 (i) of section 1400C is amended by striking ‘‘2006’’ and

11 inserting ‘‘2007’’.

12 SEC. 221. INDIAN EMPLOYMENT TAX CREDIT.

13 Section 45A(f) is amended by striking ‘‘2005’’ and

14 inserting ‘‘2006’’.

15 SEC. 222. ACCELERATED DEPRECIATION FOR BUSINESS

16 PROPERTY ON INDIAN RESERVATION.

17 Section 168(j)(8) is amended by striking ‘‘2005’’ and

18 inserting ‘‘2006’’.

19 SEC. 223. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY

20 FOR QUALIFIED LEASEHOLD IMPROVEMENTS

21 AND QUALIFIED RESTAURANT IMPROVE22 MENTS.

23 Clauses (iv) and (v) of section 168(e)(3)(E) are each

24 amended by striking ‘‘2006’’ and inserting ‘‘2007’’.
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1 SEC. 224. EXTENSION OF FULL CREDIT FOR QUALIFIED

2 ELECTRIC VEHICLES.

3 (a) IN GENERAL.—Section 30(b) (relating to limita4 tions) is amended by striking paragraph (2) and by redes5 ignating paragraph (3) as paragraph (2).

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

7 subsection (a) shall apply to taxable years beginning after

8 December 31, 2005.

9 Subtitle C—Application of

10 EGTRRA Sunset

11 SEC. 231. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

12 Each amendment made by this title shall be subject

13 to title IX of the Economic Growth and Tax Relief Rec14 onciliation Act of 2001 to the same extent and in the same

15 manner as the provision of such Act to which such amend16 ment relates.

17 TITLE III—PROVISIONS RELAT18 ING TO CHARITABLE DONA19 TIONS

20 Subtitle A—Charitable Giving

21 Incentives

22 SEC. 301. CHARITABLE DEDUCTION FOR NONITEMIZERS.

23 (a) IN GENERAL.—Section 170 (relating to chari24 table, etc., contributions and gifts) is amended by redesig25 nating subsection (o) as subsection (p) and by inserting

26 after subsection (n) the following new subsection:
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1 ‘‘(o) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING

2 DEDUCTIONS.—In the case of an individual who does not

3 itemize deductions for any taxable year beginning after

4 December 31, 2005, and before January 1, 2008, there

5 shall be taken into account as a direct charitable deduction

6 under section 63 an amount equal to the amount allowable

7 under subsection (a) for the taxable year for cash con8 tributions (determined without regard to any carryover).’’.

9 (b) DIRECT CHARITABLE DEDUCTION.—

10 (1) IN GENERAL.—Subsection (b) of section 63

11 (defining taxable income) is amended by striking

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

13 period at the end of paragraph (2) and inserting ‘‘,

14 and’’, and by adding at the end the following new

15 paragraph:

16 ‘‘(3) the direct charitable deduction.’’.

17 (2) DEFINITION.—Section 63 is amended by re18 designating subsection (g) as subsection (h) and by

19 inserting after subsection (f) the following new sub20 section:

21 ‘‘(g) DIRECT CHARITABLE DEDUCTION.—For pur22 poses of this section, the term ‘direct charitable deduction’

23 means that portion of the amount allowable under section

24 170(a) which is taken as a direct charitable deduction for

25 the taxable year under section 170(o).’’.
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1 (3) CONFORMING AMENDMENT.—Subsection (d)

2 of section 63 is amended by striking ‘‘and’’ at the

3 end of paragraph (1), by striking the period at the

4 end of paragraph (2) and inserting ‘‘, and’’, and by

5 adding at the end the following new paragraph:

6 ‘‘(3) the direct charitable deduction.’’.

7 (c) FLOOR ON CHARITABLE CONTRIBUTIONS BY IN8 DIVIDUALS.—Section 170(a) is amended by adding at the

9 end the following new paragraph:

10 ‘‘(4) DOLLAR FLOOR ON CHARITABLE CON11 TRIBUTIONS BY INDIVIDUALS.—In the case of an in12 dividual, the charitable contributions of the taxpayer

13 for any taxable year shall be taken into account for

14 purposes of determining the deduction under para15 graph (1) only to the extent that the aggregate of

16 such contributions exceeds $210 ($420 in the case

17 of a joint return).’’.

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

19 this section shall apply to contributions made in taxable

20 years beginning after December 31, 2005.
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1 SEC. 302. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE2 TIREMENT PLANS FOR CHARITABLE PUR3 POSES.

4 (a) IN GENERAL.—Subsection (d) of section 408 (re5 lating to individual retirement accounts) is amended by

6 adding at the end the following new paragraph:

7 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR8 POSES.—

9 ‘‘(A) IN GENERAL.—No amount shall be

10 includible in gross income by reason of a quali11 fied charitable distribution.

12 ‘‘(B) QUALIFIED CHARITABLE DISTRIBU13 TION.—For purposes of this paragraph, the

14 term ‘qualified charitable distribution’ means

15 any distribution from an individual retirement

16 plan (other than a plan described in subsection

17 (k) or (p) of section 408)—

18 ‘‘(i) which is made on or after the

19 date that the individual for whose benefit

20 the plan is maintained has attained age

701 21 ⁄2, and

22 ‘‘(ii) which is made directly by the

23 trustee—

24 ‘‘(I) to an organization described

25 in section 170(c), or

26 ‘‘(II) to a split-interest entity.
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1 A distribution shall be treated as a qualified

2 charitable distribution only to the extent that

3 the distribution would be includible in gross in4 come without regard to subparagraph (A) and,

5 in the case of a distribution to a split-interest

6 entity, only if no person holds an income inter7 est in the amounts in the split-interest entity

8 attributable to such distribution other than one

9 or more of the following: the individual for

10 whose benefit such plan is maintained, the

11 spouse of such individual, or any organization

12 described in section 170(c).

13 ‘‘(C) CONTRIBUTIONS MUST BE OTHER14 WISE DEDUCTIBLE.—For purposes of this

15 paragraph—

16 ‘‘(i) DIRECT CONTRIBUTIONS.—A dis17 tribution to an organization described in

18 section 170(c) shall be treated as a quali19 fied charitable distribution only if a deduc20 tion for the entire distribution would be al21 lowable under section 170 (determined

22 without regard to subsections (a)(4) and

23 (b) thereof and this paragraph).

24 ‘‘(ii) SPLIT-INTEREST GIFTS.—A dis25 tribution to a split-interest entity shall be
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1 treated as a qualified charitable distribu2 tion only if a deduction for the entire value

3 of the interest in the distribution for the

4 use of an organization described in section

5 170(c) would be allowable under section

6 170 (determined without regard to sub7 sections (a)(4) and (b) thereof and this

8 paragraph).

9 ‘‘(D) APPLICATION OF SECTION 72.—Not10 withstanding section 72, in determining the ex11 tent to which a distribution is a qualified chari12 table distribution, the entire amount of the dis13 tribution shall be treated as includible in gross

14 income without regard to subparagraph (A) to

15 the extent that such amount does not exceed

16 the aggregate amount which would have been so

17 includible if all amounts distributed from all in18 dividual retirement plans were treated as 1 con19 tract under paragraph (2)(A) for purposes of

20 determining the inclusion of such distribution

21 under section 72. Proper adjustments shall be

22 made in applying section 72 to other distribu23 tions in such taxable year and subsequent tax24 able years.
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1 ‘‘(E) SPECIAL RULES FOR SPLIT-INTEREST

2 ENTITIES.—

3 ‘‘(i) CHARITABLE REMAINDER

4 TRUSTS.—Notwithstanding section 664(b),

5 distributions made from a trust described

6 in subparagraph (G)(i) shall be treated as

7 ordinary income in the hands of the bene8 ficiary to whom is paid the annuity de9 scribed in section 664(d)(1)(A) or the pay10 ment described in section 664(d)(2)(A).

11 ‘‘(ii) POOLED INCOME FUNDS.—No

12 amount shall be includible in the gross in13 come of a pooled income fund (as defined

14 in subparagraph (G)(ii)) by reason of a

15 qualified charitable distribution to such

16 fund, and all distributions from the fund

17 which are attributable to qualified chari18 table distributions shall be treated as ordi19 nary income to the beneficiary.

20 ‘‘(iii) CHARITABLE GIFT ANNU21 ITIES.—Qualified charitable distributions

22 made for a charitable gift annuity shall not

23 be treated as an investment in the con24 tract.
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1 ‘‘(F) DENIAL OF DEDUCTION.—Qualified

2 charitable distributions shall not be taken into

3 account in determining the deduction under sec4 tion 170.

5 ‘‘(G) SPLIT-INTEREST ENTITY DEFINED.—

6 For purposes of this paragraph, the term ‘split7 interest entity’ means—

8 ‘‘(i) a charitable remainder annuity

9 trust or a charitable remainder unitrust

10 (as such terms are defined in section

11 664(d)) which must be funded exclusively

12 by qualified charitable distributions,

13 ‘‘(ii) a pooled income fund (as defined

14 in section 642(c)(5)), but only if the fund

15 accounts separately for amounts attrib16 utable to qualified charitable distributions,

17 and

18 ‘‘(iii) a charitable gift annuity (as de19 fined in section 501(m)(5)).’’.

20 (b) MODIFICATIONS RELATING TO INFORMATION RE21 TURNS BY CERTAIN TRUSTS.—

22 (1) RETURNS.—Section 6034 (relating to re23 turns by trusts described in section 4947(a)(2) or

24 claiming charitable deductions under section 642(c))

25 is amended to read as follows:
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1 ‘‘SEC. 6034. RETURNS BY CERTAIN TRUSTS.

2 ‘‘(a) SPLIT-INTEREST TRUSTS.—Every trust de3 scribed in section 4947(a)(2) shall furnish such informa4 tion with respect to the taxable year as the Secretary may

5 by forms or regulations require.

6 ‘‘(b) TRUSTS CLAIMING CERTAIN CHARITABLE DE7 DUCTIONS.—

8 ‘‘(1) IN GENERAL.—Every trust not required to

9 file a return under subsection (a) but claiming a de10 duction under section 642(c) for the taxable year

11 shall furnish such information with respect to such

12 taxable year as the Secretary may by forms or regu13 lations prescribe, including—

14 ‘‘(A) the amount of the deduction taken

15 under section 642(c) within such year,

16 ‘‘(B) the amount paid out within such year

17 which represents amounts for which deductions

18 under section 642(c) have been taken in prior

19 years,

20 ‘‘(C) the amount for which such deductions

21 have been taken in prior years but which has

22 not been paid out at the beginning of such year,

23 ‘‘(D) the amount paid out of principal in

24 the current and prior years for the purposes de25 scribed in section 642(c),
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1 ‘‘(E) the total income of the trust within

2 such year and the expenses attributable thereto,

3 and

4 ‘‘(F) a balance sheet showing the assets, li5 abilities, and net worth of the trust as of the

6 beginning of such year.

7 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

8 apply to a trust for any taxable year if—

9 ‘‘(A) all the net income for such year, de10 termined under the applicable principles of the

11 law of trusts, is required to be distributed cur12 rently to the beneficiaries, or

13 ‘‘(B) the trust is described in section

14 4947(a)(1).’’.

15 (2) INCREASE IN PENALTY RELATING TO FIL16 ING OF INFORMATION RETURN BY SPLIT-INTEREST

17 TRUSTS.—Paragraph (2) of section 6652(c) (relating

18 to returns by exempt organizations and by certain

19 trusts) is amended by adding at the end the fol20 lowing new subparagraph:

21 ‘‘(C) SPLIT-INTEREST TRUSTS.—In the

22 case of a trust which is required to file a return

23 under section 6034(a), subparagraphs (A) and

24 (B) of this paragraph shall not apply and para25 graph (1) shall apply in the same manner as if
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1 such return were required under section 6033,

2 except that—

3 ‘‘(i) the 5 percent limitation in the

4 second sentence of paragraph (1)(A) shall

5 not apply,

6 ‘‘(ii) in the case of any trust with

7 gross income in excess of $250,000, the

8 first sentence of paragraph (1)(A) shall be

9 applied by substituting ‘$100’ for ‘$20’,

10 and the second sentence thereof shall be

11 applied by substituting ‘$50,000’ for

12 ‘$10,000’, and

13 ‘‘(iii) the third sentence of paragraph

14 (1)(A) shall be disregarded.

15 In addition to any penalty imposed on the trust

16 pursuant to this subparagraph, if the person re17 quired to file such return knowingly fails to file

18 the return, such penalty shall also be imposed

19 on such person who shall be personally liable

20 for such penalty.’’.

21 (3) CONFIDENTIALITY OF NONCHARITABLE

22 BENEFICIARIES.—Subsection (b) of section 6104

23 (relating to inspection of annual information re24 turns) is amended by adding at the end the fol25 lowing new sentence: ‘‘In the case of a trust which
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1 is required to file a return under section 6034(a),

2 this subsection shall not apply to information re3 garding beneficiaries which are not organizations de4 scribed in section 170(c).’’.

5 (c) EFFECTIVE DATES.—

6 (1) SUBSECTION (a).—The amendment made

7 by subsection (a) shall apply to distributions made

8 in taxable years beginning after December 31, 2005,

9 and before January 1, 2008.

10 (2) SUBSECTION (b).—The amendments made

11 by subsection (b) shall apply to returns for taxable

12 years beginning after December 31, 2005.

13 SEC. 303. MODIFICATION OF CHARITABLE DEDUCTION FOR

14 CONTRIBUTIONS OF FOOD INVENTORY.

15 (a) IN GENERAL.—Subparagraph (C) of section

16 170(e)(3) (relating to special rule for certain contributions

17 of inventory and other property), as added by section 305

18 of the Katrina Emergency Tax Relief Act of 2005, is

19 amended to read as follows:

20 ‘‘(C) SPECIAL RULE FOR CONTRIBUTIONS

21 OF FOOD INVENTORY.—

22 ‘‘(i) GENERAL RULE.—In the case of

23 a charitable contribution of food from any

24 trade or business of the taxpayer, this

25 paragraph shall be applied—
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1 ‘‘(I) without regard to whether

2 the contribution is made by a C cor3 poration, and

4 ‘‘(II) only to food that is appar5 ently wholesome food.

6 ‘‘(ii) LIMITATION.—In the case of a

7 taxpayer other than a C corporation, the

8 aggregate amount of such contributions for

9 any taxable year which may be taken into

10 account under this section shall not exceed

11 10 percent of the taxpayer’s aggregate net

12 income for such taxable year from all

13 trades or businesses from which such con14 tributions were made for such year, com15 puted without regard to this section.

16 ‘‘(iii) LIMITATION ON REDUCTION.—

17 In the case of any such contribution, not18 withstanding subparagraph (B), the

19 amount of the reduction determined under

20 paragraph (1)(A) shall not exceed the

21 amount by which the fair market value of

22 the apparently wholesome food exceeds

23 twice the basis of such food.

24 ‘‘(iv) DETERMINATION OF BASIS.—If

25 a taxpayer—
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1 ‘‘(I) does not account for inven2 tories under section 471, and

3 ‘‘(II) is not required to capitalize

4 indirect costs under section 263A,

5 the taxpayer may elect, solely for purposes

6 of subparagraph (B), to treat the basis of

7 any apparently wholesome food as being

8 equal to 25 percent of the fair market

9 value of such food.

10 ‘‘(v) DETERMINATION OF FAIR MAR11 KET VALUE.—In the case of any such con12 tribution of apparently wholesome food

13 which, solely by reason of internal stand14 ards of the taxpayer or lack of market,

15 cannot or will not be sold, the fair market

16 value of such contribution shall be

17 determined—

18 ‘‘(I) without regard to such inter19 nal standards or such lack of market

20 and

21 ‘‘(II) by taking into account the

22 price at which the same or substan23 tially the same food items (as to both

24 type and quality) are sold by the tax25 payer at the time of the contribution
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1 (or, if not so sold at such time, in the

2 recent past).

3 ‘‘(vi) APPARENTLY WHOLESOME

4 FOOD.—For purposes of this subpara5 graph, the term ‘apparently wholesome

6 food’ has the meaning given to such term

7 by section 22(b)(2) of the Bill Emerson

8 Good Samaritan Food Donation Act (42

9 U.S.C. 1791(b)(2)), as in effect on the

10 date of the enactment of this subpara11 graph.’’.

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

13 this section shall apply to contributions made in taxable

14 years beginning after December 31, 2005, and before Jan15 uary 1, 2008.

16 SEC. 304. BASIS ADJUSTMENT TO STOCK OF S CORPORA17 TION CONTRIBUTING PROPERTY.

18 (a) IN GENERAL.—Paragraph (2) of section 1367(a)

19 (relating to adjustments to basis of stock of shareholders,

20 etc.) is amended by adding at the end the following new

21 flush sentence:

22 ‘‘The decrease under subparagraph (B) by reason of

23 a charitable contribution (as defined in section

24 170(c)) of property shall be the amount equal to the
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1 shareholder’s pro rata share of the adjusted basis of

2 such property.’’.

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

4 this section shall apply to contributions made in taxable

5 years beginning after December 31, 2005, and before Jan6 uary 1, 2008.

7 SEC. 305. MODIFICATION OF CHARITABLE DEDUCTION FOR

8 CONTRIBUTIONS OF BOOK INVENTORY.

9 (a) IN GENERAL.—Subparagraph (D) of section

10 170(e)(3) (relating to special rule for certain contributions

11 of inventory and other property), as added by section 305

12 of the Katrina Emergency Tax Relief Act of 2005, is

13 amended to read as follows:

14 ‘‘(D) SPECIAL RULE FOR CONTRIBUTIONS

15 OF BOOK INVENTORY FOR EDUCATIONAL PUR16 POSES.—

17 ‘‘(i) CONTRIBUTIONS OF BOOK INVEN18 TORY.—In determining whether a qualified

19 book contribution is a qualified contribu20 tion, subparagraph (A) shall be applied

21 without regard to whether—

22 ‘‘(I) the donee is an organization

23 described in the matter preceding

24 clause (i) of subparagraph (A), and
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1 ‘‘(II) the property is to be used

2 by the donee solely for the care of the

3 ill, the needy, or infants.

4 ‘‘(ii) AMOUNT OF REDUCTION.—Not5 withstanding subparagraph (B), the

6 amount of the reduction determined under

7 paragraph (1)(A) shall not exceed the

8 amount by which the fair market value of

9 the contributed property (as determined by

10 the taxpayer using a bona fide published

11 market price for such book) exceeds twice

12 the basis of such property.

13 ‘‘(iii) QUALIFIED BOOK CONTRIBU14 TION.—For purposes of this paragraph,

15 the term ‘qualified book contribution’

16 means a charitable contribution of books,

17 but only if the requirements of clauses (iv)

18 and (v) are met.

19 ‘‘(iv) IDENTITY OF DONEE.—The re20 quirement of this clause is met if the con21 tribution is to an organization—

22 ‘‘(I) described in subclause (I) or

23 (III) of paragraph (6)(B)(i), or

24 ‘‘(II) described in section

25 501(c)(3) and exempt from tax under
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1 section 501(a) (other than a private

2 foundation, as defined in section

3 509(a), which is not an operating

4 foundation, as defined in section

5 4942(j)(3)), which is organized pri6 marily to make books available to the

7 general public at no cost or to operate

8 a literacy program.

9 ‘‘(v) CERTIFICATION BY DONEE.—The

10 requirement of this clause is met if, in ad11 dition to the certifications required by sub12 paragraph (A) (as modified by this sub13 paragraph), the donee certifies in writing

14 that—

15 ‘‘(I) the books are suitable, in

16 terms of currency, content, and quan17 tity, for use in the donee’s educational

18 programs, and

19 ‘‘(II) the donee will use the books

20 in its educational programs.

21 ‘‘(vi) BONA FIDE PUBLISHED MARKET

22 PRICE.—For purposes of this subpara23 graph, the term ‘bona fide published mar24 ket price’ means, with respect to any book,

25 a price—
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1 ‘‘(I) determined using the same

2 printing and edition,

3 ‘‘(II) determined in the usual

4 market in which such a book has been

5 customarily sold by the taxpayer, and

6 ‘‘(III) for which the taxpayer can

7 demonstrate to the satisfaction of the

8 Secretary that the taxpayer custom9 arily sold such books in arm’s length

10 transactions within 7 years preceding

11 the contribution of such a book.’’.

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

13 this section shall apply to contributions made in taxable

14 years beginning after December 31, 2005, and before Jan15 uary 1, 2008.

16 SEC. 306. MODIFICATION OF TAX TREATMENT OF CERTAIN

17 PAYMENTS TO CONTROLLING EXEMPT ORGA18 NIZATIONS AND PUBLIC DISCLOSURE OF IN19 FORMATION RELATING TO UNRELATED BUSI20 NESS INCOME.

21 (a) MODIFICATION OF SECTION 512(B)(13).—

22 (1) IN GENERAL.—Paragraph (13) of section

23 512(b) (relating to special rules for certain amounts

24 received from controlled entities) is amended by re25 designating subparagraph (E) as subparagraph (F)
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1 and by inserting after subparagraph (D) the fol2 lowing new subparagraph:

3 ‘‘(E) PARAGRAPH TO APPLY ONLY TO EX4 CESS PAYMENTS.—

5 ‘‘(i) IN GENERAL.—Subparagraph (A)

6 shall apply only to the portion of a speci7 fied payment received or accrued by the

8 controlling organization that exceeds the

9 amount which would have been paid or ac10 crued if such payment met the require11 ments prescribed under section 482.

12 ‘‘(ii) ADDITION TO TAX FOR VALU13 ATION MISSTATEMENTS.—The tax imposed

14 by this chapter on the controlling organiza15 tion shall be increased by an amount equal

16 to 20 percent of the larger of—

17 ‘‘(I) such excess determined with18 out regard to any amendment or sup19 plement to a return of tax, or

20 ‘‘(II) such excess determined

21 with regard to all such amendments

22 and supplements.’’.

23 (2) EFFECTIVE DATE.—
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1 (A) IN GENERAL.—The amendment made

2 by this subsection shall apply to payments re3 ceived or accrued after December 31, 2000.

4 (B) PAYMENTS SUBJECT TO BINDING CON5 TRACT TRANSITION RULE.—If the amendments

6 made by section 1041 of the Taxpayer Relief

7 Act of 1997 did not apply to any amount re8 ceived or accrued in the first 2 taxable years

9 beginning on or after the date of the enactment

10 of the Taxpayer Relief Act of 1997 under any

11 contract described in subsection (b)(2) of such

12 section, such amendments also shall not apply

13 to amounts received or accrued under such con14 tract before January 1, 2001.

15 (b) PUBLIC AVAILABILITY OF UNRELATED BUSINESS

16 INCOME TAX RETURNS.—

17 (1) IN GENERAL.—Subparagraph (A) of section

18 6104(d)(1) is amended by redesignating clauses (ii)

19 and (iii) as clauses (iii) and (iv), respectively, and by

20 inserting after clause (i) the following new clause:

21 ‘‘(ii) any annual return filed under

22 section 6011 which relates to any tax im23 posed by section 511 (relating to imposi24 tion of tax on unrelated business income of
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1 charitable, etc., organizations) by such or2 ganization,’’.

3 (2) EFFECTIVE DATE.—The amendments made

4 by this subsection shall apply to returns filed after

5 the date of the enactment of this Act.

6 (c) CERTIFICATION OF UNRELATED BUSINESS TAX7 ABLE INCOME FOR CERTAIN ORGANIZATIONS.—

8 (1) IN GENERAL.—Section 6011, as amended

9 by section 311 of this Act, is amended by redesig10 nating subsection (h) as subsection (i) and by insert11 ing after subsection (g) the following new subsection:

12 ‘‘(h) RETURNS OF CERTAIN ORGANIZATIONS RELAT13 ING TO UNRELATED BUSINESS TAXABLE INCOME.—

14 ‘‘(1) IN GENERAL.—Every applicable exempt

15 organization shall include with the return under sub16 section (a) for the taxable year a statement by an

17 independent auditor or an independent counsel

18 which meets the requirements of paragraph (2).

19 ‘‘(2) STATEMENT.—A statement meets the re20 quirement of this paragraph if the statement—

21 ‘‘(A) contains a certification that—

22 ‘‘(i) the information contained in the

23 return—

24 ‘‘(I) has been reviewed by the

25 auditor or counsel, and
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1 ‘‘(II) to the best of the auditor’s

2 or counsel’s knowledge, is accurate,

3 and

4 ‘‘(ii) to the best of the auditor’s or

5 counsel’s knowledge, the allocation of ex6 penses between the unrelated trades and

7 business of the organization and the activi8 ties related to the purpose or function con9 stituting the basis of the organization’s ex10 emption under section 501 complies with

11 the requirements set forth by the Secretary

12 under section 512, and

13 ‘‘(B) indicates—

14 ‘‘(i) whether the auditor or counsel

15 has provided a tax opinion to the organiza16 tion regarding—

17 ‘‘(I) the classification of any

18 trade or business of the organization

19 as an unrelated trade or business, or

20 ‘‘(II) the treatment of any in21 come as unrelated business taxable in22 come, and

23 ‘‘(ii) a description of any material

24 facts with respect to any such opinion.
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1 ‘‘(3) APPLICABLE EXEMPT ORGANIZATION.—

2 For purposes of this subsection, the term ‘applicable

3 exempt organization’ means any organization

4 which—

5 ‘‘(A) is described in section 501(c)(3),

6 ‘‘(B) has—

7 ‘‘(i) gross income and receipts of not

8 less than $10,000,000 for the taxable year,

9 or

10 ‘‘(ii) gross assets of not less than

11 $10,000,000 on the last day of the taxable

12 year, and

13 ‘‘(C) is subject to the tax imposed under

14 section 511 for the taxable year.’’.

15 (2) PENALTY.—

16 (A) IN GENERAL.—Part I of subchapter B

17 of chapter 68 (relating to assessable penalties),

18 as amended by section 316 of this Act, is

19 amended by adding at the end the following

20 new section:

21 ‘‘SEC. 6720C. UNRELATED BUSINESS INCOME REQUIRE22 MENTS.

23 ‘‘(a) IN GENERAL.—Any applicable exempt organiza24 tion (as defined in section 6011(h)(3)) which fails to file

25 a statement required under section 6011(h) shall pay a
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penalty in an amount equal to 1 1 ⁄2 percent of the gross rev2 enue amount of such organization for the taxable year to

3 which such statement relates.

4 ‘‘(b) GROSS REVENUE AMOUNT.—For purposes of

5 subsection (a), the term ‘gross revenue amount’ means,

6 with respect to any taxable year, the gross income and

7 receipts of the organization determined without regard to

8 any contributions or grants received by the organization.

9 ‘‘(c) REASONABLE CAUSE.—No penalty shall be im10 posed under this section with respect to any failure if it

11 is shown that such failure is due to reasonable cause.’’.

12 (B) CONFORMING AMENDMENT.—The

13 table of sections of part I of subchapter B of

14 chapter 68, as amended by section 316 of this

15 Act, is amended by adding after the item relat16 ing to section 6720B the following new item:

‘‘Sec. 6720C. Unrelated business income requirements.’’.

17 (3) EFFECTIVE DATE.—The amendments made

18 by this subsection shall apply to returns for taxable

19 years beginning after the date of the enactment of

20 this Act.

21 SEC. 307. ENCOURAGEMENT OF CONTRIBUTIONS OF CAP22 ITAL GAIN REAL PROPERTY MADE FOR CON23 SERVATION PURPOSES.

24 (a) IN GENERAL.—
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1 (1) INDIVIDUALS.—Paragraph (1) of subsection

2 170(b) (relating to percentage limitations) is amend3 ed by redesignating subparagraphs (E) and (F) as

4 subparagraphs (F) and (G), respectively, and by in5 serting after subparagraph (D) the following new

6 subparagraph:

7 ‘‘(E) CONTRIBUTIONS OF QUALIFIED CON8 SERVATION CONTRIBUTIONS.—

9 ‘‘(i) IN GENERAL.—Any qualified con10 servation contribution (as defined in sub11 section (h)(1)) to an organization described

12 in subparagraph (A) shall be allowed to

13 the extent the aggregate of such contribu14 tions does not exceed the excess of 50 per15 cent of the taxpayer’s contribution base

16 over the amount of all other charitable

17 contributions allowable under this para18 graph.

19 ‘‘(ii) CARRYOVER.—If the aggregate

20 amount of contributions described in clause

21 (i) exceeds the limitation of clause (i), such

22 excess shall be treated (in a manner con23 sistent with the rules of subsection (d)(1))

24 as a charitable contribution to which clause
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1 (i) applies in each of the 15 succeeding

2 years in order of time.

3 ‘‘(iii) COORDINATION WITH OTHER

4 SUBPARAGRAPHS.—For purposes of apply5 ing this subsection and subsection (d)(1),

6 contributions described in clause (i) shall

7 not be treated as described in subpara8 graph (A), (B), (C), or (D).

9 ‘‘(iv) QUALIFIED FARMER OR RANCH10 ER.—

11 ‘‘(I) IN GENERAL.—If the indi12 vidual is a qualified farmer or rancher

13 for the taxable year in which the con14 tribution is made, clause (i) shall be

15 applied by substituting ‘100 percent’

16 for ‘50 percent’.

17 ‘‘(II) DEFINITION.—For pur18 poses of subclause (I), the term ‘quali19 fied farmer or rancher’ means a tax20 payer whose gross income from the

21 trade or business of farming (within

22 the meaning of section 2032A(e)(5))

23 is greater than 50 percent of the tax24 payer’s gross income for the taxable

25 year.’’.
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1 (2) CORPORATIONS.—Paragraph (2) of section

2 170(b) is amended to read as follows:

3 ‘‘(2) CORPORATIONS.—In the case of a

4 corporation—

5 ‘‘(A) IN GENERAL.—The total deductions

6 under subsection (a) for any taxable year (other

7 than for contributions to which subparagraph

8 (B) applies) shall not exceed 10 percent of the

9 taxpayer’s taxable income.

10 ‘‘(B) QUALIFIED CONSERVATION CON11 TRIBUTIONS BY CERTAIN CORPORATE FARMERS

12 AND RANCHERS.—

13 ‘‘(i) IN GENERAL.—Any qualified con14 servation contribution (as defined in sub15 section (h)(1)) made—

16 ‘‘(I) by a corporation which, for

17 the taxable year during which the con18 tribution is made, is a qualified farm19 er or rancher (as defined in paragraph

20 (1)(E)(iv)(II)) and the stock of which

21 is not readily tradable on an estab22 lished securities market at any time

23 during such year, and

24 ‘‘(II) to an organization de25 scribed in paragraph (1)(A),
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1 shall be allowed to the extent the aggregate

2 of such contributions does not exceed the

3 excess of the taxpayer’s taxable income

4 over the amount of charitable contributions

5 allowable under subparagraph (A).

6 ‘‘(ii) CARRYOVER.—If the aggregate

7 amount of contributions described in clause

8 (i) exceeds the limitation of clause (i), such

9 excess shall be treated (in a manner con10 sistent with the rules of subsection (d)(2))

11 as a charitable contribution to which clause

12 (i) applies in each of the 15 succeeding

13 years in order of time.

14 ‘‘(C) TAXABLE INCOME.—For purposes of

15 this paragraph, taxable income shall be com16 puted without regard to—

17 ‘‘(i) this section,

18 ‘‘(ii) part VIII (except section 248),

19 ‘‘(iii) any net operating loss

20 carrryback to the taxable year under sec21 tion 172,

22 ‘‘(iv) section 199, and

23 ‘‘(v) any capital loss carryback to the

24 taxable year under section 1212(a)(1).’’.

25 (b) CONFORMING AMENDMENTS.—
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1 (1) The second sentence of clause (i) of section

2 170(b)(1)(C) is amended by striking ‘‘subparagraph

3 (D)’’ and inserting ‘‘subparagraph (D) or (E)’’.

4 (2) Clause (i) of section 170(b)(1)(D) is amend5 ed by striking ‘‘subparagraph (A)’’ and inserting

6 ‘‘subparagraphs (A) or (E)’’.

7 (3) Paragraph (2) of section 170(d) is amended

8 by striking ‘‘subsection (b)(2)’’ each place it appears

9 and inserting ‘‘subsection (b)(2)(A)’’.

10 (4) Section 545(b)(2) is amended by striking

11 ‘‘and (D)’’ and inserting ‘‘(D), and (E)’’.

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

13 this section shall apply to contributions made in taxable

14 years beginning after December 31, 2005, and before Jan15 uary 1, 2008.

16 SEC. 308. ENHANCED DEDUCTION FOR CHARITABLE CON17 TRIBUTION OF LITERARY, MUSICAL, ARTIS18 TIC, AND SCHOLARLY COMPOSITIONS.

19 (a) IN GENERAL.—Subsection (e) of section 170 (re20 lating to certain contributions of ordinary income and cap21 ital gain property), as amended by this section 33 of this

22 Act, is amended by adding at the end the following new

23 paragraph:
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1 ‘‘(18) SPECIAL RULE FOR CERTAIN CONTRIBU2 TIONS OF LITERARY, MUSICAL, ARTISTIC, OR SCHOL3 ARLY COMPOSITIONS.—

4 ‘‘(A) IN GENERAL.—In the case of a quali5 fied artistic charitable contribution—

6 ‘‘(i) the amount of such contribution

7 taken into account under this section shall

8 be the fair market value of the property

9 contributed (determined at the time of

10 such contribution), and

11 ‘‘(ii) no reduction in the amount of

12 such contribution shall be made under

13 paragraph (1).

14 ‘‘(B) QUALIFIED ARTISTIC CHARITABLE

15 CONTRIBUTION.—For purposes of this para16 graph, the term ‘qualified artistic charitable

17 contribution’ means a charitable contribution of

18 any literary, musical, artistic, or scholarly com19 position, or similar property, or the copyright

20 thereon (or both), but only if—

21 ‘‘(i) such property was created by the

22 personal efforts of the taxpayer making

23 such contribution no less than 18 months

24 prior to such contribution,

25 ‘‘(ii) the taxpayer—
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1 ‘‘(I) has received a qualified ap2 praisal of the fair market value of

3 such property in accordance with the

4 regulations under this section, and

5 ‘‘(II) attaches to the taxpayer’s

6 income tax return for the taxable year

7 in which such contribution was made

8 a copy of such appraisal,

9 ‘‘(iii) the donee is an organization de10 scribed in subsection (b)(1)(A),

11 ‘‘(iv) the use of such property by the

12 donee is related to the purpose or function

13 constituting the basis for the donee’s ex14 emption under section 501 (or, in the case

15 of a governmental unit, to any purpose or

16 function described under section 501(c)),

17 ‘‘(v) the taxpayer receives from the

18 donee a written statement representing

19 that the donee’s use of the property will be

20 in accordance with the provisions of clause

21 (iv), and

22 ‘‘(vi) the written appraisal referred to

23 in clause (ii) includes evidence of the ex24 tent (if any) to which property created by

25 the personal efforts of the taxpayer and of
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1 the same type as the donated property is

2 or has been—

3 ‘‘(I) owned, maintained, and dis4 played by organizations described in

5 subsection (b)(1)(A), and

6 ‘‘(II) sold to or exchanged by

7 persons other than the taxpayer,

8 donee, or any related person (as de9 fined in section 465(b)(3)(C)).

10 ‘‘(C) MAXIMUM DOLLAR LIMITATION; NO

11 CARRYOVER OF INCREASED DEDUCTION.—The

12 increase in the deduction under this section by

13 reason of this paragraph for any taxable year—

14 ‘‘(i) shall not exceed the artistic ad15 justed gross income of the taxpayer for

16 such taxable year, and

17 ‘‘(ii) shall not be taken into account in

18 determining the amount which may be car19 ried from such taxable year under sub20 section (d).

21 ‘‘(D) ARTISTIC ADJUSTED GROSS IN22 COME.—For purposes of this paragraph, the

23 term ‘artistic adjusted gross income’ means

24 that portion of the adjusted gross income of the

25 taxpayer for the taxable year attributable to—
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1 ‘‘(i) income from the sale or use of

2 property created by the personal efforts of

3 the taxpayer which is of the same type as

4 the donated property, and

5 ‘‘(ii) income from teaching, lecturing,

6 performing, or similar activity with respect

7 to property described in clause (i).

8 ‘‘(E) PARAGRAPH NOT TO APPLY TO CER9 TAIN CONTRIBUTIONS.—Subparagraph (A) shall

10 not apply to any charitable contribution of any

11 letter, memorandum, or similar property which

12 was written, prepared, or produced by or for an

13 individual while the individual is an officer or

14 employee of any person (including any govern15 ment agency or instrumentality) unless such

16 letter, memorandum, or similar property is en17 tirely personal.

18 ‘‘(F) COPYRIGHT TREATED AS SEPARATE

19 PROPERTY FOR PARTIAL INTEREST RULE.—In

20 the case of a qualified artistic charitable con21 tribution, the tangible literary, musical, artistic,

22 or scholarly composition, or similar property

23 and the copyright on such work shall be treated

24 as separate properties for purposes of this para25 graph and subsection (f)(3).
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1 ‘‘(G) TERMINATION.—This paragraph

2 shall not apply to contributions made after De3 cember 31, 2007.’’.

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

5 this section shall apply to contributions made after De6 cember 31, 2005.

7 SEC. 309. MILEAGE REIMBURSEMENTS TO CHARITABLE

8 VOLUNTEERS EXCLUDED FROM GROSS IN9 COME.

10 (a) IN GENERAL.—Part III of subchapter B of chap11 ter 1 is amended by inserting after section 139A the fol12 lowing new section:

13 ‘‘SEC. 139B. MILEAGE REIMBURSEMENTS TO CHARITABLE

14 VOLUNTEERS.

15 ‘‘(a) IN GENERAL.—Gross income of an individual

16 does not include amounts received, from an organization

17 described in section 170(c), as reimbursement of operating

18 expenses with respect to use of a passenger automobile

19 for the benefit of such organization. The preceding sen20 tence shall apply only to the extent that the expenses

21 which are reimbursed would be deductible under this chap22 ter if section 274(d) were applied—

23 ‘‘(1) by using the standard business mileage

24 rate established under such section, and
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1 ‘‘(2) as if the individual were an employee of an

2 organization not described in section 170(c).

3 ‘‘(b) APPLICATION TO VOLUNTEER SERVICES

4 ONLY.—Subsection (a) shall not apply with respect to any

5 expenses relating to the performance of services for com6 pensation.

7 ‘‘(c) NO DOUBLE BENEFIT.—A taxpayer may not

8 claim a deduction or credit under any other provision of

9 this title with respect to the expenses under subsection (a).

10 ‘‘(d) EXEMPTION FROM REPORTING REQUIRE11 MENTS.—Section 6041 shall not apply with respect to re12 imbursements excluded from income under subsection (a).

13 ‘‘(e) TERMINATION.—This section shall not apply to

14 taxable years beginning after December 31, 2007.’’.

15 (b) CLERICAL AMENDMENT.—The table of sections

16 for part III of subchapter B of chapter 1 is amended by

17 inserting after the item relating to section 139 the fol18 lowing new item:

‘‘Sec. 139A. Mileage reimbursements to charitable volunteers’’.

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

20 this section shall apply to taxable years beginning after

21 December 31, 2005.
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1 SEC. 310. ALTERNATIVE PERCENTAGE LIMITATION FOR

2 CORPORATE CHARITABLE CONTRIBUTIONS

3 TO THE MATHEMATICS AND SCIENCE PART4 NERSHIP PROGRAM.

5 (a) IN GENERAL.—Section 170(b) (related to per6 centage limitations) is amended by adding at the end the

7 following new paragraph:

8 ‘‘(3) SPECIAL RULE FOR CORPORATE CON9 TRIBUTIONS TO THE MATHEMATICS AND SCIENCE

10 PARTNERSHIP PROGRAM.—

11 ‘‘(A) IN GENERAL.—In the case of a cor12 poration which makes an eligible mathematics

13 and science contribution—

14 ‘‘(i) the limitation under paragraph

15 (2) shall apply separately with respect to

16 all such contributions and all other chari17 table contributions, and

18 ‘‘(ii) paragraph (2) shall be applied

19 with respect to all eligible mathematics and

20 science contributions by substituting ‘15

21 percent’ for ‘10 percent’.

22 ‘‘(B) ELIGIBLE MATHEMATICS AND

23 SCIENCE CONTRIBUTION.—

24 ‘‘(i) IN GENERAL.—For purposes of

25 this paragraph, the term ‘eligible mathe26 matics and science contribution’ means a
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1 charitable contribution (other than a con2 tribution of used equipment) to a qualified

3 partnership for the purpose of an activity

4 described in section 2202(c) of the Ele5 mentary and Secondary Education Act of

6 1965.

7 ‘‘(ii) QUALIFIED PARTNERSHIP.—The

8 term ‘qualified partnership’ means an eligi9 ble partnership (within the meaning of sec10 tion 2201(b)(1) of the Elementary and

11 Secondary Education Act of 1965), but

12 only to the extent that such partnership

13 does not include a person other than a per14 son described in paragraph (1)(A).

15 ‘‘(C) TERMINATION.—This paragraph shall

16 not apply to any contributions made in taxable

17 years beginning after December 31, 2006.’’.

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

19 this section shall apply to contributions made in taxable

20 years beginning after December 31, 2005.
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1 Subtitle B—Reforming Charitable

2 Organizations

3 PART I—GENERAL REFORMS

4 SEC. 311. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS

5 IN TAX SHELTER TRANSACTIONS.

6 (a) IMPOSITION OF EXCISE TAX.—

7 (1) IN GENERAL.—Chapter 42 (relating to pri8 vate foundations and certain other tax-exempt orga9 nizations) is amended by adding at the end the fol10 lowing new subchapter:

11 ‘‘Subchapter F—Tax Shelter Transactions

‘‘Sec. 4965. Excise tax on certain tax-exempt entities entering into prohibited

tax shelter transactions.

12 ‘‘SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES

13 ENTERING INTO PROHIBITED TAX SHELTER

14 TRANSACTIONS.

15 ‘‘(a) PARTICIPATION IN AND APPROVAL OF PROHIB16 ITED TRANSACTIONS.—

17 ‘‘(1) TAX-EXEMPT ENTITY.—

18 ‘‘(A) IN GENERAL.—If any tax-exempt en19 tity (other than a tax-exempt entity described

20 in paragraph (4), (5), (6), or (7) of subsection

21 (c)) is a party to a prohibited tax shelter trans22 action at any time during the taxable year and

23 knows or has reason to know such transaction

24 is a prohibited tax shelter transaction, such en-
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1 tity shall pay a tax for such taxable year in the

2 amount determined under subsection (b)(1)(A).

3 ‘‘(B) POST-TRANSACTION DETERMINA4 TION.—If any tax-exempt entity (other than a

5 tax-exempt entity described in paragraph (4),

6 (5), (6), or (7) of subsection (c)) is a party to

7 a subsequently listed transaction at any time

8 during the taxable year, such entity shall pay a

9 tax in the amount determined under subsection

10 (b)(1)(B).

11 ‘‘(2) ENTITY MANAGER.—If any entity manager

12 of a tax-exempt entity approves such entity as (or

13 otherwise causes such entity to be) a party to a pro14 hibited tax shelter transaction at any time during

15 the taxable year and knows or has reason to know

16 that the transaction is a prohibited tax shelter trans17 action, such manager shall pay a tax for such tax18 able year in the amount determined under sub19 section (b)(2).

20 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No tax

21 shall be imposed under paragraph (1)(A) or (2) if it

22 is shown that the participation of the tax-exempt en23 tity in the transaction was not willful and was due

24 to reasonable cause.

25 ‘‘(b) AMOUNT OF TAX.—
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1 ‘‘(1) ENTITY.—In the case of a tax-exempt

2 entity—

3 ‘‘(A) IN GENERAL.—The amount of the

4 tax imposed under subsection (a)(1)(A) on the

5 entity with respect to a taxable year shall be

6 the greater of—

7 ‘‘(i) 100 percent of the entity’s net in8 come (after taking into account any tax

9 imposed by this subtitle with respect to the

10 prohibited tax shelter transaction) for such

11 taxable year which is attributable to the

12 prohibited tax shelter transaction, or

13 ‘‘(ii) 75 percent of the proceeds re14 ceived by the entity which are attributable

15 to the prohibited tax shelter transaction.

16 ‘‘(B) POST-TRANSACTION DETERMINA17 TION.—The amount of the tax imposed under

18 subsection (a)(1)(B) on the entity with respect

19 to any taxable year shall be an amount equal to

20 the product of—

21 ‘‘(i) the highest rate of tax under sec22 tion 11, and

23 ‘‘(ii) the greater of—

24 ‘‘(I) the entity’s net income

25 (after taking into account any tax im-
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1 posed by this subtitle with respect to

2 the subsequently listed transaction)

3 for such taxable year which is attrib4 utable to the subsequently listed

5 transaction and which is properly allo6 cable to the period beginning on the

7 later of the date such transaction is

8 identified by guidance as a listed

9 transaction by the Secretary or the

10 first day of the taxable year, or

11 ‘‘(II) 75 percent of the proceeds

12 received by the entity which are at13 tributable to the subsequently listed

14 transaction and which are properly al15 locable to the period beginning on the

16 later of the date such transaction is

17 identified by guidance as a listed

18 transaction by the Secretary or the

19 first day of the taxable year.

20 ‘‘(2) ENTITY MANAGER.—In the case of each

21 entity manager to whom subsection (a)(2) applies,

22 the amount of the tax under such subsection shall

23 be $20,000 for each approval.
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1 ‘‘(c) TAX-EXEMPT ENTITY.—For purposes of this

2 section, the term ‘tax-exempt entity’ means an entity

3 which is—

4 ‘‘(1) described in section 501(c) or 501(d),

5 ‘‘(2) described in section 170(c) (other than an

6 agency or instrumentality of the United States) to

7 which paragraph (1) of this subsection does not

8 apply,

9 ‘‘(3) an Indian tribal government (within the

10 meaning of section 7701(a)(40)),

11 ‘‘(4) described in paragraph (1), (2), or (3) of

12 section 4979(e),

13 ‘‘(5) a program described in section 529,

14 ‘‘(6) an eligible deferred compensation plan de15 scribed in section 457(b) which is maintained by an

16 employer described in section 4457(e)(1)(A), or

17 ‘‘(7) an arrangement described in section

18 4973(a).

19 ‘‘(d) ENTITY MANAGER.—For purposes of this sec20 tion, the term ‘entity manager’ means—

21 ‘‘(1) with respect to a tax-exempt entity de22 scribed in paragraph (3) or (4) of section 501(c)—

23 ‘‘(A) in the case of an entity other than a

24 private foundation, an organization manager

25 (as defined in section 4958(f)(2)), and
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1 ‘‘(B) in the case of a private foundation, a

2 foundation manager (as defined in section

3 4946(b)), and

4 ‘‘(2) in all other cases, the person with author5 ity or responsibility similar to that exercised by an

6 officer, director, or trustee of an organization.

7 ‘‘(e) PROHIBITED TAX SHELTER TRANSACTION;

8 SUBSEQUENTLY LISTED TRANSACTION.—For purposes of

9 this section—

10 ‘‘(1) PROHIBITED TAX SHELTER TRANS11 ACTION.—

12 ‘‘(A) IN GENERAL.—The term ‘prohibited

13 tax shelter transaction’ means—

14 ‘‘(i) any listed transaction, or

15 ‘‘(ii) any prohibited reportable trans16 action if the tax-exempt entity knows or

17 has reason to know that such transaction

18 is a reportable transaction.

19 ‘‘(B) LISTED TRANSACTION.—The term

20 ‘listed transaction’ has the meaning given such

21 term by section 6707A(c)(2).

22 ‘‘(C) PROHIBITED REPORTABLE TRANS23 ACTION.—The term ‘prohibited reportable

24 transaction’ means any confidential transaction

25 or any transaction with contractual protection
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1 (as defined under regulations prescribed by the

2 Secretary) which is a reportable transaction (as

3 defined in section 6707A(c)(1)).

4 ‘‘(2) SUBSEQUENTLY LISTED TRANSACTION.—

5 The term ‘subsequently listed transaction’ means

6 any transaction to which a tax-exempt entity is a

7 party and which is determined by the Secretary to

8 be a listed transaction at any time after the entity

9 has entered into the transaction.

10 ‘‘(f) REGULATORY AUTHORITY.—The Secretary is

11 authorized to promulgate regulations which provide guid12 ance regarding the determination of the allocation of net

13 income of a tax-exempt entity attributable to a transaction

14 to various periods, including before and after the listing

15 of the transaction or the date which is 90 days after the

16 date of the enactment of this section.

17 ‘‘(g) COORDINATION WITH OTHER TAXES AND PEN18 ALTIES.—The tax imposed by this section is in addition

19 to any other tax, addition to tax, or penalty imposed under

20 this title.’’.

21 (2) CONFORMING AMENDMENT.—The table of

22 subchapters of chapter 42 is amended by adding at

23 the end the following new item:

‘‘SUBCHAPTER F. TAX SHELTER TRANSACTIONS.’’.

24 (b) DISCLOSURE REQUIREMENTS.—
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1 (1) DISCLOSURE BY ORGANIZATION TO THE IN2 TERNAL REVENUE SERVICE.—

3 (A) IN GENERAL.—Section 6033(a) (relat4 ing to organizations required to file) is amended

5 by redesignating paragraph (2) as paragraph

6 (3), and by inserting after paragraph (1) the

7 following new paragraph:

8 ‘‘(2) PARTICIPATION IN CERTAIN REPORTABLE

9 TRANSACTIONS.—Every tax-exempt entity described

10 in section 4965(c) shall file (in such form and man11 ner and at such time as determined by the Sec12 retary) a disclosure of—

13 ‘‘(A) such entity’s participation in any pro14 hibited tax shelter transaction (as defined in

15 section 4965(e)), and

16 ‘‘(B) the identity of any other party par17 ticipating in such transaction which is known

18 by such tax-exempt entity.’’.

19 (B) CONFORMING AMENDMENT.—Section

20 6033(a)(1) is amended by striking ‘‘paragraph

21 (2)’’ and inserting ‘‘paragraph (3)’’.

22 (2) DISCLOSURE BY OTHER TAXPAYERS TO THE

23 TAX-EXEMPT ENTITY.—Section 6011 (relating to

24 general requirement of return, statement, or list) is

25 amended by redesignating subsection (g) as sub-
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1 section (h) and by inserting after subsection (f) the

2 following new subsection:

3 ‘‘(g) DISCLOSURE OF REPORTABLE TRANSACTION TO

4 TAX-EXEMPT ENTITY.—Any taxable party to a prohibited

5 tax shelter transaction (as defined in section 4965(e)(1))

6 shall by statement disclose to any tax-exempt entity (as

7 defined in section 4965(c)) which is a party to such trans8 action that such transaction is such a prohibited tax shel9 ter transaction.’’.

10 (c) PENALTY FOR NONDISCLOSURE.—

11 (1) IN GENERAL.—Section 6652(c) (relating to

12 returns by exempt organizations and by certain

13 trusts), as amended by section 302, is amended by

14 redesignating paragraphs (2), (3), and (4) as para15 graphs (3), (4), and (5), respectively, and by insert16 ing after paragraph (1) the following new para17 graph:

18 ‘‘(2) DISCLOSURE UNDER SECTION 6033.—

19 ‘‘(A) PENALTY ON ORGANIZATIONS.—In

20 the case of a failure to file a disclosure required

21 under section 6033(a)(2), there shall be paid by

22 the tax-exempt entity (the entity manager in

23 the case of a tax-exempt entity described in

24 paragraph (4), (5), (6), or (7) of section

25 4965(c)) $100 for each day during which such
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1 failure continues. The maximum penalty under

2 this subparagraph on failures with respect to

3 any 1 disclosure shall not exceed $50,000.

4 ‘‘(B) PERSONS.—

5 ‘‘(i) IN GENERAL.—The Secretary

6 may make a written demand on any tax7 exempt entity subject to penalty under

8 subparagraph (A) specifying therein a rea9 sonable future date by which the disclosure

10 shall be filed for purposes of this subpara11 graph.

12 ‘‘(ii) FAILURE TO COMPLY WITH DE13 MAND.—If any person fails to comply with

14 any demand under clause (i) on or before

15 the date specified in such demand, there

16 shall be paid by such person failing to so

17 comply $100 for each day after the expira18 tion of the time specified in such demand

19 during which such failure continues. The

20 maximum penalty imposed under this sub21 paragraph on all tax-exempt entities for

22 failures with respect to any 1 disclosure

23 shall not exceed $10,000.

24 ‘‘(C) DEFINITIONS.—Any term used in

25 this section which is also used in section 4965
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1 shall have the meaning given such term under

2 section 4965.’’.

3 (2) CONFORMING AMENDMENT.—Subparagraph

4 (A) of section 6652(c)(1) of such Code is amended

5 by striking ‘‘6033’’ each place it appears in the text

6 and heading thereof and inserting ‘‘6033(a)(1)’’.

7 (d) EFFECTIVE DATES.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section

10 shall apply to transactions after the date of the en11 actment of this Act, except that no tax under section

12 4965(a) of the Internal Revenue Code of 1986 (as

13 added by this section) shall apply with respect to in14 come that is properly allocable to any period on or

15 before the date which is 90 days after such date of

16 enactment.

17 (2) DISCLOSURE.—The amendments made by

18 subsections (b) and (c) shall apply to disclosures the

19 due date for which are after the date of the enact20 ment of this Act.

21 SEC. 312. EXCISE TAX ON CERTAIN ACQUISITIONS OF IN22 TERESTS IN INSURANCE CONTRACTS IN

23 WHICH CERTAIN EXEMPT ORGANIZATIONS

24 HOLD AN INTEREST.

25 (a) IMPOSITION OF TAX.—
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1 (1) IN GENERAL.—Subchapter F of chapter 42

2 (relating to tax shelter transactions), as added by

3 this Act, is amended by adding at the end the fol4 lowing new section:

5 ‘‘SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN

6 INSURANCE CONTRACTS IN WHICH CERTAIN

7 EXEMPT ORGANIZATIONS HOLD AN INTER8 EST.

9 ‘‘(a) IMPOSITION OF TAX.—If there is a taxable ac10 quisition of any interest in an applicable insurance con11 tract, there is hereby imposed on the person acquiring the

12 interest a tax equal to 100 percent of the acquisition costs

13 of the interest.

14 ‘‘(b) TAXABLE ACQUISITION.—For purposes of this

15 section—

16 ‘‘(1) IN GENERAL.—The term ‘taxable acquisi17 tion’ means the acquisition of any direct or indirect

18 interest in an applicable insurance contract by—

19 ‘‘(A) an applicable exempt organization, or

20 ‘‘(B) a person other than an applicable ex21 empt organization if such interest in the hands

22 of such person is not an interest described in

23 clause (i), (ii), (iii), or (iv) of paragraph (2)(B).

24 ‘‘(2) APPLICABLE INSURANCE CONTRACT.—
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1 ‘‘(A) IN GENERAL.—The term ‘applicable

2 insurance contract’ means any life insurance,

3 annuity, or endowment contract with respect to

4 which both an applicable exempt organization

5 and a person other than an applicable exempt

6 organization have directly or indirectly held an

7 interest in the contract (whether or not at the

8 same time).

9 ‘‘(B) EXCEPTIONS.—Such term shall not

10 include a life insurance, annuity, or endowment

11 contract if—

12 ‘‘(i) all persons directly or indirectly

13 holding any interest in the contract (other

14 than applicable exempt organizations) have

15 an insurable interest in the insured under

16 the contract independent of any interest of

17 an applicable exempt organization in the

18 contract,

19 ‘‘(ii) the sole interest in the contract

20 of each person other than an applicable ex21 empt organization is as a named bene22 ficiary,

23 ‘‘(iii) the sole interest in the contract

24 of each person other than an applicable ex25 empt organization is—
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1 ‘‘(I) as a beneficiary of a trust

2 holding an interest in the contract,

3 but only if the person’s designation as

4 such beneficiary was made without

5 consideration and solely on a purely

6 gratuitous basis, or

7 ‘‘(II) as a trustee who holds an

8 interest in the contract in a fiduciary

9 capacity solely for the benefit of appli10 cable exempt organizations or persons

11 otherwise described in clauses (i), (ii),

12 and (iv) or subclause (I) of this

13 clause, or

14 ‘‘(iv) except as provided in subpara15 graph (C), the sole interest in the contract

16 of each person other than an applicable ex17 empt organization is as a lender with re18 spect to the contract and the contract cov19 ers only 1 individual and such individual is

20 an officer, director, or employee of the ap21 plicable exempt organization with an inter22 est in the contract.

23 ‘‘(C) RESTRICTIONS ON EXCEPTION FOR

24 LENDERS.—
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1 ‘‘(i) NUMERICAL LIMIT.—The number

2 of contracts that may be taken into ac3 count under subparagraph (B)(iv) with re4 spect to officers, directors, or employees of

5 the applicable exempt organization with in6 terests in the contracts shall not exceed the

7 greater of—

8 ‘‘(I) the lesser of 5 percent of the

9 total officers, directors, and employees

10 of the organization or 20, or

11 ‘‘(II) 5.

12 ‘‘(ii) AGGREGATE INDEBTEDNESS.—

13 The exception under subparagraph (B)(iv)

14 shall apply only to the extent that the ag15 gregate amount of the indebtedness with

16 respect to 1 or more contracts covering a

17 single individual does not exceed $50,000.

18 ‘‘(D) SECRETARIAL AUTHORITY.—The

19 Secretary may exempt a contract from treat20 ment as an applicable insurance contract based

21 on specific factors, including factors such as

22 whether the transaction is at arms length,

23 whether economic benefits to the applicable ex24 empt organization substantially exceed the eco25 nomic benefits to all other persons with an in-
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1 terest in the contract (determined without re2 gard to whether, or the extent to which, such

3 organization has paid or contributed with re4 spect to the contract), and the likelihood of

5 abuse.

6 ‘‘(3) DEFINITION AND RULE RELATING TO AC7 QUISITION COSTS.—

8 ‘‘(A) ACQUISITION COSTS DEFINED.—The

9 term ‘acquisition costs’ means the direct or in10 direct costs of acquiring an interest in an appli11 cable insurance contract. Such term shall in12 clude any fees, commissions, charges, or other

13 amounts paid in connection with the acquisi14 tion, whether or not paid to the issuer of the

15 contract.

16 ‘‘(B) TIMING OF PAYMENTS.—Except as

17 provided in regulations, if acquisition costs of

18 any acquisition are paid or incurred in more

19 than 1 calendar year, the tax imposed by sub20 section (a) with respect to the acquisition shall

21 be imposed each time the costs are so paid or

22 incurred.

23 ‘‘(4) RULES RELATING TO INTERESTS.—

24 ‘‘(A) IN GENERAL.—An interest in the

25 contract includes any right with respect to the
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1 contract, whether as an owner, beneficiary, or

2 otherwise.

3 ‘‘(B) INDIRECT INTERESTS.—

4 ‘‘(i) IN GENERAL.—Except as pro5 vided in clause (ii), an indirect interest in

6 a contract includes an interest in an entity

7 which directly or indirectly holds an inter8 est in the contract.

9 ‘‘(ii) PORTFOLIO INVESTMENTS.—If

10 an applicable exempt organization holds an

11 interest in a contract solely because the or12 ganization holds, as part of a diversified

13 investment strategy, a de minimis interest

14 in an entity which directly or indirectly

15 holds the interest in the contract, such in16 direct interest in the contract shall not be

17 taken into account for purposes of this sec18 tion.

19 ‘‘(C) EXCHANGED CONTRACTS.—In the

20 case of an exchange of an applicable insurance

21 contract on which no gain or loss is recognized

22 under section 1035, any interest in any of the

23 contracts involved in the exchange shall be

24 treated as an interest in all such contracts.
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1 ‘‘(5) INCREASE IN INTEREST.—If a person in2 creases an interest in an applicable insurance con3 tract, the increase shall be treated as a separate ac4 quisition for purposes of this section.

5 ‘‘(6) PRIOR ACQUISITIONS.—Except as provided

6 in regulations, if a person acquires an interest in a

7 contract before the contract is treated as an applica8 ble insurance contract, the acquisition shall be treat9 ed as a taxable acquisition of an interest in an appli10 cable insurance contract as of the date the contract

11 becomes an applicable insurance contract.

12 ‘‘(c) APPLICABLE EXEMPT ORGANIZATION.—For

13 purposes of this section, the term ‘applicable exempt orga14 nization’ means—

15 ‘‘(1) an organization described in section

16 170(c),

17 ‘‘(2) an organization described in section

18 168(h)(2)(A)(iv), or

19 ‘‘(3) an organization not described in paragraph

20 (1) or (2) which is described in section 2055(a) or

21 section 2522(a).

22 ‘‘(d) TAX NOT TREATED AS INVESTMENT IN THE

23 CONTRACT.—For purposes of section 72, the tax imposed

24 by this section shall not be included in investment in the

25 contract.
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1 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary to carry out the pro3 visions of this section. Such regulations may include regu4 lations which—

5 ‘‘(1) provide, for purposes of subsection (b)(6),

6 appropriate rules for the application of this section

7 in any case where an interest is acquired before a

8 contract becomes an applicable insurance contract,

9 ‘‘(2) prevent, in cases the Secretary determines

10 appropriate, the imposition of more than one tax

11 under this section if the same interest is acquired

12 more than once, and

13 ‘‘(3) are designed to prevent avoidance of the

14 purposes of this section, including through the use

15 of intermediaries.’’.

16 (2) CONFORMING AMENDMENT.—The table of

17 sections for subchapter F of chapter 42, as added by

18 this Act, is amended by adding at the end the fol19 lowing new item:

‘‘Sec. 4966. Excise tax on acquisition of interests in insurance contracts

in which certain exempt organizations hold an interest.’’.

20 (b) REPORTING REQUIREMENTS.—

21 (1) IN GENERAL.—Subpart B of part III of

22 subchapter A of chapter 61 (relating to information

23 concerning transactions with other persons), as
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1 amended by this Act, is amended by adding at the

2 end the following new section:

3 ‘‘SEC. 6050V. RETURNS RELATING TO APPLICABLE INSUR4 ANCE CONTRACTS IN WHICH CERTAIN EX5 EMPT ORGANIZATIONS HOLD INTERESTS.

6 ‘‘(a) REQUIREMENTS OF REPORTING.—

7 ‘‘(1) EXEMPT ORGANIZATIONS.—Each—

8 ‘‘(A) applicable exempt organization which

9 acquires (within the meaning of section 4966)

10 an interest in any applicable insurance contract,

11 and

12 ‘‘(B) other person which makes an acquisi13 tion of such an interest if such acquisition is

14 taxable under section 4966,

15 shall make the return described in subsection (c).

16 ‘‘(2) TRANSFERS.—If a person (including an

17 applicable exempt organization) acquires an interest

18 in an applicable insurance contract in an acquisition

19 which is taxable under section 4966 and then trans20 fers such interest to 1 or more other persons, each

21 person acquiring all or a portion of such interest

22 shall make the return described in subsection (c).

23 ‘‘(b) TIME FOR MAKING RETURN.—Any organization

24 or person required to make a return under subsection (a)
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1 shall file such return at such time as may be established

2 by the Secretary with respect to—

3 ‘‘(1) in the case of a person described in sub4 section (a)(1), the calendar year in which the acqui5 sition occurs, any calendar year in which acquisition

6 costs are paid or incurred, and any other calendar

7 years specified by the Secretary, and

8 ‘‘(2) in the case of a person described in sub9 section (a)(2), the calendar year in which the trans10 fer occurs.

11 ‘‘(c) FORM AND MANNER OF RETURNS.—A return

12 is described in this subsection if such return—

13 ‘‘(1) is in such form as the Secretary pre14 scribes,

15 ‘‘(2) in the case of—

16 ‘‘(A) a return required under subsection

17 (a)(1)(A), contains the name, address, and tax18 payer identification number of the applicable

19 exempt organization, the issuer of the applica20 ble insurance contract, and any person acquir21 ing an interest in the contract if the acquisition

22 is taxable under section 4966,

23 ‘‘(B) a return required under subsection

24 (a)(1)(B), contains the name, address, and tax25 payer identification number of the person ac-
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1 quiring an interest in the applicable insurance

2 contract if the acquisition is taxable under sec3 tion 4966, any applicable exempt organization

4 holding an interest in the contract, and the

5 issuer of the contract, and

6 ‘‘(C) a return required under subsection

7 (a)(2), contains the name, address, and tax8 payer identification number of the transferor

9 and transferee, and

10 ‘‘(3) contains such other information as the

11 Secretary may prescribe.

12 ‘‘(d) STATEMENTS TO BE FURNISHED TO PERSONS

13 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

14 Every person required to make a return under subsection

15 (a) shall furnish to each person whose taxpayer identifica16 tion information is required to be included in such return

17 under subsection (c) a written statement showing—

18 ‘‘(1) the name and address of the person re19 quired to make such return and the telephone num20 ber of the information contact for such person, and

21 ‘‘(2) the taxpayer identity and other informa22 tion required to be shown on the return with respect

23 to such person.
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1 The written statement required under the preceding sen2 tence shall be furnished on or before the date specified

3 by the Secretary.

4 ‘‘(e) DEFINITIONS.—For purposes of this section,

5 any term used in this section which is also used in section

6 4966 shall have the meaning given such term by section

7 4966.’’.

8 (2) PENALTIES.—

9 (A) IN GENERAL.—Section 6724(d) is

10 amended—

11 (i) in paragraph (1)(B), by redesig12 nating clauses (xiii) through (xviii) as

13 clauses (xiv) through (xix) and by inserting

14 after clause (xii) the following new clause:

15 ‘‘(xiii) section 6050V (relating to re16 turns relating to applicable insurance con17 tracts in which certain exempt organiza18 tions hold interests),’’, and

19 (ii) in paragraph (3), by striking

20 ‘‘and’’ at the end of subparagraph (C), by

21 striking the period at the end of subpara22 graph (D) and inserting ‘‘, and’’, and by

23 adding at the end the following new sub24 paragraph:
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1 ‘‘(E) the statement required by subsection

2 (d) of section 6050V (relating to returns relat3 ing to applicable insurance contracts in which

4 certain exempt organizations hold interests).’’.

5 (B) INTENTIONAL DISREGARD.—Section

6 6721(e)(2) is amended by striking ‘‘or’’ at the

7 end of subparagraph (B), by striking ‘‘and’’ at

8 the end of subparagraph (C) and inserting

9 ‘‘or’’, and by adding at the end the following

10 new subparagraph:

11 ‘‘(D) in the case of a return required to be

12 filed under section 6050V, the amount of tax

13 imposed under section 4966 which has not been

14 paid with respect to items required to be in15 cluded on the return, and’’.

16 (3) CONFORMING AMENDMENT.—The table of

17 sections for subpart B of part III of subchapter A

18 of chapter 61, as amended by this Act, is amended

19 by adding at the end the following new item:

‘‘Sec. 6050V. Returns relating to applicable insurance contracts in which

certain exempt organizations hold interests.’’.

20 (c) EFFECTIVE DATE.—

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

22 this section shall apply to contracts issued after May

23 3, 2005.
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1 (2) REPORTING OF EXISTING CONTRACTS.—In

2 the case of any life insurance, annuity, or endow3 ment contract—

4 (A) which was issued on or before May 3,

5 2005,

6 (B) with respect to which an applicable ex7 empt organization (as defined in section 4966

8 of the Internal Revenue Code of 1986, as added

9 by this section) holds an interest on May 3,

10 2005, and

11 (C) which would be treated as an applica12 ble insurance contract (as so defined) if issued

13 after May 3, 2005,

14 such organization shall, not later than the date

15 which is 1 year after the date of the enactment of

16 this Act, report to the Secretary of the Treasury

17 with respect to such contract. Such report shall be

18 in such form and manner, and contain such informa19 tion, as the Secretary may prescribe. The Secretary

20 shall submit such reports, along with any rec21 ommendations for legislation as the Secretary con22 siders appropriate, to the Committee on Ways and

23 Means of the House of Representatives and to the

24 Committee on Finance of the Senate within 6
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1 months of the date such reports are required to be

2 filed.

3 SEC. 313. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC

4 CHARITIES, SOCIAL WELFARE ORGANIZA5 TIONS, AND PRIVATE FOUNDATIONS.

6 (a) TAXES ON SELF-DEALING AND EXCESS BENEFIT

7 TRANSACTIONS.—

8 (1) IN GENERAL.—Section 4941(a) (relating to

9 initial taxes) is amended—

10 (A) in paragraph (1), by striking ‘‘5 per11 cent’’ and inserting ‘‘10 percent’’, and

(B) in paragraph (2), by striking ‘‘21 12 ⁄2

13 percent’’ and inserting ‘‘5 percent’’.

14 (2) INCREASE IN TAX IF SELF-DEALING IN15 CLUDES COMPENSATION TO DISQUALIFIED PER16 SON.—Section 4941(a)(1) is amended by adding at

17 the end the following new sentence: ‘‘If the act of

18 self-dealing includes acts described in subsection

19 (d)(1)(D), ‘25 percent’ shall be substituted for ‘10

20 percent’, except that the Secretary may abate under

21 section 4962 (determined without regard to the ex22 ception under subsection (b) thereof) not more than

23 15 percentage points of such tax.’’.

24 (3) INCREASED LIMITATION FOR MANAGERS ON

25 SELF-DEALING.—Section 4941(c)(2) is amended by
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1 striking ‘‘$10,000’’ each place it appears in the text

2 and in the heading and inserting ‘‘$20,000’’.

3 (4) INCREASED LIMITATION FOR MANAGERS ON

4 EXCESS BENEFIT TRANSACTIONS.—Section

5 4958(d)(2) is amended by striking ‘‘$10,000’’ and

6 inserting ‘‘$20,000’’.

7 (b) TAXES ON FAILURE TO DISTRIBUTE INCOME.—

8 Section 4942(a) (relating to initial tax) is amended by

9 striking ‘‘15 percent’’ and inserting ‘‘30 percent’’.

10 (c) TAXES ON EXCESS BUSINESS HOLDINGS.—Sec11 tion 4943(a)(1) (relating to imposition) is amended by

12 striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.

13 (d) TAXES ON INVESTMENTS WHICH JEOPARDIZE

14 CHARITABLE PURPOSE.—

15 (1) IN GENERAL.—Section 4944(a) (relating to

16 initial taxes) is amended by striking ‘‘5 percent’’

17 both places it appears and inserting ‘‘10 percent’’.

18 (2) INCREASED LIMITATION FOR MANAGERS.—

19 Section 4944(d)(2) is amended—

20 (A) by striking ‘‘$5,000,’’ and inserting

21 ‘‘$10,000,’’, and

22 (B) by striking ‘‘$10,000.’’ and inserting

23 ‘‘$20,000.’’.

24 (e) TAXES ON TAXABLE EXPENDITURES.—
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1 (1) IN GENERAL.—Section 4945(a) (relating to

2 initial taxes) is amended—

3 (A) in paragraph (1), by striking ‘‘10 per4 cent’’ and inserting ‘‘20 percent’’, and

(B) in paragraph (2), by striking ‘‘21 5 ⁄2

6 percent’’ and inserting ‘‘5 percent’’.

7 (2) INCREASED LIMITATION FOR MANAGERS.—

8 Section 4945(c)(2) is amended—

9 (A) by striking ‘‘$5,000,’’ and inserting

10 ‘‘$10,000,’’, and

11 (B) by striking ‘‘$10,000.’’ and inserting

12 ‘‘$20,000.’’.

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

14 this section shall apply to taxable years beginning after

15 the date of the enactment of this Act.

16 SEC. 314. REFORM OF CHARITABLE CONTRIBUTIONS OF

17 CERTAIN EASEMENTS ON BUILDINGS IN REG18 ISTERED HISTORIC DISTRICTS.

19 (a) SPECIAL RULES WITH RESPECT TO BUILDINGS

20 IN REGISTERED HISTORIC DISTRICTS.—

21 (1) IN GENERAL.—Paragraph (4) of section

22 170(h) (relating to definition of conservation pur23 pose) is amended by redesignating subparagraph (B)

24 as subparagraph (C) and by inserting after subpara25 graph (A) the following new subparagraph:
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1 ‘‘(B) SPECIAL RULES WITH RESPECT TO

2 BUILDINGS IN REGISTERED HISTORIC DIS3 TRICTS.—In the case of any contribution of a

4 qualified real property interest which is a re5 striction with respect to the exterior of a build6 ing described in subparagraph (C)(ii), such con7 tribution shall not be considered to be exclu8 sively for conservation purposes unless—

9 ‘‘(i) such interest—

10 ‘‘(I) includes a restriction which

11 preserves the entire exterior of the

12 building (including the front, sides,

13 rear, and height of the building), and

14 ‘‘(II) prohibits any change in the

15 exterior of the building which is incon16 sistent with the historical character of

17 such exterior,

18 ‘‘(ii) the donor and donee enter into a

19 written agreement certifying, under pen20 alty of perjury, that the donee—

21 ‘‘(I) is a qualified organization

22 (as defined in paragraph (3)) with a

23 purpose of environmental protection,

24 land conservation, open space preser25 vation, or historic preservation, and
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1 ‘‘(II) has the resources to man2 age and enforce the restriction and a

3 commitment to do so, and

4 ‘‘(iii) in the case of any contribution

5 made in a taxable year beginning after the

6 date of the enactment of this subpara7 graph, the taxpayer includes with the tax8 payer’s return for the taxable year of the

9 contribution—

10 ‘‘(I) a qualified appraisal (within

11 the meaning of subsection (f)(11)(E))

12 of the qualified property interest,

13 ‘‘(II) photographs of the entire

14 exterior of the building, and

15 ‘‘(III) a description of all restric16 tions on the development of the build17 ing.’’.

18 (b) DISALLOWANCE OF DEDUCTION FOR STRUC19 TURES AND LAND IN REGISTERED HISTORIC DIS20 TRICTS.—Subparagraph (C) of section 170(h)(4), as re21 designated by subsection (a), is amended—

22 (1) by striking ‘‘any building, structure, or land

23 area which’’,

24 (2) by inserting ‘‘any building, structure, or

25 land area which’’ before ‘‘is listed’’ in clause (i), and
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1 (3) by inserting ‘‘any building which’’ before ‘‘is

2 located’’ in clause (ii).

3 (c) FILING FEE FOR CERTAIN CONTRIBUTIONS.—

4 Subsection (f) of section 170 (relating to disallowance of

5 deduction in certain cases and special rules) is amended

6 by inserting at the end the following new paragraph:

7 ‘‘(13) CONTRIBUTIONS OF CERTAIN INTERESTS

8 IN BUILDINGS LOCATED IN REGISTERED HISTORIC

9 DISTRICTS.—

10 ‘‘(A) IN GENERAL.—No deduction shall be

11 allowed with respect to any contribution de12 scribed in subparagraph (B) unless the tax13 payer includes with the return for the taxable

14 year of the contribution a $500 filing fee.

15 ‘‘(B) CONTRIBUTION DESCRIBED.—A con16 tribution is described in this subparagraph if

17 such contribution is a qualified conservation

18 contribution (as defined in subsection (h))

19 which is a restriction with respect to the exte20 rior of a building described in subsection

21 (h)(4)(C)(ii) and for which a deduction is

22 claimed in excess of the greater of—

23 ‘‘(i) 3 percent of the fair market value

24 of the building (determined immediately

25 before such contribution), or
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1 ‘‘(ii) $10,000.

2 ‘‘(C) DEDICATION OF FEE.—Any fee col3 lected under this paragraph shall be used for

4 the enforcement of the provisions of subsection

5 (h).’’.

6 (d) EFFECTIVE DATE.—

7 (1) SPECIAL RULES FOR BUILDINGS IN REG8 ISTERED HISTORIC DISTRICTS.—The amendments

9 made by subsection (a) shall apply to contributions

10 made after November 15, 2005.

11 (2) DISALLOWANCE OF DEDUCTION FOR STRUC12 TURES AND LAND.—The amendments made by sub13 section (b) shall apply to contributions made after

14 the date of the enactment of this Act.

15 (3) FILING FEE.—The amendment made by

16 subsection (c) shall apply to contributions made 180

17 days after the date of the enactment of this Act.

18 SEC. 315. CHARITABLE CONTRIBUTIONS OF TAXIDERMY

19 PROPERTY.

20 (a) IN GENERAL.—Subsection (f) of section 170, as

21 amended by section 314 of this Act, is amended by adding

22 at the end the following new paragraph:

23 ‘‘(14) CONTRIBUTIONS OF TAXIDERMY PROP24 ERTY.—
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1 ‘‘(A) CONTRIBUTIONS OF MORE THAN

2 $500.—In the case of any contribution of taxi3 dermy property for which a deduction of more

4 than $500 is claimed, no deduction shall be al5 lowed under subsection (a) unless the donor in6 cludes with the return for the taxable year in

7 which the contribution is made a photograph of

8 the taxidermy property and data with respect to

9 the sales prices of similar taxidermy property.

10 ‘‘(B) CONTRIBUTIONS OF MORE THAN

11 $5,000.—In the case of any contribution of taxi12 dermy property for which a deduction of more

13 than $5,000 is claimed, no deduction shall be

14 allowed under subsection (a) unless the donor—

15 ‘‘(i) notifies the Internal Revenue

16 Service of such deduction, and

17 ‘‘(ii) includes with the return for the

18 taxable year in which the contribution is

19 made—

20 ‘‘(I) a statement of value from

21 the Internal Revenue Service, or

22 ‘‘(II) a request for a statement of

23 value from the Internal Revenue Serv24 ice and a $500 fee.
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1 ‘‘(C) TAXIDERMY PROPERTY.—For pur2 poses of this section, the term ‘taxidermy prop3 erty’ means a mounted work of art which con4 tains any part of a dead animal.’’.

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

6 this section shall apply to contributions made after No7 vember 15, 2005.

8 SEC. 316. RECAPTURE OF TAX BENEFIT FOR CHARITABLE

9 CONTRIBUTIONS OF EXEMPT USE PROPERTY

10 NOT USED FOR AN EXEMPT USE.

11 (a) RECAPTURE OF DEDUCTION ON CERTAIN SALES

12 OF EXEMPT USE PROPERTY.—

13 (1) IN GENERAL.—Clause (i) of section

14 170(e)(1)(B) (related to certain contributions of or15 dinary income and capital gain property) is amended

16 to read as follows:

17 ‘‘(i) of tangible personal property—

18 ‘‘(I) if the use by the donee is

19 unrelated to the purpose or function

20 constituting the basis for its exemp21 tion under section 501 (or, in the case

22 of a governmental unit, to any pur23 pose or function described in sub24 section (c)), or
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1 ‘‘(II) which is applicable property

2 (as defined in paragraph (7)(C))

3 which is sold, exchanged, or otherwise

4 disposed of by the donee before the

5 last day of the taxable year in which

6 the contribution was made and with

7 respect to which the donee has not

8 made a certification in accordance

9 with paragraph (7)(D),’’.

10 (2) DISPOSITIONS AFTER CLOSE OF TAXABLE

11 YEAR.—Section 170(e) is amended by adding at the

12 end the following new paragraph:

13 ‘‘(7) RECAPTURE OF DEDUCTION ON CERTAIN

14 DISPOSITIONS OF EXEMPT USE PROPERTY.—

15 ‘‘(A) IN GENERAL.—In the case of an ap16 plicable disposition of applicable property, there

17 shall be included in the income of the donor of

18 such property for the taxable year of such

19 donor in which the applicable disposition occurs

20 an amount equal to the excess (if any) of—

21 ‘‘(i) the amount of the deduction al22 lowed to the donor under this section with

23 respect to such property, over
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1 ‘‘(ii) the donor’s basis in such prop2 erty at the time such property was contrib3 uted.

4 ‘‘(B) APPLICABLE DISPOSITION.—For pur5 poses of this paragraph, the term ‘applicable

6 disposition’ means any sale, exchange, or other

7 disposition by the donee of applicable

8 property—

9 ‘‘(i) after the last day of the taxable

10 year of the donor in which such property

11 was contributed, and

12 ‘‘(ii) before the last day of the 3-year

13 period beginning on the date of the con14 tribution of such property,

15 unless the donee makes a certification in ac16 cordance with subparagraph (D).

17 ‘‘(C) APPLICABLE PROPERTY.—For pur18 poses of this paragraph, the term ‘applicable

19 property’ means charitable deduction property

20 (as defined in section 6050L(a)(2)(A))—

21 ‘‘(i) which is tangible personal prop22 erty the use of which is identified by the

23 donee as related to the purpose or function

24 constituting the basis of the donee’s ex25 emption under section 501, and
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1 ‘‘(ii) for which a deduction in excess

2 of the donor’s basis is allowed.

3 ‘‘(D) CERTIFICATION.—A certification

4 meets the requirements of this subparagraph if

5 it is a written statement which is signed under

6 penalty of perjury by an officer of the donee or7 ganization and—

8 ‘‘(i) which—

9 ‘‘(I) certifies that the use of the

10 property by the donee was related to

11 the purpose or function constituting

12 the basis for the donee’s exemption

13 under section 501, and

14 ‘‘(II) describes how the property

15 was used and how such use furthered

16 such purpose or function, or

17 ‘‘(ii) which—

18 ‘‘(I) states the intended use of

19 the property by the donee at the time

20 of the contribution, and

21 ‘‘(II) certifies that such intended

22 use has become impossible or infeasi23 ble to implement.’’.
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1 (b) REPORTING REQUIREMENTS.—Paragraph (1) of

2 section 6050L(a) (relating to returns relating to certain

3 dispositions of donated property) is amended—

4 (1) by striking ‘‘2 years’’ and inserting ‘‘3

5 years’’, and

6 (2) by striking ‘‘and’’ at the end of subpara7 graph (D), by striking the period at the end of sub8 paragraph (E) and inserting a comma, and by in9 serting at the end the following:

10 ‘‘(F) a description of the donee’s use of the

11 property, and

12 ‘‘(G) a statement indicating whether the

13 use of the property was related to the purpose

14 or function constituting the basis for the

15 donee’s exemption under section 501.

16 In any case in which the donee indicates that the

17 use of applicable property (as defined in section

18 170(e)(1)(C)) was related to the purpose or function

19 constituting the basis for the exemption of the donee

20 under section 501 under subparagraph (G), the

21 donee shall include with the return the certification

22 described in section 170(e)(7)(D) if such certifi23 cation is required under section 170(e)(7).’’.

24 (c) PENALTY.—
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1 (1) IN GENERAL.—Part I of subchapter B of

2 chapter 68 (relating to assessable penalties) is

3 amended by inserting after section 6720A the fol4 lowing new section:

5 ‘‘SEC. 6720B. FRAUDULENT IDENTIFICATION OF EXEMPT

6 USE PROPERTY.

7 ‘‘In addition to any criminal penalty provided by law,

8 any person who identifies applicable property (as defined

9 in section 170(e)(7)(C)) as having a use which is related

10 to a purpose or function constituting the basis for the

11 donee’s exemption under section 501 and who knows that

12 such property is not intended for such a use shall pay a

13 penalty of $10,000.’’.

14 (2) CLERICAL AMENDMENT.—The table of sec15 tions for part I of subchapter B of chapter 68 is

16 amended by adding after the item relating to section

17 6720A the following new item:

‘‘Sec. 6720B. Fraudulent identification of exempt use property.’’.

18 (d) EFFECTIVE DATE.—

19 (1) RECAPTURE.—The amendments made by

20 subsection (a) shall apply to contributions after

21 June 1, 2006.

22 (2) REPORTING.—The amendments made by

23 subsection (b) shall apply to returns filed after June

24 1, 2006.
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1 (3) PENALTY.—The amendments made by sub2 section (c) shall apply to identifications made after

3 the date of the enactment of this Act.

4 SEC. 317. LIMITATION OF DEDUCTION FOR CHARITABLE

5 CONTRIBUTIONS OF CLOTHING AND HOUSE6 HOLD ITEMS.

7 (a) IN GENERAL.—Subsection (f) of section 170, as

8 amended by section 315 of this Act, is amended by adding

9 at the end the following new paragraph:

10 ‘‘(15) CONTRIBUTIONS OF CLOTHING AND

11 HOUSEHOLD ITEMS.—

12 ‘‘(A) IN GENERAL.—In the case of an indi13 vidual, partnership, or S corporation, the de14 duction allowed under subsection (a) for any

15 contribution of clothing or household items with

16 respect to which the donor has obtained a quali17 fied appraisal shall be—

18 ‘‘(i) in the case of an item which is in

19 good used condition or better, no more

20 than the amount assigned to such item

21 under subparagraph (B) for such year,

22 ‘‘(ii) except as provided by clause (iii),

23 in the case of an item which is not in good

24 used condition or better, no more than 20

25 percent of the amount assigned to such
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1 item under subparagraph (B) for such

2 year, and

3 ‘‘(iii) in the case of an item which is

4 not functional with respect to the use for

5 which it was designed, zero.

6 ‘‘(B) ASSIGNED VALUES.—Each year the

7 Secretary shall publish an itemized list of cloth8 ing and household items and shall assign an

9 amount with respect to each item on the list

10 which represents the fair market value of such

11 item in good used condition.

12 ‘‘(C) EXCEPTION FOR ITEMS SOLD BY THE

13 DONEE.—Subparagraph (A) shall not apply to

14 any contribution of clothing or household items

15 for which a deduction of more than $500 is

16 claimed if—

17 ‘‘(i) the donee sells the clothing or

18 household items before the earlier of—

19 ‘‘(I) the due date (including ex20 tensions) for filing the return of tax

21 for the taxable year of the donor in

22 which the contribution was made, or

23 ‘‘(II) the date on which such re24 turn was filed,
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1 ‘‘(ii) the donee reports the sales price

2 of the clothing or household items to the

3 donor, and

4 ‘‘(iii) the amount claimed as a deduc5 tion with respect to such clothing or house6 hold items does not exceed the amount of

7 the sales price reported to the donor.

8 ‘‘(D) HOUSEHOLD ITEMS.—For purposes

9 of this paragraph—

10 ‘‘(i) IN GENERAL.—The term ‘house11 hold items’ includes furniture, furnishings,

12 electronics, appliances, linens, and other

13 similar items.

14 ‘‘(ii) EXCLUDED ITEMS.—Such term

15 does not include—

16 ‘‘(I) food,

17 ‘‘(II) paintings, antiques, and

18 other objects of art,

19 ‘‘(III) jewelry and gems, and

20 ‘‘(IV) collections.

21 ‘‘(E) SPECIAL RULE FOR PASS-THRU ENTI22 TIES.—In the case of a partnership or S cor23 poration, this paragraph shall be applied at the

24 entity level, except that the deduction shall be

25 denied at the partner or shareholder level.’’.
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1 (b) SUBSTANTIATION.—

2 (1) ITEMS OF $250 OR MORE.—Subparagraph

3 (B) of section 170(f)(8) is amended by inserting

4 after clause (iii) the following new clause:

5 ‘‘(iv) In the case of a contribution

6 consisting of clothing or household items,

7 the number of items contributed, an indi8 cation of the condition of each item, a de9 scription of the type of item contributed,

10 and a copy of the list published under

11 paragraph (15)(B) or an instruction on

12 how to obtain such list.’’.

13 (2) ITEMS OF $500 OR MORE.—Subparagraph

14 (B) of section 170(f)(11) is amended by inserting ‘‘,

15 the information contained in the acknowledgment re16 quired under paragraph (8) in the case of any con17 tribution of clothing or household items,’’ after ‘‘a

18 description of such property’’.

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

20 this section shall apply to contributions made after De21 cember 31, 2006.
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1 SEC. 318. MODIFICATION OF RECORDKEEPING REQUIRE2 MENTS FOR CERTAIN CHARITABLE CON3 TRIBUTIONS.

4 (a) RECORDKEEPING REQUIREMENT.—Subsection

5 (f) of section 170, as amended by section 317 of this Act,

6 is amended by adding at the end the following new para7 graph:

8 ‘‘(16) RECORDKEEPING.—No deduction shall be

9 allowed under subsection (a) for any contribution of

10 a cash, check, or other monetary gift unless the

11 donor maintains as a record of such contribution—

12 ‘‘(A) a cancelled check, or

13 ‘‘(B) a receipt or a letter or other written

14 communication from the donee showing the

15 name of the donee organization, the date of the

16 contribution, and the amount of the contribu17 tion.’’.

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

19 this section shall apply to contributions made in taxable

20 years beginning after the date of the enactment of this

21 Act.

22 SEC. 319. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN

23 TANGIBLE PERSONAL PROPERTY.

24 (a) INCOME TAX.—Section 170 (relating to chari25 table, etc., contributions and gifts), as amended by section

26 301 of this Act, is amended by redesignating subsection
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1 (p) as subsection (q) and by inserting after subsection (o)

2 the following new subsection:

3 ‘‘(q) SPECIAL RULES FOR FRACTIONAL GIFTS.—

4 ‘‘(1) VALUATION OF SUBSEQUENT GIFTS.—

5 ‘‘(A) IN GENERAL.—In the case of any ad6 ditional contribution, the fair market value of

7 such contribution shall be determined by using

8 the lesser of—

9 ‘‘(i) the fair market value of the prop10 erty at the time of the initial fractional

11 contribution, or

12 ‘‘(ii) the fair market value of the

13 property at the time of the additional con14 tribution.

15 ‘‘(B) DEFINITIONS.—For purposes of this

16 paragraph—

17 ‘‘(i) ADDITIONAL CONTRIBUTION.—

18 The term ‘additional contribution’ means

19 any charitable contribution by the taxpayer

20 of any interest in property with respect to

21 which the taxpayer has previously made an

22 initial fractional contribution.

23 ‘‘(ii) INITIAL FRACTIONAL CONTRIBU24 TION.—The term ‘initial fractional con25 tribution’ means, with respect to any tax-
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1 payer, the first charitable contribution of

2 an undivided portion of the taxpayer’s en3 tire interest in any tangible personal prop4 erty.

5 ‘‘(2) RECAPTURE OF DEDUCTION IN CERTAIN

6 CASES.—

7 ‘‘(A) IN GENERAL.—The Secretary shall

8 provide for the recapture of an amount equal to

9 the amount of any deduction allowed under this

10 section (plus interest) with respect to any con11 tribution of an undivided interest of a tax12 payer’s entire interest in property in any case

13 where such property is not in the physical pos14 session of the donee during any applicable pe15 riod for a period of time which bears substan16 tially the same ratio to 1 year as—

17 ‘‘(i) the percentage of the undivided

18 interest of the donee in the property (de19 termined on the day after such contribu20 tion was made), bears to

21 ‘‘(ii) 100 percent.

22 ‘‘(B) APPLICABLE PERIOD.—For purposes

23 of subparagraph (A), the term ‘applicable pe24 riod’ means any 1-year period which begins

25 on—
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1 ‘‘(i) in the year of the contribution,

2 the date of the contribution, and

3 ‘‘(ii) in any subsequent calendar year,

4 the date which corresponds to the date de5 scribed in clause (i).

6 ‘‘(C) ANTI-ABUSE RULES.—The Secretary

7 shall prescribe such regulations as necessary to

8 prevent the avoidance of the purposes of this

9 paragraph through the transfer of any such un10 divided interest to a third party controlled by

11 the taxpayer.’’.

12 (b) ESTATE TAX.—Section 2055 (relating to trans13 fers for public, charitable, and religious uses) is amended

14 by redesignating subsection (g) as subsection (h) and by

15 inserting after subsection (f) the following new subsection:

16 ‘‘(g) VALUATION OF SUBSEQUENT GIFTS.—

17 ‘‘(1) IN GENERAL.—In the case of any addi18 tional contribution, the fair market value of such

19 contribution shall be determined by using the lesser

20 of—

21 ‘‘(A) the fair market value of the property

22 at the time of the initial fractional contribution,

23 or

24 ‘‘(B) the fair market value of the property

25 at the time of the additional contribution.
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1 ‘‘(2) DEFINITIONS.—For purposes of this

2 paragraph—

3 ‘‘(A) ADDITIONAL CONTRIBUTION.—The

4 term ‘additional contribution’ means a bequest,

5 legacy, devise, or transfer described in sub6 section (a) of any interest in a property with re7 spect to which the decedent had previously

8 made an initial fractional contribution.

9 ‘‘(B) INITIAL FRACTIONAL CONTRIBU10 TION.—The term ‘initial fractional contribution’

11 means, with respect to any decedent, any chari12 table contribution of an undivided portion of

13 the decedent’s entire interest in any tangible

14 personal property for which a deduction was al15 lowed under section 170.’’.

16 (c) GIFT TAX.—Section 2522 (relating to charitable

17 and similar gifts) is amended by redesignating subsection

18 (e) as subsection (f) and by inserting after subsection (d)

19 the following new subsection:

20 ‘‘(e) SPECIAL RULES FOR FRACTIONAL GIFTS.—

21 ‘‘(1) VALUATION OF SUBSEQUENT GIFTS.—

22 ‘‘(A) IN GENERAL.—In the case of any ad23 ditional contribution, the fair market value of

24 such contribution shall be determined by using

25 the lesser of—
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1 ‘‘(i) the fair market value of the prop2 erty at the time of the initial fractional

3 contribution, or

4 ‘‘(ii) the fair market value of the

5 property at the time of the additional con6 tribution.

7 ‘‘(B) DEFINITIONS.—For purposes of this

8 paragraph—

9 ‘‘(i) ADDITIONAL CONTRIBUTION.—

10 The term ‘additional contribution’ means

11 any gift for which a deduction is allowed

12 under subsection (a) or (b) of any interest

13 in a property with respect to which the

14 donor has previously made an initial frac15 tional contribution.

16 ‘‘(ii) INITIAL FRACTIONAL CONTRIBU17 TION.—The term ‘initial fractional con18 tribution’ means, with respect to any

19 donor, the first gift of an undivided portion

20 of the donor’s entire interest in any tan21 gible personal property for which a deduc22 tion is allowed under subsection (a) or (b).

23 ‘‘(2) RECAPTURE OF DEDUCTION IN CERTAIN

24 CASES.—
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1 ‘‘(A) IN GENERAL.—The Secretary shall

2 provide for the recapture of an amount equal to

3 the amount of any deduction allowed under this

4 section (plus interest) with respect to any con5 tribution of an undivided interest of a donor’s

6 entire interest in property in any case where

7 such property is not in the physical possession

8 of the donee during any applicable period for a

9 period of time which bears substantially the

10 same ratio to 1 year as—

11 ‘‘(i) the percentage of the undivided

12 interest of the donee in the property (de13 termined on the day after such contribu14 tion was made), bears to

15 ‘‘(ii) 100 percent.

16 ‘‘(B) APPLICABLE PERIOD.—For purposes

17 of subparagraph (A), the term ‘applicable pe18 riod’ means any 1-year period which begins

19 on—

20 ‘‘(i) in the year of the contribution,

21 the date of the contribution, and

22 ‘‘(ii) in any subsequent calendar year,

23 the date which corresponds to the date de24 scribed in clause (i).
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1 ‘‘(C) ANTI-ABUSE RULES.—The Secretary

2 shall prescribe such regulations as necessary to

3 prevent the avoidance of the purposes of this

4 paragraph though the transfer of any such un5 divided interest to a third party controlled by

6 the donor.’’.

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

8 this section shall apply to contributions, bequests, and

9 gifts made after the date of the enactment of this Act.

10 SEC. 320. PROVISIONS RELATING TO SUBSTANTIAL AND

11 GROSS OVERSTATEMENTS OF VALUATIONS

12 OF CHARITABLE DEDUCTION PROPERTY.

13 (a) SUBSTANTIAL AND GROSS OVERSTATEMENTS OF

14 VALUATIONS OF CHARITABLE DEDUCTION PROPERTY.—

15 (1) IN GENERAL.—Section 6662 (relating to

16 imposition of accuracy-related penalties) is amended

17 by adding at the end the following new subsection:

18 ‘‘(i) SPECIAL RULES FOR CHARITABLE DEDUCTION

19 PROPERTY.—In the case of charitable deduction property

20 (as defined in section 6664(c)(3)(A))—

21 ‘‘(1) the determination under subsection

22 (e)(1)(A) as to whether there is a substantial valu23 ation misstatement under chapter 1 with respect to

24 the value of the property shall be made by sub25 stituting ‘150 percent’ for ‘200 percent’, and
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1 ‘‘(2) the determination under subsection

2 (h)(2)(A)(i) as to whether there is a gross valuation

3 misstatement with respect to the value of the prop4 erty shall be made by substituting ‘200 percent’ for

5 ‘400 percent’ and by substituting ‘150 percent’ for

6 ‘200 percent’ in applying subsection (e)(1)(A) for

7 purposes of such determination.’’.

8 (2) ELIMINATION OF REASONABLE CAUSE EX9 CEPTION FOR GROSS MISSTATEMENTS.—Section

10 6664(c)(2) (relating to reasonable cause exception

11 for underpayments) is amended by striking ‘‘para12 graph (1) shall not apply unless’’ and inserting

13 ‘‘paragraph (1) shall not apply. The preceding sen14 tence shall not apply to a substantial valuation over15 statement under chapter 1 if’’.

16 (b) PENALTY ON APPRAISERS WHOSE APPRAISALS

17 RESULT IN SUBSTANTIAL OR GROSS VALUATION

18 MISSTATEMENTS.—

19 (1) IN GENERAL.—Part I of subchapter B of

20 chapter 68 (relating to assessable penalties) is

21 amended by inserting after section 6695 the fol22 lowing new section:
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1 ‘‘SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION

2 MISSTATEMENTS ATTRIBUTABLE TO INCOR3 RECT APPRAISALS.

4 ‘‘(a) IMPOSITION OF PENALTY.—If—

5 ‘‘(1) a person prepares an appraisal of the

6 value of property and such person knows, or reason7 ably should have known, that the appraisal would be

8 used in connection with a return or a claim for re9 fund, and

10 ‘‘(2) the claimed value of the property on a re11 turn or claim for refund which is based on such ap12 praisal results in a substantial valuation

13 misstatement under chapter 1 (within the meaning

14 of section 6662(e)), or a gross valuation

15 misstatement (within the meaning of section

16 6662(h)), with respect to such property,

17 then such person shall pay a penalty in the amount deter18 mined under subsection (b).

19 ‘‘(b) AMOUNT OF PENALTY.—The amount of the

20 penalty imposed under subsection (a) on any person with

21 respect to an appraisal shall be equal to the lesser of—

22 ‘‘(1) the greater of—

23 ‘‘(A) 10 percent of the amount of the un24 derpayment (as defined in section 6664(a)) at25 tributable to the misstatement described in sub26 section (a)(2), or
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1 ‘‘(B) $1,000, or

2 ‘‘(2) 125 percent of the gross income received

3 by the person described in subsection (a)(1) from

4 the preparation of the appraisal.

5 ‘‘(c) EXCEPTION.—No penalty shall be imposed

6 under subsection (a) if the person establishes to the satis7 faction of the Secretary that the value established in the

8 appraisal was more likely than not the proper value.’’.

9 (2) RULES APPLICABLE TO PENALTY.—Section

10 6696 (relating to rules applicable with respect to

11 sections 6694 and 6695) is amended—

12 (A) by striking ‘‘6694 and 6695’’ each

13 place it appears in the text and heading and in14 serting ‘‘6694, 6695, and 6695A’’, and

15 (B) by striking ‘‘6694 or 6695’’ each place

16 it appears in the text and inserting ‘‘6694,

17 6695, or 6695A’’.

18 (3) CONFORMING AMENDMENT.—The table of

19 sections for part I of subchapter B of chapter 68 is

20 amended by striking the item relating to section

21 6696 and inserting the following new items:

‘‘Sec. 6695A. Substantial and gross valuation misstatements attributable

to incorrect appraisals.

‘‘Sec. 6696. Rules applicable with respect to sections 6694, 6695, and

6695A.’’.

22 (c) QUALIFIED APPRAISERS AND APPRAISALS.—
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1 (1) IN GENERAL.—Subparagraph (E) of section

2 170(f)(11) is amended to read as follows:

3 ‘‘(E) QUALIFIED APPRAISAL AND AP4 PRAISER.—For purposes of this paragraph—

5 ‘‘(i) QUALIFIED APPRAISAL.—The

6 term ‘qualified appraisal’ means, with re7 spect to any property, an appraisal of such

8 property which—

9 ‘‘(I) is treated for purposes of

10 this paragraph as a qualified ap11 praisal under regulations or other

12 guidance prescribed by the Secretary,

13 and

14 ‘‘(II) is conducted by a qualified

15 appraiser in accordance with generally

16 accepted appraisal standards and any

17 regulations or other guidance pre18 scribed under subclause (I).

19 ‘‘(ii) QUALIFIED APPRAISER.—Except

20 as provided in clause (iii), the term ‘quali21 fied appraiser’ means an individual who—

22 ‘‘(I) has earned an appraisal des23 ignation from a recognized profes24 sional appraiser organization or has

25 otherwise met minimum education
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1 and experience requirements set forth

2 in regulations prescribed by the Sec3 retary,

4 ‘‘(II) regularly performs apprais5 als for which the individual receives

6 compensation, and

7 ‘‘(III) meets such other require8 ments as may be prescribed by the

9 Secretary in regulations or other guid10 ance.

11 ‘‘(iii) SPECIFIC APPRAISALS.—An in12 dividual shall not be treated as a qualified

13 appraiser with respect to any specific ap14 praisal unless—

15 ‘‘(I) the individual demonstrates

16 verifiable education and experience in

17 valuing the type of property subject to

18 the appraisal, and

19 ‘‘(II) the individual has not been

20 prohibited from practicing before the

21 Internal Revenue Service by the Sec22 retary under section 330(c) of title

23 31, United States Code, at any time

24 during the 3-year period ending on

25 the date of the appraisal.’’.
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1 (2) REASONABLE CAUSE EXCEPTION.—Sub2 paragraphs (B) and (C) of section 6664(c)(3) are

3 amended to read as follows:

4 ‘‘(B) QUALIFIED APPRAISAL.—The term

5 ‘qualified appraisal’ has the meaning given such

6 term by section 170(f)(11)(E)(i).

7 ‘‘(C) QUALIFIED APPRAISER.—The term

8 ‘qualified appraiser’ has the meaning given such

9 term by section 170(f)(11)(E)(ii).’’.

10 (d) DISCIPLINARY ACTIONS AGAINST APPRAISERS.—

11 Section 330(c) of title 31, United States Code, is amended

12 by striking ‘‘with respect to whom a penalty has been as13 sessed under section 6701(a) of the Internal Revenue

14 Code of 1986’’.

15 (e) EFFECTIVE DATES.—

16 (1) MISSTATEMENT PENALTIES.—Except as

17 provided in paragraph (3), the amendments made by

18 subsection (a) shall apply to returns filed after the

19 date of the enactment of this Act.

20 (2) APPRAISER PROVISIONS.—Except as pro21 vided in paragraph (3), the amendments made by

22 subsections (b), (c), and (d) shall apply to appraisals

23 prepared with respect to returns or submissions filed

24 after the date of the enactment of this Act.
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1 (3) SPECIAL RULE FOR CERTAIN EASE2 MENTS.—In the case of a contribution of a qualified

3 real property interest which is a restriction with re4 spect to the exterior of a building described in sec5 tion 170(h)(4)(C)(ii) of the Internal Revenue Code

6 of 1986, and an appraisal with respect to the con7 tribution, the amendments made by subsections (a)

8 and (b) shall apply to returns filed after December

9 16, 2004.

10 SEC. 321. ADDITIONAL STANDARDS FOR CREDIT COUN11 SELING ORGANIZATIONS.

12 (a) IN GENERAL.—Section 501 (relating to exemp13 tion from tax on corporations, certain trusts, etc.) is

14 amended by redesignating subsection (q) as subsection (r)

15 and by inserting after subsection (p) the following new

16 subsection:

17 ‘‘(q) SPECIAL RULES FOR CREDIT COUNSELING OR18 GANIZATIONS.—

19 ‘‘(1) IN GENERAL.—An organization with re20 spect to which the provision of credit counseling

21 services is a substantial purpose shall not be exempt

22 from tax under subsection (a) unless such organiza23 tion is described in paragraph (3) or (4) of sub24 section (c) and such organization is organized and
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1 operated in accordance with the following require2 ments:

3 ‘‘(A) The organization—

4 ‘‘(i) provides credit counseling services

5 tailored to the specific needs and cir6 cumstances of consumers,

7 ‘‘(ii) makes no loans to debtors and

8 does not negotiate the making of loans on

9 behalf of debtors, and

10 ‘‘(iii) does not promote, or charge any

11 separate fee for, any service for the pur12 pose of improving any consumer’s credit

13 record, credit history, or credit rating.

14 ‘‘(B) The organization does not refuse to

15 provide credit counseling services to a consumer

16 due to the inability of the consumer to pay, the

17 ineligibility of the consumer for debt manage18 ment plan enrollment, or the unwillingness of

19 the consumer to enroll in a debt management

20 plan.

21 ‘‘(C) The organization establishes and im22 plements a fee policy which—

23 ‘‘(i) requires that any fees charged to

24 a consumer for services are reasonable,

25 and
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1 ‘‘(ii) prohibits charging any fee based

2 in whole or in part on a percentage of the

3 consumer’s debt, the consumer’s payments

4 to be made pursuant to a debt manage5 ment plan, or the projected or actual sav6 ings to the consumer resulting from enroll7 ing in a debt management plan.

8 ‘‘(D) At all times the organization has a

9 board of directors or other governing body—

10 ‘‘(i) which is controlled by persons

11 who represent the broad interests of the

12 public, such as public officials acting in

13 their capacities as such, persons having

14 special knowledge or expertise in credit or

15 financial education, and community lead16 ers,

17 ‘‘(ii) not more than 20 percent of the

18 voting power of which is vested in persons

19 who are employed by the organization or

20 who will benefit financially, directly or in21 directly, from the organization’s activities

22 (other than through the receipt of reason23 able directors’ fees or the repayment of

24 consumer debt to creditors other than the
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1 credit counseling organization or its affili2 ates), and

3 ‘‘(iii) not more than 49 percent of the

4 voting power of which is vested in persons

5 who are employed by the organization or

6 who will benefit financially, directly or in7 directly, from the organization’s activities

8 (other than through the receipt of reason9 able directors’ fees).

10 ‘‘(E) The organization does not own more

11 than 35 percent of—

12 ‘‘(i) the total combined voting power

13 of a corporation which is in the business of

14 lending money, repairing credit, or pro15 viding debt management plan services,

16 payment processing, or similar services,

17 ‘‘(ii) the profits interest of a partner18 ship which is in the business of lending

19 money, repairing credit, or providing debt

20 management plan services, payment proc21 essing, or similar services, and

22 ‘‘(iii) the beneficial interest of a trust

23 or estate which is in the business of lend24 ing money, repairing credit, or providing
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1 debt management plan services, payment

2 processing, or similar services.

3 ‘‘(F) The organization receives no amount

4 for providing referrals to others for financial

5 services (including debt management services)

6 or credit counseling services to be provided to

7 consumers, and pays no amount to others for

8 obtaining referrals of consumers.

9 ‘‘(2) REQUIREMENTS UNDER SUBSECTION

10 (c)(3).—In addition to the requirements under para11 graph (1), an organization with respect to which the

12 provision of credit counseling services is a substan13 tial purpose and which is described in paragraph (3)

14 of subsection (c) shall not be exempt from tax under

15 subsection (a) unless such organization is organized

16 and operated in accordance with the following re17 quirements:

18 ‘‘(A) The organization—

19 ‘‘(i) charges no fees (other than nomi20 nal fees) for debt management plan serv21 ices or credit counseling services and

22 waives any fees if the consumer is unable

23 to pay such fees, and

24 ‘‘(ii) does not solicit contributions

25 from consumers during the initial coun-
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1 seling process or while the consumer is re2 ceiving services from the organization.

3 ‘‘(B) The activities of the organization re4 lated to debt management plan services (in the

5 aggregate) do not exceed 25 percent of the total

6 activities of the organization activities measured

7 by any of the following:

8 ‘‘(i) The time spent on activities.

9 ‘‘(ii) The resources dedicated to activi10 ties.

11 ‘‘(iii) The effort expended by the orga12 nization with respect to activities.

13 ‘‘(iv) The sources of revenue of the or14 ganization.

15 ‘‘(v) Any other measures prescribed

16 by the Secretary.

17 ‘‘(3) REQUIREMENTS UNDER SUBSECTION

18 (c)(4).—In addition to the requirements under para19 graph (1), an organization with respect to which the

20 provision of credit counseling services is a substan21 tial purpose and which is described in paragraph (4)

22 of subsection (c) shall not be exempt from tax under

23 subsection (a) unless such organization—

24 ‘‘(A) is organized and operated such that

25 it charges no fees (other than nominal fees) for
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1 credit counseling services and waives any fees if

2 the consumer is unable to pay such fees, and

3 ‘‘(B) notifies the Secretary, in such man4 ner as the Secretary may by regulations pre5 scribe, that it is applying for recognition as a

6 credit counseling organization.

7 ‘‘(4) SECRETARIAL AUTHORITY.—The Secretary

8 may require any organization described in paragraph

9 (1) to submit such information as the Secretary re10 quires to verify that such organization meets the re11 quirements of this section.

12 ‘‘(5) CREDIT COUNSELING SERVICES; DEBT

13 MANAGEMENT PLAN SERVICES.—For purposes of

14 this subsection—

15 ‘‘(A) CREDIT COUNSELING SERVICES.—

16 The term ‘credit counseling services’ means—

17 ‘‘(i) the providing of educational infor18 mation to the general public on budgeting,

19 personal finance, financial literacy, saving

20 and spending practices, and the sound use

21 of consumer credit,

22 ‘‘(ii) the assisting of individuals and

23 families with financial problems by pro24 viding them with counseling, or
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1 ‘‘(iii) a combination of the activities

2 described in clauses (i) and (ii).

3 ‘‘(B) DEBT MANAGEMENT PLAN SERV4 ICES.—The term ‘debt management plan serv5 ices’ means services related to the repayment,

6 consolidation, or restructuring of a consumer’s

7 debt, and includes the negotiation with creditors

8 of lower interest rates, the waiver or reduction

9 of fees, and the marketing and processing of

10 debt management plans.’’.

11 (b) DEBT MANAGEMENT PLAN SERVICES TREATED

12 AS AN UNRELATED BUSINESS.—Section 513 (relating to

13 unrelated trade or business) is amended by adding at the

14 end the following:

15 ‘‘(j) DEBT MANAGEMENT PLAN SERVICES.—The

16 term ‘unrelated trade or business’ includes—

17 ‘‘(1) the provision of debt management plan

18 services (as defined in section 501(q)(4)(B)) by an

19 organization described in section 501(q) to the ex20 tent such services are not substantially related to the

21 provision of credit counseling services (as defined in

22 section 501(q)(4)(A)) to a consumer, and

23 ‘‘(2) the provision of debt management plan

24 services (as so defined) by any organization other
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1 than an organization which meets the requirements

2 of section 501(q).’’.

3 (c) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply to taxable years beginning after the date

7 of the enactment of this Act.

8 (2) TRANSITION RULE FOR EXISTING ORGANI9 ZATIONS.—In the case of any organization described

10 in paragraph (3) or (4) section 501(c) of the Inter11 nal Revenue Code of 1986 and with respect to which

12 the provision of credit counseling services is a sub13 stantial purpose on the date of the enactment of this

14 Act, the amendments made by this section shall

15 apply to taxable years beginning after the date

16 which is 1 year after the date of the enactment of

17 this Act.

18 SEC. 322. EXPANSION OF THE BASE OF TAX ON PRIVATE

19 FOUNDATION NET INVESTMENT INCOME.

20 (a) GROSS INVESTMENT INCOME.—

21 (1) IN GENERAL.—Paragraph (2) of section

22 4940(c) (relating to gross investment income) is

23 amended by adding at the end the following new

24 sentence: ‘‘Such term shall also include income from

25 sources similar to those in the preceding sentence.’’.
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1 (2) CONFORMING AMENDMENT.—Subsection (e)

2 of section 509 (relating to gross investment income)

3 is amended by adding at the end the following new

4 sentence: ‘‘Such term shall also include income from

5 sources similar to those in the preceding sentence.’’.

6 (b) CAPITAL GAIN NET INCOME.—Paragraph (4) of

7 section 4940(c) (relating to capital gains and losses) is

8 amended—

9 (1) in subparagraph (A), by striking ‘‘used for

10 the production of interest, dividends, rents, and roy11 alties’’ and inserting ‘‘used for the production of

12 gross investment income (as defined in paragraph

13 (2))’’, and

14 (2) in subparagraph (C), by inserting ‘‘or

15 carrybacks’’ after ‘‘carryovers’’.

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

17 this section shall apply to taxable years beginning after

18 the date of the enactment of this Act.

19 SEC. 323. DEFINITION OF CONVENTION OR ASSOCIATION

20 OF CHURCHES.

21 Section 7701 (relating to definitions) is amended by

22 redesignating subsection(o) as subsection (p) and by in23 serting after subsection (n) the following new subsection:

24 ‘‘(o) CONVENTION OR ASSOCIATION OF CHURCH25 ES.—For purposes of this title, any organization which is
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1 otherwise a convention or association of churches shall not

2 fail to so qualify merely because the membership of such

3 organization includes individuals as well as churches or be4 cause individuals have voting rights in such organiza5 tion.’’.

6 SEC. 324. NOTIFICATION REQUIREMENT FOR ENTITIES NOT

7 CURRENTLY REQUIRED TO FILE.

8 (a) IN GENERAL.—Section 6033 (relating to returns

9 by exempt organizations), as amended by section 346 of

10 this Act, is amended by redesignating subsection (j) as

11 subsection (k) and by inserting after subsection (i) the fol12 lowing new subsection:

13 ‘‘(j) ADDITIONAL NOTIFICATION REQUIREMENTS.—

14 Any organization the gross receipts of which in any tax15 able year result in such organization being referred to in

16 subsection (a)(3)(A)(ii) or (a)(3)(B)—

17 ‘‘(1) shall furnish annually, at such time and in

18 such manner as the Secretary may by forms or regu19 lations prescribe, information setting forth—

20 ‘‘(A) the legal name of the organization,

21 ‘‘(B) any name under which such organiza22 tion operates or does business,

23 ‘‘(C) the organization’s mailing address

24 and Internet web site address (if any),
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1 ‘‘(D) the organization’s taxpayer identifica2 tion number,

3 ‘‘(E) the name and address of a principal

4 officer, and

5 ‘‘(F) evidence of the continuing basis for

6 the organization’s exemption from the filing re7 quirements under subsection (a)(1), and

8 ‘‘(2) upon the termination of the existence of

9 the organization, shall furnish notice of such termi10 nation.’’.

11 (b) LOSS OF EXEMPT STATUS FOR FAILURE TO

12 FILE RETURN OR NOTICE.—Section 6033 (relating to re13 turns by exempt organizations), as amended by subsection

14 (a), is amended by redesignating subsection (k) as sub15 section (l) and by inserting after subsection (j) the fol16 lowing new subsection:

17 ‘‘(k) LOSS OF EXEMPT STATUS FOR FAILURE TO

18 FILE RETURN OR NOTICE.—

19 ‘‘(1) IN GENERAL.—If an organization de20 scribed in subsection (a)(1) or (i) fails to file an an21 nual return or notice required under either sub22 section for 3 consecutive years, such organization’s

23 status as an organization exempt from tax under

24 section 501(a) shall be considered revoked on and

25 after the date set by the Secretary for the filing of
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1 the third annual return or notice. The Secretary

2 shall publish and maintain a list of any organization

3 the status of which is so revoked.

4 ‘‘(2) APPLICATION NECESSARY FOR REINSTATE5 MENT.—Any organization the tax-exempt status of

6 which is revoked under paragraph (1) must apply in

7 order to obtain reinstatement of such status regard8 less of whether such organization was originally re9 quired to make such an application.

10 ‘‘(3) RETROACTIVE REINSTATEMENT IF REA11 SONABLE CAUSE SHOWN FOR FAILURE.—If upon ap12 plication for reinstatement of status as an organiza13 tion exempt from tax under section 501(a), an orga14 nization described in paragraph (1) can show to the

15 satisfaction of the Secretary evidence of reasonable

16 cause for the failure described in such paragraph,

17 the organization’s exempt status may, in the discre18 tion of the Secretary, be reinstated effective from

19 the date of the revocation under such paragraph.’’.

20 (c) NO DECLARATORY JUDGMENT RELIEF.—Section

21 7428(b) (relating to limitations) is amended by adding at

22 the end the following new paragraph:

23 ‘‘(4) NONAPPLICATION FOR CERTAIN REVOCA24 TIONS.—No action may be brought under this sec-
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1 tion with respect to any revocation of status de2 scribed in section 6033(k)(1).’’.

3 (d) NO INSPECTION REQUIREMENT.—Section

4 6104(b) (relating to inspection of annual information re5 turns) is amended by inserting ‘‘(other than subsection (j)

6 thereof)’’ after ‘‘6033’’.

7 (e) NO DISCLOSURE REQUIREMENT.—Section

8 6104(d)(3) (relating to exceptions from disclosure require9 ments) is amended by redesignating subparagraph (B) as

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

11 the following new subparagraph:

12 ‘‘(B) NONDISCLOSURE OF ANNUAL NO13 TICES.—Paragraph (1) shall not require the

14 disclosure of any notice required under section

15 6033(j).’’.

16 (f) NO MONETARY PENALTY FOR FAILURE TO NO17 TIFY.—Section 6652(c)(1) (relating to annual returns

18 under section 6033 or 6012(a)(6)) is amended by adding

19 at the end the following new subparagraph:

20 ‘‘(E) NO PENALTY FOR CERTAIN ANNUAL

21 NOTICES.—This paragraph shall not apply with

22 respect to any notice required under section

23 6033(j).’’.

24 (g) SECRETARIAL OUTREACH REQUIREMENTS.—
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1 (1) NOTICE REQUIREMENT.—The Secretary of

2 the Treasury shall notify in a timely manner every

3 organization described in section 6033(j) of the In4 ternal Revenue Code of 1986 (as added by this sec5 tion) of the requirement under such section 6033(j)

6 and of the penalty established under section

7 6033(k)—

8 (A) by mail, in the case of any organiza9 tion the identity and address of which is in10 cluded in the list of exempt organizations main11 tained by the Secretary, and

12 (B) by Internet or other means of out13 reach, in the case of any other organization.

14 (2) LOSS OF STATUS PENALTY FOR FAILURE TO

15 FILE RETURN.—The Secretary of the Treasury shall

16 publicize in a timely manner in appropriate forms

17 and instructions and through other appropriate

18 means, the penalty established under section

19 6033(k) of such Code for the failure to file a return

20 under section 6033(a)(1) of such Code.

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

22 this section shall apply to notices and returns with respect

23 to annual periods beginning after 2005
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1 SEC. 325. DISCLOSURE TO STATE OFFICIALS OF PROPOSED

2 ACTIONS RELATED TO EXEMPT ORGANIZA3 TIONS.

4 (a) IN GENERAL.—Subsection (c) of section 6104 is

5 amended by striking paragraph (2) and inserting the fol6 lowing new paragraphs:

7 ‘‘(2) DISCLOSURE OF PROPOSED ACTIONS RE8 LATED TO CHARITABLE ORGANIZATIONS.—

9 ‘‘(A) SPECIFIC NOTIFICATIONS.—In the

10 case of an organization to which paragraph (1)

11 applies, the Secretary may disclose to the ap12 propriate State officer—

13 ‘‘(i) a notice of proposed refusal to

14 recognize such organization as an organi15 zation described in section 501(c)(3) or a

16 notice of proposed revocation of such orga17 nization’s recognition as an organization

18 exempt from taxation,

19 ‘‘(ii) the issuance of a letter of pro20 posed deficiency of tax imposed under sec21 tion 507 or chapter 41 or 42, and

22 ‘‘(iii) the names, addresses, and tax23 payer identification numbers of organiza24 tions which have applied for recognition as

25 organizations described in section

26 501(c)(3).
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1 ‘‘(B) ADDITIONAL DISCLOSURES.—Returns

2 and return information of organizations with

3 respect to which information is disclosed under

4 subparagraph (A) may be made available for in5 spection by or disclosed to an appropriate State

6 officer.

7 ‘‘(C) PROCEDURES FOR DISCLOSURE.—In8 formation may be inspected or disclosed under

9 subparagraph (A) or (B) only—

10 ‘‘(i) upon written request by an ap11 propriate State officer, and

12 ‘‘(ii) for the purpose of, and only to

13 the extent necessary in, the administration

14 of State laws regulating such organiza15 tions.

16 Such information may only be inspected by or

17 disclosed to representatives of the appropriate

18 State officer designated as the individuals who

19 are to inspect or to receive the returns or re20 turn information under this paragraph on be21 half of such officer. Such representatives shall

22 not include any contractor or agent.

23 ‘‘(D) DISCLOSURES OTHER THAN BY RE24 QUEST.—The Secretary may make available for

25 inspection or disclose returns and return infor-
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1 mation of an organization to which paragraph

2 (1) applies to an appropriate State officer of

3 any State if the Secretary determines that such

4 inspection or disclosure may facilitate the reso5 lution of Federal or State issues relating to the

6 tax-exempt status of such organization.

7 ‘‘(3) DISCLOSURE WITH RESPECT TO CERTAIN

8 OTHER EXEMPT ORGANIZATIONS.—Upon written re9 quest by an appropriate State officer, the Secretary

10 may make available for inspection or disclosure re11 turns and return information of an organization de12 scribed in paragraph (2), (4), (6), (7), (8), (10), or

13 (13) of section 501(c) for the purpose of, and to the

14 extent necessary in, the administration of State laws

15 regulating the solicitation or administration of the

16 charitable funds or charitable assets of such organi17 zations. Such information may be inspected only by

18 or disclosed only to representatives of the appro19 priate State officer designated as the individuals who

20 are to inspect or to receive the returns or return in21 formation under this paragraph on behalf of such of22 ficer. Such representatives shall not include any con23 tractor or agent.

24 ‘‘(4) USE IN CIVIL JUDICIAL AND ADMINISTRA25 TIVE PROCEEDINGS.—Returns and return informa-
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1 tion disclosed pursuant to this subsection may be

2 disclosed in civil administrative and civil judicial pro3 ceedings pertaining to the enforcement of State laws

4 regulating such organizations in a manner pre5 scribed by the Secretary similar to that for tax ad6 ministration proceedings under section 6103(h)(4).

7 ‘‘(5) NO DISCLOSURE IF IMPAIRMENT.—Re8 turns and return information shall not be disclosed

9 under this subsection, or in any proceeding described

10 in paragraph (4), to the extent that the Secretary

11 determines that such disclosure would seriously im12 pair Federal tax administration.

13 ‘‘(6) DEFINITIONS.—For purposes of this

14 subsection—

15 ‘‘(A) RETURN AND RETURN INFORMA16 TION.—The terms ‘return’ and ‘return informa17 tion’ have the respective meanings given to such

18 terms by section 6103(b).

19 ‘‘(B) APPROPRIATE STATE OFFICER.—The

20 term ‘appropriate State officer’ means—

21 ‘‘(i) the State attorney general,

22 ‘‘(ii) the State tax officer,

23 ‘‘(iii) in the case of an organization to

24 which paragraph (1) applies, any other

25 State official charged with overseeing orga-
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1 nizations of the type described in section

2 501(c)(3), and

3 ‘‘(iv) in the case of an organization to

4 which paragraph (3) applies, the head of

5 an agency designated by the State attorney

6 general as having primary responsibility

7 for overseeing the solicitation of funds for

8 charitable purposes.’’.

9 (b) CONFORMING AMENDMENTS.—

10 (1) Subparagraph (A) of section 6103(p)(3) is

11 amended by inserting ‘‘an section 6104(c)’’ after

12 ‘‘section’’ in the first sentence.

13 (2) Paragraph (4) of section 6103(p) is

14 amended—

15 (A) in the matter preceding subparagraph

16 (A), by inserting ‘‘, or any appropriate State of17 ficer (as defined in section 6104(c)),’’ before

18 ‘‘or any other person’’,

19 (B) in subparagraph (F)(i), by inserting

20 ‘‘or any appropriate State officer (as defined in

21 section 6104(c)),’’ before ‘‘or any other per22 son’’, and

23 (C) in the matter following subparagraph

24 (F), by inserting ‘‘, an appropriate State officer
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1 (as defined in section 6104(c)),’’ after ‘‘includ2 ing an agency’’ each place it appear.

3 (3) The heading for paragraph (1) of section

4 6104(c) is amended by inserting ‘‘FOR CHARITABLE

5 ORGANIZATIONS’’ after ‘‘RULE’’.

6 (4) Paragraph (2) of section 7213(a) is amend7 ed by inserting ‘‘or under section 6104(c)’’ after

8 ‘‘6103’’.

9 (5) Paragraph (2) of section 7213A(a) is

10 amended by inserting ‘‘or 6104(c)’’ after ‘‘6103’’.

11 (6) Paragraph (2) of section 7431(a) is amend12 ed by inserting ‘‘(including any disclosure in viola13 tion of section 6014(c)’’ after ‘‘6103’’.

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

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

16 of this Act but shall not apply to requests made before

17 such date.

18 PART II—IMPROVED ACCOUNTABILITY OF

19 DONOR ADVISED FUNDS

20 SEC. 331. EXCISE TAX ON SPONSORING ORGANIZATIONS OF

21 DONOR ADVISED FUNDS FOR FAILURE TO

22 MEET DISTRIBUTION REQUIREMENTS.

23 (a) IN GENERAL.—Chapter 42 (relating to private

24 foundations and certain other tax-exempt organizations),
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1 as amended by section 311, is amended by adding at the

2 end the following new subchapter:

3 ‘‘Subchapter G—Donor Advised Funds

‘‘Sec. 4967. Taxes on sponsoring organizations of donor advised funds for failure to meet distributions requirements.

‘‘Sec. 4968. Taxes on prohibited distributions.

‘‘Sec. 4969. Taxes on prohibited benefits.

4 ‘‘SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF

5 DONOR ADVISED FUNDS FOR FAILURE TO

6 MEET DISTRIBUTION REQUIREMENTS.

7 ‘‘(a) INITIAL TAX.—There is hereby imposed on any

8 sponsoring organization a tax equal to 30 percent of each

9 of the following amounts:

10 ‘‘(1) The organization level undistributed

11 amount of such sponsoring organization (other than

12 any organization subject to tax under section 4942)

13 for any taxable year which has not been distributed

14 before the first day of the second (or any suc15 ceeding) taxable year following such taxable year (if

16 such first day falls within the taxable period).

17 ‘‘(2) The fund level undistributed amount of

18 any donor advised fund of such sponsoring organiza19 tion for any taxable year which has not been distrib20 uted before the 181st day of the first (or any suc21 ceeding) taxable year following the applicable period

22 (if such 181st day falls within the taxable period).
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1 ‘‘(3) The illiquid fund undistributed amount of

2 any illiquid asset donor advised fund of such spon3 soring organization for any taxable year which has

4 not been distributed before the 181st day of the sec5 ond (or any succeeding) taxable year following such

6 taxable year (if such 181st day falls within the tax7 able period).

8 ‘‘(b) ADDITIONAL TAX.—In any case in which an ini9 tial tax is imposed under subsection (a) on any amount,

10 if any portion of such amount remains undistributed at

11 the close of the taxable period, there is hereby imposed

12 a tax equal to 100 percent of the amount remaining undis13 tributed at such time.

14 ‘‘(c) ORGANIZATION LEVEL UNDISTRIBUTED

15 AMOUNT; FUND LEVEL UNDISTRIBUTED AMOUNT; IL16 LIQUID FUND UNDISTRIBUTED AMOUNT.—For purposes

17 of this section—

18 ‘‘(1) ORGANIZATION LEVEL UNDISTRIBUTED

19 AMOUNT.—The term ‘organization level undistrib20 uted amount’ means, with respect to any sponsoring

21 organization for any taxable year, the amount by

22 which—

23 ‘‘(A) the organization level distributable

24 amount for such taxable year, exceeds
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1 ‘‘(B) the qualifying distributions made

2 during such taxable year and designated for the

3 purpose of reducing such amount.

4 ‘‘(2) FUND LEVEL UNDISTRIBUTED AMOUNT.—

5 The term ‘fund level undistributed amount’ means,

6 with respect to any donor advised fund of a spon7 soring organization for any applicable period, the

8 amount by which—

9 ‘‘(A) the fund level distributable amount

10 for such applicable period, exceeds

11 ‘‘(B) the qualifying distributions made

12 during such applicable period and designated

13 for the purpose of reducing such amount.

14 ‘‘(3) ILLIQUID FUND UNDISTRIBUTED

15 AMOUNT.—

16 ‘‘(A) IN GENERAL.—The term ‘illiquid

17 fund undistributed amount’ means, with respect

18 to any illiquid asset donor advised fund of a

19 sponsoring organization for any taxable year,

20 the amount by which—

21 ‘‘(i) the illiquid fund distributable

22 amount for such taxable year, exceeds

23 ‘‘(ii) the qualifying distributions made

24 during such taxable year and designated

25 for the purpose of reducing such amount.
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1 ‘‘(B) ILLIQUID ASSET DONOR ADVISED

2 FUND.—The term ‘illiquid asset donor advised

3 fund’ means for any taxable year a donor ad4 vised fund the value of the illiquid assets of

5 which (as of the end of the preceding taxable

6 year) exceeds 10 percent of the value of the

7 total assets of such fund.

8 ‘‘(C) ILLIQUID ASSET.—The term ‘illiquid

9 asset’ means for any taxable year any asset

10 other than cash and marketable securities the

11 value of which is held for the entire taxable

12 year as such asset or any other illiquid asset.

13 ‘‘(d) ORGANIZATION LEVEL DISTRIBUTABLE

14 AMOUNT; FUND LEVEL DISTRIBUTABLE AMOUNT; IL15 LIQUID FUND DISTRIBUTABLE AMOUNT.—For purposes

16 of this section—

17 ‘‘(1) ORGANIZATION LEVEL DISTRIBUTABLE

18 AMOUNT.—The term ‘organization level distributable

19 amount’ means, with respect to any sponsoring orga20 nization for any taxable year, an amount equal to

21 the applicable percentage of the fair market value of

22 the aggregate assets of all donor advised funds

23 maintained by such organization as determined on

24 the last day of the preceding taxable year (other
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1 than such funds which have been in existence for

2 less than 1 year as so determined).

3 ‘‘(2) FUND LEVEL DISTRIBUTABLE AMOUNT.—

4 The term ‘fund level distributable amount’ means,

5 with respect to any donor advised fund of any spon6 soring organization for any applicable 3-consecutive

7 taxable year period, an amount equal to the greater

8 of—

9 ‘‘(A) $250, or

10 ‘‘(B) 2.5 percent of the greater of—

11 ‘‘(i) the average of the sponsoring or12 ganization’s required minimum initial con13 tribution amount for such period, or

14 ‘‘(ii) the average of the sponsoring or15 ganization’s required minimum balance for

16 such period,

17 for the type of donor with respect to such donor

18 advised fund.

19 ‘‘(3) ILLIQUID FUND DISTRIBUTABLE

20 AMOUNT.—The term ‘illiquid fund distributable

21 amount’ means, with respect to any illiquid asset

22 donor advised fund of any sponsoring organization

23 for any taxable year, an amount equal to the appli24 cable percentage of the value of the assets in such
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1 fund as determined at the end of the preceding tax2 able year.

3 ‘‘(4) APPLICABLE PERCENTAGE.—For purposes

4 of paragraphs (1) and (3), the applicable percentage

5 is—

6 ‘‘(A) 3 percent for the first taxable year

7 beginning after the date of the enactment of

8 this section,

9 ‘‘(B) 4 percent for the second taxable year

10 beginning after such date, and

11 ‘‘(C) 5 percent for any taxable year begin12 ning after the second taxable year beginning

13 after such date.

14 ‘‘(e) QUALIFYING DISTRIBUTION.—For purposes of

15 this section—

16 ‘‘(1) IN GENERAL.—The term ‘qualifying dis17 tribution’ means—

18 ‘‘(A) any amount paid by the sponsoring

19 organization from a donor advised fund—

20 ‘‘(i) to any organization described in

21 section 170(b)(1)(A) (other than any orga22 nization described in section 509(a)(3)) or

23 any sponsoring organization if such

24 amount is for maintenance in a donor ad25 vised fund), and
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1 ‘‘(ii) notwithstanding clause (i), to

2 any organization described section

3 170(f)(17)(B)(ii), but only to the extent

4 not prohibited by regulations, and

5 ‘‘(B) any amount set aside in such donor

6 advised fund for purposes, and under proce7 dures similar to those, described in section

8 4942(g)(2).

9 Such term shall also include any amount paid during

10 any taxable year for reasonable and necessary ad11 ministrative expenses charged to a donor advised

12 fund by a sponsoring organization.

13 ‘‘(2) DISTRIBUTIONS TO SPONSORING ORGANI14 ZATIONS.—

15 ‘‘(A) IN GENERAL.—Except as provided in

16 subparagraph (B), such term shall include any

17 distribution to a sponsoring organization.

18 ‘‘(B) ORGANIZATION LEVEL DISTRIBU19 TIONS.—For purposes of subsection (c)(1)(B),

20 such term shall not include any distribution to

21 a sponsoring organization unless such distribu22 tion is designated for use in connection with a

23 charitable program of such organization.

24 ‘‘(3) PURPOSE OF DISTRIBUTION.—Each quali25 fying distribution shall be taken into account in de-
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1 termining whether each of the requirements of para2 graphs (1), (2), and (3) of subsection (a) are met,

3 except that only qualifying distributions from a

4 donor advised fund shall be taken into account in

5 determining whether the requirements of paragraphs

6 (2) and (3) of subsection (a) are met with respect

7 to the fund.

8 ‘‘(4) DESIGNATION OF TAXABLE YEAR.—

9 ‘‘(A) IN GENERAL.—A sponsoring organi10 zation shall designate the taxable years or ap11 plicable periods with respect to which any quali12 fying distribution shall be applied for purposes

13 of satisfying the distribution requirements of

14 such taxable year or applicable period.

15 ‘‘(B) CARRYOVER OF EXCESS DISTRIBU16 TION DESIGNATIONS.—If a sponsoring organi17 zation designates an amount of qualifying dis18 tributions in excess of the amount necessary to

19 meet the distribution requirements for all tax20 able years and all applicable periods, the spon21 soring organization may designate such excess

22 as a carryover distribution which may be ap23 plied for purposes of satisfying the distribution

24 requirements of the succeeding 5 taxable years.
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1 ‘‘(f) VALUATION RULES.—For purposes of deter2 mining the value of any asset held by a donor advised

3 fund, the following rules shall apply:

4 ‘‘(1) Securities for which market quotations are

5 readily available shall be valued at fair market value

6 determined on a monthly basis.

7 ‘‘(2) Cash shall be determined on an average

8 monthly basis.

9 ‘‘(3) Any illiquid asset transferred by a donor

10 to a sponsoring organization for maintenance in

11 such donor advised fund shall be valued in an

12 amount equal to the sum of—

13 ‘‘(A) the value of such asset claimed by the

14 donor for purposes of determining the donor’s

15 deduction under section 170, 2055, or 2522

16 with respect to such transfer and reported by

17 the donor to the sponsoring organization (in

18 any manner specified by the Secretary), and

19 ‘‘(B) an assumed annual rate of return of

20 5 percent of such value.

21 ‘‘(4) Any illiquid asset purchased by such fund

22 shall be valued in an amount equal to—

23 ‘‘(A) the purchase price paid for such asset

24 by such fund, and
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1 ‘‘(B) an assumed annual rate of return of

2 5 percent of such value.

3 ‘‘(g) SPONSORING ORGANIZATION; DONOR ADVISED

4 FUND.—For purposes of this subchapter—

5 ‘‘(1) SPONSORING ORGANIZATION.—The term

6 ‘sponsoring organization’ means any organization

7 which—

8 ‘‘(A) is described in section 170(c) (other

9 than in paragraph (1) thereof, and without re10 gard to paragraph (2)(A) thereof), and

11 ‘‘(B) maintains 1 or more donor advised

12 funds.

13 ‘‘(2) DONOR ADVISED FUND.—

14 ‘‘(A) IN GENERAL.—Except as provided in

15 subparagraph (B), the term ‘donor advised

16 fund’ means a fund or account—

17 ‘‘(i) which is separately identified by

18 reference to contributions of a donor or do19 nors,

20 ‘‘(ii) which is owned and controlled by

21 a sponsoring organization, and

22 ‘‘(iii) with respect to which a donor or

23 any person appointed or designated by

24 such person) has, or reasonably expects to

25 have, advisory privileges with respect to
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1 the distribution or investment of amounts

2 held in such fund or account by reason of

3 the donor’s status as a donor.

4 ‘‘(B) EXCEPTION.—The term ‘donor ad5 vised fund’ shall not include any fund or ac6 count with respect to which a person described

7 in subparagraph (A)(iii) advises as to which in8 dividuals receive grants for travel, study, or

9 other similar purposes, but only if—

10 ‘‘(i) such person’s advisory privileges

11 are performed exclusively by such person

12 in the person’s capacity as a member of a

13 committee appointed by the sponsoring or14 ganization,

15 ‘‘(ii) no combination of persons de16 scribed in subparagraph (A)(iii) (or per17 sons related to such persons) control, di18 rectly or indirectly, such committee, and

19 ‘‘(iii) all grants from such fund or ac20 count satisfy requirements similar to those

21 described in section 4945(g) (concerning

22 grants to individuals by private founda23 tions).
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1 ‘‘(C) SECRETARIAL AUTHORITY.—The Sec2 retary may exempt a fund or account from

3 treatment as a donor advised fund which—

4 ‘‘(i) is advised by committee not di5 rectly or indirectly controlled by the donor

6 or advisor (and any related parties), or

7 ‘‘(ii) will benefit a single identified or8 ganization or governmental entity or a sin9 gle identified charitable purpose.

10 ‘‘(h) OTHER DEFINITIONS.—For purposes of this

11 section—

12 ‘‘(1) TAXABLE PERIOD.—The term ‘taxable pe13 riod’ means, with respect to the undistributed

14 amount for any taxable year, the period beginning

15 with the first day of the taxable year and ending on

16 the earlier of—

17 ‘‘(A) the date of mailing of a notice of defi18 ciency with respect to the tax imposed by sub19 section (a) under section 6212, or

20 ‘‘(B) the date on which the tax imposed by

21 subsection (a) is assessed.

22 ‘‘(2) APPLICABLE PERIOD.—The term ‘applica23 ble period’ means, with respect to any donor advised

24 fund of any sponsoring organization, a 3-consecutive
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1 taxable year period determined under the following

2 rules:

3 ‘‘(A) The first applicable 3-consecutive tax4 able year period for any donor advised fund

5 shall begin on the first day of the first taxable

6 year of the sponsoring organization beginning

7 after the date such fund has been in existence

8 for 1 year.

9 ‘‘(B) Any applicable 3-consecutive taxable

10 year period after the first such period shall

11 begin on the day after the termination of any

12 preceding applicable 3-consecutive taxable year

13 period with respect to such donor advised fund.

14 ‘‘(i) REGULATIONS.—The Secretary may issue such

15 regulations as are necessary to carry out the purposes of

16 this section, including regulations regarding—

17 ‘‘(1) the acceptable methods for calculating the

18 organization level undistributed amount for spon19 soring organizations,

20 ‘‘(2) the allowable adjustments in the deter21 mination of the value of any illiquid asset where the

22 asset value has declined significantly after a con23 tribution to, or purchase by, the donor advised fund,

24 and
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1 ‘‘(3) the treatment or disregard of transactions

2 designed to avoid the application of the illiquid asset

3 rules, such as through exchanges of illiquid assets

4 for other assets.

5 ‘‘SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

6 ‘‘(a) IMPOSITION OF TAXES.—

7 ‘‘(1) ON THE DONOR OR DONOR ADVISOR.—

8 There is hereby imposed on the advice of any person

9 described in section 4967(g)(2)(A)(iii) to have a

10 sponsoring organization of a donor advised fund

11 make a taxable distribution from such fund a tax

12 equal to 20 percent of the amount thereof. The tax

13 imposed by this paragraph shall be paid by such per14 son who advised the sponsoring organization of the

15 donor advised fund to make the distribution.

16 ‘‘(2) ON THE FUND MANAGEMENT.—There is

17 hereby imposed on the agreement of any fund man18 ager to the making of a distribution, knowing that

19 it is a taxable distribution, a tax equal to 5 percent

20 of the amount thereof, unless such agreement is not

21 willful and is due to reasonable cause. The tax im22 posed by this paragraph shall be paid by any fund

23 manager who agreed to the making of the distribu24 tion.
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1 ‘‘(b) JOINT AND SEVERAL LIABILITY.—For purposes

2 of subsection (a), if more than one person is liable under

3 subsection (a)(1) or (a)(2) with respect to the making of

4 a taxable distribution, all such persons shall be jointly and

5 severally liable under such paragraph with respect to such

6 distribution.

7 ‘‘(c) TAXABLE DISTRIBUTION.—For purposes of this

8 subsection—

9 ‘‘(1) IN GENERAL.—The term ‘taxable distribu10 tion’ means any distribution from a donor advised

11 fund to any person other than the sponsoring orga12 nization’s non donor advised funds or accounts or

13 organizations described in section 170(b)(1)(A)

14 (other than any organization described in section

15 509(a)(3) or any sponsoring organization if such

16 amount is for maintenance in a donor advised fund).

17 ‘‘(2) EXCEPTION.—Notwithstanding paragraph

18 (1), such term shall not include any distribution

19 from a donor advised fund to any organization de20 scribed section 170(f)(17)(B)(ii) to the extent such

21 distribution is not prohibited under regulations.

22 ‘‘(d) FUND MANAGER.—For purposes of this sub23 chapter, the term ‘fund manager’ means, with respect to

24 any sponsoring organization of a donor advised fund—
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1 ‘‘(1) an officer, director, or trustee of such

2 sponsoring organization (or an individual having

3 powers or responsibilities similar to those of officers,

4 directors, or trustees of the sponsoring organiza5 tion), and

6 ‘‘(2) with respect to any act (or failure to act),

7 the employees of the sponsoring organization having

8 authority or responsibility with respect to such act

9 (or failure to act).

10 ‘‘SEC. 4969. TAXES ON PROHIBITED BENEFITS.

11 ‘‘(a) IMPOSITION OF TAXES.—

12 ‘‘(1) ON THE DONOR, DONOR ADVISOR, OR RE13 LATED PERSON.—There is hereby imposed on the

14 advice of any person described in subsection (c) to

15 have a sponsoring organization of a donor advised

16 fund make a distribution from such fund which re17 sults in such a person receiving, directly or indi18 rectly, a more than incidental benefit as a result of

19 such distribution, a tax equal to 25 percent of the

20 amount of such distribution. The tax imposed by

21 this paragraph shall be paid by such person who ad22 vised the sponsoring organization of the donor ad23 vised fund to make the distribution.

24 ‘‘(2) ON THE RECIPIENT OF THE BENEFIT.—

25 There is hereby imposed on any person described in
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1 subsection (c) who receives a benefit described in

2 paragraph (1), a tax equal to 25 percent of the

3 amount of the distribution described in paragraph

4 (1).

5 ‘‘(3) ON THE FUND MANAGEMENT.—There is

6 hereby imposed on the agreement of any fund man7 ager to the making of a distribution, knowing that

8 such distribution would confer a benefit described in

9 paragraph (1), a tax equal to 10 percent of the

10 amount of such distribution, unless such agreement

11 is not willful and is due to reasonable cause. The tax

12 imposed by this paragraph shall be paid by any fund

13 manager who agreed to the making of the distribu14 tion.

15 ‘‘(b) JOINT AND SEVERAL LIABILITY.—For purposes

16 of subsection (a), if more than one person is liable under

17 subsection (a)(1), (a)(2), or (a)(3) with respect to the

18 making of a distribution described in subsection (a), all

19 such persons shall be jointly and severally liable under

20 such paragraph with respect to such distribution.

21 ‘‘(c) DONOR, DONOR ADVISOR, OR RELATED PER22 SON.—A person is described in this subsection if such per23 son is described in section 4958(f)(1)(D) (determined

24 without regard to any investment advisor).’’.
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1 (b) ABATEMENT OF TAXES ALLOWED.—Section

2 4963 is amended—

3 (1) by inserting ‘‘4967, 4968, 4969,’’ after

4 ‘‘4958,’’ each place it appears in subsections (a) and

5 (c),

6 (2) by inserting ‘‘4967,’’ after ‘‘4958,’’ in sub7 section (b),

8 (3) in subsection (d)(2), by striking ‘‘and’’ at

9 the end of subparagraph (B), by striking the period

10 at the end of subparagraph (C) and inserting ‘‘,

11 and’’, and by adding at the end the following new

12 subparagraph:

13 ‘‘(D) in the case of the second tier tax im14 posed by section 4967(b), reducing the amount

15 of the undistributed amount to zero.’’, and

16 (4) in subsection (e)(2), by redesignating sub17 paragraphs (C) and (D) as subparagraphs (E) and

18 (F), respectively, and by inserting after subpara19 graph (B) the following new subparagraphs:

20 ‘‘(C) in the case of section 4967(a)(1), on

21 the first day of the taxable year for which there

22 was a failure to distribute,

23 ‘‘(D) in the case of paragraph (2) or (3)

24 of section 4967(a), on the 181st day of the tax-
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1 able year for which there was a failure to dis2 tribute,’’.

3 (c) CONFORMING AMENDMENT.—The table of sub4 chapters of chapter 42 is amended by adding at the end

5 the following new item:

‘‘SUBCHAPTER G. DONOR ADVISED FUNDS.’’.

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

7 this section shall apply to taxable years beginning after

8 the date of the enactment of this Act.

9 SEC. 332. PROHIBITED TRANSACTIONS.

10 (a) DISQUALIFIED PERSONS.—

11 (1) IN GENERAL.—Paragraph (1) of section

12 4958(f) is amended by striking ‘‘and’’ at the end of

13 subparagraph (B), by striking the period at the end

14 of subparagraph (C) and inserting ‘‘, and’’, and by

15 adding after subparagraph (C) the following new

16 subparagraph:

17 ‘‘(D) any person who is described in para18 graph (7) with respect to any sponsoring orga19 nization (as defined in section 4967(g)(1)).’’.

20 (2) DONORS, DONOR ADVISORS, AND INVEST21 MENT ADVISORS TREATED AS DISQUALIFIED PER22 SONS.—Section 4958(f) is amended by adding at the

23 end the following new paragraph:
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1 ‘‘(7) DONORS, DONOR ADVISORS, AND INVEST2 MENT ADVISORS WITH RESPECT TO SPONSORING OR3 GANIZATIONS.—For purposes of paragraph (1)(D)—

4 ‘‘(A) IN GENERAL.—A person is described

5 in this paragraph if such person—

6 ‘‘(i) is described in section

7 4967(g)(2)(A)(iii),

8 ‘‘(ii) is an investment advisor,

9 ‘‘(iii) is a member of the family of an

10 individual described in clause (i) or (ii), or

11 ‘‘(iv) is a 35-percent controlled entity

12 (as defined in paragraph (3) by sub13 stituting ‘persons described in clause (i),

14 (ii), or (iii) of paragraph (7)(A)’ for ‘per15 sons described in subparagraph (A) or (B)

16 of paragraph (1)’ in subparagraph (A)(i)

17 thereof).

18 ‘‘(B) INVESTMENT ADVISOR.—The term

19 ‘investment advisor’ means, with respect to any

20 sponsoring organization (as defined in section

21 4967(g)(1)), any person (other than an em22 ployee of such organization) compensated by

23 such organization for managing the investment

24 of, or providing investment advice with respect

25 to, assets maintained in donor advised funds
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1 (as defined in section 4967(g)(2)) owned by

2 such organization.’’.

3 (3) DONORS, DONOR ADVISORS, AND INVEST4 MENT ADVISORS TREATED AS DISQUALIFIED PER5 SONS WITH RESPECT TO A SPONSORING ORGANIZA6 TION WHICH IS A PRIVATE FOUNDATION.—Section

7 4946(a)(1) is amended by striking ‘‘and’’ at the end

8 of subparagraph (H), by striking the period at the

9 end of subparagraph (I) and inserting ‘‘, and’’, and

10 by adding at the end the following new subpara11 graph:

12 ‘‘(J) a person described in section

13 4958(f)(1)(D).’’.

14 (b) CERTAIN TRANSACTIONS TREATED AS EXCESS

15 BENEFIT TRANSACTIONS.—

16 (1) IN GENERAL.—Section 4958(c) is amended

17 by redesignating paragraph (2) as paragraph (3)

18 and by inserting after paragraph (1) the following

19 new paragraph:

20 ‘‘(2) SPECIAL RULES FOR DONOR ADVISED

21 FUNDS OWNED BY SPONSORING ORGANIZATIONS.—

22 In the case of any donor advised fund (as defined

23 in section 4967(g)(2)) of a sponsoring organization

24 (as defined in section 4967(g)(1))—
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1 ‘‘(A) the term ‘excess benefit transaction’

2 includes any grant, loan, compensation, or other

3 payment from such fund to a person described

4 in subsection (f)(1)(D) (determined without re5 gard to any investment advisor) with respect to

6 such fund, and

7 ‘‘(B) the term ‘excess benefit’ includes,

8 with respect to any transaction described in

9 subparagraph (A), the amount of any such

10 grant, loan, compensation, or other payment.

11 Notwithstanding the last sentence of subsection (e),

12 a sponsoring organization shall be treated as an ap13 plicable tax-exempt organization to the extent nec14 essary to carry out this paragraph.’’.

15 (2) SPECIAL RULE FOR CORRECTION OF TRANS16 ACTION.—Section 4958(f)(6) is amended by insert17 ing ‘‘, except that in the case of any correction of

18 an excess benefit transaction described in subsection

19 (c)(2), no amount repaid in a manner prescribed by

20 the Secretary may be held in, or credited to, any

21 donor advised fund’’ after ‘‘standards’’.

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

23 this section shall apply to taxable years beginning after

24 the date of the enactment of this Act.
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1 SEC. 333. TREATMENT OF CHARITABLE CONTRIBUTION DE2 DUCTIONS TO DONOR ADVISED FUNDS.

3 (a) INCOME.—Section 170(f) (relating to disallow4 ance of deduction in certain cases and special rules), as

5 amended by section 318 of this Act, is amended by adding

6 at the end the following new paragraph:

7 ‘‘(17) CONTRIBUTIONS TO DONOR ADVISED

8 FUNDS.—

9 ‘‘(A) IN GENERAL.—A deduction otherwise

10 allowed under subsection (a) for any contribu11 tion to a sponsoring organization (as defined in

12 section 4967(g)(1)) to be maintained in any

13 donor advised fund (as defined in section

14 4967(g)(2)) of such organization shall only be

15 allowed if—

16 ‘‘(i) such sponsoring organization is

17 not described in paragraph (3), (4), or (5)

18 of subsection (c) or section 509(a)(3), and

19 ‘‘(ii) the taxpayer obtains a contem20 poraneous written acknowledgment (deter21 mined under rules similar to the rules of

22 paragraph (8)(C) from the sponsoring or23 ganization that such organization has ex24 clusive legal control over the assets con25 tributed.
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1 ‘‘(B) CONTRIBUTIONS TO TYPE I OR TYPE

2 II SUPPORTING ORGANIZATIONS.—

3 ‘‘(i) IN GENERAL.—Notwithstanding

4 subparagraph (A)(i), a contribution to a

5 sponsoring organization (as so defined) de6 scribed in clause (ii) to be maintained in

7 any donor advised fund (as so defined) of

8 such organization shall be allowed to the

9 extent not prohibited by regulations.

10 ‘‘(ii) ORGANIZATION DESCRIBED.—An

11 organization is described in this clause if

12 the organization meets the requirements of

13 subparagraphs (A) and (C) of section

14 509(a)(3) and is—

15 ‘‘(I) operated, supervised, or con16 trolled by one or more organizations

17 described in paragraph (1) or (2) of

18 section 509(a), or

19 ‘‘(II) supervised or controlled in

20 connection with one or more such or21 ganizations.’’.

22 (b) ESTATE.—Section 2055(e) is amended by adding

23 at the end the following new paragraph:

24 ‘‘(5) CONTRIBUTIONS TO DONOR ADVISED

25 FUNDS.—
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1 ‘‘(A) IN GENERAL.—A deduction otherwise

2 allowed under subsection (a) for any contribu3 tion to a sponsoring organization (as defined in

4 section 4967(g)(1)) to be maintained in any

5 donor advised fund (as defined in section

6 4967(g)(2)) of such organization shall only be

7 allowed if—

8 ‘‘(i) such sponsoring organization is

9 not described in paragraph (3) or(4) of

10 subsection (a) or section 509(a)(3), and

11 ‘‘(ii) the taxpayer obtains a contem12 poraneous written acknowledgment (deter13 mined under rules similar to the rules of

14 section 170(f)(8)(C)) from the sponsoring

15 organization that such organization has ex16 clusive legal control over the assets con17 tributed.

18 ‘‘(B) CONTRIBUTIONS TO TYPE I OR TYPE

19 II SUPPORTING ORGANIZATIONS.—

20 ‘‘(i) IN GENERAL.—Notwithstanding

21 subparagraph (A)(i), a contribution to a

22 sponsoring organization (as so defined) de23 scribed in clause (ii) to be maintained in

24 any donor advised fund (as so defined) of
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1 such organization shall be allowed to the

2 extent not prohibited by regulations.

3 ‘‘(ii) ORGANIZATION DESCRIBED.—An

4 organization is described in this clause if

5 the organization meets the requirements of

6 subparagraphs (A) and (C) of section

7 509(a)(3) and is—

8 ‘‘(I) operated, supervised, or con9 trolled by one or more organizations

10 described in paragraph (1) or (2) of

11 section 509(a), or

12 ‘‘(II) supervised or controlled in

13 connection with one or more such or14 ganizations.’’.

15 (c) GIFT.—Section 2522(c) is amended by adding at

16 the end the following new paragraph:

17 ‘‘(13) CONTRIBUTIONS TO DONOR ADVISED

18 FUNDS.—

19 ‘‘(A) IN GENERAL.—A deduction otherwise

20 allowed under subsection (a) for any contribu21 tion to a sponsoring organization (as defined in

22 section 4967(g)(1)) to be maintained in any

23 donor advised fund (as defined in section

24 4967(g)(2)) of such organization shall only be

25 allowed if—
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1 ‘‘(i) such sponsoring organization is

2 not described in paragraph (3) or (4) of

3 subsection (a) or section 509(a)(3), and

4 ‘‘(ii) the taxpayer obtains a contem5 poraneous written acknowledgment (deter6 mined under rules similar to the rules of

7 section 170(f)(8)(C)) from the sponsoring

8 organization that such organization has ex9 clusive legal control over the assets con10 tributed.

11 ‘‘(B) CONTRIBUTIONS TO TYPE I OR TYPE

12 II SUPPORTING ORGANIZATIONS.—

13 ‘‘(i) IN GENERAL.—Notwithstanding

14 subparagraph (A)(i), a contribution to a

15 sponsoring organization (as so defined) de16 scribed in clause (ii) to be maintained in

17 any donor advised fund (as so defined) of

18 such organization shall be allowed to the

19 extent not prohibited by regulations.

20 ‘‘(ii) ORGANIZATION DESCRIBED.—An

21 organization is described in this clause if

22 the organization meets the requirements of

23 subparagraphs (A) and (C) of section

24 509(a)(3) and is—
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1 ‘‘(I) operated, supervised, or con2 trolled by one or more organizations

3 described in paragraph (1) or (2) of

4 section 509(a), or

5 ‘‘(II) supervised or controlled in

6 connection with one or more such or7 ganizations.’’.

8 (d) REGULATIONS.—The regulations prescribed

9 under sections 170(f)(17)(B)(i), 2055(e)(5)(B)(i),

10 2522(c)(13)(B)(i), 4967(e)(i)(A)(ii), and 4968(c)(2) of

11 the Internal Revenue Code of 1986 shall deny a deduction

12 for contributions to sponsoring organizations (as defined

13 in section 4967(g)(1) of such Code) which are described

14 in section 170(f)(17)(B)(ii) of such Code and shall apply

15 excise taxes to distributions from donor advised funds (as

16 defined in section 4967(g)(2) of such Code) and spon17 soring organizations (as so defined) to organizations so

18 described in cases where the donor of the contributions

19 or the donor or donor advisor of the amounts distributed

20 directly or indirectly controls a supported organization (as

21 defined in section 509(f)(3) of such Code) of such organi22 zation.

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

24 this section shall apply to contributions made after the
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1 date which is 180 days after the date of the enactment

2 of this Act.

3 SEC. 334. RETURNS OF, AND APPLICATIONS FOR RECOGNI4 TION BY, SPONSORING ORGANIZATIONS.

5 (a) MATTERS INCLUDED ON RETURNS.—

6 (1) IN GENERAL.—Section 6033 is amended by

7 redesignating subsection (h) as subsection (i) and by

8 inserting after subsection (g) the following new sub9 section:

10 ‘‘(h) ADDITIONAL PROVISIONS RELATING TO SPON11 SORING ORGANIZATIONS.—Every organization described

12 in section 4967(g)(1) shall, on the return required under

13 subsection (a) for the taxable year—

14 ‘‘(1) list the total number of donor advised

15 funds (as defined in section 4967(g)(2)) it owns at

16 the end of such taxable year,

17 ‘‘(2) indicate the aggregate value of assets held

18 in such funds at the end of such taxable year, and

19 ‘‘(3) indicate the aggregate contributions to and

20 grants made from such funds during such taxable

21 year.’’.

22 (2) EXTENSION OF STATUTE OF LIMITA23 TIONS.—Section 6501(c) is amended by adding at

24 the end the following new paragraph:
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1 ‘‘(11) DONOR ADVISED FUNDS.—If a spon2 soring organization (as defined in section

3 4967(g)(1)) fails to include on any return for any

4 taxable year any information with respect to any

5 donor advised fund of such organization which is re6 quired under section 6033(h) to be included with

7 such return, the time for assessment of any tax im8 posed under subchapter G of chapter 42 with re9 spect to any distribution from such donor advised

10 fund shall not expire before the date which is 3

11 years after the date on which the secretary is fur12 nished the information so required.’’.

13 (3) EFFECTIVE DATE.—The amendments made

14 by this subsection shall apply to returns filed for

15 taxable years ending after the date of the enactment

16 of this Act.

17 (b) MATTERS INCLUDED ON EXEMPT STATUS APPLI18 CATION.—

19 (1) IN GENERAL.—Section 508 is amended by

20 adding at the end the following new subsection:

21 ‘‘(f) ADDITIONAL PROVISIONS RELATING TO SPON22 SORING ORGANIZATIONS.—sponsoring organization (as

23 defined in section 4967(g)(1)) shall give notice to the Sec24 retary (in such manner as the Secretary may provide)

25 whether such organization maintains or intends to main-
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1 tain donor advised funds (as defined in section

2 4967(g)(2)) and the manner in which such organization

3 plans to operate such funds.’’.

4 (2) EFFECTIVE DATE.—The amendment made

5 by this subsection shall apply to organizations apply6 ing for tax-exempt status after the date of the enact7 ment of this Act.

8 PART III—IMPROVED ACCOUNTABILITY OF

9 SUPPORTING ORGANIZATIONS

10 SEC. 341. REQUIREMENTS FOR SUPPORTING ORGANIZA11 TIONS.

12 (a) TYPES OF SUPPORTING ORGANIZATIONS.—Sub13 paragraph (B) of section 509(a)(3) is amended to read

14 as follows:

15 ‘‘(B) is—

16 ‘‘(i) operated, supervised, or controlled

17 by one or more organizations described in

18 paragraph (1) or (2),

19 ‘‘(ii) supervised or controlled in con20 nection with one or more such organiza21 tions, or

22 ‘‘(iii) operated in connection with one

23 or more such organizations, and’’.

24 (b) REQUIREMENTS FOR SUPPORTING ORGANIZA25 TIONS.—Section 509 (relating to private foundation de-
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1 fined) is amended by adding at the end the following new

2 subsection:

3 ‘‘(f) REQUIREMENTS FOR SUPPORTING ORGANIZA4 TIONS.—

5 ‘‘(1) TYPE III SUPPORTING ORGANIZATIONS.—

6 For purposes of subsection (a)(3)(B)(iii), an organi7 zation shall not be considered to be operated in con8 nection with any organization described in para9 graph (1) or (2) of subsection (a) unless such orga10 nization meets the following requirements:

11 ‘‘(A) APPLICATION REQUIREMENT.—The

12 organization provides to the Secretary, as a

13 part of any notification filed under section

14 508(a) after the date of the enactment of this

15 subsection, a letter from each supported organi16 zation acknowledging that the supported orga17 nization has been designated by such organiza18 tion as a supported organization.

19 ‘‘(B) RESPONSIVENESS.—For each taxable

20 year beginning after the date of the enactment

21 of this subsection, the organization provides to

22 each supported organization such information

23 as the Secretary may require to ensure that

24 such organization is responsive to the needs or

25 demands of the supported organization.
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1 ‘‘(C) SUPPORTED ORGANIZATIONS.—

2 ‘‘(i) IN GENERAL.—The

3 organization—

4 ‘‘(I) is not operated in connection

5 with more than 5 supported organiza6 tions, and

7 ‘‘(II) is not operated in connec8 tion with any supported organization

9 that is not organized in the United

10 States on any date after the date

11 which is 180 days after the date of

12 the enactment of this subsection.

13 ‘‘(ii) SPECIAL RULE FOR EXISTING

14 ORGANIZATIONS.—If the organization is

15 operated in connection with more than 5

16 supported organizations on the date of the

17 enactment of this subsection—

18 ‘‘(I) clause (i)(I) shall not apply,

19 and

20 ‘‘(II) the organization may not be

21 operated in connection with any other

22 organization after such date unless

23 the total number of supported organi24 zations is 5 or less.
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1 ‘‘(D) CONTRIBUTIONS TO DONOR ADVISED

2 FUNDS.—The organization makes no contribu3 tions to or for the use of any donor advised

4 fund (as defined in section 4967(g)(2)).

5 ‘‘(2) ORGANIZATIONS CONTROLLED BY DO6 NORS.—

7 ‘‘(A) IN GENERAL.—For purposes of sub8 section (a)(3)(B), an organization shall not be

9 considered to be—

10 ‘‘(i) operated, supervised, or controlled

11 by any organization described in paragraph

12 (1) or (2) of subsection (a), or

13 ‘‘(ii) operated in connection with any

14 organization described in paragraph (1) or

15 (2) of subsection (a),

16 if such organization accepts any gift or con17 tribution from any person described in subpara18 graph (B).

19 ‘‘(B) PERSON DESCRIBED.—A person is

20 described in this subparagraph if such person

21 is—

22 ‘‘(i) a person (other than an organiza23 tion described in paragraph (1), (2), or (4)

24 of section 509(a)) who controls, directly or

25 indirectly, either alone or together with
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1 persons described in clauses (ii) and (iii),

2 the governing body of a supported organi3 zation,

4 ‘‘(ii) a member of the family (deter5 mined under section 4958(f)(4)) of an in6 dividual described in clause (i), or

7 ‘‘(iii) a 35-percent controlled entity

8 (as defined in section 4958(f)(3) by sub9 stituting ‘persons described in clause (i) or

10 (ii) of section 509(f)(2)(B)’ for ‘persons

11 described in subparagraph (A) or (B) of

12 paragraph (1)’ in subparagraph (A)(i)

13 thereof).

14 ‘‘(3) SUPPORTED ORGANIZATION.—For pur15 poses of this subsection, the term ‘supported organi16 zation’ means, with respect to an organization de17 scribed in subsection (a)(3), an organization de18 scribed in paragraph (1) or (2) of subsection (a)—

19 ‘‘(A) for whose benefit the organization de20 scribed in subsection (a)(3) is organized and

21 operated, or

22 ‘‘(B) with respect to which the organiza23 tion performs the functions of, or carries out

24 the purposes of.’’.
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1 (c) CHARITABLE TRUSTS WHICH ARE TYPE III SUP2 PORTING ORGANIZATIONS.—For purposes of section

3 509(a)(3)(B)(iii) of the Internal Revenue Code of 1986,

4 an organization which is a trust shall not be considered

5 to be operated in connection with any organization de6 scribed in paragraph (1) or (2) of section 509(a) of such

7 Code solely because—

8 (1) it is a charitable trust under State law,

9 (2) the supported organization (as defined in

10 section 509(f)(3) of such Code) is a beneficiary of

11 such trust, and

12 (3) the supported organization (as so defined)

13 has the power to enforce the trust and compel an ac14 counting.

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

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

17 of this Act.

18 SEC. 342. EXCISE TAX ON SUPPORTING ORGANIZATIONS

19 FOR FAILURE TO MEET DISTRIBUTION RE20 QUIREMENTS.

21 (a) IN GENERAL.—Subchapter D of chapter 42 (re22 lating to failure by certain charitable organizations to

23 meet certain qualification requirements) is amended by

24 adding at the end the following new section:
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1 ‘‘SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZA2 TIONS FAILING TO MEET DISTRIBUTION RE3 QUIREMENTS.

4 ‘‘(a) INITIAL TAX.—There is hereby imposed on the

5 undistributed income of any type III supporting organiza6 tion for any taxable year, which has not been distributed

7 before the first day of the second (or any succeeding) tax8 able year following such taxable year (if such first day falls

9 within the taxable period), a tax equal to 30 percent of

10 the amount of such income remaining undistributed at the

11 beginning of such second (or succeeding) taxable year.

12 ‘‘(b) ADDITIONAL TAX.—In any case in which an ini13 tial tax is imposed under subsection (a) on the undistrib14 uted income of a type III supporting organization for any

15 taxable year, if any portion of such income remains undis16 tributed at the close of the taxable period, there is hereby

17 imposed a tax equal to 100 percent of the amount remain18 ing undistributed at such time.

19 ‘‘(c) UNDISTRIBUTED INCOME.—For purposes of this

20 section, the term ‘undistributed income’ means, with re21 spect to any type III supporting organization for any tax22 able year as of any time, the amount by which—

23 ‘‘(1) the distributable amount for such taxable

24 year, exceeds

25 ‘‘(2) the qualifying distributions made before

26 such time out of such distributable amount.
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1 ‘‘(d) DISTRIBUTABLE AMOUNT.—For purposes of

2 this section—

3 ‘‘(1) IN GENERAL.—the term ‘distributable

4 amount’ means, with respect to any type III sup5 porting organization for any taxable year, an

6 amount equal to the sum of—

7 ‘‘(A) the greater of—

8 ‘‘(i) 85 percent of the adjusted net in9 come (as defined in section 4942(f)) of the

10 type III supporting organization for the

11 preceding taxable year, or

12 ‘‘(ii) the applicable percentage of the

13 fair market value of the aggregate assets

14 of such organization (other than assets

15 used or held to perform the functions of,

16 or carry out the purposes of, a supported

17 organization) on the last day of the pre18 ceding taxable year, and

19 ‘‘(B) any amount received during the pre20 ceding taxable year which is a repayment of

21 amounts paid by the organization in any prior

22 taxable year to a supported organization exclu23 sively for the benefit of such supported organi24 zation or to perform the functions of, or carry
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1 out the purposes of such supported organiza2 tion.

3 ‘‘(2) INVESTMENT ASSETS.—For purposes of

4 paragraph (1)(A)(ii), assets held for investment or

5 for the operation of an unrelated trade or business

6 shall not be considered as assets used or held to per7 form the functions of, or carry out the purposes of,

8 a supported organization.

9 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes

10 of paragraph (1)(A)(ii), the applicable percentage

11 is—

12 ‘‘(A) 3 percent for the first taxable year

13 beginning after the date of the enactment of

14 this section,

15 ‘‘(B) 4 percent for the second taxable year

16 beginning after such date, and

17 ‘‘(C) 5 percent for any taxable year begin18 ning after the second taxable year beginning

19 after such date.

20 ‘‘(e) QUALIFYING DISTRIBUTION.—For purposes of

21 this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualifying dis23 tribution’ means amounts paid by the type III sup24 porting organization to or for the use of a supported

25 organization.
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1 ‘‘(2) ADMINISTRATIVE AND OPERATING EX2 PENSES.—Reasonable and necessary administrative

3 expenses of a type III supporting organization shall

4 be treated as a qualifying distribution to a supported

5 organization.

6 ‘‘(f) TREATMENT OF QUALIFYING DISTRIBUTIONS.—

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2), any qualifying distribution made during

9 a taxable year shall be treated as made—

10 ‘‘(A) first out of the undistributed income

11 of the immediately preceding taxable year (if

12 the type III supporting organization was sub13 ject to the tax imposed by this section for such

14 preceding taxable year) to the extent thereof,

15 and

16 ‘‘(B) second out of the undistributed in17 come for the taxable year to the extent thereof.

18 For purposes of this paragraph, distributions shall

19 be taken into account in the order of time in which

20 made.

21 ‘‘(2) CORRECTION OF DEFICIENT DISTRIBU22 TIONS FOR PRIOR TAXABLE YEARS, ETC.—In the

23 case of any qualifying distribution which (under

24 paragraph (1)) is not treated as made out of the un25 distributed income of the immediately preceding tax-
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1 able year, the type III supporting organization may

2 elect to treat any portion of such distribution as

3 made out of the undistributed income of a des4 ignated prior taxable year. The election shall be

5 made by the type III supporting organization at

6 such time and in such manner as the Secretary shall

7 by regulations prescribe.

8 ‘‘(g) ADJUSTMENT OF DISTRIBUTABLE AMOUNT

9 WHERE DISTRIBUTIONS DURING PRIOR YEARS HAVE

10 EXCEEDED INCOME.—

11 ‘‘(1) IN GENERAL.—If, for the taxable years in

12 the adjustment period for which an organization is

13 a type III supporting organization—

14 ‘‘(A) the aggregate qualifying distributions

15 treated (under subsection (f)) as made out of

16 the undistributed income for such taxable years,

17 exceed

18 ‘‘(B) the distributable amounts for such

19 taxable years (determined without regard to

20 this subsection),

21 then, for purposes of this section (other than sub22 section (f)), the distributable amount for the taxable

23 year shall be reduced by an amount equal to such

24 excess.
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1 ‘‘(2) TAXABLE YEARS IN ADJUSTMENT PE2 RIOD.—For purposes of paragraph (1), with respect

3 to any taxable year of a type III supporting organi4 zation, the taxable years in the adjustment period

5 are the taxable years (not exceeding 5) beginning

6 after the date of the enactment of this section and

7 immediately preceding the taxable year.

8 ‘‘(h) OTHER DEFINITIONS.—For purposes of this

9 section—

10 ‘‘(1) TAXABLE PERIOD.—The term ‘taxable pe11 riod’ means, with respect to the undistributed in12 come for any taxable year, the period beginning with

13 the first day of the taxable year and ending on the

14 earlier of—

15 ‘‘(A) the date of mailing of a notice of defi16 ciency with respect to the tax imposed by sub17 section (a) under section 6212, or

18 ‘‘(B) the date on which the tax imposed by

19 subsection (a) is assessed.

20 ‘‘(2) TYPE III SUPPORTING ORGANIZATION.—

21 The term ‘type III supporting organization’ means

22 an organization which meets the requirements of

23 subparagraphs (A) and (C) of section 509(a)(3) and

24 which is operated in connection with one or more or-
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1 ganizations described in paragraph (1) or (2) of sec2 tion 509(a).

3 ‘‘(3) SUPPORTED ORGANIZATION.—The term

4 ‘supported organization’ has the meaning given such

5 term under section 509(f)(3).’’.

6 (b) CONFORMING AMENDMENT.—The table of sec7 tion for subchapter D of chapter 42 is amended by insert8 ing after the item relating to section 4958 the following

9 new item:

‘‘Sec. 4959. Taxes on certain supporting organizations failing to meet distribution requirements.’’.

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

11 this section shall apply to taxable years beginning after

12 the date of the enactment of this Act.

13 SEC. 343. EXCESS BENEFIT TRANSACTIONS.

14 (a) IN GENERAL.—Section 4958(c), as amended by

15 section 332 of this Act, is amended by redesignating para16 graph (3) as paragraph (4) and by inserting after para17 graph (2) the following new paragraph:

18 ‘‘(3) SPECIAL RULES FOR SUPPORTING ORGANI19 ZATIONS.—

20 ‘‘(A) IN GENERAL.—In the case of any or21 ganization described in section 509(a)(3)—

22 ‘‘(i) the term ‘excess benefit trans23 action’ includes—
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1 ‘‘(I) any grant, loan, compensa2 tion, or other payment provided by

3 such organization to a person de4 scribed in subparagraph (B), and

5 ‘‘(II) any loan provided by such

6 organization to a disqualified person

7 (other than an organization described

8 in paragraph (1), (2), or (4) of section

9 509(a)), and

10 ‘‘(ii) the term ‘excess benefit’ includes,

11 with respect to any transaction described

12 in clause (i), the amount of any such

13 grant, loan, compensation, or other pay14 ment.

15 ‘‘(B) PERSON DESCRIBED.—A person is

16 described in this subparagraph if such person

17 is—

18 ‘‘(i) a substantial contributor to such

19 organization,

20 ‘‘(ii) a member of the family (deter21 mined under section 4958(f)(4)) of an in22 dividual described in clause (i), or

23 ‘‘(iii) a 35-percent controlled entity

24 (as defined in section 4958(f)(3) by sub25 stituting ‘persons described in clause (i) or
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1 (ii) of section 4958(c)(3)(B)’ for ‘persons

2 described in subparagraph (A) or (B) of

3 paragraph (1)’ in subparagraph (A)(i)

4 thereof).

5 ‘‘(C) SUBSTANTIAL CONTRIBUTOR.—For

6 purposes of this paragraph—

7 ‘‘(i) IN GENERAL.—The term ‘sub8 stantial contributor’ means any person who

9 contributed or bequeathed an aggregate

10 amount of more than $5,000 to the organi11 zation, if such amount is more than 2 per12 cent of the total contributions and be13 quests received by the organization before

14 the close of the taxable year of the organi15 zation in which the contribution or bequest

16 is received by the organization from such

17 person. In the case of a trust, such term

18 also means the creator of the trust.

19 ‘‘(ii) EXCEPTION.—Such term shall

20 not include any organization described in

21 paragraph (1), (2), or (4) of section

22 509(a).’’.

23 (b) DISQUALIFIED PERSONS.—Paragraph (1) of sec24 tion 4958(f), as amended by section 332 of this Act, is

25 amended by striking ‘‘and’’ at the end of subparagraph
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1 (D), by striking the period at the end of subparagraph

2 (E) and inserting ‘‘, and’’, and by adding after subpara3 graph (D) the following new subparagraph:

4 ‘‘(E) any person who is described in sub5 paragraph (A), (B), or (C) with respect to an

6 organization described in section 509(a)(3)

7 which is organized and operated exclusively for

8 the benefit of, to perform the functions of, or

9 to carry out the purposes of the applicable tax10 exempt organization.’’.

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

12 this section shall apply to transactions occurring after the

13 date of the enactment of this Act.

14 SEC. 344. EXCESS BUSINESS HOLDINGS OF SUPPORTING

15 ORGANIZATIONS.

16 (a) IN GENERAL.—Section 4943 is amended by add17 ing at the end the following new subsection:

18 ‘‘(e) APPLICATION OF TAX TO SUPPORTING ORGANI19 ZATIONS.—

20 ‘‘(1) IN GENERAL.—For purposes of this sec21 tion, a qualified supporting organization shall be

22 treated as a private foundation.

23 ‘‘(2) EXCEPTION.—The Secretary may exempt

24 any qualified supporting organization from the appli25 cation of this subsection if the Secretary determines
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1 that the excess business holdings of such organiza2 tion are consistent with the purpose or function con3 stituting the basis for its exemption under section

4 501.

5 ‘‘(3) QUALIFIED SUPPORTING ORGANIZATION.—

6 For purposes of this subsection, the term ‘qualified

7 supporting organization’ means any—

8 ‘‘(A) type III supporting organization (as

9 defined in section 4959(h)(2)), or

10 ‘‘(B) organization which meets the require11 ments of subparagraphs (A) and (C) of section

12 509(a)(3) and which is supervised or controlled

13 in connection with or one or more organizations

14 described in paragraph (1) or (2) of section

15 509(a), but only if such organization accepts

16 any gift or contribution from any person de17 scribed in section 509(f)(2)(B).

18 ‘‘(4) DISQUALIFIED PERSON.—

19 ‘‘(A) IN GENERAL.—In applying this sec20 tion to any organization described in section

21 509(a)(3), the term ‘disqualified person’ means,

22 with respect to the organization—

23 ‘‘(i) any person who was, at any time

24 during the 5-year period ending on date

25 described in subsection (a)(2)(A), in a po-
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1 sition to exercise substantial influence over

2 the affairs of the organization,

3 ‘‘(ii) any member of the family (deter4 mined under section 4958(f)(4)) of an in5 dividual described in clause (i),

6 ‘‘(iii) any 35-percent controlled entity

7 (as defined in section 4958(f)(3) by sub8 stituting ‘persons described in clause (i) or

9 (ii) of section 4943(e)(2)(A)’ for ‘persons

10 described in subparagraph (A) or (B) of

11 paragraph (1)’ in subparagraph (A)(i)

12 thereof),

13 ‘‘(iv) any person described in section

14 4958(c)(3)(B)), and

15 ‘‘(v) any organization—

16 ‘‘(I) which is effectively con17 trolled (directly or indirectly) by the

18 same person or persons who control

19 the organization in question, or

20 ‘‘(II) substantially all of the con21 tributions to which were made (di22 rectly or indirectly) by the same per23 son or persons described in subpara24 graph (B) or a member of their family

25 (within the meaning of section
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1 4946(d)) who made (directly or indi2 rectly) substantially all of the con3 tributions to the organization in ques4 tion.

5 ‘‘(B) PERSONS DESCRIBED.—A person is

6 described in this subparagraph if such person

7 is—

8 ‘‘(i) a substantial contributor to the

9 organization (as defined in section

10 4958(c)(3)(C)),

11 ‘‘(ii) an officer, director, or trustee of

12 the organization (or an individual having

13 powers or responsibilities similar to those

14 officers, directors, or trustees of the orga15 nization), or

16 ‘‘(iii) an owner of more than 20 per17 cent of—

18 ‘‘(I) the total combined voting

19 power of a corporation,

20 ‘‘(II) the profits interest of a

21 partnership, or

22 ‘‘(III) the beneficial interest of a

23 trust or unincorporated enterprise,

24 which is a substantial contributor (as so

25 defined) to the organization.
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1 ‘‘(5) SPECIAL RULE FOR CERTAIN HOLDINGS

2 OF TYPE III SUPPORTING ORGANIZATIONS.—For

3 purposes of this subsection, the term ‘excess busi4 ness holdings’ shall not include any holdings of a

5 type III supporting organization (as defined in sec6 tion 4959(h)(2)) in any business enterprise if the

7 holdings are held for the benefit of the community

8 pursuant to the direction of a State attorney general

9 or a State official with jurisdiction over the type III

10 supporting organization.

11 ‘‘(6) PRESENT HOLDINGS.—For purposes of

12 this subsection, rules similar to the rules of para13 graphs (4), (5), and (6) of subsection (c) shall apply

14 to organizations described in section 509(a)(3), ex15 cept that—

16 ‘‘(A) ‘the date of the enactment of this

17 subsection’ shall be substituted for ‘May 26,

18 1969’ each place it appears in paragraphs (4),

19 (5), and (6), and

20 ‘‘(B) ‘January 1, 2007’ shall be sub21 stituted for ‘January 1, 1970’ in paragraph

22 (4)(E).’’.

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

24 this section shall apply to taxable years beginning after

25 the date of the enactment of this Act.
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1 SEC. 345. TREATMENT OF AMOUNTS PAID TO SUPPORTING

2 ORGANIZATIONS BY PRIVATE FOUNDATIONS.

3 (a) QUALIFYING DISTRIBUTIONS.—Paragraph (4) of

4 section 4942(g) is amended to read as follows:

5 ‘‘(4) LIMITATION ON DISTRIBUTIONS BY NON6 OPERATING PRIVATE FOUNDATIONS TO SUPPORTING

7 ORGANIZATIONS.—For purposes of this section, the

8 term ‘qualifying distribution’ shall not include any

9 amount paid by a private foundation which is not an

10 operating foundation to an organization described in

11 section 509(a)(3).’’.

12 (b) TAXABLE EXPENDITURES.—

13 (1) IN GENERAL.—Subsection (d) of section

14 4945 is amended by redesignating paragraphs (4)

15 and (5) as paragraphs (5) and (6), respectively, and

16 by inserting after paragraph (3) the following new

17 paragraph:

18 ‘‘(4) to an organization described in section

19 509(a)(3),’’.

20 (2) CONFORMING AMENDMENTS.—

21 (A) Section 4945(d)(5), as redesignated by

22 subparagraph (A), is amended—

23 (i) by striking ‘‘a grant to an organi24 zation’’ and inserting ‘‘a grant to any

25 other organization’’, and
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1 (ii) by striking ‘‘paragraph (1), (2), or

2 (3) of section 509(a)’’ in subparagraph (A)

3 and inserting ‘‘paragraph (1) or (2) of sec4 tion 509(a)’’.

5 (B) Section 4945(f) is amended by striking

6 ‘‘Subsection (d)(4)’’ in the last sentence thereof

7 and inserting ‘‘Subsection (d)(5)’’.

8 (C) Section 4945(h) is amended by strik9 ing ‘‘subsection (d)(4)’’ and inserting ‘‘sub10 section (d)(5)’’.

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

12 this section shall apply to distributions and expenditures

13 after the date of the enactment of this Act.

14 SEC. 346. RETURNS OF SUPPORTING ORGANIZATIONS.

15 (a) REQUIREMENT TO FILE RETURN.—Subpara16 graph (B) of section 6033(a)(3), as redesignated by sec17 tion 311, is amended by inserting ‘‘(other than an organi18 zation described in section 509(a)(3))’’ after ‘‘paragraph

19 (1)’’.

20 (b) MATTERS INCLUDED ON RETURNS.—Section

21 6033, as amended by section 334 of this Act, is amended

22 by redesignating subsection (i) as subsection (j) and by

23 inserting after subsection (h) the following new subsection:

24 ‘‘(i) ADDITIONAL PROVISIONS RELATING TO SUP25 PORTING ORGANIZATIONS.—
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1 ‘‘(1) IN GENERAL.—Every organization de2 scribed in section 509(a)(3) shall, on the return re3 quired under subsection (a)—

4 ‘‘(A) list the organizations described in

5 section 509(a)(3)(A) with respect to which such

6 organization provides support,

7 ‘‘(B) indicate whether the organization

8 meets the requirements of clause (i), (ii), or (iii)

9 of section 509(a)(3)(B), and

10 ‘‘(C) certify that the organization meets

11 the requirements of section 509(a)(3)(C).

12 ‘‘(2) TYPE III SUPPORTING ORGANIZATIONS.—

13 Every type III supporting organization (as defined

14 in section 4959(h)(2)) shall indicate on the return

15 required under subsection (a) for the taxable year

16 whether the organization has received a letter from

17 each supported organization (as defined in section

18 509(f)(3)) during the taxable year which—

19 ‘‘(A) acknowledges that the supporting or20 ganization has designated such organization as

21 a supported organization,

22 ‘‘(B) details the type of support provided

23 by the supporting organization, and
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1 ‘‘(C) explains how such support furthers

2 the charitable purpose of the supported organi3 zation.’’.

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

5 this section shall apply to returns filed for taxable years

6 ending after the date of the enactment of this Act.

7 TITLE IV—MISCELLANEOUS

8 PROVISIONS

9 SEC. 401. RESTRUCTURING OF NEW YORK LIBERTY ZONE

10 TAX CREDITS.

11 (a) IN GENERAL.—Subchapter Y of chapter 1 is

12 amended by adding at the end the following new section:

13 ‘‘SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

14 ‘‘(a) IN GENERAL.—There shall be allowed as a cred15 it against any taxes imposed by this title (other than by

16 section 3111(a), section 3403, or subtitle D) paid or in17 curred by any governmental unit of the State of New York

18 and the City of New York, New York (including any agen19 cy or instrumentality thereof) for any calendar year an

20 amount equal to the lesser of—

21 ‘‘(1) the total expenditures during such year by

22 such governmental unit for qualifying projects, or

23 ‘‘(2) the amount allocated to such governmental

24 unit for such calendar year under subsection (b)(2).
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1 ‘‘(b) QUALIFYING PROJECT.—For purposes of this

2 section—

3 ‘‘(1) IN GENERAL.—The term ‘qualifying

4 project’ means any transportation infrastructure

5 project, including highways, mass transit systems,

6 railroads, airports, ports, and waterways, in or con7 necting with the New York Liberty Zone (as defined

8 in section 1400L(h)), which is designated as a quali9 fying project under this section jointly by the Gov10 ernor of the State of New York and the Mayor of

11 the City of New York, New York.

12 ‘‘(2) DOLLAR LIMITATION.—

13 ‘‘(A) IN GENERAL.—The Governor of the

14 State of New York and the Mayor of the City

15 of New York, New York, shall jointly allocate to

16 a governmental unit the amount of expenditures

17 which may be taken into account under sub18 section (a) for any calendar year in the credit

19 period with respect to a qualifying project.

20 ‘‘(B) AGGREGATE LIMIT.—The aggregate

21 amount which may be allocated under subpara22 graph (A) for all calendar years in the credit

23 period shall not exceed $2,000,000,000.

24 ‘‘(C) ANNUAL LIMIT.—The aggregate

25 amount which may be allocated under subpara-
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1 graph (A) for any calendar year in the credit

2 period shall not exceed the sum of—

3 ‘‘(i) $200,000,000, plus

4 ‘‘(ii) the aggregate amount authorized

5 to be allocated under this paragraph for all

6 preceding calendar years in the credit pe7 riod which was not so allocated.

8 ‘‘(D) UNALLOCATED AMOUNTS AT END OF

9 CREDIT PERIOD.—If, as of the close of the cred10 it period, the amount under subparagraph (B)

11 exceeds the aggregate amount allocated under

12 subparagraph (A) for all calendar years in the

13 credit period, the Governor of the State of New

14 York and the Mayor of the City of New York,

15 New York, may jointly allocate for any calendar

16 year following the credit period for expenditures

17 with respect to qualifying projects which may

18 be taken into account under subsection (a) an

19 amount equal to such excess, reduced by the

20 aggregate amount allocated under this subpara21 graph for all preceding calendar years.

22 ‘‘(c) CARRYOVER OF UNUSED ALLOCATIONS.—

23 ‘‘(1) IN GENERAL.—If the amount allocated

24 under subsection (b)(2) to a governmental unit for

25 any calendar year exceeds the total expenditures for
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1 such year by such governmental unit for qualifying

2 projects, the allocation of such governmental unit for

3 the succeeding calendar year shall be increased by

4 the amount of such excess.

5 ‘‘(2) REALLOCATION.—If a governmental unit

6 does not use an amount allocated to it under sub7 section (b)(2) within the time prescribed by the Gov8 ernor of the State of New York and the Mayor of

9 the City of New York, New York, then such amount

10 shall after such time be treated for purposes of sub11 section (b)(2) in the same manner as if it had never

12 been allocated.

13 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section—

15 ‘‘(1) CREDIT PERIOD.—The term ‘credit period’

16 means the 10-year period beginning on January 1,

17 2006.

18 ‘‘(2) TREATMENT OF FUNDS.—Any expenditure

19 for a qualifying project taken into account for pur20 poses of the credit under this section shall be consid21 ered State and local funds for the purpose of any

22 Federal program.

23 ‘‘(e) REGULATIONS.—The Secretary may prescribe

24 such regulations as are necessary to ensure compliance

25 with the purposes of this section.’’.
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1 (b) TERMINATION OF CERTAIN NEW YORK LIBERTY

2 ZONE BENEFITS.—

3 (1) SPECIAL ALLOWANCE AND EXPENSING.—

4 Section 1400L(b)(2)(A)(v) is amended by striking

5 ‘‘the termination date’’ and inserting ‘‘the date of

6 the enactment of the Tax Relief Act of 2005 or the

7 termination date if pursuant to a binding contract in

8 effect on such enactment date’’.

9 (2) LEASEHOLD.—Section 1400L(c)(2)(B) is

10 amended by striking ‘‘before January 1, 2007’’ and

11 inserting ‘‘on or before the date of the enactment of

12 the Tax Relief Act of 2005 or before January 1,

13 2007, if pursuant to a binding contract in effect on

14 such enactment date’’.

15 SEC. 402. MODIFICATION TO S CORPORATION PASSIVE IN16 VESTMENT INCOME RULES.

17 (a) INCREASED PERCENTAGE LIMIT.—Paragraph (2)

18 of section 1375(a) is amended by striking ‘‘25 percent’’

19 and inserting ‘‘60 percent’’.

20 (b) REPEAL OF EXCESSIVE PASSIVE INCOME AS A

21 TERMINATION EVENT.—

22 (1) IN GENERAL.—Section 1362(d) is amended

23 by striking paragraph (3).

24 (2) CONFORMING AMENDMENT.—Subsection (b)

25 of section 1375 is amended by striking paragraphs
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1 (3) and (4) and inserting the following new para2 graph:

3 ‘‘(3) PASSIVE INVESTMENT INCOME DE4 FINED.—

5 ‘‘(A) Except as otherwise provided in this

6 paragraph, the term ‘passive investment in7 come’ means gross receipts derived from royal8 ties, rents, dividends, interest, and annuities.

9 ‘‘(B) EXCEPTION FOR INTEREST ON

10 NOTES FROM SALES OF INVENTORY.—The term

11 ‘passive investment income’ shall not include in12 terest on any obligation acquired in the ordi13 nary course of the corporation’s trade or busi14 ness from its sale of property described in sec15 tion 1221(a)(1).

16 ‘‘(C) TREATMENT OF CERTAIN LENDING

17 OR FINANCE COMPANIES.—If the S corporation

18 meets the requirements of section 542(c)(6) for

19 the taxable year, the term ‘passive investment

20 income’ shall not include gross receipts for the

21 taxable year which are derived directly from the

22 active and regular conduct of a lending or fi23 nance business (as defined in section

24 542(d)(1)).
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1 ‘‘(D) TREATMENT OF CERTAIN DIVI2 DENDS.—If an S corporation holds stock in a

3 C corporation meeting the requirements of sec4 tion 1504(a)(2), the term ‘passive investment

5 income’ shall not include dividends from such C

6 corporation to the extent such dividends are at7 tributable to the earnings and profits of such C

8 corporation derived from the active conduct of

9 a trade or business.

10 ‘‘(E) EXCEPTION FOR BANKS, ETC.—In

11 the case of a bank (as defined in section 581),

12 a bank holding company (within the meaning of

13 section 2(a) of the Bank Holding Company Act

14 of 1956 (12 U.S.C. 1841(a))), or a financial

15 holding company (within the meaning of section

16 2(p) of such Act), the term ‘passive investment

17 income’ shall not include—

18 ‘‘(i) interest income earned by such

19 bank or company, or

20 ‘‘(ii) dividends on assets required to

21 be held by such bank or company, includ22 ing stock in the Federal Reserve Bank, the

23 Federal Home Loan Bank, or the Federal

24 Agricultural Mortgage Bank or participa-
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1 tion certificates issued by a Federal Inter2 mediate Credit Bank.

3 ‘‘(F) COORDINATION WITH SECTION

4 1374.—The amount of passive investment in5 come shall be determined by not taking into ac6 count any recognized built-in gain or loss of the

7 S corporation for any taxable year in the rec8 ognition period. Terms used in the preceding

9 sentence shall have the same respective mean10 ings as when used in section 1374.’’.

11 (c) CONFORMING AMENDMENTS.—

12 (1) Subparagraph (J) of section 26(b)(2) is

13 amended by striking ‘‘25 percent’’ and inserting ‘‘60

14 percent’’.

15 (2) Clause (i) of section 1042(c)(4)(A) is

16 amended by striking ‘‘section 1362(d)(3)(C)’’ and

17 inserting ‘‘section 1375(b)(3)’’.

18 (3) Subparagraph (B) of section 1362(f)(1) is

19 amended by striking ‘‘or (3)’’.

20 (4) Clause (i) of section 1375(b)(1)(A) is

21 amended by striking ‘‘25 percent’’ and inserting ‘‘60

22 percent’’.

23 (5) Subsection (d) of section 1375 is amended

24 by striking ‘‘subchapter C’’ both places it appears

25 and inserting ‘‘accumulated’’.
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1 (6) The heading for section 1375 is amended by

2 striking ‘‘25 PERCENT’’ and inserting ‘‘60 PER3 CENT’’.

4 (7) The item relating to section 1375 in the

5 table of sections for part III of subchapter S of

6 chapter 1 is amended by striking ‘‘25 percent’’ and

7 inserting ‘‘60 percent’’.

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

9 this section shall apply to taxable years beginning after

10 December 31, 2005.

11 SEC. 403. MODIFICATION OF EFFECTIVE DATE OF DIS12 REGARD OF CERTAIN CAPITAL EXPENDI13 TURES FOR PURPOSES OF QUALIFIED SMALL

14 ISSUE BONDS.

15 (a) IN GENERAL.—Section 144(a)(4)(G) is amended

16 by striking ‘‘September 30, 2009’’ and inserting ‘‘Decem17 ber 31, 2006’’.

18 (b) CONFORMING AMENDMENT.—Section

19 144(a)(4)(F) is amended by striking ‘‘September 30,

20 2009’’ and inserting ‘‘December 31, 2006’’.

21 SEC. 404. PREMIUMS FOR MORTGAGE INSURANCE.

22 (a) IN GENERAL.—Section 163(h)(3) (relating to

23 qualified residence interest) is amended by adding at the

24 end the following new subparagraph:
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1 ‘‘(E) MORTGAGE INSURANCE PREMIUMS

2 TREATED AS INTEREST.—

3 ‘‘(i) IN GENERAL.—Premiums paid or

4 accrued for qualified mortgage insurance

5 by a taxpayer during the taxable year in

6 connection with acquisition indebtedness

7 with respect to a qualified residence of the

8 taxpayer shall be treated for purposes of

9 this section as interest which is qualified

10 residence interest.

11 ‘‘(ii) PHASEOUT.—The amount other12 wise treated as interest under clause (i)

13 shall be reduced (but not below zero) by 10

14 percent of such amount for each $1,000

15 ($500 in the case of a married individual

16 filing a separate return) (or fraction there17 of) that the taxpayer’s adjusted gross in18 come for the taxable year exceeds

19 $100,000 ($50,000 in the case of a mar20 ried individual filing a separate return).’’.

21 (b) DEFINITION AND SPECIAL RULES.—Section

22 163(h)(4) (relating to other definitions and special rules)

23 is amended by adding at the end the following new sub24 paragraphs:
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1 ‘‘(E) QUALIFIED MORTGAGE INSUR2 ANCE.—The term ‘qualified mortgage insur3 ance’ means—

4 ‘‘(i) mortgage insurance provided by

5 the Veterans Administration, the Federal

6 Housing Administration, or the Rural

7 Housing Administration, and

8 ‘‘(ii) private mortgage insurance (as

9 defined by section 2 of the Homeowners

10 Protection Act of 1998 (12 U.S.C. 4901),

11 as in effect on the date of the enactment

12 of this subparagraph).

13 ‘‘(F) SPECIAL RULES FOR PREPAID QUALI14 FIED MORTGAGE INSURANCE.—Any amount

15 paid by the taxpayer for qualified mortgage in16 surance that is properly allocable to any mort17 gage the payment of which extends to periods

18 that are after the close of the taxable year in

19 which such amount is paid shall be chargeable

20 to capital account and shall be treated as paid

21 in such periods to which so allocated. No deduc22 tion shall be allowed for the unamortized bal23 ance of such account if such mortgage is satis24 fied before the end of its term. The preceding

25 sentences shall not apply to amounts paid for
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1 qualified mortgage insurance provided by the

2 Veterans Administration or the Rural Housing

3 Administration.’’.

4 (c) INFORMATION RETURNS RELATING TO MORT5 GAGE INSURANCE.—Section 6050H (relating to returns

6 relating to mortgage interest received in trade or business

7 from individuals) is amended by adding at the end the fol8 lowing new subsection:

9 ‘‘(h) RETURNS RELATING TO MORTGAGE INSURANCE

10 PREMIUMS.—

11 ‘‘(1) IN GENERAL.—The Secretary may pre12 scribe, by regulations, that any person who, in the

13 course of a trade or business, receives from any indi14 vidual premiums for mortgage insurance aggregating

15 $600 or more for any calendar year, shall make a

16 return with respect to each such individual. Such re17 turn shall be in such form, shall be made at such

18 time, and shall contain such information as the Sec19 retary may prescribe.

20 ‘‘(2) STATEMENT TO BE FURNISHED TO INDI21 VIDUALS WITH RESPECT TO WHOM INFORMATION IS

22 REQUIRED.—Every person required to make a re23 turn under paragraph (1) shall furnish to each indi24 vidual with respect to whom a return is made a writ25 ten statement showing such information as the Sec-
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1 retary may prescribe. Such written statement shall

2 be furnished on or before January 31 of the year

3 following the calendar year for which the return

4 under paragraph (1) was required to be made.

5 ‘‘(3) SPECIAL RULES.—For purposes of this

6 subsection—

7 ‘‘(A) rules similar to the rules of sub8 section (c) shall apply, and

9 ‘‘(B) the term ‘mortgage insurance’

10 means—

11 ‘‘(i) mortgage insurance provided by

12 the Veterans Administration, the Federal

13 Housing Administration, or the Rural

14 Housing Administration, and

15 ‘‘(ii) private mortgage insurance (as

16 defined by section 2 of the Homeowners

17 Protection Act of 1998 (12 U.S.C. 4901),

18 as in effect on the date of the enactment

19 of this subsection).’’.

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

21 this section shall apply to amounts paid or accrued during

22 the period beginning after December 31, 2006, and before

23 January 1, 2008, and properly allocable to such period,

24 with respect to mortgage insurance contracts issued after

25 December 31, 2006.
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1 SEC. 405. SENSE OF THE SENATE ON USE OF NO-BID CON2 TRACTING BY FEDERAL EMERGENCY MAN3 AGEMENT AGENCY.

4 (a) FINDINGS.—The Senate finds that—

5 (1) on September 8, 2005, the Federal Emer6 gency Management Agency announced that it had

7 awarded 4 contracts for emergency housing relief

8 following Hurricane Katrina to The Shaw Group of

9 Baton Rouge, Louisiana, Fluor Corporation of Aliso

10 Viejo, California, Bechtel National of San Francisco,

11 California, and CH2M Hill of Denver, Colorado;

12 (2) these contracts were awarded with no com13 petition from other capable firms, and up to

14 $100,000,000 in taxpayer funds were authorized for

15 each of these contracts;

16 (3) in the midst of concerns about abusive and

17 irresponsible spending of taxpayer funds, the Fed18 eral Emergency Management Agency pledged to re19 bid these noncompetitive contracts, with Acting

20 Under Secretary of Emergency Preparedness and

21 Response, R. David Paulison, stating before the

22 Committee on Homeland Security and Government

23 Affairs of the Senate that ‘‘[a]ll of these no-bid con24 tracts, we are going to go back and re-bid’’;

25 (4) the Federal Emergency Management Agen26 cy has yet to reopen these 4 contracts to competitive
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1 bidding, and declared on November 11, 2005, that

2 these contracts would not be reopened for bidding

3 until February 2006;

4 (5) by February 2006, the majority of the con5 tracts will have been completed and the majority of

6 taxpayer funds will have been spent;

7 (6) large and politically-connected firms con8 tinue to benefit from no-bid and limited-competition

9 contracts, and contracts are not being awarded to

10 capable, local companies;

11 (7) according to an analysis in the Washington

12 Post, companies outside the States most affected by

13 Hurricane Katrina have received more than 90 per14 cent of the Federal contracts for recovery and recon15 struction;

16 (8) the monitoring of Federal contracting prac17 tices remains difficult, with a report by the San Jose

18 Mercury News stating ‘‘The database of contracts is

19 incomplete. Information released by Federal agencies

20 is spotty and sporadic. And disclosure of many no21 bid contracts isn’t required by law’’; and

22 (9)(A) there is currently no Chief Financial Of23 ficer charged with monitoring the flow of all funds

24 to the affected areas; and
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1 (B) the task of financial management is spread

2 across disparate Federal departments and agencies

3 with inadequate oversight of taxpayer funds.

4 (b) SENSE OF THE SENATE.—It is the sense of the

5 Senate that the Federal Emergency Management Agency

6 should—

7 (1) immediately rebid noncompetitive contracts

8 entered into following Hurricane Katrina, consistent

9 with the commitment of the Agency made on Octo10 ber 6, 2005, before millions of taxpayer dollars are

11 wasted on irresponsible and inefficient spending;

12 (2)(A) immediately implement the planned com13 petitive contracting strategy of the Agency for recov14 ery work in all current and future reconstruction ef15 forts; and

16 (B) in carrying out that strategy, should

17 prioritize local and small disadvantaged businesses

18 in the contracting and subcontracting process; and

19 (3) immediately after the awarding of a con20 tract, publicly disclose the amount and competitive

21 or noncompetitive nature of the contract.

22 SEC. 406. DISABILITY PREFERENCE PROGRAM FOR TAX

23 COLLECTION CONTRACTS.

24 (a) IN GENERAL.—The Secretary of the Treasury

25 shall not enter into any qualified tax collection contract
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1 after April 1, 2006, until the Secretary implements a dis2 ability preference program that meets the requirements of

3 subsection (b).

4 (b) DISABILITY PREFERENCE PROGRAM REQUIRE5 MENTS.—

6 (1) IN GENERAL.—A disability preference pro7 gram meets the requirements of this subsection if

8 such program requires that not less than 10 percent

9 of the accounts of each dollar value category are

10 awarded to persons described in paragraph (2).

11 (2) PERSON DESCRIBED.—For purposes of

12 paragraph (1), a person is described in this para13 graph if—

14 (A) as of the date any qualified tax collec15 tion contract is awarded—

16 (i) such person employs not less than

17 50 severely disabled individuals within the

18 United States; or

19 (ii) not less than 30 percent of the

20 employees of such person within the

21 United States are severely disabled individ22 uals;

23 (B) such person agrees as a condition of

24 the qualified tax collection contract that not

25 more than 90 days after the date such contract
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1 is awarded, not less than 35 percent of the em2 ployees of such person employed in connection

3 with providing services under such contract

4 shall—

5 (i) be hired after the date such con6 tract is awarded; and

7 (ii) be severely disabled individuals;

8 and

9 (C) such person is otherwise qualified to

10 perform the services required.

11 (c) DEFINITIONS.—For purposes of this section—

12 (1) QUALIFIED TAX COLLECTION CONTRACT.—

13 The term ‘‘qualified tax collection contract’’ shall

14 have the meaning given such term under section

15 6306(b) of the Internal Revenue Code of 1986.

16 (2) DOLLAR VALUE CATEGORY.—The term

17 ‘‘dollar value category’’ means the dollar ranges of

18 accounts for collection as determined and assigned

19 by the Secretary under section 6306(b)(1)(B) of the

20 Internal Revenue Code of 1986 with respect to a

21 qualified tax collection contract.

22 (3) SEVERELY DISABLED INDIVIDUAL.—The

23 term ‘‘severely disabled individual’’ means—
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1 (A) a veteran of the United States armed

2 forces with a disability of 50 percent or

3 greater—

4 (i) determined by the Secretary of

5 Veterans Affairs to be service-connected; or

6 (ii) deemed by law to be service-con7 nected; or

8 (B) any individual who is a disabled bene9 ficiary (as defined in section 1148(k)(2) of the

10 Social Security Act (42 U.S.C. 1320b–

11 19(k)(2))) or who would be considered to be

12 such a disabled beneficiary but for having in13 come or resources in excess of the income or re14 sources eligibility limits established under title

15 XVI of the Social Security Act (42 U.S.C. 1381

16 et seq.), respectively.

17 SEC. 407. SENSE OF CONGRESS REGARDING DOHA ROUND.

18 (a) FINDINGS.—The Congress makes the following

19 findings:

20 (1) Members of the World Trade Organization

21 (WTO) are currently engaged in a round of trade

22 negotiations known as the Doha Development Agen23 da (Doha Round).

24 (2) The Doha Round includes negotiations

25 aimed at clarifying and improving disciplines under
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1 the Agreement on Implementation of Article VI of

2 the General Agreement on Tariffs and Trade 1994

3 (Antidumping Agreement) and the Agreement on

4 Subsidies and Countervailing Measures (Subsidies

5 Agreement).

6 (3) The WTO Ministerial Declaration adopted

7 on November 14, 2001 (WTO Paper No. WT/

8 MIN(01)/DEC/1) specifically provides that the Doha

9 Round negotiations are to preserve the ‘‘basic con10 cepts, principles and effectiveness’’ of the Anti11 dumping Agreement and the Subsidies Agreement.

12 (4) In section 2102(b)(14)(A) of the Bipartisan

13 Trade Promotion Authority Act of 2002, the Con14 gress mandated that the principal negotiating objec15 tive of the United States with respect to trade rem16 edy laws was to ‘‘preserve the ability of the United

17 States to enforce rigorously its trade laws . . . and

18 avoid agreements that lessen the effectiveness of do19 mestic and international disciplines on unfair trade,

20 especially dumping and subsidies’’.

21 (5) The countries that have been the most per22 sistent and egregious violators of international fair

23 trade rules are engaged in an aggressive effort to

24 significantly weaken the disciplines provided in the

25 Antidumping Agreement and the Subsidies Agree-
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1 ment and undermine the ability of the United States

2 to effectively enforce its trade remedy laws.

3 (6) Chronic violators of fair trade disciplines

4 have put forward proposals that would substantially

5 weaken United States trade remedy laws and prac6 tices, including mandating that unfair trade orders

7 terminate after a set number of years even if unfair

8 trade and injury are likely to recur, mandating that

9 trade remedy duties reflect less than the full margin

10 of dumping or subsidization, mandating higher de

11 minimis levels of unfair trade, making cumulation of

12 the effects of imports from multiple countries more

13 difficult in unfair trade investigations, outlawing the

14 critical practice of ‘‘zeroing’’ in antidumping inves15 tigations, mandating the weighing of causes, and

16 mandating other provisions that make it more dif17 ficult to prove injury.

18 (7) United States trade remedy laws have al19 ready been significantly weakened by numerous un20 just and activist WTO dispute settlement decisions

21 which have created new obligations to which the

22 United States never agreed.

23 (8) Trade remedy laws remain a critical re24 source for American manufacturers, agricultural

25 producers, and aquacultural producers in responding
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1 to closed foreign markets, subsidized imports, and

2 other forms of unfair trade, particularly in the con3 text of the challenges currently faced by these vital

4 sectors of the United States economy.

5 (9) The United States had a current account

6 trade deficit of approximately $668,000,000,000 in

7 2004, including a trade deficit of almost

8 $162,000,000,000 with China alone, as well as a

9 trade deficit of $40,000,000,000 in advanced tech10 nology.

11 (10) United States manufacturers have lost

12 over 3,000,000 jobs since June 2000, and United

13 States manufacturing employment is currently at its

14 lowest level since 1950.

15 (11) Many industries critical to United States

16 national security are at severe risk from unfair for17 eign competition.

18 (12) The Congress strongly believes that the

19 proposals put forward by countries seeking to under20 mine trade remedy disciplines in the Doha Round

21 would result in serious harm to the United States

22 economy, including significant job losses and trade

23 disadvantages.

24 (b) SENSE OF CONGRESS.—It is the sense of Con25 gress that—
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1 (1) the United States should not be a signatory

2 to any agreement or protocol with respect to the

3 Doha Development Round of the World Trade Orga4 nization negotiations, or any other bilateral or multi5 lateral trade negotiations, that—

6 (A) adopts any proposal to lessen the effec7 tiveness of domestic and international dis8 ciplines on unfair trade or safeguard provisions,

9 including proposals—

10 (i) mandating that unfair trade orders

11 terminate after a set number of years even

12 if unfair trade and injury are likely to

13 recur;

14 (ii) mandating that trade remedy du15 ties reflect less than the full margin of

16 dumping or subsidization;

17 (iii) mandating higher de minimis lev18 els of unfair trade;

19 (iv) making cumulation of the effects

20 of imports from multiple countries more

21 difficult in unfair trade investigations;

22 (v) outlawing the critical practice of

23 ‘‘zeroing’’ in antidumping investigations; or
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1 (vi) mandating the weighing of causes

2 or other provisions making it more difficult

3 to prove injury in unfair trade cases; and

4 (B) would lessen in any manner the ability

5 of the United States to enforce rigorously its

6 trade laws, including the antidumping, counter7 vailing duty, and safeguard laws;

8 (2) the United States trade laws and inter9 national rules appropriately serve the public interest

10 by offsetting injurious unfair trade, and that further

11 ‘‘balancing modifications’’ or other similar provisions

12 are unnecessary and would add to the complexity

13 and difficulty of achieving relief against injurious

14 unfair trade practices; and

15 (3) the United States should ensure that any

16 new agreement relating to international disciplines

17 on unfair trade or safeguard provisions fully rectifies

18 and corrects decisions by WTO dispute settlement

19 panels or the Appellate Body that have unjustifiably

20 and negatively impacted, or threaten to negatively

21 impact, United States law or practice, including a

22 law or practice with respect to foreign dumping or

23 subsidization.
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1 SEC. 408. MODIFICATION OF BOND RULE.

2 In the case of bonds issued after the date of the en3 actment of this Act and before August 31, 2009—

4 (1) the requirement of paragraph (1) of section

5 648 of the Deficit Reduction Act of 1984 (98 Stat.

6 941) shall be treated as met with respect to the se7 curities or obligations referred to in such section if

8 such securities or obligations are held in a fund the

9 annual distributions from which cannot exceed 7

10 percent of the average fair market value of the as11 sets held in such fund except to the extent distribu12 tions are necessary to pay debt service on the bond

13 issue,

14 (2) paragraph (3) of such section shall be ap15 plied by substituting ‘‘distributions from’’ for ‘‘the

16 investment earnings of’’ both places it appears, and

17 (3) Paragraph (4) of such section shall be ap18 plied by substituting ‘‘March 1, 1985’’ for ‘‘October

19 9, 1969’’.

20 SEC. 409. TREATMENT OF CERTAIN STOCK OPTION PLANS

21 UNDER NONQUALIFIED DEFERRED COM22 PENSATION RULES.

23 (a) IN GENERAL.—The Secretary of the Treasury

24 shall modify the regulations under section 409A of the In25 ternal Revenue Code of 1986 to extend to applicable for26 eign option plans the exception under such section for in-
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1 centive stock options under section 422 of such Code and

2 options granted under an employee stock purchase plan

3 meeting the requirements of section 423 of such Code.

4 Such extension shall be subject to such terms and condi5 tions as may be prescribed in such regulations.

6 (b) APPLICABLE FOREIGN OPTION PLANS.—For

7 purposes of subsection (a)—

8 (1) IN GENERAL.—The term ‘‘applicable foreign

9 option plan’’ means a plan providing for the

10 issuance of employee stock options—

11 (A) which is established under the laws of

12 a foreign jurisdiction, and

13 (B) which, under such laws or the terms of

14 the plan (or both), is subject to requirements

15 substantially similar to the requirements under

16 section 422 or 423 of such Code.

17 (2) SUBSTANTIALLY SIMILAR.—A plan shall not

18 be treated as subject to substantially similar require19 ments under paragraph (1)(B) unless—

20 (A) the plan is required to cover substan21 tially all employees,

22 (B) in the case of an option under an em23 ployee stock purchase plan, the plan is required

24 to provide an option price which is not less than

25 the amount specified in section 423(b)(6) of
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1 such Code, except that such section shall be ap2 plied by substituting ‘‘80 percent’’ for ‘‘85 per3 cent’’ each place it appears,

4 (C) the plan is required to provide cov5 erage of individuals who, but for the exception

6 of the application of section 409A of such Code

7 by reason of this section, would be subject to

8 tax under such section with respect to the plan,

9 and

10 (D) the plan meets such other require11 ments as the Secretary of the Treasury pre12 scribes in the regulations under subsection (a).

13 SEC. 410. SENSE OF THE SENATE REGARDING THE DEDICA14 TION OF EXCESS FUNDS.

15 It is the sense of the Senate that any increases in

16 revenues to the Treasury as a result of this Act and the

17 amendments made by this Act that exceed the amounts

18 specified in the reconciliation instructions shall be dedi19 cated to the Low-Income Home Energy Assistance Pro20 gram, in an amount not to exceed the amount which is

21 $2,900,000,000 more than the funding levels established

22 for such Program for fiscal year 2005.
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1 TITLE V—REVENUE OFFSET

2 PROVISIONS

3 Subtitle A—Provisions Designed To

4 Curtail Tax Shelters

5 SEC. 501. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY

6 INCOME TAX RETURN PREPARER.

7 (a) STANDARDS CONFORMED TO TAXPAYER STAND8 ARDS.—Section 6694(a) (relating to understatements due

9 to unrealistic positions) is amended—

10 (1) by striking ‘‘realistic possibility of being

11 sustained on its merits’’ in paragraph (1) and in12 serting ‘‘reasonable belief that the tax treatment in

13 such position was more likely than not the proper

14 treatment’’,

15 (2) by striking ‘‘or was frivolous’’ in paragraph

16 (3) and inserting ‘‘or there was no reasonable basis

17 for the tax treatment of such position’’, and

18 (3) by striking ‘‘UNREALISTIC’’ in the heading

19 and inserting ‘‘IMPROPER’’.

20 (b) AMOUNT OF PENALTY.—Section 6694 is

21 amended—

22 (1) by striking ‘‘$250’’ in subsection (a) and in23 serting ‘‘$1,000’’, and

24 (2) by striking ‘‘$1,000’’ in subsection (b) and

25 inserting ‘‘$5,000’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to documents prepared after the

3 date of the enactment of this Act.

4 SEC. 502. MODIFICATION OF EFFECTIVE DATE OF EXCEP5 TION FROM SUSPENSION RULES FOR CER6 TAIN LISTED AND REPORTABLE TRANS7 ACTIONS.

8 (a) EFFECTIVE DATE MODIFICATION.—

9 (1) IN GENERAL.—Paragraph (2) of section

10 903(d) of the American Jobs Creation Act of 2004

11 is amended to read as follows:

12 ‘‘(2) EXCEPTION FOR REPORTABLE OR LISTED

13 TRANSACTIONS.—

14 ‘‘(A) IN GENERAL.—The amendments

15 made by subsection (c) shall apply with respect

16 to interest accruing after October 3, 2004.

17 ‘‘(B) SPECIAL RULE FOR CERTAIN LISTED

18 AND REPORTABLE TRANSACTIONS.—

19 ‘‘(i) IN GENERAL.—Except as pro20 vided in clause (ii), the amendments made

21 by subsection (c) shall also apply with re22 spect to interest accruing on or before Oc23 tober 3, 2004.

24 ‘‘(ii) PARTICIPANTS IN SETTLEMENT

25 INITIATIVES.—Clause (i) shall not apply to
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1 any transaction if, as of January 23,

2 2006—

3 ‘‘(I) the taxpayer is participating

4 in a settlement initiative described in

5 Internal Revenue Service Announce6 ment 2005–80 with respect to such

7 transaction, or

8 ‘‘(II) the taxpayer has entered

9 into a settlement agreement pursuant

10 to such an initiative.

11 ‘‘(iii) TERMINATION OF EXCEPTION.—

12 Clause (ii)(I) shall not apply to any tax13 payer if, after January 23, 2006, the tax14 payer withdraws from, or terminates, par15 ticipation in the initiative or the Secretary

16 of the Treasury or the Secretary’s delegate

17 determines that a settlement agreement

18 will not be reached pursuant to the initia19 tive within a reasonable period of time.’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by this subsection shall take effect as if included in

22 the provisions of the American Jobs Creation Act of

23 2004 to which it relates.

24 (b) TREATMENT OF AMENDED RETURNS AND

25 OTHER SIMILAR NOTICES OF ADDITIONAL TAX OWED.—
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1 (1) IN GENERAL.—Section 6404(g)(1) (relating

2 to suspension) is amended by adding at the end the

3 following new sentence: ‘‘If, after the return for a

4 taxable year is filed, the taxpayer provides to the

5 Secretary one or more signed written documents

6 showing that the taxpayer owes an additional

7 amount of tax for the taxable year, clause (i) shall

8 be applied by substituting the date the last of the

9 documents was provided for the date on which the

10 return is filed.’’.

11 (2) EFFECTIVE DATE.—The amendment made

12 by this subsection shall apply to documents provided

13 on or after the date of the enactment of this Act.

14 SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

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

16 read as follows:

17 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

18 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE19 TURNS.—A person shall pay a penalty of $5,000 if—

20 ‘‘(1) such person files what purports to be a re21 turn of a tax imposed by this title but which—

22 ‘‘(A) does not contain information on

23 which the substantial correctness of the self-as24 sessment may be judged, or
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1 ‘‘(B) contains information that on its face

2 indicates that the self-assessment is substan3 tially incorrect; and

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

5 ‘‘(A) is based on a position which the Sec6 retary has identified as frivolous under sub7 section (c), or

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

9 the administration of Federal tax laws.

10 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS

11 SUBMISSIONS.—

12 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro13 vided in paragraph (3), any person who submits a

14 specified frivolous submission shall pay a penalty of

15 $5,000.

16 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For

17 purposes of this section—

18 ‘‘(A) SPECIFIED FRIVOLOUS SUBMIS19 SION.—The term ‘specified frivolous submis20 sion’ means a specified submission if any por21 tion of such submission—

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

23 Secretary has identified as frivolous under

24 subsection (c), or
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1 ‘‘(ii) reflects a desire to delay or im2 pede the administration of Federal tax

3 laws.

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

5 ‘specified submission’ means—

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

7 ‘‘(I) section 6320 (relating to no8 tice and opportunity for hearing upon

9 filing of notice of lien), or

10 ‘‘(II) section 6330 (relating to

11 notice and opportunity for hearing be12 fore levy), and

13 ‘‘(ii) an application under—

14 ‘‘(I) section 6159 (relating to

15 agreements for payment of tax liabil16 ity in installments),

17 ‘‘(II) section 7122 (relating to

18 compromises), or

19 ‘‘(III) section 7811 (relating to

20 taxpayer assistance orders).

21 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS22 SION.—If the Secretary provides a person with no23 tice that a submission is a specified frivolous sub24 mission and such person withdraws such submission

25 within 30 days after such notice, the penalty im-
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1 posed under paragraph (1) shall not apply with re2 spect to such submission.

3 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec4 retary shall prescribe (and periodically revise) a list of po5 sitions which the Secretary has identified as being frivo6 lous for purposes of this subsection. The Secretary shall

7 not include in such list any position that the Secretary

8 determines meets the requirement of section

9 6662(d)(2)(B)(ii)(II).

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

11 reduce the amount of any penalty imposed under this sec12 tion if the Secretary determines that such reduction would

13 promote compliance with and administration of the Fed14 eral tax laws.

15 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN16 ALTIES.—The penalties imposed by this section shall be

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

18 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR

19 HEARINGS BEFORE LEVY.—

20 (1) FRIVOLOUS REQUESTS DISREGARDED.—

21 Section 6330 (relating to notice and opportunity for

22 hearing before levy) is amended by adding at the

23 end the following new subsection:

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

25 Notwithstanding any other provision of this section, if the
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1 Secretary determines that any portion of a request for a

2 hearing under this section or section 6320 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 (2) PRECLUSION FROM RAISING FRIVOLOUS

8 ISSUES AT HEARING.—Section 6330(c)(4) is

9 amended—

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

11 ‘‘(A)(i)’’;

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

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

14 first sentence and inserting ‘‘; or’’; and

15 (D) by inserting after subparagraph (A)(ii)

16 (as so redesignated) the following:

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

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

19 (3) STATEMENT OF GROUNDS.—Section

20 6330(b)(1) is amended by striking ‘‘under sub21 section (a)(3)(B)’’ and inserting ‘‘in writing under

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

23 requested hearing’’.
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1 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR

2 HEARINGS UPON FILING OF NOTICE OF LIEN.—Section

3 6320 is amended—

4 (1) in subsection (b)(1), by striking ‘‘under sub5 section (a)(3)(B)’’ and inserting ‘‘in writing under

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

7 requested hearing’’, and

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

9 inserting ‘‘(e), and (g)’’.

10 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

11 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE12 MENTS.—Section 7122 is amended by adding at the end

13 the following new subsection:

14 ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith15 standing any other provision of this section, if the Sec16 retary determines that any portion of an application for

17 an offer-in-compromise or installment agreement sub18 mitted under this section or section 6159 meets the re19 quirement of clause (i) or (ii) of section 6702(b)(2)(A),

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

21 never submitted and such portion shall not be subject to

22 any further administrative or judicial review.’’.

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

24 for part I of subchapter B of chapter 68 is amended by
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1 striking the item relating to section 6702 and inserting

2 the following new item:

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

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

4 this section shall apply to submissions made and issues

5 raised after the date on which the Secretary first pre6 scribes a list under section 6702(c) of the Internal Rev7 enue Code of 1986, as amended by subsection (a).

8 SEC. 504. PENALTY FOR PROMOTING ABUSIVE TAX SHEL9 TERS.

10 (a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL11 TERS.—Section 6700 (relating to promoting abusive tax

12 shelters, etc.) is amended—

13 (1) by redesignating subsections (b) and (c) as

14 subsections (d) and (e), respectively,

15 (2) by striking ‘‘a penalty’’ and all that follows

16 through the period in the first sentence of subsection

17 (a) and inserting ‘‘a penalty determined under sub18 section (b)’’, and

19 (3) by inserting after subsection (a) the fol20 lowing new subsections:

21 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN22 ALTY; LIABILITY FOR PENALTY.—

23 ‘‘(1) AMOUNT OF PENALTY.—The amount of

24 the penalty imposed by subsection (a) shall be 100

25 percent of the gross income derived (or to be de-
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1 rived) from such activity by the person or persons

2 subject to such penalty.

3 ‘‘(2) CALCULATION OF PENALTY.—The penalty

4 amount determined under paragraph (1) shall be

5 calculated with respect to each instance of an activ6 ity described in subsection (a), each instance in

7 which income was derived by the person or persons

8 subject to such penalty, and each person who par9 ticipated in such an activity.

10 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1

11 person is liable under subsection (a) with respect to

12 such activity, all such persons shall be jointly and

13 severally liable for the penalty under such sub14 section.

15 ‘‘(c) PENALTY NOT DEDUCTIBLE.—The payment of

16 any penalty imposed under this section or the payment

17 of any amount to settle or avoid the imposition of such

18 penalty shall not be considered an ordinary and necessary

19 expense in carrying on a trade or business for purposes

20 of this title and shall not be deductible by the person who

21 is subject to such penalty or who makes such payment.’’.

22 (b) CONFORMING AMENDMENT.—Section 6700(a) is

23 amended by striking the last sentence.

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

25 this section shall apply to the activities described in para-
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1 graphs (1) and (2) of section 6700(a) of the Internal Rev2 enue Code of 1986 and after the date of the enactment

3 of this Act.

4 SEC. 505. PENALTY FOR AIDING AND ABETTING THE UN5 DERSTATEMENT OF TAX LIABILITY.

6 (a) IN GENERAL.—Section 6701(a) (relating to impo7 sition of penalty) is amended—

8 (1) by inserting ‘‘, or tax liability reflected in,’’

9 after ‘‘the preparation or presentation of’’ in para10 graph (1),

11 (2) by inserting ‘‘aid, assistance, procurement,

12 or advice with respect to such’’ before ‘‘portion’’

13 both places it appears in paragraphs (2) and (3),

14 and

15 (3) by inserting ‘‘instance of aid, assistance,

16 procurement, or advice or each such’’ before ‘‘docu17 ment’’ in the matter following paragraph (3).

18 (b) AMOUNT OF PENALTY.—Subsection (b) of section

19 6701 (relating to penalties for aiding and abetting under20 statement of tax liability) is amended to read as follows:

21 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN22 ALTY; LIABILITY FOR PENALTY.—

23 ‘‘(1) AMOUNT OF PENALTY.—The amount of

24 the penalty imposed by subsection (a) shall be 100

25 percent of the gross income derived (or to be de-
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1 rived) from such aid, assistance, procurement, or ad2 vice provided by the person or persons subject to

3 such penalty.

4 ‘‘(2) CALCULATION OF PENALTY.—The penalty

5 amount determined under paragraph (1) shall be

6 calculated with respect to each instance of aid, as7 sistance, procurement, or advice described in sub8 section (a), each instance in which income was de9 rived by the person or persons subject to such pen10 alty, and each person who made such an understate11 ment of the liability for tax.

12 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1

13 person is liable under subsection (a) with respect to

14 providing such aid, assistance, procurement, or ad15 vice, all such persons shall be jointly and severally

16 liable for the penalty under such subsection.’’.

17 (c) PENALTY NOT DEDUCTIBLE.—Section 6701 is

18 amended by adding at the end the following new sub19 section:

20 ‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of

21 any penalty imposed under this section or the payment

22 of any amount to settle or avoid the imposition of such

23 penalty shall not be considered an ordinary and necessary

24 expense in carrying on a trade or business for purposes
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1 of this title and shall not be deductible by the person who

2 is subject to such penalty or who makes such payment.’’.

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

4 this section shall apply to the activities described in sec5 tion 6701(a) of the Internal Revenue Code of 1986 after

6 the date of the enactment of this Act.

7 Subtitle B—Economic Substance

8 Doctrine

9 SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOC10 TRINE.

11 (a) IN GENERAL.—Section 7701 is amended by re12 designating subsection (o) as subsection (p) and by insert13 ing after subsection (n) the following new subsection:

14 ‘‘(o) CLARIFICATION OF ECONOMIC SUBSTANCE

15 DOCTRINE; ETC.—

16 ‘‘(1) GENERAL RULES.—

17 ‘‘(A) IN GENERAL.—In any case in which

18 a court determines that the economic substance

19 doctrine is relevant for purposes of this title to

20 a transaction (or series of transactions), such

21 transaction (or series of transactions) shall have

22 economic substance only if the requirements of

23 this paragraph are met.

24 ‘‘(B) DEFINITION OF ECONOMIC SUB25 STANCE.—For purposes of subparagraph (A)—
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1 ‘‘(i) IN GENERAL.—A transaction has

2 economic substance only if—

3 ‘‘(I) the transaction changes in a

4 meaningful way (apart from Federal

5 tax effects) the taxpayer’s economic

6 position, and

7 ‘‘(II) the taxpayer has a substan8 tial nontax purpose for entering into

9 such transaction and the transaction

10 is a reasonable means of accom11 plishing such purpose.

12 In applying subclause (II), a purpose of

13 achieving a financial accounting benefit

14 shall not be taken into account in deter15 mining whether a transaction has a sub16 stantial nontax purpose if the origin of

17 such financial accounting benefit is a re18 duction of income tax.

19 ‘‘(ii) SPECIAL RULE WHERE TAX20 PAYER RELIES ON PROFIT POTENTIAL.—A

21 transaction shall not be treated as having

22 economic substance by reason of having a

23 potential for profit unless—

24 ‘‘(I) the present value of the rea25 sonably expected pre-tax profit from
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1 the transaction is substantial in rela2 tion to the present value of the ex3 pected net tax benefits that would be

4 allowed if the transaction were re5 spected, and

6 ‘‘(II) the reasonably expected

7 pre-tax profit from the transaction ex8 ceeds a risk-free rate of return.

9 ‘‘(C) TREATMENT OF FEES AND FOREIGN

10 TAXES.—Fees and other transaction expenses

11 and foreign taxes shall be taken into account as

12 expenses in determining pre-tax profit under

13 subparagraph (B)(ii).

14 ‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH

15 TAX-INDIFFERENT PARTIES.—

16 ‘‘(A) SPECIAL RULES FOR FINANCING

17 TRANSACTIONS.—The form of a transaction

18 which is in substance the borrowing of money

19 or the acquisition of financial capital directly or

20 indirectly from a tax-indifferent party shall not

21 be respected if the present value of the deduc22 tions to be claimed with respect to the trans23 action is substantially in excess of the present

24 value of the anticipated economic returns of the

25 person lending the money or providing the fi-
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1 nancial capital. A public offering shall be treat2 ed as a borrowing, or an acquisition of financial

3 capital, from a tax-indifferent party if it is rea4 sonably expected that at least 50 percent of the

5 offering will be placed with tax-indifferent par6 ties.

7 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

8 BASIS ADJUSTMENTS.—The form of a trans9 action with a tax-indifferent party shall not be

10 respected if—

11 ‘‘(i) it results in an allocation of in12 come or gain to the tax-indifferent party in

13 excess of such party’s economic income or

14 gain, or

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

16 or shifting of basis on account of over17 stating the income or gain of the tax-indif18 ferent party.

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

20 purposes of this subsection—

21 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—

22 The term ‘economic substance doctrine’ means

23 the common law doctrine under which tax bene24 fits under subtitle A with respect to a trans25 action are not allowable if the transaction does
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1 not have economic substance or lacks a business

2 purpose.

3 ‘‘(B) TAX-INDIFFERENT PARTY.—The

4 term ‘tax-indifferent party’ means any person

5 or entity not subject to tax imposed by subtitle

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

7 party with respect to a transaction if the items

8 taken into account with respect to the trans9 action have no substantial impact on such per10 son’s liability under subtitle A.

11 ‘‘(C) EXCEPTION FOR PERSONAL TRANS12 ACTIONS OF INDIVIDUALS.—In the case of an

13 individual, this subsection shall apply only to

14 transactions entered into in connection with a

15 trade or business or an activity engaged in for

16 the production of income.

17 ‘‘(D) TREATMENT OF LESSORS.—In apply18 ing paragraph (1)(B)(ii) to the lessor of tan19 gible property subject to a lease—

20 ‘‘(i) the expected net tax benefits with

21 respect to the leased property shall not in22 clude the benefits of—

23 ‘‘(I) depreciation,

24 ‘‘(II) any tax credit, or
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1 ‘‘(III) any other deduction as

2 provided in guidance by the Secretary,

3 and

4 ‘‘(ii) subclause (II) of paragraph

5 (1)(B)(ii) shall be disregarded in deter6 mining whether any of such benefits are al7 lowable.

8 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF9 FECTED.—Except as specifically provided in this

10 subsection, the provisions of this subsection shall not

11 be construed as altering or supplanting any other

12 rule of law, and the requirements of this subsection

13 shall be construed as being in addition to any such

14 other rule of law.

15 ‘‘(5) REGULATIONS.—The Secretary shall pre16 scribe such regulations as may be necessary or ap17 propriate to carry out the purposes of this sub18 section. Such regulations may include exemptions

19 from the application of this subsection.’’.

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

21 this section shall apply to transactions entered into after

22 the date of the enactment of this Act.
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1 SEC. 512. PENALTY FOR UNDERSTATEMENTS ATTRIB2 UTABLE TO TRANSACTIONS LACKING ECO3 NOMIC SUBSTANCE, ETC.

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

5 amended by inserting after section 6662A the following

6 new section:

7 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB8 UTABLE TO TRANSACTIONS LACKING ECO9 NOMIC SUBSTANCE, ETC.

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

11 noneconomic substance transaction understatement for

12 any taxable year, there shall be added to the tax an

13 amount equal to 40 percent of the amount of such under14 statement.

15 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

16 TRANSACTIONS.—Subsection (a) shall be applied by sub17 stituting ‘20 percent’ for ‘40 percent’ with respect to the

18 portion of any noneconomic substance transaction under19 statement with respect to which the relevant facts affect20 ing the tax treatment of the item are adequately disclosed

21 in the return or a statement attached to the return.

22 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN23 DERSTATEMENT.—For purposes of this section—

24 ‘‘(1) IN GENERAL.—The term ‘noneconomic

25 substance transaction understatement’ means any

26 amount which would be an understatement under
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1 section 6662A(b)(1) if section 6662A were applied

2 by taking into account items attributable to non3 economic substance transactions rather than items

4 to which section 6662A would apply without regard

5 to this paragraph.

6 ‘‘(2) NONECONOMIC SUBSTANCE TRANS7 ACTION.—The term ‘noneconomic substance trans8 action’ means any transaction if—

9 ‘‘(A) there is a lack of economic substance

10 (within the meaning of section 7701(o)(1)) for

11 the transaction giving rise to the claimed ben12 efit or the transaction was not respected under

13 section 7701(o)(2), or

14 ‘‘(B) the transaction fails to meet the re15 quirements of any similar rule of law.

16 ‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN17 ALTY.—

18 ‘‘(1) IN GENERAL.—If the 1st letter of pro19 posed deficiency which allows the taxpayer an oppor20 tunity for administrative review in the Internal Rev21 enue Service Office of Appeals has been sent with

22 respect to a penalty to which this section applies,

23 only the Commissioner of Internal Revenue may

24 compromise all or any portion of such penalty.
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1 ‘‘(2) APPLICABLE RULES.—The rules of para2 graphs (2) and (3) of section 6707A(d) shall apply

3 for purposes of paragraph (1).

4 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex5 cept as otherwise provided in this part, the penalty im6 posed by this section shall be in addition to any other pen7 alty imposed by this title.

8 ‘‘(f) CROSS REFERENCES.—

‘‘(1) For coordination of penalty with understatements

under section 6662 and other special rules, see section

6662A(e).

‘‘(2) For reporting of penalty imposed under this section

to the Securities and Exchange Commission, see section

6707A(e)’’.

9 (b) COORDINATION WITH OTHER UNDERSTATE10 MENTS AND PENALTIES.—

11 (1) The second sentence of section

12 6662(d)(2)(A) is amended by inserting ‘‘and without

13 regard to items with respect to which a penalty is

14 imposed by section 6662B’’ before the period at the

15 end.

16 (2) Subsection (e) of section 6662A is

17 amended—

18 (A) in paragraph (1), by inserting ‘‘and

19 noneconomic substance transaction understate20 ments’’ after ‘‘reportable transaction under21 statements’’ both places it appears,
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1 (B) in paragraph (2)(A), by inserting ‘‘and

2 a noneconomic substance transaction under3 statement’’ after ‘‘reportable transaction under4 statement’’,

5 (C) in paragraph (2)(B), by inserting

6 ‘‘6662B or’’ before ‘‘6663’’,

7 (D) in paragraph (2)(C)(i), by inserting

8 ‘‘or section 6662B’’ before the period at the

9 end,

10 (E) in paragraph (2)(C)(ii), by inserting

11 ‘‘and section 6662B’’ after ‘‘This section’’,

12 (F) in paragraph (3), by inserting ‘‘or non13 economic substance transaction understate14 ment’’ after ‘‘reportable transaction understate15 ment’’, and

16 (G) by adding at the end the following new

17 paragraph:

18 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

19 UNDERSTATEMENT.—For purposes of this sub20 section, the term ‘noneconomic substance trans21 action understatement’ has the meaning given such

22 term by section 6662B(c).’’.

23 (3) Subsection (e) of section 6707A is

24 amended—
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1 (A) by striking ‘‘or’’ at the end of subpara2 graph (B), and

3 (B) by striking subparagraph (C) and in4 serting the following new subparagraphs:

5 ‘‘(C) is required to pay a penalty under

6 section 6662B with respect to any noneconomic

7 substance transaction, or

8 ‘‘(D) is required to pay a penalty under

9 section 6662(h) with respect to any transaction

10 and would (but for section 6662A(e)(2)(C))

11 have been subject to penalty under section

12 6662A at a rate prescribed under section

13 6662A(c) or under section 6662B,’’.

14 (c) CLERICAL AMENDMENT.—The table of sections

15 for part II of subchapter A of chapter 68 is amended by

16 inserting after the item relating to section 6662A the fol17 lowing new item:

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking

economic substance, etc.’’.

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

19 this section shall apply to transactions entered into after

20 the date of the enactment of this Act.
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1 SEC. 513. DENIAL OF DEDUCTION FOR INTEREST ON UN2 DERPAYMENTS ATTRIBUTABLE TO NON3 ECONOMIC SUBSTANCE TRANSACTIONS.

4 (a) IN GENERAL.—Section 163(m) (relating to inter5 est on unpaid taxes attributable to nondisclosed reportable

6 transactions) is amended—

7 (1) by striking ‘‘attributable’’ and all that fol8 lows and inserting the following: ‘‘attributable to—

9 ‘‘(1) the portion of any reportable transaction

10 understatement (as defined in section 6662A(b))

11 with respect to which the requirement of section

12 6664(d)(2)(A) is not met, or

13 ‘‘(2) any noneconomic substance transaction

14 understatement (as defined in section 6662B(c)).’’,

15 and

16 (2) by inserting ‘‘AND NONECONOMIC SUB17 STANCE TRANSACTIONS’’ in the heading thereof

18 after ‘‘TRANSACTIONS’’.

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

20 this section shall apply to transactions after the date of

21 the enactment of this Act in taxable years ending after

22 such date.
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1 Subtitle C—Improvements in Effi2 ciency and Safeguards in Inter3 nal Revenue Service Collection

4 SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREE5 MENTS USING AUTOMATED WITHDRAWALS.

6 (a) IN GENERAL.—Section 6159 (relating to agree7 ments for payment of tax liability in installments) is

8 amended by redesignating subsection (e) as subsection (f)

9 and by inserting after subsection (d) the following:

10 ‘‘(e) WAIVER OF USER FEES FOR INSTALLMENT

11 AGREEMENTS USING AUTOMATED WITHDRAWALS.—In

12 the case of a taxpayer who enters into an installment

13 agreement in which automated installment payments are

14 agreed to, the Secretary shall waive the fee (if any) for

15 entering into the installment agreement.’’.

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

17 this section shall apply to agreements entered into on or

18 after the date which is 180 days after the date of the en19 actment of this Act.

20 SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

21 (a) IN GENERAL.—Section 6159(b)(4) (relating to

22 failure to pay an installment or any other tax liability

23 when due or to provide requested financial information)

24 is amended by striking ‘‘or’’ at the end of subparagraph

25 (B), by redesignating subparagraph (C) as subparagraph
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1 (E), and by inserting after subparagraph (B) the fol2 lowing:

3 ‘‘(C) to make a Federal tax deposit under

4 section 6302 at the time such deposit is re5 quired to be made,

6 ‘‘(D) to file a return of tax imposed under

7 this title by its due date (including extensions),

8 or’’.

9 (b) CONFORMING AMENDMENT.—The heading for

10 section 6159(b)(4) is amended by striking ‘‘FAILURE TO

11 PAY AN INSTALLMENT OR ANY OTHER TAX LIABILITY

12 WHEN DUE OR TO PROVIDE REQUESTED FINANCIAL IN13 FORMATION’’ and inserting ‘‘FAILURE TO MAKE PAY14 MENTS OR DEPOSITS OR FILE RETURNS WHEN DUE OR

15 TO PROVIDE REQUESTED FINANCIAL INFORMATION’’.

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

17 this section shall apply to failures occurring on or after

18 the date of the enactment of this Act.

19 SEC. 523. PARTIAL PAYMENTS REQUIRED WITH SUBMIS20 SION OF OFFERS-IN-COMPROMISE.

21 (a) IN GENERAL.—Section 7122 (relating to com22 promises), as amended by this Act, is amended by redesig23 nating subsections (c), (d), and (e) as subsections (d), (e),

24 and (f), respectively, and by inserting after subsection (b)

25 the following new subsection:
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1 ‘‘(c) RULES FOR SUBMISSION OF OFFERS-IN-COM2 PROMISE.—

3 ‘‘(1) PARTIAL PAYMENT REQUIRED WITH SUB4 MISSION.—

5 ‘‘(A) LUMP-SUM OFFERS.—

6 ‘‘(i) IN GENERAL.—The submission of

7 any lump-sum offer-in-compromise shall be

8 accompanied by the payment of 20 percent

9 of amount of such offer.

10 ‘‘(ii) LUMP-SUM OFFER-IN-COM11 PROMISE.—For purposes of this section,

12 the term ‘lump-sum offer-in-compromise’

13 means any offer of payments made in 5 or

14 fewer installments.

15 ‘‘(B) PERIODIC PAYMENT OFFERS.—The

16 submission of any periodic payment offer-in17 compromise shall be accompanied by the pay18 ment of the amount of the first proposed in19 stallment and each proposed installment due

20 during the period such offer is being evaluated

21 for acceptance and has not been rejected by the

22 Secretary. Any failure to make a payment re23 quired under the preceding sentence shall be

24 deemed a withdrawal of the offer-in-com25 promise.
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1 ‘‘(2) RULES OF APPLICATION.—

2 ‘‘(A) USE OF PAYMENT.—The application

3 of any payment made under this subsection to

4 the assessed tax or other amounts imposed

5 under this title with respect to such tax may be

6 specified by the taxpayer.

7 ‘‘(B) NO USER FEE IMPOSED.—Any user

8 fee which would otherwise be imposed under

9 this section shall not be imposed on any offer10 in-compromise accompanied by a payment re11 quired under this subsection.

12 ‘‘(C) WAIVER AUTHORITY.—The Secretary

13 may issue regulations waiving any payment re14 quired under paragraph (1) in a manner con15 sistent with the practices established in accord16 ance with the requirements under subsection

17 (d)(3).’’.

18 (b) ADDITIONAL RULES RELATING TO TREATMENT

19 OF OFFERS.—

20 (1) UNPROCESSABLE OFFER IF PAYMENT RE21 QUIREMENTS ARE NOT MET.—Paragraph (3) of sec22 tion 7122(d) (relating to standards for evaluation of

23 offers), as redesignated by subsection (a), is amend24 ed by striking ‘‘; and’’ at the end of subparagraph

25 (A) and inserting a comma, by striking the period
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1 at the end of subparagraph (B) and inserting ‘‘,

2 and’’, and by adding at the end the following new

3 subparagraph:

4 ‘‘(C) any offer-in-compromise which does

5 not meet the requirements of subsection (c)

6 shall be returned to the taxpayer as

7 unprocessable.’’.

8 (2) DEEMED ACCEPTANCE OF OFFER NOT RE9 JECTED WITHIN CERTAIN PERIOD.—Section 7122,

10 as amended by subsection (a), is amended by adding

11 at the end the following new subsection:

12 ‘‘(g) DEEMED ACCEPTANCE OF OFFER NOT RE13 JECTED WITHIN CERTAIN PERIOD.—Any offer-in-com14 promise submitted under this section shall be deemed to

15 be accepted by the Secretary if such offer is not rejected

16 by the Secretary before the date which is 24 months after

17 the date of the submission of such offer (12 months for

18 offers-in-compromise submitted after the date which is 5

19 years after the date of the enactment of this subsection).

20 For purposes of the preceding sentence, any period during

21 which any tax liability which is the subject of such offer22 in-compromise is in dispute in any judicial proceeding

23 shall not be taken in to account in determining the expira24 tion of the 24-month period (or 12-month period, if appli25 cable).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to offers-in-compromise submitted

3 on and after the date which is 60 days after the date of

4 the enactment of this Act.

5 Subtitle D—Penalties and Fines

6 SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY

7 LIMITATION FOR THE UNDERPAYMENT OR

8 OVERPAYMENT OF TAX DUE TO FRAUD.

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

10 and false statements) is amended—

11 (1) by striking ‘‘Any person who—’’ and insert12 ing ‘‘(a) IN GENERAL.—Any person who—’’, and

13 (2) by adding at the end the following new sub14 section:

15 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN16 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO

17 FRAUD.—If any portion of any underpayment (as defined

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

19 6401(a)) of tax required to be shown on a return is attrib20 utable to fraudulent action described in subsection (a), the

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

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

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

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

25 (b) INCREASE IN PENALTIES.—
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1 (1) ATTEMPT TO EVADE OR DEFEAT TAX.—

2 Section 7201 is amended—

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

4 ‘‘$500,000’’,

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

6 ‘‘$1,000,000’’, and

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

8 ‘‘10 years’’.

9 (2) WILLFUL FAILURE TO FILE RETURN, SUP10 PLY INFORMATION, OR PAY TAX.—Section 7203 is

11 amended—

12 (A) in the first sentence—

13 (i) by striking ‘‘Any person’’ and in14 serting the following:

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

16 (ii) by striking ‘‘$25,000’’ and insert17 ing ‘‘$50,000’’,

18 (B) in the third sentence, by striking ‘‘sec19 tion’’ and inserting ‘‘subsection’’, and

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

21 subsection:

22 ‘‘(b) AGGRAVATED FAILURE TO FILE.—

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

24 described in paragraph (2), the first sentence of sub25 section (a) shall be applied by substituting—
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1 ‘‘(A) ‘felony’ for ‘misdemeanor’,

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

3 ($100,000’, and

4 ‘‘(C) ‘10 years’ for ‘1 year’.

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

6 in this paragraph is a failure to make a return de7 scribed in subsection (a) for a period of 3 or more

8 consecutive taxable years.’’.

9 (3) FRAUD AND FALSE STATEMENTS.—Section

10 7206(a) (as redesignated by subsection (a)) is

11 amended—

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

13 ‘‘$500,000’’,

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

15 ‘‘$1,000,000’’, and

16 (C) by striking ‘‘3 years’’ and inserting ‘‘5

17 years’’.

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

19 this section shall apply to actions, and failures to act, oc20 curring after the date of the enactment of this Act.

21 SEC. 532. DOUBLING OF CERTAIN PENALTIES, FINES, AND

22 INTEREST ON UNDERPAYMENTS RELATED TO

23 CERTAIN OFFSHORE FINANCIAL ARRANGE24 MENTS.

25 (a) DETERMINATION OF PENALTY.—
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1 (1) IN GENERAL.—Notwithstanding any other

2 provision of law, in the case of an applicable

3 taxpayer—

4 (A) the determination as to whether any

5 interest or applicable penalty is to be imposed

6 with respect to any arrangement described in

7 paragraph (2), or to any underpayment of Fed8 eral income tax attributable to items arising in

9 connection with any such arrangement, shall be

10 made without regard to the rules of subsections

11 (b), (c), and (d) of section 6664 of the Internal

12 Revenue Code of 1986, and

13 (B) if any such interest or applicable pen14 alty is imposed, the amount of such interest or

15 penalty shall be equal to twice that determined

16 without regard to this section.

17 (2) APPLICABLE TAXPAYER.—For purposes of

18 this subsection—

19 (A) IN GENERAL.—The term ‘‘applicable

20 taxpayer’’ means a taxpayer which—

21 (i) has underreported its United

22 States income tax liability with respect to

23 any item which directly or indirectly

24 involves—
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1 (I) any financial arrangement

2 which in any manner relies on the use

3 of offshore payment mechanisms (in4 cluding credit, debit, or charge cards)

5 issued by banks or other entities in

6 foreign jurisdictions, or

7 (II) any offshore financial ar8 rangement (including any arrange9 ment with foreign banks, financial in10 stitutions, corporations, partnerships,

11 trusts, or other entities), and

12 (ii) has neither signed a closing agree13 ment pursuant to the Voluntary Offshore

14 Compliance Initiative established by the

15 Department of the Treasury under Rev16 enue Procedure 2003–11 nor voluntarily

17 disclosed its participation in such arrange18 ment by notifying the Internal Revenue

19 Service of such arrangement prior to the

20 issue being raised by the Internal Revenue

21 Service during an examination.

22 (B) AUTHORITY TO WAIVE.—The Sec23 retary of the Treasury or the Secretary’s dele24 gate may waive the application of paragraph (1)

25 to any taxpayer if the Secretary or the Sec-
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1 retary’s delegate determines that the use of

2 such offshore payment mechanisms is incidental

3 to the transaction and, in addition, in the case

4 of a trade or business, such use is conducted in

5 the ordinary course of the type of trade or busi6 ness of the taxpayer.

7 (C) ISSUES RAISED.—For purposes of sub8 paragraph (A)(ii), an item shall be treated as

9 an issue raised during an examination if the in10 dividual examining the return—

11 (i) communicates to the taxpayer

12 knowledge about the specific item, or

13 (ii) has made a request to the tax14 payer for information and the taxpayer

15 could not make a complete response to

16 that request without giving the examiner

17 knowledge of the specific item.

18 (b) APPLICABLE PENALTY.—For purposes of this

19 section, the term ‘‘applicable penalty’’ means any penalty,

20 addition to tax, or fine imposed under chapter 68 of the

21 Internal Revenue Code of 1986.

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

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

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

25 of the enactment of this Act, the assessment of any tax,
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1 penalty, or interest with respect to such taxable year is

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

3 SEC. 533. DENIAL OF DEDUCTION FOR CERTAIN FINES,

4 PENALTIES, AND OTHER AMOUNTS.

5 (a) IN GENERAL.—Subsection (f) of section 162 (re6 lating to trade or business expenses) is amended to read

7 as follows:

8 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), no deduction otherwise allowable shall be

11 allowed under this chapter for any amount paid or

12 incurred (whether by suit, agreement, or otherwise)

13 to, or at the direction of, a government or entity de14 scribed in paragraph (4) in relation to the violation

15 of any law or the investigation or inquiry by such

16 government or entity into the potential violation of

17 any law.

18 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

19 RESTITUTION OR PAID TO COME INTO COMPLIANCE

20 WITH LAW.—Paragraph (1) shall not apply to any

21 amount which—

22 ‘‘(A) the taxpayer establishes—

23 ‘‘(i) constitutes restitution (including

24 remediation of property) for damage or

25 harm caused by or which may be caused by
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1 the violation of any law or the potential

2 violation of any law, or

3 ‘‘(ii) is paid to come into compliance

4 with any law which was violated or in5 volved in the investigation or inquiry, and

6 ‘‘(B) is identified as restitution or as an

7 amount paid to come into compliance with the

8 law, as the case may be, in the court order or

9 settlement agreement.

10 Identification pursuant to subparagraph (B) alone

11 shall not satisfy the requirement under subpara12 graph (A). This paragraph shall not apply to any

13 amount paid or incurred as reimbursement to the

14 government or entity for the costs of any investiga15 tion or litigation.

16 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN17 CURRED AS THE RESULT OF CERTAIN COURT OR18 DERS.—Paragraph (1) shall not apply to any

19 amount paid or incurred by order of a court in a

20 suit in which no government or entity described in

21 paragraph (4) is a party.

22 ‘‘(4) CERTAIN NONGOVERNMENTAL REGU23 LATORY ENTITIES.—An entity is described in this

24 paragraph if it is—
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1 ‘‘(A) a nongovernmental entity which exer2 cises self-regulatory powers (including imposing

3 sanctions) in connection with a qualified board

4 or exchange (as defined in section 1256(g)(7)),

5 or

6 ‘‘(B) to the extent provided in regulations,

7 a nongovernmental entity which exercises self8 regulatory powers (including imposing sanc9 tions) as part of performing an essential gov10 ernmental function.

11 ‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph

12 (1) shall not apply to any amount paid or incurred

13 as taxes due.’’.

14 (b) REPORTING OF DEDUCTIBLE AMOUNTS.—

15 (1) IN GENERAL.—Subpart B of part III of

16 subchapter A of chapter 61 is amended by inserting

17 after section 6050T the following new section:

18 ‘‘SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN

19 FINES, PENALTIES, AND OTHER AMOUNTS.

20 ‘‘(a) REQUIREMENT OF REPORTING.—

21 ‘‘(1) IN GENERAL.—The appropriate official of

22 any government or entity which is described in sec23 tion 162(f)(4) which is involved in a suit or agree24 ment described in paragraph (2) shall make a return
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1 in such form as determined by the Secretary setting

2 forth—

3 ‘‘(A) the amount required to be paid as a

4 result of the suit or agreement to which para5 graph (1) of section 162(f) applies,

6 ‘‘(B) any amount required to be paid as a

7 result of the suit or agreement which con8 stitutes restitution or remediation of property,

9 and

10 ‘‘(C) any amount required to be paid as a

11 result of the suit or agreement for the purpose

12 of coming into compliance with any law which

13 was violated or involved in the investigation or

14 inquiry.

15 ‘‘(2) SUIT OR AGREEMENT DESCRIBED.—

16 ‘‘(A) IN GENERAL.—A suit or agreement is

17 described in this paragraph if—

18 ‘‘(i) it is—

19 ‘‘(I) a suit with respect to a vio20 lation of any law over which the gov21 ernment or entity has authority and

22 with respect to which there has been

23 a court order, or

24 ‘‘(II) an agreement which is en25 tered into with respect to a violation
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1 of any law over which the government

2 or entity has authority, or with re3 spect to an investigation or inquiry by

4 the government or entity into the po5 tential violation of any law over which

6 such government or entity has author7 ity, and

8 ‘‘(ii) the aggregate amount involved in

9 all court orders and agreements with re10 spect to the violation, investigation, or in11 quiry is $600 or more.

12 ‘‘(B) ADJUSTMENT OF REPORTING

13 THRESHOLD.—The Secretary may adjust the

14 $600 amount in subparagraph (A)(ii) as nec15 essary in order to ensure the efficient adminis16 tration of the internal revenue laws.

17 ‘‘(3) TIME OF FILING.—The return required

18 under this subsection shall be filed not later than—

19 ‘‘(A) 30 days after the date on which a

20 court order is issued with respect to the suit or

21 the date the agreement is entered into, as the

22 case may be, or

23 ‘‘(B) the date specified Secretary.

24 ‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVID25 UALS INVOLVED IN THE SETTLEMENT.—Every person re-
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1 quired to make a return under subsection (a) shall furnish

2 to each person who is a party to the suit or agreement

3 a written statement showing—

4 ‘‘(1) the name of the government or entity, and

5 ‘‘(2) the information supplied to the Secretary

6 under subsection (a)(1).

7 The written statement required under the preceding sen8 tence shall be furnished to the person at the same time

9 the government or entity provides the Secretary with the

10 information required under subsection (a).

11 ‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For pur12 poses of this section, the term ‘appropriate official’ means

13 the officer or employee having control of the suit, inves14 tigation, or inquiry or the person appropriately designated

15 for purposes of this section.’’.

16 (2) CONFORMING AMENDMENT.—The table of

17 sections for subpart B of part III of subchapter A

18 of chapter 61 is amended by inserting after the item

19 relating to section 6050T the following new item:

‘‘Sec. 6050U. Information with respect to certain fines, penalties, and other

amounts.’’.

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

21 this section shall apply to amounts paid or incurred on

22 or after the date of the enactment of this Act, except that

23 such amendments shall not apply to amounts paid or in24 curred under any binding order or agreement entered into
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1 before such date. Such exception shall not apply to an

2 order or agreement requiring court approval unless the ap3 proval was obtained before such date.

4 SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

5 (a) DISALLOWANCE OF DEDUCTION.—

6 (1) IN GENERAL.—Section 162(g) (relating to

7 treble damage payments under the antitrust laws) is

8 amended—

9 (A) by redesignating paragraphs (1) and

10 (2) as subparagraphs (A) and (B), respectively,

11 (B) by striking ‘‘If’’ and inserting:

12 ‘‘(1) TREBLE DAMAGES.—If’’, and

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

14 paragraph:

15 ‘‘(2) PUNITIVE DAMAGES.—No deduction shall

16 be allowed under this chapter for any amount paid

17 or incurred for punitive damages in connection with

18 any judgment in, or settlement of, any action. This

19 paragraph shall not apply to punitive damages de20 scribed in section 104(c).’’.

21 (2) CONFORMING AMENDMENT.—The heading

22 for section 162(g) is amended by inserting ‘‘OR PU23 NITIVE DAMAGES’’ after ‘‘LAWS’’.

24 (b) INCLUSION IN INCOME OF PUNITIVE DAMAGES

25 PAID BY INSURER OR OTHERWISE.—
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1 (1) IN GENERAL.—Part II of subchapter B of

2 chapter 1 (relating to items specifically included in

3 gross income) is amended by adding at the end the

4 following new section:

5 ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR6 ANCE OR OTHERWISE.

7 ‘‘Gross income shall include any amount paid to or

8 on behalf of a taxpayer as insurance or otherwise by rea9 son of the taxpayer’s liability (or agreement) to pay puni10 tive damages.’’.

11 (2) REPORTING REQUIREMENTS.—Section 6041

12 (relating to information at source) is amended by

13 adding at the end the following new subsection:

14 ‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES

15 COMPENSATION.—This section shall apply to payments by

16 a person to or on behalf of another person as insurance

17 or otherwise by reason of the other person’s liability (or

18 agreement) to pay punitive damages.’’.

19 (3) CONFORMING AMENDMENT.—The table of

20 sections for part II of subchapter B of chapter 1 is

21 amended by adding at the end the following new

22 item:

‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’.

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

24 this section shall apply to damages paid or incurred on

25 or after the date of the enactment of this Act.
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1 SEC. 535. INCREASE IN PENALTY FOR BAD CHECKS AND

2 MONEY ORDERS.

3 (a) IN GENERAL.—Section 6657 (relating to bad

4 checks) is amended—

5 (1) by striking ‘‘$750’’ and inserting ‘‘$2,000’’,

6 and

7 (2) by striking ‘‘$15’’ and inserting ‘‘$40’’.

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

9 this section apply to checks or money orders received after

10 the date of the enactment of this Act.

11 Subtitle E—Provisions To

12 Discourage Expatriation

13 SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

14 (a) IN GENERAL.—Section 7874 is amended—

15 (1) by striking ‘‘March 4, 2003’’ in subsection

16 (a)(2)(B)(i) and in the matter following subsection

17 (a)(2)(B)(iii) and inserting ‘‘March 20, 2002’’,

18 (2) by striking ‘‘at least 60 percent’’ in sub19 section (a)(2)(B)(ii) and inserting ‘‘more than 50

20 percent’’,

21 (3) by striking ‘‘80 percent’’ in subsection (b)

22 and inserting ‘‘at least 80 percent’’,

23 (4) by striking ‘‘60 percent’’ in subsection (b)

24 and inserting ‘‘more than 50 percent’’,

25 (5) by adding at the end of subsection (a)(2)

26 the following new sentence: ‘‘Except as provided in
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1 regulations, an acquisition of properties of a domes2 tic corporation shall not be treated as described in

3 subparagraph (B) if none of the corporation’s stock

4 was readily tradeable on an established securities

5 market at any time during the 4-year period ending

6 on the date of the acquisition.’’, and

7 (6) by redesignating subsection (g) as sub8 section (h) and by inserting after subsection (f) the

9 following new subsection:

10 ‘‘(g) SPECIAL RULES APPLICABLE TO EXPATRIATED

11 ENTITIES.—

12 ‘‘(1) INCREASES IN ACCURACY-RELATED PEN13 ALTIES.—In the case of any underpayment of tax of

14 an expatriated entity—

15 ‘‘(A) section 6662(a) shall be applied with

16 respect to such underpayment by substituting

17 ‘30 percent’ for ‘20 percent’, and

18 ‘‘(B) if such underpayment is attributable

19 to one or more gross valuation understate20 ments, the increase in the rate of penalty under

21 section 6662(h) shall be to 50 percent rather

22 than 40 percent.

23 ‘‘(2) MODIFICATIONS OF LIMITATION ON INTER24 EST DEDUCTION.—In the case of an expatriated en25 tity, section 163(j) shall be applied—
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1 ‘‘(A) without regard to paragraph

2 (2)(A)(ii) thereof, and

3 ‘‘(B) by substituting ‘25 percent’ for ‘50

4 percent’ each place it appears in paragraph

5 (2)(B) thereof.’’.

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

7 this section shall apply to taxable years ending after

8 March 20, 2002.

9 SEC. 542. REVISION OF TAX RULES ON EXPATRIATION OF

10 INDIVIDUALS.

11 (a) IN GENERAL.—Subpart A of part II of sub12 chapter N of chapter 1 is amended by inserting after sec13 tion 877 the following new section:

14 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

15 ‘‘(a) GENERAL RULES.—For purposes of this

16 subtitle—

17 ‘‘(1) MARK TO MARKET.—Except as provided in

18 subsections (d) and (f), all property of a covered ex19 patriate to whom this section applies shall be treated

20 as sold on the day before the expatriation date for

21 its fair market value.

22 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

23 case of any sale under paragraph (1)—

24 ‘‘(A) notwithstanding any other provision

25 of this title, any gain arising from such sale
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1 shall be taken into account for the taxable year

2 of the sale, and

3 ‘‘(B) any loss arising from such sale shall

4 be taken into account for the taxable year of

5 the sale to the extent otherwise provided by this

6 title, except that section 1091 shall not apply to

7 any such loss.

8 Proper adjustment shall be made in the amount of

9 any gain or loss subsequently realized for gain or

10 loss taken into account under the preceding sen11 tence.

12 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—

13 ‘‘(A) IN GENERAL.—The amount which,

14 but for this paragraph, would be includible in

15 the gross income of any individual by reason of

16 this section shall be reduced (but not below

17 zero) by $600,000. For purposes of this para18 graph, allocable expatriation gain taken into ac19 count under subsection (f)(2) shall be treated in

20 the same manner as an amount required to be

21 includible in gross income.

22 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

23 ‘‘(i) IN GENERAL.—In the case of an

24 expatriation date occurring in any calendar

25 year after 2005, the $600,000 amount
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1 under subparagraph (A) shall be increased

2 by an amount equal to—

3 ‘‘(I) such dollar amount, multi4 plied by

5 ‘‘(II) the cost-of-living adjust6 ment determined under section 1(f)(3)

7 for such calendar year, determined by

8 substituting ‘calendar year 2004’ for

9 ‘calendar year 1992’ in subparagraph

10 (B) thereof.

11 ‘‘(ii) ROUNDING RULES.—If any

12 amount after adjustment under clause (i)

13 is not a multiple of $1,000, such amount

14 shall be rounded to the next lower multiple

15 of $1,000.

16 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

17 UNITED STATES CITIZEN.—

18 ‘‘(A) IN GENERAL.—If a covered expatriate

19 elects the application of this paragraph—

20 ‘‘(i) this section (other than this para21 graph and subsection (i)) shall not apply to

22 the expatriate, but

23 ‘‘(ii) in the case of property to which

24 this section would apply but for such elec25 tion, the expatriate shall be subject to tax
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1 under this title in the same manner as if

2 the individual were a United States citizen.

3 ‘‘(B) REQUIREMENTS.—Subparagraph (A)

4 shall not apply to an individual unless the

5 individual—

6 ‘‘(i) provides security for payment of

7 tax in such form and manner, and in such

8 amount, as the Secretary may require,

9 ‘‘(ii) consents to the waiver of any

10 right of the individual under any treaty of

11 the United States which would preclude as12 sessment or collection of any tax which

13 may be imposed by reason of this para14 graph, and

15 ‘‘(iii) complies with such other re16 quirements as the Secretary may prescribe.

17 ‘‘(C) ELECTION.—An election under sub18 paragraph (A) shall apply to all property to

19 which this section would apply but for the elec20 tion and, once made, shall be irrevocable. Such

21 election shall also apply to property the basis of

22 which is determined in whole or in part by ref23 erence to the property with respect to which the

24 election was made.

25 ‘‘(b) ELECTION TO DEFER TAX.—
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1 ‘‘(1) IN GENERAL.—If the taxpayer elects the

2 application of this subsection with respect to any

3 property treated as sold by reason of subsection (a),

4 the payment of the additional tax attributable to

5 such property shall be postponed until the due date

6 of the return for the taxable year in which such

7 property is disposed of (or, in the case of property

8 disposed of in a transaction in which gain is not rec9 ognized in whole or in part, until such other date as

10 the Secretary may prescribe).

11 ‘‘(2) DETERMINATION OF TAX WITH RESPECT

12 TO PROPERTY.—For purposes of paragraph (1), the

13 additional tax attributable to any property is an

14 amount which bears the same ratio to the additional

15 tax imposed by this chapter for the taxable year

16 solely by reason of subsection (a) as the gain taken

17 into account under subsection (a) with respect to

18 such property bears to the total gain taken into ac19 count under subsection (a) with respect to all prop20 erty to which subsection (a) applies.

21 ‘‘(3) TERMINATION OF POSTPONEMENT.—No

22 tax may be postponed under this subsection later

23 than the due date for the return of tax imposed by

24 this chapter for the taxable year which includes the

25 date of death of the expatriate (or, if earlier, the
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1 time that the security provided with respect to the

2 property fails to meet the requirements of paragraph

3 (4), unless the taxpayer corrects such failure within

4 the time specified by the Secretary).

5 ‘‘(4) SECURITY.—

6 ‘‘(A) IN GENERAL.—No election may be

7 made under paragraph (1) with respect to any

8 property unless adequate security is provided to

9 the Secretary with respect to such property.

10 ‘‘(B) ADEQUATE SECURITY.—For purposes

11 of subparagraph (A), security with respect to

12 any property shall be treated as adequate secu13 rity if—

14 ‘‘(i) it is a bond in an amount equal

15 to the deferred tax amount under para16 graph (2) for the property, or

17 ‘‘(ii) the taxpayer otherwise estab18 lishes to the satisfaction of the Secretary

19 that the security is adequate.

20 ‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec21 tion may be made under paragraph (1) unless the

22 taxpayer consents to the waiver of any right under

23 any treaty of the United States which would pre24 clude assessment or collection of any tax imposed by

25 reason of this section.
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1 ‘‘(6) ELECTIONS.—An election under paragraph

2 (1) shall only apply to property described in the elec3 tion and, once made, is irrevocable. An election may

4 be made under paragraph (1) with respect to an in5 terest in a trust with respect to which gain is re6 quired to be recognized under subsection (f)(1).

7 ‘‘(7) INTEREST.—For purposes of section

8 6601—

9 ‘‘(A) the last date for the payment of tax

10 shall be determined without regard to the elec11 tion under this subsection, and

12 ‘‘(B) section 6621(a)(2) shall be applied by

13 substituting ‘5 percentage points’ for ‘3 per14 centage points’ in subparagraph (B) thereof.

15 ‘‘(c) COVERED EXPATRIATE.—For purposes of this

16 section—

17 ‘‘(1) IN GENERAL.—Except as provided in para18 graph (2), the term ‘covered expatriate’ means an

19 expatriate.

20 ‘‘(2) EXCEPTIONS.—An individual shall not be

21 treated as a covered expatriate if—

22 ‘‘(A) the individual—

23 ‘‘(i) became at birth a citizen of the

24 United States and a citizen of another

25 country and, as of the expatriation date,
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1 continues to be a citizen of, and is taxed

2 as a resident of, such other country, and

3 ‘‘(ii) has not been a resident of the

4 United States (as defined in section

5 7701(b)(1)(A)(ii)) during the 5 taxable

6 years ending with the taxable year during

7 which the expatriation date occurs, or

8 ‘‘(B)(i) the individual’s relinquishment of

9 United States citizenship occurs before such individual attains age 181 10 ⁄2, and

11 ‘‘(ii) the individual has been a resident of

12 the United States (as so defined) for not more

13 than 5 taxable years before the date of relin14 quishment.

15 ‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN16 SION PLANS.—

17 ‘‘(1) EXEMPT PROPERTY.—This section shall

18 not apply to the following:

19 ‘‘(A) UNITED STATES REAL PROPERTY IN20 TERESTS.—Any United States real property in21 terest (as defined in section 897(c)(1)), other

22 than stock of a United States real property

23 holding corporation which does not, on the day

24 before the expatriation date, meet the require25 ments of section 897(c)(2).
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1 ‘‘(B) SPECIFIED PROPERTY.—Any prop2 erty or interest in property not described in

3 subparagraph (A) which the Secretary specifies

4 in regulations.

5 ‘‘(2) SPECIAL RULES FOR CERTAIN RETIRE6 MENT PLANS.—

7 ‘‘(A) IN GENERAL.—If a covered expatriate

8 holds on the day before the expatriation date

9 any interest in a retirement plan to which this

10 paragraph applies—

11 ‘‘(i) such interest shall not be treated

12 as sold for purposes of subsection (a)(1),

13 but

14 ‘‘(ii) an amount equal to the present

15 value of the expatriate’s nonforfeitable ac16 crued benefit shall be treated as having

17 been received by such individual on such

18 date as a distribution under the plan.

19 ‘‘(B) TREATMENT OF SUBSEQUENT DIS20 TRIBUTIONS.—In the case of any distribution

21 on or after the expatriation date to or on behalf

22 of the covered expatriate from a plan from

23 which the expatriate was treated as receiving a

24 distribution under subparagraph (A), the

25 amount otherwise includible in gross income by
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1 reason of the subsequent distribution shall be

2 reduced by the excess of the amount includible

3 in gross income under subparagraph (A) over

4 any portion of such amount to which this sub5 paragraph previously applied.

6 ‘‘(C) TREATMENT OF SUBSEQUENT DIS7 TRIBUTIONS BY PLAN.—For purposes of this

8 title, a retirement plan to which this paragraph

9 applies, and any person acting on the plan’s be10 half, shall treat any subsequent distribution de11 scribed in subparagraph (B) in the same man12 ner as such distribution would be treated with13 out regard to this paragraph.

14 ‘‘(D) APPLICABLE PLANS.—This para15 graph shall apply to—

16 ‘‘(i) any qualified retirement plan (as

17 defined in section 4974(c)),

18 ‘‘(ii) an eligible deferred compensation

19 plan (as defined in section 457(b)) of an

20 eligible employer described in section

21 457(e)(1)(A), and

22 ‘‘(iii) to the extent provided in regula23 tions, any foreign pension plan or similar

24 retirement arrangements or programs.

25 ‘‘(e) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

2 means—

3 ‘‘(A) any United States citizen who relin4 quishes citizenship, and

5 ‘‘(B) any long-term resident of the United

6 States who—

7 ‘‘(i) ceases to be a lawful permanent

8 resident of the United States (within the

9 meaning of section 7701(b)(6)), or

10 ‘‘(ii) commences to be treated as a

11 resident of a foreign country under the

12 provisions of a tax treaty between the

13 United States and the foreign country and

14 who does not waive the benefits of such

15 treaty applicable to residents of the foreign

16 country.

17 ‘‘(2) EXPATRIATION DATE.—The term ‘expa18 triation date’ means—

19 ‘‘(A) the date an individual relinquishes

20 United States citizenship, or

21 ‘‘(B) in the case of a long-term resident of

22 the United States, the date of the event de23 scribed in clause (i) or (ii) of paragraph (1)(B).
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1 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A

2 citizen shall be treated as relinquishing United

3 States citizenship on the earliest of—

4 ‘‘(A) the date the individual renounces

5 such individual’s United States nationality be6 fore a diplomatic or consular officer of the

7 United States pursuant to paragraph (5) of sec8 tion 349(a) of the Immigration and Nationality

9 Act (8 U.S.C. 1481(a)(5)),

10 ‘‘(B) the date the individual furnishes to

11 the United States Department of State a signed

12 statement of voluntary relinquishment of

13 United States nationality confirming the per14 formance of an act of expatriation specified in

15 paragraph (1), (2), (3), or (4) of section 349(a)

16 of the Immigration and Nationality Act (8

17 U.S.C. 1481(a)(1)–(4)),

18 ‘‘(C) the date the United States Depart19 ment of State issues to the individual a certifi20 cate of loss of nationality, or

21 ‘‘(D) the date a court of the United States

22 cancels a naturalized citizen’s certificate of nat23 uralization.

24 Subparagraph (A) or (B) shall not apply to any indi25 vidual unless the renunciation or voluntary relin-
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1 quishment is subsequently approved by the issuance

2 to the individual of a certificate of loss of nationality

3 by the United States Department of State.

4 ‘‘(4) LONG-TERM RESIDENT.—The term ‘long5 term resident’ has the meaning given to such term

6 by section 877(e)(2).

7 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE8 FICIARIES’ INTERESTS IN TRUST.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), if an individual is determined under para11 graph (3) to hold an interest in a trust on the day

12 before the expatriation date—

13 ‘‘(A) the individual shall not be treated as

14 having sold such interest,

15 ‘‘(B) such interest shall be treated as a

16 separate share in the trust, and

17 ‘‘(C)(i) such separate share shall be treat18 ed as a separate trust consisting of the assets

19 allocable to such share,

20 ‘‘(ii) the separate trust shall be treated as

21 having sold its assets on the day before the ex22 patriation date for their fair market value and

23 as having distributed all of its assets to the in24 dividual as of such time, and
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1 ‘‘(iii) the individual shall be treated as hav2 ing recontributed the assets to the separate

3 trust.

4 Subsection (a)(2) shall apply to any income, gain, or

5 loss of the individual arising from a distribution de6 scribed in subparagraph (C)(ii). In determining the

7 amount of such distribution, proper adjustments

8 shall be made for liabilities of the trust allocable to

9 an individual’s share in the trust.

10 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI11 FIED TRUSTS.—

12 ‘‘(A) IN GENERAL.—If the trust interest

13 described in paragraph (1) is an interest in a

14 qualified trust—

15 ‘‘(i) paragraph (1) and subsection (a)

16 shall not apply, and

17 ‘‘(ii) in addition to any other tax im18 posed by this title, there is hereby imposed

19 on each distribution with respect to such

20 interest a tax in the amount determined

21 under subparagraph (B).

22 ‘‘(B) AMOUNT OF TAX.—The amount of

23 tax under subparagraph (A)(ii) shall be equal to

24 the lesser of—
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1 ‘‘(i) the highest rate of tax imposed by

2 section 1(e) for the taxable year which in3 cludes the day before the expatriation date,

4 multiplied by the amount of the distribu5 tion, or

6 ‘‘(ii) the balance in the deferred tax

7 account immediately before the distribution

8 determined without regard to any increases

9 under subparagraph (C)(ii) after the 30th

10 day preceding the distribution.

11 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur12 poses of subparagraph (B)(ii)—

13 ‘‘(i) OPENING BALANCE.—The open14 ing balance in a deferred tax account with

15 respect to any trust interest is an amount

16 equal to the tax which would have been im17 posed on the allocable expatriation gain

18 with respect to the trust interest if such

19 gain had been included in gross income

20 under subsection (a).

21 ‘‘(ii) INCREASE FOR INTEREST.—The

22 balance in the deferred tax account shall

23 be increased by the amount of interest de24 termined (on the balance in the account at

25 the time the interest accrues), for periods
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1 after the 90th day after the expatriation

2 date, by using the rates and method appli3 cable under section 6621 for underpay4 ments of tax for such periods, except that

5 section 6621(a)(2) shall be applied by sub6 stituting ‘5 percentage points’ for ‘3 per7 centage points’ in subparagraph (B) there8 of.

9 ‘‘(iii) DECREASE FOR TAXES PRE10 VIOUSLY PAID.—The balance in the tax de11 ferred account shall be reduced—

12 ‘‘(I) by the amount of taxes im13 posed by subparagraph (A) on any

14 distribution to the person holding the

15 trust interest, and

16 ‘‘(II) in the case of a person

17 holding a nonvested interest, to the

18 extent provided in regulations, by the

19 amount of taxes imposed by subpara20 graph (A) on distributions from the

21 trust with respect to nonvested inter22 ests not held by such person.

23 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—

24 For purposes of this paragraph, the allocable

25 expatriation gain with respect to any bene-
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1 ficiary’s interest in a trust is the amount of

2 gain which would be allocable to such bene3 ficiary’s vested and nonvested interests in the

4 trust if the beneficiary held directly all assets

5 allocable to such interests.

6 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

7 ‘‘(i) IN GENERAL.—The tax imposed

8 by subparagraph (A)(ii) shall be deducted

9 and withheld by the trustees from the dis10 tribution to which it relates.

11 ‘‘(ii) EXCEPTION WHERE FAILURE TO

12 WAIVE TREATY RIGHTS.—If an amount

13 may not be deducted and withheld under

14 clause (i) by reason of the distributee fail15 ing to waive any treaty right with respect

16 to such distribution—

17 ‘‘(I) the tax imposed by subpara18 graph (A)(ii) shall be imposed on the

19 trust and each trustee shall be person20 ally liable for the amount of such tax,

21 and

22 ‘‘(II) any other beneficiary of the

23 trust shall be entitled to recover from

24 the distributee the amount of such tax

25 imposed on the other beneficiary.
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1 ‘‘(F) DISPOSITION.—If a trust ceases to be

2 a qualified trust at any time, a covered expa3 triate disposes of an interest in a qualified

4 trust, or a covered expatriate holding an inter5 est in a qualified trust dies, then, in lieu of the

6 tax imposed by subparagraph (A)(ii), there is

7 hereby imposed a tax equal to the lesser of—

8 ‘‘(i) the tax determined under para9 graph (1) as if the day before the expatria10 tion date were the date of such cessation,

11 disposition, or death, whichever is applica12 ble, or

13 ‘‘(ii) the balance in the tax deferred

14 account immediately before such date.

15 Such tax shall be imposed on the trust and

16 each trustee shall be personally liable for the

17 amount of such tax and any other beneficiary

18 of the trust shall be entitled to recover from the

19 covered expatriate or the estate the amount of

20 such tax imposed on the other beneficiary.

21 ‘‘(G) DEFINITIONS AND SPECIAL RULES.—

22 For purposes of this paragraph—

23 ‘‘(i) QUALIFIED TRUST.—The term

24 ‘qualified trust’ means a trust which is de25 scribed in section 7701(a)(30)(E).
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1 ‘‘(ii) VESTED INTEREST.—The term

2 ‘vested interest’ means any interest which,

3 as of the day before the expatriation date,

4 is vested in the beneficiary.

5 ‘‘(iii) NONVESTED INTEREST.—The

6 term ‘nonvested interest’ means, with re7 spect to any beneficiary, any interest in a

8 trust which is not a vested interest. Such

9 interest shall be determined by assuming

10 the maximum exercise of discretion in

11 favor of the beneficiary and the occurrence

12 of all contingencies in favor of the bene13 ficiary.

14 ‘‘(iv) ADJUSTMENTS.—The Secretary

15 may provide for such adjustments to the

16 bases of assets in a trust or a deferred tax

17 account, and the timing of such adjust18 ments, in order to ensure that gain is

19 taxed only once.

20 ‘‘(v) COORDINATION WITH RETIRE21 MENT PLAN RULES.—This subsection shall

22 not apply to an interest in a trust which

23 is part of a retirement plan to which sub24 section (d)(2) applies.
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1 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN2 TEREST IN TRUST.—

3 ‘‘(A) DETERMINATIONS UNDER PARA4 GRAPH (1).—For purposes of paragraph (1), a

5 beneficiary’s interest in a trust shall be based

6 upon all relevant facts and circumstances, in7 cluding the terms of the trust instrument and

8 any letter of wishes or similar document, histor9 ical patterns of trust distributions, and the ex10 istence of and functions performed by a trust

11 protector or any similar adviser.

12 ‘‘(B) OTHER DETERMINATIONS.—For pur13 poses of this section—

14 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If

15 a beneficiary of a trust is a corporation,

16 partnership, trust, or estate, the share17 holders, partners, or beneficiaries shall be

18 deemed to be the trust beneficiaries for

19 purposes of this section.

20 ‘‘(ii) TAXPAYER RETURN POSITION.—

21 A taxpayer shall clearly indicate on its in22 come tax return—

23 ‘‘(I) the methodology used to de24 termine that taxpayer’s trust interest

25 under this section, and
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1 ‘‘(II) if the taxpayer knows (or

2 has reason to know) that any other

3 beneficiary of such trust is using a

4 different methodology to determine

5 such beneficiary’s trust interest under

6 this section.

7 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the

8 case of any covered expatriate, notwithstanding any other

9 provision of this title—

10 ‘‘(1) any period during which recognition of in11 come or gain is deferred shall terminate on the day

12 before the expatriation date, and

13 ‘‘(2) any extension of time for payment of tax

14 shall cease to apply on the day before the expatria15 tion date and the unpaid portion of such tax shall

16 be due and payable at the time and in the manner

17 prescribed by the Secretary.

18 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

19 ‘‘(1) IN GENERAL.—If an individual is required

20 to include any amount in gross income under sub21 section (a) for any taxable year, there is hereby im22 posed, immediately before the expatriation date, a

23 tax in an amount equal to the amount of tax which

24 would be imposed if the taxable year were a short

25 taxable year ending on the expatriation date.
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1 ‘‘(2) DUE DATE.—The due date for any tax im2 posed by paragraph (1) shall be the 90th day after

3 the expatriation date.

4 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

5 paragraph (1) shall be treated as a payment of the

6 tax imposed by this chapter for the taxable year to

7 which subsection (a) applies.

8 ‘‘(4) DEFERRAL OF TAX.—The provisions of

9 subsection (b) shall apply to the tax imposed by this

10 subsection to the extent attributable to gain includ11 ible in gross income by reason of this section.

12 ‘‘(i) SPECIAL LIENS FOR DEFERRED TAX

13 AMOUNTS.—

14 ‘‘(1) IMPOSITION OF LIEN.—

15 ‘‘(A) IN GENERAL.—If a covered expatriate

16 makes an election under subsection (a)(4) or

17 (b) which results in the deferral of any tax im18 posed by reason of subsection (a), the deferred

19 amount (including any interest, additional

20 amount, addition to tax, assessable penalty, and

21 costs attributable to the deferred amount) shall

22 be a lien in favor of the United States on all

23 property of the expatriate located in the United

24 States (without regard to whether this section

25 applies to the property).
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1 ‘‘(B) DEFERRED AMOUNT.—For purposes

2 of this subsection, the deferred amount is the

3 amount of the increase in the covered expatri4 ate’s income tax which, but for the election

5 under subsection (a)(4) or (b), would have oc6 curred by reason of this section for the taxable

7 year including the expatriation date.

8 ‘‘(2) PERIOD OF LIEN.—The lien imposed by

9 this subsection shall arise on the expatriation date

10 and continue until—

11 ‘‘(A) the liability for tax by reason of this

12 section is satisfied or has become unenforceable

13 by reason of lapse of time, or

14 ‘‘(B) it is established to the satisfaction of

15 the Secretary that no further tax liability may

16 arise by reason of this section.

17 ‘‘(3) CERTAIN RULES APPLY.—The rules set

18 forth in paragraphs (1), (3), and (4) of section

19 6324A(d) shall apply with respect to the lien im20 posed by this subsection as if it were a lien imposed

21 by section 6324A.

22 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

23 such regulations as may be necessary or appropriate to

24 carry out the purposes of this section.’’.
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1 (b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS

2 RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS

3 FROM EXPATRIATES.—Section 102 (relating to gifts, etc.

4 not included in gross income) is amended by adding at

5 the end the following new subsection:

6 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX7 PATRIATES.—

8 ‘‘(1) IN GENERAL.—Subsection (a) shall not ex9 clude from gross income the value of any property

10 acquired by gift, bequest, devise, or inheritance from

11 a covered expatriate after the expatriation date. For

12 purposes of this subsection, any term used in this

13 subsection which is also used in section 877A shall

14 have the same meaning as when used in section

15 877A.

16 ‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE

17 SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1)

18 shall not apply to any property if either—

19 ‘‘(A) the gift, bequest, devise, or inherit20 ance is—

21 ‘‘(i) shown on a timely filed return of

22 tax imposed by chapter 12 as a taxable gift

23 by the covered expatriate, or

24 ‘‘(ii) included in the gross estate of

25 the covered expatriate for purposes of
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1 chapter 11 and shown on a timely filed re2 turn of tax imposed by chapter 11 of the

3 estate of the covered expatriate, or

4 ‘‘(B) no such return was timely filed but

5 no such return would have been required to be

6 filed even if the covered expatriate were a cit7 izen or long-term resident of the United

8 States.’’.

9 (c) DEFINITION OF TERMINATION OF UNITED

10 STATES CITIZENSHIP.—Section 7701(a) is amended by

11 adding at the end the following new paragraph:

12 ‘‘(49) TERMINATION OF UNITED STATES CITI13 ZENSHIP.—

14 ‘‘(A) IN GENERAL.—An individual shall

15 not cease to be treated as a United States cit16 izen before the date on which the individual’s

17 citizenship is treated as relinquished under sec18 tion 877A(e)(3).

19 ‘‘(B) DUAL CITIZENS.—Under regulations

20 prescribed by the Secretary, subparagraph (A)

21 shall not apply to an individual who became at

22 birth a citizen of the United States and a cit23 izen of another country.’’.

24 (d) INELIGIBILITY FOR VISA OR ADMISSION TO

25 UNITED STATES.—
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1 (1) IN GENERAL.—Section 212(a)(10)(E) of the

2 Immigration and Nationality Act (8 U.S.C.

3 1182(a)(10)(E)) is amended to read as follows:

4 ‘‘(E) FORMER CITIZENS NOT IN COMPLI5 ANCE WITH EXPATRIATION REVENUE PROVI6 SIONS.—Any alien who is a former citizen of

7 the United States who relinquishes United

8 States citizenship (within the meaning of sec9 tion 877A(e)(3) of the Internal Revenue Code

10 of 1986) and who is not in compliance with sec11 tion 877A of such Code (relating to expatria12 tion) is inadmissible.’’.

13 (2) AVAILABILITY OF INFORMATION.—

14 (A) IN GENERAL.—Section 6103(l) (relat15 ing to disclosure of returns and return informa16 tion for purposes other than tax administration)

17 is amended by adding at the end the following

18 new paragraph:

19 ‘‘(21) DISCLOSURE TO DENY VISA OR ADMIS20 SION TO CERTAIN EXPATRIATES.—Upon written re21 quest of the Attorney General or the Attorney Gen22 eral’s delegate, the Secretary shall disclose whether

23 an individual is in compliance with section 877A

24 (and if not in compliance, any items of noncompli25 ance) to officers and employees of the Federal agen-
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1 cy responsible for administering section

2 212(a)(10)(E) of the Immigration and Nationality

3 Act solely for the purpose of, and to the extent nec4 essary in, administering such section

5 212(a)(10)(E).’’.

6 (B) SAFEGUARDS.—Section 6103(p)(4)

7 (relating to safeguards) is amended by striking

8 ‘‘or (20)’’ each place it appears and inserting

9 ‘‘(20), or (21)’’.

10 (3) EFFECTIVE DATES.—The amendments

11 made by this subsection shall apply to individuals

12 who relinquish United States citizenship on or after

13 the date of the enactment of this Act.

14 (e) CONFORMING AMENDMENTS.—

15 (1) Section 877 is amended by adding at the

16 end the following new subsection:

17 ‘‘(h) APPLICATION.—This section shall not apply to

18 an expatriate (as defined in section 877A(e)) whose expa19 triation date (as so defined) occurs on or after the date

20 of the enactment of this subsection.’’.

21 (2) Section 2107 is amended by adding at the

22 end the following new subsection:

23 ‘‘(f) APPLICATION.—This section shall not apply to

24 any expatriate subject to section 877A.’’.
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1 (3) Section 2501(a)(3) is amended by adding at

2 the end the following new subparagraph:

3 ‘‘(C) APPLICATION.—This paragraph shall

4 not apply to any expatriate subject to section

5 877A.’’.

6 (4) Section 6039G(a) is amended by inserting

7 ‘‘or 877A’’ after ‘‘section 877(b)’’.

8 (5) The second sentence of section 6039G(d) is

9 amended by inserting ‘‘or who relinquishes United

10 States citizenship (within the meaning of section

11 877A(e)(3))’’ after ‘‘section 877(a))’’.

12 (f) CLERICAL AMENDMENT.—The table of sections

13 for subpart A of part II of subchapter N of chapter 1

14 is amended by inserting after the item relating to section

15 877 the following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

16 (g) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in this

18 subsection, the amendments made by this section

19 shall apply to expatriates (within the meaning of

20 section 877A(e) of the Internal Revenue Code of

21 1986, as added by this section) whose expatriation

22 date (as so defined) occurs on or after the date of

23 the enactment of this Act.

24 (2) GIFTS AND BEQUESTS.—Section 102(d) of

25 the Internal Revenue Code of 1986 (as added by
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1 subsection (b)) shall apply to gifts and bequests re2 ceived on or after the date of the enactment of this

3 Act, from an individual or the estate of an individual

4 whose expatriation date (as so defined) occurs after

5 such date.

6 (3) DUE DATE FOR TENTATIVE TAX.—The due

7 date under section 877A(h)(2) of the Internal Rev8 enue Code of 1986, as added by this section, shall

9 in no event occur before the 90th day after the date

10 of the enactment of this Act.

11 Subtitle F—Miscellaneous

12 Provisions

13 SEC. 551. TREATMENT OF CONTINGENT PAYMENT CON14 VERTIBLE DEBT INSTRUMENTS.

15 (a) IN GENERAL.—Section 1275(d) (relating to regu16 lation authority) is amended—

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

18 the following:

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

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

21 paragraph:

22 ‘‘(2) TREATMENT OF CONTINGENT PAYMENT

23 CONVERTIBLE DEBT.—

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

25 instrument which—
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1 ‘‘(i) is convertible into stock of the

2 issuing corporation, into stock or debt of a

3 related party (within the meaning of sec4 tion 267(b) or 707(b)(1)), or into cash or

5 other property in an amount equal to the

6 approximate value of such stock or debt,

7 and

8 ‘‘(ii) provides for contingent pay9 ments,

10 any regulations which require original issue dis11 count to be determined by reference to the com12 parable yield of a noncontingent fixed-rate debt

13 instrument shall be applied as if the regulations

14 require that such comparable yield be deter15 mined by reference to a noncontingent fixed16 rate debt instrument which is convertible into

17 stock.

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

19 subparagraph (A), the comparable yield shall be

20 determined without taking into account the

21 yield resulting from the conversion of a debt in22 strument into stock.’’.

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

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

25 following:
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1 ‘‘For the treatment of contingent payment

2 convertible debt, see section 1275(d)(2).’’.

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

4 this section shall apply to debt instruments issued on or

5 after the date of the enactment of this Act.

6 SEC. 552. GRANT OF TREASURY REGULATORY AUTHORITY

7 TO ADDRESS FOREIGN TAX CREDIT TRANS8 ACTIONS INVOLVING INAPPROPRIATE SEPA9 RATION OF FOREIGN TAXES FROM RELATED

10 FOREIGN INCOME.

11 (a) IN GENERAL.—Section 901 (relating to taxes of

12 foreign countries and of possessions of United States) is

13 amended by redesignating subsection (m) as subsection

14 (n) and by inserting after subsection (l) the following new

15 subsection:

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

17 regulations disallowing a credit under subsection (a) for

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

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

20 tax is imposed on any person in respect of income of an21 other person or in other cases involving the inappropriate

22 separation of the foreign tax from the related foreign in23 come.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to transactions entered into after

3 the date of the enactment of this Act.

4 SEC. 553. REPEAL OF SPECIAL PROPERTY EXCEPTION TO

5 LEASING PROVISIONS OF THE AMERICAN

6 JOBS CREATION ACT OF 2004.

7 (a) IN GENERAL.—Section 849(b) of the American

8 Jobs Creation Act of 2004 is amended by striking para9 graphs (1) and (2), by redesignating paragraphs (3) and

10 (4) as paragraphs (1) and (2), respectively.

11 (b) LEASES TO FOREIGN ENTITIES.—Section 849(b)

12 of the American Jobs Creation Act of 2004, as amended

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

14 following new paragraph:

15 ‘‘(3) LEASES TO FOREIGN ENTITIES.—In the

16 case of tax-exempt use property leased to a tax-ex17 empt entity which is a foreign person or entity, the

18 amendments made by this part shall apply to taxable

19 years beginning after December 31, 2005, with re20 spect to leases entered into on or before March 12,

21 2004.’’.

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

23 this section shall take effect as if included in the enact24 ment of the American Jobs Creation Act of 2004.
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1 SEC. 554. APPLICATION OF EARNINGS STRIPPING RULES

2 TO PARTNERS WHICH ARE CORPORATIONS.

3 (a) IN GENERAL.—Section 163(j) (relating to limita4 tion on deduction for interest on certain indebtedness) is

5 amended by redesignating paragraph (8) as paragraph (9)

6 and by inserting after paragraph (7) the following new

7 paragraph:

8 ‘‘(8) TREATMENT OF CORPORATE PARTNERS.—

9 Except to the extent provided by regulations, in ap10 plying this subsection to a corporation which owns

11 (directly or indirectly) an interest in a partnership—

12 ‘‘(A) such corporation’s distributive share

13 of interest income paid or accrued to such part14 nership shall be treated as interest income paid

15 or accrued to such corporation,

16 ‘‘(B) such corporation’s distributive share

17 of interest paid or accrued by such partnership

18 shall be treated as interest paid or accrued by

19 such corporation, and

20 ‘‘(C) such corporation’s share of the liabil21 ities of such partnership shall be treated as li22 abilities of such corporation.’’.

23 (b) ADDITIONAL REGULATORY AUTHORITY.—Section

24 163(j)(9) (relating to regulations), as redesignated by sub25 section (a), is amended by striking ‘‘and’’ at the end of

26 subparagraph (B), by striking the period at the end of
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1 subparagraph (C) and inserting ‘‘, and’’, and by adding

2 at the end the following new subparagraph:

3 ‘‘(D) regulations providing for the realloca4 tion of shares of partnership indebtedness, or

5 distributive shares of the partnership’s interest

6 income or interest expense, as may be appro7 priate to carry out the purposes of this sub8 section.’’.

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

10 this section shall apply to taxable years beginning on or

11 after the date of the enactment of this Act.

12 SEC. 555. LIMITATION OF EMPLOYER DEDUCTION FOR CER13 TAIN ENTERTAINMENT EXPENSES.

14 (a) IN GENERAL.—Paragraph (2) of section 274(e)

15 (relating to expenses treated as compensation) is amended

16 to read as follows:

17 ‘‘(2) EXPENSES TREATED AS COMPENSATION.—

18 Expenses for goods, services, and facilities, to the

19 extent that the expenses do not exceed the amount

20 of the expenses which are treated by the taxpayer,

21 with respect to the recipient of the entertainment,

22 amusement, or recreation, as compensation to an

23 employee on the taxpayer’s return of tax under this

24 chapter and as wages to such employee for purposes
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1 of chapter 24 (relating to withholding of income tax

2 at source on wages).’’.

3 (b) PERSONS NOT EMPLOYEES.—Paragraph (9) of

4 section 274(e) is amended by striking ‘‘to the extent that

5 the expenses are includible in the gross income’’ and in6 serting ‘‘to the extent that the expenses do not exceed the

7 amount of the expenses which are includible in the gross

8 income’’.

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

10 this section shall apply to expenses incurred after the date

11 of the enactment of this Act.

12 SEC. 556. INCREASE IN AGE OF MINOR CHILDREN WHOSE

13 UNEARNED INCOME IS TAXED AS IF PAR14 ENT’S INCOME.

15 (a) IN GENERAL.—Section 1(g)(2)(A) (relating to

16 child to whom subsection applies) is amended by striking

17 ‘‘age 14’’ and inserting ‘‘age 18’’.

18 (b) TREATMENT OF DISTRIBUTIONS FROM QUALI19 FIED DISABILITY TRUSTS.—Section 1(g)(4) (relating to

20 net unearned income) is amended by adding at the end

21 the following new subparagraph:

22 ‘‘(C) TREATMENT OF DISTRIBUTIONS

23 FROM QUALIFIED DISABILITY TRUSTS.—For

24 purposes of this subsection, in the case of any

25 child who is a beneficiary of a qualified dis-
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1 ability trust (as defined in section

2 642(b)(2)(C)(ii)), any amount included in the

3 income of such child under sections 652 and

4 662 during a taxable year shall be considered

5 earned income of such child for such taxable

6 year.’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 2005.

10 SEC. 557. LOAN AND REDEMPTION REQUIREMENTS ON

11 POOLED FINANCING REQUIREMENTS.

12 (a) STRENGTHENED REASONABLE EXPECTATION

13 REQUIREMENT.—Subparagraph (A) of section 149(f)(2)

14 (relating to reasonable expectation requirement) is amend15 ed to read as follows:

16 ‘‘(A) IN GENERAL.—The requirements of

17 this paragraph are met with respect to an issue

18 if the issuer reasonably expects that—

19 ‘‘(i) as of the close of the 1-year pe20 riod beginning on the date of issuance of

21 the issue, at least 50 percent of the net

22 proceeds of the issue (as of the close of

23 such period) will have been used directly or

24 indirectly to make or finance loans to ulti25 mate borrowers, and
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1 ‘‘(ii) as of the close of the 3-year pe2 riod beginning on such date of issuance, at

3 least 95 percent of the net proceeds of the

4 issue (as of the close of such period) will

5 have been so used.’’.

6 (b) WRITTEN LOAN COMMITMENT AND REDEMPTION

7 REQUIREMENTS.—Section 149(f) (relating to treatment

8 of certain pooled financing bonds) is amended by redesig9 nating paragraphs (4) and (5) as paragraphs (6) and (7),

10 respectively, and by inserting after paragraph (3) the fol11 lowing new paragraphs:

12 ‘‘(4) WRITTEN LOAN COMMITMENT REQUIRE13 MENT.—

14 ‘‘(A) IN GENERAL.—The requirement of

15 this paragraph is met with respect to an issue

16 if the issuer receives prior to issuance written

17 loan commitments identifying the ultimate po18 tential borrowers of at least 50 percent of the

19 net proceeds of such issue.

20 ‘‘(B) EXCEPTION.—Subparagraph (A)

21 shall not apply with respect to any issuer which

22 is a State (or an integral part of a State)

23 issuing pooled financing bonds to make or fi24 nance loans to subordinate governmental units

25 of such State or to State-created entities pro-
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1 viding financing for water-infrastructure

2 projects through the federally-sponsored State

3 revolving fund program.

4 ‘‘(5) REDEMPTION REQUIREMENT.—The re5 quirement of this paragraph is met if to the extent

6 that less than the percentage of the proceeds of an

7 issue required to be used under clause (i) or (ii) of

8 paragraph (2)(A) is used by the close of the period

9 identified in such clause, the issuer uses an amount

10 of proceeds equal to the excess of—

11 ‘‘(A) the amount required to be used under

12 such clause, over

13 ‘‘(B) the amount actually used by the close

14 of such period,

15 to redeem outstanding bonds within 90 days after

16 the end of such period.’’.

17 (c) ELIMINATION OF DISREGARD OF POOLED BONDS

18 IN DETERMINING ELIGIBILITY FOR SMALL ISSUER EX19 CEPTION TO ARBITRAGE REBATE.—Section

20 148(f)(4)(D)(ii) (relating to aggregation of issuers) is

21 amended by striking subclause (II) and by redesignating

22 subclauses (III) and (IV) as subclauses (II) and (III), re23 spectively.

24 (d) CONFORMING AMENDMENTS.—
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1 (1) Section 149(f)(1) is amended by striking

2 ‘‘paragraphs (2) and (3)’’ and inserting ‘‘paragraphs

3 (2), (3), (4), and (5)’’.

4 (2) Section 149(f)(7)(B), as redesignated by

5 subsection (b), is amended by striking ‘‘paragraph

6 (4)(A)’’ and inserting ‘‘paragraph (6)(A)’’.

7 (3) Section 54(l)(2) is amended by striking

8 ‘‘section 149(f)(4)(A)’’ and inserting ‘‘section

9 149(f)(6)(A)’’.

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

11 this section shall apply to bonds issued after the date of

12 the enactment of this Act.

13 SEC. 558. REPORTING OF INTEREST ON TAX-EXEMPT

14 BONDS.

15 (a) IN GENERAL.—Section 6049(b)(2) (relating to

16 exceptions) is amended by striking subparagraph (B) and

17 by redesignating subparagraphs (C) and (D) as subpara18 graphs (B) and (C), respectively.

19 (b) CONFORMING AMENDMENT.—Section

20 6049(b)(2)(C), as redesignated by subsection (a), is

21 amended by striking ‘‘subparagraph (C)’’ and inserting

22 ‘‘subparagraph (B)’’.

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

24 this section shall apply to interest earned after December

25 31, 2005.
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1 SEC. 559. MODIFICATION OF CREDIT FOR PRODUCING

2 FUEL FROM A NONCONVENTIONAL SOURCE.

3 (a) TAXABLE YEARS ENDING BEFORE 2006.—

4 (1) MODIFICATION OF PHASEOUT.—

5 (A) IN GENERAL.—Section 29(b)(1)(A) is

6 amended by inserting ‘‘the calendar year pre7 ceding’’ before ‘‘the calendar year’’.

8 (B) CONFORMING AMENDMENTS.—Section

9 29(b)((2) is amended—

10 (i) by striking ‘‘The’’ and inserting

11 ‘‘With respect to any calendar year, the’’,

12 and

13 (ii) by striking ‘‘for the calendar year

14 in which the sale occurs’’ and inserting

15 ‘‘for such calendar year’’.

16 (2) NO INFLATION ADJUSTMENT FOR THE

17 CREDIT AMOUNT IN 2005.—Section 29(b)(2), as

18 amended by paragraph (1), is amended by adding at

19 the end the following new sentence: ‘‘This paragraph

20 shall not apply with respect to the $3 amount in

21 subsection (a) for calendar year 2005 and the

22 amount in effect under subsection (a) for sales in

23 such calendar year shall be the amount which was

24 in effect for sales in calendar year 2004.’’.

25 (b) TAXABLE YEARS ENDING AFTER 2005.—

26 (1) MODIFICATION OF PHASEOUT.—
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1 (A) IN GENERAL.—Section 45K(b)(1)(A)

2 is amended by inserting ‘‘the calendar year pre3 ceding’’ before ‘‘the calendar year’’.

4 (B) CONFORMING AMENDMENTS.—Section

5 45K(b)((2) is amended—

6 (i) by striking ‘‘The’’ and inserting

7 ‘‘With respect to any calendar year, the’’,

8 and

9 (ii) by striking ‘‘for the calendar year

10 in which the sale occurs’’ and inserting

11 ‘‘for such calendar year’’.

12 (2) NO INFLATION ADJUSTMENT FOR THE

13 CREDIT AMOUNT IN 2005, 2006, AND 2007.—Section

14 45K(b)(2), as amended by paragraph (1), is amend15 ed by adding at the end the following new sentence:

16 ‘‘This paragraph shall not apply with respect to the

17 $3 amount in subsection (a) for calendar years

18 2005, 2006, and 2007 and the amount in effect

19 under subsection (a) for sales in each such calendar

20 year shall be the amount which was in effect for

21 sales in calendar year 2004.’’.

22 (3) TREATMENT OF COKE AND COKE GAS.—

23 (A) NONAPPLICATION OF PHASEOUT.—

24 Section 45K(g)(2) is amended by adding at the

25 end the following new subparagraph:
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1 ‘‘(D) NONAPPLICATION OF PHASEOUT.—

2 Subsection (b)(1) shall not apply.’’.

3 (B) APPLICATION OF INFLATION ADJUST4 MENT .—Section 45K(g)(2)(B) is amended by

5 inserting ‘‘and the last sentence of subsection

6 (b)(2) shall not apply.’’.

7 (C) CLARIFICATION OF QUALIFYING FACIL8 ITY.—Section 45K(g)(1) is amended by insert9 ing ‘‘(other than from petroleum based prod10 ucts)’’ after ‘‘coke or coke gas’’.

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

12 this section shall apply to fuel sold after December 31,

13 2004.

14 SEC. 560. MODIFICATION OF INDIVIDUAL ESTIMATED TAX

15 SAFE HARBOR.

16 (a) IN GENERAL.—The table contained in section

17 6654(d)(1)(C) is amended by striking ‘‘2002 or there18 after’’ and inserting ‘‘2002, 2003, 2004, or 2005’’ and

19 by adding at the end the following new items:

‘‘2006 ................................................................................................. 120

2007 or thereafter .............................................................................. 110’’.

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

21 this section shall apply with respect to any installment

22 payment for taxable years beginning after December 31,

23 2005.
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1 SEC. 561. REVALUATION OF LIFO INVENTORIES OF LARGE

2 INTEGRATED OIL COMPANIES.

3 (a) GENERAL RULE.—Notwithstanding any other

4 provision of law, if a taxpayer is an applicable integrated

5 oil company for its last taxable year ending in calendar

6 year 2005, the taxpayer shall—

7 (1) increase, effective as of the close of such

8 taxable year, the value of each historic LIFO layer

9 of inventories of crude oil, natural gas, or any other

10 petroleum product (within the meaning of section

11 4611) by the layer adjustment amount, and

12 (2) decrease its cost of goods sold for such tax13 able year by the aggregate amount of the increases

14 under paragraph (1).

15 If the aggregate amount of the increases under paragraph

16 (1) exceed the taxpayer’s cost of goods sold for such tax17 able year, the taxpayer’s gross income for such taxable

18 year shall be increased by the amount of such excess.

19 (b) LAYER ADJUSTMENT AMOUNT.—For purposes of

20 this section—

21 (1) IN GENERAL.—The term ‘‘layer adjustment

22 amount’’ means, with respect to any historic LIFO

23 layer, the product of—

24 (A) $18.75, and

25 (B) the number of barrels of crude oil (or

26 in the case of natural gas or other petroleum
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1 products, the number of barrel-of-oil equiva2 lents) represented by the layer.

3 (2) BARREL-OF-OIL EQUIVALENT.—The term

4 ‘‘barrel-of-oil equivalent’’ has the meaning given

5 such term by section 29(d)(5) (as in effect before its

6 redesignation by the Energy Tax Incentives Act of

7 2005).

8 (c) APPLICATION OF REQUIREMENT.—

9 (1) NO CHANGE IN METHOD OF ACCOUNTING.—

10 Any adjustment required by this section shall not be

11 treated as a change in method of accounting.

12 (2) UNDERPAYMENTS OF ESTIMATED TAX.—o

13 addition to the tax shall be made under section 6655

14 of the Internal Revenue Code of 1986 (relating to

15 failure by corporation to pay estimated tax) with re16 spect to any underpayment of an installment re17 quired to be paid with respect to the taxable year

18 described in subsection (a) to the extent such under19 payment was created or increased by this section.

20 (d) APPLICABLE INTEGRATED OIL COMPANY.—For

21 purposes of this section, the term ‘‘applicable integrated

22 oil company’’ means an integrated oil company (as defined

23 in section 291(b)(4) of the Internal Revenue Code of

24 1986) which has an average daily worldwide production

25 of crude oil of at least 500,000 barels for the taxable year
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1 and which had gross receipts in excess of $1,000,000,000

2 for its last taxable year ending during calendar year 2005.

3 For purposes of this subsection all persons treated as a

4 single employer under subsections (a) and (b) of section

5 52 of the Internal Revenue Code of 1986 shall be treated

6 as 1 person and, in the case of a short taxable year, the

7 rule under section 448(c)(3)(B) shall apply.

8 SEC. 562. ELIMINATION OF AMORTIZATION OF GEOLOGI9 CAL AND GEOPHYSICAL EXPENDITURES FOR

10 MAJOR INTEGRATED OIL COMPANIES.

11 (a) IN GENERAL.—Section 167(h) is amended by

12 adding at the end the following new paragraph:

13 ‘‘(5) NONAPPLICATION TO MAJOR INTEGRATED

14 OIL COMPANIES.—This subsection shall not apply

15 with respect to any expenses paid or incurred for

16 any taxable year by any integrated oil company (as

17 defined in section 291(b)(4)) which has an average

18 daily worldwide production of crude oil of at least

19 500,000 barrels for such taxable year.’’.

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

21 this section shall take effect as if included in the amend22 ment made by section 1329(a) of the Energy Policy Act

23 of 2005.
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1 SEC. 563. VALUATION OF EMPLOYEE PERSONAL USE OF

2 NONCOMMERCIAL AIRCRAFT.

3 (a) IN GENERAL.—For purposes of Federal income

4 tax inclusion, the value of any employee personal use of

5 noncommercial aircraft shall equal the excess (if any) of—

6 (1) greater of—

7 (A) the fair market value of such use, or

8 (B) the actual cost of such use (including

9 all fixed and variable costs), over

10 (2) any amount paid by or on behalf of such

11 employee for such use.

12 (b) EFFECTIVE DATE.—Subsection (a) shall apply to

13 use after the date of the enactment of this Act.

14 SEC. 564. APPLICATION OF FIRPTA TO REGULATED INVEST15 MENT COMPANIES.

16 (a) IN GENERAL.—Subclause (II) of section

17 897(h)(4)(A)(i) (defining qualified investment entity) is

18 amended by inserting ‘‘which is a United States real prop19 erty holding corporation or which would be a United

20 States real property holding corporation if the exceptions

21 provided in subsections (c)(3) and (h)(2) did not apply to

22 interests in any real estate investment trust or regulated

23 investment company’’ after ‘‘regulated investment com24 pany’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to distributions with respect to tax3 able years beginning after December 31, 2004.

4 SEC. 565. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE

5 TO FIRPTA GAINS.

6 (a) QUALIFIED INVESTMENT ENTITY.—

7 (1) IN GENERAL.—Section 897(h)(1) is

8 amended—

9 (A) by striking ‘‘a nonresident alien indi10 vidual or a foreign corporation’’ in the first sen11 tence and inserting ‘‘a nonresident alien indi12 vidual, a foreign corporation, or other qualified

13 investment entity’’,

14 (B) by striking ‘‘such nonresident alien in15 dividual or foreign corporation’’ in the first sen16 tence and inserting ‘‘such nonresident alien in17 dividual, foreign corporation, or other qualified

18 investment entity’’, and

19 (C) by striking the second sentence and in20 serting the following new sentence: ‘‘Notwith21 standing the preceding sentence, any distribu22 tion by a qualified investment entity to a non23 resident alien, a foreign corporation, or other

24 qualified investment entity with respect to any

25 class of stock which is regularly traded on an
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1 established securities market located in the

2 United States shall not be treated as gain rec3 ognized from the sale or exchange of a United

4 States real property interest if the shareholder

5 did not own more than 5 percent of such class

6 of stock at any time during the 1 year period

7 ending on the date of such distribution.’’.

8 (2) APPLICATION AFTER 2007.—Clause (ii) of

9 section 897(h)(4)(A) is amended by adding at the

10 end the following new sentence: ‘‘Notwithstanding

11 the preceding sentence, an entity described in clause

12 (i)(II) shall be treated as a qualified investment en13 tity for purposes of applying paragraph (1) in any

14 case in which a real estate investment trust makes

15 a distribution to an entity described in clause

16 (i)(II).’’.

17 (b) TREATMENT OF CERTAIN DISTRIBUTIONS AS

18 DIVIDENDS.—

19 (1) IN GENERAL.—Section 852(b)(3) (relating

20 to capital gains) is amended by adding at the end

21 the following new subparagraph:

22 ‘‘(E) CERTAIN DISTRIBUTIONS.—In the

23 case of a distribution to which section 897 does

24 not apply by reason of the second sentence of

25 section 897(h)(1), the amount of such distribu-
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1 tion which would be included in computing

2 long-term capital gains for the shareholder

3 under subparagraph (B) or (D) (without regard

4 to this subparagraph)—

5 ‘‘(i) shall not be included in com6 puting such shareholder’s long-term capital

7 gains, and

8 ‘‘(ii) shall be included in such share9 holder’s gross income as a dividend from

10 the regulated investment company.’’.

11 (2) CONFORMING AMENDMENT.—Section

12 871(k)(2) (relating to short-term capital gain divi13 dends) is amended by adding at the end the fol14 lowing new subparagraph:

15 ‘‘(E) CERTAIN DISTRIBUTIONS.—In the

16 case of a distribution to which section 897 does

17 not apply by reason of the second sentence of

18 section 897(h)(1), the amount which would be

19 treated as a short-term capital gain dividend to

20 the shareholder (without regard to this sub21 paragraph)—

22 ‘‘(i) shall not be treated as a short23 term capital gain dividend, and
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1 ‘‘(ii) shall be included in such share2 holder’s gross income as a dividend from

3 the regulated investment company.’’.

4 (c) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section

7 shall apply to taxable years of qualified investment

8 entities beginning after the date of the enactment of

9 this Act.

10 (2) DIVIDENDS.—The amendments made by

11 subsection (b) shall apply to dividends with respect

12 to taxable years of regulated investment companies

13 beginning after December 31, 2004.

14 SEC. 566. PREVENTION OF AVOIDANCE OF TAX ON INVEST15 MENTS OF FOREIGN PERSONS IN UNITED

16 STATES REAL PROPERTY THROUGH WASH

17 SALE TRANSACTIONS.

18 (a) IN GENERAL.—Section 897(h) of the Internal

19 Revenue Code of 1986 (relating to special rules in certain

20 investment entities) is amended by redesignating para21 graph (4) as paragraph (5) and by inserting after para22 graph (3) the following new paragraph:

23 ‘‘(4) TREATMENT OF CERTAIN WASH SALE

24 TRANSACTIONS.—
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1 ‘‘(A) IN GENERAL.—If an interest in a do2 mestically controlled qualified investment entity

3 is disposed of in an applicable wash sale trans4 action, the taxpayer shall, for purposes of this

5 section, be treated as having gain from the sale

6 or exchange of a United States real property in7 terest in an amount equal to the portion of the

8 distribution described in subparagraph (B) with

9 respect to such interest which, but for the dis10 position, would have been treated by the tax11 payer as gain from the sale or exchange of a

12 United States real property interest under

13 paragraph (1).

14 ‘‘(B) APPLICABLE WASH SALES TRANS15 ACTION.—For purposes of this paragraph—

16 ‘‘(i) IN GENERAL.—The term ‘applica17 ble wash sales transaction’ means any

18 transaction (or series of transactions)

19 under which a nonresident alien individual

20 or foreign corporation—

21 ‘‘(I) disposes of an interest in a

22 domestically controlled qualified in23 vestment entity during the 30-day pe24 riod preceding a distribution which is

25 to be made with respect to the inter-
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1 est and any portion of which, but for

2 the disposition, would have been treat3 ed by the taxpayer as gain from the

4 sale or exchange of a United States

5 real property interest under para6 graph (1), and

7 ‘‘(II) acquires an identical inter8 est in such entity during the 60-day

9 period beginning with the 1st day of

10 the 30-day period described in sub11 clause (I).

12 For purposes of subclause (II), a non13 resident alien individual or foreign corpora14 tion shall be treated as having acquired

15 any interest acquired by a person related

16 (within the meaning of section

17 465(b)(3)(C)) to the individual or corpora18 tion.

19 ‘‘(ii) EXCEPTION WHERE DISTRIBU20 TION ACTUALLY RECEIVED.—A transaction

21 shall not be treated as an applicable wash

22 sales transaction if the nonresident alien

23 individual or foreign corporation receives

24 the distribution described in clause (i)(I)

25 with respect to either the interest which
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1 was disposed of, or acquired, in the trans2 action.

3 ‘‘(iii) EXCEPTION FOR CERTAIN PUB4 LICLY TRADED STOCK.—A transaction

5 shall not be treated as an applicable wash

6 sales transaction if it involves the disposi7 tion of any class of stock in a qualified in8 vestment entity which is regularly traded

9 on an established securities market within

10 the United States but only if the non11 resident alien individual or foreign corpora12 tion did not own more than 5 percent of

13 such class of stock at any time during the

14 1-year period ending on the date of the

15 distribution described in clause (i)(I).’’.

16 (b) NO WITHHOLDING REQUIRED.—Section 1445(b)

17 of the Internal Revenue Code of 1986 (relating to exemp18 tions) is amended by adding at the end the following new

19 paragraph:

20 ‘‘(8) APPLICABLE WASH SALES TRANS21 ACTIONS.—No person shall be required to deduct

22 and withhold any amount under subsection (a) with

23 respect to a disposition which is treated as a disposi24 tion of a United States real property interest solely

25 by reason of section 897(h)(4).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to dispositions after December 31,

3 2005, in taxable years ending after such date.

4 SEC. 567. MODIFICATIONS TO RULES RELATING TO TAX5 ATION OF DISTRIBUTIONS OF STOCK AND SE6 CURITIES OF A CONTROLLED CORPORATION.

7 (a) MODIFICATION OF ACTIVE BUSINESS DEFINI8 TION UNDER SECTION 355.—

9 (1) IN GENERAL.—Section 355(b) (defining ac10 tive conduct of a trade or business) is amended by

11 adding at the end the following new paragraph:

12 ‘‘(3) SPECIAL RULES RELATING TO ACTIVE

13 BUSINESS REQUIREMENT.—

14 ‘‘(A) IN GENERAL.—For purposes of deter15 mining whether a corporation meets the re16 quirement of paragraph (2)(A), all members of

17 such corporation’s separate affiliated group

18 shall be treated as 1 corporation. For purposes

19 of the preceding sentence, the term ‘separate

20 affiliated group’ means, with respect to any cor21 poration, the affiliated group which would be

22 determined under section 1504(a) if such cor23 poration were the common parent and section

24 1504(b) did not apply.
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1 ‘‘(B) CONTROL.—For purposes of para2 graph (2)(D), all distributee corporations which

3 are members of the same affiliated group (as

4 defined in section 1504(a) without regard to

5 section 1504(b)) shall be treated as 1 dis6 tributee corporation.’’.

7 (2) CONFORMING AMENDMENTS.—

8 (A) Subparagraph (A) of section 355(b)(2)

9 is amended to read as follows:

10 ‘‘(A) it is engaged in the active conduct of

11 a trade or business,’’.

12 (B) Section 355(b)(2) of such Code is

13 amended by striking the last sentence.

14 (3) EFFECTIVE DATES.—

15 (A) IN GENERAL.—The amendments made

16 by this subsection shall apply—

17 (i) to distributions after the date of

18 the enactment of this Act, and before Jan19 uary 1, 2010, and

20 (ii) for purposes of determining the

21 continued qualification under section

22 355(b)(2)(A) of the Internal Revenue Code

23 of 1986 (as amended by paragraph (2)(A))

24 of distributions made before such date, as

25 a result of an acquisition, disposition, or
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1 other restructuring after such date and be2 fore January 1, 2010.

3 (B) TRANSITION RULE.—The amendments

4 made by this subsection shall not apply to any

5 distribution pursuant to a transaction which

6 is—

7 (i) made pursuant to an agreement

8 which was binding on such date of enact9 ment and at all times thereafter,

10 (ii) described in a ruling request sub11 mitted to the Internal Revenue Service on

12 or before such date, or

13 (iii) described on or before such date

14 in a public announcement or in a filing

15 with the Securities and Exchange Commis16 sion.

17 (C) ELECTIONS.—

18 (i) OUT OF TRANSITION RELIEF.—

19 Subparagraph (B) shall not apply if the

20 distributing corporation elects not to have

21 such subparagraph apply to distributions

22 of such corporation. Any such election,

23 once made, shall be irrevocable.

24 (ii) APPLICATION TO PRIOR DISTRIBU25 TIONS.—Subparagraph (A)(ii) shall not
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1 apply to a distributing or controlled cor2 poration if the corporation elects not to

3 have such subparagraph apply to such cor4 poration. Any such election, once made,

5 shall be irrevocable.

6 (b) SECTION 355 NOT TO APPLY TO DISTRIBUTIONS

7 IF THE DISTRIBUTING OR CONTROLLED CORPORATION IS

8 A DISQUALIFIED INVESTMENT CORPORATION.—

9 (1) IN GENERAL.—Section 355 (relating to dis10 tributions of stock and securities of a controlled cor11 poration) is amended by adding at the end the fol12 lowing new subsection:

13 ‘‘(g) SECTION NOT TO APPLY TO DISTRIBUTIONS IN14 VOLVING DISQUALIFIED INVESTMENT CORPORATIONS.—

15 ‘‘(1) IN GENERAL.—This section (and so much

16 of section 356 as relates to this section) shall not

17 apply to any distribution which is part of a trans18 action if—

19 ‘‘(A) either the distributing corporation or

20 controlled corporation is, immediately after the

21 transaction, a disqualified investment corpora22 tion, and

23 ‘‘(B) any person holds, immediately after

24 the transaction, a 50-percent or greater interest

25 in any disqualified investment corporation, but
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1 only if such person did not hold such an inter2 est in such corporation immediately before the

3 transaction.

4 ‘‘(2) DISQUALIFIED INVESTMENT CORPORA5 TION.—For purposes of this subsection—

6 ‘‘(A) IN GENERAL.—The term ‘disqualified

7 investment corporation’ means any distributing

8 or controlled corporation if the fair market

9 value of the investment assets of the corpora10 tion is 75 percent or more of the fair market

11 value of all assets of the corporation.

12 ‘‘(B) INVESTMENT ASSETS.—

13 ‘‘(i) IN GENERAL.—Except as other14 wise provided in this subparagraph, the

15 term ‘investment assets’ means—

16 ‘‘(I) cash,

17 ‘‘(II) any stock or securities in a

18 corporation,

19 ‘‘(III) any interest in a partner20 ship,

21 ‘‘(IV) any debt instrument or

22 other evidence of indebtedness,

23 ‘‘(V) any option, forward or fu24 tures contract, notional principal con25 tract, or derivative,
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1 ‘‘(VI) foreign currency, or

2 ‘‘(VII) any similar asset.

3 ‘‘(ii) EXCEPTION FOR ASSETS USED

4 IN ACTIVE CONDUCT OF CERTAIN FINAN5 CIAL TRADES OR BUSINESSES.—Such term

6 shall not include any asset which is held

7 for use in the active and regular conduct

8 of—

9 ‘‘(I) a lending or finance business

10 (within the meaning of section

11 954(h)(4)),

12 ‘‘(II) a banking business through

13 a bank (as defined in section 581), a

14 domestic building and loan association

15 (within the meaning of section

16 7701(a)(19)), or any similar institu17 tion specified by the Secretary, or

18 ‘‘(III) an insurance business if

19 the conduct of the business is li20 censed, authorized, or regulated by an

21 applicable insurance regulatory body.

22 This clause shall only apply with respect to

23 any business if substantially all of the in24 come of the business is derived from per25 sons who are not related (within the mean-
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1 ing of section 267(b) or 707(b)(1)) to the

2 person conducting the business.

3 ‘‘(iii) EXCEPTION FOR SECURITIES

4 MARKED TO MARKET.—Such term shall

5 not include any security (as defined in sec6 tion 475(c)(2)) which is held by a dealer in

7 securities and to which section 475(a) ap8 plies.

9 ‘‘(iv) STOCK OR SECURITIES IN A 25-

10 PERCENT CONTROLLED ENTITY.—

11 ‘‘(I) IN GENERAL.—Such term

12 shall not include any stock and securi13 ties in, or any asset described in sub14 clause (IV) or (V) of clause (i) issued

15 by, a corporation which is a 25-per16 cent controlled entity with respect to

17 the distributing or controlled corpora18 tion.

19 ‘‘(II) LOOK-THRU RULE.—The

20 distributing or controlled corporation

21 shall, for purposes of applying this

22 subsection, be treated as owning its

23 ratable share of the assets of any 25-

24 percent controlled entity.
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1 ‘‘(III) 25-PERCENT CONTROLLED

2 ENTITY.—For purposes of this clause,

3 the term ‘25-percent controlled entity’

4 means, with respect to any distrib5 uting or controlled corporation, any

6 corporation with respect to which the

7 distributing or controlled corporation

8 owns directly or indirectly stock meet9 ing the requirements of section

10 1504(a)(2), except that such section

11 shall be applied by substituting ‘25

12 percent’ for ‘80 percent’ and without

13 regard to stock described in section

14 1504(a)(4).

15 ‘‘(v) INTERESTS IN CERTAIN PART16 NERSHIPS.—

17 ‘‘(I) IN GENERAL.—Such term

18 shall not include any interest in a

19 partnership, or any debt instrument

20 or other evidence of indebtedness,

21 issued by the partnership, if 1 or

22 more of the trades or businesses of

23 the partnership are (or, without re24 gard to the 5-year requirement under

25 subsection (b)(2)(B), would be) taken
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1 into account by the distributing or

2 controlled corporation, as the case

3 may be, in determining whether the

4 requirements of subsection (b) are

5 met with respect to the distribution.

6 ‘‘(II) LOOK-THRU RULE.—The

7 distributing or controlled corporation

8 shall, for purposes of applying this

9 subsection, be treated as owning its

10 ratable share of the assets of any

11 partnership described in subclause (I).

12 ‘‘(3) 50-PERCENT OR GREATER INTEREST.—

13 For purposes of this subsection—

14 ‘‘(A) IN GENERAL.—The term ‘50-percent

15 or greater interest’ has the meaning given such

16 term by subsection (d)(4).

17 ‘‘(B) ATTRIBUTION RULES.—The rules of

18 section 318 shall apply for purposes of deter19 mining ownership of stock for purposes of this

20 paragraph.

21 ‘‘(4) TRANSACTION.—For purposes of this sub22 section, the term ‘transaction’ includes a series of

23 transactions.

24 ‘‘(5) REGULATIONS.—The Secretary shall pre25 scribe such regulations as may be necessary to carry
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1 out, or prevent the avoidance of, the purposes of this

2 subsection, including regulations—

3 ‘‘(A) to carry out, or prevent the avoidance

4 of, the purposes of this subsection in cases

5 involving—

6 ‘‘(i) the use of related persons, inter7 mediaries, pass-thru entities, options, or

8 other arrangements, and

9 ‘‘(ii) the treatment of assets unrelated

10 to the trade or business of a corporation as

11 investment assets if, prior to the distribu12 tion, investment assets were used to ac13 quire such unrelated assets,

14 ‘‘(B) which in appropriate cases exclude

15 from the application of this subsection a dis16 tribution which does not have the character of

17 a redemption which would be treated as a sale

18 or exchange under section 302, and

19 ‘‘(C) which modify the application of the

20 attribution rules applied for purposes of this

21 subsection.’’.

22 (2) EFFECTIVE DATES.—

23 (A) IN GENERAL.—The amendments made

24 by this subsection shall apply to distributions

25 after the date of the enactment of this Act.
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1 (B) TRANSITION RULE.—The amendments

2 made by this subsection shall not apply to any

3 distribution pursuant to a transaction which

4 is—

5 (i) made pursuant to an agreement

6 which was binding on such date of enact7 ment and at all times thereafter,

8 (ii) described in a ruling request sub9 mitted to the Internal Revenue Service on

10 or before such date, or

11 (iii) described on or before such date

12 in a public announcement or in a filing

13 with the Securities and Exchange Commis14 sion.

15 SEC. 568. AMORTIZATION OF EXPENSES INCURRED IN CRE16 ATING OR ACQUIRING MUSIC OR MUSIC

17 COPYRIGHTS.

18 (a) IN GENERAL.—Section 263A (relating to capital19 ization and inclusion in inventory costs of certain ex20 penses) is amended by redesignating subsection (i) as sub21 section (j) and by adding after subsection (h) the following

22 new subsection:

23 ‘‘(i) SPECIAL RULES FOR CERTAIN MUSICAL WORKS

24 AND COPYRIGHTS.—

25 ‘‘(1) IN GENERAL.—If—
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1 ‘‘(A) any expense is paid or incurred by

2 the taxpayer in creating or acquiring any musi3 cal composition (including any accompanying

4 words) or any copyright with respect to a musi5 cal composition, and

6 ‘‘(B) such expense is required to be cap7 italized under this section,

8 then, notwithstanding section 167(g), the amount

9 capitalized shall be amortized ratably over the 5-year

10 period beginning with the month in which the com11 position or copyright was acquired (or, in the case

12 of expenses paid or incurred in connection with the

13 creation of a musical composition, the 5-taxable-year

14 period beginning with the taxable year in which the

15 expenses were paid or incurred).

16 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

17 apply to any expense—

18 ‘‘(A) which is a qualified creative expense

19 under subsection (h),

20 ‘‘(B) to which a simplified procedure estab21 lished under subsection (j)(2) applies,

22 ‘‘(C) which is an amortizable section 197

23 intangible (as defined in section 197(c)), or

24 ‘‘(D) which, without regard to this section,

25 would not be allowable as a deduction.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to expenses paid or incurred after

3 December 31, 2005, in taxable years ending after such

4 date.

5 SEC. 569. CREDIT TO HOLDERS OF RURAL RENAISSANCE

6 BONDS.

7 (a) IN GENERAL.—Subpart H of part IV of sub8 chapter A of chapter 1 (relating to credits against tax)

9 is amended by adding at the end the following new section:

10 ‘‘SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE

11 BONDS.

12 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax13 payer who holds a rural renaissance bond on a credit al14 lowance date of such bond, which occurs during the tax15 able year, there shall be allowed as a credit against the

16 tax imposed by this chapter for such taxable year an

17 amount equal to the sum of the credits determined under

18 subsection (b) with respect to credit allowance dates dur19 ing such year on which the taxpayer holds such bond.

20 ‘‘(b) AMOUNT OF CREDIT.—

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

22 determined under this subsection with respect to any

23 credit allowance date for a rural renaissance bond is

24 25 percent of the annual credit determined with re25 spect to such bond.
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1 ‘‘(2) ANNUAL CREDIT.—The annual credit de2 termined with respect to any rural renaissance bond

3 is the product of—

4 ‘‘(A) the credit rate determined by the Sec5 retary under paragraph (3) for the day on

6 which such bond was sold, multiplied by

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

8 bond.

9 ‘‘(3) DETERMINATION.—For purposes of para10 graph (2), with respect to any rural renaissance

11 bond, the Secretary shall determine daily or caused

12 to be determined daily a credit rate which shall

13 apply to the first day on which there is a binding,

14 written contract for the sale or exchange of the

15 bond. The credit rate for any day is the credit rate

16 which the Secretary or the Secretary’s designee esti17 mates will permit the issuance of rural renaissance

18 bonds with a specified maturity or redemption date

19 without discount and without interest cost to the

20 qualified issuer.

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

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

23 means—

24 ‘‘(A) March 15,

25 ‘‘(B) June 15,
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1 ‘‘(C) September 15, and

2 ‘‘(D) December 15.

3 Such term also includes the last day on which the

4 bond is outstanding.

5 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE6 DEMPTION.—In the case of a bond which is issued

7 during the 3-month period ending on a credit allow8 ance date, the amount of the credit determined

9 under this subsection with respect to such credit al10 lowance date shall be a ratable portion of the credit

11 otherwise determined based on the portion of the 3-

12 month period during which the bond is outstanding.

13 A similar rule shall apply when the bond is redeemed

14 or matures.

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

16 credit allowed under subsection (a) for any taxable year

17 shall not exceed the excess of—

18 ‘‘(1) the sum of the regular tax liability (as de19 fined in section 26(b)) plus the tax imposed by sec20 tion 55, over

21 ‘‘(2) the sum of the credits allowable under this

22 part (other than subpart C thereof, relating to re23 fundable credits).

24 ‘‘(d) RURAL RENAISSANCE BOND.—For purposes of

25 this section—
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1 ‘‘(1) IN GENERAL.—The term ‘rural renais2 sance bond’ means any bond issued as part of an

3 issue if—

4 ‘‘(A) the bond is issued by a qualified

5 issuer,

6 ‘‘(B) 95 percent or more of the proceeds

7 from the sale of such issue are to be used for

8 capital expenditures incurred for 1 or more

9 qualified projects,

10 ‘‘(C) the qualified issuer designates such

11 bond for purposes of this section and the bond

12 is in registered form, and

13 ‘‘(D) the issue meets the requirements of

14 subsections (e) and (h).

15 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

16 RULES.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 project’ means 1 or more projects described in

19 subparagraph (B) located in a rural area.

20 ‘‘(B) PROJECTS DESCRIBED.—A project

21 described in this subparagraph is—

22 ‘‘(i) a water or waste treatment

23 project,

24 ‘‘(ii) an affordable housing project,
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1 ‘‘(iii) a community facility project, in2 cluding hospitals, fire and police stations,

3 and nursing and assisted-living facilities,

4 ‘‘(iv) a value-added agriculture or re5 newable energy facility project for agricul6 tural producers or farmer-owned entities,

7 including any project to promote the pro8 duction, processing, or retail sale of eth9 anol (including fuel at least 85 percent of

10 the volume of which consists of ethanol),

11 biodiesel, animal waste, biomass, raw com12 modities, or wind as a fuel,

13 ‘‘(v) a distance learning or telemedi14 cine project,

15 ‘‘(vi) a rural utility infrastructure

16 project, including any electric or telephone

17 system,

18 ‘‘(vii) a project to expand broadband

19 technology,

20 ‘‘(viii) a rural teleworks project, and

21 ‘‘(ix) any project described in any pre22 ceding clause carried out by the Delta Re23 gional Authority.

24 ‘‘(C) SPECIAL RULES.—For purposes of

25 this paragraph—
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1 ‘‘(i) any project described in subpara2 graph (B)(iv) for a farmer-owned entity

3 may be considered a qualified project if

4 such entity is located in a rural area, or in

5 the case of a farmer-owned entity the

6 headquarters of which are located in a

7 nonrural area, if the project is located in

8 a rural area, and

9 ‘‘(ii) any project for a farmer-owned

10 entity which is a facility described in sub11 paragraph (B)(iv) for agricultural pro12 ducers may be considered a qualified

13 project regardless of whether the facility is

14 located in a rural or nonrural area.

15 ‘‘(3) SPECIAL USE RULES.—

16 ‘‘(A) REFINANCING RULES.—For purposes

17 of paragraph (1)(B), a qualified project may be

18 refinanced with proceeds of a rural renaissance

19 bond only if the indebtedness being refinanced

20 (including any obligation directly or indirectly

21 refinanced by such indebtedness) was originally

22 incurred after the date of the enactment of this

23 section.

24 ‘‘(B) REIMBURSEMENT.—For purposes of

25 paragraph (1)(B), a rural renaissance bond
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1 may be issued to reimburse a borrower for

2 amounts paid after the date of the enactment

3 of this section with respect to a qualified

4 project, but only if—

5 ‘‘(i) prior to the payment of the origi6 nal expenditure, the borrower declared its

7 intent to reimburse such expenditure with

8 the proceeds of a rural renaissance bond,

9 ‘‘(ii) not later than 60 days after pay10 ment of the original expenditure, the quali11 fied issuer adopts an official intent to re12 imburse the original expenditure with such

13 proceeds, and

14 ‘‘(iii) the reimbursement is made not

15 later than 18 months after the date the

16 original expenditure is paid.

17 ‘‘(C) TREATMENT OF CHANGES IN USE.—

18 For purposes of paragraph (1)(B), the proceeds

19 of an issue shall not be treated as used for a

20 qualified project to the extent that a borrower

21 takes any action within its control which causes

22 such proceeds not to be used for a qualified

23 project. The Secretary shall prescribe regula24 tions specifying remedial actions that may be

25 taken (including conditions to taking such re-
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1 medial actions) to prevent an action described

2 in the preceding sentence from causing a bond

3 to fail to be a rural renaissance bond.

4 ‘‘(e) MATURITY LIMITATIONS.—

5 ‘‘(1) DURATION OF TERM.—A bond shall not be

6 treated as a rural renaissance bond if the maturity

7 of such bond exceeds the maximum term determined

8 by the Secretary under paragraph (2) with respect

9 to such bond.

10 ‘‘(2) MAXIMUM TERM.—During each calendar

11 month, the Secretary shall determine the maximum

12 term permitted under this paragraph for bonds

13 issued during the following calendar month. Such

14 maximum term shall be the term which the Sec15 retary estimates will result in the present value of

16 the obligation to repay the principal on the bond

17 being equal to 50 percent of the face amount of such

18 bond. Such present value shall be determined with19 out regard to the requirements of subsection (f)(3)

20 and using as a discount rate the average annual in21 terest rate of tax-exempt obligations having a term

22 of 10 years or more which are issued during the

23 month. If the term as so determined is not a mul24 tiple of a whole year, such term shall be rounded to

25 the next highest whole year.
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1 ‘‘(3) RATABLE PRINCIPAL AMORTIZATION RE2 QUIRED.—A bond shall not be treated as a rural

3 renaissance bond unless it is part of an issue which

4 provides for an equal amount of principal to be paid

5 by the qualified issuer during each calendar year

6 that the issue is outstanding.

7 ‘‘(f) LIMITATION ON AMOUNT OF BONDS DES8 IGNATED.—

9 ‘‘(1) NATIONAL LIMITATION.—There is a rural

10 renaissance bond limitation of $200,000,000.

11 ‘‘(2) ALLOCATION BY SECRETARY.—The Sec12 retary shall allocate the amount described in para13 graph (1) among qualified projects in such manner

14 as the Secretary determines appropriate.

15 ‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross

16 income includes the amount of the credit allowed to the

17 taxpayer under this section (determined without regard to

18 subsection (c)) and the amount so included shall be treat19 ed as interest income.

20 ‘‘(h) SPECIAL RULES RELATING TO EXPENDI21 TURES.—

22 ‘‘(1) IN GENERAL.—An issue shall be treated as

23 meeting the requirements of this subsection if, as of

24 the date of issuance, the qualified issuer reasonably

25 expects—
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1 ‘‘(A) at least 95 percent of the proceeds

2 from the sale of the issue are to be spent for

3 1 or more qualified projects within the 5-year

4 period beginning on the date of issuance of the

5 rural renaissance bond,

6 ‘‘(B) a binding commitment with a third

7 party to spend at least 10 percent of the pro8 ceeds from the sale of the issue will be incurred

9 within the 6-month period beginning on the

10 date of issuance of the rural renaissance bond

11 or, in the case of a rural renaissance bond, the

12 proceeds of which are to be loaned to 2 or more

13 borrowers, such binding commitment will be in14 curred within the 6-month period beginning on

15 the date of the loan of such proceeds to a bor16 rower, and

17 ‘‘(C) such projects will be completed with

18 due diligence and the proceeds from the sale of

19 the issue will be spent with due diligence.

20 ‘‘(2) EXTENSION OF PERIOD.—Upon submis21 sion of a request prior to the expiration of the period

22 described in paragraph (1)(A), the Secretary may

23 extend such period if the qualified issuer establishes

24 that the failure to satisfy the 5-year requirement is
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1 due to reasonable cause and the related projects will

2 continue to proceed with due diligence.

3 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

4 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex5 tent that less than 95 percent of the proceeds of

6 such issue are expended by the close of the 5-year

7 period beginning on the date of issuance (or if an

8 extension has been obtained under paragraph (2), by

9 the close of the extended period), the qualified issuer

10 shall redeem all of the nonqualified bonds within 90

11 days after the end of such period. For purposes of

12 this paragraph, the amount of the nonqualified

13 bonds required to be redeemed shall be determined

14 in the same manner as under section 142.

15 ‘‘(i) SPECIAL RULES RELATING TO ARBITRAGE.—A

16 bond which is part of an issue shall not be treated as a

17 rural renaissance bond unless, with respect to the issue

18 of which the bond is a part, the qualified issuer satisfies

19 the arbitrage requirements of section 148 with respect to

20 proceeds of the issue.

21 ‘‘(j) QUALIFIED ISSUER.—For purposes of this

22 section—

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

24 means any not-for-profit cooperative lender which

25 has as of the date of the enactment of this section
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1 received a guarantee under section 306 of the Rural

2 Electrification Act and which meets the requirement

3 of paragraph (2).

4 ‘‘(2) USER FEE REQUIREMENT.—The require5 ment of this paragraph is met if the issuer of any

6 rural renaissance bond makes grants for qualified

7 projects as defined under subsection (d)(2) on a

8 semi-annual basis every year that such bond is out9 standing in an annual amount equal to one-half of

10 the rate on United States Treasury Bills of the same

11 maturity multiplied by the outstanding principle bal12 ance of rural renaissance bonds issued by such

13 issuer.

14 ‘‘(k) SPECIAL RULES RELATING TO POOL BONDS.—

15 No portion of a pooled financing bond may be allocable

16 to loan unless the borrower has entered into a written loan

17 commitment for such portion prior to the issue date of

18 such issue.

19 ‘‘(l) OTHER DEFINITIONS AND SPECIAL RULES.—

20 For purposes of this section—

21 ‘‘(1) BOND.—The term ‘bond’ includes any ob22 ligation.

23 ‘‘(2) POOLED FINANCING BOND.—The term

24 ‘pooled financing bond’ shall have the meaning given

25 such term by section 149(f)(4)(A).
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1 ‘‘(3) RURAL AREA.—The term ‘rural area’

2 means any area other than—

3 ‘‘(A) a city or town which has a population

4 of greater than 50,000 inhabitants, or

5 ‘‘(B) the urbanized area contiguous and

6 adjacent to such a city or town.

7 ‘‘(4) PARTNERSHIP; S CORPORATION; AND

8 OTHER PASS-THRU ENTITIES.—

9 ‘‘(A) IN GENERAL.—Under regulations

10 prescribed by the Secretary, in the case of a

11 partnership, trust, S corporation, or other pass12 thru entity, rules similar to the rules of section

13 41(g) shall apply with respect to the credit al14 lowable under subsection (a).

15 ‘‘(B) NO BASIS ADJUSTMENT.—In the case

16 of a bond held by a partnership or an S cor17 poration, rules similar to the rules under sec18 tion 1397E(i) shall apply.

19 ‘‘(5) BONDS HELD BY REGULATED INVEST20 MENT COMPANIES.—If any rural renaissance bond is

21 held by a regulated investment company, the credit

22 determined under subsection (a) shall be allowed to

23 shareholders of such company under procedures pre24 scribed by the Secretary.
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1 ‘‘(6) REPORTING.—Issuers of rural renaissance

2 bonds shall submit reports similar to the reports re3 quired under section 149(e).’’.

4 (b) REPORTING.—Subsection (d) of section 6049 (re5 lating to returns regarding payments of interest) is

6 amended by adding at the end the following new para7 graph:

8 ‘‘(9) REPORTING OF CREDIT ON RURAL RENAIS9 SANCE BONDS.—

10 ‘‘(A) IN GENERAL.—For purposes of sub11 section (a), the term ‘interest’ includes amounts

12 includible in gross income under section 54(f)

13 and such amounts shall be treated as paid on

14 the credit allowance date (as defined in section

15 54(b)(4)).

16 ‘‘(B) REPORTING TO CORPORATIONS,

17 ETC.—Except as otherwise provided in regula18 tions, in the case of any interest described in

19 subparagraph (A), subsection (b)(4) shall be

20 applied without regard to subparagraphs (A),

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

22 ‘‘(C) REGULATORY AUTHORITY.—The Sec23 retary may prescribe such regulations as are

24 necessary or appropriate to carry out the pur25 poses of this paragraph, including regulations
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1 which require more frequent or more detailed

2 reporting.’’.

3 (c) CONFORMING AMENDMENT.—The table of sec4 tions for subpart H of part IV of subchapter A of chapter

5 1 is amended by adding at the end the following new item:

‘‘Sec. 54A. Credit to holders of rural renaissance bonds.’’.

6 (d) ISSUANCE OF REGULATIONS.—The Secretary of

7 Treasury shall issue regulations required under section

8 54A of the Internal Revenue Code of 1986 (as added by

9 this section) not later than 120 days after the date of the

10 enactment of this Act.

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

12 this section shall apply to bonds issued after the date of

13 the enactment of this Act and before January 1, 2010.

14 SEC. 570. MODIFICATION OF TREATMENT OF LOANS TO

15 QUALIFIED CONTINUING CARE FACILITIES.

16 (a) IN GENERAL.—Subsection (g) of section 7872 is

17 amended to read as follows:

18 ‘‘(g) EXCEPTION FOR LOANS TO QUALIFIED CON19 TINUING CARE FACILITIES.—

20 ‘‘(1) IN GENERAL.—This section shall not apply

21 for any calendar year to any below-market loan owed

22 by a facility which on the last day of such year is

23 a continuing care facility, if such loan was made

24 pursuant to a continuing care contract and if the
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1 lender (or the lender’s spouse) attains age 62 before

2 the close of such year.

3 ‘‘(2) CONTINUING CARE CONTRACT.—For pur4 poses of this section, the term ‘continuing care con5 tract’ means a written contract between an indi6 vidual and a qualified continuing care facility under

7 which—

8 ‘‘(A) the individual or individual’s spouse

9 may use a qualified continuing care facility for

10 their life or lives,

11 ‘‘(B) the individual or individual’s spouse

12 will be provided with housing in an independent

13 living unit (which has additional available facili14 ties outside such unit for the provision of meals

15 and other personal care), an assisted living fa16 cility or a nursing facility, as is available in the

17 continuing care facility, as appropriate for the

18 health of such individual or individual’s spouse,

19 and

20 ‘‘(C) the individual or individual’s spouse

21 will be provided assisted living or nursing care

22 as the health of such individual or individual’s

23 spouse requires, and as is available in the con24 tinuing care facility.
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1 ‘‘(3) QUALIFIED CONTINUING CARE FACIL2 ITY.—

3 ‘‘(A) IN GENERAL.—For purposes of this

4 section, the term ‘qualified continuing care fa5 cility’ means 1 or more facilities—

6 ‘‘(i) which are designed to provide

7 services under continuing care contracts,

8 ‘‘(ii) that include an independent liv9 ing unit, plus an assisted living or nursing

10 facility, or both, and

11 ‘‘(iii) substantially all of the inde12 pendent living unit residents of which are

13 covered by continuing care contracts.

14 ‘‘(B) NURSING HOMES EXCLUDED.—The

15 term ‘qualified continuing care facility’ shall not

16 include any facility which is of a type which is

17 traditionally considered a nursing home.’’.

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

19 this section shall apply to loans made after December 31,

20 2005.
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1 SEC. 571. MODIFICATIONS OF FOREIGN TAX CREDIT RULES

2 APPLICABLE TO LARGE INTEGRATED OIL

3 COMPANIES WHICH ARE DUAL CAPACITY

4 TAXPAYERS.

5 (a) IN GENERAL.—Section 901 (relating to credit for

6 taxes of foreign countries and of possessions of the United

7 States), as amended by this Act, is amended by redesig8 nating subsections (m) and (n) as subsections (n) and (o),

9 respectively, and by inserting after subsection (l) the fol10 lowing new subsection:

11 ‘‘(m) SPECIAL RULES RELATING TO LARGE INTE12 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

13 TAXPAYERS.—

14 ‘‘(1) GENERAL RULE.—Notwithstanding any

15 other provision of this chapter, any amount paid or

16 accrued by a dual capacity taxpayer which is a large

17 integrated oil company to a foreign country or pos18 session of the United States for any period shall not

19 be considered a tax—

20 ‘‘(A) if, for such period, the foreign coun21 try or possession does not impose a generally

22 applicable income tax, or

23 ‘‘(B) to the extent such amount exceeds

24 the amount (determined in accordance with reg25 ulations) which—
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1 ‘‘(i) is paid by such dual capacity tax2 payer pursuant to the generally applicable

3 income tax imposed by the country or pos4 session, or

5 ‘‘(ii) would be paid if the generally ap6 plicable income tax imposed by the country

7 or possession were applicable to such dual

8 capacity taxpayer.

9 Nothing in this paragraph shall be construed to

10 imply the proper treatment of any such amount

11 not in excess of the amount determined under

12 subparagraph (B).

13 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur14 poses of this subsection, the term ‘dual capacity tax15 payer’ means, with respect to any foreign country or

16 possession of the United States, a person who—

17 ‘‘(A) is subject to a levy of such country or

18 possession, and

19 ‘‘(B) receives (or will receive) directly or

20 indirectly a specific economic benefit (as deter21 mined in accordance with regulations) from

22 such country or possession.

23 ‘‘(3) GENERALLY APPLICABLE INCOME TAX.—

24 For purposes of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘generally

2 applicable income tax’ means an income tax (or

3 a series of income taxes) which is generally im4 posed under the laws of a foreign country or

5 possession on income derived from the conduct

6 of a trade or business within such country or

7 possession.

8 ‘‘(B) EXCEPTIONS.—Such term shall not

9 include a tax unless it has substantial applica10 tion, by its terms and in practice, to—

11 ‘‘(i) persons who are not dual capacity

12 taxpayers, and

13 ‘‘(ii) persons who are citizens or resi14 dents of the foreign country or possession.

15 ‘‘(4) LARGE INTEGRATED OIL COMPANY.—For

16 purposes of this subsection, the term ‘large inte17 grated oil company’ means, with respect to any tax18 able year, an integrated oil company (as defined in

19 section 291(b)(4)) which—

20 ‘‘(A) had gross receipts in excess of

21 $1,000,000,000 for such taxable year, and

22 ‘‘(B) has an average daily worldwide pro23 duction of crude oil of at least 500,000 barrels

24 for such taxable year.’’

25 (b) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxes paid or accrued in

3 taxable years beginning after the date of the enact4 ment of this Act.

5 (2) CONTRARY TREATY OBLIGATIONS

6 UPHELD.—The amendments made by this section

7 shall not apply to the extent contrary to any treaty

8 obligation of the United States.

9 SEC. 572. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL

10 RESIDENCE BY CERTAIN EMPLOYEES OF THE

11 INTELLIGENCE COMMUNITY.

12 (a) IN GENERAL.—Subparagraph (A) of section

13 121(d)(9) (relating to exclusion of gain from sale of prin14 cipal residence) is amended by striking ‘‘duty’’ and all that

15 follows and inserting ‘‘duty—

16 ‘‘(i) as a member of the uniformed

17 services,

18 ‘‘(ii) as a member of the Foreign

19 Service of the United States, or

20 ‘‘(iii) as an employee of the intel21 ligence community.’’.

22 (b) EMPLOYEE OF INTELLIGENCE COMMUNITY DE23 FINED.—Subparagraph (C) of section 121(d)(9) is amend24 ed by redesignating clause (iv) as clause (v) and by insert25 ing after clause (iii) the following new clause:
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1 ‘‘(iv) EMPLOYEE OF INTELLIGENCE

2 COMMUNITY.—The term ‘employee of the

3 intelligence community’ means an employee

4 (as defined by section 2105 of title 5,

5 United States Code) of—

6 ‘‘(I) the Office of the Director of

7 National Intelligence,

8 ‘‘(II) the Central Intelligence

9 Agency,

10 ‘‘(III) the National Security

11 Agency,

12 ‘‘(IV) the Defense Intelligence

13 Agency,

14 ‘‘(V) the National Geospatial-In15 telligence Agency,

16 ‘‘(VI) the National Reconnais17 sance Office,

18 ‘‘(VII) any other office within the

19 Department of Defense for the collec20 tion of specialized national intelligence

21 through reconnaissance programs,

22 ‘‘(VIII) any of the intelligence

23 elements of the Army, the Navy, the

24 Air Force, the Marine Corps, the Fed25 eral Bureau of Investigation, the De-
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1 partment of Treasury, the Depart2 ment of Energy, and the Coast

3 Guard,

4 ‘‘(IX) the Bureau of Intelligence

5 and Research of the Department of

6 State, or

7 ‘‘(X) any of the elements of the

8 Department of Homeland Security

9 concerned with the analyses of foreign

10 intelligence information.’’.

11 (c) SPECIAL RULE.—Subparagraph (C) of section

12 121(d)(9), as amended by subsection (b), is amended by

13 adding at the end the following new clause:

14 ‘‘(vi) SPECIAL RULE RELATING TO IN15 TELLIGENCE COMMUNITY.—An employee

16 of the intelligence community shall not be

17 treated as serving on qualified extended

18 duty unless—

19 ‘‘(I) for purposes of such duty

20 such employee has moved from 1 duty

21 station to another, and

22 ‘‘(II) at least 1 of such duty sta23 tions is located outside of the Wash24 ington, District of Columbia, and Bal25 timore metropolitan statistical areas
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1 (as defined by the Secretary of Com2 merce).’’.

3 (d) CONFORMING AMENDMENT.—The heading for

4 section 121(d)(9) is amended to read as follows: ‘‘UNI5 FORMED SERVICES, FOREIGN SERVICE, AND INTEL6 LIGENCE COMMUNITY’’.

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

8 this section shall apply to sales or exchanges after the date

9 of the enactment of this Act.

10 SEC. 573. DISABILITY PREFERENCE PROGRAM FOR TAX

11 COLLECTION CONTRACTS.

12 (a) IN GENERAL.—The Secretary of the Treasury

13 shall not enter into any qualified tax collection contract

14 after April 1, 2006, until the Secretary implements a dis15 ability preference program that meets the requirements of

16 subsection (b).

17 (b) DISABILITY PREFERENCE PROGRAM REQUIRE18 MENTS.—

19 (1) IN GENERAL.—A disability preference pro20 gram meets the requirements of this subsection if

21 such program requires that not less than 10 percent

22 of the accounts of each dollar value category are

23 awarded to persons described in paragraph (2).
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1 (2) PERSON DESCRIBED.—For purposes of

2 paragraph (1), a person is described in this para3 graph if—

4 (A) as of the date any qualified tax collec5 tion contract is awarded—

6 (i) such person employs not less than

7 50 severely disabled individuals within the

8 United States; or

9 (ii) not less than 30 percent of the

10 employees of such person within the

11 United States are severely disabled individ12 uals;

13 (B) such person agrees as a condition of

14 the qualified tax collection contract that not

15 more than 90 days after the date such contract

16 is awarded, not less than 35 percent of the em17 ployees of such person employed in connection

18 with providing services under such contract

19 shall—

20 (i) be hired after the date such con21 tract is awarded; and

22 (ii) be severely disabled individuals;

23 and

24 (C) such person is otherwise qualified to

25 perform the services required.
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1 (c) DEFINITIONS.—For purposes of this section—

2 (1) QUALIFIED TAX COLLECTION CONTRACT.—

3 The term ‘‘qualified tax collection contract’’ shall

4 have the meaning given such term under section

5 6306(b) of the Internal Revenue Code of 1986.

6 (2) DOLLAR VALUE CATEGORY.—The term

7 ‘‘dollar value category’’ means the dollar ranges of

8 accounts for collection as determined and assigned

9 by the Secretary under section 6306(b)(1)(B) of the

10 Internal Revenue Code of 1986 with respect to a

11 qualified tax collection contract.

12 (3) SEVERELY DISABLED INDIVIDUAL.—The

13 term ‘‘severely disabled individual’’ means—

14 (A) a veteran of the United States armed

15 forces with a disability of 50 percent or

16 greater—

17 (i) determined by the Secretary of

18 Veterans Affairs to be service-connected; or

19 (ii) deemed by law to be service-con20 nected; or

21 (B) any individual who is a disabled bene22 ficiary (as defined in section 1148(k)(2) of the

23 Social Security Act (42 U.S.C. 1320b–

24 19(k)(2))) or who would be considered to be

25 such a disabled beneficiary but for having in-
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1 come or resources in excess of the income or re2 sources eligibility limits established under title

3 XVI of the Social Security Act (42 U.S.C. 1381

4 et seq.), respectively.

5 TITLE VI—COMPLIANCE WITH

6 CONGRESSIONAL BUDGET ACT

7 SEC. 601. SUNSET OF CERTAIN PROVISIONS AND AMEND8 MENTS.

9 The provisions of, and amendments made by, title I,

10 title II, subtitle A of title III, and title IV shall not apply

11 to taxable years beginning after September 30, 2010, and

12 the Internal Revenue Code of 1986 shall be applied and

13 administered to such years as if such provisions and

14 amendments had never been enacted.

Passed the Senate November 18 (legislative day, November 17), 2005.

Attest:

Secretary.
109TH CONGRESS

1ST SESSION S. 2020

AN ACT

To provide for reconciliation pursuant to section

for fiscal year 2006.202(b) of the concurrent resolution on the budget