II 

110TH CONGRESS 

2D SESSION S. 3162 

To amend the Internal Revenue Code of 1986 to provide tax relief to improve 

the competitiveness of United States corporations and small businesses, 

to eliminate tax incentives to move jobs and profits overseas, and for 

other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 19, 2008 

Mr. VOINOVICH introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax relief to improve the competitiveness of United States 

corporations and small businesses, to eliminate tax incentives to move jobs and profits overseas, 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, ETC. 

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

5 ‘‘Manufacturing, Assembling, Development, and Export in 

6 the USA Tax Act’’ or the ‘‘MADE in the USA Tax Act’’. 


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

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

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

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

8 this Act is as follows: 

Sec. 1. Short title, etc. 

TITLE I—TAX RELIEF TO IMPROVE THE COMPETITIVENESS OF 

UNITED STATES CORPORATIONS AND SMALL BUSINESSES 

Sec. 101. Phased in reduction of maximum corporate income tax rate to 28 

percent. 

Sec. 102. Modifications of deduction for income attributable to domestic production activities. 

Sec. 103. Small business expensing provisions made permanent. 

Sec. 104. Repeal of imposition of withholding on certain payments made to vendors by government entities. 

Sec. 105. Repeal of certain modifications to exclusion for citizens living abroad. 

TITLE II—ELIMINATION OF TAX INCENTIVES TO MOVE JOBS 

AND PROFITS OVERSEAS 

Subtitle A—Foreign Tax Credit Modifications 

Sec. 201. Inclusion of all foreign-source royalties in passive category income in 

applying foreign tax credit limitation. 

Sec. 202. Separate application of foreign tax credit limitation to financial services income. 

Subtitle B—Classification of Foreign Entities 

Sec. 211. Treatment of foreign corporations managed and controlled in the 

United States as domestic corporations. 

Sec. 212. Entities with single owner treated as corporations. 

Subtitle C—Proper Treatment and Allocation of Income and Deductions 

Sec. 221. Limitation on treaty benefits for certain deductible payments. 

Sec. 222. Repeal of special source rules for inventory property. 

Sec. 223. Clarification of determination of foreign oil and gas extraction income. 

Sec. 224. Modifications of limitation on excess interest deductions of certain 

corporations. 

Sec. 225. Sense of Senate regarding certain reinsurance transactions with foreign related persons. 


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Sec. 226. Study on effectiveness of transfer pricing rules with respect to inbound transactions. 

Subtitle D—Other Provisions 

Sec. 231. Nonqualified deferred compensation from certain tax indifferent parties. 

Sec. 232. Restrictions on refundable child tax credit to taxpayers outside the 

United States. 

TITLE III—OTHER REVENUE MEASURES 

Subtitle A—Accounting Provisions 

Sec. 301. Repeal of lower of cost or market method of inventory. 

Sec. 302. Repeal of percentage depletion. 

Sec. 303. Amortization of goodwill and other intangibles. 

Subtitle B—Codification of Economic Substance Doctrine 

Sec. 311. Codification of economic substance doctrine. 

Sec. 312. Penalties for underpayments. 

Subtitle C—Extension of Certain Expiring Provisions 

Sec. 321. Extension of FUTA tax. 

Sec. 322. Permanent extension of custom user fees. 

1 TITLE I—TAX RELIEF TO IM2 PROVE THE COMPETITIVE3 NESS OF UNITED STATES 

4 CORPORATIONS AND SMALL 

5 BUSINESSES 

6 SEC. 101. PHASED IN REDUCTION OF MAXIMUM COR7 PORATE INCOME TAX RATE TO 28 PERCENT. 

8 (a) PHASED REDUCTION.— 

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

10 11(b) (relating to amount of tax on corporations) is 

11 amended to read as follows: 

12 ‘‘(1) IN GENERAL.—The amount of the tax im13 posed by subsection (a) shall be the sum of— 


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1 ‘‘(A) 15 percent of so much of the taxable 

2 income as does not exceed $50,000, 

3 ‘‘(B) 25 percent of so much of the taxable 

4 income as exceeds $50,000, but does not exceed 

5 $75,000, and 

6 ‘‘(C) the applicable percentage of so much 

7 of such taxable income as exceeds $75,000.’’. 

8 (2) APPLICABLE PERCENTAGE.—Section 11(b) 

9 is amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes 

12 of this subsection, the applicable percentage for any 

13 taxable year shall be determined in accordance with 

14 the following table: 

‘‘In the case of a taxable year beginning in calendar year: The applicable percentage 

is: 

2009 ............................................................................................. 33

2010 ............................................................................................. 32

2011 ............................................................................................. 31

2012 ............................................................................................. 30

2013 and thereafter ..................................................................... 28’’. 

15 (b) PERSONAL SERVICE CORPORATIONS.—Para16 graph (2) of section 11(b) is amended by striking ‘‘35 per17 cent’’ and inserting ‘‘the applicable percentage’’. 

18 (c) CONFORMING AMENDMENTS.— 

19 (1) Section 904(b)(3)(D)(ii) is amended by 

20 striking ‘‘(determined without regard to the last sen21 tence of section 11(b)(1))’’. 

22 (2) Section 1201(a) is amended— 


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1 (A) by striking ‘‘35 percent’’ each place it 

2 appears and inserting ‘‘the applicable percent3 age then in effect under section 11(b)(3)’’, and 

4 (B) by striking ‘‘(determined without re5 gard to the last 2 sentences of section 

6 11(b)(1))’’. 

7 (3) Subparagraphs (A) and (B)(ii) of section 

8 1201(b)(1), as added by the Heartland, Habitat, 

9 Harvest, and Horticulture Act of 2008, are each 

10 amended by striking ‘‘35 percent’’ and inserting 

11 ‘‘the applicable percentage then in effect under sec12 tion 11(b)(3)’’. 

13 (4)(A) Paragraph (1) of section 1445(e) is 

14 amended by striking ‘‘35 percent’’ and inserting 

15 ‘‘the applicable percentage in effect under section 

16 11(b)(3) on the 1st day of the calendar year in 

17 which the disposition occurs’’. 

18 (B) Paragraph (2) of section 1445(e) is amend19 ed by striking ‘‘35 percent’’ and inserting ‘‘the ap20 plicable percentage (in effect under section 11(b)(3) 

21 on the 1st day of the calendar year in which the dis22 tribution occurs)’’ 

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

24 this section shall apply to taxable years beginning after 


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1 December 31, 2008; except that the amendments made 

2 by subsection (c)(4) shall take effect on January 1, 2009. 

3 SEC. 102. MODIFICATIONS OF DEDUCTION FOR INCOME AT4 TRIBUTABLE TO DOMESTIC PRODUCTION AC5 TIVITIES. 

6 (a) DEDUCTION LIMITED TO TAXPAYERS OTHER

7 THAN C CORPORATIONS.—Section 199(a)(1) (relating to 

8 allowance of deduction for income attributable to domestic 

9 production activities) is amended by striking ‘‘There’’ and 

10 inserting ‘‘In the case of a taxpayer other than a C cor11 poration, there’’. 

12 (b) INCREASE IN AMOUNT OF DEDUCTION.—Section 

13 199(a) is amended— 

14 (1) by striking ‘‘9 percent’’ in paragraph (1) 

15 and inserting ‘‘12 percent’’, and 

16 (2) in paragraph (2)— 

17 (A) by striking ‘‘before 2010’’ and insert18 ing ‘‘before 2011’’, and 

19 (B) by striking the table and inserting the 

20 following: 

‘‘For taxable years beginning in: The transition percentage 

is: 

2005 or 2006 ................................. 3 

2007 or 2008................................. 6 

2009 or 2010 ................................. 9’’. 

21 (c) CONFORMING AMENDMENTS.— 

22 (1) Section 199(c)(4) is amended by striking 

23 subparagraph (D). 


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1 (2) Section 199(c)(7)(B) is amended to read as 

2 follows: 

3 ‘‘(B) RELATED PERSON.—For purposes of 

4 subparagraph (A), a person shall be treated as 

5 related to another person if such persons are 

6 treated as a single employer under section 

7 52(b) or subsection (m) or (o) of section 414, 

8 except that any determination under section 

9 52(b) shall be made without regard to section 

10 1563(b).’’. 

11 (3) Section 199(d)(4) is repealed. 

12 (4) Section 199(d)(6) is amended to read as fol13 lows: 

14 ‘‘(6) COORDINATION WITH MINIMUM TAX.—For 

15 purposes of determining alternative minimum tax16 able income under section 55, qualified production 

17 activities income shall be determined without regard 

18 to any adjustments under sections 56 through 59.’’. 

19 (5) Section 163(j)(6)(A)(i) is amended by in20 serting ‘‘and’’ at the end of subclause (II), by strik21 ing subclause (III), and by redesignating subclause 

22 (IV) as subclause (III). 

23 (6) Section 170(b)(2)(C) is amended by insert24 ing ‘‘and’’ at the end of clause (iii), by striking 


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1 clause (iv), and by redesignating clause (v) as clause 

2 (iv). 

3 (7) Section 246(b)(1) is amended by striking 

4 ‘‘199,’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2008. 

8 SEC. 103. SMALL BUSINESS EXPENSING PROVISIONS MADE 

9 PERMANENT. 

10 (a) INCREASE IN SMALL BUSINESS EXPENSING

11 MADE PERMANENT.—Subsection (b) of section 179 is 

12 amended— 

13 (1) by striking ‘‘$25,000 ($125,000 in the case 

14 of taxable years beginning after 2006 and before 

15 2011)’’ in paragraph (1) and inserting ‘‘$125,000’’, 

16 and 

17 (2) by striking ‘‘$200,000 ($500,000 in the 

18 case of taxable years beginning after 2006 and be19 fore 2011)’’ in paragraph (2) and inserting 

20 ‘‘$500,000’’. 

21 (b) EXPENSING FOR COMPUTER SOFTWARE MADE

22 PERMANENT.—Clause (ii) of section 179(d)(1)(A) is 

23 amended— 

24 (1) by striking ‘‘, to which’’ and inserting ‘‘and 

25 to which’’, and 


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1 (2) by striking ‘‘and which is placed in service 

2 in a taxable year beginning after 2002 and before 

3 2011,’’. 

4 (c) INFLATION ADJUSTMENT.—Subparagraph (A) of 

5 section 179(b)(5) is amended by striking ‘‘and before 

6 2011’’. 

7 (d) EFFECTIVE DATE.— 

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section 

10 shall apply to taxable years beginning after Decem11 ber 31, 2008. 

12 (2) COMPUTER SOFTWARE.—The amendment 

13 made by subsection (b) shall apply to property 

14 placed in service after December 31, 2008. 

15 SEC. 104. REPEAL OF IMPOSITION OF WITHHOLDING ON 

16 CERTAIN PAYMENTS MADE TO VENDORS BY 

17 GOVERNMENT ENTITIES. 

18 Section 511 of the Tax Increase Prevention and Rec19 onciliation Act of 2005, and the amendment made by such 

20 section, are repealed, and the Internal Revenue Code of 

21 1986 shall be applied and administered as if such amend22 ment had never been enacted. 

23 SEC. 105. REPEAL OF CERTAIN MODIFICATIONS TO EXCLU24 SION FOR CITIZENS LIVING ABROAD. 

25 (a) MODIFICATION OF HOUSING COST AMOUNT.— 


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1 (1) HOUSING COST FLOOR.—Clause (i) of sec2 tion 911(c)(1)(B) (relating to housing cost amount) 

3 is amended to read as follows: 

4 ‘‘(i) 16 percent of the salary (com5 puted on a daily basis) of an employee of 

6 the United States who is compensated at a 

7 rate equal to the annual rate for step 1 of 

8 grade GS–14, multiplied by’’. 

9 (2) MAXIMUM AMOUNT OF EXCLUSION.— 

10 (A) IN GENERAL.—Section 911(c) is 

11 amended— 

12 (i) in paragraph (1)(A), by striking 

13 ‘‘to the extent such expenses do not exceed 

14 the amount determined under paragraph 

15 (2)’’, and 

16 (ii) by striking paragraph (2) and re17 designating paragraphs (3) and (4) as 

18 paragraphs (2) and (3), respectively. 

19 (B) CONFORMING AMENDMENTS.— 

20 (i) Section 911(d)(4) is amended by 

21 striking ‘‘, (c)(1)(B)(ii), and (c)(2)(A)(ii)’’ 

22 and inserting ‘‘and (c)(1)(B)(ii)’’. 

23 (ii) Section 911(d)(7) is amended by 

24 striking ‘‘subsection (c)(4)’’ and inserting 

25 ‘‘subsection (c)(3)’’. 


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1 (b) RATES OF TAX APPLICABLE TO NONEXCLUDED

2 INCOME.—Section 911 (relating to exclusion of earned in3 come of citizens and residents of the United States living 

4 abroad) is amended by striking subsection (f) and by re5 designating subsection (g) as subsection (f). 

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

7 this section shall apply to taxable years beginning after 

8 December 31, 2008. 

9 TITLE II—ELIMINATION OF TAX 

10 INCENTIVES TO MOVE JOBS 

11 AND PROFITS OVERSEAS 

12 Subtitle A—Foreign Tax Credit 

13 Modifications 

14 SEC. 201. INCLUSION OF ALL FOREIGN-SOURCE ROYALTIES 

15 IN PASSIVE CATEGORY INCOME IN APPLYING 

16 FOREIGN TAX CREDIT LIMITATION. 

17 (a) IN GENERAL.—Clause (i) of section 904(d)(2)(B) 

18 (defining passive income) is amended to read as follows: 

19 ‘‘(i) IN GENERAL.—Except as other20 wise provided in this subparagraph, the 

21 term ‘passive income’ means— 

22 ‘‘(I) any income received or ac23 crued by any person which is of a 

24 kind which would be foreign personal 


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1 holding company income (as defined 

2 in section 954(c)), and 

3 ‘‘(II) any royalties received or ac4 crued by any person which are not de5 scribed in subclause (I).’’. 

6 (b) LOOK-THRU RULES NOT TO APPLY TO ROYAL7 TIES.—Section 904(d)(3) (relating to look-thru in the case 

8 of controlled foreign corporations) is amended— 

9 (1) by striking ‘‘rents, and royalties’’ in sub10 paragraph (A) and inserting ‘‘and rents’’, and 

11 (2) in subparagraph (C)— 

12 (A) by striking ‘‘, rent, or royalty’’ and in13 serting ‘‘or rent’’, and 

14 (B) by striking ‘‘RENTS, AND ROYALTIES’’ 

15 in the heading and inserting ‘‘AND RENTS’’. 

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

17 this section shall apply to taxable years beginning after 

18 December 31, 2008. 

19 SEC. 202. SEPARATE APPLICATION OF FOREIGN TAX CRED20 IT LIMITATION TO FINANCIAL SERVICES IN21 COME. 

22 (a) IN GENERAL.—Section 904(d)(1) (relating to 

23 separate application of section with respect to certain cat24 egories of income) is amended by striking ‘‘and’’ at the 

25 end of subparagraph (A), by redesignating subparagraph 


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1 (B) as subparagraph (C), and by inserting after subpara2 graph (A) the following new subparagraph: 

3 ‘‘(B) financial services category income, 

4 and’’. 

5 (b) FINANCIAL SERVICES CATEGORY INCOME.— 

6 (1) IN GENERAL.—Section 904(d)(2)(A) (relat7 ing to categories of income) is amended— 

8 (A) by redesignating clause (ii) as clause 

9 (iii) and inserting after clause (i) the following 

10 new clause: 

11 ‘‘(ii) FINANCIAL SERVICES CATEGORY

12 INCOME.—The term ‘financial services cat13 egory income’ means income described in 

14 subparagraph (C).’’, and 

15 (B) by inserting ‘‘or financial services cat16 egory income’’ before the period at the end of 

17 clause (iii) (as redesignated by subparagraph 

18 (A)). 

19 (2) COORDINATION WITH PASSIVE INCOME.— 

20 Clause (iii) of section 904(d)(2)(B) (relating to ex21 ceptions) is amended by striking ‘‘and’’ at the end 

22 of subclause (I), by striking the period at the end of 

23 subclause (II) and inserting ‘‘, and’’, and by adding 

24 at the end the following new subclause: 


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1 ‘‘(III) any financial services cat2 egory income.’’. 

3 (3) FINANCIAL SERVICES CATEGORY INCOME

4 DEFINED.—So much of section 904(d)(2)(C) as pre5 cedes clause (ii) thereof is amended to read as fol6 lows: 

7 ‘‘(C) FINANCIAL SERVICES CATEGORY IN8 COME.— 

9 ‘‘(i) IN GENERAL.—Financial services 

10 income shall be treated as financial serv11 ices category income in the case of— 

12 ‘‘(I) a member of a financial 

13 services group, or 

14 ‘‘(II) any other person if such 

15 person is predominantly engaged in 

16 the active conduct of a banking, insur17 ance, financing, or similar business. 

18 Notwithstanding the preceding sentence, if 

19 any portion of any financial services in20 come consists of any royalties received or 

21 accrued by any person, then such portion 

22 shall be treated as passive category in23 come.’’. 

24 (4) CONFORMING AMENDMENTS.— 


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1 (A) Section 904(d)(2)(H)(i) is amended by 

2 striking ‘‘paragraph (1)(B)’’ and inserting 

3 ‘‘paragraph (1)(C), except that in the case of 

4 taxable years beginning after December 31, 

5 2008, the taxpayer may elect to treat such tax 

6 as tax imposed on income described in subpara7 graph (B) or (C) of paragraph (1)’’. 

8 (B) Section 904(d)(3) is amended— 

9 (i) in subparagraph (A), by striking 

10 ‘‘passive category income’’ and inserting 

11 ‘‘income in a separate category’’, 

12 (ii) in subparagraph (B)— 

13 (I) by striking ‘‘passive category 

14 income’’ the first place it appears and 

15 inserting ‘‘income in a separate cat16 egory’’, and 

17 (II) by striking ‘‘passive category 

18 income’’ the second place it appears 

19 and inserting ‘‘income in such cat20 egory’’, 

21 (iii) in subparagraph (C)— 

22 (I) by striking ‘‘passive category 

23 income’’ the first place it appears and 

24 inserting ‘‘income in a separate cat25 egory’’, and 


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1 (II) by striking ‘‘passive category 

2 income of the controlled foreign cor3 poration’’ and inserting ‘‘income of 

4 the controlled foreign corporation in 

5 such category’’, 

6 (iv) in subparagraph (D)— 

7 (I) by striking ‘‘passive category 

8 income’’ the first place it appears and 

9 inserting ‘‘income in a separate cat10 egory’’, and 

11 (II) by striking ‘‘passive category 

12 income’’ the second place it appears 

13 and inserting ‘‘income in such cat14 egory’’, 

15 (v) in subparagraph (E)— 

16 (I) by striking ‘‘passive category 

17 income’’ each place it appears and in18 serting ‘‘income in a separate cat19 egory’’, and 

20 (II) by striking ‘‘financial serv21 ices income’’ and inserting ‘‘financial 

22 services category income’’, and 

23 (vi) by striking subparagraph (F) and 

24 inserting the following new subparagraph: 


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1 ‘‘(F) SEPARATE CATEGORY; COORDINATION

2 WITH HIGH-TAXED INCOME PROVISIONS.—For 

3 purposes of this paragraph— 

4 ‘‘(i) IN GENERAL.—Except as pro5 vided in clause (ii), the term ‘separate cat6 egory’ means any category of income de7 scribed in subparagraph (A) or (B) of 

8 paragraph (1). 

9 ‘‘(ii) COORDINATION WITH HIGH10 TAXED INCOME PROVISIONS.— 

11 ‘‘(I) In determining whether any 

12 income of a controlled foreign cor13 poration is in a separate category, 

14 subclause (II) of paragraph (2)(B)(iii) 

15 shall not apply. 

16 ‘‘(II) Any income of the taxpayer 

17 which is treated as income in a sepa18 rate category under this paragraph 

19 shall be so treated notwithstanding 

20 any provision of paragraph (2); except 

21 that the determination of whether any 

22 amount is high-taxed income shall be 

23 made after the application of this 

24 paragraph.’’. 

25 (c) EFFECTIVE DATE.— 


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

2 this section shall apply to taxable years beginning 

3 after December 31, 2008. 

4 (2) TRANSITION RULES.—The Secretary shall 

5 prescribe such rules or guidance as may be nec6 essary or appropriate to provide for the proper treat7 ment of items of income, gain, deductions, losses, 

8 and taxes arising in taxable years beginning before 

9 January 1, 2009, which are properly allocable to a 

10 different category of income for taxable years begin11 ning on or after such date by reason of the amend12 ments made by this section. 

13 Subtitle B—Classification of 

14 Foreign Entities 

15 SEC. 211. TREATMENT OF FOREIGN CORPORATIONS MAN16 AGED AND CONTROLLED IN THE UNITED 

17 STATES AS DOMESTIC CORPORATIONS. 

18 (a) IN GENERAL.—Section 7701 (relating to defini19 tions), as amended by section 311, is amended by redesig20 nating subsection (q) as subsection (r) and by inserting 

21 after subsection (p) the following new subsection: 

22 ‘‘(q) CERTAIN PUBLICLY-TRADED CORPORATIONS

23 MANAGED AND CONTROLLED IN THE UNITED STATES

24 TREATED AS DOMESTIC FOR INCOME TAX.— 


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1 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

2 (a)(4), in the case of a corporation the stock of 

3 which is regularly traded on an established securities 

4 market, if— 

5 ‘‘(A) the corporation would not otherwise 

6 be treated as a domestic corporation for pur7 poses of this title, but 

8 ‘‘(B) the management and control of the 

9 corporation occurs primarily within the United 

10 States, 

11 then, solely for purposes of chapter 1 (and any other 

12 provision of this title relating to chapter 1), the cor13 poration shall be treated as a domestic corporation. 

14 ‘‘(2) MANAGEMENT AND CONTROL.—The Sec15 retary shall prescribe regulations for purposes of de16 termining cases in which the management and con17 trol of a corporation is to be treated as primarily oc18 curring within the United States. Such regulations 

19 shall provide that— 

20 ‘‘(A) the management and control of a cor21 poration shall be treated as primarily occurring 

22 within the United States if substantially all of 

23 the executive officers and senior management of 

24 the corporation who exercise day-to-day respon25 sibility for making decisions involving strategic, 


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1 financial, and operational policies of the cor2 poration are primarily located within the United 

3 States, and 

4 ‘‘(B) individuals who are not executive offi5 cers and senior management of the corporation 

6 (including individuals who are officers or em7 ployees of other corporations in the same chain 

8 of corporations as the corporation) shall be 

9 treated as executive officers and senior manage10 ment if such individuals exercise the day-to day 

11 responsibilities of the corporation described in 

12 subparagraph (A).’’. 

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

14 this section shall apply to taxable years beginning on or 

15 after the date which is 2 years after the date of the enact16 ment of this Act. 

17 SEC. 212. ENTITIES WITH SINGLE OWNER TREATED AS COR18 PORATIONS. 

19 (a) IN GENERAL.—Section 7701 (relating to defini20 tions), as amended by sections 211 and 311, is amended 

21 by redesignating subsection (r) as subsection (s) and by 

22 inserting after subsection (q) the following new subsection: 

23 ‘‘(r) SPECIAL RULES FOR ENTITIES WITH SINGLE

24 OWNERS.— 


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1 ‘‘(1) IN GENERAL.—Notwithstanding this sec2 tion or any regulation issued thereunder, a business 

3 entity shall be treated as a corporation if the cor4 poration is created or organized under the laws of 

5 any foreign country and has a single owner. 

6 ‘‘(2) REGULATORY AUTHORITY.— 

7 ‘‘(A) APPLICATION TO DOMESTIC ENTI8 TIES.—The Secretary may issue regulations 

9 which apply the rule of paragraph (1) to a do10 mestic business entity in cases where the single 

11 owner is a controlled foreign corporation (as de12 fined in section 957(a)). 

13 ‘‘(B) OTHER AUTHORITY.—The Secretary 

14 may issue such regulations as are necessary or 

15 appropriate to carry out the purposes of this 

16 section, including regulations which treat a 

17 business entity with more than one owner as 

18 having a single owner to the extent necessary to 

19 prevent the avoidance of the purposes of this 

20 section.’’. 

21 (b) EFFECTIVE DATES.— 

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section 

24 shall apply to taxable years beginning after the date 

25 of the enactment of this Act. 


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1 (2) TRANSITION RULE FOR CERTAIN EXISTING

2 ENTITIES.—In the case of an entity in existence on 

3 the date of the enactment of this Act which is not 

4 treated as a corporation for purposes of the Internal 

5 Revenue Code of 1986 for the taxable year which in6 cludes such date, the amendments made by this sec7 tion shall apply to taxable years of such corporation 

8 beginning on or after the date which is 1 year after 

9 such date of enactment. 

10 Subtitle C—Proper Treatment and 

11 Allocation of Income and Deduc12 tions 

13 SEC. 221. LIMITATION ON TREATY BENEFITS FOR CERTAIN 

14 DEDUCTIBLE PAYMENTS. 

15 (a) IN GENERAL.—Section 894 (relating to income 

16 affected by treaty) is amended by adding at the end the 

17 following new subsection: 

18 ‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER19 TAIN DEDUCTIBLE PAYMENTS.— 

20 ‘‘(1) IN GENERAL.—In the case of any deduct21 ible related-party payment, any withholding tax im22 posed under chapter 3 (and any tax imposed under 

23 subpart A or B of this part) with respect to such 

24 payment may not be reduced under any treaty of the 

25 United States unless any such withholding tax would 


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1 be reduced under a treaty of the United States if 

2 such payment were made directly to the foreign par3 ent corporation. 

4 ‘‘(2) DEDUCTIBLE RELATED-PARTY PAY5 MENT.—For purposes of this subsection, the term 

6 ‘deductible related-party payment’ means any pay7 ment made, directly or indirectly, by any person to 

8 any other person if the payment is allowable as a de9 duction under this chapter and both persons are 

10 members of the same foreign controlled group of en11 tities. 

12 ‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI13 TIES.—For purposes of this subsection— 

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

15 controlled group of entities’ means a controlled 

16 group of entities the common parent of which 

17 is a foreign corporation. 

18 ‘‘(B) CONTROLLED GROUP OF ENTITIES.— 

19 The term ‘controlled group of entities’ means a 

20 controlled group of corporations as defined in 

21 section 1563(a)(1), except that— 

22 ‘‘(i) ‘more than 50 percent’ shall be 

23 substituted for ‘at least 80 percent’ each 

24 place it appears therein, and 


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1 ‘‘(ii) the determination shall be made 

2 without regard to subsections (a)(4) and 

3 (b)(2) of section 1563. 

4 A partnership or any other entity (other than a 

5 corporation) shall be treated as a member of a 

6 controlled group of entities if such entity is con7 trolled (within the meaning of section 

8 954(d)(3)) by members of such group (includ9 ing any entity treated as a member of such 

10 group by reason of this sentence). 

11 ‘‘(4) FOREIGN PARENT CORPORATION.—For 

12 purposes of this subsection, the term ‘foreign parent 

13 corporation’ means, with respect to any deductible 

14 related-party payment, the common parent of the 

15 foreign controlled group of entities referred to in 

16 paragraph (3)(A). 

17 ‘‘(5) REGULATIONS.—The Secretary may pre18 scribe such regulations or other guidance as are nec19 essary or appropriate to carry out the purposes of 

20 this subsection, including regulations or other guid21 ance which provide for— 

22 ‘‘(A) the treatment of two or more persons 

23 as members of a foreign controlled group of en24 tities if such persons would be the common parVerDate Aug 31 2005 22:35 Jun 21, 2008 Jkt 069200 PO 00000 Frm 00024 Fmt 6652 Sfmt 6201 E:\BILLS\S3162.IS S3162

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1 ent of such group if treated as one corporation, 

2 and 

3 ‘‘(B) the treatment of any member of a 

4 foreign controlled group of entities as the com5 mon parent of such group if such treatment is 

6 appropriate taking into account the economic 

7 relationships among such entities.’’. 

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

9 this section shall apply to payments made after the date 

10 of the enactment of this Act. 

11 SEC. 222. REPEAL OF SPECIAL SOURCE RULES FOR INVEN12 TORY PROPERTY. 

13 (a) IN GENERAL.—The following provisions are re14 pealed: 

15 (1) Section 861(a)(6). 

16 (2) Section 862(a)(6). 

17 (3) Section 865(b). 

18 (b) SPECIAL RULES FOR DETERMINING SOURCE.— 

19 The last sentence of section 863(b) is amended to read 

20 as follows: ‘‘Gains, profits, and income from services ren21 dered partly within and partly without the United States 

22 shall be treated as derived partly from sources within and 

23 partly from sources without the United States.’’. 

24 (c) CONFORMING AMENDMENTS.— 


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1 (1) Section 865 is amended by striking ‘‘(b),’’ 

2 in subsection (e). 

3 (2) Section 865(i)(1) is repealed. 

4 (3) Section 954(d)(4) is amended— 

5 (A) by striking subparagraph (A) and in6 serting the following new subparagraph: 

7 ‘‘(A) the sale of any unprocessed timber 

8 which is a softwood and was cut from an area 

9 in the United States, or’’, and 

10 (B) by adding at the end the following new 

11 sentence: ‘‘For purposes of subparagraph (A), 

12 the term ‘unprocessed timber’ means any log, 

13 cant, or similar form of timber.’’. 

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

15 this section shall apply to taxable years beginning after 

16 December 31, 2008. 

17 SEC. 223. CLARIFICATION OF DETERMINATION OF FOREIGN 

18 OIL AND GAS EXTRACTION INCOME. 

19 (a) IN GENERAL.—Paragraph (1) of section 907(c) 

20 is amended by redesignating subparagraph (B) as sub21 paragraph (C), by striking ‘‘or’’ at the end of subpara22 graph (A), and by inserting after subparagraph (A) the 

23 following new subparagraph: 


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1 ‘‘(B) so much of any transportation of 

2 such minerals as occurs before the fair market 

3 value event, or’’. 

4 (b) FAIR MARKET VALUE EVENT.—Subsection (c) of 

5 section 907 is amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(6) FAIR MARKET VALUE EVENT.—For pur8 poses of this section, the term ‘fair market value 

9 event’ means, with respect to any mineral, the first 

10 point in time at which such mineral— 

11 ‘‘(A) has a fair market value which can be 

12 determined on the basis of a transfer, which is 

13 an arm’s length transaction, of such mineral 

14 from the taxpayer to a person who is not re15 lated (within the meaning of section 482) to 

16 such taxpayer, or 

17 ‘‘(B) is at a location at which the fair mar18 ket value is readily ascertainable by reason of 

19 transactions among unrelated third parties with 

20 respect to the same mineral (taking into ac21 count source, location, quality, and chemical 

22 composition).’’. 

23 (c) SPECIAL RULE FOR CERTAIN PETROLEUM

24 TAXES.—Subsection (c) of section 907, as amended by 


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1 subsection (b), is amended by adding at the end the fol2 lowing new paragraph: 

3 ‘‘(7) OIL AND GAS TAXES.—In the case of any 

4 tax imposed by a foreign country which is limited in 

5 its application to taxpayers engaged in oil or gas ac6 tivities— 

7 ‘‘(A) the term ‘oil and gas extraction taxes’ 

8 shall include such tax, 

9 ‘‘(B) the term ‘foreign oil and gas extrac10 tion income’ shall include any taxable income 

11 which is taken into account in determining such 

12 tax (or is directly attributable to the activity to 

13 which such tax relates), and 

14 ‘‘(C) the term ‘foreign oil related income’ 

15 shall not include any taxable income which is 

16 treated as foreign oil and gas extraction income 

17 under subparagraph (B).’’. 

18 (d) CONFORMING AMENDMENTS.— 

19 (1) Subparagraph (C) of section 907(c)(1), as 

20 redesignated by this section, is amended by inserting 

21 ‘‘or used by the taxpayer in the activity described in 

22 subparagraph (B)’’ before the period at the end. 

23 (2) Subparagraph (B) of section 907(c)(2) is 

24 amended to read as follows: 


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1 ‘‘(B) so much of the transportation of such 

2 minerals or primary products as is not taken 

3 into account under paragraph (1)(B),’’. 

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

5 this section shall apply to taxable years beginning after 

6 the date of the enactment of this Act. 

7 SEC. 224. MODIFICATIONS OF LIMITATION ON EXCESS IN8 TEREST DEDUCTIONS OF CERTAIN CORPORA9 TIONS. 

10 (a) CORPORATIONS TO WHICH LIMITATION AP11 PLIES.—Section 163(j)(2) (relating to corporations to 

12 which subsection applies) is amended to read as follows: 

13 ‘‘(2) CORPORATIONS TO WHICH SUBSECTION

14 APPLIES.— 

15 ‘‘(A) IN GENERAL.—This subsection shall 

16 apply to any corporation for any taxable year if 

17 such corporation has excess interest expense for 

18 the taxable year. 

19 ‘‘(B) EXCESS INTEREST EXPENSE.—For 

20 purposes of this subsection, the term ‘excess in21 terest expense’ means the excess (if any) of— 

22 ‘‘(i) the corporation’s net interest ex23 pense, over 

24 ‘‘(ii) 25 percent of the adjusted tax25 able income of the corporation.’’. 


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1 (b) MODIFICATION OF CARRYFORWARD OF DIS2 ALLOWED INTEREST.—Subparagraph (B) of section 

3 163(j)(1) is amended to read as follows: 

4 ‘‘(B) DISALLOWED AMOUNT CARRIED TO

5 SUCCEEDING TAXABLE YEAR.— 

6 ‘‘(i) IN GENERAL.—Except as pro7 vided in clause (ii), any amount disallowed 

8 under subparagraph (A) for any taxable 

9 year shall be treated as disqualified inter10 est paid or accrued in the succeeding tax11 able year. 

12 ‘‘(ii) 10-YEAR CARRYFORWARD

13 LIMIT.—Any disqualified interest dis14 allowed under subparagraph (A) shall not 

15 be carried forward under clause (i) to any 

16 taxable year beginning after the 10th tax17 able year following the taxable year in 

18 which the interest was paid or accrued (de19 termined without regard to this subpara20 graph). For purposes of the preceding sen21 tence, any deduction under this section 

22 with respect to disqualified interest for 

23 which a deduction was previously dis24 allowed under subparagraph (A) shall be 


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1 allocated to such interest on a first-in, 

2 first-out basis.’’. 

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

4 this section shall apply to interest paid or accrued in tax5 able years beginning after December 31, 2008. 

6 SEC. 225. SENSE OF SENATE REGARDING CERTAIN REIN7 SURANCE TRANSACTIONS WITH FOREIGN RE8 LATED PERSONS. 

9 It is the sense of the Senate that Congress should 

10 enact legislation as soon as possible to address the tax 

11 treatment of reinsurance transactions with related persons 

12 (and other similar transactions), including the transfer 

13 offshore by reinsurance or otherwise of assets and earn14 ings related to insurance of United States risks. In enact15 ing such legislation, Congress should consider the effects 

16 of such practices on— 

17 (1) the tax base of the United States, and 

18 (2) the competitiveness of insurers and rein19 surers based in the United States. 

20 SEC. 226. STUDY ON EFFECTIVENESS OF TRANSFER PRIC21 ING RULES WITH RESPECT TO INBOUND 

22 TRANSACTIONS. 

23 (a) IN GENERAL.—The Secretary of the Treasury or 

24 the Secretary’s delegate shall conduct a study of the effec25 tiveness of the transfer pricing rules under section 482 


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1 of the Internal Revenue Code of 1986 in properly allo2 cating items of income and deduction in cases involving 

3 foreign persons conducting business within the United 

4 States or foreign persons selling goods and services into 

5 the United States. Such study shall include an analysis 

6 of the effectiveness of such rules in preventing income 

7 shifting, preventing the understatement of United States 

8 business profits, and ensuring taxation of income effec9 tively connected with the United States. 

10 (b) REPORT.—The Secretary shall, not later than the 

11 date which is 1 year after the date of the enactment of 

12 this Act, report the results of the study conducted under 

13 subsection (a) to the Committee on Finance of the Senate 

14 and the Committee on Ways and Means of the House of 

15 Representatives, including any specific recommendations 

16 for changes in legislation which the Secretary considers 

17 appropriate. 

18 Subtitle D—Other Provisions 

19 SEC. 231. NONQUALIFIED DEFERRED COMPENSATION 

20 FROM CERTAIN TAX INDIFFERENT PARTIES. 

21 (a) IN GENERAL.—Subpart B of part II of sub22 chapter E of chapter 1 is amended by inserting after sec23 tion 457 the following new section: 


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1 ‘‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION 

2 FROM CERTAIN TAX INDIFFERENT PARTIES. 

3 ‘‘(a) IN GENERAL.—Any compensation which is de4 ferred under a nonqualified deferred compensation plan of 

5 a nonqualified entity shall be includible in gross income 

6 when there is no substantial risk of forfeiture of the rights 

7 to such compensation. 

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

9 section, the term ‘nonqualified entity’ means— 

10 ‘‘(1) any foreign corporation unless substan11 tially all of its income is— 

12 ‘‘(A) effectively connected with the conduct 

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

14 ‘‘(B) subject to a comprehensive foreign in15 come tax, and 

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

17 its income is allocated to persons other than— 

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

19 such income is not subject to a comprehensive 

20 foreign income tax, and 

21 ‘‘(B) organizations which are exempt from 

22 tax under this title. 

23 ‘‘(c) DETERMINABILITY OF AMOUNTS OF COMPENSA24 TION.— 

25 ‘‘(1) IN GENERAL.—If the amount of any com26 pensation is not determinable at the time that such 


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1 compensation is otherwise includible in gross income 

2 under subsection (a)— 

3 ‘‘(A) such amount shall be so includible in 

4 gross income when determinable, and 

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

6 for the taxable year in which such compensation 

7 is includible in gross income shall be increased 

8 by the sum of— 

9 ‘‘(i) the amount of interest determined 

10 under paragraph (2), and 

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

12 the amount of such compensation. 

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

14 (1)(B)(i), the interest determined under this para15 graph for any taxable year is the amount of interest 

16 at the underpayment rate under section 6621 plus 

17 1 percentage point on the underpayments that would 

18 have occurred had the deferred compensation been 

19 includible in gross income for the taxable year in 

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

21 in which such deferred compensation is not subject 

22 to a substantial risk of forfeiture. 

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

24 For purposes of this section— 


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

2 rights of a person to compensation shall be treated 

3 as subject to a substantial risk of forfeiture only if 

4 such person’s rights to such compensation are condi5 tioned upon the future performance of substantial 

6 services by any individual. 

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

8 The term ‘comprehensive foreign income tax’ means, 

9 with respect to any foreign person, the income tax 

10 of a foreign country if— 

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

12 of a comprehensive income tax treaty between 

13 such foreign country and the United States, or 

14 ‘‘(B) such person demonstrates to the sat15 isfaction of the Secretary that such foreign 

16 country has a comprehensive income tax. 

17 ‘‘(3) NONQUALIFIED DEFERRED COMPENSA18 TION PLAN.— 

19 ‘‘(A) IN GENERAL.—The term ‘non20 qualified deferred compensation plan’ has the 

21 meaning given such term under section 

22 409A(d), except that such term shall include 

23 any plan that provides a right to compensation 

24 based on the appreciation in value of a specified 

25 number of equity units of the service recipient. 


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1 ‘‘(B) EXCEPTION.—Compensation shall 

2 not be treated as deferred for purposes of this 

3 section if the service provider receives payment 

4 of such compensation not later than 12 months 

5 after the end of the taxable year of the service 

6 recipient during which the right to the payment 

7 of such compensation is no longer subject to a 

8 substantial risk of forfeiture. 

9 ‘‘(4) EXCEPTION FOR CERTAIN COMPENSATION

10 WITH RESPECT TO EFFECTIVELY CONNECTED IN11 COME.—In the case a foreign corporation with in12 come which is taxable under section 882, this section 

13 shall not apply to compensation which, had such 

14 compensation had been paid in cash on the date that 

15 such compensation ceased to be subject to a sub16 stantial risk of forfeiture, would have been deduct17 ible by such foreign corporation against such income. 

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

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

20 409A(d) shall apply. 

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

22 such regulations as may be necessary or appropriate to 

23 carry out the purposes of this section, including regula24 tions disregarding a substantial risk of forfeiture in cases 


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•S 3162 IS

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

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

4 amended by striking ‘‘and’’ at the end of subparagraph 

5 (U), by striking the period at the end of subparagraph 

6 (V) and inserting ‘‘, and’’, and by adding at the end the 

7 following new subparagraph: 

8 ‘‘(W) section 457A(c)(1)(B) (relating to 

9 determinability 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 is 

12 amended by inserting after the item relating to section 

13 457 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, 2008. 

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, 2009, to the 


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1 extent such amount is not includible in gross income 

2 in a taxable year beginning before 2018, such 

3 amounts shall be includible in gross income in the 

4 later of— 

5 (A) the last taxable year beginning before 

6 2018, 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 

14 120 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, 2008, 

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.— 

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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, 2008, 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 SEC. 232. RESTRICTIONS ON REFUNDABLE CHILD TAX 

18 CREDIT TO TAXPAYERS OUTSIDE THE 

19 UNITED STATES. 

20 (a) IN GENERAL.—Section 24(d) is amended by add21 ing at the end the following new paragraph: 

22 ‘‘(4) APPLICATION TO TAXPAYERS OUTSIDE OF

23 THE UNITED STATES.—This subsection shall not 

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1 tion 911 (relating to citizens or residents living 

2 abroad) for the taxable year.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2008. 

6 (c) APPLICATION OF EGTRRA SUNSET.—The 

7 amendment made by this section shall be subject to title 

8 IX of the Economic Growth and Tax Relief Reconciliation 

9 Act of 2001 in the same manner and to the same extent 

10 as such title applies to the amendments made by section 

11 201(c) of such Act. 

12 TITLE III—OTHER REVENUE 

13 MEASURES 

14 Subtitle A—Accounting Provisions 

15 SEC. 301. REPEAL OF LOWER OF COST OR MARKET METH16 OD OF INVENTORY. 

17 (a) IN GENERAL.—Section 471 is amended by redes18 ignating subsection (c) as subsection (d) and by inserting 

19 after subsection (b) the following new subsection: 

20 ‘‘(c) INVENTORIES TAKEN INTO ACCOUNT AT

21 COST.—A method of determining inventories shall not be 

22 treated as clearly reflecting income unless such method 

23 provides that inventories shall be taken into account at 

24 cost.’’. 

25 (b) EFFECTIVE DATE.— 


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

2 this section shall apply to taxable years beginning 

3 after the date of the enactment of this Act. 

4 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

5 the case of any taxpayer required by the amend6 ments made by this section to change its method of 

7 accounting for its first taxable year beginning after 

8 the date of the enactment of this Act— 

9 (A) such change shall be treated as initi10 ated by the taxpayer, 

11 (B) such change shall be treated as made 

12 with the consent of the Secretary of the Treas13 ury, and 

14 (C) if the net amount of the adjustments 

15 required to be taken into account by the tax16 payer under section 481 of the Internal Rev17 enue Code of 1986 is positive, such amount 

18 shall be taken into account over a period of 8 

19 years beginning with such first taxable year. 

20 SEC. 302. REPEAL OF PERCENTAGE DEPLETION. 

21 (a) IN GENERAL.—Section 613 (relating to percent22 age depletion) is amended by adding at the end the fol23 lowing new subsection: 

24 ‘‘(f) TERMINATION.—This section shall not apply to 

25 any taxable year beginning after December 31, 2008.’’. 


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1 (b) LIMITATIONS ON PERCENTAGE DEPLETION IN

2 CASE OF OIL AND GAS WELLS.—Section 613A (relating 

3 to limitations on percentage depletion in case of oil and 

4 gas wells) is amended by adding at the end the following 

5 new subsection: 

6 ‘‘(f) TERMINATION.—This section shall not apply to 

7 any taxable year beginning after December 31, 2008.’’. 

8 SEC. 303. AMORTIZATION OF GOODWILL AND OTHER IN9 TANGIBLES. 

10 (a) IN GENERAL.—Subsection (a) of section 197 (re11 lating to general rule) is amended by striking ‘‘15-year’’ 

12 and inserting ‘‘20-year’’. 

13 (b) CERTAIN INTERESTS OR RIGHTS ACQUIRED SEP14 ARATELY.—Clause (i) of section 197(e)(4)(D) is amended 

15 by striking ‘‘15 years’’ and inserting ‘‘20 years’’. 

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

17 this section shall apply to property acquired after the date 

18 of the enactment of this Act. 

19 Subtitle B—Codification of 

20 Economic Substance Doctrine 

21 SEC. 311. CODIFICATION OF ECONOMIC SUBSTANCE DOC22 TRINE. 

23 (a) IN GENERAL.—Section 7701 is amended by re24 designating subsection (p) as subsection (q) and by insert25 ing after subsection (o) 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. 312. 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 is amended by inserting after paragraph (5) 

9 the following new paragraph: 

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

11 by reason of a transaction lacking economic sub12 stance (within the meaning of section 7701(p)) or 

13 failing to meet the requirements of any similar rule 

14 of law.’’. 

15 (2) INCREASED PENALTY FOR NONDISCLOSED

16 TRANSACTIONS.—Section 6662 is amended by add17 ing at the end the following new subsection: 

18 ‘‘(i) INCREASE IN PENALTY IN CASE OF NONDIS19 CLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.— 

20 ‘‘(1) IN GENERAL.—To the extent that a por21 tion of the underpayment to which this section ap22 plies is attributable to one or more nondisclosed non23 economic substance transactions, subsection (a) shall 

24 be applied with respect to such portion by sub25 stituting ‘40 percent’ for ‘20 percent’. 


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1 ‘‘(2) NONDISCLOSED NONECONOMIC SUB2 STANCE TRANSACTIONS.—For purposes of this sub3 section, the term ‘nondisclosed noneconomic sub4 stance transaction’ means any portion of a trans5 action described in subsection (b)(6) with respect to 

6 which the relevant facts affecting the tax treatment 

7 are not adequately disclosed in the return nor in a 

8 statement attached to the return. 

9 ‘‘(3) SPECIAL RULE FOR AMENDED RE10 TURNS.—Except as provided in regulations, in no 

11 event shall any amendment or supplement to a re12 turn of tax be taken into account for purposes of 

13 this subsection if the amendment or supplement is 

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

15 contacted by the Secretary regarding the examina16 tion of the return or such other date as is specified 

17 by the Secretary.’’. 

18 (3) CONFORMING AMENDMENT.—Subparagraph 

19 (B) of section 6662A(e)(2) is amended by striking 

20 ‘‘section 6662(h)’’ and inserting ‘‘subsection (h) or 

21 (i) of section 6662’’. 

22 (b) REASONABLE CAUSE EXCEPTION NOT APPLICA23 BLE TO NONECONOMIC SUBSTANCE TRANSACTIONS, TAX

24 SHELTERS, AND CERTAIN LARGE CORPORATIONS.—Sec25 tion 6664(c) is amended— 


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

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

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

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

5 (3)’’, and 

6 (3) by inserting after paragraph (1) the fol7 lowing new paragraph: 

8 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

9 apply to— 

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

11 which is attributable to one or more trans12 actions described in section 6662(b)(6), 

13 ‘‘(B) to any portion of an underpayment 

14 which is attributable to one or more tax shelters 

15 (as defined in section 6662(d)(2)(C)), or 

16 ‘‘(C) to any taxpayer if such taxpayer is a 

17 specified large corporation (as defined in section 

18 6662(d)(2)(D)(ii)).’’. 

19 (c) SPECIAL UNDERSTATEMENT REDUCTION RULE

20 FOR CERTAIN LARGE CORPORATIONS.— 

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

22 6662(d) is amended by adding at the end the fol23 lowing new subparagraph: 

24 ‘‘(D) SPECIAL REDUCTION RULE FOR CER25 TAIN LARGE CORPORATIONS.— 


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

2 specified large corporation— 

3 ‘‘(I) subparagraph (B) shall not 

4 apply, and 

5 ‘‘(II) the amount of the under6 statement under subparagraph (A) 

7 shall be reduced by that portion of the 

8 understatement which is attributable 

9 to any item with respect to which the 

10 taxpayer has a reasonable belief that 

11 the tax treatment of such item by the 

12 taxpayer is more likely than not the 

13 proper tax treatment of such item. 

14 ‘‘(ii) SPECIFIED LARGE CORPORA15 TION.— 

16 ‘‘(I) IN GENERAL.—For purposes 

17 of this subparagraph, the term ‘speci18 fied large corporation’ means any cor19 poration with gross receipts in excess 

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

21 involved. 

22 ‘‘(II) AGGREGATION RULE.—All 

23 persons treated as a single employer 

24 under section 52(a) shall be treated as 


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1 one person for purposes of subclause 

2 (I).’’. 

3 (2) CONFORMING AMENDMENT.—Subparagraph 

4 (C) of section 6662(d)(2) is amended by striking 

5 ‘‘Subparagraph (B)’’ and inserting ‘‘Subparagraphs 

6 (B) and (D)(i)(II)’’. 

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

8 this section shall apply to taxable years beginning after 

9 the date of the enactment of this Act. 

10 Subtitle C—Extension of Certain 

11 Expiring Provisions 

12 SEC. 321. EXTENSION OF FUTA TAX. 

13 Section 3301 of the Internal Revenue Code of 1986 

14 (relating to rate of tax) is amended— 

15 (1) by striking ‘‘2008’’ in paragraph (1) and in16 serting ‘‘2018’’, and 

17 (2) by striking ‘‘2009’’ in paragraph (2) and in18 serting ‘‘2019’’. 

19 SEC. 322. PERMANENT EXTENSION OF CUSTOM USER FEES. 

20 (a) IN GENERAL.—Section 13031(j)(3) of the Con21 solidated Omnibus Budget Reconciliation Act of 1985 (19 

22 U.S.C. 58c(j)(3)) is amended to read as follows: 

23 ‘‘(3) In any fiscal year for which fees under 

24 paragraphs (1) through (8) of subsection (a) are au25 thorized— 


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1 ‘‘(A) the Secretary of the Treasury shall 

2 charge fees under each such paragraph in 

3 amounts that are reasonably related to the 

4 costs of providing customs services in connec5 tion with the activity or item for which the fee 

6 is charged under such paragraph, except that in 

7 no case may the fee charged under any such 

8 paragraph exceed by more than 10 percent the 

9 amount otherwise prescribed by such para10 graph; 

11 ‘‘(B) the amount of fees collected under 

12 such paragraphs may not exceed, in the aggre13 gate, the amounts paid in that fiscal year for 

14 the costs described in subsection (f)(3)(A) in15 curred in providing customs services in connec16 tion with the activity or item for which the fees 

17 are charged under such paragraphs; 

18 ‘‘(C) a fee may not be collected under any 

19 such paragraph except to the extent such fee 

20 will be expended to pay the costs described in 

21 subsection (f)(3)(A) incurred in providing cus22 toms services in connection with the activity or 

23 item for which the fee is charged under such 

24 paragraph; and 


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1 ‘‘(D) any fee collected under any such 

2 paragraph shall be available for expenditure 

3 only to pay the costs described in subsection 

4 (f)(3)(A) incurred in providing customs services 

5 in connection with the activity or item for which 

6 the fee is charged under such paragraph.’’. 

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

8 this section shall apply to fees charged after December 31, 

9 2008. 

Æ 


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