I 

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. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Universal Homeowner 

5 Tax Cut Act of 2008’’. 


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1 TITLE I—DEDUCTION FOR 

2 STATE AND LOCAL REAL 

3 PROPERTY TAXES ALLOWED 

4 WHETHER OR NOT TAXPAYER 

5 ITEMIZES OTHER DEDUC6 TIONS 

7 SEC. 101. DEDUCTION FOR STATE AND LOCAL REAL PROP8 ERTY TAXES ALLOWED WHETHER OR NOT 

9 TAXPAYER ITEMIZES OTHER DEDUCTIONS. 

10 (a) IN GENERAL.—Subsection (a) of section 62 of the 

11 Internal Revenue Code of 1986 (defining adjusted gross 

12 income) is amended by inserting before the last sentence 

13 the following new paragraph: 

14 ‘‘(22) STATE AND LOCAL REAL PROPERTY

15 TAXES.—At the election of the taxpayer, so much of 

16 the deduction allowed by section 164 for State and 

17 local real property taxes (within the meaning of sec18 tion 164) as does not exceed $1,000 ($2,000 in the 

19 case of a joint return).’’. 

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

21 subsection (a) shall apply to taxable years beginning after 

22 December 31, 2008. 


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1 TITLE II—REVENUE PROVISIONS 

2 Subtitle A—Nonqualified Deferred 

3 Compensation From Certain 

4 Tax Indifferent Parties 

5 SEC. 201. NONQUALIFIED DEFERRED COMPENSATION 

6 FROM CERTAIN TAX INDIFFERENT PARTIES. 

7 (a) IN GENERAL.—Subpart B of part II of sub8 chapter E of chapter 1 of the Internal Revenue Code of 

9 1986 (relating to taxable year for which items of gross 

10 income included) is amended by inserting after section 457 

11 the following new section: 

12 ‘‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION 

13 FROM CERTAIN TAX INDIFFERENT PARTIES. 

14 ‘‘(a) IN GENERAL.—Any compensation which is de15 ferred under a nonqualified deferred compensation plan of 

16 a nonqualified entity shall be taken into account for pur17 poses of this chapter when there is no substantial risk of 

18 forfeiture of the rights to such compensation. 

19 ‘‘(b) NONQUALIFIED ENTITY.—For purposes of this 

20 section, the term ‘nonqualified entity’ means— 

21 ‘‘(1) any foreign corporation unless substan22 tially all of its income is— 

23 ‘‘(A) effectively connected with the conduct 

24 of a trade or business in the United States, or 


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1 ‘‘(B) subject to a comprehensive foreign in2 come tax, and 

3 ‘‘(2) any partnership unless substantially all of 

4 its income is allocated to persons other than— 

5 ‘‘(A) foreign persons with respect to whom 

6 such income is not subject to a comprehensive 

7 foreign income tax, and 

8 ‘‘(B) organizations which are exempt from 

9 tax under this title. 

10 ‘‘(c) ASCERTAINABILITY OF AMOUNTS OF COM11 PENSATION.— 

12 ‘‘(1) IN GENERAL.—If the amount of any com13 pensation is not ascertainable at the time that such 

14 compensation is otherwise to be taken into account 

15 under subsection (a)— 

16 ‘‘(A) such amount shall be so taken into 

17 account when ascertainable, and 

18 ‘‘(B) the tax imposed under this chapter 

19 for the taxable year in which such compensation 

20 is taken into account under subparagraph (A) 

21 shall be increased by the sum of— 

22 ‘‘(i) the amount of interest determined 

23 under paragraph (2), and 

24 ‘‘(ii) an amount equal to 20 percent of 

25 the amount of such compensation. 


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1 ‘‘(2) INTEREST.—For purposes of paragraph 

2 (1)(B)(i), the interest determined under this para3 graph for any taxable year is the amount of interest 

4 at the underpayment rate under section 6621 plus 

5 1 percentage point on the underpayments that would 

6 have occurred had the deferred compensation been 

7 includible in gross income for the taxable year in 

8 which first deferred or, if later, the first taxable year 

9 in which such deferred compensation is not subject 

10 to a substantial risk of forfeiture. 

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

12 For purposes of this section— 

13 ‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.— 

14 ‘‘(A) IN GENERAL.—The rights of a person 

15 to compensation shall be treated as subject to 

16 a substantial risk of forfeiture only if such per17 son’s rights to such compensation are condi18 tioned upon the future performance of substan19 tial services by any individual. 

20 ‘‘(B) EXCEPTION FOR COMPENSATION

21 BASED ON GAIN RECOGNIZED ON AN INVEST22 MENT ASSET.— 

23 ‘‘(i) IN GENERAL.—To the extent pro24 vided in regulations prescribed by the Sec25 retary, if compensation is determined solely 


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1 by reference to the amount of gain recog2 nized on the disposition of an investment 

3 asset, such compensation shall be treated 

4 as subject to a substantial risk of for5 feiture until the date of such disposition. 

6 ‘‘(ii) INVESTMENT ASSET.—For pur7 poses of clause (i), the term ‘investment 

8 asset’ means any single asset (other than 

9 an investment fund or similar entity)— 

10 ‘‘(I) acquired directly by an in11 vestment fund or similar entity, 

12 ‘‘(II) with respect to which such 

13 entity does not (nor does any person 

14 related to such entity) participate in 

15 the active management of such asset 

16 (or if such asset is an interest in an 

17 entity, in the active management of 

18 the activities of such entity), and 

19 ‘‘(III) substantially all of any 

20 gain on the disposition of which (other 

21 than such deferred compensation) is 

22 allocated to investors in such entity. 

23 ‘‘(iii) COORDINATION WITH SPECIAL

24 RULE FOR SHORT-TERM DEFERRALS OF

25 COMPENSATION.—Paragraph (3)(B) shall 


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1 not apply to any compensation to which 

2 clause (i) applies. 

3 ‘‘(2) COMPREHENSIVE FOREIGN INCOME TAX.— 

4 The term ‘comprehensive foreign income tax’ means, 

5 with respect to any foreign person, the income tax 

6 of a foreign country if— 

7 ‘‘(A) such person is eligible for the benefits 

8 of a comprehensive income tax treaty between 

9 such foreign country and the United States, or 

10 ‘‘(B) such person demonstrates to the sat11 isfaction of the Secretary that such foreign 

12 country has a comprehensive income tax. 

13 Such term shall not include any tax unless such tax 

14 includes rules for the deductibility of deferred com15 pensation which are similar to the rules of this title. 

16 ‘‘(3) NONQUALIFIED DEFERRED COMPENSA17 TION PLAN.— 

18 ‘‘(A) IN GENERAL.—The term ‘non19 qualified deferred compensation plan’ has the 

20 meaning given such term under section 

21 409A(d), except that such term shall include 

22 any plan that provides a right to compensation 

23 based on the appreciation in value of a specified 

24 number of equity units of the service recipient. 


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1 ‘‘(B) EXCEPTION FOR SHORT-TERM DE2 FERRALS.—Compensation shall not be treated 

3 as deferred for purposes of this section if the 

4 service provider receives payment of such com5 pensation not later than 12 months after the 

6 end of the taxable year of the service recipient 

7 during which the right to the payment of such 

8 compensation is no longer subject to a substan9 tial risk of forfeiture. 

10 ‘‘(4) EXCEPTION FOR CERTAIN COMPENSATION

11 WITH RESPECT TO EFFECTIVELY CONNECTED IN12 COME.—In the case a foreign corporation with in13 come which is taxable under section 882, this section 

14 shall not apply to compensation which, had such 

15 compensation had been paid in cash on the date that 

16 such compensation ceased to be subject to a sub17 stantial risk of forfeiture, would have been deduct18 ible by such foreign corporation against such income. 

19 ‘‘(5) APPLICATION OF RULES.—Rules similar to 

20 the rules of paragraphs (5) and (6) of section 

21 409A(d) shall apply. 

22 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

23 such regulations as may be necessary or appropriate to 

24 carry out the purposes of this section, including regula25 tions disregarding a substantial risk of forfeiture in cases 


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1 where necessary to carry out the purposes of this sec2 tion.’’. 

3 (b) CONFORMING AMENDMENT.—Section 26(b)(2) of 

4 such Code is amended by striking ‘‘and’’ at the end of 

5 subparagraph (S), by striking the period at the end of sub6 paragraph (T) and inserting ‘‘, and’’, and by adding at 

7 the end the following new subparagraph: 

8 ‘‘(U) section 457A(c)(1)(B) (relating to as9 certainability of amounts of compensation).’’. 

10 (c) CLERICAL AMENDMENT.—The table of sections 

11 of subpart B of part II of subchapter E of chapter 1 of 

12 such Code is amended by inserting after the item relating 

13 to section 457 the following new item: 

‘‘Sec. 457A. Nonqualified deferred compensation from certain tax indifferent 

parties.’’. 

14 (d) EFFECTIVE DATE.— 

15 (1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the amendments made by 

17 this section shall apply to amounts deferred which 

18 are attributable to services performed after Decem19 ber 31, 2007. 

20 (2) APPLICATION TO EXISTING DEFERRALS.— 

21 In the case of any amount deferred to which the 

22 amendments made by this section do not apply solely 

23 by reason of the fact that the amount is attributable 

24 to services performed before January 1, 2008, to the 


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1 extent such amount is not includible in gross income 

2 in a taxable year beginning before 2017, such 

3 amounts shall be includible in gross income in the 

4 later of— 

5 (A) the last taxable year beginning before 

6 2017, or 

7 (B) the taxable year in which there is no 

8 substantial risk of forfeiture of the rights to 

9 such compensation (determined in the same 

10 manner as determined for purposes of section 

11 457A of the Internal Revenue Code of 1986, as 

12 added by this section). 

13 (3) ACCELERATED PAYMENTS.—No later than 

14 60 days after the date of the enactment of this Act, 

15 the Secretary shall issue guidance providing a lim16 ited period of time during which a nonqualified de17 ferred compensation arrangement attributable to 

18 services performed on or before December 31, 2007, 

19 may, without violating the requirements of section 

20 409A(a) of the Internal Revenue Code of 1986, be 

21 amended to conform the date of distribution to the 

22 date the amounts are required to be included in in23 come. 

24 (4) CERTAIN BACK-TO-BACK ARRANGEMENTS.— 

25 If the taxpayer is also a service recipient and mainVerDate Aug 31 2005 04:38 Apr 18, 2008 Jkt 069200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H5790.IH H5790

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1 tains one or more nonqualified deferred compensa2 tion arrangements for its service providers under 

3 which any amount is attributable to services per4 formed on or before December 31, 2007, the guid5 ance issued under paragraph (3) shall permit such 

6 arrangements to be amended to conform the dates of 

7 distribution under such arrangement to the date 

8 amounts are required to be included in the income 

9 of such taxpayer under this subsection. 

10 (5) ACCELERATED PAYMENT NOT TREATED AS

11 MATERIAL MODIFICATION.—Any amendment to a 

12 nonqualified deferred compensation arrangement 

13 made pursuant to paragraph (3) or (4) shall not be 

14 treated as a material modification of the arrange15 ment for purposes of section 409A of the Internal 

16 Revenue Code of 1986. 

17 Subtitle B—Codification of 

18 Economic Substance Doctrine 

19 SEC. 211. CODIFICATION OF ECONOMIC SUBSTANCE DOC20 TRINE. 

21 (a) IN GENERAL.—Section 7701 of the Internal Rev22 enue Code of 1986 is amended by redesignating subsection 

23 (p) as subsection (q) and by inserting after subsection (o) 

24 the following new subsection: 


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1 ‘‘(p) CLARIFICATION OF ECONOMIC SUBSTANCE

2 DOCTRINE.— 

3 ‘‘(1) APPLICATION OF DOCTRINE.—In the case 

4 of any transaction to which the economic substance 

5 doctrine is relevant, such transaction shall be treated 

6 as having economic substance only if— 

7 ‘‘(A) the transaction changes in a mean8 ingful way (apart from Federal income tax ef9 fects) the taxpayer’s economic position, and 

10 ‘‘(B) the taxpayer has a substantial pur11 pose (apart from Federal income tax effects) 

12 for entering into such transaction. 

13 ‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES

14 ON PROFIT POTENTIAL.— 

15 ‘‘(A) IN GENERAL.—The potential for 

16 profit of a transaction shall be taken into ac17 count in determining whether the requirements 

18 of subparagraphs (A) and (B) of paragraph (1) 

19 are met with respect to the transaction only if 

20 the present value of the reasonably expected 

21 pre-tax profit from the transaction is substan22 tial in relation to the present value of the ex23 pected net tax benefits that would be allowed if 

24 the transaction were respected. 


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1 ‘‘(B) TREATMENT OF FEES AND FOREIGN

2 TAXES.—Fees and other transaction expenses 

3 and foreign taxes shall be taken into account as 

4 expenses in determining pre-tax profit under 

5 subparagraph (A). 

6 ‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 

7 purposes of paragraph (1), any State or local income 

8 tax effect which is related to a Federal income tax 

9 effect shall be treated in the same manner as a Fed10 eral income tax effect. 

11 ‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For 

12 purposes of paragraph (1)(B), achieving a financial 

13 accounting benefit shall not be taken into account as 

14 a purpose for entering into a transaction if such 

15 transaction results in a Federal income tax benefit. 

16 ‘‘(5) DEFINITIONS AND SPECIAL RULES.—For 

17 purposes of this subsection— 

18 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

19 The term ‘economic substance doctrine’ means 

20 the common law doctrine under which tax bene21 fits under subtitle A with respect to a trans22 action are not allowable if the transaction does 

23 not have economic substance or lacks a business 

24 purpose. 


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1 ‘‘(B) EXCEPTION FOR PERSONAL TRANS2 ACTIONS OF INDIVIDUALS.—In the case of an 

3 individual, paragraph (1) shall apply only to 

4 transactions entered into in connection with a 

5 trade or business or an activity engaged in for 

6 the production of income. 

7 ‘‘(C) OTHER COMMON LAW DOCTRINES

8 NOT AFFECTED.—Except as specifically pro9 vided in this subsection, the provisions of this 

10 subsection shall not be construed as altering or 

11 supplanting any other rule of law, and the re12 quirements of this subsection shall be construed 

13 as being in addition to any such other rule of 

14 law. 

15 ‘‘(D) DETERMINATION OF APPLICATION OF

16 DOCTRINE NOT AFFECTED.—The determination 

17 of whether the economic substance doctrine is 

18 relevant to a transaction shall be made in the 

19 same manner as if this subsection had never 

20 been enacted. 

21 ‘‘(6) REGULATIONS.—The Secretary shall pre22 scribe such regulations as may be necessary or ap23 propriate to carry out the purposes of this sub24 section. Such regulations may include exemptions 

25 from the application of this subsection.’’. 


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

2 this section shall apply to transactions entered into after 

3 the date of the enactment of this Act. 

4 SEC. 212. PENALTIES FOR UNDERPAYMENTS. 

5 (a) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE

6 TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE.— 

7 (1) IN GENERAL.—Subsection (b) of section 

8 6662 of the Internal Revenue Code of 1986 is 

9 amended by inserting after paragraph (5) the fol10 lowing new paragraph: 

11 ‘‘(6) Any disallowance of claimed tax benefits 

12 by reason of a transaction lacking economic sub13 stance (within the meaning of section 7701(p)) or 

14 failing to meet the requirements of any similar rule 

15 of law.’’. 

16 (2) INCREASED PENALTY FOR NONDISCLOSED

17 TRANSACTIONS.—Section 6662 of such Code is 

18 amended by adding at the end the following new 

19 subsection: 

20 ‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS21 CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 

22 ‘‘(1) IN GENERAL.—To the extent that a por23 tion of the underpayment to which this section ap24 plies is attributable to one or more nondisclosed non25 economic substance transactions, subsection (a) shall 


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1 be applied with respect to such portion by sub2 stituting ‘40 percent’ for ‘20 percent’. 

3 ‘‘(2) NONDISCLOSED NONECONOMIC SUB4 STANCE TRANSACTIONS.—For purposes of this sub5 section, the term ‘nondisclosed noneconomic sub6 stance transaction’ means any portion of a trans7 action described in subsection (b)(6) with respect to 

8 which the relevant facts affecting the tax treatment 

9 are not adequately disclosed in the return nor in a 

10 statement attached to the return. 

11 ‘‘(3) SPECIAL RULE FOR AMENDED RE12 TURNS.—Except as provided in regulations, in no 

13 event shall any amendment or supplement to a re14 turn of tax be taken into account for purposes of 

15 this subsection if the amendment or supplement is 

16 filed after the earlier of the date the taxpayer is first 

17 contacted by the Secretary regarding the examina18 tion of the return or such other date as is specified 

19 by the Secretary.’’. 

20 (3) CONFORMING AMENDMENT.—Subparagraph 

21 (B) of section 6662A(e)(2) of such Code is amend22 ed— 

23 (A) by striking ‘‘section 6662(h)’’ and in24 serting ‘‘subsection (h) or (i) of section 6662’’, 

25 and 


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1 (B) by striking ‘‘GROSS VALUATION

2 MISSTATEMENT PENALTY’’ in the heading and 

3 inserting ‘‘CERTAIN INCREASED UNDER4 PAYMENT PENALTIES’’. 

5 (b) REASONABLE CAUSE EXCEPTION NOT APPLICA6 BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS, TAX

7 SHELTERS, AND CERTAIN LARGE CORPORATIONS.—Sub8 section (c) of section 6664 of such Code is amended— 

9 (1) by redesignating paragraphs (2) and (3) as 

10 paragraphs (3) and (4), respectively, 

11 (2) by striking ‘‘paragraph (2)’’ in paragraph 

12 (4), as so redesignated, and inserting ‘‘paragraph 

13 (3)’’, and 

14 (3) by inserting after paragraph (1) the fol15 lowing new paragraph: 

16 ‘‘(2) EXCEPTION FOR NONECONOMIC SUB17 STANCE TRANSACTIONS, TAX SHELTERS, AND CER18 TAIN LARGE CORPORATIONS.—Paragraph (1) shall 

19 not apply— 

20 ‘‘(A) to any portion of an underpayment 

21 which is attributable to one or more tax shelters 

22 (as defined in section 6662(d)(2)(C)) or trans23 actions described in section 6662(b)(6), and 


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1 ‘‘(B) to any taxpayer if such taxpayer is a 

2 specified large corporation (as defined in section 

3 6662(d)(2)(D)(ii)).’’. 

4 (c) APPLICATION OF PENALTY FOR ERRONEOUS

5 CLAIM FOR REFUND OR CREDIT TO NONECONOMIC SUB6 STANCE TRANSACTIONS.—Section 6676 of such Code is 

7 amended by redesignating subsection (c) as subsection (d) 

8 and inserting after subsection (b) the following new sub9 section: 

10 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTIONS

11 TREATED AS LACKING REASONABLE BASIS.—For pur12 poses of this section, any excessive amount which is attrib13 utable to any transaction described in section 6662(b)(6) 

14 shall not be treated as having a reasonable basis.’’. 

15 (d) SPECIAL UNDERSTATEMENT REDUCTION RULE

16 FOR CERTAIN LARGE CORPORATIONS.— 

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

18 6662(d) of such Code is amended by adding at the 

19 end the following new subparagraph: 

20 ‘‘(D) SPECIAL REDUCTION RULE FOR CER21 TAIN LARGE CORPORATIONS.— 

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

23 specified large corporation— 

24 ‘‘(I) subparagraph (B) shall not 

25 apply, and 


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1 ‘‘(II) the amount of the under2 statement under subparagraph (A) 

3 shall be reduced by that portion of the 

4 understatement which is attributable 

5 to any item with respect to which the 

6 taxpayer has a reasonable belief that 

7 the tax treatment of such item by the 

8 taxpayer is more likely than not the 

9 proper tax treatment of such item. 

10 ‘‘(ii) SPECIFIED LARGE CORPORA11 TION.— 

12 ‘‘(I) IN GENERAL.—For purposes 

13 of this subparagraph, the term ‘speci14 fied large corporation’ means any cor15 poration with gross receipts in excess 

16 of $100,000,000 for the taxable year 

17 involved. 

18 ‘‘(II) AGGREGATION RULE.—All 

19 persons treated as a single employer 

20 under section 52(a) shall be treated as 

21 one person for purposes of subclause 

22 (I).’’. 

23 (2) CONFORMING AMENDMENT.—Subparagraph 

24 (C) of section 6662(d)(2) of such Code is amended 


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1 by striking ‘‘Subparagraph (B)’’ and inserting ‘‘Sub2 paragraphs (B) and (D)(i)(II)’’. 

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

4 this section shall apply to taxable years beginning after 

5 the date of the enactment of this Act. 

Æ 


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