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[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5790 Introduced in House (IH)]

110th CONGRESS
  2d Session
                                H. R. 5790

 To amend the Internal Revenue Code of 1986 to allow the deduction for 
    State and local real property taxes whether or not the taxpayer 
           itemizes other deductions, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             April 15, 2008

  Mr. Foster introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
 To amend the Internal Revenue Code of 1986 to allow the deduction for 
    State and local real property taxes whether or not the taxpayer 
           itemizes other deductions, 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.

    This Act may be cited as the ``Universal Homeowner Tax Cut Act of 
2008''.

  TITLE I--DEDUCTION FOR STATE AND LOCAL REAL PROPERTY TAXES ALLOWED 
           WHETHER OR NOT TAXPAYER ITEMIZES OTHER DEDUCTIONS

SEC. 101. DEDUCTION FOR STATE AND LOCAL REAL PROPERTY TAXES ALLOWED 
              WHETHER OR NOT TAXPAYER ITEMIZES OTHER DEDUCTIONS.

    (a) In General.--Subsection (a) of section 62 of the Internal 
Revenue Code of 1986 (defining adjusted gross income) is amended by 
inserting before the last sentence the following new paragraph:
            ``(22) State and local real property taxes.--At the 
        election of the taxpayer, so much of the deduction allowed by 
        section 164 for State and local real property taxes (within the 
        meaning of section 164) as does not exceed $1,000 ($2,000 in 
        the case of a joint return).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2008.

                      TITLE II--REVENUE PROVISIONS

    Subtitle A--Nonqualified Deferred Compensation From Certain Tax 
                          Indifferent Parties

SEC. 201. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX 
              INDIFFERENT PARTIES.

    (a) In General.--Subpart B of part II of subchapter E of chapter 1 
of the Internal Revenue Code of 1986 (relating to taxable year for 
which items of gross income included) is amended by inserting after 
section 457 the following new section:

``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX 
              INDIFFERENT PARTIES.

    ``(a) In General.--Any compensation which is deferred under a 
nonqualified deferred compensation plan of a nonqualified entity shall 
be taken into account for purposes of this chapter when there is no 
substantial risk of forfeiture of the rights to such compensation.
    ``(b) Nonqualified Entity.--For purposes of this section, the term 
`nonqualified entity' means--
            ``(1) any foreign corporation unless substantially all of 
        its income is--
                    ``(A) effectively connected with the conduct of a 
                trade or business in the United States, or
                    ``(B) subject to a comprehensive foreign income 
                tax, and
            ``(2) any partnership unless substantially all of its 
        income is allocated to persons other than--
                    ``(A) foreign persons with respect to whom such 
                income is not subject to a comprehensive foreign income 
                tax, and
                    ``(B) organizations which are exempt from tax under 
                this title.
    ``(c) Ascertainability of Amounts of Compensation.--
            ``(1) In general.--If the amount of any compensation is not 
        ascertainable at the time that such compensation is otherwise 
        to be taken into account under subsection (a)--
                    ``(A) such amount shall be so taken into account 
                when ascertainable, and
                    ``(B) the tax imposed under this chapter for the 
                taxable year in which such compensation is taken into 
                account under subparagraph (A) shall be increased by 
                the sum of--
                            ``(i) the amount of interest determined 
                        under paragraph (2), and
                            ``(ii) an amount equal to 20 percent of the 
                        amount of such compensation.
            ``(2) Interest.--For purposes of paragraph (1)(B)(i), the 
        interest determined under this paragraph for any taxable year 
        is the amount of interest at the underpayment rate under 
        section 6621 plus 1 percentage point on the underpayments that 
        would have occurred had the deferred compensation been 
        includible in gross income for the taxable year in which first 
        deferred or, if later, the first taxable year in which such 
        deferred compensation is not subject to a substantial risk of 
        forfeiture.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Substantial risk of forfeiture.--
                    ``(A) In general.--The rights of a person to 
                compensation shall be treated as subject to a 
                substantial risk of forfeiture only if such person's 
                rights to such compensation are conditioned upon the 
                future performance of substantial services by any 
                individual.
                    ``(B) Exception for compensation based on gain 
                recognized on an investment asset.--
                            ``(i) In general.--To the extent provided 
                        in regulations prescribed by the Secretary, if 
                        compensation is determined solely by reference 
                        to the amount of gain recognized on the 
                        disposition of an investment asset, such 
                        compensation shall be treated as subject to a 
                        substantial risk of forfeiture until the date 
                        of such disposition.
                            ``(ii) Investment asset.--For purposes of 
                        clause (i), the term `investment asset' means 
                        any single asset (other than an investment fund 
                        or similar entity)--
                                    ``(I) acquired directly by an 
                                investment fund or similar entity,
                                    ``(II) with respect to which such 
                                entity does not (nor does any person 
                                related to such entity) participate in 
                                the active management of such asset (or 
                                if such asset is an interest in an 
                                entity, in the active management of the 
                                activities of such entity), and
                                    ``(III) substantially all of any 
                                gain on the disposition of which (other 
                                than such deferred compensation) is 
                                allocated to investors in such entity.
                            ``(iii) Coordination with special rule for 
                        short-term deferrals of compensation.--
                        Paragraph (3)(B) shall not apply to any 
                        compensation to which clause (i) applies.
            ``(2) Comprehensive foreign income tax.--The term 
        `comprehensive foreign income tax' means, with respect to any 
        foreign person, the income tax of a foreign country if--
                    ``(A) such person is eligible for the benefits of a 
                comprehensive income tax treaty between such foreign 
                country and the United States, or
                    ``(B) such person demonstrates to the satisfaction 
                of the Secretary that such foreign country has a 
                comprehensive income tax.
        Such term shall not include any tax unless such tax includes 
        rules for the deductibility of deferred compensation which are 
        similar to the rules of this title.
            ``(3) Nonqualified deferred compensation plan.--
                    ``(A) In general.--The term `nonqualified deferred 
                compensation plan' has the meaning given such term 
                under section 409A(d), except that such term shall 
                include any plan that provides a right to compensation 
                based on the appreciation in value of a specified 
                number of equity units of the service recipient.
                    ``(B) Exception for short-term deferrals.--
                Compensation shall not be treated as deferred for 
                purposes of this section if the service provider 
                receives payment of such compensation not later than 12 
                months after the end of the taxable year of the service 
                recipient during which the right to the payment of such 
                compensation is no longer subject to a substantial risk 
                of forfeiture.
            ``(4) Exception for certain compensation with respect to 
        effectively connected income.--In the case a foreign 
        corporation with income which is taxable under section 882, 
        this section shall not apply to compensation which, had such 
        compensation had been paid in cash on the date that such 
        compensation ceased to be subject to a substantial risk of 
        forfeiture, would have been deductible by such foreign 
        corporation against such income.
            ``(5) Application of rules.--Rules similar to the rules of 
        paragraphs (5) and (6) of section 409A(d) shall apply.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations disregarding a substantial risk of 
forfeiture in cases where necessary to carry out the purposes of this 
section.''.
    (b) Conforming Amendment.--Section 26(b)(2) of such Code is amended 
by striking ``and'' at the end of subparagraph (S), by striking the 
period at the end of subparagraph (T) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
                    ``(U) section 457A(c)(1)(B) (relating to 
                ascertainability of amounts of compensation).''.
    (c) Clerical Amendment.--The table of sections of subpart B of part 
II of subchapter E of chapter 1 of such Code is amended by inserting 
after the item relating to section 457 the following new item:

``Sec. 457A. Nonqualified deferred compensation from certain tax 
                            indifferent parties.''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        amounts deferred which are attributable to services performed 
        after December 31, 2007.
            (2) Application to existing deferrals.--In the case of any 
        amount deferred to which the amendments made by this section do 
        not apply solely by reason of the fact that the amount is 
        attributable to services performed before January 1, 2008, to 
        the extent such amount is not includible in gross income in a 
        taxable year beginning before 2017, such amounts shall be 
        includible in gross income in the later of--
                    (A) the last taxable year beginning before 2017, or
                    (B) the taxable year in which there is no 
                substantial risk of forfeiture of the rights to such 
                compensation (determined in the same manner as 
                determined for purposes of section 457A of the Internal 
                Revenue Code of 1986, as added by this section).
            (3) Accelerated payments.--No later than 60 days after the 
        date of the enactment of this Act, the Secretary shall issue 
        guidance providing a limited period of time during which a 
        nonqualified deferred compensation arrangement attributable to 
        services performed on or before December 31, 2007, may, without 
        violating the requirements of section 409A(a) of the Internal 
        Revenue Code of 1986, be amended to conform the date of 
        distribution to the date the amounts are required to be 
        included in income.
            (4) Certain back-to-back arrangements.--If the taxpayer is 
        also a service recipient and maintains one or more nonqualified 
        deferred compensation arrangements for its service providers 
        under which any amount is attributable to services performed on 
        or before December 31, 2007, the guidance issued under 
        paragraph (3) shall permit such arrangements to be amended to 
        conform the dates of distribution under such arrangement to the 
        date amounts are required to be included in the income of such 
        taxpayer under this subsection.
            (5) Accelerated payment not treated as material 
        modification.--Any amendment to a nonqualified deferred 
        compensation arrangement made pursuant to paragraph (3) or (4) 
        shall not be treated as a material modification of the 
        arrangement for purposes of section 409A of the Internal 
        Revenue Code of 1986.

        Subtitle B--Codification of Economic Substance Doctrine

SEC. 211. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (p) as subsection (q) and by 
inserting after subsection (o) the following new subsection:
    ``(p) Clarification of Economic Substance Doctrine.--
            ``(1) Application of doctrine.--In the case of any 
        transaction to which the economic substance doctrine is 
        relevant, such transaction shall be treated as having economic 
        substance only if--
                    ``(A) the transaction changes in a meaningful way 
                (apart from Federal income tax effects) the taxpayer's 
                economic position, and
                    ``(B) the taxpayer has a substantial purpose (apart 
                from Federal income tax effects) for entering into such 
                transaction.
            ``(2) Special rule where taxpayer relies on profit 
        potential.--
                    ``(A) In general.--The potential for profit of a 
                transaction shall be taken into account in determining 
                whether the requirements of subparagraphs (A) and (B) 
                of paragraph (1) are met with respect to the 
                transaction only if the present value of the reasonably 
                expected pre-tax profit from the transaction is 
                substantial in relation to the present value of the 
                expected net tax benefits that would be allowed if the 
                transaction were respected.
                    ``(B) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (A).
            ``(3) State and local tax benefits.--For purposes of 
        paragraph (1), any State or local income tax effect which is 
        related to a Federal income tax effect shall be treated in the 
        same manner as a Federal income tax effect.
            ``(4) Financial accounting benefits.--For purposes of 
        paragraph (1)(B), achieving a financial accounting benefit 
        shall not be taken into account as a purpose for entering into 
        a transaction if such transaction results in a Federal income 
        tax benefit.
            ``(5) 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, paragraph 
                (1) shall apply only to transactions entered into in 
                connection with a trade or business or an activity 
                engaged in for the production of income.
                    ``(C) Other common law doctrines 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, and the 
                requirements of this subsection shall be construed as 
                being in addition to any such other rule of law.
                    ``(D) Determination of application of doctrine not 
                affected.--The determination of whether the economic 
                substance doctrine is relevant to a transaction shall 
                be made in the same manner as if this subsection had 
                never been enacted.
            ``(6) 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. 212. PENALTIES FOR UNDERPAYMENTS.

    (a) Penalty for Underpayments Attributable to Transactions Lacking 
Economic Substance.--
            (1) In general.--Subsection (b) of section 6662 of the 
        Internal Revenue Code of 1986 is amended by inserting after 
        paragraph (5) the following new paragraph:
            ``(6) Any disallowance of claimed tax benefits by reason of 
        a transaction lacking economic substance (within the meaning of 
        section 7701(p)) or failing to meet the requirements of any 
        similar rule of law.''.
            (2) Increased penalty for nondisclosed transactions.--
        Section 6662 of such Code is amended by adding at the end the 
        following new subsection:
    ``(i) Increase in Penalty in Case of Nondisclosed Noneconomic 
Substance Transactions.--
            ``(1) In general.--To the extent that a portion of the 
        underpayment to which this section applies is attributable to 
        one or more nondisclosed noneconomic substance transactions, 
        subsection (a) shall be applied with respect to such portion by 
        substituting `40 percent' for `20 percent'.
            ``(2) Nondisclosed noneconomic substance transactions.--For 
        purposes of this subsection, the term `nondisclosed noneconomic 
        substance transaction' means any portion of a transaction 
        described in subsection (b)(6) with respect to which the 
        relevant facts affecting the tax treatment are not adequately 
        disclosed in the return nor in a statement attached to the 
        return.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any amendment or supplement 
        to a return of tax be taken into account for purposes of this 
        subsection if the amendment or supplement is filed after the 
        earlier of the date the taxpayer is first contacted by the 
        Secretary regarding the examination of the return or such other 
        date as is specified by the Secretary.''.
            (3) Conforming amendment.--Subparagraph (B) of section 
        6662A(e)(2) of such Code is amended--
                    (A) by striking ``section 6662(h)'' and inserting 
                ``subsection (h) or (i) of section 6662'', and
                    (B) by striking ``gross valuation misstatement 
                penalty'' in the heading and inserting ``certain 
                increased underpayment penalties''.
    (b) Reasonable Cause Exception Not Applicable to Noneconomic 
Substance Transactions, Tax Shelters, and Certain Large Corporations.--
Subsection (c) of section 6664 of such Code is amended--
            (1) by redesignating paragraphs (2) and (3) as paragraphs 
        (3) and (4), respectively,
            (2) by striking ``paragraph (2)'' in paragraph (4), as so 
        redesignated, and inserting ``paragraph (3)'', and
            (3) by inserting after paragraph (1) the following new 
        paragraph:
            ``(2) Exception for noneconomic substance transactions, tax 
        shelters, and certain large corporations.--Paragraph (1) shall 
        not apply--
                    ``(A) to any portion of an underpayment which is 
                attributable to one or more tax shelters (as defined in 
                section 6662(d)(2)(C)) or transactions described in 
                section 6662(b)(6), and
                    ``(B) to any taxpayer if such taxpayer is a 
                specified large corporation (as defined in section 
                6662(d)(2)(D)(ii)).''.
    (c) Application of Penalty for Erroneous Claim for Refund or Credit 
to Noneconomic Substance Transactions.--Section 6676 of such Code is 
amended by redesignating subsection (c) as subsection (d) and inserting 
after subsection (b) the following new subsection:
    ``(c) Noneconomic Substance Transactions Treated as Lacking 
Reasonable Basis.--For purposes of this section, any excessive amount 
which is attributable to any transaction described in section 
6662(b)(6) shall not be treated as having a reasonable basis.''.
    (d) Special Understatement Reduction Rule for Certain Large 
Corporations.--
            (1) In general.--Paragraph (2) of section 6662(d) of such 
        Code is amended by adding at the end the following new 
        subparagraph:
                    ``(D) Special reduction rule for certain large 
                corporations.--
                            ``(i) In general.--In the case of any 
                        specified large corporation--
                                    ``(I) subparagraph (B) shall not 
                                apply, and
                                    ``(II) the amount of the 
                                understatement under subparagraph (A) 
                                shall be reduced by that portion of the 
                                understatement which is attributable to 
                                any item with respect to which the 
                                taxpayer has a reasonable belief that 
                                the tax treatment of such item by the 
                                taxpayer is more likely than not the 
                                proper tax treatment of such item.
                            ``(ii) Specified large corporation.--
                                    ``(I) In general.--For purposes of 
                                this subparagraph, the term `specified 
                                large corporation' means any 
                                corporation with gross receipts in 
                                excess of $100,000,000 for the taxable 
                                year involved.
                                    ``(II) Aggregation rule.--All 
                                persons treated as a single employer 
                                under section 52(a) shall be treated as 
                                one person for purposes of subclause 
                                (I).''.
            (2) Conforming amendment.--Subparagraph (C) of section 
        6662(d)(2) of such Code is amended by striking ``Subparagraph 
        (B)'' and inserting ``Subparagraphs (B) and (D)(i)(II)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
                                 <all>
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