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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 1309 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                S. 1309

  To amend title IV of the Social Security Act to ensure funding for 
  grants to promote responsible fatherhood and strengthen low-income 
                   families, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             June 19, 2009

  Mr. Bayh (for himself, Mrs. Lincoln, and Mr. Burris) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL

 
  To amend title IV of the Social Security Act to ensure funding for 
  grants to promote responsible fatherhood and strengthen low-income 
                   families, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Responsible 
Fatherhood and Healthy Families Act of 2009''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
TITLE I--PROMOTING RESPONSIBLE FATHERHOOD AND STRENGTHENING LOW-INCOME 
                                FAMILIES

Sec. 101. Healthy marriage promotion and responsible fatherhood 
                            programs.
Sec. 102. Elimination of separate TANF work participation rate for 2-
                            parent families.
Sec. 103. Ban on recovery of medicaid costs for births.
Sec. 104. Improved collection and distribution of child support.
Sec. 105. Grants to States to conduct demonstration projects to promote 
                            economic opportunity for low-income 
                            parents.
Sec. 106. State assessments of barriers to employment and financial 
                            support of children.
Sec. 107. Collection of child support under the supplemental nutrition 
                            assistance program.
Sec. 108. Grants supporting healthy family partnerships for domestic 
                            violence intervention and prevention.
Sec. 109. Procedures to address domestic violence prevention.
                      TITLE II--REVENUE PROVISIONS

Sec. 201. Modifications to the earned income tax credit.
Sec. 202. Clarification of economic substance doctrine.
Sec. 203. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 204. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) The most important factor in a child's upbringing is 
        whether the child is brought up in a loving, healthy, 
        supportive environment.
            (2) Children who grow up with two parents are, on average, 
        more likely than their peers in single-parent homes to finish 
        high school and be economically self-sufficient.
            (3) Father-child interaction, like mother-child 
        interaction, has been shown to promote the positive physical, 
        social, emotional, and mental development of children.
            (4) Children typically live without both parents when 
        parents are divorced or did not marry. More than \1/3\ of all 
        marriages end in divorce, and 60 percent of divorcing couples 
        have children. Almost 4 in 10 births are to unmarried women, 
        however, this figure varies by age. Six in 10 births to women 
        ages 20 to 24, nearly 1 in 10 births to women ages 25 to 28, 
        and 1 in 5 births to women in their 30s are to unmarried women.
            (5) More than 1 in 4 families with children have only 1 
        parent present, and more than 1 in 5 children live with their 
        mother only.
            (6) Recent studies demonstrate that most unwed fathers in 
        urban areas are highly involved with the mother of their child 
        before and after the child's birth, with 80 percent involved 
        with their mother's pregnancy, with 50 percent living with the 
        child's mother at the time of the child's birth. When the 
        children of these fathers were 5 years old, 50 percent had seen 
        their fathers 10 or fewer days in the past month, over 35 
        percent had not seen their fathers at all in the past month, 
        and nearly 23 percent had not seen their fathers at all in the 
        past 2 years.
            (7) An estimated 30 percent of the children who live in 
        households without their father have not seen their father in 
        at least 1 year, and only 40 percent have contact once or more 
        per month.
            (8) The inability of parents to sustain a healthy 
        relationship with their child's other parent and remain 
        involved in their child's life can have severe negative 
        consequences for the parents, the child, their community, and 
        taxpayers.
            (9) Early parenting has serious consequences for young men 
        and young women, their children, and society. Too-early 
        childbearing makes it harder for young parents to finish their 
        education. Fathers of children born to teen mothers have lower 
        earnings than fathers of children born to mothers who are in 
        their early 20s and children born to teen parents are more 
        likely to end up in poverty than children born to adult 
        parents. Children of teen parents are at increased risk of 
        involvement with the child welfare system and the sons of teen 
        mothers are more likely to end up in prison. The daughters of 
        teen mothers are more likely to end up teen mothers themselves. 
        In addition, teen childbearing costs taxpayers at least 
        $9,100,000,000 annually.
            (10) Single-parent families are 5 times as likely to be 
        poor as married-couple families.
            (11) Children raised in single-parent families are more 
        likely than children raised in 2-parent families to do poorly 
        in school, have emotional and behavioral problems, become 
        teenage parents, commit crimes, smoke cigarettes, abuse drugs 
        and alcohol, and have poverty-level incomes as adults.
            (12) High rates of unemployment and low wages are primary 
        reasons why parents do not marry, why 2-parent families break 
        up, and why fathers fail to remain involved with their 
        children.
            (13) Domestic violence is also a significant problem 
        leading to the non-formation or break-up of 2-parent families.
            (14) According to the National Fatherhood Initiative 
        National Marriage Survey in 2005, 42 percent of women and 9 
        percent of men cite domestic violence as the reason for their 
        divorces.
            (15) A history of incarceration is a major barrier to 
        employment. Sixty percent of young African-American men who 
        dropped out of high school have served time. When these men 
        leave prison, they often have difficulty finding a job and 
        supporting their children.
            (16) Over \1/2\ of State prison inmates are parents. When 
        noncustodial parents go to prison, their child support 
        obligations continue, even though they have little ability to 
        pay the support. When these parents leave prison, they 
        typically owe more than $20,000 in child support debt. 
        Noncustodial parents leaving prison often re-enter the 
        underground economy because of financial pressures or to avoid 
        the child support system, making it less likely that they will 
        successfully rejoin society and reunite with their families.
            (17) Children should receive the child support paid by 
        their parents, and the government should not keep the money to 
        recover welfare costs. Current pass-through limits on Federal 
        cost-sharing have been a barrier to States choosing to pass 
        through child support. Regular child support income appears to 
        have a greater positive impact on children dollar for dollar 
        than other types of income. Researchers in Wisconsin found that 
        when monthly child support was passed through to families 
        receiving assistance under the Temporary Assistance for Needy 
        Families program established under part A of title IV of the 
        Social Security Act (TANF) and disregarded 100 percent in 
        determining assistance for the families, fathers paid more 
        child support, established their legal relationship with their 
        children more quickly, and worked less in the underground 
        economy. Moreover, the State costs of a full pass-through and 
        disregard of child support were fully offset by increased 
        payments by fathers and decreased public assistance use by 
        families.
            (18) The Department of Health and Human Services National 
        Child Support Enforcement Strategic Plan for fiscal years 2005 
        through 2009 states that ``child support is no longer a welfare 
        reimbursement, revenue-producing device for the Federal and 
        State governments; it is a family-first program, intended to 
        ensure families' self-sufficiency by making child support a 
        more reliable source of income''.
            (19) Current law permits States to apply the cost of 
        passing through child support to families receiving assistance 
        under the TANF program toward their maintenance of effort (MOE) 
        requirements, but only to the extent that the State disregards 
        the child support payments in determining the amount and type 
        of TANF assistance.
            (20) Programs that increase employment opportunity and 
        reduce barriers by increasing employment opportunity and 
        reducing recidivism will benefit children and families.
            (21) Transitional jobs programs have shown promise in 
        reducing unemployment among chronically unemployed or 
        underemployed population groups, including formerly 
        incarcerated individuals, the homeless, and young African-
        American men.
            (22) To strengthen families it is important to improve the 
        upward economic mobility of the custodial and noncustodial 
        parent wage-earners, as well as youth at risk of early 
        parenthood or incarceration, by providing the skills and 
        experience necessary to access jobs with family-sustaining 
        wages and benefits. In families in which all the members do not 
        live together, this is important to enable the prompt and 
        consistent payment of adequate child support.
            (23) It is important and useful to foster local and 
        regional economic development and job advancement for workers, 
        especially young custodial and noncustodial parents, by funding 
        local collaborations among business, education, and the 
        community in the development of pathways for preparing 
        disadvantaged citizens to meet the workforce needs of the local 
        and regional economy.
            (24) Employers benefit from working with and being 
        supported by the local education, post-secondary and workforce 
        systems in identifying the academic and occupational skill sets 
        needed to fill the skilled jobs in the changing economy. Local 
        economic and community development is enhanced when residents 
        have access to higher wage employment, thus increasing the tax 
        base, fueling the economy, and contributing to greater family 
        economic security.
            (25) Public-private career pathways partnerships are an 
        important tool for linking employers and workers with the 
        workforce education services they need and for integrating 
        community economic development and workforce education 
        services. Transitional jobs programs can serve as the first 
        step in a career pathway by giving unemployed individuals with 
        multiple barriers to employment, valuable work experience and 
        related services.
            (26) The purpose of child support is to provide necessary 
        income support for and increase the well-being of children 
        living apart from a parent. To improve the ability of low-
        income noncustodial parents to provide long-term support and 
        care for their children throughout their entire childhood, it 
        is important that child support polices support parental 
        efforts to pursue education and employment and to stay involved 
        with their children.
            (27) Responsible parenthood includes active participation 
        in financial support and child-rearing, as well as the 
        formation and maintenance of a positive, healthy, and 
        nonviolent relationship between parent and child and a 
        cooperative, healthy, and nonviolent relationship between 
        parents.
            (28) States should be encouraged to implement voluntary 
        programs that provide support for responsible parenting, 
        including by increasing the employment and financial security 
        of parents, and, when it is appropriate, with appropriate 
        safeguards related to child abuse and domestic violence, the 
        parental involvement of noncustodial parents.
            (29) Promoting responsible parenthood saves the government 
        money by reducing the need for public assistance, increasing 
        the educational attainment of children, reducing juvenile 
        delinquency and crime, reducing substance abuse, and lowering 
        rates of unemployment.
            (30) Programs to encourage responsible fatherhood or 
        responsible motherhood should promote and provide support 
        services for--
                    (A) fostering loving and healthy relationships 
                between parents and children;
                    (B) increasing responsibility of noncustodial 
                parents for the long-term care and financial well-being 
                of their children;
                    (C) increasing employment of low-income, 
                noncustodial parents and improving compliance with 
                child support obligations; and
                    (D) reducing barriers to active 2-parent 
                involvement and cooperative parenting.
            (31) The promotion of healthy marriage and responsible 
        parenthood should not denigrate the standing or parenting 
        efforts of single parents or other caregivers, lessen the 
        protection of children from abusive parents, or compromise the 
        safety or health of the custodial or noncustodial parent, but 
        should increase the chance that children will have 2 caring 
        parents to help them grow up healthy and secure.

TITLE I--PROMOTING RESPONSIBLE FATHERHOOD AND STRENGTHENING LOW-INCOME 
                                FAMILIES

SEC. 101. HEALTHY MARRIAGE PROMOTION AND RESPONSIBLE FATHERHOOD 
              PROGRAMS.

    (a) Ensuring Funding for Responsible Fatherhood Programs.--Section 
403(a)(2)(C) of the Social Security Act (42 U.S.C. 603(a)(2)(C)) is 
amended--
            (1) in the subparagraph heading, by striking ``Limitation 
        on use of'' and inserting ``Requirement to use certain''; and
            (2) in clause (i), by striking ``may not award more than 
        $50,000,000'' and inserting ``shall award at least 
        $100,000,000''.
    (b) Assurance of Voluntary Participation.--Section 
403(a)(2)(A)(ii)(II) of the Social Security Act (42 U.S.C. 
603(a)(2)(A)(ii)(II)) is amended--
            (1) in item (aa), by striking ``and'' at the end;
            (2) in item (bb), by striking the period at the end and 
        inserting a semicolon; and
            (3) by adding at the end the following new items:
                                            ``(cc) to not condition the 
                                        receipt of assistance under the 
                                        program funded under this part, 
                                        under a program funded with 
                                        qualified State expenditures 
                                        (as defined in section 
                                        409(a)(7)(B)(i)), or under any 
                                        other program funded under this 
                                        title on enrollment in any such 
                                        programs or activities; and
                                            ``(dd) to permit any 
                                        individual who has begun to 
                                        participate in a particular 
                                        program or activity funded 
                                        under this paragraph, including 
                                        an individual whose 
                                        participation is specified in 
                                        the individual responsibility 
                                        plan developed for the 
                                        individual in accordance with 
                                        section 408(b), to transfer to 
                                        another such program or 
                                        activity funded under this 
                                        paragraph upon notification to 
                                        the entity and the State agency 
                                        responsible for administering 
                                        the State program funded under 
                                        this part.''.
    (c) Activities Promoting Responsible Fatherhood.--Section 
403(a)(2)(C)(ii) of the Social Security Act (42 U.S.C. 
603(a)(2)(C)(ii)) is amended--
            (1) in subclause (I), by striking ``marriage or sustain 
        marriage'' and insert ``healthy relationships and healthy 
        marriages or to sustain healthy relationships or healthy 
        marriages'';
            (2) in subclause (II), by inserting ``educating youth who 
        are not yet parents about the economic, social, and family 
        consequences of early parenting, helping participants in 
        fatherhood programs work with their own children to break the 
        cycle of early parenthood,'' after ``child support payments,''; 
        and
            (3) in subclause (III), by striking ``fathers'' and 
        inserting ``low-income fathers and other low-income 
        noncustodial parents''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2009.

SEC. 102. ELIMINATION OF SEPARATE TANF WORK PARTICIPATION RATE FOR 2-
              PARENT FAMILIES.

    (a) In General.--Section 407 of the Social Security Act (42 U.S.C. 
607) is amended--
            (1) in subsection (a)--
                    (A) beginning in the heading, by striking 
                ``Participation Rate Requirements'' and all that 
                follows through ``A State'' in paragraph (1) and 
                inserting ``Participation Rate Requirements.--A 
                State''; and
                    (B) by striking paragraph (2);
            (2) in subsection (b)--
                    (A) in paragraph (1)(A), by striking ``subsection 
                (a)(1)'' and inserting ``subsection (a)'';
                    (B) in paragraph (2), by striking the paragraph 
                heading and all that follows through ``A family'' and 
                inserting ``Special rule.--A family'';
                    (C) in paragraph (4), by striking ``paragraphs 
                (1)(B) and (2)(B)'' and inserting ``determining monthly 
                participation rates under paragraph (1)(B)''; and
                    (D) in paragraph (5), by striking ``rates'' and 
                inserting ``rate''; and
            (3) in subsection (c)--
                    (A) in paragraph (1)(B), in the matter preceding 
                clause (i), by striking ``subsection (b)(2)(B)'' and 
                inserting ``subsection (b)(1)(B)(i)''; and
                    (B) in paragraph (2)(D)--
                            (i) by striking ``paragraphs (1)(B)(i) and 
                        (2)(B) of subsection (b)'' and inserting 
                        ``subsection (b)(1)(B)(i)''; and
                            (ii) by striking ``and in 2-parent 
                        families, respectively,''.
    (b) Effective Date.--
            (1) In general.--The amendments made by subsection (a) 
        shall take effect on the date of enactment of this Act and 
        shall apply to the determination of minimum participation rates 
        for months beginning on or after that date.
            (2) Limitation on penalty imposition.--Notwithstanding 
        section 409(a)(3) of the Social Security Act, the Secretary of 
        Health and Human Services shall not impose a penalty against a 
        State under that section on the basis of the State's failure to 
        satisfy the participation rate required for fiscal year 2006, 
        2007, 2008, or 2009 if the State demonstrates that the State 
        would have met such requirement if, with respect to those 
        months of fiscal year 2009 that began prior to or on the date 
        of enactment of this Act, the State were permitted to count 2-
        parent families that met the requirements of section 
        407(c)(1)(A) of the Social Security Act (42 U.S.C. 
        607(c)(1)(A)) in the determination of monthly participation 
        rates under section 407(b)(1)(B)(i) of such Act (42 U.S.C. 
        607(b)(1)(B)(i)).

SEC. 103. BAN ON RECOVERY OF MEDICAID COSTS FOR BIRTHS.

    (a) Ban on Recovery.--
            (1) In general.--Section 454 of the Social Security Act (42 
        U.S.C. 654), as amended by section 7301 of Public Law 109-171, 
        is amended--
                    (A) by striking ``and'' at the end of paragraph 
                (33);
                    (B) by striking the period at the end of paragraph 
                (34) and inserting a semicolon; and
                    (C) by inserting after paragraph (34) the 
                following:
            ``(35) provide that, except as provided in section 
        1902(a)(25)(F)(ii), the State shall not use the State program 
        operated under this part to collect any amount owed to the 
        State by reason of costs incurred under the State plan approved 
        under title XIX for the birth of a child for whom support 
        rights have been assigned pursuant to section 471(a)(17) or 
        1912; and''.
            (2) Rule of construction.--Nothing in section 454(35) of 
        the Social Security Act (42 U.S.C. 654(34)), as added by 
        paragraph (1), shall be construed as affecting the application 
        of section 1902(a)(25) of such Act (42 U.S.C. 1396a(a)(25)) 
        with respect to a State (relating to the State Medicaid plan 
        requirement for the State to take all reasonable measures to 
        ascertain the legal liability of third parties to pay for care 
        and services available under the plan).
    (b) Clarification That Ban on Recovery Does Not Apply With Respect 
to Insurance of a Parent With an Obligation To Pay Child Support.--
Clause (ii) of section 1902(a)(25)(F) of the Social Security Act (42 
U.S.C. 1396a(a)(25)(F)) is amended by inserting ``only if such third-
party liability is derived through insurance,'' before ``seek''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section take effect on October 1, 2009.
            (2) Extension of effective date for state law amendment.--
        In the case of a State plan under title XIX of the Social 
        Security Act (42 U.S.C. 1396 et seq.) which the Secretary of 
        Health and Human Services determines requires State legislation 
        in order for the plan to meet the additional requirements 
        imposed by the amendments made by this section, the State plan 
        shall not be regarded as failing to comply with the 
        requirements of such title solely on the basis of its failure 
        to meet these additional requirements before the first day of 
        the first calendar quarter beginning after the close of the 
        first regular session of the State legislature that begins 
        after the date of enactment of this Act. For purposes of the 
        previous sentence, in the case of a State that has a 2-year 
        legislative session, each year of the session is considered to 
        be a separate regular session of the State legislature.

SEC. 104. IMPROVED COLLECTION AND DISTRIBUTION OF CHILD SUPPORT.

    (a) Elimination of Pass-Through Limits and Other Changes Effective 
Beginning With Fiscal Year 2010.--
            (1) Elimination of pass-through limits on federal cost-
        sharing.--Section 457(a)(6)(B) of the Social Security Act (42 
        U.S.C. 657(a)(6)(B)) (as redesignated by clause (iii) of 
        section 7301(b)(1)(B) of the Deficit Reduction Act of 2005), is 
        amended to read as follows:
                    ``(B) Families that currently receive assistance.--
                Notwithstanding paragraph (1), in the case of a family 
                that receives assistance from the State, a State shall 
                not be required to pay to the Federal Government the 
                Federal share of any amount collected on behalf of such 
                family during a month to the extent that--
                            ``(i) the State pays the amount to the 
                        family; and
                            ``(ii) the amount is disregarded in 
                        determining the amount and type of assistance 
                        provided to the family under such program.''.
            (2) Child support state plan amendment.--Section 454 of the 
        Social Security Act (42 U.S.C. 654), as amended by section 
        103(a)(1), is amended by adding at the end the following new 
        paragraph:
            ``(36) provide that a State shall pay all collected child 
        support to the payee, except as provided in section 457, and 
        shall not use the State program operated under this part to 
        retain payments to recover the cost of State-funded assistance 
        or benefits.''.
            (3) Disbursement of support payments.--Section 454B(c) of 
        the Social Security Act (42 U.S.C. 654B(c)) is amended by 
        adding at the end the following new paragraph:
            ``(3) Disbursement to families.--The State disbursement 
        unit shall pay all collected child support to the payee, except 
        as otherwise provided in section 457, and may not disburse 
        collections to the State to reimburse the State for assistance 
        or benefits provided under a State-funded program.''.
            (4) State option to condition receipt of tanf on assignment 
        of support.--Section 408(a)(3) of the Social Security Act (42 
        U.S.C. 608(a)(3)) is amended--
                    (A) in the paragraph heading, by striking ``No 
                assistance for families not'' and inserting ``State 
                option to condition assistance for families on''; and
                    (B) by striking ``shall'' and inserting ``may''.
            (5) Inclusion of distributions to former tanf families in 
        determination of tanf maintenance of effort.--Section 
        409(a)(7)(B)(i)(V) of the Social Security Act (42 U.S.C. 
        609(a)(7)(B)(i)(V)) is amended by inserting ``, including the 
        State share of child support distributed to former TANF 
        families under an election by the State under section 454(34) 
        (as in effect on the day before the date of enactment of the 
        Responsible Fatherhood and Healthy Families Act of 2009) to 
        apply the amendments made by subsection (b)(1) of section 7301 
        of the Deficit Reduction Act of 2005 (as so in effect)'' after 
        ``401(a)''.
            (6) State option to discontinue older support 
        assignments.--Section 457(b) of the Social Security Act (42 
        U.S.C. 657(b)) is amended to read as follows:
    ``(b) Continuation of Assignments.--
            ``(1) In general.--Any rights to support obligations 
        assigned to a State as a condition of receiving assistance from 
        the State under parts A and E and in effect on September 30, 
        2009 (or such earlier date as the State may choose), may be 
        discontinued after such date.
            ``(2) Distribution of amounts after assignment 
        discontinuation.--If a State chooses to discontinue the 
        assignment of a support obligation described in paragraph (1), 
        the State may treat amounts collected pursuant to the 
        assignment as if the amounts had never been assigned and may 
        distribute the amounts to the family in accordance with 
        subsections (a) and (c).''.
            (7) Effective date.--The amendments and repeal made by this 
        subsection take effect on October 1, 2009, and shall apply to 
        payments under parts A and D of title IV of the Social Security 
        Act for calendar quarters beginning on or after that date, and 
        without regard to whether regulations to implement the 
        amendments are promulgated by such date.
    (b) Reform of Rules for Distribution of Child Support Collected on 
Behalf of Children in Foster Care Beginning With Fiscal Year 2011.--
            (1) In general.--Section 457 of such Act (42 U.S.C. 657) is 
        amended--
                    (A) by striking subsections (d) and (e);
                    (B) by redesignating subsection (c) as subsection 
                (d); and
                    (C) by inserting after subsection (b) the 
                following:
    ``(c) Amounts Collected for Child for Whom Foster Care Maintenance 
Payments Are Made.--Amounts collected by a State as child support for 
months in any period on behalf of a child for whom a public agency is 
making foster care maintenance payments under part E shall be paid to 
the public agency responsible for supervising the placement of the 
child and used in the manner such public agency determines will serve 
the best interests of the child, which may include depositing the funds 
in a child asset account for the child's future needs or making all or 
a part thereof available to the individual responsible for meeting the 
child's day-to-day needs. A State shall not be required to pay to the 
Federal Government the Federal share of any amounts collected on behalf 
of a child and used by the public agency in the best interests of the 
child in accordance with this subsection.''.
            (2) Foster care state plan amendment.--Section 471(a)(17) 
        of the Social Security Act (42 U.S.C. 671(a)(17)) is amended--
                    (A) by inserting ``and consistent with the child's 
                case plan'' after ``where appropriate''; and
                    (B) by striking ``secure an assignment to the State 
                of any rights to support'' and inserting ``establish 
                paternity and establish, modify, and enforce child 
                support obligations''.
            (3) Effective date.--The amendments made by this subsection 
        take effect on October 1, 2010, and shall apply to collections 
        made on behalf of children who are receiving foster care 
        maintenance payments under part E of title IV of the Social 
        Security Act for calendar quarters beginning on or after that 
        date, and without regard to whether regulations to implement 
        the amendments are promulgated by such date.
    (c) Full Distribution of Child Support Collected and Other Changes 
Beginning With Fiscal Year 2015.--
            (1) Full distribution of child support collected.--
                    (A) In general.--Section 457 of the Social Security 
                Act (42 U.S.C. 657) is amended by striking subsection 
                (a) and inserting the following:
    ``(a) Full Distribution of Amounts Collected on Behalf of Any 
Child.--Subject to subsection (c), the entire amount collected on 
behalf of any child as support by a State pursuant to a plan approved 
under this part shall be paid by the State to the family (or, in the 
case of a child receiving assistance under part E, to the public agency 
responsible for supervising the child's placement), and shall not be 
retained by the State to reimburse costs of assistance provided under 
part A, part E, or any State-funded assistance or benefits.''.
                    (B) Conforming amendments.--
                            (i) Section 409(a)(7)(B)(i)(I)(aa) of such 
                        Act (42 U.S.C. 609(a)(7)(B)(i)(I)(aa)) is 
                        amended by striking ``457(a)(1)(B)'' and 
                        inserting ``457(a)''.
                            (ii) Section 454(5) of such Act (42 U.S.C. 
                        654(5)) is amended by striking ``(A) in any 
                        case'' and all that follows through ``(B)''.
                            (iii) Section 454 of such Act (42 U.S.C. 
                        654) is amended by striking paragraph (34).
                            (iv) Section 457 of such Act (42 U.S.C. 
                        657), as amended by subsection (b)(1)(3) of 
                        this Act, is amended by striking subsection 
                        (d).
                    (C) Repeal of dra amendments.--The amendments made 
                by subsections (a) and (b) of section 7301 the Deficit 
                Reduction Act (Public Law 109-171; 120 Stat. 141) are 
                repealed.
            (2) Requirement to disregard percentage of child support 
        collected in determining amount and type of tanf assistance.--
        Section 408(a) of the Social Security Act (42 U.S.C. 608(a)) is 
        amended by adding at the end the following new paragraph:
            ``(12) Requirement to disregard percentage of child support 
        collected in determining amount and type of tanf assistance.--A 
        State to which a grant is made under section 403 shall 
        disregard at least the same percentage of amounts collected as 
        support on behalf of a family as the percentage of earned 
        income that the State disregards in determining the amount or 
        type of assistance provided to the family under the State 
        program funded under this part or under a program funded with 
        qualified State expenditures (as defined in section 
        409(a)(7)(B)(i)).''.
            (3) Effective date.--The amendments and repeal made by this 
        subsection take effect on October 1, 2014, and shall apply to 
        payments under parts A and D of title IV of the Social Security 
        Act for calendar quarters beginning on or after that date, and 
        without regard to whether regulations to implement the 
        amendments are promulgated by such date.
    (d) Immediate Elimination of Certain Changes Made by the Deficit 
Reduction Act of 2005 and Other Improvements.--
            (1) Immediate restoration of certain dra changes.--
                    (A) Restoration of federal matching of certain 
                state spending.--
                            (i) In general.--Section 2104 of division B 
                        of the American Recovery and Reinvestment Act 
                        of 2009 (Public Law 111-5) is amended to read 
                        as follows:

``SEC. 2104. RESUMPTION OF PRIOR CHILD SUPPORT LAW.

    ``Effective October 1, 2008, section 455(a)(1) of the Social 
Security Act (42 U.S.C. 655(a)(1)) is amended by striking `from amounts 
paid to the State under section 458 or'.''.
                            (ii) Repeal of dra amendment.--The 
                        amendment made by section 7309 of the Deficit 
                        Reduction Act of 2005 (Public Law 109-171; 120 
                        Stat. 147) is repealed.
                    (B) Repeal of mandatory fee for child support 
                collection.--
                            (i) Elimination of dra amendments.--Section 
                        454(6)(B) of such Act (42 U.S.C. 654(6)(B)) is 
                        amended--
                                    (I) by striking clause (ii);
                                    (II) by striking ``(i)'' after 
                                ``(B)''; and
                                    (III) by redesignating subclauses 
                                (I) and (II) as clauses (i) and (ii), 
                                respectively, and realigning the left 
                                margins of such clauses accordingly.
                            (ii) Conforming amendment.--Effective as if 
                        enacted on October 1, 2009, section 457(a) of 
                        the Social Security Act, as amended by section 
                        7301(b)(1)(A) of the Deficit Reduction Act of 
                        2005, is amended by striking paragraph (4).
                            (iii) Repeal of dra amendments.--The 
                        amendments made by section 7310 of the Deficit 
                        Reduction Act of 2005 (Public Law 109-171, 120 
                        Stat. 147) are repealed.
                    (C) Conforming amendment.--Section 466(a)(3)(B) of 
                such Act (42 U.S.C. 666(a)(3)(B)) is amended by 
                striking ``in accordance with'' and all that follows 
                through the semicolon and inserting ``after deduction 
                of any fees imposed by the State to cover the costs of 
                collection, in accordance with section 457;''.
            (2) Other immediate improvements.--
                    (A) Prohibition on considering a period of 
                incarceration voluntary unemployment.--Section 466(a) 
                of the Social Security Act (42 U.S.C. 666(a)) is 
                amended by inserting after paragraph (19) the following 
                new paragraph:
            ``(20) Procedures relating to periods of incarceration of 
        noncustodial parents.--
                    ``(A) In general.--Procedures which require that, 
                in determining or modifying the amount of, or terms and 
                conditions of, any support obligation of a noncustodial 
                parent, the State--
                            ``(i) shall not consider any period of 
                        incarceration of such parent as a period of 
                        voluntary unemployment that disqualifies the 
                        parent from obtaining a modification of the 
                        support obligation consistent with the parent's 
                        ability to pay child support; and
                            ``(ii) subject to subparagraph (B) in the 
                        case of an incarcerated parent, may--
                                    ``(I) temporarily suspend any 
                                support obligation on the parent and 
                                the enforcement of any support 
                                obligation of the parent existing prior 
                                to the period of incarceration; and
                                    ``(II) temporarily prohibit the 
                                accrual of any interest on any support 
                                obligation of the parent existing prior 
                                to the period of incarceration during 
                                any such period.
                    ``(B) Notice and opportunity to challenge 
                suspension.--Such procedures shall require the State to 
                provide a custodial parent with--
                            ``(i) notice of any suspension of review, 
                        adjustment, or enforcement of a support 
                        obligation and of any prohibition on interest 
                        accrual on such obligation that is imposed in 
                        accordance with subparagraph (A)(ii); and
                            ``(ii) an opportunity to request that the 
                        suspension or prohibition be terminated or 
                        modified on the basis that the noncustodial 
                        parent has sufficient income or resources to 
                        continue payment of the support obligation 
                        during the noncustodial parent's period of 
                        incarceration.''.
                    (B) Forgiving or other modification of child 
                support arrearages assigned to the state.--Section 
                466(a)(9) of the Social Security Act (42 U.S.C. 
                666(a)(9)) is amended in the flush matter following 
                subparagraph (C), by inserting the following new 
                sentence at the end: ``Nothing in this paragraph shall 
                be construed as prohibiting a State from forgiving, 
                compromising, reducing or waiving arrearages 
                permanently assigned to the State under part A or E or 
                under title XIX.''.
                    (C) Review and adjustment of child support 
                arrearages upon request.--Section 466(a)(10) of the 
                Social Security Act (42 U.S.C. 666(a)(10)) is amended 
                by adding at the end the following new subparagraph:
                            ``(d) Review and adjustment of 
                        arrearages.--Procedures which require the State 
                        to review, and if appropriate, reduce the 
                        balance of arrearages permanently assigned to 
                        the State under part A or E, or under title 
                        XIX, pursuant to standards and procedures 
                        established by the State, in cases where the 
                        obligor lacks sufficient ability to pay the 
                        arrears, adjustment will promote timely payment 
                        of current support, or barriers, such as 
                        incarceration, may have limited the ability of 
                        the obligor to timely seek a modification of 
                        the order, and it is in the best interests of 
                        the child to make such reduction. Nothing in 
                        the preceding sentence shall be construed as 
                        affecting arrearages that have not been 
                        permanently assigned to the State under such 
                        part or title.''.
                    (D) Update of title iv-d purposes.--Section 451 of 
                the Social Security Act (42 U.S.C. 651) is amended by 
                striking ``purpose of'' and all that follows through 
                ``for whom such assistance is requested,'' and 
                inserting ``purposes of enforcing the support 
                obligations owed by noncustodial parents to their 
                children and the spouse (or former spouse) with whom 
                such children are living, locating parents, 
                establishing paternity, providing assistance in 
                obtaining child and spousal support to all children for 
                whom such assistance is requested (whether or not 
                eligible for assistance under a State program funded 
                under part A), obtaining health care coverage for 
                children participating in the State child support 
                program, and carrying out other activities that improve 
                child well-being by increasing the ability of parents 
                to support their children financially and 
                emotionally,''.
            (3) Effective date.--Except as provided in paragraph 
        (1)(B)(ii), the amendments and repeals made by this subsection 
        shall take effect on the date of enactment of this Act, or 
        October 1, 2009 (whichever is earlier), and shall apply to 
        payments under parts A and D of title IV of the Social Security 
        Act for calendar quarters beginning on or after that date, and 
        without regard to whether regulations to implement the 
        amendments are promulgated by such date.
    (e) Study and Report.--Not later than October 1, 2010, the 
Secretary of Health and Human Services shall study and submit a report 
to Congress regarding the following:
            (1) The effect of age eligibility restrictions for the 
        earned income tax credit established under section 32 of the 
        Internal Revenue Code of 1986 for individuals without 
        qualifying children on--
                    (A) the ability of young parents to pay child 
                support;
                    (B) compliance with child support orders; and
                    (C) the relationship between young noncustodial 
                parents and their children.
            (2) The impact of State earned income tax credit programs, 
        especially such programs with targeted benefits for 
        noncustodial parents, on--
                    (A) the ability of noncustodial parents to pay 
                child support;
                    (B) compliance with child support orders; and
                    (C) the relationship between noncustodial parents 
                and their children.
            (3) The challenges faced by legal immigrants and 
        individuals for whom English is not their primary language in 
        fulfilling child support and other noncustodial parenting 
        obligations.

SEC. 105. GRANTS TO STATES TO CONDUCT DEMONSTRATION PROJECTS TO PROMOTE 
              ECONOMIC OPPORTUNITY FOR LOW-INCOME PARENTS.

    (a) Court-Supervised or IV-D Agency-Supervised Employment Programs 
for Noncustodial Parents.--
            (1) In general.--To assist States in implementing section 
        466(a)(15) of the Social Security Act (42 U.S.C. 666(a)(15)), 
        the Secretary of Health and Human Services shall award grants 
        to States to establish, in coordination with counties and other 
        local or tribal governments, court-supervised or IV-D agency 
        supervised-employment programs for noncustodial parents who 
        have barriers to employment and a history of nonpayment of 
        child support obligations, as determined by a court or the IV-D 
        agency, and who are determined by the court or agency to be in 
        need of employment services or placement in order to pay such 
        child support obligations. A noncustodial parent described in 
        the preceding sentence who is an ex-offender shall be eligible 
        to participate in a program established under this subsection.
            (2) Requirements.--
                    (A) Option to participate prior to contempt 
                finding.--A State shall not be eligible to receive a 
                grant under this subsection unless any program 
                established with funds made available under the grant 
                provides noncustodial parents described in paragraph 
                (1) with an option to participate in the program prior 
                to the court or agency entering a finding that the 
                noncustodial parent is in contempt for failure to pay a 
                child support obligation and, potentially subject to 
                criminal penalties.
                    (B) Program goals.--An employment program 
                established with funds made available under a grant 
                awarded under this subsection shall be designed to do 
                the following:
                            (i) To assist noncustodial parents 
                        described in paragraph (1) obtain and maintain 
                        unsubsidized employment.
                            (ii) To increase the amount of financial 
                        support received by children.
                            (iii) To help noncustodial parents 
                        described in paragraph (1) improve 
                        relationships with their children and their 
                        children's custodial parent.
                    (C) 6 months of continuous, timely payments.--An 
                employment program established with funds made 
                available under this subsection shall not permit a 
                noncustodial parent placed in the program to graduate 
                from the program and avoid penalties for failure to pay 
                a child support obligation until the noncustodial 
                parent completes at least 6 months of continuous, 
                timely payment of the parent's child support 
                obligations.
                    (D) Use of funds.--
                            (i) Services provided under an employment 
                        program established with funds made available 
                        under a grant made under this subsection must 
                        include the following:
                                    (I) Job placement, including job 
                                development and supervised job search 
                                as necessary.
                                    (II) Case management, including 
                                educational assessment and advising, 
                                vocational assessment and career 
                                exploration services, and court liaison 
                                services.
                                    (III) Counseling on responsible 
                                parenthood.
                                    (IV) Referral for support and 
                                educational services.
                                    (V) Employment retention services.
                            (ii) Services provided under an employment 
                        program established with funds made available 
                        under a grant made under this subsection may 
                        include the following:
                                    (I) Remedial education services or 
                                educational referral.
                                    (II) Support funds for services 
                                such as transportation, child care, or 
                                job readiness training.
                                    (III) Transitional jobs programs.
                                    (IV) Public-private career pathway 
                                partnerships established in accordance 
                                with subsection (b)(2).
                                    (V) Occupational skill training, 
                                including college credit programs.
                                    (VI) Curricula development.
                    (E) Administration.--A State that receives a grant 
                under this subsection may contract with a public or 
                private nonprofit organization, including a faith-based 
                or community-based organization, to administer (in 
                conjunction with the court of jurisdiction or the IV-D 
                agency) the court-supervised or IV-D agency-supervised 
                employment program.
    (b) Transitional Jobs and Career Pathways Partnership Grants.--The 
Secretary of Labor shall award grants to States to conduct 
demonstration projects to carry out one or more of the projects 
described in paragraphs (1) and (2).
            (1) Transitional jobs grants.--
                    (A) In general.--The Secretary of Labor may award 
                grants under this subsection to establish and expand 
                transitional jobs programs for eligible individuals, 
                including such programs conducted by local governments, 
                State employment agencies, nonprofit organizations, and 
                faith-based or community-based organizations or 
                intermediaries, that--
                            (i) combine time-limited employment in 
                        transitional jobs that may be subsidized with 
                        public funds, with activities that promote 
                        skill development and remove barriers to 
                        employment, such as case management services 
                        and education, training, child support-related 
                        services, and other activities, pursuant to 
                        individual plans; and
                            (ii) provide such individuals with--
                                    (I) transitional jobs placements 
                                and job placement assistance, to help 
                                the individuals make the transition 
                                from subsidized employment in 
                                transitional jobs to stable 
                                unsubsidized employment; and
                                    (II) retention services after the 
                                transition to unsubsidized employment.
                    (B) Eligible individuals.--For purposes of this 
                paragraph, the term ``eligible individuals'' means 
                individuals within any of the following categories of 
                disproportionately chronically unemployed individuals:
                            (i) Individuals who have attained age 16, 
                        but not attained age 36, and who have 
                        documented barriers to employment such as lack 
                        of a high school diploma, limited English 
                        proficiency, aging out of foster care, or 
                        offender status, particularly such individuals 
                        who are parents or expectant parents.
                            (ii) Formerly incarcerated individuals.
                            (iii) Homeless or formerly homeless 
                        individuals.
                            (iv) Individuals with disabilities.
                            (v) Individuals designated by a court or 
                        the IV-D agency to participate in transitional 
                        jobs programs.
                    (C) Limitations on use of funds.--
                            (i) Allowable activities.--A State that 
                        receives a grant under this paragraph (or a 
                        subgrantee of such State) (referred to in this 
                        paragraph as the ``program operator'') shall 
                        use the funds made available under the grant to 
                        operate a transitional jobs program for 
                        eligible individuals consistent with the 
                        following requirements:
                                    (I) Jobs.--The program operator 
                                shall place eligible individuals in 
                                temporary jobs, the incomes from which 
                                may be subsidized in whole or in part 
                                with public funds. An eligible 
                                individual placed in such a job 
                                (referred to in this paragraph as ``a 
                                participant'') shall perform work 
                                directly for the program operator or 
                                another public, nonprofit, or private 
                                sector organization (which operator or 
                                organization may be referred to in this 
                                paragraph as a ``worksite employer'') 
                                within the community involved.
                                    (II) Hours.--
                                            (aa) In general.--Subject 
                                        to item (bb), the transitional 
                                        jobs program shall provide a 
                                        participant with not less than 
                                        30, and not more than 40, hours 
                                        per week of a combination of 
                                        paid employment and the 
                                        services described in 
                                        subclauses (III), (IV), and 
                                        (V).
                                            (bb) Accommodation of 
                                        special circumstances.--The 
                                        number of hours per week 
                                        required under item (aa) may be 
                                        adjusted in the case of a 
                                        participant who requires a 
                                        modified work week to 
                                        accommodate special 
                                        circumstances.
                                    (III) Job preparation and 
                                services.--The program operator shall--
                                            (aa) develop an individual 
                                        plan for each participant, 
                                        which shall contain a goal that 
                                        focuses on preparation of the 
                                        participant for unsubsidized 
                                        jobs in demand in the local 
                                        economy that offer the 
                                        potential for advancement and 
                                        growth (including increases in 
                                        wages and benefits);
                                            (bb) develop transitional 
                                        jobs placements for 
                                        participants that will best 
                                        prepare them for jobs described 
                                        in item (aa) or participation 
                                        in the public-private career 
                                        pathway partnerships 
                                        established in accordance with 
                                        paragraph (2); and
                                            (cc) provide case 
                                        management services and ensure 
                                        that appropriate education, 
                                        training, and other activities 
                                        are available to participants, 
                                        consistent with each 
                                        participant's individual plan.
                                    (IV) Job placement assistance and 
                                retention services.--The program 
                                operator shall provide job placement 
                                assistance to help participants obtain 
                                unsubsidized employment and shall 
                                provide retention services to the 
                                participants for a minimum of 6 months 
                                after entry into the unsubsidized 
                                employment.
                                    (V) Education or training.--In any 
                                workweek in which a participant is 
                                scheduled to work at least 30 hours in 
                                the program, not less than 20 percent 
                                of the scheduled hours and not more 
                                than 50 percent of the scheduled hours 
                                shall involve participation in--
                                            (aa) education or training 
                                        activities designed to improve 
                                        the participant's employability 
                                        and potential earnings;
                                            (bb) other activities 
                                        designed to reduce or eliminate 
                                        any barriers that may impede 
                                        the participant's ability to 
                                        secure and advance in 
                                        unsubsidized employment; or
                                            (cc) activities designed to 
                                        promote financial literacy and 
                                        the use of products and 
                                        services that increase personal 
                                        savings and build financial 
                                        assets for family support, 
                                        education, homeownership, and 
                                        retirement.
                                    (VI) Duration.--
                                            (aa) In general.--Subject 
                                        to item (bb), the duration of 
                                        any placement in the program 
                                        shall be for a minimum period 
                                        of 3 consecutive months.
                                            (bb) 3-month extension.--A 
                                        program placement may be 
                                        extended for up to 2 additional 
                                        consecutive 3-month periods 
                                        upon the conclusion of the 
                                        original 3-month placement 
                                        period if such extension would 
                                        be consistent with the 
                                        individual's plan for 
                                        transition to unsubsidized 
                                        employment.
                                    (VII) Supervision.--The worksite 
                                employer or program operator shall 
                                supervise program participants, 
                                consistent with the goal of addressing 
                                the limited work experience and skills 
                                of the participants.
                    (D) Reports.--Not later than 120 days after the end 
                of the grant period, the State shall submit a report to 
                the Secretary of Labor that contains information on the 
                number of participants in the program who have entered 
                unsubsidized employment, the percentage of program 
                participants who are employed during the second quarter 
                after exit, the percentage of program participants who 
                are employed during the fourth quarter after exit, the 
                median earnings of program participants during the 
                second quarter after exit, the percentage of program 
                participants who obtain an education or training 
                credential during participation or within one year of 
                exit, and demographic information regarding the 
                participants.
                    (E) Technical assistance.--The Secretary of Labor 
                shall enter into contracts with entities with 
                demonstrated experience in the provision of 
                transitional jobs to provide technical assistance to 
                the program operators and worksite employers for the 
                programs assisted under this paragraph.
            (2) Public-private career pathways partnerships.--
                    (A) In general.--To allow workforce education 
                providers representing career pathway partnerships--
                            (i) to create or expand career pathways, 
                        with groups of employers in specific industry 
                        or occupational sectors, for disadvantaged 
                        workers, which may include any mix of such 
                        employers' existing lower wage employees, new 
                        hires or potential hires; or
                            (ii) to fill in gaps in career pathways in 
                        particular localities or regions as needed to 
                        ensure that career pathways are accessible to 
                        unemployed disadvantaged workers and at risk 
                        youth who have lower skills or limited English 
                        proficiency, including through the creation of 
                        workforce education services, such as 
                        ``bridge'' programs that contextualize basic 
                        skills, English language, or college remedial 
                        education services to specific career pathways, 
                        and efforts to create opportunities for gaining 
                        work experience in a career pathway.
                    (B) Use of funds.--Funds made available under a 
                grant under this paragraph may be used by career 
                pathways partnerships for any expense reasonably 
                related to the accomplishment of the specific 
                objectives of the partnership and the purpose described 
                in this paragraph, including any of the activities 
                described in subsection (a)(2)(D).
                    (C) Limitations.--
                            (i) In general.--Of the funds made 
                        available to a career pathway partnership to 
                        carry out the purpose described in this 
                        paragraph--
                                    (I) not more than 30 percent of 
                                such funds may be used to pay or 
                                subsidize wages during a period of work 
                                experience or internship, not to exceed 
                                90 days; and
                                    (II) not more than 10 percent of 
                                such funds may be used for 
                                administrative purposes, but this 
                                limitation shall not apply to 
                                activities related to building and 
                                maintaining partnerships, including 
                                such activities as conducting workforce 
                                needs assessments, brokering public-
                                private and interagency agreements, 
                                creating customized curricula, and 
                                developing work experience 
                                opportunities.
                            (ii) Prohibition on subsidizing wages of 
                        current employees.--No funds made available to 
                        carry out this paragraph shall be used to 
                        subsidize the wages of any individual who, as 
                        of the date of the establishment of the career 
                        pathway partnership, is an employee of any 
                        employer participating in the partnership.
                    (D) Requirements for awarding of subgrants.--
                            (i) In general.--Funds shall be made 
                        available to career pathway partnerships to 
                        carry out the purpose described in this 
                        paragraph based on a performance-based 
                        accountability system that includes the 
                        following measures of performance:
                                    (I) The number of individuals to be 
                                trained.
                                    (II) The percentage of such 
                                individuals who complete the program.
                                    (III) The percentage of such 
                                individuals who enter or advance in 
                                employment.
                                    (IV) The wage and benefit gains of 
                                individuals who complete the program 
                                before and within 6 months after their 
                                program completion, including the 
                                extent to which the individuals 
                                achieved economic self-sufficiency.
                                    (V) The percentage of individuals 
                                who complete the program and enter 
                                employment who retain employment for at 
                                least 6 months.
                                    (VI) Where applicable, the 
                                percentage of individuals who owe child 
                                support and complete the program who 
                                improve in their payment of child 
                                support within 6 months after their 
                                program completion.
                        In establishing goals for such measures, due 
                        consideration shall be given to the education, 
                        work experience, and job readiness of the 
                        individuals expected to participate in the 
                        program; the barriers of such individuals to 
                        employment, and the local job market.
                            (ii) Considerations for funding renewals.--
                        A subgrantee's level of success in achieving 
                        employment, advancement, wage, and employment 
                        retention goals shall be a primary 
                        consideration for determining whether to renew 
                        a grant made to such entity and the funding 
                        level for such grant.
                            (iii) Priorities for awards of subgrants.--
                        In awarding subgrants under this paragraph, a 
                        State shall give priority to applications 
                        that--
                                    (I) propose to serve areas of high 
                                poverty, high youth unemployment, high 
                                drop out rates, or high rates of low-
                                income single-parent families;
                                    (II) include a substantial cash or 
                                in-kind match by all employers, 
                                including joint labor-management 
                                programs where applicable, in the 
                                partnerships, such as paid release time 
                                for employed workforce education 
                                participants;
                                    (III) use instructional materials 
                                and instructors directly used in the 
                                specific business or industry sectors 
                                of the partnership employers;
                                    (IV) link successful completion of 
                                workforce education services to wage 
                                increases, promotions or job hires;
                                    (V) will result in attainment of 
                                employer-recognized occupational and 
                                educational credentials;
                                    (VI) address career guidance and 
                                adult basic education and English 
                                language needs as well as job-specific 
                                skills;
                                    (VII) demonstrate a blending of 
                                resources from partner agencies in the 
                                workforce system and other sectors and 
                                Federal programs, including superior 
                                procedures for coordinating responsible 
                                fatherhood promotion activities, where 
                                appropriate, to support the development 
                                of high quality pathways;
                                    (VIII) identify how the subgrantee 
                                will maximize services to unemployed 
                                disadvantaged workers who also face 
                                other barriers in the labor market, 
                                such as high school dropout, offender 
                                status, aging out of foster care, low 
                                basic skill level, including limited 
                                English proficiency, learning 
                                disabilities, physical, emotional or 
                                behavior disabilities, or substance 
                                abuse recovery, which may be through 
                                direct relationships with local 
                                providers of transitional jobs programs 
                                under which in appropriate 
                                circumstances transitional jobs 
                                participants may access career pathways 
                                programs upon completion of the 
                                transitional jobs program; and
                                    (IX) support collaboration, as 
                                appropriate, between employers and 
                                labor organizations and other workforce 
                                development professionals, including 
                                joint labor management training and 
                                education programs where appropriate.
                    (E) Definitions.--In this paragraph:
                            (i) Adult education.--The term ``adult 
                        education'' has the meaning given that term in 
                        section 203 of the Workforce Investment Act of 
                        1998 (20 U.S.C. 9202).
                            (ii) Career pathway.--The term ``career 
                        pathway'' means a linked set of workforce 
                        education and job opportunities within a 
                        specific industry sector, or for an 
                        occupational sector that cuts across multiple 
                        business and industry sectors, which begins at 
                        the lowest skill and English language levels, 
                        and extends through for-credit college 
                        opportunities such as earning relevant 
                        associate or bachelor's degrees, and prepares 
                        individuals for advancement in jobs in demand 
                        in the local or regional labor market.
                            (iii) Community-based provider.--The term 
                        ``community-based provider'' means a not-for-
                        profit organization, with local boards of 
                        directors, that directly provides workforce 
                        education services.
                            (iv) Institution of higher education.--The 
                        term ``institution of higher education'' has 
                        the meaning given that term in section 101 of 
                        the Higher Education Act of 1965 (20 U.S.C. 
                        1001).
                            (v) Charter school.--The term ``charter 
                        school'' has the meaning given that term in 
                        section 5210 of the Elementary and Secondary 
                        Education Act of 1965 (20 U.S.C. 7221i).
                            (vi) Area vocational education school.--The 
                        term ``area vocational and technical education 
                        school'' has the meaning given that term in 
                        section 3 of the Carl D. Perkins Vocational and 
                        Technical Education Act of 1998 (20 U.S.C. 
                        2302).
                            (vii) Disadvantaged workers.--The term 
                        ``disadvantaged workers'' means unemployed 
                        individuals in low-income households or 
                        employed individuals in low-income households 
                        with wages at or below \2/3\ of the median wage 
                        for the State or region applying for the grant.
                            (viii) Career pathway partnership.--The 
                        term ``career pathway partnership'' means 
                        collaborations of 1 or more workforce education 
                        providers, 1 or more employers, 1 or more labor 
                        organizations, where applicable, as a result of 
                        such organization's representation of employees 
                        at the worksite who have skills in which the 
                        training or employment programs are proposed, 
                        and may include optional additional entities as 
                        needed to provide a comprehensive range of 
                        workforce education and ancillary support 
                        services.
                            (ix) Workforce education.--The term 
                        ``workforce education'' means a set of career 
                        guidance and exploration services, adult 
                        education and English language services, job 
                        training, registered apprenticeship programs, 
                        and credit and non-credit postsecondary 
                        education services aimed at preparing 
                        individuals to enter and sustain employment in 
                        specific occupations and to have the sufficient 
                        skills to respond to shifting employment 
                        opportunities.
                            (x) Workforce education provider.--The term 
                        ``workforce education provider'' means 
                        community-based providers, institutions of 
                        higher education, area vocational and technical 
                        education schools, charter schools, and other 
                        public nonprofit entities that have a 
                        demonstrated capacity to provide quality 
                        workforce education services.
    (c) Matching Requirement.--
            (1) In general.--The Secretary of Health and Human Services 
        and the Secretary of Labor may not award a grant to a State 
        under this section unless the State agrees that, with respect 
        to the costs to be incurred by the State in conducting a 
        demonstration project with funds provided under the grant, the 
        State will make available non-Federal contributions in an 
        amount equal to 10 percent of the amount of Federal funds paid 
        to the State under such grant.
            (2) Non-federal contributions.--In this subsection, the 
        term ``non-Federal contributions'' includes contributions by 
        the State and by public and private entities that may be in 
        cash or in kind, but does not include any amounts provided by 
        the Federal Government, or services assisted or subsidized to 
        any significant extent by the Federal Government, or any amount 
        expended by a State before October 1, 2009.
    (d) Worker Protections and Labor Standards.--
            (1) Rate of pay; benefits and working conditions.--
                    (A) In general.--A worksite employer of a 
                participant in a program or activity funded under this 
                section shall pay the participant at the rate paid to 
                employees of the worksite employer who are not 
                participants in such program or activity and who 
                perform comparable work at the worksite, including 
                periodic increases where appropriate. If no other 
                employees of the worksite employer perform comparable 
                work at the worksite, the worksite employer shall pay 
                the participant not less than the applicable Federal or 
                State minium wage, whichever is higher.
                    (B) Benefits and conditions.--An individual 
                employed through participation in a program or activity 
                funded under this section shall be provided with 
                benefits and working conditions at the same level and 
                to the same extent as such benefits and conditions are 
                provided to other employees of the employer of the 
                individual who have worked a similar length of time and 
                perform the same work.
            (2) Nonduplication.--
                    (A) In general.--Funds provided through a grant 
                made under this paragraph shall be used only for a 
                program or activity that does not duplicate, and is in 
                addition to, a program or activity otherwise available 
                in the locality of the program or activity funded under 
                this section.
                    (B) Private, nonprofit entity.--Funds provided 
                through a grant made under this section shall not be 
                provided to a private nonprofit entity to conduct 
                programs or activities that are the same as or 
                substantially equivalent to activities provided by a 
                State or local government agency in the area in which 
                such entity is located, unless the requirements of 
                paragraph (3) are met.
            (3) Nondisplacement.--
                    (A) In general.--A worksite employer shall not 
                displace an employee or position (including partial 
                displacement such as reduction in hours, wages, or 
                employment benefits) or impair contracts for services 
                or collective bargaining agreements, as a result of the 
                use by such employer of a participant in a program or 
                activity funded under this section, and no participant 
                in the program or activity shall be assigned to fill 
                any established unfilled position vacancy.
                    (B) Job opportunities.--A job opportunity shall not 
                be created under this paragraph that will infringe in 
                any manner on the promotional opportunity of an 
                employed individual.
                    (C) Limitation on services.--
                            (i) Supplantation of hiring.--A participant 
                        in any program or activity funded under this 
                        section shall not perform any services or 
                        duties, or engage in activities, that will 
                        supplant the hiring of employees that are not 
                        participants in the program or activity.
                            (ii) Duties formerly performed by another 
                        employee.--A participant in any program or 
                        activity funded under this section shall not 
                        perform services or duties, or engage in 
                        activities, that are services, duties, or 
                        activities that had been performed by or were 
                        assigned to any employee who recently resigned 
                        or was discharged, who is subject to a 
                        reduction in force, who has recall rights 
                        pursuant to a collective bargaining agreement 
                        or applicable personnel procedures, who is on 
                        leave (such as terminal, temporary, vacation, 
                        emergency, or sick leave), who is on strike, or 
                        who is being locked out.
                    (D) Concurrence of local labor organization.--No 
                placement shall be made under a program or activity 
                funded under this section until the entity conducting 
                the program or activity has obtained the written 
                concurrence of any local labor organization 
                representing employees who are engaged in the same or 
                substantially similar work as that proposed to be 
                carried out for the worksite employer with whom a 
                participant is to be placed under the program or 
                activity.
            (4) No impact on union organizing.--A State conducting a 
        demonstration project funded under this section and any entity 
        conducting a program or activity funded under this section 
        shall provide the Secretary with a certified assurance that 
        none of such funds shall be used to assist or deter union 
        organizing.
            (5) Accountability.--
                    (A) In general.--Funds provided under this section 
                shall not be used to subsidize training or employment 
                with an employer that has a demonstrable record of 
                noncompliance with Federal labor, civil rights, 
                workplace safety, or related laws.
                    (B) Certified satisfactory record.--Employers who 
                receive training or wage subsidies under programs or 
                activities funded under this section shall have a 
                satisfactory record in labor relations and employment 
                practices, as certified by the Secretary of Labor.
                    (C) Application of worker protection laws.--A 
                participant in a program or activity funded under this 
                section shall be considered to be an employee of any 
                employer that the participant is placed with for all 
                purposes under Federal and State law, including laws 
                relating to health and safety, civil rights, and 
                worker's compensation.
                    (D) Other job quality standards.--Employers who 
                receive training or wage subsidies under programs or 
                activities funded under this section shall meet all 
                applicable State or local job or employer quality 
                standards regarding such issues as wages, benefits, 
                advancement opportunities, and turnover rates 
                established for programs funded under the Workforce 
                Investment Act of 1998 (29 U.S.C. 2801 et seq.).
            (6) Grievance procedure.--An entity conducting a program or 
        activity funded under this section shall establish and maintain 
        a procedure for the filing and adjudication of grievances by 
        employees of worksite employers who are not participants in the 
        program, or such employees' representatives, or by participants 
        in such a program or activity alleging a violation of a 
        provision of this subsection that is similar to the grievance 
        procedure established by a State for purposes of section 
        407(f)(3) of the Social Security Act (42 U.S.C. 607(f)(3)).
            (7) Nonpreemption of state law.--The provisions of this 
        subsection shall not be construed to preempt any provision of 
        State law that affords greater protections to employees or 
        participants than are afforded by this subsection.
            (8) Treatment of amounts paid to participants.--Amounts 
        paid to a participant in a program or activity funded under 
        this section shall be--
                    (A) considered earned income for purpose of 
                determining the participant's eligibility for the child 
                tax credit established under section 24 of the Internal 
                Revenue Code of 1986, the earned income tax credit 
                established under section 32 of such Code, and any 
                other tax benefit established under such Code the 
                eligibility for which is based on earned income; and
                    (B) disregarded for purposes of determining the 
                participant's, the participant's family's, or the 
                participant's household's eligibility for, or amount 
                of, assistance or benefits provided under any means-
                tested program funded in whole or in part with Federal 
                funds.
    (e) Application.--
            (1) Requirements for all applications.--
                    (A) In general.--A State desiring to receive a 
                grant to conduct a demonstration project under this 
                section shall submit an application--
                            (i) to the Secretary of Health and Human 
                        Services, in the case of a grant under 
                        subsection (a); or
                            (ii) to the Secretary of Labor, in the case 
                        of a grant under subsection (b);
                at such time, in such manner, and containing such 
                information or assurances as the Secretary of Health 
                and Human Services or the Secretary of Labor, as 
                appropriate, may require.
                    (B) Compliance with worker protections and labor 
                standards.--The application shall include an assurance 
                that the State and any entity conducting a program or 
                activity under the project shall comply with the worker 
                protections and labor standards established in 
                accordance with such protections under subsection (d).
                    (C) Nondiscrimination.--The application shall 
                include an assurance that the State and any entity 
                conducting a program or activity under the 
                demonstration project shall comply with section 
                188(a)(2) of the Workforce Investment Act of 1998 (29 
                U.S.C. 2938(a)(2)) to the same extent that such section 
                would apply to the entity if the program or activity 
                conducted under the demonstration project was 
                considered to be funded or otherwise financially 
                assisted under that Act.
                    (D) Assurance grant will supplement, not supplant, 
                other state funding.--The application shall include an 
                assurance from the chief executive officer of the State 
                that funds made available under the grant will 
                supplement, and not supplant, other funds used by the 
                State to establish or support employment placements for 
                low-income parents.
            (2) Specific demonstration project requirements.--
                    (A) Court-supervised or iv-d agency-supervised 
                employment programs for noncustodial parents.--In order 
                to conduct a demonstration project described in 
                subsection (a), a State shall include in the 
                application submitted to the Secretary of Health and 
                Human Services the following:
                            (i) Evidence of an agreement between the 
                        State and 1 or more counties to establish an 
                        employment program that meets the requirements 
                        of subsection (a).
                            (ii) The number of potential noncustodial 
                        parents to be served by the program.
                            (iii) The purposes specific to that State's 
                        program.
                            (iv) The median income of the target 
                        population.
                    (B) Public-private career pathways partnerships.--
                In order to conduct a demonstration project described 
                in paragraph (2) of subsection (b), a State shall 
                include in the application submitted to the Secretary 
                of Labor a description of--
                            (i) the number, characteristics, and 
                        employment and earnings status of disadvantaged 
                        individuals in the State or applicable region 
                        where the program is to be conducted;
                            (ii) which business and industry sectors, 
                        or occupational clusters that cut across 
                        sectors, will be targeted by the career 
                        pathways partnership, based on overall economic 
                        benefit to the community, the current and 
                        future demand for workers, the advancement 
                        opportunities for workers, the wages at each 
                        step of the career pathway, and availability of 
                        worker benefits;
                            (iii) the interventions that will be put in 
                        place to address any educational deficits, 
                        limited English proficiency, or learning 
                        disabilities of individuals who participate in 
                        the program and to ensure that such individuals 
                        have the academic, technical, communications, 
                        and other job skills to function in the jobs 
                        targeted by the partnership;
                            (iv) how the members of the partnership 
                        will collaborate on the development of 
                        curriculum and delivery of training that will 
                        provide the necessary occupational, academic 
                        and other work-related skills and credentialing 
                        needed for the specific labor market areas;
                            (v) the supports that will be used to 
                        provide counseling, mentoring or other support 
                        to individuals while in training or to assist 
                        them in navigating in complicated work 
                        environments;
                            (vi) the set of career exposure activities 
                        that will be put in place to provide hands-on 
                        experience such as work experience, on the job 
                        training, internships, or work-study;
                            (vii) the agreements that are in place with 
                        employers, industry groups, and labor 
                        organizations, where applicable, to ensure 
                        access to jobs and advancement opportunities in 
                        the targeted businesses, industry or 
                        occupations;
                            (viii) how the workforce education 
                        providers in the partnership will assess the 
                        employment barriers and needs of local 
                        disadvantaged individuals who participate in 
                        the program and will identify resources for 
                        meeting those needs;
                            (ix) how the workforce education providers 
                        will work with partnership employers, business 
                        and industry groups, labor organizations, where 
                        applicable, and local economic development 
                        organizations to identify the priority 
                        workforce needs of the local industry;
                            (x) how the partnerships will ensure that 
                        the appropriate program delivery models and 
                        formal agreements are in place to ensure 
                        maximum benefits to the individuals receiving 
                        career pathway partnership services and to the 
                        employers and labor organizations, where 
                        applicable, in the partnership and the 
                        industries or businesses they represent;
                            (xi) how partnership employers and labor 
                        organizations, where applicable, will be 
                        actively involved in identifying specific 
                        workforce education needs, planning the 
                        curriculum, assisting in training activities, 
                        providing job opportunities, and coordinating 
                        job retention for individuals hired after 
                        training through the program and follow-up 
                        support; and
                            (xii) how the partnership will build on 
                        existing career pathways programs, where 
                        applicable, to serve the targeted population.
            (3) Applications by indian tribes or tribal 
        organizations.--The Secretary of Health and Human Services and 
        the Secretary of Labor may exempt an Indian tribe or tribal 
        organization from any requirement of this section that the 
        Secretary of Health and Human Services or the Secretary of 
        Labor determines would be inappropriate to apply to the Indian 
        tribe or tribal organization, taking into account the 
        resources, needs, and other circumstances of the Indian tribe 
        or tribal organization.
    (f) Priorities and Requirements for Awarding Grants.--
            (1) In general.--Subject to paragraphs (2) and (3), the 
        Secretary of Health and Human Services (in the case of a grant 
        under subsection (a)) and the Secretary of Labor (in the case 
        of a grant under subsection (b)) shall give priority to making 
        grants under this section to entities that--
                    (A) demonstrate success with respect to meeting the 
                goals of quality job placement, long-term unsubsidized 
                job retention, and, where applicable, increasing child 
                support payments, decreasing unpaid child support 
                arrearages, and increasing the involvement of low-
                income noncustodial parents with their children through 
                their participation in responsible fatherhood 
                activities, including participation in programs that 
                provide culturally relevant curricula in core subjects 
                including--
                            (i) conducting activities with children;
                            (ii) improving communication skills;
                            (iii) child support management;
                            (iv) providing financially for the family's 
                        security and well-being;
                            (v) managing stress and anger, as well as 
                        domestic violence intervention services when 
                        appropriate;
                            (vi) maintaining physical and mental 
                        health;
                            (vii) parenting and relationship skills;
                            (viii) child development; and
                            (ix) barriers to responsible parenthood, 
                        including substance abuse, unemployment, 
                        criminal justice system involvement, and 
                        inadequate housing; and
                    (B) coordinate with, and link individuals as 
                applicable to, other public and private benefits and 
                employment services for low-income adults among the 
                different systems or programs in which such adults are 
                involved, including the criminal justice system, the 
                State programs funded under each part of title IV of 
                the Social Security Act (42 U.S.C. 601 et seq.) 
                (including programs and activities funded under section 
                403(a)(2) of the Social Security Act (42 U.S.C. 
                603(a)(2))), educational assistance and student aid 
                programs, and job training or employment programs, 
                including State employment agencies.
            (2) Performance measures.--In making grants under this 
        section, the Secretary of Health and Human Services (in the 
        case of a grant under subsection (a)) and the Secretary of 
        Labor (in the case of a grant under subsection (b)) shall 
        ensure that grantees demonstrate a plan for implementing 
        measures to track their performance with respect to meeting the 
        goals of quality job placement, long-term unsubsidized job 
        retention, and, where applicable, increasing child support 
        payments, decreasing child support arrearages, and increasing 
        the involvement of low-income noncustodial parents with their 
        children when determined to be appropriate.
            (3) Reflective of target populations.--In making grants 
        under this section, the Secretary of Health and Human Services 
        (in the case of a grant under subsection (a)) and the Secretary 
        of Labor (in the case of a grant under subsection (b)) shall 
        give priority to States with proposed demonstration projects 
        that are designed to target low-income adults, including 
        custodial and noncustodial parents, and low-income married 
        couples.
            (4) Substantial funding for each of the purposes.--In 
        making grants under subsection (b), the Secretary of Labor 
        shall ensure that a substantial share of the amount 
        appropriated under subsection (j) for a fiscal year is used for 
        carrying out each of the projects described in paragraphs (1) 
        and (2) of subsection (b).
    (g) Regulatory and Policy Flexibility.--The Secretary of Labor and 
the Secretary of Health and Human Services, in coordination with the 
Secretary of Education and the Attorney General, shall work with 
grantees under this section to resolve policy barriers that may impede 
blending of federal resources to support these demonstration projects.
    (h) Evaluation.--The Secretary of Health and Human Services (in the 
case of a grant under subsection (a)) and the Secretary of Labor (in 
the case of a grant under subsection (b)) shall provide for an 
independent and rigorous evaluation of the demonstration projects 
conducted under this section that includes, to the maximum extent 
feasible, random assignment or other appropriate statistical 
techniques, in order to assess the effectiveness of the projects.
    (i) General Definitions.--In this section:
            (1) State.--The term ``State'' means each of the 50 States, 
        the District of Columbia, the Commonwealth of Puerto Rico, the 
        United States Virgin Islands, Guam, American Samoa, and 
        includes an Indian tribe or tribal organization.
            (2) IV-D agency.--The term ``IV-D agency'' means the State 
        or local agency responsible for administering the State program 
        established under part D of title IV of the Social Security Act 
        (42 U.S.C. 651 et seq.).
            (3) Indian tribe; tribal organization.--The terms ``Indian 
        tribe'' and ``tribal organization'' have the meaning given such 
        terms in section 4 of the Indian Self-Determination and 
        Education Assistance Act (25 U.S.C. 450b).
    (j) Appropriation.--Out of any money in the Treasury of the United 
States not otherwise appropriated, there are appropriated to carry out 
this section--
            (1) for programs administered by the Secretary of Health 
        and Human Services under subsection (a), $15,000,000 for each 
        of fiscal years 2010 through 2013; and
            (2) for programs administered by the Secretary of Labor 
        under subsection (b), $35,000,000 for each of fiscal years 2010 
        through 2013.

SEC. 106. STATE ASSESSMENTS OF BARRIERS TO EMPLOYMENT AND FINANCIAL 
              SUPPORT OF CHILDREN.

    (a) State Assessments and Reports.--As a condition of the continued 
approval of a State plan under part D of title IV of the Social 
Security Act (42 U.S.C. 651 et seq.), each State with an approved such 
plan, acting through the appropriate State agencies, shall assess the 
State policies with respect to the issues described in subsection (b) 
and submit a report to the Secretary of Health and Human Services on 
the results of such assessment not later than March 15, 2010.
    (b) Issues Described.--For purposes of subsection (a), the issues 
described in this subsection are the following:
            (1) The process of setting and modifying child support 
        obligations, particularly with respect to low-income parents, 
        including--
                    (A) the role and criteria for using imputed income 
                in determining child support obligations;
                    (B) the process of modifying obligations;
                    (C) the consideration of income and employment 
                status, including efforts to identify unreported 
                income;
                    (D) the consideration of incarceration;
                    (E) the consideration of disability;
                    (F) the treatment of arrearages, including interest 
                charged, and laws or procedures that interfere with 
                forgiveness, adjustment, waiver, or compromise of 
                arrears owed to the State by low-income noncustodial 
                parents who lack sufficient ability to pay such 
                arrearages;
                    (G) the procedures related to retroactive support; 
                and
                    (H) State pass-through and disregard policies for 
                recipients of means tested public benefits.
            (2) The impact of state criminal laws and law enforcement 
        practices on the employment acquisition, retention, and 
        advancement prospects of individuals following arrest, 
        conviction, or incarceration, including--
                    (A) any efforts, including counseling or employment 
                support, to assist ex-prisoners with reentry to a 
                community and successful reunification with their 
                families; and
                    (B) an assessment of any efforts to seal or expunge 
                arrest and conviction records and any efforts to grant 
                certificates or other acknowledgments of rehabilitation 
                to ex-prisoners, and to examine State occupational 
                licensing and certification procedures.
            (3) An assessment of the impact of debt on employment 
        retention, including child support and non-child support debts 
        imposed to recover costs related to welfare and criminal 
        justice.
            (4) An assessment of State practices related to providing 
        prisoners and ex-prisoners with valid identification documents 
        upon release from prison.
            (5) Identification of any other barriers to healthy family 
        formation or sustainable economic opportunity for custodial and 
        noncustodial parents that are created or exacerbated by Federal 
        or State laws, policies, or procedures, including an 
        examination of the rules of Federal and State means-tested 
        programs, the operation of the State workforce system, the 
        availability of financial education services, and the 
        availability of domestic violence services and child support 
        procedures to help victims of domestic violence stay safe and 
        obtain the child support they are owed.
    (c) Grants to States for Commissions on State Law Improvements in 
the Best Interest of Children and Families.--The Secretary of Health 
and Human Services shall award grants to States to establish or support 
commissions to review the State assessment conducted in accordance with 
subsection (a) and to make recommendations on ways to improve State law 
in the best interest of children and families.
    (d) Appropriations.--Out of any money in the Treasury of the United 
States not otherwise appropriated, there are appropriated to the 
Secretary of Health and Human Services for the period of fiscal years 
2010 through 2011, $3,000,000, to remain available until expended, for 
the purpose of making--
            (1) payments to States to offset all or a portion of the 
        costs of conducting the State assessments and reports required 
        under subsection (a); and
            (2) grants to States under subsection (c).

SEC. 107. COLLECTION OF CHILD SUPPORT UNDER THE SUPPLEMENTAL NUTRITION 
              ASSISTANCE PROGRAM.

    (a) Encouragement of Collection of Child Support.--Section 5 of the 
Food and Nutrition Act of 2008 (7 U.S.C. 2014) is amended--
            (1) in subsection (e)--
                    (A) by redesignating paragraphs (5) and (6) as 
                paragraphs (6) and (7), respectively;
                    (B) in paragraph (4)(B), by striking ``paragraph 
                (6)'' and inserting ``paragraph (7)''; and
                    (C) by inserting after paragraph (4) the following:
            ``(5) Deduction for child support received.--
                    ``(A) In general.--A household shall be allowed a 
                deduction of 20 percent of all legally obligated child 
                support payments received from an identified or 
                putative parent of a child in the household if that 
                parent is not a household member.
                    ``(B) Order of determining deductions.--A deduction 
                under this paragraph shall be determined before the 
                computation of the excess shelter deduction under 
                paragraph (7).''; and
            (2) in subsection (k)(4)(B), by striking ``subsection 
        (e)(6)'' and inserting ``subsection (e)(7)''.
    (b) Simplified Verification of Child Support Payments.--Section 
5(n) of the Food and Nutrition Act of 2008 (7 U.S.C. 2014(n)) is 
amended--
            (1) in the subsection heading, by striking ``State Options 
        to Simplify'', and inserting ``Simplified''; and
            (2) by striking ``Regardless of whether'' and inserting the 
        following:
            ``(1) In general.--A household that is paying legally 
        obligated child support through the program under part D of 
        title IV of the Social Security Act (42 U.S.C. 651 et seq.) 
        shall receive--
                    ``(A) a deduction under subsection (e)(4); or
                    ``(B) an exclusion for paid child support under 
                subsection (d)(6).
            ``(2) State options.--Regardless of whether''.
    (c) Inclusion of Economic Opportunities Programs in Definition of 
Work Program.--Section 6(o)(2) of the Food and Nutrition Act of 2008 (7 
U.S.C. 2015(o)(2)) is amended--
            (1) in subparagraph (C), by striking ``or'' at the end;
            (2) in subparagraph (D), by striking the period at the end 
        and inserting ``; or''; and
            (3) by adding at the end the following:
                    ``(E) participate in and comply with the 
                requirements of a demonstration project under section 
                106 of the Responsible Fatherhood and Healthy Families 
                Act of 2009;''.
    (d) Effective Date.--
            (1) In general.--This section and the amendments made by 
        this section take effect on October 1, 2009.
            (2) State option.--A State may implement the amendments 
        made by subsections (a) and (b) for participating households at 
        the first recertification of the households that occurs on or 
        after October 1, 2009.

SEC. 108. GRANTS SUPPORTING HEALTHY FAMILY PARTNERSHIPS FOR DOMESTIC 
              VIOLENCE INTERVENTION AND PREVENTION.

    Section 403(a) of the Social Security Act (42 U.S.C. 603(a)) is 
amended by adding at the end the following new paragraph:
            ``(6) Grants supporting healthy family partnerships for 
        domestic violence intervention and prevention.--
                    ``(A) In general.--The Secretary shall award grants 
                on a competitive basis to healthy family partnerships 
                to--
                            ``(i) develop and implement promising 
                        practices for assessing and providing services 
                        to individuals and families affected by 
                        domestic violence, including through caseworker 
                        training, the provision of technical assistance 
                        to community partners, and the implementation 
                        of safe visitation and exchange programs; or
                            ``(ii) develop and implement promising 
                        practices for preventing domestic violence, 
                        particularly as a barrier to economic security, 
                        and fostering healthy relationships.
                    ``(B) Education services.--In awarding grants under 
                subparagraph (A), the Secretary shall ensure that 10 
                percent of the funds made available under such grants 
                are used for high schools and other secondary 
                educational institutions and institutions of higher 
                education to provide education services on the value of 
                healthy relationships, responsible parenting, and 
                healthy marriages characterized by mutual respect and 
                non-violence, and the importance of building 
                relationships skills such as communication, conflict 
                resolution, and budgeting.
                    ``(C) Application.--The respective entity and 
                organization of a healthy family partnership entered 
                into for purposes of receiving a grant under this 
                paragraph shall submit a joint application to the 
                Secretary, at such time and in such manner as the 
                Secretary shall specify, containing--
                            ``(i) a description of how the partnership 
                        intends to carry out the activities described 
                        in subparagraph (A);
                            ``(ii) an assurance that funds made 
                        available under the grant shall be used to 
                        supplement, and not supplant, other funds used 
                        by the entity or organization to carry out 
                        programs, activities, or services described in 
                        subparagraph (A) or (B); and
                            ``(iii) such other information as the 
                        Secretary may require.
                    ``(D) General rules governing use of funds.--The 
                rules of section 404, other than subsection (b) of that 
                section, shall not apply to a grant made under this 
                paragraph.
                    ``(E) Definitions.--In this paragraph:
                            ``(i) Domestic violence.--The term 
                        `domestic violence' has the meaning given that 
                        term in section 402(a)(7)(B).
                            ``(ii) Healthy family partnership.--The 
                        term `healthy family partnership' means a 
                        partnership between--
                                    ``(I) an entity receiving funds 
                                under a grant made under paragraph (2) 
                                to promote healthy marriage or 
                                responsible fatherhood; and
                                    ``(II) an organization or 
                                organizations with demonstrated 
                                expertise working with survivors of 
                                domestic violence.
                    ``(F) Appropriation.--Out of any money in the 
                Treasury of the United States not otherwise 
                appropriated, there are appropriated for each of fiscal 
                years 2010 through 2012, $25,000,000 for purposes of 
                awarding grants to healthy family partnerships under 
                this paragraph.''.

SEC. 109. PROCEDURES TO ADDRESS DOMESTIC VIOLENCE PREVENTION.

    (a) Requirements To Ensure Procedures To Address Domestic Violence 
Prevention.--Section 403(a)(2) of the Social Security Act (42 U.S.C. 
603(a)(2)), as amended by section 101, is amended--
            (1) by redesignating subparagraph (D) as subparagraph (F); 
        and
            (2) by inserting after subparagraph (C) the following new 
        subparagraphs:
                    ``(D) Requirements for receipt of funds.--An entity 
                may not be awarded a grant under this paragraph unless 
                the entity, as a condition of receiving funds under 
                such a grant--
                            ``(i) identifies in its application the 
                        domestic violence experts at the local, State, 
                        or national level with whom it will consult in 
                        the development and implementation of its 
                        programs and activities;
                            ``(ii) upon an award of funds, and in 
                        consultation with such domestic violence 
                        experts, develops a written protocol which 
                        describes--
                                    ``(I) how the entity will identify 
                                instances or risks of domestic 
                                violence;
                                    ``(II) the procedures for 
                                responding to such instances or risk, 
                                including making service referrals and 
                                providing protections and appropriate 
                                assistance for identified individuals 
                                and families;
                                    ``(III) how confidentiality issues 
                                will be addressed; and
                                    ``(IV) the domestic violence 
                                training that will be provided to 
                                ensure effective and consistent 
                                implementation of the protocol; and
                            ``(iii) in its annual report to the 
                        Secretary, includes a description such domestic 
                        violence protocols and a description of any 
                        implementation issues identified with respect 
                        to domestic violence and how such issues were 
                        addressed.
                    ``(E) Domestic violence defined.--In this 
                paragraph, the term `domestic violence' has the meaning 
                given that term in section 402(a)(7)(B).''.
    (b) Conforming Amendments.--Section 403(a)(2) of such Act (42 
U.S.C. 603(a)(2)), as so amended, is amended--
            (1) in subparagraph (A)(i)--
                    (A) by striking ``(B) and (C)'' and inserting 
                ``(B), (C), and (D)''; and
                    (B) by striking ``subparagraph (D)'' and inserting 
                ``subparagraph (F)'';
            (2) in subparagraphs (B)(i) and (C)(i), by striking ``(D)'' 
        each place it appears and inserting ``(F)''; and
            (3) in subparagraph (F) (as redesignated by subsection 
        (a)(1)), by striking ``$150,000,000 for each of fiscal years 
        2006 through 2010'' and inserting ``$150,000,000 for each of 
        fiscal years 2006 through 2008 and $200,000,000 for each of 
        fiscal years 2009 through 2014''.

                      TITLE II--REVENUE PROVISIONS

SEC. 201. MODIFICATIONS TO THE EARNED INCOME TAX CREDIT.

    (a) Increase in Earned Income Credit for Workers With No Qualifying 
Children.--
            (1) Earned income amount.--
                    (A) In general.--The table under section 
                32(b)(2)(A) of the Internal Revenue Code of 1986 is 
                amended by striking ``$4,220'' and inserting 
                ``$7,250''.
                    (B) Transition for earned income amount.--Section 
                32(b)(2) of such Code is amended by adding at the end 
                the following new subparagraph:
                    ``(C) Transition for earned income amount.--For 
                purposes of subparagraph (A), in lieu of the earned 
                income amount specified for eligible individuals with 
                no qualifying children, the earned income amount for 
                such individuals for 2010 is $5,900, for 2011 is 
                $6,200, for 2012 is $6,500, and for 2013 is $6,900.''.
            (2) Phaseout amount.--
                    (A) In general.--The table under section 
                32(b)(2)(A) of the Internal Revenue Code of 1986 is 
                amended by striking ``$5,280'' and inserting ``phaseout 
                amount % of annual minimum wage''.
                    (B) Phaseout amount percentage.--Section 32(b)(2) 
                of such Code, as amended by this Act, is amended by 
                adding at the end the following new subparagraph:
                    ``(D) Phaseout amount percentage.--For purposes of 
                subparagraph (A), the phaseout amount percentage is 70 
                percent for 2010, 72 percent for 2011, 75 percent for 
                2012, 85 percent in 2013, and 100 percent in 2014 and 
                thereafter.''.
            (3) Annual minimum wage.--Section 32(b)(2) of such Code, as 
        amended by this Act, is amended by adding at the end the 
        following new subparagraph:
                    ``(E) Annual minimum wage.--For purposes of 
                subparagraph (A), the annual minimum wage for any 
                calendar year is an amount equal to the product of 
                2,000 and the minimum hourly wage effective on January 
                1 of such year under section 6(a)(1) of the Fair Labor 
                Standards Act of 1938.''.
            (4) Inflation adjustment.--
                    (A) In general.--Section 32(j) of such Code is 
                amended by redesignating paragraph (2) as paragraph (3) 
                and by inserting after paragraph (1) the following new 
                paragraph:
            ``(2) Earned income amount and phaseout amount for 
        individuals with no qualifying children.--In the case of any 
        taxable year beginning after calendar year 2014, the earned 
        income amount and the phaseout amount in effect for an eligible 
        individual with no qualifying children in subsection (b)(2)(A) 
        shall be increased by an amount equal to--
                    ``(A) such amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2013' for `calendar year 1992' in 
                subparagraph (B) thereof.''.
                    (B) Conforming amendments.--
                            (i) Section 32(j)(1)(B)(i) of such Code is 
                        amended by inserting ``(other than the amount 
                        described in paragraph (2))'' after 
                        ``subsections (b)(2)(A)''.
                            (ii) Section 32(b)(3)(B)(iii) of such Code 
                        is amended by striking ``subsection (j)(2)'' 
                        and inserting ``subsection (j)(3)''.
            (5) Conforming amendment.--Section 32(b)(2)(A) of such Code 
        is amended by striking ``Subject to subparagraph (B)'' and 
        inserting ``Except as otherwise provided in this paragraph''.
            (6) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2009.
    (b) Enhanced Credit for Certain Workers With No Qualifying 
Children.--
            (1) In general.--Section 32 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
    ``(n) Additional Credit for Certain Workers.--
            ``(1)  In general.--In the case of a qualified individual, 
        the credit allowed under subsection (a) shall be increased by 
        an amount equal to 100 percent of the amount of the credit 
        allowed under this section (without regard to this subsection).
            ``(2) Qualified individual.--For purposes of this 
        subsection, the term `qualified individual' means an eligible 
        individual who--
                    ``(A) is described in clause (ii) of subsection 
                (c)(1)(A),
                    ``(B) is the parent of a child and is required to 
                make child support payments with respect to such child 
                pursuant to an order which--
                            ``(i) is in effect during the taxable year 
                        of such individual, and
                            ``(ii) is enforced during such taxable year 
                        by a State agency responsible for administering 
                        the State plan under part D of title IV of the 
                        Social Security Act, and
                    ``(C) has paid child support during the taxable 
                year in an amount not less than the amount of current 
                child support for such taxable year for every order 
                requiring the individual to make child support 
                payments.
        For purposes of subparagraph (C), a child support payment will 
        be considered to have been made during the taxable year if such 
        payment is withheld from or attributable to a pay period 
        beginning in such taxable year and is made no later than 30 
        days after the date on which such taxable year ends.
            ``(3) Regulations.--The Secretary shall establish 
        regulations to carry out the purposes of this subsection, 
        including regulations which provide for the verification of the 
        payment of child support in accordance with paragraph 
        (2)(D).''.
            (2) Verification of payment.--
                    (A) In general.--The Secretary of Health and Human 
                Services, in consultation with the Secretary of the 
                Treasury and the States, shall establish such 
                procedures as are appropriate to ensure that the 
                Secretary of the Treasury has the information that the 
                Secretary of the Treasury determines necessary to allow 
                for verification of the status of individuals as 
                qualified individuals (as defined under section 32(n) 
                of the Internal Revenue Code of 1986, as added by 
                paragraph (1)) and of payment of child support 
                obligations in a timely fashion.
                    (B) Authority to use federal case registry.--The 
                Secretary of Health and Human Services may include in 
                the Federal Case Registry of Child Support Orders 
                established under section 453(h) of the Social Security 
                Act (42 U.S.C. 653(h)) such information as the 
                Secretary determines appropriate to allow for the 
                verification described in subparagraph (A).
                    (C) State procedures.--The Secretary of Health and 
                Human Services, in consultation with the States, shall 
                establish procedures for informing a noncustodial 
                parent in a timely fashion when the parent has paid the 
                amount of child support owed by the parent for a 
                taxable year so that the parent may determine the 
                extent to which the parent is a qualified individual 
                for purposes of qualifying for the additional credit 
                established under section 32(n) of the Internal Revenue 
                Code of 1986, as added by paragraph (1).
            (3) Information sharing.--Subsection (j) of section 453 of 
        the Social Security Act (42 U.S.C. 653(j)) is amended by adding 
        at the end the following new paragraph:
            ``(12) Administration of federal tax laws.--In addition to 
        the access provided under subsections (h)(3) and (i)(3), the 
        Secretary of the Treasury shall have access to such information 
        maintained under this chapter as the Secretary of the Treasury 
        determines is necessary to verify eligibility for the credit 
        allowed under section 32(n) of the Internal Revenue Code of 
        1986, under procedures established pursuant to such section.''.
            (4) Effective date.--The amendments made by paragraphs (1) 
        and (3) shall apply to taxable years beginning after December 
        31, 2009.
    (c) Marriage Penalty Relief.--
            (1) In general.--Section 32(b)(2)(B) of the Internal 
        Revenue Code of 1986 is amended--
                    (A) by striking ``after 2007'' in clause (iii) and 
                inserting ``in 2008'',
                    (B) by striking ``and'' at the end of clause (ii),
                    (C) by striking the period at the end of clause 
                (iii) and inserting ``, and'', and
                    (D) by adding at the end the following new clauses:
                            ``(iv) the amount determined under 
                        paragraph (3)(B) in the case of taxable years 
                        beginning in 2009 and 2010, and
                            ``(v) $4,000 in the case of taxable years 
                        beginning after 2010.''.
            (2) Inflation adjustment.--Section 32(j)(1)(B)(ii) of such 
        Code is amended--
                    (A) by striking ``and'' at the end of clause (i),
                    (B) by striking the period at the end of clause 
                (ii) and inserting ``, and'', and
                    (C) by adding at the end the following new clause:
                            ``(iii) in the case of the $4,000 amount in 
                        subsection (b)(2)(B)(v), by substituting 
                        `calendar year 2010' for `calendar year 1992' 
                        in subparagraph (B) of such section 1.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2009.

SEC. 202. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (o) as subsection (p) and by 
inserting after subsection (n) the following new subsection:
    ``(o) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) subject to clause (iii), the 
                                taxpayer has a substantial purpose 
                                (other than a Federal tax purpose) for 
                                entering into such transaction.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance solely 
                        by reason of having a potential for profit 
                        unless the present value of the reasonably 
                        expected pre-Federal tax profit from the 
                        transaction is substantial in relation to the 
                        present value of the expected net Federal tax 
                        benefits that would be allowed if the 
                        transaction were respected. In determining pre-
                        Federal tax profit, there shall be taken into 
                        account fees and other transaction expenses and 
                        to the extent provided by the Secretary, 
                        foreign taxes.
                            ``(iii) Special rules for determining 
                        whether non-federal tax purpose.--For purposes 
                        of clause (i)(II)--
                                    ``(I) a purpose of achieving a 
                                financial accounting benefit shall not 
                                be taken into account in determining 
                                whether a transaction has a substantial 
                                purpose (other than a Federal tax 
                                purpose) if the origin of such 
                                financial accounting benefit is a 
                                reduction of Federal tax, and
                                    ``(II) the taxpayer shall not be 
                                treated as having a substantial purpose 
                                (other than a Federal tax purpose) with 
                                respect to a transaction if the only 
                                such purpose is the reduction of non-
                                Federal taxes and the transaction will 
                                result in a reduction of Federal taxes 
                                substantially equal to, or greater 
                                than, the reduction in non-Federal 
                                taxes because of similarities between 
                                the laws imposing the taxes.
            ``(2) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
            ``(3) Other provisions not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law or provision of this title, 
        and the requirements of this subsection shall be construed as 
        being in addition to any such other rule of law or provision of 
        this title.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 203. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    (a) In General.--Subchapter A of chapter 68 of the Internal Revenue 
Code of 1986 is amended by inserting after section 6662A the following 
new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 30 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `30 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if 
        there is a lack of economic substance (within the meaning of 
        section 7701(o)(1)(B)) for the transaction giving rise to the 
        claimed benefit.
    ``(d) Rules Applicable To Assertion, Compromise, and Collection of 
Penalty.--
            ``(1) In general.--Only the Chief Counsel for the Internal 
        Revenue Service may assert a penalty imposed under this section 
        or may compromise all or any portion of such penalty. The Chief 
        Counsel may delegate the authority under this paragraph only to 
        an individual holding the position of chief of a branch within 
        the Office of the Chief Counsel for the Internal Revenue 
        Service.
            ``(2) Specific requirements.--
                    ``(A) Assertion of penalty.--The Chief Counsel for 
                the Internal Revenue Service (or the Chief Counsel's 
                delegate under paragraph (1)) shall not assert a 
                penalty imposed under this section unless, before the 
                assertion of the penalty, the taxpayer is provided--
                            ``(i) a notice of intent to assert the 
                        penalty, and
                            ``(ii) an opportunity to provide to the 
                        Commissioner (or the Chief Counsel's delegate 
                        under paragraph (1)) a written response to the 
                        proposed penalty within a reasonable period of 
                        time after such notice.
                    ``(B) Compromise of penalty.--A compromise shall 
                not result in a reduction in the penalty imposed by 
                this section in an amount greater than the amount which 
                bears the same ratio to the amount of the penalty 
                determined without regard to the compromise as--
                            ``(i) the reduction under the compromise in 
                        the noneconomic substance transaction 
                        understatement to which the penalty relates, 
                        bears to
                            ``(ii) the amount of the noneconomic 
                        substance transaction understatement determined 
                        without regard to the compromise.
            ``(3) Rules relating to relevancy requirement.--
                    ``(A) Determination of relevance by chief 
                counsel.--The Chief Counsel for the Internal Revenue 
                Service (or the Chief Counsel's delegate under 
                paragraph (1)) may assert, compromise, or collect a 
                penalty imposed by this section with respect to a 
                noneconomic substance transaction even if there has not 
                been a court determination that the economic substance 
                doctrine was relevant for purposes of this title to the 
                transaction if the Chief Counsel (or delegate) 
                determines that either was so relevant.
                    ``(B) Final order of court.--If there is a final 
                order of a court that determines that the economic 
                substance doctrine was not relevant for purposes of 
                this title to a transaction (or series of 
                transactions), any penalty imposed under this section 
                with respect to the transaction (or series of 
                transactions) shall be rescinded.
            ``(4) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply to a compromise under 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(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).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) of the 
        Internal Revenue Code of 1986 is amended by inserting ``and 
        without regard to items with respect to which a penalty is 
        imposed by section 6662B'' before the period at the end.
            (2) Subsection (e) of section 6662A of such Code is 
        amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A)--
                            (i) by inserting ``6662B or'' before 
                        ``6663'' in the text, and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (C) in paragraph (2)(B)--
                            (i) by inserting ``and section 6662B'' 
                        after ``This section'', and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (D) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (E) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A of such Code is 
        amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(B)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or to penalty under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 6662A the 
following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 204. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) of the Internal Revenue Code of 
1986 (relating to interest on unpaid taxes attributable to nondisclosed 
reportable transactions) is amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``and Noneconomic Substance Transactions'' 
        in the heading thereof after ``Transactions''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.
                                 <all>
```