I 

108TH CONGRESS 

2D SESSION H. R. 3827 

To amend the Internal Revenue Code of 1986 to protect American jobs. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 25, 2004 

Mr. RANGEL 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 protect 

American jobs. 

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 ‘‘Job Protection Act of 2004’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

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

10 shall be considered to be made to a section or other provi11 sion of the Internal Revenue Code of 1986. 
2 

•HR 3827 IH 

1 (c) TABLE OF CONTENTS.— 

Sec. 1. Short title, etc. 

TITLE I—TRANSITION FROM FSC/ETI BENEFITS TO UNITED 

STATES PRODUCTION BENEFITS 

Sec. 101. Repeal of exclusion for extraterritorial income. 

Sec. 102. Deduction relating to income attributable to United States production 

activities. 

TITLE II—EXTENSION OF INCREASED EXPENSING FOR SMALL 

BUSINESS 

Sec. 201. 2-year extension of increased expensing for small business. 

TITLE III—ENRON-RELATED TAX SHELTER PROVISIONS 

Sec. 301. Limitation on transfer or importation of built-in losses. 

Sec. 302. No reduction of basis under section 734 in stock held by partnership 

in corporate partner. 

Sec. 303. Repeal of special rules for FASITS, etc. 

Sec. 304. Expanded disallowance of deduction for interest on convertible debt. 

Sec. 305. Expanded authority to disallow tax benefits under section 269. 

Sec. 306. Modifications of certain rules relating to controlled foreign corporations. 

TITLE IV—EXTENSION OF COBRA FEES 

Sec. 401. Cobra fees. 

2 TITLE I—TRANSITION FROM 

3 FSC/ETI BENEFITS TO UNITED 

4 STATES PRODUCTION BENE5 FITS 

6 SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 

7 INCOME. 

8 (a) IN GENERAL.—Section 114 of the Internal Rev9 enue Code of 1986 is hereby repealed. 

10 (b) CONFORMING AMENDMENTS.— 

11 (1)(A) Subpart E of part III of subchapter N 

12 of chapter 1 (relating to qualifying foreign trade in13 come) is hereby repealed. 
3 

•HR 3827 IH 

1 (B) The table of subparts for such part III is 

2 amended by striking the item relating to subpart E. 

3 (2) The table of sections for part III of sub4 chapter B of chapter 1 is amended by striking the 

5 item relating to section 114. 

6 (3) The second sentence of section 

7 56(g)(4)(B)(i) is amended by striking ‘‘or under sec8 tion 114’’. 

9 (4) Section 275(a) is amended— 

10 (A) by inserting ‘‘or’’ at the end of para11 graph (4)(A), by striking ‘‘or’’ at the end of 

12 paragraph (4)(B) and inserting a period, and 

13 by striking subparagraph (C), and 

14 (B) by striking the last sentence. 

15 (5) Paragraph (3) of section 864(e) is amend16 ed— 

17 (A) by striking: 

18 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO

19 ACCOUNT.— 

20 ‘‘(A) IN GENERAL.—For purposes of’’; and 

21 inserting: 

22 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO

23 ACCOUNT.—For purposes of’’, and 

24 (B) by striking subparagraph (B). 
4 

•HR 3827 IH 

1 (6) Section 903 is amended by striking ‘‘114, 

2 164(a),’’ and inserting ‘‘164(a)’’. 

3 (7) Section 999(c)(1) is amended by striking 

4 ‘‘941(a)(5),’’. 

5 (c) EFFECTIVE DATE.— 

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

7 this section shall apply to transactions occurring 

8 after the date of the enactment of this Act. 

9 (2) BINDING CONTRACTS.—The amendments 

10 made by this section shall not apply to any trans11 action in the ordinary course of a trade or business 

12 which occurs pursuant to a binding contract— 

13 (A) which is between the taxpayer and a 

14 person who is not a related person (as defined 

15 in section 943(b)(3) of such Code, as in effect 

16 on the day before the date of the enactment of 

17 this Act), and 

18 (B) which is in effect on September 17, 

19 2003, and at all times thereafter. 

20 (d) REVOCATION OF SECTION 943(e) ELECTIONS.— 

21 (1) IN GENERAL.—In the case of a corporation 

22 that elected to be treated as a domestic corporation 

23 under section 943(e) of the Internal Revenue Code 

24 of 1986 (as in effect on the day before the date of 

25 the enactment of this Act)— 
5 

•HR 3827 IH 

1 (A) the corporation may revoke such elec2 tion, effective as of the date of the enactment 

3 of this Act, and 

4 (B) if the corporation does revoke such 

5 election— 

6 (i) such corporation shall be treated 

7 as a domestic corporation transferring (as 

8 of the date of the enactment of this Act) 

9 all of its property to a foreign corporation 

10 in connection with an exchange described 

11 in section 354 of the Internal Revenue 

12 Code of 1986, and 

13 (ii) no gain or loss shall be recognized 

14 on such transfer. 

15 (2) EXCEPTION.—Subparagraph (B)(ii) of 

16 paragraph (1) shall not apply to gain on any asset 

17 held by the revoking corporation if— 

18 (A) the basis of such asset is determined 

19 in whole or in part by reference to the basis of 

20 such asset in the hands of the person from 

21 whom the revoking corporation acquired such 

22 asset, 

23 (B) the asset was acquired by transfer (not 

24 as a result of the election under section 943(e) 

25 of such Code) occurring on or after the 1st day 
6 

•HR 3827 IH 

1 on which its election under section 943(e) of 

2 such Code was effective, and 

3 (C) a principal purpose of the acquisition 

4 was the reduction or avoidance of tax (other 

5 than a reduction in tax under section 114 of 

6 such Code, as in effect on the day before the 

7 date of the enactment of this Act). 

8 (e) GENERAL TRANSITION.— 

9 (1) IN GENERAL.—In the case of a taxable year 

10 ending after the date of the enactment of this Act 

11 and beginning before January 1, 2007, for purposes 

12 of chapter 1 of such Code, each current FSC/ETI 

13 beneficiary shall be allowed a deduction equal to the 

14 transition amount determined under this subsection 

15 with respect to such beneficiary for such year. 

16 (2) CURRENT FSC/ETI BENEFICIARY.—The 

17 term ‘‘current FSC/ETI beneficiary’’ means any cor18 poration which entered into one or more transactions 

19 during its taxable year beginning in calendar year 

20 2001 with respect to which FSC/ETI benefits were 

21 allowable. 

22 (3) TRANSITION AMOUNT.—For purposes of 

23 this subsection— 

24 (A) IN GENERAL.—The transition amount 

25 applicable to any current FSC/ETI beneficiary 
7 

•HR 3827 IH 

1 for any taxable year is the phaseout percentage 

2 of the base period amount. 

3 (B) PHASEOUT PERCENTAGE.— 

4 (i) IN GENERAL.—In the case of a 

5 taxpayer using the calendar year as its 

6 taxable year, the phaseout percentage shall 

7 be determined under the following table: 

The phaseout 

‘‘Years: percentage is: 

2004 and 2005 ................................................................................... 80

2006 ................................................................................................... 60

2007 and thereafter ........................................................................... 0. 

8 (ii) SPECIAL RULE FOR 2004.—The 

9 phaseout percentage for 2004 shall be the 

10 amount that bears the same ratio to 80 

11 percent as the number of days after the 

12 date of the enactment of this Act bears to 

13 365. 

14 (iii) SPECIAL RULE FOR FISCAL YEAR

15 TAXPAYERS.—In the case of a taxpayer 

16 not using the calendar year as its taxable 

17 year, the phaseout percentage is the 

18 weighted average of the phaseout percent19 ages determined under the preceding provi20 sions of this paragraph with respect to cal21 endar years any portion of which is in22 cluded in the taxpayer’s taxable year. The 

23 weighted average shall be determined on 
8 

•HR 3827 IH 

1 the basis of the respective portions of the 

2 taxable year in each calendar year. 

3 (4) BASE PERIOD AMOUNT.—For purposes of 

4 this subsection, the base period amount is the aggre5 gate FSC/ETI benefits for the taxpayer’s taxable 

6 year beginning in calendar year 2001. 

7 (5) FSC/ETI BENEFIT.—For purposes of this 

8 subsection, the term ‘FSC/ETI benefit’ means— 

9 (A) amounts excludable from gross income 

10 under section 114 of such Code, and 

11 (B) the exempt foreign trade income of re12 lated foreign sales corporations from property 

13 acquired from the taxpayer (determined without 

14 regard to section 923(a)(5) of such Code (relat15 ing to special rule for military property), as in 

16 effect on the day before the date of the enact17 ment of the FSC Repeal and Extraterritorial 

18 Income Exclusion Act of 2000). 

19 In determining the FSC/ETI benefit there shall be 

20 excluded any amount attributable to a transaction 

21 with respect to which the taxpayer is the lessor un22 less the leased property was manufactured or pro23 duced in whole or in significant part by the tax24 payer. 
9 

•HR 3827 IH 

1 (6) SPECIAL RULE FOR FARM AND HORTI2 CULTURAL COOPERATIVES.—Determinations under 

3 this subsection with respect to an organization de4 scribed in section 943(g)(1) of such Code, as in ef5 fect on the day before the date of the enactment of 

6 this Act, shall be made at the cooperative level and 

7 the purposes of this subsection shall be carried out 

8 in a manner similar to section 199(h)(2) of such 

9 Code, as added by this Act. Such determinations 

10 shall be in accordance with such requirements and 

11 procedures as the Secretary may prescribe. 

12 (7) CERTAIN RULES TO APPLY.—Rules similar 

13 to the rules of section 41(f) of such Code shall apply 

14 for purposes of this subsection. 

15 (8) COORDINATION WITH BINDING CONTRACT

16 RULE.—The deduction determined under paragraph 

17 (1) for any taxable year shall be reduced by the 

18 phaseout percentage of any FSC/ETI benefit real19 ized for the taxable year by reason of subsection 

20 (c)(2) or section 5(c)(1)(B) of the FSC Repeal and 

21 Extraterritorial Income Exclusion Act of 2000. 

22 (9) SPECIAL RULE FOR TAXABLE YEAR WHICH

23 INCLUDES DATE OF ENACTMENT.—In the case of a 

24 taxable year which includes the date of the enact25 ment of this Act, the deduction allowed under this 
10 

•HR 3827 IH 

1 subsection to any current FSC/ETI beneficiary shall 

2 in no event exceed— 

3 (A) 100 percent of such beneficiary’s base 

4 period amount, reduced by 

5 (B) the aggregate FSC/ETI benefits of 

6 such beneficiary with respect to transactions oc7 curring during the portion of the taxable year 

8 ending on the date of the enactment of this Act. 

9 SEC. 102. DEDUCTION RELATING TO INCOME ATTRIB10 UTABLE TO UNITED STATES PRODUCTION 

11 ACTIVITIES. 

12 (a) IN GENERAL.—Part VII of subchapter B of chap13 ter 1 (relating to itemized deductions for individuals and 

14 corporations) is amended by adding at the end the fol15 lowing new section: 

16 ‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC17 TION ACTIVITIES. 

18 ‘‘(a) IN GENERAL.—There shall be allowed as a de19 duction an amount equal to 10 percent of the qualified 

20 production activities income of the taxpayer for the tax21 able year. 

22 ‘‘(b) PHASEIN.—In the case of taxable years begin23 ning in 2004, 2005, 2006, or 2007, subsection (a) shall 

24 be applied by substituting for the percentage contained 
11 

•HR 3827 IH 

1 therein the transition percentage determined under the 

2 following table: 

The transition 

‘‘Taxable years beginning in: percentage is: 

2004 ................................................................................................... 1

2005 ................................................................................................... 3

2006 ................................................................................................... 6

2007 ................................................................................................... 9. 

3 ‘‘(c) QUALIFIED PRODUCTION ACTIVITIES IN4 COME.—For purposes of this section, the term ‘qualified 

5 production activities income’ means the product of— 

6 ‘‘(1) the portion of the modified taxable income 

7 of the taxpayer which is attributable to domestic 

8 production activities, and 

9 ‘‘(2) the domestic/worldwide fraction. 

10 ‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE

11 TO DOMESTIC PRODUCTION ACTIVITIES.—For purposes 

12 of this section— 

13 ‘‘(1) IN GENERAL.—The portion of the modified 

14 taxable income which is attributable to domestic pro15 duction activities is so much of the modified taxable 

16 income for the taxable year as does not exceed— 

17 ‘‘(A) the taxpayer’s domestic production 

18 gross receipts for such taxable year, reduced by 

19 ‘‘(B) the sum of— 

20 ‘‘(i) the costs of goods sold that are 

21 allocable to such receipts, 
12 

•HR 3827 IH 

1 ‘‘(ii) other deductions, expenses, or 

2 losses directly allocable to such receipts, 

3 and 

4 ‘‘(iii) a proper share of other deduc5 tions, expenses, and losses that are not di6 rectly allocable to such receipts or another 

7 class of income. 

8 ‘‘(2) ALLOCATION METHOD.—The Secretary 

9 shall prescribe rules for the proper allocation of 

10 items of income, deduction, expense, and loss for 

11 purposes of determining income attributable to do12 mestic production activities. 

13 ‘‘(3) SPECIAL RULE FOR DETERMINING

14 COSTS.— 

15 ‘‘(A) For purposes of determining costs 

16 under clause (i) of paragraph (1)(B), any item 

17 or service brought into the United States shall 

18 be treated as acquired by purchase, and its cost 

19 shall be treated as not less than its value in the 

20 United States, determined immediately after it 

21 was brought into the United States. A similar 

22 rule shall apply in determining the adjusted 

23 basis of leased or rented property where the 

24 lease or rental gives rise to domestic production 

25 gross receipts. 
13 

•HR 3827 IH 

1 ‘‘(B) In the case of any property described 

2 in subparagraph (A) that had been exported by 

3 the taxpayer for further manufacture, the in4 crease in cost (or adjusted basis) under sub5 paragraph (A) shall not exceed the difference 

6 between the value of the property when ex7 ported and the value of the property when 

8 brought back into the United States after the 

9 further manufacture. 

10 ‘‘(4) MODIFIED TAXABLE INCOME.—The term 

11 ‘modified taxable income’ means taxable income 

12 computed without regard to the deduction allowable 

13 under this section. 

14 ‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.— 

15 For purposes of this section— 

16 ‘‘(1) IN GENERAL.—The term ‘domestic produc17 tion gross receipts’ means the gross receipts of the 

18 taxpayer which are derived from— 

19 ‘‘(A) any sale, exchange, or other disposi20 tion of, or 

21 ‘‘(B) any lease, rental or license of— 

22 qualifying production property which was manufac23 tured, produced, grown, or extracted in whole or in 

24 significant part by the taxpayer within the United 

25 States. 
14 

•HR 3827 IH 

1 ‘‘(2) SPECIAL RULES FOR CERTAIN PROP2 ERTY.—In the case of any qualifying production 

3 property described in subsection (f)(1)(C)— 

4 (A) such property shall be treated for pur5 poses of paragraph (1) as produced in signifi6 cant part by the taxpayer within the United 

7 States if more than 50 percent of the aggregate 

8 development and production costs are incurred 

9 by the taxpayer within the United States, and 

10 (B) if a taxpayer acquires such property 

11 before such property begins to generate sub12 stantial gross receipts, any development or pro13 duction costs incurred before the acquisition 

14 shall be treated as incurred by the taxpayer for 

15 purposes of subparagraph (A) and paragraph 

16 (1). 

17 ‘‘(f) QUALIFYING PRODUCTION PROPERTY.—For 

18 purposes of this section— 

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the term ‘qualifying produc21 tion property’ means— 

22 ‘‘(A) any tangible personal property, 

23 ‘‘(B) any computer software, and 
15 

•HR 3827 IH 

1 ‘‘(C) any property described in paragraph 

2 (3) or (4) of section 168(f), including any un3 derlying copyright or trademark. 

4 Subparagraph (C) shall not apply to any property 

5 with respect to which records are required to be 

6 maintained under section 2257 of title 18, United 

7 States Code. 

8 ‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC9 TION PROPERTY.—The term ‘qualifying production 

10 property’ shall not include— 

11 ‘‘(A) consumable property that is sold, 

12 leased, or licensed by the taxpayer as an inte13 gral part of the provision of services, 

14 ‘‘(B) oil or gas (or any primary product 

15 thereof), 

16 ‘‘(C) electricity, 

17 ‘‘(D) water supplied by pipeline to the con18 sumer, 

19 ‘‘(E) utility services, or 

20 ‘‘(F) any property (not described in para21 graph (1)(B)) which is a film, tape, recording, 

22 book, magazine, newspaper, or similar property 

23 the market for which is primarily topical or oth24 erwise essentially transitory in nature. 
16 

•HR 3827 IH 

1 ‘‘(3) SPECIAL RULE FOR NONCORPORATE TAX2 PAYERS.—In the case of a taxpayer other than a 

3 corporation subject to tax under section 11, the term 

4 ‘qualifying production property’ only includes— 

5 ‘‘(A) agricultural or horticultural products, in6 cluding timber, and 

7 ‘‘(B) other tangible personal property not de8 scribed in subparagraph (B) or (C) of paragraph (1) 

9 and not described in section 1221(a)(3). 

10 ‘‘(g) DOMESTIC/WORLDWIDE FRACTION.—For pur11 poses of this section— 

12 ‘‘(1) IN GENERAL.—The term ‘domestic/world13 wide fraction’ means a fraction (not greater than 

14 1)— 

15 ‘‘(A) the numerator of which is the value 

16 of the domestic production of the taxpayer, and 

17 ‘‘(B) the denominator of which is the value 

18 of the worldwide production of the taxpayer. 

19 ‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The 

20 value of domestic production is the excess (if any) 

21 of— 

22 ‘‘(A) the domestic production gross re23 ceipts, over 
17 

•HR 3827 IH 

1 ‘‘(B) the cost of purchased inputs allocable 

2 to such receipts that are deductible under this 

3 chapter for the taxable year. 

4 ‘‘(3) PURCHASED INPUTS.— 

5 ‘‘(A) IN GENERAL.—Purchased inputs are 

6 any of the following items acquired by pur7 chase: 

8 ‘‘(i) Services (other than services of 

9 employees) used in manufacture, produc10 tion, growth, or extraction activities. 

11 ‘‘(ii) Items consumed in connection 

12 with such activities. 

13 ‘‘(iii) Items incorporated as part of 

14 the property being manufactured, pro15 duced, grown, or extracted. 

16 ‘‘(B) SPECIAL RULE.—Rules similar to the 

17 rules of subsection (d)(3) shall apply for pur18 poses of this subsection. 

19 ‘‘(4) VALUE OF WORLDWIDE PRODUCTION.— 

20 ‘‘(A) IN GENERAL.—The value of world21 wide production shall be determined under the 

22 principles of paragraph (2), except that— 

23 ‘‘(i) worldwide production gross re24 ceipts shall be taken into account, and 

25 ‘‘(ii) paragraph (3)(B) shall not apply. 
18 

•HR 3827 IH 

1 ‘‘(B) WORLDWIDE PRODUCTION GROSS RE2 CEIPTS.—The worldwide production gross re3 ceipts is the amount that would be determined 

4 under subsection (e) if such subsection were ap5 plied without any reference to the United 

6 States. 

7 ‘‘(h) DEFINITIONS AND SPECIAL RULES.— 

8 ‘‘(1) UNITED STATES.—For purposes of this 

9 section, the term ‘United States’ includes the Com10 monwealth of Puerto Rico and any other possession 

11 of the United States. 

12 ‘‘(2) EXCLUSION FOR PATRONS OF AGRICUL13 TURAL AND HORTICULTURAL COOPERATIVES.— 

14 ‘‘(A) IN GENERAL.—If any amount de15 scribed in paragraph (1) or (3) of section 1385 

16 (a)— 

17 ‘‘(i) is received by a person from an 

18 organization to which part I of subchapter 

19 T applies which is engaged in the mar20 keting of agricultural or horticultural prod21 ucts, and 

22 ‘‘(ii) is allocable to the portion of the 

23 qualified production activities income of 

24 the organization which is deductible under 

25 subsection (a) (determined as if the organi-
19 

•HR 3827 IH 

1 zation were a corporation if it is not) and 

2 designated as such by the organization in 

3 a written notice mailed to its patrons dur4 ing the payment period described in section 

5 1382(a), 

6 then such person shall be allowed an exclusion 

7 from gross income with respect to such amount. 

8 The taxable income of the organization shall 

9 not be reduced under section 1382 by the por10 tion of any such amount with respect to which 

11 an exclusion is allowable to a person by reason 

12 of this paragraph. 

13 ‘‘(B) SPECIAL RULES.—For purposes of 

14 applying subparagraph (A), in determining the 

15 qualified production activities income of the or16 ganization under this section— 

17 ‘‘(i) there shall not be taken into ac18 count in computing the organization’s 

19 modified taxable income any deduction al20 lowable under subsection (b) or (c) of sec21 tion 1382 (relating to patronage dividends, 

22 per-unit retain allocations, and nonpatron23 age distributions), and 

24 ‘‘(ii) the organization shall be treated 

25 as having manufactured, produced, grown, 
20 

•HR 3827 IH 

1 or extracted in whole or significant part 

2 any qualifying production property mar3 keted by the organization which its patrons 

4 have so manufactured, produced, grown, or 

5 extracted. 

6 ‘‘(3) SPECIAL RULES FOR PARTNERSHIPS AND

7 S CORPORATIONS.—For purposes of this section, a 

8 partner’s distributive share of any partnership item 

9 shall be taken into account as if directly realized by 

10 the partner. A rule similar to the rule of the pre11 ceding sentence shall apply in the case of a share12 holder in an S Corporation. 

13 ‘‘(4) SPECIAL RULE FOR AFFILIATED

14 GROUPS.— 

15 ‘‘(A) IN GENERAL.—All members of an ex16 panded affiliated group shall be treated as a 

17 single corporation for purposes of this section. 

18 ‘‘(B) EXPANDED AFFILIATED GROUP.— 

19 The term ‘expanded affiliated group’ means an 

20 affiliated group as defined in section 1504(a), 

21 determined— 

22 ‘‘(i) by substituting ‘50 percent’ for 

23 ‘80 percent’ each place it appears, and 

24 ‘‘(ii) without regard to paragraphs (2) 

25 and (4) of section 1504(b). 
21 

•HR 3827 IH 

1 For purposes of determining the domestic/ 

2 worldwide fraction under subsection (g), clause 

3 (ii) shall be applied by also disregarding para4 graphs (3) and (8) of section 1504(b). 

5 ‘‘(5) COORDINATION WITH MINIMUM TAX.—The 

6 deduction under this section shall be allowed for 

7 purposes of the tax imposed by section 55; except 

8 that for purposes of section 55, alternative minimum 

9 taxable income shall be taken into account in deter10 mining the deduction under this section. 

11 ‘‘(6) ORDERING RULE.—The amount of any 

12 other deduction allowable under this chapter shall be 

13 determined as if this section had not been enacted. 

14 ‘‘(7) TRADE OR BUSINESS REQUIREMENT.— 

15 This section shall be applied by only taking into ac16 count items which are attributable to the actual con17 duct of a trade or business. 

18 ‘‘(8) COORDINATION WITH TRANSITION

19 RULES.—For purposes of this section— 

20 ‘‘(A) domestic production gross receipts 

21 shall not include gross receipts from any trans22 action if the binding contract transition relief of 

23 section 2(c)(2) of the Job Protection Act of 

24 2003 applies to such transaction, and 
22 

•HR 3827 IH 

1 ‘‘(B) any deduction allowed under section 

2 2(e) of such Act shall be disregarded in deter3 mining the portion of the taxable income which 

4 is attributable to domestic production gross re5 ceipts.’’. 

6 (b) CLERICAL AMENDMENT.—The table of sections 

7 for part VII of subchapter B of chapter 1 is amended by 

8 adding at the end the following new item: 

‘‘Sec. 199. Income attributable to domestic production activities.’’. 

9 (c) EFFECTIVE DATE.— 

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

11 this section shall apply to taxable years ending after 

12 2003. 

13 (2) APPLICATION OF SECTION 15.—Section 15 

14 of the Internal Revenue Code of 1986 shall apply to 

15 the amendments made by this section as if they were 

16 changes in a rate of tax. 

17 TITLE II—EXTENSION OF IN18 CREASED EXPENSING FOR 

19 SMALL BUSINESS 

20 SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING 

21 FOR SMALL BUSINESS. 

22 Subsections (b), (c), and (d) of section 179 (as 

23 amended by the Jobs and Growth Tax Relief Reconcili-
23 

•HR 3827 IH 

1 ation Act of 2003) are each amended by striking ‘‘2006’’ 

2 each place it appears and inserting ‘‘2008’’. 

3 TITLE III—ENRON-RELATED TAX 

4 SHELTER PROVISIONS 

5 SEC. 301. LIMITATION ON TRANSFER OR IMPORTATION OF 

6 BUILT-IN LOSSES. 

7 (a) IN GENERAL.—Section 362 (relating to basis to 

8 corporations) is amended by adding at the end the fol9 lowing new subsection: 

10 ‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.— 

11 ‘‘(1) LIMITATION ON IMPORTATION OF BUILT12 IN LOSSES.— 

13 ‘‘(A) IN GENERAL.—If in any transaction 

14 described in subsection (a) or (b) there would 

15 (but for this subsection) be an importation of a 

16 net built-in loss, the basis of each property de17 scribed in subparagraph (B) which is acquired 

18 in such transaction shall (notwithstanding sub19 sections (a) and (b)) be its fair market value 

20 immediately after such transaction. 

21 ‘‘(B) PROPERTY DESCRIBED.—For pur22 poses of subparagraph (A), property is de23 scribed in this subparagraph if— 

24 ‘‘(i) gain or loss with respect to such 

25 property is not subject to tax under this 
24 

•HR 3827 IH 

1 subtitle in the hands of the transferor im2 mediately before the transfer, and 

3 ‘‘(ii) gain or loss with respect to such 

4 property is subject to such tax in the 

5 hands of the transferee immediately after 

6 such transfer. 

7 In any case in which the transferor is a part8 nership, the preceding sentence shall be applied 

9 by treating each partner in such partnership as 

10 holding such partner’s proportionate share of 

11 the property of such partnership. 

12 ‘‘(C) IMPORTATION OF NET BUILT-IN

13 LOSS.—For purposes of subparagraph (A), 

14 there is an importation of a net built-in loss in 

15 a transaction if the transferee’s aggregate ad16 justed bases of property described in subpara17 graph (B) which is transferred in such trans18 action would (but for this paragraph) exceed 

19 the fair market value of such property imme20 diately after such transaction.’’. 

21 ‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN

22 LOSSES IN SECTION 351 TRANSACTIONS.— 

23 ‘‘(A) IN GENERAL.—If— 

24 ‘‘(i) property is transferred by a 

25 transferor in any transaction which is de-
25 

•HR 3827 IH 

1 scribed in subsection (a) and which is not 

2 described in paragraph (1) of this sub3 section, and 

4 ‘‘(ii) the transferee’s aggregate ad5 justed bases of such property so trans6 ferred would (but for this paragraph) ex7 ceed the fair market value of such property 

8 immediately after such transaction, 

9 then, notwithstanding subsection (a), the trans10 feree’s aggregate adjusted bases of the property 

11 so transferred shall not exceed the fair market 

12 value of such property immediately after such 

13 transaction. 

14 ‘‘(B) ALLOCATION OF BASIS REDUC15 TION.—The aggregate reduction in basis by 

16 reason of subparagraph (A) shall be allocated 

17 among the property so transferred in proportion 

18 to their respective built-in losses immediately 

19 before the transaction. 

20 ‘‘(C) EXCEPTION FOR TRANSFERS WITHIN

21 AFFILIATED GROUP.—Subparagraph (A) shall 

22 not apply to any transaction if the transferor 

23 owns stock in the transferee meeting the re24 quirements of section 1504(a)(2). In the case of 

25 property to which subparagraph (A) does not 
26 

•HR 3827 IH 

1 apply by reason of the preceding sentence, the 

2 transferor’s basis in the stock received for such 

3 property shall not exceed its fair market value 

4 immediately after the transfer.’’. 

5 (b) COMPARABLE TREATMENT WHERE LIQUIDA6 TION.—Paragraph (1) of section 334(b) (relating to liq7 uidation of subsidiary) is amended to read as follows: 

8 ‘‘(1) IN GENERAL.—If property is received by a 

9 corporate distributee in a distribution in a complete 

10 liquidation to which section 332 applies (or in a 

11 transfer described in section 337(b)(1)), the basis of 

12 such property in the hands of such distributee shall 

13 be the same as it would be in the hands of the trans14 feror; except that the basis of such property in the 

15 hands of such distributee shall be the fair market 

16 value of the property at the time of the distribu17 tion— 

18 ‘‘(A) in any case in which gain or loss is 

19 recognized by the liquidating corporation with 

20 respect to such property, or 

21 ‘‘(B) in any case in which the liquidating 

22 corporation is a foreign corporation, the cor23 porate distributee is a domestic corporation, 

24 and the corporate distributee’s aggregate ad25 justed bases of property described in section 
27 

•HR 3827 IH 

1 362(e)(1)(B) which is distributed in such liq2 uidation would (but for this subparagraph) ex3 ceed the fair market value of such property im4 mediately after such liquidation.’’. 

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

6 this section shall apply to transactions after the date of 

7 the enactment of this Act. 

8 SEC. 302. NO REDUCTION OF BASIS UNDER SECTION 734 IN 

9 STOCK HELD BY PARTNERSHIP IN COR10 PORATE PARTNER. 

11 (a) IN GENERAL.—Section 755 is amended by adding 

12 at the end the following new subsection: 

13 ‘‘(c) NO ALLOCATION OF BASIS DECREASE TO

14 STOCK OF CORPORATE PARTNER.—In making an alloca15 tion under subsection (a) of any decrease in the adjusted 

16 basis of partnership property under section 734(b)— 

17 ‘‘(1) no allocation may be made to stock in a 

18 corporation (or any person which is related (within 

19 the meaning of section 267(b) or 707(b)(1)) to such 

20 corporation) which is a partner in the partnership, 

21 and 

22 ‘‘(2) any amount not allocable to stock by rea23 son of paragraph (1) shall be allocated under sub24 section (a) to other partnership property. 
28 

•HR 3827 IH 

1 Gain shall be recognized to the partnership to the extent 

2 that the amount required to be allocated under paragraph 

3 (2) to other partnership property exceeds the aggregate 

4 adjusted basis of such other property immediately before 

5 the allocation required by paragraph (2).’’. 

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

7 this section shall apply to distributions after the date of 

8 the enactment of this Act. 

9 SEC. 303. REPEAL OF SPECIAL RULES FOR FASITS, ETC. 

10 (a) IN GENERAL.—Part V of subchapter M of chap11 ter 1 (relating to financial asset securitization investment 

12 trusts) is hereby repealed. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Paragraph (6) of section 56(g) is amended 

15 by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 

16 REMIC’’. 

17 (2) Clause (ii) of section 382(l)(4)(B) is amend18 ed by striking ‘‘a REMIC to which part IV of sub19 chapter M applies, or a FASIT to which part V of 

20 subchapter M applies,’’ and inserting ‘‘or a REMIC 

21 to which part IV of subchapter M applies,’. 

22 (3) Paragraph (1) of section 582(c) is amended 

23 by striking ‘‘, and any regular interest in a 

24 FASIT,’’. 
29 

•HR 3827 IH 

1 (4) Subparagraph (E) of section 856(c)(5) is 

2 amended by striking the last sentence. 

3 (5)(A) Section 860G(a)(1) is amended by add4 ing at the end the following new sentence: ‘‘An inter5 est shall not fail to qualify as a regular interest sole6 ly because the specified principal amount of the reg7 ular interest (or the amount of interest accrued on 

8 the regular interest) can be reduced as a result of 

9 the nonoccurrence of 1 or more contingent payments 

10 with respect to any reverse mortgage loan held by 

11 the REMIC if, on the startup day for the REMIC, 

12 the sponsor reasonably believes that all principal and 

13 interest due under the regular interest will be paid 

14 at or prior to the liquidation of the REMIC.’’. 

15 (B) The last sentence of section 860G(a)(3) is 

16 amended by inserting ‘‘, and any reverse mortgage 

17 loan (and each balance increase on such loan meet18 ing the requirements of subparagraph (A)(iii)) shall 

19 be treated as an obligation secured by an interest in 

20 real property’’ before the period at the end. 

21 (6) Paragraph (3) of section 860G(a) is amend22 ed by adding ‘‘and’’ at the end of subparagraph (B), 

23 by striking ‘‘, and’’ at the end of subparagraph (C) 

24 and inserting a period, and by striking subparagraph 

25 (D). 
30 

•HR 3827 IH 

1 (7) Section 860G(a)(3), as amended by para2 graph (6), is amended by adding at the end the fol3 lowing new sentence: ‘‘For purposes of subparagraph 

4 (A), if more than 50 percent of the obligations 

5 transferred to, or purchased by, the REMIC are 

6 originated by the United States or any State (or any 

7 political subdivision, agency, or instrumentality of 

8 the United States or any State) and are principally 

9 secured by an interest in real property, then each 

10 obligation transferred to, or purchased by, the 

11 REMIC shall be treated as secured by an interest in 

12 real property.’’. 

13 (8)(A) Section 860G(a)(3)(A) is amended by 

14 striking ‘‘or’’ at the end of clause (i), by inserting 

15 ‘‘or’’ at the end of clause (ii), and by inserting after 

16 clause (ii) the following new clause: 

17 ‘‘(iii) represents an increase in the 

18 principal amount under the original terms 

19 of an obligation described in clause (i) or 

20 (ii) if such increase— 

21 ‘‘(I) is attributable to an advance 

22 made to the obligor pursuant to the 

23 original terms of the obligation, 

24 ‘‘(II) occurs after the startup 

25 day, and 
31 

•HR 3827 IH 

1 ‘‘(III) is purchased by the 

2 REMIC pursuant to a fixed price con3 tract in effect on the startup day.’’. 

4 (B) Section 860G(a)(7)(B) is amended to read 

5 as follows: 

6 ‘‘(B) QUALIFIED RESERVE FUND.—For 

7 purposes of subparagraph (A), the term ‘quali8 fied reserve fund’ means any reasonably re9 quired reserve to— 

10 ‘‘(i) provide for full payment of ex11 penses of the REMIC or amounts due on 

12 regular interests in the event of defaults on 

13 qualified mortgages or lower than expected 

14 returns on cash flow investments, or 

15 ‘‘(ii) provide a source of funds for the 

16 purchase of obligations described in clause 

17 (ii) or (iii) of paragraph (3)(A). 

18 The aggregate fair market value of the assets 

19 held in any such reserve shall not exceed 50 

20 percent of the aggregate fair market value of all 

21 of the assets of the REMIC on the startup day, 

22 and the amount of any such reserve shall be 

23 promptly and appropriately reduced to the ex24 tent the amount held in such reserve is no 
32 

•HR 3827 IH 

1 longer reasonably required for purposes speci2 fied in clause (i) or (ii) of paragraph (3)(A).’’. 

3 (9) Subparagraph (C) of section 1202(e)(4) is 

4 amended by striking ‘‘REMIC, or FASIT’’ and in5 serting ‘‘or REMIC’’. 

6 (10) Section 1272(a)(6)(B) is amended by add7 ing at the end the following new flush sentence: 

8 ‘‘For purposes of clause (iii), the Secretary 

9 shall prescribe regulations permitting the use of 

10 a current prepayment assumption, determined 

11 as of the close of the accrual period (or such 

12 other time as the Secretary may prescribe dur13 ing the taxable year in which the accrual period 

14 ends).’’. 

15 (11) Subparagraph (C) of section 7701(a)(19) 

16 is amended by adding ‘‘and’’ at the end of clause 

17 (ix), by striking ‘‘, and’’ at the end of clause (x) and 

18 inserting a period, and by striking clause (xi). 

19 (12) The table of parts for subchapter M of 

20 chapter 1 is amended by striking the item relating 

21 to part V. 

22 (c) EFFECTIVE DATE.— 

23 (1) IN GENERAL.—Except as provided in para24 graph (2), the amendments made by this section 
33 

•HR 3827 IH 

1 shall take effect on the date of the enactment of this 

2 Act. 

3 (2) EXCEPTION FOR EXISTING FASITS.— 

4 (A) IN GENERAL.—Paragraph (1) shall not 

5 apply to any FASIT in existence on the date of 

6 the enactment of this Act to the extent that 

7 regular interests issued by the FASIT before 

8 such date continue to remain outstanding in ac9 cordance with the original terms of issuance. 

10 (B) TRANSFER OF ADDITIONAL ASSETS

11 NOT PERMITTED.—Except as provided in regu12 lations prescribed by the Secretary of the 

13 Treasury or the Secretary’s delegate, subpara14 graph (A) shall cease to apply as of the earliest 

15 date after the date of the enactment of this Act 

16 that any property is transferred to the FASIT. 

17 SEC. 304. EXPANDED DISALLOWANCE OF DEDUCTION FOR 

18 INTEREST ON CONVERTIBLE DEBT. 

19 (a) IN GENERAL.—Paragraph (2) of section 163(l) 

20 is amended by striking ‘‘or a related party’’ and inserting 

21 ‘‘or equity held by the issuer (or any related party) in any 

22 other person’’. 

23 (b) CAPITALIZATION ALLOWED WITH RESPECT TO

24 EQUITY OF PERSONS OTHER THAN ISSUER AND RE25 LATED PARTIES.—Section 163(l) is amended by redesig-
34 

•HR 3827 IH 

1 nating paragraphs (4) and (5) as paragraphs (5) and (6) 

2 and by inserting after paragraph (3) the following new 

3 paragraph: 

4 ‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT

5 TO EQUITY OF PERSONS OTHER THAN ISSUER AND

6 RELATED PARTIES.—If the disqualified debt instru7 ment of a corporation is payable in equity held by 

8 the issuer (or any related party) in any other person 

9 (other than a related party), the basis of such equity 

10 shall be increased by the amount not allowed as a 

11 deduction by reason of paragraph (1) with respect to 

12 the instrument.’’. 

13 (c) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED

14 BY DEALERS IN SECURITIES.—Section 163(l), as amend15 ed by subsection (b), is amended by redesignating para16 graphs (5) and (6) as paragraphs (6) and (7) and by in17 serting after paragraph (4) the following new paragraph: 

18 ‘‘(5) EXCEPTION FOR CERTAIN INSTRUMENTS

19 ISSUED BY DEALERS IN SECURITIES.—For purposes 

20 of this subsection, the term ‘disqualified debt instru21 ment’ does not include indebtedness issued by a 

22 dealer in securities (or a related party) which is pay23 able in, or by reference to, equity (other than equity 

24 of the issuer or a related party) held by such dealer 

25 in its capacity as a dealer in securities. For purposes 
35 

•HR 3827 IH 

1 of this paragraph, the term ‘dealer in securities’ has 

2 the meaning given such term by section 475.’’. 

3 (c) CONFORMING AMENDMENTS.—Paragraph (3) of 

4 section 163(l) is amended— 

5 (1) by striking ‘‘or a related party’’ in the ma6 terial preceding subparagraph (A) and inserting ‘‘or 

7 any other person’’, and 

8 (2) by striking ‘‘or interest’’ each place it ap9 pears. 

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

11 this section shall apply to debt instruments issued after 

12 the date of the enactment of this Act. 

13 SEC. 305. EXPANDED AUTHORITY TO DISALLOW TAX BENE14 FITS UNDER SECTION 269. 

15 (a) IN GENERAL.—Subsection (a) of section 269 (re16 lating to acquisitions made to evade or avoid income tax) 

17 is amended to read as follows: 

18 ‘‘(a) IN GENERAL.—If— 

19 ‘‘(1)(A) any person acquires stock in a corpora20 tion, or 

21 ‘‘(B) any corporation acquires, directly or indi22 rectly, property of another corporation and the basis 

23 of such property, in the hands of the acquiring cor24 poration, is determined by reference to the basis in 

25 the hands of the transferor corporation, and 
36 

•HR 3827 IH 

1 ‘‘(2) the principal purpose for which such acqui2 sition was made is evasion or avoidance of Federal 

3 income tax by securing the benefit of a deduction, 

4 credit, or other allowance, 

5 then the Secretary may disallow such deduction, credit, 

6 or other allowance.’’. 

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

8 this section shall apply to stock and property acquired 

9 after the date of the enactment of this Act. 

10 SEC. 306. MODIFICATIONS OF CERTAIN RULES RELATING 

11 TO CONTROLLED FOREIGN CORPORATIONS. 

12 (a) LIMITATION ON EXCEPTION FROM PFIC RULES

13 FOR UNITED STATES SHAREHOLDERS OF CONTROLLED

14 FOREIGN CORPORATIONS.—Paragraph (2) of section 

15 1297(e) (relating to passive investment company) is 

16 amended by adding at the end the following flush sen17 tence: 

18 ‘‘Such term shall not include any period if there is 

19 only a remote likelihood of an inclusion in gross in20 come under section 951(a)(1)(A)(i) of subpart F in21 come of such corporation for such period.’’. 

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

23 this section shall apply to taxable years on controlled for24 eign corporation beginning after the date of the enactment 

25 of this Act, and to taxable years of United States share-
37 

•HR 3827 IH 

1 holder in which or with which such taxable years of con2 trolled foreign corporations end. 

3 TITLE IV—EXTENSION OF COBRA 

4 FEES 

5 SEC. 401. COBRA FEES. 

6 (a) USE OF MERCHANDISE PROCESSING FEE.—Sec7 tion 13031(f) of the Consolidated Omnibus Budget Rec8 onciliation Act of 1985 (19 U.S.C. 58c(f)) is amended— 

9 (1) in paragraph (1), by aligning subparagraph 

10 (B) with subparagraph (A); and 

11 (2) in paragraph (2), by striking ‘‘commercial 

12 operations’’ and all that follows through ‘‘proc13 essing’’ and inserting ‘‘customs revenue functions as 

14 defined in section 415 of the Homeland Security Act 

15 of 2002 (other than functions performed by the Of16 fice of International Affairs referred to in section 

17 415(8) of that Act), and for automation (including 

18 the Automation Commercial Environment computer 

19 system), and for no other purpose. To the extent 

20 that funds in the Customs User Fee Account are in21 sufficient to pay the costs of such customs revenue 

22 functions, customs duties in an amount equal to the 

23 amount of such insufficiency shall be available, to 

24 the extent provided for in appropriations Acts, to 

25 pay the costs of such customs revenue functions in 
38 

•HR 3827 IH 

1 the amount of such insufficiency, and shall be avail2 able for no other purpose. The provisions of the first 

3 and second sentences of this paragraph specifying 

4 the purposes for which amounts in the Customs 

5 User Fee Account may be made available shall not 

6 be superseded except by a provision of law which 

7 specifically modifies or supersedes such provisions.’’. 

8 (b) REIMBURSEMENT OF APPROPRIATIONS FROM

9 COBRA FEES.—Section 13031(f)(3) of the Consolidated 

10 Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 

11 58c(f)(3)) is amended by adding at the end the following: 

12 ‘‘(E) Nothing in this paragraph shall be construed 

13 to preclude the use of appropriated funds, from sources 

14 other than the fees collected under subsection (a), to pay 

15 the costs set forth in clauses (i), (ii), and (iii) of subpara16 graph (A).’’. 

17 (c) SENSE OF CONGRESS; EFFECTIVE PERIOD FOR

18 COLLECTING FEES; STANDARD FOR SETTING FEES.— 

19 (1) SENSE OF CONGRESS.—The Congress finds 

20 that— 

21 (A) the fees set forth in paragraphs (1) 

22 through (8) of subsection (a) of section 13031 

23 of the Consolidated Omnibus Budget Reconcili24 ation Act of 1985 have been reasonably related 

25 to the costs of providing customs services in 
39 

•HR 3827 IH 

1 connection with the activities or items for which 

2 the fees have been charged under such para3 graphs; and 

4 (B) the fees collected under such para5 graphs have not exceeded, in the aggregate, the 

6 amounts paid for the costs described in sub7 section (f)(3)(A) incurred in providing customs 

8 services in connection with the activities or 

9 items for which the fees were charged under 

10 such paragraphs. 

11 (2) EFFECTIVE PERIOD; STANDARD FOR SET12 TING FEES.—Section 13031(j)(3) of the Consoli13 dated Omnibus Budget Reconciliation Act of 1985 is 

14 amended to read as follows: 

15 ‘‘(3)(A) Fees may not be charged under paragraphs 

16 (9) and (10) of subsection (a) after September 30, 2013. 

17 ‘‘(B)(i) Subject to clause (ii), fees may not be charged 

18 under paragraphs (1) through (8) of subsection (a) after 

19 September 30, 2006. 

20 ‘‘(ii) In fiscal year 2006 and in each succeeding fiscal 

21 year for which fees under paragraphs (1) through (8) of 

22 subsection (a) are authorized— 

23 ‘‘(I) the Secretary of the Treasury shall charge 

24 fees under each such paragraph in amounts that are 

25 reasonably related to the costs of providing customs 
40 

•HR 3827 IH 

1 services in connection with the activity or item for 

2 which the fee is charged under such paragraph; 

3 ‘‘(II) the amount of fees collected under such 

4 paragraphs may not exceed, in the aggregate, the 

5 amounts paid in that fiscal year for the costs de6 scribed in subsection (f)(3)(A) incurred in providing 

7 customs services in connection with the activity or 

8 item for which the fees are charged under such 

9 paragraphs; 

10 ‘‘(III) a fee may not be collected under any 

11 such paragraph except to the extent such fee will be 

12 expended to pay the costs described in subsection 

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

14 connection with the activity or item for which the fee 

15 is charged under such paragraph; and 

16 ‘‘(IV) any fee collected under any such para17 graph shall be available for expenditure only to pay 

18 the costs described in subsection (f)(3)(A) incurred 

19 in providing customs services in connection with the 

20 activity or item for which the fee is charged under 

21 such paragraph.’’. 

22 (d) CLERICAL AMENDMENTS.—Section 13031 of the 

23 Consolidated Omnibus Budget Reconciliation Act of 1985 

24 is amended— 
41 

•HR 3827 IH 

1 (1) in subsection (a)(5)(B), by striking ‘‘$1.75’’ 

2 and inserting ‘‘$1.75.’’; 

3 (2) in subsection (b)— 

4 (A) in paragraph (1)(A), by aligning clause 

5 (iii) with clause (ii); 

6 (B) in paragraph (7), by striking ‘‘para7 graphs’’ and inserting ‘‘paragraph’’; and 

8 (C) in paragraph (9), by aligning subpara9 graph (B) with subparagraph (A); and 

10 (3) in subsection (e)(2), by aligning subpara11 graph (B) with subparagraph (A). 

Æ