In the Senate of the United States,

July 15, 2004.

Resolved, That the bill from the House of Representatives (H.R. 4520) entitled ‘‘An Act to amend the Internal

Revenue Code of 1986 to comply with the World Trade Organization rulings on the FSC/ETI benefit in a manner that

preserves jobs and production activities in the United States,

to reform and simplify the international taxation rules of the

United States, and for other purposes.’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;

2 TABLE OF CONTENTS.

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

4 ‘‘Jumpstart Our Business Strength (JOBS) Act’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as otherwise

2 expressly provided, whenever in this Act an amendment or

3 repeal is expressed in terms of an amendment to, or repeal

4 of, a section or other provision, the reference shall be consid5 ered to be made to a section or other provision of the Inter6 nal Revenue Code of 1986.

7 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I—PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR

EXTRATERRITORIAL INCOME

Sec. 101. Repeal of exclusion for extraterritorial income.

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

activities.

Sec. 103. Deduction for United States production activities includes income related to certain architectural and engineering services.

TITLE II—INTERNATIONAL TAX PROVISIONS

Subtitle A—International Tax Reform

Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax credit

carryback.

Sec. 202. Look-thru rules to apply to dividends from noncontrolled section 902

corporations.

Sec. 203. Foreign tax credit under alternative minimum tax.

Sec. 204. Recharacterization of overall domestic loss.

Sec. 205. Interest expense allocation rules.

Sec. 206. Determination of foreign personal holding company income with respect

to transactions in commodities.

Subtitle B—International Tax Simplification

Sec. 211. Repeal of foreign personal holding company rules and foreign investment company rules.

Sec. 212. Expansion of de minimis rule under subpart F.

Sec. 213. Attribution of stock ownership through partnerships to apply in determining section 902 and 960 credits.

Sec. 214. Application of uniform capitalization rules to foreign persons.

Sec. 215. Repeal of withholding tax on dividends from certain foreign corporations.

Sec. 216. Repeal of special capital gains tax on aliens present in the United

States for 183 days or more.

Subtitle C—Additional International Tax Provisions

Sec. 221. Active leasing income from aircraft and vessels.
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Sec. 222. Look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company income rules.

Sec. 223. Look-thru treatment for sales of partnership interests.

Sec. 224. Election not to use average exchange rate for foreign tax paid other

than in functional currency.

Sec. 225. Treatment of income tax base differences.

Sec. 226. Modification of exceptions under subpart F for active financing.

Sec. 227. United States property not to include certain assets of controlled foreign

corporation.

Sec. 228. Provide equal treatment for interest paid by foreign partnerships and

foreign corporations.

Sec. 229. Clarification of treatment of certain transfers of intangible property.

Sec. 230. Modification of the treatment of certain REIT distributions attributable

to gain from sales or exchanges of United States real property

interests.

Sec. 231. Toll tax on excess qualified foreign distribution amount.

Sec. 232. Exclusion of income derived from certain wagers on horse races and dog

races from gross income of nonresident alien individuals.

Sec. 233. Limitation of withholding tax for Puerto Rico corporations.

Sec. 234. Report on WTO dispute settlement panels and the appellate body.

Sec. 235. Study of impact of international tax laws on taxpayers other than large

corporations.

Sec. 236. Delay in effective date of final regulations governing exclusion of income from international operation of ships or aircraft.

Sec. 237. Interest payments deductible where disqualified guarantee has no economic effect.

TITLE III—DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

Subtitle A—General Provisions

Sec. 301. Expansion of qualified small-issue bond program.

Sec. 302. Expensing of broadband Internet access expenditures.

Sec. 303. Exemption of natural aging process in determination of production period for distilled spirits under section 263A.

Sec. 304. Modification of active business definition under section 355.

Sec. 305. Modified taxation of imported archery products.

Sec. 306. Modification to cooperative marketing rules to include value added

processing involving animals.

Sec. 307. Extension of declaratory judgment procedures to farmers’ cooperative

organizations.

Sec. 308. Temporary suspension of personal holding company tax.

Sec. 309. Increase in section 179 expensing.

Sec. 310. Five-year carryback of net operating losses.

Sec. 311. Extension and modification of research credit.

Sec. 312. Expansion of research credit.

Sec. 313. Manufacturer’s jobs credit.

Sec. 314. Brownfields Demonstration Program for qualified green building and

sustainable design projects.

Subtitle B—Manufacturing Relating to Films

Sec. 321. Special rules for certain film and television productions.

Sec. 322. Modification of application of income forecast method of depreciation.
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Subtitle C—Manufacturing Relating to Timber

Sec. 331. Expensing of certain reforestation expenditures.

Sec. 332. Election to treat cutting of timber as a sale or exchange.

Sec. 333. Capital gain treatment under section 631(b) to apply to outright sales

by landowners.

Sec. 334. Modification of safe harbor rules for timber REITS.

TITLE IV—ADDITIONAL PROVISIONS

Subtitle A—Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.

Sec. 402. Penalty for failing to disclose reportable transaction.

Sec. 403. Accuracy-related penalty for listed transactions and other reportable

transactions having a significant tax avoidance purpose.

Sec. 404. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 405. Modifications of substantial understatement penalty for nonreportable

transactions.

Sec. 406. Tax shelter exception to confidentiality privileges relating to taxpayer

communications.

Sec. 407. Disclosure of reportable transactions.

Sec. 408. Modifications to penalty for failure to register tax shelters.

Sec. 409. Modification of penalty for failure to maintain lists of investors.

Sec. 410. Modification of actions to enjoin certain conduct related to tax shelters

and reportable transactions.

Sec. 411. Understatement of taxpayer’s liability by income tax return preparer.

Sec. 412. Penalty on failure to report interests in foreign financial accounts.

Sec. 413. Frivolous tax submissions.

Sec. 414. Regulation of individuals practicing before the Department of Treasury.

Sec. 415. Penalty for promoting abusive tax shelters.

Sec. 416. Statute of limitations for taxable years for which required listed transactions not reported.

Sec. 417. Denial of deduction for interest on underpayments attributable to nondisclosed reportable and noneconomic substance transactions.

Sec. 418. Authorization of appropriations for tax law enforcement.

Sec. 419. Penalty for aiding and abetting the understatement of tax liability.

Sec. 420. Study on information sharing among law enforcement agencies.

Subtitle B—Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.

Sec. 422. Declaration by chief executive officer relating to Federal annual income

tax return of a corporation.

Sec. 423. Denial of deduction for certain fines, penalties, and other amounts.

Sec. 424. Disallowance of deduction for punitive damages.

Sec. 425. Increase in criminal monetary penalty limitation for the underpayment

or overpayment of tax due to fraud.

Subtitle C—Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.

Sec. 432. No reduction of basis under section 734 in stock held by partnership

in corporate partner.

Sec. 433. Repeal of special rules for FASITs.

Sec. 434. Expanded disallowance of deduction for interest on convertible debt.
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Sec. 435. Expanded authority to disallow tax benefits under section 269.

Sec. 436. Modification of interaction between subpart F and passive foreign investment company rules.

Subtitle D—Provisions To Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.

Sec. 442. Imposition of mark-to-market tax on individuals who expatriate.

Sec. 443. Excise tax on stock compensation of insiders of inverted corporations.

Sec. 444. Reinsurance of United States risks in foreign jurisdictions.

Sec. 445. Reporting of taxable mergers and acquisitions.

Subtitle E—International Tax

Sec. 451. Clarification of banking business for purposes of determining investment of earnings in United States property.

Sec. 452. Prohibition on nonrecognition of gain through complete liquidation of

holding company.

Sec. 453. Prevention of mismatching of interest and original issue discount deductions and income inclusions in transactions with related foreign persons.

Sec. 454. Effectively connected income to include certain foreign source income.

Sec. 455. Recapture of overall foreign losses on sale of controlled foreign corporation.

Sec. 456. Minimum holding period for foreign tax credit on withholding taxes on

income other than dividends.

Subtitle F—Other Revenue Provisions

PART I—FINANCIAL INSTRUMENTS

Sec. 461. Treatment of stripped interests in bond and preferred stock funds, etc.

Sec. 462. Application of earnings stripping rules to partners which are C corporations.

Sec. 463. Recognition of cancellation of indebtedness income realized on satisfaction of debt with partnership interest.

Sec. 464. Modification of straddle rules.

Sec. 465. Denial of installment sale treatment for all readily tradeable debt.

PART II—CORPORATIONS AND PARTNERSHIPS

Sec. 466. Modification of treatment of transfers to creditors in divisive reorganizations.

Sec. 467. Clarification of definition of nonqualified preferred stock.

Sec. 468. Modification of definition of controlled group of corporations.

Sec. 469. Mandatory basis adjustments in connection with partnership distributions and transfers of partnership interests.

PART III—DEPRECIATION AND AMORTIZATION

Sec. 471. Extension of amortization of intangibles to sports franchises.

Sec. 472. Class lives for utility grading costs.

Sec. 473. Expansion of limitation on depreciation of certain passenger automobiles.

Sec. 474. Consistent amortization of periods for intangibles.

Sec. 475. Reform of tax treatment of leasing operations.

Sec. 476. Limitation on deductions allocable to property used by governments or

other tax-exempt entities.
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PART IV—ADMINISTRATIVE PROVISIONS

Sec. 481. Clarification of rules for payment of estimated tax for certain deemed

asset sales.

Sec. 482. Extension of IRS user fees.

Sec. 483. Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangement.

Sec. 484. Partial payment of tax liability in installment agreements.

Sec. 485. Extension of customs user fees.

Sec. 486. Deposits made to suspend running of interest on potential underpayments.

Sec. 487. Qualified tax collection contracts.

Sec. 488. Whistleblower reforms.

Sec. 489. Protection of overtime pay.

Sec. 490. Protection of overtime pay.

PART V—MISCELLANEOUS PROVISIONS

Sec. 491. Addition of vaccines against hepatitis A to list of taxable vaccines.

Sec. 492. Recognition of gain from the sale of a principal residence acquired in

a like-kind exchange within 5 years of sale.

Sec. 493. Modification of exemption from tax for small property and casualty insurance companies.

Sec. 494. Treatment of charitable contributions of patents and similar property.

Sec. 495. Increase in age of minor children whose unearned income is taxed as

if parent’s income.

Sec. 496. Holding period for preferred stock.

Sec. 497. Substantial presence test required to determine bona fide residence in

United States possessions.

TITLE V—PROTECTION OF UNITED STATES WORKERS FROM

COMPETITION OF FOREIGN WORKFORCES

Sec. 501. Limitations on off-shore performance of contracts.

Sec. 502. Repeal of superseded law.

Sec. 503. Effective date and applicability.

TITLE VI—OTHER PROVISIONS

Subtitle A—Provisions Relating to Housing

Sec. 601. Treatment of qualified mortgage bonds.

Sec. 602. Premiums for mortgage insurance.

Sec. 603. Increase in historic rehabilitation credit for certain low-income housing

for the elderly.

Subtitle B—Provisions Relating to Bonds

Sec. 611. Expansion of New York Liberty Zone tax benefits.

Sec. 612. Modifications of treatment of qualified zone academy bonds.

Sec. 613. Modifications of authority of Indian tribal governments to issue tax-exempt bonds.

Sec. 614. Definition of manufacturing facility for small issue bonds.

Sec. 615. Conservation bonds.

Sec. 616. Indian school construction.
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Subtitle C—Provisions Relating to Depreciation

Sec. 621. Special placed in service rule for bonus depreciation property.

Sec. 622. Modification of depreciation allowance for aircraft.

Sec. 623. Modification of class life for certain track facilities.

Sec. 624. Minimum tax relief for certain taxpayers.

Subtitle D—Expansion of Business Credit

Sec. 631. New markets tax credit for Native American reservations.

Sec. 632. Ready Reserve-National Guard employee credit and Ready Reserve-National Guard replacement employee credit.

Sec. 633. Rural investment tax credit.

Sec. 634. Qualified rural small business investment credit.

Sec. 635. Credit for maintenance of railroad track.

Sec. 636. Railroad revitalization and security investment credit.

Sec. 637. Modification of targeted areas designated for new markets tax credit.

Sec. 638. Modification of income requirement for census tracts within high migration rural counties.

Sec. 639. Credit for investment in technology to make motion pictures more accessible to the deaf and hard of hearing.

Subtitle E—Miscellaneous Provisions

Sec. 641. Exclusion of gain or loss on sale or exchange of certain brownfield sites

from unrelated business taxable income.

Sec. 642. Modification of unrelated business income limitation on investment in

certain debt-financed properties.

Sec. 643. Civil rights tax relief.

Sec. 644. Exclusion for payments to individuals under National Health Service

Corps loan repayment program and certain State loan repayment programs.

Sec. 645. Certain expenses of rural letter carriers.

Sec. 646. Method of accounting for naval shipbuilders.

Sec. 647. Suspension of policyholders surplus account provisions.

Sec. 648. Payment of dividends on stock of cooperatives without reducing patronage dividends.

Sec. 649. Special rules for livestock sold on account of weather-related conditions.

Sec. 650. Motor vehicle dealer transitional assistance.

Sec. 651. Expansion of designated renewal community area based on 2000 census

data.

Sec. 652. Reduction of holding period to 12 months for purposes of determining

whether horses are section 1231 assets.

Sec. 653. Blue Ribbon Commission on Comprehensive Tax Reform.

Sec. 654. Treatment of distributions by ESOPs with respect to S corporation

stock.

Sec. 655. Clarification of working capital for reasonably anticipated needs of a

business for purposes of accumulated earnings tax.

Sec. 656. Tax treatment of State ownership of railroad real estate investment

trust.

Sec. 657. Clarification of contribution in aid of construction for water and sewerage disposal utilities.

Sec. 658. Credit for purchase and installation of agricultural water conservation

systems.

Sec. 659. Modification of involuntary conversion rules for businesses affected by

the September 11th terrorist attacks.
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Sec. 660. Repeal of application of below-market loan rules to amounts paid to

certain continuing care facilities.

Sec. 661. Gold, silver, platinum, and palladium treated in the same manner as

stocks and bonds for maximum capital gains rate for individuals.

Sec. 662. Inclusion of primary and secondary medical strategies for children and

adults with sickle cell disease as medical assistance under the

Medicaid program.

Subtitle F—Revenue Provisions

PART I—GENERAL REVENUE PROVISIONS

Sec. 661A. Treasury regulations on foreign tax credit.

Sec. 662B. Freeze of provisions regarding suspension of interest where Secretary

fails to contact taxpayer.

PART II—PENSION AND DEFERRED COMPENSATION

Sec. 671. Treatment of nonqualified deferred compensation plans.

Sec. 672. Prohibition on deferral of gain from the exercise of stock options and

restricted stock gains through deferred compensation arrangements.

Sec. 673. Increase in withholding from supplemental wage payments in excess of

$1,000,000.

Sec. 674. Treatment of sale of stock acquired pursuant to exercise of stock options

to comply with conflict-of-interest requirements.

Sec. 675. Application of basis rules to employer and employee contributions on

behalf of nonresident aliens.

TITLE VII—EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

Subtitle A—Extensions

Sec. 701. Parity in the application of certain limits to mental health benefits.

Sec. 702. Modifications to work opportunity credit and welfare-to-work credit.

Sec. 703. Consolidation of work opportunity credit with welfare-to-work credit.

Sec. 704. Qualified zone academy bonds.

Sec. 705. Cover over of tax on distilled spirits.

Sec. 706. Deduction for corporate donations of scientific property and computer

technology.

Sec. 707. Deduction for certain expenses of school teachers.

Sec. 708. Expensing of environmental remediation costs.

Sec. 709. Expansion of certain New York Liberty Zone benefits.

Sec. 710. Repeal of reduction of deductions for mutual life insurance companies.

Sec. 711. Tax incentives for investment in the District of Columbia.

Sec. 712.Disclosure of tax information to facilitate combined employment tax reporting.

Sec. 713. Allowance of nonrefundable personal credits against regular and minimum tax liability.

Sec. 714. Credit for electricity produced from certain renewable resources.

Sec. 715. Taxable income limit on percentage depletion for oil and natural gas

produced from marginal properties.

Sec. 716. Indian employment tax credit.

Sec. 717. Accelerated depreciation for business property on Indian reservation.

Sec. 718. Disclosure of return information relating to student loans.

Sec. 719. Extension of transfers of excess pension assets to retiree health accounts.
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Sec. 720. Elimination of phaseout of credit for qualified electric vehicles.

Sec. 721. Elimination of phaseout for deduction for clean-fuel vehicle property.

Subtitle B—Revenue Provisions

Sec. 731. Donations of motor vehicles, boats, and airplanes.

Sec. 732. Addition of vaccines against influenza to list of taxable vaccines.

Sec. 733. Treatment of contingent payment convertible debt instruments.

Sec. 734. Modification of continuing levy on payments to Federal venders.

TITLE VIII—ENERGY TAX INCENTIVES

Sec. 800. Short title.

Subtitle A—Renewable Electricity Production Tax Credit

Sec. 801. Extension and expansion of credit for electricity produced from certain

renewable resources.

Subtitle B—Alternative Motor Vehicles and Fuels Incentives

Sec. 811. Alternative motor vehicle credit.

Sec. 812. Modification of credit for qualified electric vehicles.

Sec. 813. Credit for installation of alternative fueling stations.

Sec. 814. Credit for retail sale of alternative fuels as motor vehicle fuel.

Sec. 815. Small ethanol producer credit.

Subtitle C—Conservation and Energy Efficiency Provisions

Sec. 821. Credit for construction of new energy efficient home.

Sec. 822. Credit for energy efficient appliances.

Sec. 823. Credit for residential energy efficient property.

Sec. 824. Credit for business installation of qualified fuel cells and stationary

microturbine power plants.

Sec. 825. Energy efficient commercial buildings deduction.

Sec. 826. Three-year applicable recovery period for depreciation of qualified energy management devices.

Sec. 827. Three-year applicable recovery period for depreciation of qualified water

submetering devices.

Sec. 828. Energy credit for combined heat and power system property.

Sec. 829. Credit for energy efficiency improvements to existing homes.

Subtitle D—Clean Coal Incentives

PART I—CREDIT FOR EMISSION REDUCTIONS AND EFFICIENCY IMPROVEMENTS

IN EXISTING COAL-BASED ELECTRICITY GENERATION FACILITIES

Sec. 831. Credit for production from a qualifying clean coal technology unit.

PART II—INCENTIVES FOR EARLY COMMERCIAL APPLICATIONS OF ADVANCED

CLEAN COAL TECHNOLOGIES

Sec. 832. Credit for investment in qualifying advanced clean coal technology.

Sec. 833. Credit for production from a qualifying advanced clean coal technology

unit.

PART III—TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT

Sec. 834. Treatment of persons not able to use entire credit.
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Subtitle E—Oil and Gas Provisions

Sec. 841. Oil and gas from marginal wells.

Sec. 842. Natural gas gathering lines treated as 7-year property.

Sec. 843. Expensing of capital costs incurred in complying with Environmental

Protection Agency sulfur regulations.

Sec. 844. Credit for production of low sulfur diesel fuel.

Sec. 845. Determination of small refiner exception to oil depletion deduction.

Sec. 846. Marginal production income limit extension.

Sec. 847. Amortization of delay rental payments.

Sec. 848. Amortization of geological and geophysical expenditures.

Sec. 849. Extension and modification of credit for producing fuel from a nonconventional source.

Sec. 850. Natural gas distribution lines treated as 15-year property.

Sec. 851. Credit for Alaska natural gas.

Sec. 852. Certain Alaska natural gas pipeline property treated as 7-year property.

Sec. 853. Extension of enhanced oil recovery credit to certain Alaska facilities.

Sec. 854. Arbitrage rules not to apply to prepayments for natural gas.

Subtitle F—Electric Utility Restructuring Provisions

Sec. 855. Modifications to special rules for nuclear decommissioning costs.

Sec. 856. Treatment of certain income of cooperatives.

Sec. 857. Sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy.

Subtitle G—Volumetric Ethanol Excise Tax Credit

Sec. 860. Short title.

Sec. 861. Alcohol and biodiesel excise tax credit and extension of alcohol fuels income tax credit.

Sec. 862. Biodiesel income tax credit.

Subtitle H—Fuel Fraud Prevention

Sec. 870. Short title.

PART I—AVIATION JET FUEL

Sec. 871. Taxation of aviation-grade kerosene.

Sec. 872. Transfer of certain amounts from the Airport and Airway Trust Fund

to the Highway Trust Fund to reflect highway use of jet fuel.

PART II—DYED FUEL

Sec. 873. Dye injection equipment.

Sec. 874. Elimination of administrative review for taxable use of dyed fuel.

Sec. 875. Penalty on untaxed chemically altered dyed fuel mixtures.

Sec. 876. Termination of dyed diesel use by intercity buses.

PART III—MODIFICATION OF INSPECTION OF RECORDS PROVISIONS

Sec. 877. Authority to inspect on-site records.

Sec. 878. Assessable penalty for refusal of entry.
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PART IV—REGISTRATION AND REPORTING REQUIREMENTS

Sec. 879. Registration of pipeline or vessel operators required for exemption of

bulk transfers to registered terminals or refineries.

Sec. 880. Display of registration.

Sec. 881. Registration of persons within foreign trade zones.

Sec. 882. Penalties for failure to register and failure to report.

Sec. 883. Information reporting for persons claiming certain tax benefits.

PART V—IMPORTS

Sec. 884. Tax at point of entry where importer not registered.

Sec. 885. Reconciliation of on-loaded cargo to entered cargo.

PART VI—MISCELLANEOUS PROVISIONS

Sec. 886. Tax on sale of diesel fuel whether suitable for use or not in a dieselpowered vehicle or train.

Sec. 887. Modification of ultimate vendor refund claims with respect to farming.

Sec. 888. Taxable fuel refunds for certain ultimate vendors.

Sec. 889. Two-party exchanges.

Sec. 890. Modifications of tax on use of certain vehicles.

Sec. 891. Dedication of revenues from certain penalties to the Highway Trust

Fund.

Sec. 892. Nonapplication of export exemption to delivery of fuel to motor vehicles

removed from United States.

PART VII—TOTAL ACCOUNTABILITY

Sec. 893. Total accountability.

Sec. 894. Excise tax reporting.

Sec. 895. Information reporting.

Subtitle I—Mobile Machinery

Sec. 896. Treatment of mobile machinery.

Subtitle J—Additional Provisions

Sec. 897. Study of effectiveness of certain provisions by GAO.

Sec. 898. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund.

Sec. 899. Distributions from publicly traded partnerships treated as qualifying

income of regulated investment companies.

Sec. 899A. Certain business related credits allowed against regular and minimum

tax.

Sec. 899B. Credit for qualifying pollution control equipment.

Sec. 899C. Electric transmission property treated as 15-year property.

TITLE IX—HOMESTEAD PRESERVATION ACT

Sec. 901. Short Title.

Sec. 902. Mortgage payment assistance.

TITLE X—OFFICE OF FEDERAL PROCUREMENT POLICY ACT

IMPROVEMENTS

Sec. 1001. Report on acquisitions of goods from foreign sources.
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TITLE XI—PROVISIONS RELATING TO TOBACCO

Subtitle A—Family Smoking Prevention and Tobacco Control

Sec. 1101. Short title.

Sec. 1102. Findings.

Sec. 1103. Purpose.

Sec. 1104. Scope and effect.

Sec. 1105. Severability.

CHAPTER 1—AUTHORITY OF THE FOOD AND DRUG

ADMINISTRATION

Sec. 1111. Amendment of Federal Food, Drug, and Cosmetic Act.

Sec. 1112. Interim final rule.

Sec. 1113. Conforming and other amendments to general provisions.

CHAPTER 2—TOBACCO PRODUCT WARNINGS; CONSTITUENT AND

SMOKE CONSTITUENT DISCLOSURE

Sec. 1121. Cigarette label and advertising warnings.

Sec. 1122. Authority to revise cigarette warning label statements.

Sec. 1123. State regulation of cigarette advertising and promotion.

Sec. 1124. Smokeless tobacco labels and advertising warnings.

Sec. 1125. Authority to revise smokeless tobacco product warning label statements.

Sec. 1126. Tar, nicotine, and other smoke constituent disclosure to the public.

CHAPTER 3—PREVENTION OF ILLICIT TRADE IN TOBACCO

PRODUCTS

Sec. 1131. Labeling, recordkeeping, records inspection.

Sec. 1132. Study and report.

Subtitle B—Tobacco Market Transition

Sec. 1140. Short title of subtitle.

CHAPTER 1—TERMINATION OF CURRENT TOBACCO PROGRAMS

Sec. 1141. Termination of Tobacco Production Adjustment Programs.

Sec. 1142. Termination of Tobacco Price Support Program.

Sec. 1143. Liability.

CHAPTER 2—TOBACCO ASSISTANCE

Sec. 1151. Tobacco assistance.

Sec. 1152. Tobacco insurance research and development.

Sec. 1153. Conforming amendments.

CHAPTER 3—IMPLEMENTATION

Sec. 1161. Regulations.

Sec. 1162. Effective Date.
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1 TITLE I—PROVISIONS RELATING

2 TO REPEAL OF EXCLUSION

3 FOR EXTRATERRITORIAL IN4 COME

5 SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL

6 INCOME.

7 (a) IN GENERAL.—Section 114 is hereby repealed.

8 (b) CONFORMING AMENDMENTS.—

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

10 chapter 1 (relating to qualifying foreign trade in11 come) is hereby repealed.

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

13 amended by striking the item relating to subpart E.

14 (2) The table of sections for part III of sub15 chapter B of chapter 1 is amended by striking the

16 item relating to section 114.

17 (3) The second sentence of section 56(g)(4)(B)(i)

18 is amended by striking ‘‘114 or’’.

19 (4) Section 275(a) is amended—

20 (A) by inserting ‘‘or’’ at the end of para21 graph (4)(A), by striking ‘‘or’’ at the end of

22 paragraph (4)(B) and inserting a period, and by

23 striking subparagraph (C), and

24 (B) by striking the last sentence.
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1 (5) Paragraph (3) of section 864(e) is

2 amended—

3 (A) by striking:

4 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO AC5 COUNT.—

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

7 inserting:

8 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO AC9 COUNT.—For purposes of’’, and

10 (B) by striking subparagraph (B).

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

12 164(a),’’ and inserting ‘‘164(a)’’.

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

14 ‘‘941(a)(5),’’.

15 (c) EFFECTIVE DATE.—

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

17 this section shall apply to transactions occurring after

18 the date of the enactment of this Act.

19 (2) BINDING CONTRACTS.—The amendments

20 made by this section shall not apply to any trans21 action in the ordinary course of a trade or business

22 which occurs pursuant to a binding contract—

23 (A) which is between the taxpayer and a

24 person who is not a related person (as defined in

25 section 943(b)(3) of the Internal Revenue Code of
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1 1986, as in effect on the day before the date of

2 the enactment of this Act), and

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

4 2003, and at all times thereafter.

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

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

7 that elected to be treated as a domestic corporation

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

9 1986 (as in effect on the day before the date of the en10 actment of this Act)—

11 (A) the corporation may, during the 1-year

12 period beginning on the date of the enactment of

13 this Act, revoke such election, effective as of such

14 date of enactment, and

15 (B) if the corporation does revoke such

16 election—

17 (i) such corporation shall be treated as

18 a domestic corporation transferring (as of

19 such date of enactment) all of its property

20 to a foreign corporation in connection with

21 an exchange described in section 354 of such

22 Code, and

23 (ii) no gain or loss shall be recognized

24 on such transfer.
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1 (2) EXCEPTION.—Subparagraph (B)(ii) of para2 graph (1) shall not apply to gain on any asset held

3 by the revoking corporation if—

4 (A) the basis of such asset is determined in

5 whole or in part by reference to the basis of such

6 asset in the hands of the person from whom the

7 revoking corporation acquired such asset,

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

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

10 such Code) occurring on or after the 1st day on

11 which its election under section 943(e) of such

12 Code was effective, and

13 (C) a principal purpose of the acquisition

14 was the reduction or avoidance of tax (other

15 than a reduction in tax under section 114 of

16 such Code, as in effect on the day before the date

17 of the enactment of this Act).

18 (e) GENERAL TRANSITION.—

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

20 ending after the date of the enactment of this Act and

21 beginning before January 1, 2007, for purposes of

22 chapter 1 of such Code, a current FSC/ETI bene23 ficiary shall be allowed a deduction equal to the tran24 sition amount determined under this subsection with

25 respect to such beneficiary for such year.
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1 (2) CURRENT FSC/ETI BENEFICIARY.—The term

2 ‘‘current FSC/ETI beneficiary’’ means any corpora3 tion which entered into one or more transactions dur4 ing its taxable year beginning in calendar year 2002

5 with respect to which FSC/ETI benefits were allow6 able.

7 (3) TRANSITION AMOUNT.—For purposes of this

8 subsection—

9 (A) IN GENERAL.—The transition amount

10 applicable to any current FSC/ETI beneficiary

11 for any taxable year is the phaseout percentage

12 of the base period amount.

13 (B) PHASEOUT PERCENTAGE.—

14 (i) IN GENERAL.—In the case of a tax15 payer using the calendar year as its taxable

16 year, the phaseout percentage shall be deter17 mined under the following table:

The phaseout

Years: percentage is:

2005 .......................... 80

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

18 (ii) SPECIAL RULE FOR 2004.—The

19 phaseout percentage for 2004 shall be the

20 amount that bears the same ratio to 80 per21 cent as the number of days after the date of

22 the enactment of this Act bears to 366.
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1 (iii) SPECIAL RULE FOR FISCAL YEAR

2 TAXPAYERS.—In the case of a taxpayer not

3 using the calendar year as its taxable year,

4 the phaseout percentage is the weighted av5 erage of the phaseout percentages deter6 mined under the preceding provisions of

7 this paragraph with respect to calendar

8 years any portion of which is included in

9 the taxpayer’s taxable year. The weighted

10 average shall be determined on the basis of

11 the respective portions of the taxable year in

12 each calendar year.

13 (C) SHORT TAXABLE YEAR.—The Secretary

14 shall prescribe guidance for the computation of

15 the transition amount in the case of a short tax16 able year.

17 (4) BASE PERIOD AMOUNT.—For purposes of this

18 subsection, the base period amount is the average

19 FSC/ETI benefit for the taxpayer’s taxable years be20 ginning in calendar years 2000, 2001, and 2002.

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

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

23 (A) amounts excludable from gross income

24 under section 114 of such Code, and
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1 (B) the exempt foreign trade income of re2 lated foreign sales corporations from property

3 acquired from the taxpayer (determined without

4 regard to section 923(a)(5) of such Code (relating

5 to special rule for military property), as in effect

6 on the day before the date of the enactment of the

7 FSC Repeal and Extraterritorial Income Exclu8 sion Act of 2000).

9 In determining the FSC/ETI benefit there shall be ex10 cluded any amount attributable to a transaction with

11 respect to which the taxpayer is the lessor unless the

12 leased property was manufactured or produced in

13 whole or in significant part by the taxpayer.

14 (6) SPECIAL RULE FOR AGRICULTURAL AND

15 HORTICULTURAL COOPERATIVES.—Determinations

16 under this subsection with respect to an organization

17 described in section 943(g)(1) of such Code, as in ef18 fect on the day before the date of the enactment of this

19 Act, shall be made at the cooperative level and the

20 purposes of this subsection shall be carried out in a

21 manner similar to section 199(h)(2) of such Code, as

22 added by this Act. Such determinations shall be in

23 accordance with such requirements and procedures as

24 the Secretary may prescribe.
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1 (7) CERTAIN RULES TO APPLY.—Rules similar to

2 the rules of section 41(f) of such Code shall apply for

3 purposes of this subsection.

4 (8) COORDINATION WITH BINDING CONTRACT

5 RULE.—The deduction determined under paragraph

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

7 phaseout percentage of any FSC/ETI benefit realized

8 for the taxable year by reason of subsection (c)(2) or

9 section 5(c)(1)(B) of the FSC Repeal and

10 Extraterritorial Income Exclusion Act of 2000, except

11 that for purposes of this paragraph the phaseout per12 centage for 2004 shall be treated as being equal to 100

13 percent.

14 (9) SPECIAL RULE FOR TAXABLE YEAR WHICH

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

16 taxable year which includes the date of the enactment

17 of this Act, the deduction allowed under this sub18 section to any current FSC/ETI beneficiary shall in

19 no event exceed—

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

21 period amount for calendar year 2004, reduced

22 by

23 (B) the FSC/ETI benefit of such beneficiary

24 with respect to transactions occurring during the
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1 portion of the taxable year ending on the date of

2 the enactment of this Act.

3 SEC. 102. DEDUCTION RELATING TO INCOME ATTRIB4 UTABLE TO UNITED STATES PRODUCTION AC5 TIVITIES.

6 (a) IN GENERAL.—Part VI of subchapter B of chapter

7 1 (relating to itemized deductions for individuals and cor8 porations) is amended by adding at the end the following

9 new section:

10 ‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC11 TION ACTIVITIES.

12 ‘‘(a) ALLOWANCE OF DEDUCTION.—

13 ‘‘(1) IN GENERAL.—There shall be allowed as a

14 deduction an amount equal to 9 percent of the quali15 fied production activities income of the taxpayer for

16 the taxable year.

17 ‘‘(2) PHASEIN.—In the case of taxable years be18 ginning in 2004, 2005, 2006, 2007, or 2008, para19 graph (1) shall be applied by substituting for the per20 centage contained therein the transition percentage

21 determined under the following table:

‘‘Taxable years The transition

beginning in: percentage is:

2004, 2005, or 2006 5

2007 .......................... 6

2008 .......................... 7.

22 ‘‘(b) DEDUCTION LIMITED TO WAGES PAID.—
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1 ‘‘(1) IN GENERAL.—The amount of the deduction

2 allowable under subsection (a) for any taxable year

3 shall not exceed 50 percent of the W–2 wages of the

4 employer for the taxable year.

5 ‘‘(2) W–2 WAGES.—For purposes of paragraph

6 (1), the term ‘W–2 wages’ means the sum of the aggre7 gate amounts the taxpayer is required to include on

8 statements under paragraphs (3) and (8) of section

9 6051(a) with respect to employment of employees of

10 the taxpayer during the taxpayer’s taxable year.

11 ‘‘(3) SPECIAL RULES.—

12 ‘‘(A) PASS-THRU ENTITIES.—In the case of

13 an S corporation, partnership, estate or trust, or

14 other pass-thru entity, the limitation under this

15 subsection shall apply at the entity level. The

16 preceding sentence shall not apply to any entity

17 all of the ownership interests of which are held

18 directly or indirectly by members of the same ex19 panded affiliated group.

20 ‘‘(B) ACQUISITIONS AND DISPOSITIONS.—

21 The Secretary shall provide for the application

22 of this subsection in cases where the taxpayer ac23 quires, or disposes of, the major portion of a

24 trade or business or the major portion of a sepa-
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1 rate unit of a trade or business during the tax2 able year.

3 ‘‘(c) QUALIFIED PRODUCTION ACTIVITIES INCOME.—

4 For purposes of this section—

5 ‘‘(1) IN GENERAL.—The term ‘qualified produc6 tion activities income’ means an amount equal to the

7 portion of the modified taxable income of the taxpayer

8 which is attributable to domestic production activi9 ties.

10 ‘‘(2) REDUCTION FOR TAXABLE YEARS BEGIN11 NING BEFORE 2013.—The amount otherwise deter12 mined under paragraph (1) (the ‘unreduced amount’)

13 shall not exceed—

14 ‘‘(A) in the case of taxable years beginning

15 before 2010, the product of the unreduced

16 amount and the domestic/worldwide fraction,

17 and

18 ‘‘(B) in the case of taxable years beginning

19 in 2010, 2011, or 2012, an amount equal to the

20 sum of—

21 ‘‘(i) the product of the unreduced

22 amount and the domestic/worldwide frac23 tion, plus

24 ‘‘(ii) the applicable percentage of an

25 amount equal to the unreduced amount
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1 minus the amount determined under clause

2 (i).

3 For purposes of subparagraph (B)(ii), the applicable

4 percentage is 25 percent for 2010, 50 percent for

5 2011, and 75 percent for 2012.

6 ‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE TO

7 DOMESTIC PRODUCTION ACTIVITIES.—For purposes of this

8 section—

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

10 taxable income which is attributable to domestic pro11 duction activities is so much of the modified taxable

12 income for the taxable year as does not exceed—

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

14 gross receipts for such taxable year, reduced by

15 ‘‘(B) the sum of—

16 ‘‘(i) the costs of goods sold that are al17 locable to such receipts,

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

19 losses directly allocable to such receipts, and

20 ‘‘(iii) a proper share of other deduc21 tions, expenses, and losses that are not di22 rectly allocable to such receipts or another

23 class of income.

24 ‘‘(2) ALLOCATION METHOD.—The Secretary shall

25 prescribe rules for the proper allocation of items of in-
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1 come, deduction, expense, and loss for purposes of de2 termining income attributable to domestic production

3 activities.

4 ‘‘(3) SPECIAL RULES FOR DETERMINING

5 COSTS.—

6 ‘‘(A) IN GENERAL.—For purposes of deter7 mining costs under clause (i) of paragraph

8 (1)(B), any item or service brought into the

9 United States shall be treated as acquired by

10 purchase, and its cost shall be treated as not less

11 than its fair market value immediately after it

12 entered the United States. A similar rule shall

13 apply in determining the adjusted basis of leased

14 or rented property where the lease or rental gives

15 rise to domestic production gross receipts.

16 ‘‘(B) EXPORTS FOR FURTHER MANUFAC17 TURE.—In the case of any property described in

18 subparagraph (A) that had been exported by the

19 taxpayer for further manufacture, the increase in

20 cost or adjusted basis under subparagraph (A)

21 shall not exceed the difference between the value

22 of the property when exported and the value of

23 the property when brought back into the United

24 States after the further manufacture.
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1 ‘‘(4) MODIFIED TAXABLE INCOME.—The term

2 ‘modified taxable income’ means taxable income com3 puted without regard to the deduction allowable under

4 this section.

5 ‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.—For

6 purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘domestic produc8 tion gross receipts’ means the gross receipts of the tax9 payer which are derived from—

10 ‘‘(A) any sale, exchange, or other disposi11 tion of, or

12 ‘‘(B) any lease, rental, or license of,

13 qualifying production property which was manufac14 tured, produced, grown, or extracted in whole or in

15 significant part by the taxpayer within the United

16 States.

17 ‘‘(2) SPECIAL RULES FOR CERTAIN PROPERTY.—

18 In the case of any qualifying production property de19 scribed in subsection (f)(1)(C)—

20 ‘‘(A) such property shall be treated for pur21 poses of paragraph (1) as produced in signifi22 cant part by the taxpayer within the United

23 States if more than 50 percent of the aggregate

24 development and production costs are incurred

25 by the taxpayer within the United States, and
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1 ‘‘(B) if a taxpayer acquires such property

2 before such property begins to generate substan3 tial gross receipts, any development or produc4 tion costs incurred before the acquisition shall be

5 treated as incurred by the taxpayer for purposes

6 of subparagraph (A) and paragraph (1).

7 ‘‘(3) GROSS RECEIPTS FROM USE OF FILMS AND

8 VIDEO TAPE.—In the case of any qualifying produc9 tion property which is property described in section

10 168(f)(3) produced in whole or in significant part by

11 the taxpayer within the United States (determined

12 after application of paragraph (2)), domestic produc13 tion gross receipts shall include gross receipts derived

14 by the taxpayer from the use of the property by the

15 taxpayer.

16 ‘‘(f) QUALIFYING PRODUCTION PROPERTY.—For pur17 poses of this section—

18 ‘‘(1) IN GENERAL.—Except as otherwise provided

19 in this paragraph, the term ‘qualifying production

20 property’ means—

21 ‘‘(A) any tangible personal property,

22 ‘‘(B) any computer software, and

23 ‘‘(C) any property described in section

24 168(f) (3) or (4), including any underlying

25 copyright or trademark.
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1 ‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC2 TION PROPERTY.—The term ‘qualifying production

3 property’ shall not include—

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

5 leased, or licensed by the taxpayer as an integral

6 part of the provision of services,

7 ‘‘(B) oil or gas,

8 ‘‘(C) electricity,

9 ‘‘(D) water supplied by pipeline to the con10 sumer,

11 ‘‘(E) utility services, or

12 ‘‘(F) any film, tape, recording, book, maga13 zine, newspaper, or similar property the market

14 for which is primarily topical or otherwise essen15 tially transitory in nature.

16 Subparagraph (F) shall not apply to property described in

17 section 168(f)(3) to the extent of the gross receipts from the

18 use of the property to which subsection (e)(3) applies (deter19 mined after application of this sentence).

20 ‘‘(g) DOMESTIC/WORLDWIDE FRACTION.—For pur21 poses of this section—

22 ‘‘(1) IN GENERAL.—The term ‘domestic/world23 wide fraction’ means a fraction (not greater than

24 1)—
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1 ‘‘(A) the numerator of which is the value of

2 the domestic production of the taxpayer, and

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

4 of the worldwide production of the taxpayer.

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

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

7 of—

8 ‘‘(A) the domestic production gross receipts,

9 over

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

11 to such receipts that are deductible under this

12 chapter for the taxable year.

13 ‘‘(3) PURCHASED INPUTS.—

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

15 any of the following items acquired by purchase:

16 ‘‘(i) Services (other than services of em17 ployees) used in manufacture, production,

18 growth, or extraction activities.

19 ‘‘(ii) Items consumed in connection

20 with such activities.

21 ‘‘(iii) Items incorporated as part of the

22 property being manufactured, produced,

23 grown, or extracted.
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1 ‘‘(B) SPECIAL RULE.—Rules similar to the

2 rules of subsection (d)(3) shall apply for pur3 poses of this subsection.

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

5 ‘‘(A) IN GENERAL.—The value of worldwide

6 production shall be determined under the prin7 ciples of paragraph (2), except that—

8 ‘‘(i) worldwide production gross re9 ceipts shall be taken into account, and

10 ‘‘(ii) paragraph (3)(B) shall not apply.

11 ‘‘(B) WORLDWIDE PRODUCTION GROSS RE12 CEIPTS.—The worldwide production gross re13 ceipts is the amount that would be determined

14 under subsection (e) if such subsection were ap15 plied without any reference to the United States.

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

17 ‘‘(1) APPLICATION OF SECTION TO PASS-THRU

18 ENTITIES.—In the case of an S corporation, partner19 ship, estate or trust, or other pass-thru entity—

20 ‘‘(A) subject to the provisions of paragraph

21 (2) and subsection (b)(3)(A), this section shall be

22 applied at the shareholder, partner, or similar

23 level, and
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1 ‘‘(B) the Secretary shall prescribe rules for

2 the application of this section, including rules

3 relating to—

4 ‘‘(i) restrictions on the allocation of the

5 deduction to taxpayers at the partner or

6 similar level, and

7 ‘‘(ii) additional reporting require8 ments.

9 ‘‘(2) PATRONS OF AGRICULTURAL AND HORTI10 CULTURAL COOPERATIVES.—

11 ‘‘(A) IN GENERAL.—If any amount de12 scribed in paragraph (1) or (3) of section 1385

13 (a)—

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

15 organization to which part I of subchapter

16 T applies which is engaged—

17 ‘‘(I) in the manufacturing, pro18 duction, growth, or extraction in whole

19 or significant part of any agricultural

20 or horticultural product, or

21 ‘‘(II) in the marketing of agricul22 tural or horticultural products, and

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

24 qualified production activities income of the

25 organization which, but for this paragraph,
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1 would be deductible under subsection (a) by

2 the organization and is designated as such

3 by the organization in a written notice

4 mailed to its patrons during the payment

5 period described in section 1382(d),

6 then such person shall be allowed a deduction

7 under subsection (a) with respect to such

8 amount. The taxable income of the organization

9 shall not be reduced under section 1382 by rea10 son of any amount to which the preceding sen11 tence applies.

12 ‘‘(B) SPECIAL RULES.—For purposes of ap13 plying subparagraph (A), in determining the

14 qualified production activities income of the or15 ganization under this section—

16 ‘‘(i) there shall not be taken into ac17 count in computing the organization’s

18 modified taxable income any deduction al19 lowable under subsection (b) or (c) of sec20 tion 1382 (relating to patronage dividends,

21 per-unit retain allocations, and nonpatron22 age distributions), and

23 ‘‘(ii) in the case of an organization de24 scribed in subparagraph (A)(i)(II), the or25 ganization shall be treated as having manu-
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1 factured, produced, grown, or extracted in

2 whole or significant part any qualifying

3 production property marketed by the orga4 nization which its patrons have so manu5 factured, produced, grown, or extracted.

6 ‘‘(3) SPECIAL RULE FOR AFFILIATED GROUPS.—

7 ‘‘(A) IN GENERAL.—All members of an ex8 panded affiliated group shall be treated as a sin9 gle corporation for purposes of this section.

10 ‘‘(B) EXPANDED AFFILIATED GROUP.—The

11 term ‘expanded affiliated group’ means an affili12 ated group as defined in section 1504(a),

13 determined—

14 ‘‘(i) by substituting ‘50 percent’ for ‘80

15 percent’ each place it appears, and

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

17 and (4) of section 1504(b).

18 For purposes of determining the domestic/world19 wide fraction under subsection (g), clause (ii)

20 shall be applied by also disregarding paragraphs

21 (3) and (8) of section 1504(b).

22 ‘‘(4) COORDINATION WITH MINIMUM TAX.—The

23 deduction under this section shall be allowed for pur24 poses of the tax imposed by section 55; except that for

25 purposes of section 55, alternative minimum taxable
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1 income shall be taken into account in determining the

2 deduction under this section.

3 ‘‘(5) ORDERING RULE.—The amount of any

4 other deduction allowable under this chapter shall be

5 determined as if this section had not been enacted.

6 ‘‘(6) TRADE OR BUSINESS REQUIREMENT.—This

7 section shall be applied by only taking into account

8 items which are attributable to the actual conduct of

9 a trade or business.

10 ‘‘(7) POSSESSIONS, ETC.—

11 ‘‘(A) IN GENERAL.—For purposes of sub12 sections (d) and (e), the term ‘United States’ in13 cludes the Commonwealth of Puerto Rico, Guam,

14 American Samoa, the Commonwealth of the

15 Northern Mariana Islands, and the Virgin Is16 lands of the United States.

17 ‘‘(B) SPECIAL RULES FOR APPLYING WAGE

18 LIMITATION.—For purposes of applying the limi19 tation under subsection (b) for any taxable

20 year—

21 ‘‘(i) the determination of W–2 wages of

22 a taxpayer shall be made without regard to

23 any exclusion under section 3401(a)(8) for

24 remuneration paid for services performed in
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1 a jurisdiction described in subparagraph

2 (A), and

3 ‘‘(ii) in determining the amount of

4 any credit allowable under section 30A or

5 936 for the taxable year, there shall not be

6 taken into account any wages which are

7 taken into account in applying such limita8 tion.

9 ‘‘(8) COORDINATION WITH TRANSITION RULES.—

10 For purposes of this section—

11 ‘‘(A) domestic production gross receipts

12 shall not include gross receipts from any trans13 action if the binding contract transition relief of

14 section 101(c)(2) of the Jumpstart Our Business

15 Strength (JOBS) Act applies to such trans16 action, and

17 ‘‘(B) any deduction allowed under section

18 101(e) of such Act shall be disregarded in deter19 mining the portion of the taxable income which

20 is attributable to domestic production gross re21 ceipts.

22 ‘‘(9) SEPARATE APPLICATION TO FILMS AND VID23 EOTAPE.—

24 ‘‘(A) IN GENERAL.—In the case of quali25 fying production property described in section
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1 168(f)(3), the deduction under this section shall

2 be determined separately with respect to quali3 fied production activities income of the taxpayer

4 allocable to each of the following markets with

5 respect to such property:

6 ‘‘(i) Theatrical.

7 ‘‘(ii) Broadcast television (including

8 cable, foreign, pay-per-view, and syndica9 tion).

10 ‘‘(iii) Home video.

11 ‘‘(B) RULES FOR SEPARATE DETERMINA12 TION.—Except as provided in subparagraph

13 (C)—

14 ‘‘(i) any computation required to de15 termine the amount of the deduction with

16 respect to any of the markets described in

17 subparagraph (A) shall be made by only

18 taking into account items properly allocable

19 to such market, including the computation

20 of qualified production activities income,

21 modified taxable income, and the domestic/

22 worldwide fraction, and

23 ‘‘(ii) such items shall not be taken into

24 account in determining the deduction with

25 respect to either of the other 2 markets or
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1 with respect to qualified production activi2 ties income of the taxpayer not allocable to

3 any of such markets.

4 ‘‘(C) WAGE LIMITATION.—This paragraph

5 shall not apply for purposes of subsection (b)

6 and subsection (b) shall be applied after the ap7 plication of this paragraph.’’

8 (b) MINIMUM TAX.—Section 56(g)(4)(C) (relating to

9 disallowance of items not deductible in computing earnings

10 and profits) is amended by adding at the end the following

11 new clause:

12 ‘‘(v) DEDUCTION FOR DOMESTIC PRO13 DUCTION.—Clause (i) shall not apply to

14 any amount allowable as a deduction under

15 section 199.’’.

16 (c) CLERICAL AMENDMENT.—The table of sections for

17 part VI of subchapter B of chapter 1 is amended by adding

18 at the end the following new item:

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

19 (d) EFFECTIVE DATE.—

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

21 this section shall apply to taxable years ending after

22 the date of the enactment of this Act.

23 (2) APPLICATION OF SECTION 15.—Section 15 of

24 the Internal Revenue Code of 1986 shall apply to the
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1 amendments made by this section as if they were

2 changes in a rate of tax.

3 SEC. 103. DEDUCTION FOR UNITED STATES PRODUCTION

4 ACTIVITIES INCLUDES INCOME RELATED TO

5 CERTAIN ARCHITECTURAL AND ENGINEER6 ING SERVICES.

7 (a) IN GENERAL.—Paragraph (1) of section 199(e) (re8 lating to domestic production gross receipts), as added by

9 section 102, is amended to read as follows:

10 ‘‘(1) IN GENERAL.—

11 ‘‘(A) RECEIPTS FROM QUALIFYING PRODUC12 TION PROPERTY.—The term ‘domestic production

13 gross receipts’ means the gross receipts of the tax14 payer which are derived from—

15 ‘‘(i) any sale, exchange, or other dis16 position of, or

17 ‘‘(ii) any lease, rental, or license of,

18 qualifying production property which was man19 ufactured, produced, grown, or extracted in

20 whole or in significant part by the taxpayer

21 within the United States.

22 ‘‘(B) RECEIPTS FROM CERTAIN SERVICES.—

23 ‘‘(i) IN GENERAL.—Such term also in24 cludes the applicable percentage of gross re25 ceipts of the taxpayer which are derived
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1 from any engineering or architectural serv2 ices performed in the United States for con3 struction projects in the United States.

4 ‘‘(ii) APPLICABLE PERCENTAGE.—For

5 purposes of clause (i), the applicable per6 centage shall be determined under the fol7 lowing table:

‘‘In the case of any taxable

year beginning in—

The applicable percentage is—

2004, 2005, 2006, 2007, or 2008 .................................................. 25

2009, 2010, 2011, or 2012 ............................................................. 50

2013 or thereafter .......................................................................... 100.

8 (b) LIMITATION OF EMPLOYER DEDUCTION FOR CER9 TAIN ENTERTAINMENT EXPENSES WITH RESPECT TO COV10 ERED EMPLOYEES.—Paragraph (2) of section 274(e) (relat11 ing to expenses treated as compensation) is amended to read

12 as follows:

13 ‘‘(2) EXPENSES TREATED AS COMPENSATION.—

14 Expenses for goods, services, and facilities—

15 ‘‘(A) in the case of a covered employee

16 (within the meaning of section 162(m)(3)), to the

17 extent that the expenses do not exceed the amount

18 of the expenses treated by the taxpayer, with re19 spect to the recipient of the entertainment,

20 amusement, or recreation, as compensation to

21 such covered employee on the taxpayer’s return

22 of tax under this chapter and as wages to such
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1 covered employee for purposes of chapter 24 (re2 lating to withholding of income tax at source on

3 wages), and

4 ‘‘(B) in the case of any other employee, to

5 the extent that the expenses are treated by the

6 taxpayer, with respect to the recipient of the en7 tertainment, amusement, or recreation, as com8 pensation to such employee on the taxpayer’s re9 turn of tax under this chapter and as wages to

10 such employee for purposes of chapter 24 (relat11 ing to withholding of income tax at source on

12 wages).’’.

13 (c) EFFECTIVE DATES.—

14 (1) SUBSECTION (a).—The amendment made by

15 subsection (a) shall apply to taxable years ending

16 after the date of the enactment of this Act, and section

17 15 of the Internal Revenue Code of 1986 shall apply

18 to the amendment made by this subsection as if it

19 were a change in the rate of tax.

20 (2) SUBSECTION (b).—The amendment made by

21 subsection (b) shall apply to expenses incurred after

22 the date of the enactment of this Act and before Janu23 ary 1, 2006.
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1 TITLE II—INTERNATIONAL TAX

2 PROVISIONS

3 Subtitle A—International Tax

4 Reform

5 SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-

6 YEAR FOREIGN TAX CREDIT CARRYBACK.

7 (a) GENERAL RULE.—Section 904(c) (relating to

8 carryback and carryover of excess tax paid) is amended—

9 (1) by striking ‘‘in the second preceding taxable

10 year,’’, and

11 (2) by striking ‘‘, and in the first, second, third,

12 fourth, or fifth’’ and inserting ‘‘and in any of the first

13 20’’.

14 (b) EXCESS EXTRACTION TAXES.—Paragraph (1) of

15 section 907(f) is amended—

16 (1) by striking ‘‘in the second preceding taxable

17 year,’’,

18 (2) by striking ‘‘, and in the first, second, third,

19 fourth, or fifth’’ and inserting ‘‘and in any of the first

20 20’’, and

21 (3) by striking the last sentence.

22 (c) EFFECTIVE DATE.—

23 (1) CARRYBACK.—The amendments made by sub24 sections (a)(1) and (b)(1) shall apply to excess foreign
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1 taxes arising in taxable years beginning after the date

2 of the enactment of this Act.

3 (2) CARRYOVER.—The amendments made by sub4 sections (a)(2) and (b)(2) shall apply to excess foreign

5 taxes which (without regard to the amendments made

6 by this section) may be carried to any taxable year

7 ending after the date of the enactment of this Act.

8 SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS

9 FROM NONCONTROLLED SECTION 902 COR10 PORATIONS.

11 (a) IN GENERAL.—Section 904(d)(4) (relating to look12 thru rules apply to dividends from noncontrolled section

13 902 corporations) is amended to read as follows:

14 ‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM

15 NONCONTROLLED SECTION 902 CORPORATIONS.—

16 ‘‘(A) IN GENERAL.—For purposes of this

17 subsection, any dividend from a noncontrolled

18 section 902 corporation with respect to the tax19 payer shall be treated as income described in a

20 subparagraph of paragraph (1) in proportion to

21 the ratio of—

22 ‘‘(i) the portion of earnings and profits

23 attributable to income described in such

24 subparagraph, to
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1 ‘‘(ii) the total amount of earnings and

2 profits.

3 ‘‘(B) EARNINGS AND PROFITS OF CON4 TROLLED FOREIGN CORPORATIONS.—In the case

5 of any distribution from a controlled foreign cor6 poration to a United States shareholder, rules

7 similar to the rules of subparagraph (A) shall

8 apply in determining the extent to which earn9 ings and profits of the controlled foreign corpora10 tion which are attributable to dividends received

11 from a noncontrolled section 902 corporation

12 may be treated as income in a separate category.

13 ‘‘(C) SPECIAL RULES.—For purposes of this

14 paragraph—

15 ‘‘(i) EARNINGS AND PROFITS.—

16 ‘‘(I) IN GENERAL.—The rules of

17 section 316 shall apply.

18 ‘‘(II) REGULATIONS.—The Sec19 retary may prescribe regulations re20 garding the treatment of distributions

21 out of earnings and profits for periods

22 before the taxpayer’s acquisition of the

23 stock to which the distributions relate.

24 ‘‘(ii) INADEQUATE SUBSTANTIATION.—

25 If the Secretary determines that the proper
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1 subparagraph of paragraph (1) in which a

2 dividend is described has not been substan3 tiated, such dividend shall be treated as in4 come described in paragraph (1)(A).

5 ‘‘(iii) COORDINATION WITH HIGH6 TAXED INCOME PROVISIONS.—Rules similar

7 to the rules of paragraph (3)(F) shall apply

8 for purposes of this paragraph.

9 ‘‘(iv) LOOK-THRU WITH RESPECT TO

10 CARRYOVER OF CREDIT.—Rules similar to

11 subparagraph (A) also shall apply to any

12 carryforward under subsection (c) from a

13 taxable year beginning before January 1,

14 2003, of tax allocable to a dividend from a

15 noncontrolled section 902 corporation with

16 respect to the taxpayer. The Secretary may

17 by regulations provide for the allocation of

18 any carryback of tax allocable to a dividend

19 from a noncontrolled section 902 corpora20 tion to such a taxable year for purposes of

21 allocating such dividend among the separate

22 categories in effect for such taxable year.’’.

23 (b) CONFORMING AMENDMENTS.—

24 (1) Subparagraph (E) of section 904(d)(1) is

25 hereby repealed.
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1 (2) Section 904(d)(2)(C)(iii) is amended by add2 ing ‘‘and’’ at the end of subclause (I), by striking sub3 clause (II), and by redesignating subclause (III) as

4 subclause (II).

5 (3) The last sentence of section 904(d)(2)(D) is

6 amended to read as follows: ‘‘Such term does not in7 clude any financial services income.’’.

8 (4) Section 904(d)(2)(E) is amended—

9 (A) by inserting ‘‘or (4)’’ after ‘‘paragraph

10 (3)’’ in clause (i), and

11 (B) by striking clauses (ii) and (iv) and by

12 redesignating clause (iii) as clause (ii).

13 (5) Section 904(d)(3)(F) is amended by striking

14 ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.

15 (6) Section 864(d)(5)(A)(i) is amended by strik16 ing ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.

17 (c) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to taxable years beginning after Decem19 ber 31, 2002.

20 SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MIN21 IMUM TAX.

22 (a) IN GENERAL.—

23 (1) Subsection (a) of section 59 is amended by

24 striking paragraph (2) and by redesignating para-
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1 graphs (3) and (4) as paragraphs (2) and (3), respec2 tively.

3 (2) Section 53(d)(1)(B)(i)(II) is amended by

4 striking ‘‘and if section 59(a)(2) did not apply’’.

5 (b) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to taxable years beginning after Decem7 ber 31, 2004.

8 SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC

9 LOSS.

10 (a) GENERAL RULE.—Section 904 is amended by re11 designating subsections (g), (h), (i), (j), and (k) as sub12 sections (h), (i), (j), (k), and (l) respectively, and by insert13 ing after subsection (f) the following new subsection:

14 ‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC

15 LOSS.—

16 ‘‘(1) GENERAL RULE.—For purposes of this sub17 part and section 936, in the case of any taxpayer who

18 sustains an overall domestic loss for any taxable year

19 beginning after December 31, 2006, that portion of

20 the taxpayer’s taxable income from sources within the

21 United States for each succeeding taxable year which

22 is equal to the lesser of—

23 ‘‘(A) the amount of such loss (to the extent

24 not used under this paragraph in prior taxable

25 years), or
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1 ‘‘(B) 50 percent of the taxpayer’s taxable

2 income from sources within the United States for

3 such succeeding taxable year,

4 shall be treated as income from sources without the

5 United States (and not as income from sources within

6 the United States).

7 ‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For

8 purposes of this subsection—

9 ‘‘(A) IN GENERAL.—The term ‘overall do10 mestic loss’ means any domestic loss to the extent

11 such loss offsets taxable income from sources

12 without the United States for the taxable year or

13 for any preceding taxable year by reason of a

14 carryback. For purposes of the preceding sen15 tence, the term ‘domestic loss’ means the amount

16 by which the gross income for the taxable year

17 from sources within the United States is exceeded

18 by the sum of the deductions properly appor19 tioned or allocated thereto (determined without

20 regard to any carryback from a subsequent tax21 able year).

22 ‘‘(B) TAXPAYER MUST HAVE ELECTED FOR23 EIGN TAX CREDIT FOR YEAR OF LOSS.—The term

24 ‘overall domestic loss’ shall not include any loss
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1 for any taxable year unless the taxpayer chose

2 the benefits of this subpart for such taxable year.

3 ‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN4 COME.—

5 ‘‘(A) IN GENERAL.—Any income from

6 sources within the United States that is treated

7 as income from sources without the United

8 States under paragraph (1) shall be allocated

9 among and increase the income categories in

10 proportion to the loss from sources within the

11 United States previously allocated to those in12 come categories.

13 ‘‘(B) INCOME CATEGORY.—For purposes of

14 this paragraph, the term ‘income category’ has

15 the meaning given such term by subsection

16 (f)(5)(E)(i).

17 ‘‘(4) COORDINATION WITH SUBSECTION (f).—The

18 Secretary shall prescribe such regulations as may be

19 necessary to coordinate the provisions of this sub20 section with the provisions of subsection (f).’’.

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 535(d)(2) is amended by striking

23 ‘‘section 904(g)(6)’’ and inserting ‘‘section 904(h)(6)’’.
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1 (2) Subparagraph (A) of section 936(a)(2) is

2 amended by striking ‘‘section 904(f)’’ and inserting

3 ‘‘subsections (f) and (g) of section 904’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to losses for taxable years beginning

6 after December 31, 2006.

7 SEC. 205. INTEREST EXPENSE ALLOCATION RULES.

8 (a) ELECTION TO ALLOCATE ON WORLDWIDE

9 BASIS.—Section 864 is amended by redesignating sub10 section (f) as subsection (g) and by inserting after sub11 section (e) the following new subsection:

12 ‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ON

13 WORLDWIDE BASIS.—For purposes of this subchapter, at

14 the election of the worldwide affiliated group—

15 ‘‘(1) ALLOCATION AND APPORTIONMENT OF IN16 TEREST EXPENSE.—

17 ‘‘(A) IN GENERAL.—The taxable income of

18 each domestic corporation which is a member of

19 a worldwide affiliated group shall be determined

20 by allocating and apportioning interest expense

21 of each member as if all members of such group

22 were a single corporation.

23 ‘‘(B) TREATMENT OF WORLDWIDE AFFILI24 ATED GROUP.—The taxable income of the domes25 tic members of a worldwide affiliated group from
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1 sources outside the United States shall be deter2 mined by allocating and apportioning the inter3 est expense of such domestic members to such in4 come in an amount equal to the excess (if any)

5 of—

6 ‘‘(i) the total interest expense of the

7 worldwide affiliated group multiplied by

8 the ratio which the foreign assets of the

9 worldwide affiliated group bears to all the

10 assets of the worldwide affiliated group,

11 over

12 ‘‘(ii) the interest expense of all foreign

13 corporations which are members of the

14 worldwide affiliated group to the extent

15 such interest expense of such foreign cor16 porations would have been allocated and

17 apportioned to foreign source income if this

18 subsection were applied to a group con19 sisting of all the foreign corporations in

20 such worldwide affiliated group.

21 ‘‘(C) WORLDWIDE AFFILIATED GROUP.—For

22 purposes of this paragraph, the term ‘worldwide

23 affiliated group’ means a group consisting of—

24 ‘‘(i) the includible members of an af25 filiated group (as defined in section
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1 1504(a), determined without regard to

2 paragraphs (2) and (4) of section 1504(b)),

3 and

4 ‘‘(ii) all controlled foreign corporations

5 in which such members in the aggregate

6 meet the ownership requirements of section

7 1504(a)(2) either directly or indirectly

8 through applying paragraph (2) of section

9 958(a) or through applying rules similar to

10 the rules of such paragraph to stock owned

11 directly or indirectly by domestic partner12 ships, trusts, or estates.

13 ‘‘(2) ALLOCATION AND APPORTIONMENT OF

14 OTHER EXPENSES.—Expenses other than interest

15 which are not directly allocable or apportioned to any

16 specific income producing activity shall be allocated

17 and apportioned as if all members of the affiliated

18 group were a single corporation. For purposes of the

19 preceding sentence, the term ‘affiliated group’ has the

20 meaning given such term by section 1504 (determined

21 without regard to paragraph (4) of section 1504(b)).

22 ‘‘(3) TREATMENT OF TAX-EXEMPT ASSETS; BASIS

23 OF STOCK IN NONAFFILIATED 10-PERCENT OWNED

24 CORPORATIONS.—The rules of paragraphs (3) and (4)

25 of subsection (e) shall apply for purposes of this sub-
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1 section, except that paragraph (4) shall be applied on

2 a worldwide affiliated group basis.

3 ‘‘(4) TREATMENT OF CERTAIN FINANCIAL INSTI4 TUTIONS.—

5 ‘‘(A) IN GENERAL.—For purposes of para6 graph (1), any corporation described in subpara7 graph (B) shall be treated as an includible cor8 poration for purposes of section 1504 only for

9 purposes of applying this subsection separately

10 to corporations so described.

11 ‘‘(B) DESCRIPTION.—A corporation is de12 scribed in this subparagraph if—

13 ‘‘(i) such corporation is a financial in14 stitution described in section 581 or 591,

15 ‘‘(ii) the business of such financial in16 stitution is predominantly with persons

17 other than related persons (within the

18 meaning of subsection (d)(4)) or their cus19 tomers, and

20 ‘‘(iii) such financial institution is re21 quired by State or Federal law to be oper22 ated separately from any other entity which

23 is not such an institution.
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1 ‘‘(C) TREATMENT OF BANK AND FINANCIAL

2 HOLDING COMPANIES.—To the extent provided in

3 regulations—

4 ‘‘(i) a bank holding company (within

5 the meaning of section 2(a) of the Bank

6 Holding Company Act of 1956 (12 U.S.C.

7 1841(a)),

8 ‘‘(ii) a financial holding company

9 (within the meaning of section 2(p) of the

10 Bank Holding Company Act of 1956 (12

11 U.S.C. 1841(p)), and

12 ‘‘(iii) any subsidiary of a financial in13 stitution described in section 581 or 591, or

14 of any such bank or financial holding com15 pany, if such subsidiary is predominantly

16 engaged (directly or indirectly) in the active

17 conduct of a banking, financing, or similar

18 business,

19 shall be treated as a corporation described in

20 subparagraph (B).

21 ‘‘(5) ELECTION TO EXPAND FINANCIAL INSTITU22 TION GROUP OF WORLDWIDE GROUP.—

23 ‘‘(A) IN GENERAL.—If a worldwide affili24 ated group elects the application of this sub25 section, all financial corporations which—
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1 ‘‘(i) are members of such worldwide af2 filiated group, but

3 ‘‘(ii) are not corporations described in

4 paragraph (4)(B),

5 shall be treated as described in paragraph (4)(B)

6 for purposes of applying paragraph (4)(A). This

7 subsection (other than this paragraph) shall

8 apply to any such group in the same manner as

9 this subsection (other than this paragraph) ap10 plies to the pre-election worldwide affiliated

11 group of which such group is a part.

12 ‘‘(B) FINANCIAL CORPORATION.—For pur13 poses of this paragraph, the term ‘financial cor14 poration’ means any corporation if at least 80

15 percent of its gross income is income described in

16 section 904(d)(2)(C)(ii) and the regulations

17 thereunder which is derived from transactions

18 with persons who are not related (within the

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

20 corporation. For purposes of the preceding sen21 tence, there shall be disregarded any item of in22 come or gain from a transaction or series of

23 transactions a principal purpose of which is the

24 qualification of any corporation as a financial

25 corporation.
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1 ‘‘(C) ANTIABUSE RULES.—In the case of a

2 corporation which is a member of an electing fi3 nancial institution group, to the extent that such

4 corporation—

5 ‘‘(i) distributes dividends or makes

6 other distributions with respect to its stock

7 after the date of the enactment of this para8 graph to any member of the pre-election

9 worldwide affiliated group (other than to a

10 member of the electing financial institution

11 group) in excess of the greater of—

12 ‘‘(I) its average annual dividend

13 (expressed as a percentage of current

14 earnings and profits) during the 5-tax15 able-year period ending with the tax16 able year preceding the taxable year, or

17 ‘‘(II) 25 percent of its average an18 nual earnings and profits for such 5-

19 taxable-year period, or

20 ‘‘(ii) deals with any person in any

21 manner not clearly reflecting the income of

22 the corporation (as determined under prin23 ciples similar to the principles of section

24 482),
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1 an amount of indebtedness of the electing finan2 cial institution group equal to the excess dis3 tribution or the understatement or overstatement

4 of income, as the case may be, shall be re5 characterized (for the taxable year and subse6 quent taxable years) for purposes of this para7 graph as indebtedness of the worldwide affiliated

8 group (excluding the electing financial institu9 tion group). If a corporation has not been in ex10 istence for 5 taxable years, this subparagraph

11 shall be applied with respect to the period it was

12 in existence.

13 ‘‘(D) ELECTION.—An election under this

14 paragraph with respect to any financial institu15 tion group may be made only by the common

16 parent of the pre-election worldwide affiliated

17 group and may be made only for the first taxable

18 year beginning after December 31, 2008, in

19 which such affiliated group includes 1 or more

20 financial corporations. Such an election, once

21 made, shall apply to all financial corporations

22 which are members of the electing financial in23 stitution group for such taxable year and all

24 subsequent years unless revoked with the consent

25 of the Secretary.
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1 ‘‘(E) DEFINITIONS RELATING TO GROUPS.—

2 For purposes of this paragraph—

3 ‘‘(i) PRE-ELECTION WORLDWIDE AF4 FILIATED GROUP.—The term ‘pre-election

5 worldwide affiliated group’ means, with re6 spect to a corporation, the worldwide affili7 ated group of which such corporation would

8 (but for an election under this paragraph)

9 be a member for purposes of applying para10 graph (1).

11 ‘‘(ii) ELECTING FINANCIAL INSTITU12 TION GROUP.—The term ‘electing financial

13 institution group’ means the group of cor14 porations to which this subsection applies

15 separately by reason of the application of

16 paragraph (4)(A) and which includes finan17 cial corporations by reason of an election

18 under subparagraph (A).

19 ‘‘(F) REGULATIONS.—The Secretary shall

20 prescribe such regulations as may be appropriate

21 to carry out this subsection, including

22 regulations—

23 ‘‘(i) providing for the direct allocation

24 of interest expense in other circumstances
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1 where such allocation would be appropriate

2 to carry out the purposes of this subsection,

3 ‘‘(ii) preventing assets or interest ex4 pense from being taken into account more

5 than once, and

6 ‘‘(iii) dealing with changes in members

7 of any group (through acquisitions or other8 wise) treated under this paragraph as an

9 affiliated group for purposes of this sub10 section.

11 ‘‘(6) ELECTION.—An election to have this sub12 section apply with respect to any worldwide affiliated

13 group may be made only by the common parent of the

14 domestic affiliated group referred to in paragraph

15 (1)(C) and may be made only for the first taxable

16 year beginning after December 31, 2008, in which a

17 worldwide affiliated group exists which includes such

18 affiliated group and at least 1 foreign corporation.

19 Such an election, once made, shall apply to such com20 mon parent and all other corporations which are

21 members of such worldwide affiliated group for such

22 taxable year and all subsequent years unless revoked

23 with the consent of the Secretary.’’.

24 (b) EXPANSION OF REGULATORY AUTHORITY.—Para25 graph (7) of section 864(e) is amended—
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1 (1) by inserting before the comma at the end of

2 subparagraph (B) ‘‘and in other circumstances where

3 such allocation would be appropriate to carry out the

4 purposes of this subsection’’, and

5 (2) by striking ‘‘and’’ at the end of subpara6 graph (E), by redesignating subparagraph (F) as sub7 paragraph (G), and by inserting after subparagraph

8 (E) the following new subparagraph:

9 ‘‘(F) preventing assets or interest expense

10 from being taken into account more than once,

11 and’’.

12 (c) EFFECTIVE DATE.—The amendments made by this

13 section shall apply to taxable years beginning after Decem14 ber 31, 2008.

15 SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLD16 ING COMPANY INCOME WITH RESPECT TO

17 TRANSACTIONS IN COMMODITIES.

18 (a) IN GENERAL.—Clauses (i) and (ii) of section

19 954(c)(1)(C) (relating to commodity transactions) are

20 amended to read as follows:

21 ‘‘(i) arise out of commodity hedging

22 transactions (as defined in paragraph

23 (4)(A)),

24 ‘‘(ii) are active business gains or losses

25 from the sale of commodities, but only if
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1 substantially all of the controlled foreign

2 corporation’s commodities are property de3 scribed in paragraph (1), (2), or (8) of sec4 tion 1221(a), or’’.

5 (b) DEFINITION AND SPECIAL RULES.—Subsection (c)

6 of section 954 is amended by adding after paragraph (3)

7 the following new paragraph:

8 ‘‘(4) DEFINITION AND SPECIAL RULES RELATING

9 TO COMMODITY TRANSACTIONS.—

10 ‘‘(A) COMMODITY HEDGING TRANS11 ACTIONS.—For purposes of paragraph (1)(C)(i),

12 the term ‘commodity hedging transaction’ means

13 any transaction with respect to a commodity if

14 such transaction—

15 ‘‘(i) is a hedging transaction as de16 fined in section 1221(b)(2), determined—

17 ‘‘(I) without regard to subpara18 graph (A)(ii) thereof,

19 ‘‘(II) by applying subparagraph

20 (A)(i) thereof by substituting ‘ordinary

21 property or property described in sec22 tion 1231(b)’ for ‘ordinary property’,

23 and
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1 ‘‘(III) by substituting ‘controlled

2 foreign corporation’ for ‘taxpayer’ each

3 place it appears, and

4 ‘‘(ii) is clearly identified as such in ac5 cordance with section 1221(a)(7).

6 ‘‘(B) TREATMENT OF DEALER ACTIVITIES

7 UNDER PARAGRAPH (1)(C).—Commodities with

8 respect to which gains and losses are not taken

9 into account under paragraph (2)(C) in com10 puting a controlled foreign corporation’s foreign

11 personal holding company income shall not be

12 taken into account in applying the substantially

13 all test under paragraph (1)(C)(ii) to such cor14 poration.

15 ‘‘(C) REGULATIONS.—The Secretary shall

16 prescribe such regulations as are appropriate to

17 carry out the purposes of paragraph (1)(C) in

18 the case of transactions involving related par19 ties.’’.

20 (c) MODIFICATION OF EXCEPTION FOR DEALERS.—

21 Clause (i) of section 954(c)(2)(C) is amended by inserting

22 ‘‘and transactions involving physical settlement’’ after ‘‘(in23 cluding hedging transactions’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to transactions entered into after Decem3 ber 31, 2004.

4 Subtitle B—International Tax

5 Simplification

6 SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COM7 PANY RULES AND FOREIGN INVESTMENT

8 COMPANY RULES.

9 (a) GENERAL RULE.—The following provisions are

10 hereby repealed:

11 (1) Part III of subchapter G of chapter 1 (relat12 ing to foreign personal holding companies).

13 (2) Section 1246 (relating to gain on foreign in14 vestment company stock).

15 (3) Section 1247 (relating to election by foreign

16 investment companies to distribute income currently).

17 (b) EXEMPTION OF FOREIGN CORPORATIONS FROM

18 PERSONAL HOLDING COMPANY RULES.—

19 (1) IN GENERAL.—Subsection (c) of section 542

20 (relating to exceptions) is amended—

21 (A) by striking paragraph (5) and inserting

22 the following:

23 ‘‘(5) a foreign corporation,’’,
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1 (B) by striking paragraphs (7) and (10)

2 and by redesignating paragraphs (8) and (9) as

3 paragraphs (7) and (8), respectively,

4 (C) by inserting ‘‘and’’ at the end of para5 graph (7) (as so redesignated), and

6 (D) by striking ‘‘; and’’ at the end of para7 graph (8) (as so redesignated) and inserting a

8 period.

9 (2) TREATMENT OF INCOME FROM PERSONAL

10 SERVICE CONTRACTS.—Paragraph (1) of section

11 954(c) is amended by adding at the end the following

12 new subparagraph:

13 ‘‘(I) PERSONAL SERVICE CONTRACTS.—

14 ‘‘(i) Amounts received under a contract

15 under which the corporation is to furnish

16 personal services if—

17 ‘‘(I) some person other than the

18 corporation has the right to designate

19 (by name or by description) the indi20 vidual who is to perform the services,

21 or

22 ‘‘(II) the individual who is to per23 form the services is designated (by

24 name or by description) in the con25 tract, and
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1 ‘‘(ii) amounts received from the sale or

2 other disposition of such a contract.

3 This subparagraph shall apply with respect to

4 amounts received for services under a particular

5 contract only if at some time during the taxable

6 year 25 percent or more in value of the out7 standing stock of the corporation is owned, di8 rectly or indirectly, by or for the individual who

9 has performed, is to perform, or may be des10 ignated (by name or by description) as the one

11 to perform, such services.’’.

12 (c) CONFORMING AMENDMENTS.—

13 (1) Section 1(h) is amended—

14 (A) in paragraph (10), by inserting ‘‘and’’

15 at the end of subparagraph (F), by striking sub16 paragraph (G), and by redesignating subpara17 graph (H) as subparagraph (G), and

18 (B) by striking ‘‘a foreign personal holding

19 company (as defined in section 552), a foreign

20 investment company (as defined in section

21 1246(b)), or’’ in paragraph (11)(C)(iii).

22 (2) Section 163(e)(3)(B), as amended by section

23 453(a) of this Act, is amended by striking ‘‘which is

24 a foreign personal holding company (as defined in

25 section 552), a controlled foreign corporation (as de-
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1 fined in section 957), or’’ and inserting ‘‘which is a

2 controlled foreign corporation (as defined in section

3 957) or’’.

4 (3) Paragraph (2) of section 171(c) is

5 amended—

6 (A) by striking ‘‘, or by a foreign personal

7 holding company, as defined in section 552’’,

8 and

9 (B) by striking ‘‘, or foreign personal hold10 ing company’’.

11 (4) Paragraph (2) of section 245(a) is amended

12 by striking ‘‘foreign personal holding company or’’.

13 (5) Section 267(a)(3)(B), as amended by section

14 453(a) of this Act, is amended by striking ‘‘to a for15 eign personal holding company (as defined in section

16 552), a controlled foreign corporation (as defined in

17 section 957), or’’ and inserting ‘‘to a controlled for18 eign corporation (as defined in section 957) or’’.

19 (6) Section 312 is amended by striking sub20 section (j).

21 (7) Subsection (m) of section 312 is amended by

22 striking ‘‘, a foreign investment company (within the

23 meaning of section 1246(b)), or a foreign personal

24 holding company (within the meaning of section

25 552)’’.
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1 (8) Subsection (e) of section 443 is amended by

2 striking paragraph (3) and by redesignating para3 graphs (4) and (5) as paragraphs (3) and (4), respec4 tively.

5 (9) Subparagraph (B) of section 465(c)(7) is

6 amended by adding ‘‘or’’ at the end of clause (i), by

7 striking clause (ii), and by redesignating clause (iii)

8 as clause (ii).

9 (10) Paragraph (1) of section 543(b) is amended

10 by inserting ‘‘and’’ at the end of subparagraph (A),

11 by striking ‘‘, and’’ at the end of subparagraph (B)

12 and inserting a period, and by striking subparagraph

13 (C).

14 (11) Paragraph (1) of section 562(b) is amended

15 by striking ‘‘or a foreign personal holding company

16 described in section 552’’.

17 (12) Section 563 is amended—

18 (A) by striking subsection (c),

19 (B) by redesignating subsection (d) as sub20 section (c), and

21 (C) by striking ‘‘subsection (a), (b), or (c)’’

22 in subsection (c) (as so redesignated) and insert23 ing ‘‘subsection (a) or (b)’’.

24 (13) Subsection (d) of section 751 is amended by

25 adding ‘‘and’’ at the end of paragraph (2), by strik-
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1 ing paragraph (3), by redesignating paragraph (4) as

2 paragraph (3), and by striking ‘‘paragraph (1), (2),

3 or (3)’’ in paragraph (3) (as so redesignated) and in4 serting ‘‘paragraph (1) or (2)’’.

5 (14) Paragraph (2) of section 864(d) is amended

6 by striking subparagraph (A) and by redesignating

7 subparagraphs (B) and (C) as subparagraphs (A)

8 and (B), respectively.

9 (15)(A) Subparagraph (A) of section 898(b)(1) is

10 amended to read as follows:

11 ‘‘(A) which is treated as a controlled foreign

12 corporation for any purpose under subpart F of

13 part III of this subchapter, and’’.

14 (B) Subparagraph (B) of section 898(b)(2) is

15 amended by striking ‘‘and sections 551(f) and 554,

16 whichever are applicable,’’.

17 (C) Paragraph (3) of section 898(b) is amended

18 to read as follows:

19 ‘‘(3) UNITED STATES SHAREHOLDER.—The term

20 ‘United States shareholder’ has the meaning given to

21 such term by section 951(b), except that, in the case

22 of a foreign corporation having related person insur23 ance income (as defined in section 953(c)(2)), the Sec24 retary may treat any person as a United States

25 shareholder for purposes of this section if such person
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1 is treated as a United States shareholder under sec2 tion 953(c)(1).’’.

3 (D) Subsection (c) of section 898 is amended to

4 read as follows:

5 ‘‘(c) DETERMINATION OF REQUIRED YEAR.—

6 ‘‘(1) IN GENERAL.—The required year is—

7 ‘‘(A) the majority U.S. shareholder year, or

8 ‘‘(B) if there is no majority U.S. share9 holder year, the taxable year prescribed under

10 regulations.

11 ‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A specified

12 foreign corporation may elect, in lieu of the taxable

13 year under paragraph (1)(A), a taxable year begin14 ning 1 month earlier than the majority U.S. share15 holder year.

16 ‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.—

17 ‘‘(A) IN GENERAL.—For purposes of this

18 subsection, the term ‘majority U.S. shareholder

19 year’ means the taxable year (if any) which, on

20 each testing day, constituted the taxable year

21 of—

22 ‘‘(i) each United States shareholder de23 scribed in subsection (b)(2)(A), and

24 ‘‘(ii) each United States shareholder

25 not described in clause (i) whose stock was
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1 treated as owned under subsection (b)(2)(B)

2 by any shareholder described in such clause.

3 ‘‘(B) TESTING DAY.—The testing days shall

4 be—

5 ‘‘(i) the first day of the corporation’s

6 taxable year (determined without regard to

7 this section), or

8 ‘‘(ii) the days during such representa9 tive period as the Secretary may pre10 scribe.’’.

11 (16) Clause (ii) of section 904(d)(2)(A) is

12 amended to read as follows:

13 ‘‘(ii) CERTAIN AMOUNTS INCLUDED.—

14 Except as provided in clause (iii), the term

15 ‘passive income’ includes, except as pro16 vided in subparagraph (E)(iii) or para17 graph (3)(I), any amount includible in

18 gross income under section 1293 (relating to

19 certain passive foreign investment compa20 nies).’’.

21 (17)(A) Subparagraph (A) of section 904(g)(1),

22 as redesignated by section 204, is amended by adding

23 ‘‘or’’ at the end of clause (i), by striking clause (ii),

24 and by redesignating clause (iii) as clause (ii).
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1 (B) The paragraph heading of paragraph (2) of

2 section 904(g), as so redesignated, is amended by

3 striking ‘‘FOREIGN PERSONAL HOLDING OR’’.

4 (18) Section 951 is amended by striking sub5 sections (c) and (d) and by redesignating subsections

6 (e) and (f) as subsections (c) and (d), respectively.

7 (19) Paragraph (3) of section 989(b) is amended

8 by striking ‘‘, 551(a),’’.

9 (20) Paragraph (5) of section 1014(b) is amend10 ed by inserting ‘‘and before January 1, 2005,’’ after

11 ‘‘August 26, 1937,’’.

12 (21) Subsection (a) of section 1016 is amended

13 by striking paragraph (13).

14 (22)(A) Paragraph (3) of section 1212(a) is

15 amended to read as follows:

16 ‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net

17 capital loss of a corporation shall not be carried back

18 under paragraph (1)(A) to a taxable year—

19 ‘‘(A) for which it is a regulated investment

20 company (as defined in section 851), or

21 ‘‘(B) for which it is a real estate investment

22 trust (as defined in section 856).’’.

23 (B) The amendment made by subparagraph (A)

24 shall apply to taxable years beginning after December

25 31, 2004.
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1 (23) Section 1223 is amended by striking para2 graph (10) and by redesignating the following para3 graphs accordingly.

4 (24) Subsection (d) of section 1248 is amended

5 by striking paragraph (5) and by redesignating para6 graphs (6) and (7) as paragraphs (5) and (6), respec7 tively.

8 (25) Paragraph (2) of section 1260(c) is amend9 ed by striking subparagraphs (H) and (I) and by re10 designating subparagraph (J) as subparagraph (H).

11 (26)(A) Subparagraph (F) of section 1291(b)(3)

12 is amended by striking ‘‘551(d), 959(a),’’ and insert13 ing ‘‘959(a)’’.

14 (B) Subsection (e) of section 1291 is amended by

15 inserting ‘‘(as in effect on the day before the date of

16 the enactment of the Jumpstart Our Business

17 Strength (JOBS) Act)’’ after ‘‘section 1246’’.

18 (27) Paragraph (2) of section 1294(a) is amend19 ed to read as follows:

20 ‘‘(2) ELECTION NOT PERMITTED WHERE

21 AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION

22 951.—The taxpayer may not make an election under

23 paragraph (1) with respect to the undistributed PFIC

24 earnings tax liability attributable to a qualified elect25 ing fund for the taxable year if any amount is in-
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1 cludible in the gross income of the taxpayer under sec2 tion 951 with respect to such fund for such taxable

3 year.’’.

4 (28) Section 6035 is hereby repealed.

5 (29) Subparagraph (D) of section 6103(e)(1) is

6 amended by striking clause (iv) and redesignating

7 clauses (v) and (vi) as clauses (iv) and (v), respec8 tively.

9 (30) Subparagraph (B) of section 6501(e)(1) is

10 amended to read as follows:

11 ‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the

12 taxpayer omits from gross income an amount

13 properly includible therein under section 951(a),

14 the tax may be assessed, or a proceeding in court

15 for the collection of such tax may be done with16 out assessing, at any time within 6 years after

17 the return was filed.’’.

18 (31) Subsection (a) of section 6679 is amended—

19 (A) by striking ‘‘6035, 6046, and 6046A’’ in

20 paragraph (1) and inserting ‘‘6046 and 6046A’’,

21 and

22 (B) by striking paragraph (3).

23 (32) Sections 170(f)(10)(A), 508(d), 4947, and

24 4948(c)(4) are each amended by striking ‘‘556(b)(2),’’

25 each place it appears.
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1 (33) The table of parts for subchapter G of chap2 ter 1 is amended by striking the item relating to part

3 III.

4 (34) The table of sections for part IV of sub5 chapter P of chapter 1 is amended by striking the

6 items relating to sections 1246 and 1247.

7 (35) The table of sections for subpart A of part

8 III of subchapter A of chapter 61 is amended by strik9 ing the item relating to section 6035.

10 (d) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall

13 apply to taxable years of foreign corporations begin14 ning after December 31, 2004, and to taxable years

15 of United States shareholders with or within which

16 such taxable years of foreign corporations end.

17 (2) SUBSECTION (c)(29).—The amendments made

18 by subsection (c)(29) shall apply to disclosures of re19 turn or return information with respect to taxable

20 years beginning after December 31, 2004.

21 SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUB22 PART F.

23 (a) IN GENERAL.—Clause (ii) of section 954(b)(3)(A)

24 (relating to de minimis, etc., rules) is amended by striking

25 ‘‘$1,000,000’’ and inserting ‘‘$5,000,000’’.
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1 (b) TECHNICAL AMENDMENTS.—

2 (1) Clause (ii) of section 864(d)(5)(A) is amend3 ed by striking ‘‘$1,000,000’’ and inserting

4 ‘‘$5,000,000’’.

5 (2) Clause (i) of section 881(c)(5)(A) is amended

6 by striking ‘‘$1,000,000’’ and inserting ‘‘$5,000,000’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to taxable years of foreign corporations

9 beginning after December 31, 2004, and to taxable years

10 of United States shareholders with or within which such

11 taxable years of foreign corporations end.

12 SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH

13 PARTNERSHIPS TO APPLY IN DETERMINING

14 SECTION 902 AND 960 CREDITS.

15 (a) IN GENERAL.—Subsection (c) of section 902 is

16 amended by redesignating paragraph (7) as paragraph (8)

17 and by inserting after paragraph (6) the following new

18 paragraph:

19 ‘‘(7) CONSTRUCTIVE OWNERSHIP THROUGH

20 PARTNERSHIPS.—Stock owned, directly or indirectly,

21 by or for a partnership shall be considered as being

22 owned proportionately by its partners. Stock consid23 ered to be owned by a person by reason of the pre24 ceding sentence shall, for purposes of applying such

25 sentence, be treated as actually owned by such person.
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1 The Secretary may prescribe such regulations as may

2 be necessary to carry out the purposes of this para3 graph, including rules to account for special partner4 ship allocations of dividends, credits, and other inci5 dents of ownership of stock in determining propor6 tionate ownership.’’.

7 (b) CLARIFICATION OF COMPARABLE ATTRIBUTION

8 UNDER SECTION 901(b)(5).—Paragraph (5) of section

9 901(b) is amended by striking ‘‘any individual’’ and insert10 ing ‘‘any person’’.

11 (c) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to taxes of foreign corporations for tax13 able years of such corporations beginning after the date of

14 the enactment of this Act.

15 SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION

16 RULES TO FOREIGN PERSONS.

17 (a) IN GENERAL.—Section 263A(c) (relating to excep18 tions) is amended by adding at the end the following new

19 paragraph:

20 ‘‘(7) FOREIGN PERSONS.—Except for purposes of

21 applying sections 871(b)(1) and 882(a)(1), this sec22 tion shall not apply to any taxpayer who is not a

23 United States person if such taxpayer capitalizes

24 costs of produced property or property acquired for

25 resale by applying the method used to ascertain the
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1 income, profit, or loss for purposes of reports or state2 ments to shareholders, partners, other proprietors, or

3 beneficiaries, or for credit purposes.’’.

4 (b) EFFECTIVE DATE.—

5 (1) IN GENERAL.—The amendment made by sub6 section (a) shall apply to taxable years beginning

7 after December 31, 2004.

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

9 the case of any taxpayer required by the amendment

10 made by this section to change its method of account11 ing for its first taxable year beginning after December

12 31, 2004—

13 (A) such change shall be treated as initiated

14 by the taxpayer,

15 (B) such change shall be treated as made

16 with the consent of the Secretary of the Treasury,

17 and

18 (C) the net amount of the adjustments re19 quired to be taken into account by the taxpayer

20 under section 481 of the Internal Revenue Code

21 of 1986 shall be taken into account in such first

22 year.
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1 SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS

2 FROM CERTAIN FOREIGN CORPORATIONS.

3 (a) IN GENERAL.—Paragraph (2) of section 871(i) (re4 lating to tax not to apply to certain interest and dividends)

5 is amended by adding at the end the following new subpara6 graph:

7 ‘‘(D) Dividends paid by a foreign corpora8 tion which are treated under section

9 861(a)(2)(B) as income from sources within the

10 United States.’’.

11 (b) EFFECTIVE DATE.—The amendment made by this

12 section shall apply to payments made after December 31,

13 2004.

14 SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON

15 ALIENS PRESENT IN THE UNITED STATES

16 FOR 183 DAYS OR MORE.

17 (a) IN GENERAL.—Subsection (a) of section 871 is

18 amended by striking paragraph (2) and by redesignating

19 paragraph (3) as paragraph (2).

20 (b) CONFORMING AMENDMENT.—Section 1441(g) is

21 amended is amended by striking ‘‘section 871(a)(3)’’ and

22 inserting ‘‘section 871(a)(2)’’.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 2003.
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1 Subtitle C—Additional

2 International Tax Provisions

3 SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND

4 VESSELS.

5 (a) IN GENERAL.—Section 954(c)(2) is amended by

6 adding at the end the following new subparagraph:

7 ‘‘(D) CERTAIN RENTS, ETC.—

8 ‘‘(i) IN GENERAL.—Foreign personal

9 holding company income shall not include

10 qualified leasing income derived from or in

11 connection with the leasing or rental of any

12 aircraft or vessel.

13 ‘‘(ii) QUALIFIED LEASING INCOME.—

14 For purposes of this subparagraph, the term

15 ‘qualified leasing income’ means rents and

16 gains derived in the active conduct of a

17 trade or business of leasing with respect to

18 which the controlled foreign corporation

19 conducts substantial activity, but only if—

20 ‘‘(I) the leased property is used by

21 the lessee or other end-user in foreign

22 commerce and predominantly outside

23 the United States, and
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1 ‘‘(II) the lessee or other end-user

2 is not a related person (as defined in

3 subsection (d)(3)).

4 Any amount not treated as foreign personal

5 holding income under this subparagraph

6 shall not be treated as foreign base company

7 shipping income.’’.

8 (b) CONFORMING AMENDMENT.—Section 954(c)(1)(B)

9 is amended by inserting ‘‘or (2)(D)’’ after ‘‘paragraph

10 (2)(A)’’.

11 (c) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to taxable years of foreign corporations

13 beginning after December 31, 2005, and to taxable years

14 of United States shareholders with or within which such

15 taxable years of foreign corporations end.

16 SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN

17 RELATED CONTROLLED FOREIGN CORPORA18 TIONS UNDER FOREIGN PERSONAL HOLDING

19 COMPANY INCOME RULES.

20 (a) IN GENERAL.—Subsection (c) of section 954, as

21 amended by this Act, is amended by adding after para22 graph (4) the following new paragraph:

23 ‘‘(5) LOOK-THRU IN THE CASE OF RELATED CON24 TROLLED FOREIGN CORPORATIONS.—For purposes of

25 this subsection, dividends, interest, rents, and royal-
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1 ties received or accrued from a controlled foreign cor2 poration which is a related person (as defined in sub3 section (b)(9)) shall not be treated as foreign personal

4 holding company income to the extent attributable or

5 properly allocable (determined under rules similar to

6 the rules of subparagraphs (C) and (D) of section

7 904(d)(3)) to income of the related person which is

8 not subpart F income (as defined in section 952). For

9 purposes of this paragraph, interest shall include fac10 toring income which is treated as income equivalent

11 to interest for purposes of paragraph (1)(E). The Sec12 retary shall prescribe such regulations as may be ap13 propriate to prevent the abuse of the purposes of this

14 paragraph.’’.

15 (b) EFFECTIVE DATE.—The amendment made by this

16 section shall apply to taxable years of foreign corporations

17 beginning after December 31, 2004, and to taxable years

18 of United States shareholders with or within which such

19 taxable years of foreign corporations end.

20 SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PART21 NERSHIP INTERESTS.

22 (a) IN GENERAL.—Section 954(c) (defining foreign

23 personal holding company income), as amended by this Act,

24 is amended by adding after paragraph (5) the following

25 new paragraph:
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1 ‘‘(6) LOOK-THRU RULE FOR CERTAIN PARTNER2 SHIP SALES.—

3 ‘‘(A) IN GENERAL.—In the case of any sale

4 by a controlled foreign corporation of an interest

5 in a partnership with respect to which such cor6 poration is a 25-percent owner, such corporation

7 shall be treated for purposes of this subsection as

8 selling the proportionate share of the assets of the

9 partnership attributable to such interest. The

10 Secretary shall prescribe such regulations as

11 may be appropriate to prevent abuse of the pur12 poses of this paragraph, including regulations

13 providing for coordination of this paragraph

14 with the provisions of subchapter K.

15 ‘‘(B) 25-PERCENT OWNER.—For purposes of

16 this paragraph, the term ‘25-percent owner’

17 means a controlled foreign corporation which

18 owns directly 25 percent or more of the capital

19 or profits interest in a partnership. For purposes

20 of the preceding sentence, if a controlled foreign

21 corporation is a shareholder or partner of a cor22 poration or partnership, the controlled foreign

23 corporation shall be treated as owning directly

24 its proportionate share of any such capital or
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1 profits interest held directly or indirectly by such

2 corporation or partnership’’.

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

4 section shall apply to taxable years of foreign corporations

5 beginning after December 31, 2004, and to taxable years

6 of United States shareholders with or within which such

7 taxable years of foreign corporations end.

8 SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE

9 RATE FOR FOREIGN TAX PAID OTHER THAN

10 IN FUNCTIONAL CURRENCY.

11 (a) IN GENERAL.—Paragraph (1) of section 986(a)

12 (relating to determination of foreign taxes and foreign cor13 poration’s earnings and profits) is amended by redesig14 nating subparagraph (D) as subparagraph (E) and by in15 serting after subparagraph (C) the following new subpara16 graph:

17 ‘‘(D) ELECTIVE EXCEPTION FOR TAXES

18 PAID OTHER THAN IN FUNCTIONAL CURRENCY.—

19 ‘‘(i) IN GENERAL.—At the election of

20 the taxpayer, subparagraph (A) shall not

21 apply to any foreign income taxes the li22 ability for which is denominated in any

23 currency other than in the taxpayer’s func24 tional currency.
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1 ‘‘(ii) APPLICATION TO QUALIFIED

2 BUSINESS UNITS.—An election under this

3 subparagraph may apply to foreign income

4 taxes attributable to a qualified business

5 unit in accordance with regulations pre6 scribed by the Secretary.

7 ‘‘(iii) ELECTION.—Any such election

8 shall apply to the taxable year for which

9 made and all subsequent taxable years un10 less revoked with the consent of the Sec11 retary.’’.

12 (b) EFFECTIVE DATE.—The amendments made by this

13 section shall apply to taxable years beginning after Decem14 ber 31, 2004.

15 SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.

16 (a) IN GENERAL.—Paragraph (2) of section 904(d) is

17 amended by redesignating subparagraphs (H) and (I) as

18 subparagraphs (I) and (J), respectively, and by inserting

19 after subparagraph (G) the following new subparagraph:

20 ‘‘(H) TREATMENT OF INCOME TAX BASE

21 DIFFERENCES.—

22 ‘‘(i) IN GENERAL.—A taxpayer may

23 elect to treat tax imposed under the law of

24 a foreign country or possession of the

25 United States on an amount which does not
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1 constitute income under United States tax

2 principles as tax imposed on income de3 scribed in subparagraph (C) or (I) of para4 graph (1).

5 ‘‘(ii) ELECTION IRREVOCABLE.—Any

6 such election shall apply to the taxable year

7 for which made and all subsequent taxable

8 years unless revoked with the consent of the

9 Secretary.’’.

10 (b) EFFECTIVE DATE.—The amendments made by this

11 section shall apply to taxable years ending after the date

12 of the enactment of this Act.

13 SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART

14 F FOR ACTIVE FINANCING.

15 (a) IN GENERAL.—Section 954(h)(3) is amended by

16 adding at the end the following:

17 ‘‘(E) DIRECT CONDUCT OF ACTIVITIES.—

18 For purposes of subparagraph (A)(ii)(II), an ac19 tivity shall be treated as conducted directly by

20 an eligible controlled foreign corporation or

21 qualified business unit in its home country if the

22 activity is performed by employees of a related

23 person and—

24 ‘‘(i) the related person is an eligible

25 controlled foreign corporation the home
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1 country of which is the same as the home

2 country of the corporation or unit to which

3 subparagraph (A)(ii)(II) is being applied,

4 ‘‘(ii) the activity is performed in the

5 home country of the related person, and

6 ‘‘(iii) the related person is compensated

7 on an arm’s-length basis for the perform8 ance of the activity by its employees and

9 such compensation is treated as earned by

10 such person in its home country for pur11 poses of the home country’s tax laws.’’.

12 (b) EFFECTIVE DATE.—The amendment made by this

13 section shall apply to taxable years of such foreign corpora14 tions beginning after December 31, 2004, and to taxable

15 years of United States shareholders with or within which

16 such taxable years of such foreign corporations end.

17 SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE

18 CERTAIN ASSETS OF CONTROLLED FOREIGN

19 CORPORATION.

20 (a) IN GENERAL.—Section 956(c)(2) (relating to ex21 ceptions from property treated as United States property)

22 is amended by striking ‘‘and’’ at the end of subparagraph

23 (J), by striking the period at the end of subparagraph (K)

24 and inserting a semicolon, and by adding at the end the

25 following new subparagraphs:
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1 ‘‘(L) securities acquired and held by a con2 trolled foreign corporation in the ordinary course

3 of its business as a dealer in securities if—

4 ‘‘(i) the dealer accounts for the securi5 ties as securities held primarily for sale to

6 customers in the ordinary course of busi7 ness, and

8 ‘‘(ii) the dealer disposes of the securi9 ties (or such securities mature while held by

10 the dealer) within a period consistent with

11 the holding of securities for sale to cus12 tomers in the ordinary course of business;

13 and

14 ‘‘(M) an obligation of a United States per15 son which—

16 ‘‘(i) is not a domestic corporation, and

17 ‘‘(ii) is not—

18 ‘‘(I) a United States shareholder

19 (as defined in section 951(b)) of the

20 controlled foreign corporation, or

21 ‘‘(II) a partnership, estate, or

22 trust in which the controlled foreign

23 corporation, or any related person (as

24 defined in section 954(d)(3)), is a

25 partner, beneficiary, or trustee imme-
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1 diately after the acquisition of any ob2 ligation of such partnership, estate, or

3 trust by the controlled foreign corpora4 tion.’’.

5 (b) CONFORMING AMENDMENT.—Section 956(c)(2) is

6 amended by striking ‘‘and (K)’’ in the last sentence and

7 inserting ‘‘, (K), and (L)’’.

8 (c) EFFECTIVE DATE.—The amendments made by this

9 section shall apply to taxable years of foreign corporations

10 beginning after December 31, 2004, and to taxable years

11 of United States shareholders with or within which such

12 taxable years of foreign corporations end.

13 SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID

14 BY FOREIGN PARTNERSHIPS AND FOREIGN

15 CORPORATIONS.

16 (a) IN GENERAL.—Paragraph (1) of section 861(a) is

17 amended by striking ‘‘and’’ at the end of subparagraph (A),

18 by striking the period at the end of subparagraph (B) and

19 inserting ‘‘, and’’, and by adding at the end the following

20 new subparagraph:

21 ‘‘(C) in the case of a foreign partnership,

22 which is predominantly engaged in the active

23 conduct of a trade or business outside the United

24 States, any interest not paid by a trade or busi25 ness engaged in by the partnership in the United
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1 States and not allocable to income which is effec2 tively connected (or treated as effectively con3 nected) with the conduct of a trade or business

4 in the United States.’’.

5 (b) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to taxable years beginning after Decem7 ber 31, 2003.

8 SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN

9 TRANSFERS OF INTANGIBLE PROPERTY.

10 (a) IN GENERAL.—Subparagraph (C) of section

11 367(d)(2) is amended by adding at the end the following

12 new sentence: ‘‘For purposes of applying section 904(d),

13 any such amount shall be treated in the same manner as

14 if such amount were a royalty.’’.

15 (b) EFFECTIVE DATE.—The amendment made by this

16 section shall apply to amounts treated as received pursuant

17 to section 367(d)(2) of the Internal Revenue Code of 1986

18 on or after August 5, 1997.

19 SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN

20 REIT DISTRIBUTIONS ATTRIBUTABLE TO

21 GAIN FROM SALES OR EXCHANGES OF

22 UNITED STATES REAL PROPERTY INTERESTS.

23 (a) IN GENERAL.—Paragraph (1) of section 897(h)

24 (relating to look-through of distributions) is amended by

25 adding at the end the following new sentence: ‘‘Notwith-
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1 standing the preceding sentence, any distribution by a

2 REIT with respect to any class of stock which is regularly

3 traded on an established securities market located in the

4 United States shall not be treated as gain recognized from

5 the sale or exchange of a United States real property inter6 est if the shareholder did not own more than 5 percent of

7 such class of stock at any time during the taxable year.’’.

8 (b) CONFORMING AMENDMENT.—Paragraph (3) of sec9 tion 857(b) (relating to capital gains) is amended by add10 ing at the end the following new subparagraph:

11 ‘‘(F) CERTAIN DISTRIBUTIONS.—In the case

12 of a shareholder of a real estate investment trust

13 to whom section 897 does not apply by reason of

14 the second sentence of section 897(h)(1), the

15 amount which would be included in computing

16 long-term capital gains for such shareholder

17 under subparagraph (B) or (D) (without regard

18 to this subparagraph)—

19 ‘‘(i) shall not be included in computing

20 such shareholder’s long-term capital gains,

21 and

22 ‘‘(ii) shall be included in such share23 holder’s gross income as a dividend from the

24 real estate investment trust.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after the date

3 of the enactment of this Act.

4 SEC. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DIS5 TRIBUTION AMOUNT.

6 (a) IN GENERAL.—Subpart F of part III of subchapter

7 N of chapter 1 is amended by adding at the end the fol8 lowing new section:

9 ‘‘SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOR10 EIGN DISTRIBUTION AMOUNT.

11 ‘‘(a) TOLL TAX IMPOSED ON EXCESS QUALIFIED FOR12 EIGN DISTRIBUTION AMOUNT.—If a corporation elects the

13 application of this section, a tax shall be imposed on the

14 taxpayer in an amount equal to 5.25 percent of—

15 ‘‘(1) the taxpayer’s excess qualified foreign dis16 tribution amount, and

17 ‘‘(2) the amount determined under section 78

18 which is attributable to such excess qualified foreign

19 distribution amount.

20 Such tax shall be imposed in lieu of the tax imposed under

21 section 11 or 55 on the amounts described in paragraphs

22 (1) and (2) for the taxable year.

23 ‘‘(b) EXCESS QUALIFIED FOREIGN DISTRIBUTION

24 AMOUNT.—For purposes of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘excess qualified

2 foreign distribution amount’ means the excess (if any)

3 of—

4 ‘‘(A) the aggregate dividends received by the

5 taxpayer during the taxable year which are—

6 ‘‘(i) from 1 or more corporations which

7 are controlled foreign corporations in which

8 the taxpayer is a United States shareholder

9 on the date such dividends are paid, and

10 ‘‘(ii) described in a domestic reinvest11 ment plan which—

12 ‘‘(I) is approved by the taxpayer’s

13 president, chief executive officer, or

14 comparable official before the payment

15 of such dividends and subsequently ap16 proved by the taxpayer’s board of di17 rectors, management committee, execu18 tive committee, or similar body, and

19 ‘‘(II) provides for the reinvestment

20 of such dividends in the United States

21 (other than as payment for executive

22 compensation), including as a source

23 for the funding of worker hiring and

24 training, infrastructure, research and

25 development, capital investments, or
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1 the financial stabilization of the cor2 poration for the purposes of job reten3 tion or creation, over

4 ‘‘(B) the base dividend amount.

5 ‘‘(2) BASE DIVIDEND AMOUNT.—The term ‘base

6 dividend amount’ means an amount designated under

7 subsection (c)(7), but not less than the average

8 amount of dividends received during the fixed base

9 period from 1 or more corporations which are con10 trolled foreign corporations in which the taxpayer is

11 a United States shareholder on the date such divi12 dends are paid.

13 ‘‘(3) FIXED BASE PERIOD.—

14 ‘‘(A) IN GENERAL.—The term ‘fixed base pe15 riod’ means each of 3 taxable years which are

16 among the 5 most recent taxable years of the tax17 payer ending on or before December 31, 2002,

18 determined by disregarding—

19 ‘‘(i) the 1 taxable year for which the

20 taxpayer had the highest amount of divi21 dends from 1 or more corporations which

22 are controlled foreign corporations relative

23 to the other 4 taxable years, and

24 ‘‘(ii) the 1 taxable year for which the

25 taxpayer had the lowest amount of divi-
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1 dends from such corporations relative to the

2 other 4 taxable years.

3 ‘‘(B) SHORTER PERIOD.—If the taxpayer

4 has fewer than 5 taxable years ending on or be5 fore December 31, 2002, then in lieu of applying

6 subparagraph (A), the fixed base period shall in7 clude all the taxable years of the taxpayer ending

8 on or before December 31, 2002.

9 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur10 poses of this section—

11 ‘‘(1) DIVIDENDS.—The term ‘dividend’ has the

12 meaning given such term by section 316, except that

13 the term shall include amounts described in section

14 951(a)(1)(B), but shall not include amounts described

15 in sections 78 and 959.

16 ‘‘(2) CONTROLLED FOREIGN CORPORATIONS AND

17 UNITED STATES SHAREHOLDERS.—The term ‘con18 trolled foreign corporation’ has the meaning given

19 such term by section 957(a) and the term ‘United

20 States shareholder’ has the meaning given such term

21 by section 951(b).

22 ‘‘(3) FOREIGN TAX CREDITS.—The amount of

23 any income, war, profits, or excess profit taxes paid

24 (or deemed paid under sections 902 and 960) or ac25 crued by the taxpayer with respect to the excess quali-
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1 fied foreign distribution amount for which a credit

2 would be allowable under section 901 in the absence

3 of this section, shall be reduced by 85 percent. No de4 duction shall be allowed under this chapter for the

5 portion of any tax for which credit is not allowable

6 by reason of the preceding sentence.

7 ‘‘(4) FOREIGN TAX CREDIT LIMITATION.—For

8 purposes of section 904, there shall be disregarded 85

9 percent of—

10 ‘‘(A) the excess qualified foreign distribution

11 amount,

12 ‘‘(B) the amount determined under section

13 78 which is attributable to such excess qualified

14 foreign distribution amount, and

15 ‘‘(C) the amounts (including assets, gross

16 income, and other relevant bases of apportion17 ment) which are attributable to the excess quali18 fied foreign distribution amount which would,

19 determined without regard to this section, be

20 used to apportion the expenses, losses, and deduc21 tions of the taxpayer under section 861 and 864

22 in determining its taxable income from sources

23 without the United States.

24 For purposes of applying subparagraph (C), the prin25 ciples of section 864(e)(3)(A) shall apply.
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1 ‘‘(5) TREATMENT OF ACQUISITIONS AND DISPOSI2 TIONS.—Rules similar to the rules of section 41(f)(3)

3 shall apply in the case of acquisitions or dispositions

4 of controlled foreign corporations occurring on or

5 after the first day of the earliest taxable year taken

6 into account in determining the fixed base period.

7 ‘‘(6) TREATMENT OF CONSOLIDATED GROUPS.—

8 Members of an affiliated group of corporations filing

9 a consolidated return under section 1501 shall be

10 treated as a single taxpayer for purposes of this sec11 tion.

12 ‘‘(7) DESIGNATION OF DIVIDENDS.—Subject to

13 subsection (b)(2), the taxpayer shall designate the

14 particular dividends received during the taxable year

15 from 1 or more corporations which are controlled for16 eign corporations in which it is a United States

17 shareholder which are dividends excluded from the ex18 cess qualified foreign distribution amount. The total

19 amount of such designated dividends shall equal the

20 base dividend amount.

21 ‘‘(8) TREATMENT OF EXPENSES, LOSSES, AND

22 DEDUCTIONS.—Any expenses, losses, or deductions of

23 the taxpayer allowable under subchapter B—

24 ‘‘(A) shall not be applied to reduce the

25 amounts described in subsection (a)(1), and
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1 ‘‘(B) shall be applied to reduce other income

2 of the taxpayer (determined without regard to

3 the amounts described in subsection (a)(1)).

4 ‘‘(d) ELECTION.—

5 ‘‘(1) IN GENERAL.—An election under this sec6 tion shall be made on the taxpayer’s timely filed in7 come tax return for the first taxable year (determined

8 by taking extensions into account) ending 120 days or

9 more after the date of the enactment of this section,

10 and, once made, may be revoked only with the consent

11 of the Secretary.

12 ‘‘(2) ALL CONTROLLED FOREIGN CORPORA13 TIONS.—The election shall apply to all corporations

14 which are controlled foreign corporations in which the

15 taxpayer is a United States shareholder during the

16 taxable year.

17 ‘‘(3) CONSOLIDATED GROUPS.—If a taxpayer is

18 a member of an affiliated group of corporations filing

19 a consolidated return under section 1501 for the tax20 able year, an election under this section shall be made

21 by the common parent of the affiliated group which

22 includes the taxpayer and shall apply to all members

23 of the affiliated group.

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

25 such regulations as may be necessary and appropriate to
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1 carry out the purposes of this section, including regulations

2 under section 55 and regulations addressing corporations

3 which, during the fixed base period or thereafter, join or

4 leave an affiliated group of corporations filing a consoli5 dated return.’’.

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

7 for subpart F of part III of subchapter N of chapter 1 is

8 amended by adding at the end the following new item:

‘‘Sec. 965. Toll tax imposed on excess qualified foreign distribution

amount.’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply only to the first taxable year of the elect11 ing taxpayer ending 120 days or more after the date of the

12 enactment of this Act.

13 SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN

14 WAGERS ON HORSE RACES AND DOG RACES

15 FROM GROSS INCOME OF NONRESIDENT

16 ALIEN INDIVIDUALS.

17 (a) IN GENERAL.—Subsection (b) of section 872 (relat18 ing to exclusions) is amended by redesignating paragraphs

19 (5), (6), and (7) as paragraphs (6), (7), and (8), respec20 tively, and inserting after paragraph (4) the following new

21 paragraph:

22 ‘‘(5) INCOME DERIVED FROM WAGERING TRANS23 ACTIONS IN CERTAIN PARIMUTUEL POOLS.—Gross in24 come derived by a nonresident alien individual from
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1 a legal wagering transaction initiated outside the

2 United States in a parimutuel pool with respect to a

3 live horse race or dog race in the United States.’’.

4 (b) CONFORMING AMENDMENT.—Section 883(a)(4) is

5 amended by striking ‘‘(5), (6), and (7)’’ and inserting ‘‘(6),

6 (7), and (8)’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to wagers made after the date of the en9 actment of this Act.

10 SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO

11 RICO CORPORATIONS.

12 (a) IN GENERAL.—Subsection (b) of section 881 is

13 amended by redesignating paragraph (2) as paragraph (3)

14 and by inserting after paragraph (1) the following new

15 paragraph:

16 ‘‘(2) COMMONWEALTH OF PUERTO RICO.—If

17 dividends are received during a taxable year by a

18 corporation—

19 ‘‘(A) created or organized in, or under the

20 law of, the Commonwealth of Puerto Rico, and

21 ‘‘(B) with respect to which the requirements

22 of subparagraphs (A), (B), and (C) of paragraph

23 (1) are met for the taxable year,

24 subsection (a) shall be applied for such taxable year

25 by substituting ‘10 percent’ for ‘30 percent’.’’.
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1 (b) WITHHOLDING.—Subsection (c) of section 1442

2 (relating to withholding of tax on foreign corporations) is

3 amended—

4 (1) by striking ‘‘For purposes’’ and inserting the

5 following:

6 ‘‘(1) GUAM, AMERICAN SAMOA, THE NORTHERN

7 MARIANA ISLANDS, AND THE VIRGIN ISLANDS.—For

8 purposes’’, and

9 (2) by adding at the end the following new para10 graph:

11 ‘‘(2) COMMONWEALTH OF PUERTO RICO.—If

12 dividends are received during a taxable year by a

13 corporation—

14 ‘‘(A) created or organized in, or under the

15 law of, the Commonwealth of Puerto Rico, and

16 ‘‘(B) with respect to which the requirements

17 of subparagraphs (A), (B), and (C) of section

18 881(b)(1) are met for the taxable year,

19 subsection (a) shall be applied for such taxable year

20 by substituting ‘10 percent’ for ‘30 percent’.’’.

21 (b) CONFORMING AMENDMENTS.—

22 (1) Subsection (b) of section 881 is amended by

23 striking ‘‘GUAM AND VIRGIN ISLANDS CORPORA24 TIONS’’ in the heading and inserting ‘‘POSSESSIONS’’.
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1 (2) Paragraph (1) of section 881(b) is amended

2 by striking ‘‘IN GENERAL’’ in the heading and insert3 ing ‘‘GUAM, AMERICAN SAMOA, THE NORTHERN MAR4 IANA ISLANDS, AND THE VIRGIN ISLANDS’’.

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

6 section shall apply to dividends paid after the date of the

7 enactment of this Act.

8 SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS

9 AND THE APPELLATE BODY.

10 Not later than March 31, 2004, the Secretary of Com11 merce, in consultation with the United States Trade Rep12 resentative, shall transmit a report to the Committee on Fi13 nance of the Senate and the Committee on Ways and Means

14 of the House of Representatives, regarding whether dispute

15 settlement panels and the Appellate Body of the World

16 Trade Organization have—

17 (1) added to or diminished the rights of the

18 United States by imposing obligations or restrictions

19 on the use of antidumping, countervailing, and safe20 guard measures not agreed to under the Agreement on

21 Implementation of Article VI of the General Agree22 ment on Tariffs and Trade of 1994, the Agreement on

23 Subsidies and Countervailing Measures, and the

24 Agreement on Safeguards;
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1 (2) appropriately applied the standard of review

2 contained in Article 17.6 of the Agreement on Imple3 mentation of Article VI of the General Agreement on

4 Tariffs and Trade of 1994; or

5 (3) exceeded their authority or terms of reference

6 under the Agreements referred to in paragraph (1).

7 SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS

8 ON TAXPAYERS OTHER THAN LARGE COR9 PORATIONS.

10 (a) STUDY.—The Secretary of the Treasury or the Sec11 retary’s delegate shall conduct a study of the impact of Fed12 eral international tax rules on taxpayers other than large

13 corporations, including the burdens placed on such tax14 payers in complying with such rules.

15 (b) REPORT.—Not later than 180 days after the date

16 of the enactment of this Act, the Secretary shall report to

17 the Committee on Finance of the Senate and the Committee

18 on Ways and Means of the House of Representatives the

19 results of the study conducted under subsection (a), includ20 ing any recommendations for legislative or administrative

21 changes to reduce the compliance burden on taxpayers other

22 than large corporations and for such other purposes as the

23 Secretary determines appropriate.
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1 SEC. 236. DELAY IN EFFECTIVE DATE OF FINAL REGULA2 TIONS GOVERNING EXCLUSION OF INCOME

3 FROM INTERNATIONAL OPERATION OF SHIPS

4 OR AIRCRAFT.

5 Notwithstanding the provisions of Treasury regulation

6 § 1.883–5, the final regulations issued by the Secretary of

7 the Treasury relating to income derived by foreign corpora8 tions from the international operation of ships or aircraft

9 (Treasury regulations § 1.883–1 through § 1.883–5) shall

10 apply to taxable years of a foreign corporation seeking

11 qualified foreign corporation status beginning after Decem12 ber 31, 2004.

13 SEC. 237. INTEREST PAYMENTS DEDUCTIBLE WHERE DIS14 QUALIFIED GUARANTEE HAS NO ECONOMIC

15 EFFECT.

16 (a) IN GENERAL.—Section 163(j)(6)(D)(ii) (relating

17 to exceptions to disqualified guarantee) is amended—

18 (1) by striking ‘‘or’’ at the end of subclause (I),

19 (2) by striking the period at the end of subclause

20 (II) and inserting ‘‘, or’’,

21 (3) by inserting after subclause (II) the following

22 new subclause:

23 ‘‘(III) in the case of a guarantee

24 by a foreign person, to the extent of the

25 amount that the taxpayer establishes to

26 the satisfaction of the Secretary that
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1 the taxpayer could have borrowed from

2 an unrelated person without the guar3 antee.’’.

4 (b) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to guarantees issued on or after the date

6 of the enactment of this Act.

7 TITLE III—DOMESTIC MANUFAC8 TURING AND BUSINESS PRO9 VISIONS

10 Subtitle A—General Provisions

11 SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND

12 PROGRAM.

13 (a) IN GENERAL.—Subparagraph (F) of section

14 144(a)(4) (relating to $10,000,000 limit in certain cases)

15 is amended to read as follows:

16 ‘‘(F) ADDITIONAL CAPITAL EXPENDITURES

17 NOT TAKEN INTO ACCOUNT.—With respect to any

18 issue, in addition to any capital expenditure de19 scribed in subparagraph (C), capital expendi20 tures of not to exceed $10,000,000 shall not be

21 taken into account for purposes of applying sub22 paragraph (A)(ii).’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to bonds issued after the date of the en25 actment of this Act.
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1 SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS

2 EXPENDITURES.

3 (a) IN GENERAL.—Part VI of subchapter B of chapter

4 1 (relating to itemized deductions for individuals and cor5 porations) is amended by inserting after section 190 the fol6 lowing new section:

7 ‘‘SEC. 191. BROADBAND EXPENDITURES.

8 ‘‘(a) TREATMENT OF EXPENDITURES.—

9 ‘‘(1) IN GENERAL.—A taxpayer may elect to

10 treat any qualified broadband expenditure which is

11 paid or incurred by the taxpayer as an expense which

12 is not chargeable to capital account. Any expenditure

13 which is so treated shall be allowed as a deduction.

14 ‘‘(2) ELECTION.—An election under paragraph

15 (1) shall be made at such time and in such manner

16 as the Secretary may prescribe by regulation.

17 ‘‘(b) QUALIFIED BROADBAND EXPENDITURES.—For

18 purposes of this section—

19 ‘‘(1) IN GENERAL.—The term ‘qualified

20 broadband expenditure’ means, with respect to any

21 taxable year, any direct or indirect costs incurred

22 and properly taken into account with respect to—

23 ‘‘(A) the purchase or installation of quali24 fied equipment (including any upgrades thereto),

25 and
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1 ‘‘(B) the connection of such qualified equip2 ment to any qualified subscriber.

3 ‘‘(2) CERTAIN SATELLITE EXPENDITURES EX4 CLUDED.—Such term shall not include any costs in5 curred with respect to the launching of any satellite

6 equipment.

7 ‘‘(3) LEASED EQUIPMENT.—Such term shall in8 clude so much of the purchase price paid by the lessor

9 of qualified equipment subject to a lease described in

10 subsection (c)(2)(B) as is attributable to expenditures

11 incurred by the lessee which would otherwise be de12 scribed in paragraph (1).

13 ‘‘(c) WHEN EXPENDITURES TAKEN INTO ACCOUNT.—

14 For purposes of this section—

15 ‘‘(1) IN GENERAL.—Qualified broadband expend16 itures with respect to qualified equipment shall be

17 taken into account with respect to the first taxable

18 year in which—

19 ‘‘(A) current generation broadband services

20 are provided through such equipment to qualified

21 subscribers, or

22 ‘‘(B) next generation broadband services are

23 provided through such equipment to qualified

24 subscribers.

25 ‘‘(2) LIMITATION.—
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1 ‘‘(A) IN GENERAL.—Qualified expenditures

2 shall be taken into account under paragraph (1)

3 only with respect to qualified equipment—

4 ‘‘(i) the original use of which com5 mences with the taxpayer, and

6 ‘‘(ii) which is placed in service, after

7 the date of the enactment of this Act.

8 ‘‘(B) SALE-LEASEBACKS.—For purposes of

9 subparagraph (A), if property—

10 ‘‘(i) is originally placed in service

11 after the date of the enactment of this Act

12 by any person, and

13 ‘‘(ii) sold and leased back by such per14 son within 3 months after the date such

15 property was originally placed in service,

16 such property shall be treated as originally

17 placed in service not earlier than the date on

18 which such property is used under the leaseback

19 referred to in clause (ii).

20 ‘‘(d) SPECIAL ALLOCATION RULES.—

21 ‘‘(1) CURRENT GENERATION BROADBAND SERV22 ICES.—For purposes of determining the amount of

23 qualified broadband expenditures under subsection

24 (a)(1) with respect to qualified equipment through

25 which current generation broadband services are pro-
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1 vided, if the qualified equipment is capable of serving

2 both qualified subscribers and other subscribers, the

3 qualified broadband expenditures shall be multiplied

4 by a fraction—

5 ‘‘(A) the numerator of which is the sum of

6 the number of potential qualified subscribers

7 within the rural areas and the underserved areas

8 which the equipment is capable of serving with

9 current generation broadband services, and

10 ‘‘(B) the denominator of which is the total

11 potential subscriber population of the area which

12 the equipment is capable of serving with current

13 generation broadband services.

14 ‘‘(2) NEXT GENERATION BROADBAND SERV15 ICES.—For purposes of determining the amount of

16 qualified broadband expenditures under subsection

17 (a)(1) with respect to qualified equipment through

18 which next generation broadband services are pro19 vided, if the qualified equipment is capable of serving

20 both qualified subscribers and other subscribers, the

21 qualified expenditures shall be multiplied by a

22 fraction—

23 ‘‘(A) the numerator of which is the sum

24 of—
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1 ‘‘(i) the number of potential qualified

2 subscribers within the rural areas and un3 derserved areas, plus

4 ‘‘(ii) the number of potential qualified

5 subscribers within the area consisting only

6 of residential subscribers not described in

7 clause (i),

8 which the equipment is capable of serving with

9 next generation broadband services, and

10 ‘‘(B) the denominator of which is the total

11 potential subscriber population of the area which

12 the equipment is capable of serving with next

13 generation broadband services.

14 ‘‘(e) DEFINITIONS.—For purposes of this section—

15 ‘‘(1) ANTENNA.—The term ‘antenna’ means any

16 device used to transmit or receive signals through the

17 electromagnetic spectrum, including satellite equip18 ment.

19 ‘‘(2) CABLE OPERATOR.—The term ‘cable oper20 ator’ has the meaning given such term by section

21 602(5) of the Communications Act of 1934 (47 U.S.C.

22 522(5)).

23 ‘‘(3) COMMERCIAL MOBILE SERVICE CARRIER.—

24 The term ‘commercial mobile service carrier’ means

25 any person authorized to provide commercial mobile
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1 radio service as defined in section 20.3 of title 47,

2 Code of Federal Regulations.

3 ‘‘(4) CURRENT GENERATION BROADBAND SERV4 ICE.—The term ‘current generation broadband serv5 ice’ means the transmission of signals at a rate of at

6 least 1,000,000 bits per second to the subscriber and

7 at least 128,000 bits per second from the subscriber.

8 ‘‘(5) MULTIPLEXING OR DEMULTIPLEXING.—The

9 term ‘multiplexing’ means the transmission of 2 or

10 more signals over a single channel, and the term

11 ‘demultiplexing’ means the separation of 2 or more

12 signals previously combined by compatible multi13 plexing equipment.

14 ‘‘(6) NEXT GENERATION BROADBAND SERVICE.—

15 The term ‘next generation broadband service’ means

16 the transmission of signals at a rate of at least

17 22,000,000 bits per second to the subscriber and at

18 least 5,000,000 bits per second from the subscriber.

19 ‘‘(7) NONRESIDENTIAL SUBSCRIBER.—The term

20 ‘nonresidential subscriber’ means any person who

21 purchases broadband services which are delivered to

22 the permanent place of business of such person.

23 ‘‘(8) OPEN VIDEO SYSTEM OPERATOR.—The term

24 ‘open video system operator’ means any person au-
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1 thorized to provide service under section 653 of the

2 Communications Act of 1934 (47 U.S.C. 573).

3 ‘‘(9) OTHER WIRELESS CARRIER.—The term

4 ‘other wireless carrier’ means any person (other than

5 a telecommunications carrier, commercial mobile

6 service carrier, cable operator, open video system op7 erator, or satellite carrier) providing current genera8 tion broadband services or next generation broadband

9 service to subscribers through the radio transmission

10 of energy.

11 ‘‘(10) PACKET SWITCHING.—The term ‘packet

12 switching’ means controlling or routing the path of

13 any digitized transmission signal which is assembled

14 into packets or cells.

15 ‘‘(11) PROVIDER.—The term ‘provider’ means,

16 with respect to any qualified equipment—

17 ‘‘(A) a cable operator,

18 ‘‘(B) a commercial mobile service carrier,

19 ‘‘(C) an open video system operator,

20 ‘‘(D) a satellite carrier,

21 ‘‘(E) a telecommunications carrier, or

22 ‘‘(F) any other wireless carrier,

23 providing current generation broadband services or

24 next generation broadband services to subscribers

25 through such qualified equipment.
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1 ‘‘(12) PROVISION OF SERVICES.—A provider

2 shall be treated as providing services to 1 or more

3 subscribers if—

4 ‘‘(A) such a subscriber has been passed by

5 the provider’s equipment and can be connected to

6 such equipment for a standard connection fee,

7 ‘‘(B) the provider is physically able to de8 liver current generation broadband services or

9 next generation broadband services, as applica10 ble, to such a subscriber without making more

11 than an insignificant investment with respect to

12 such subscriber,

13 ‘‘(C) the provider has made reasonable ef14 forts to make such subscribers aware of the avail15 ability of such services,

16 ‘‘(D) such services have been purchased by

17 1 or more such subscribers, and

18 ‘‘(E) such services are made available to

19 such subscribers at average prices comparable to

20 those at which the provider makes available

21 similar services in any areas in which the pro22 vider makes available such services.

23 ‘‘(13) QUALIFIED EQUIPMENT.—

24 ‘‘(A) IN GENERAL.—The term ‘qualified

25 equipment’ means equipment which provides
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1 current generation broadband services or next

2 generation broadband services—

3 ‘‘(i) at least a majority of the time

4 during periods of maximum demand to

5 each subscriber who is utilizing such serv6 ices, and

7 ‘‘(ii) in a manner substantially the

8 same as such services are provided by the

9 provider to subscribers through equipment

10 with respect to which no deduction is al11 lowed under subsection (a)(1).

12 ‘‘(B) ONLY CERTAIN INVESTMENT TAKEN

13 INTO ACCOUNT.—Except as provided in subpara14 graph (C) or (D), equipment shall be taken into

15 account under subparagraph (A) only to the ex16 tent it—

17 ‘‘(i) extends from the last point of

18 switching to the outside of the unit, build19 ing, dwelling, or office owned or leased by

20 a subscriber in the case of a telecommuni21 cations carrier,

22 ‘‘(ii) extends from the customer side of

23 the mobile telephone switching office to a

24 transmission/receive antenna (including

25 such antenna) owned or leased by a sub-
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1 scriber in the case of a commercial mobile

2 service carrier,

3 ‘‘(iii) extends from the customer side of

4 the headend to the outside of the unit, build5 ing, dwelling, or office owned or leased by

6 a subscriber in the case of a cable operator

7 or open video system operator, or

8 ‘‘(iv) extends from a transmission/re9 ceive antenna (including such antenna)

10 which transmits and receives signals to or

11 from multiple subscribers, to a trans12 mission/receive antenna (including such an13 tenna) on the outside of the unit, building,

14 dwelling, or office owned or leased by a sub15 scriber in the case of a satellite carrier or

16 other wireless carrier, unless such other

17 wireless carrier is also a telecommuni18 cations carrier.

19 ‘‘(C) PACKET SWITCHING EQUIPMENT.—

20 Packet switching equipment, regardless of loca21 tion, shall be taken into account under subpara22 graph (A) only if it is deployed in connection

23 with equipment described in subparagraph (B)

24 and is uniquely designed to perform the function

25 of packet switching for current generation
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1 broadband services or next generation broadband

2 services, but only if such packet switching is the

3 last in a series of such functions performed in

4 the transmission of a signal to a subscriber or

5 the first in a series of such functions performed

6 in the transmission of a signal from a sub7 scriber.

8 ‘‘(D) MULTIPLEXING AND DEMULTIPLEXING

9 EQUIPMENT.—Multiplexing and demultiplexing

10 equipment shall be taken into account under sub11 paragraph (A) only to the extent it is deployed

12 in connection with equipment described in sub13 paragraph (B) and is uniquely designed to per14 form the function of multiplexing and

15 demultiplexing packets or cells of data and mak16 ing associated application adaptions, but only if

17 such multiplexing or demultiplexing equipment

18 is located between packet switching equipment

19 described in subparagraph (C) and the sub20 scriber’s premises.

21 ‘‘(14) QUALIFIED SUBSCRIBER.—The term

22 ‘qualified subscriber’ means—

23 ‘‘(A) with respect to the provision of current

24 generation broadband services—
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1 ‘‘(i) any nonresidential subscriber

2 maintaining a permanent place of business

3 in a rural area or underserved area, or

4 ‘‘(ii) any residential subscriber resid5 ing in a dwelling located in a rural area or

6 underserved area which is not a saturated

7 market, and

8 ‘‘(B) with respect to the provision of next

9 generation broadband services—

10 ‘‘(i) any nonresidential subscriber

11 maintaining a permanent place of business

12 in a rural area or underserved area, or

13 ‘‘(ii) any residential subscriber.

14 ‘‘(15) RESIDENTIAL SUBSCRIBER.—The term

15 ‘residential subscriber’ means any individual who

16 purchases broadband services which are delivered to

17 such individual’s dwelling.

18 ‘‘(16) RURAL AREA.—The term ‘rural area’

19 means any census tract which—

20 ‘‘(A) is not within 10 miles of any incor21 porated or census designated place containing

22 more than 25,000 people, and

23 ‘‘(B) is not within a county or county

24 equivalent which has an overall population den-
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1 sity of more than 500 people per square mile of

2 land.

3 ‘‘(17) RURAL SUBSCRIBER.—The term ‘rural

4 subscriber’ means any residential subscriber residing

5 in a dwelling located in a rural area or nonresiden6 tial subscriber maintaining a permanent place of

7 business located in a rural area.

8 ‘‘(18) SATELLITE CARRIER.—The term ‘satellite

9 carrier’ means any person using the facilities of a

10 satellite or satellite service licensed by the Federal

11 Communications Commission and operating in the

12 Fixed-Satellite Service under part 25 of title 47 of the

13 Code of Federal Regulations or the Direct Broadcast

14 Satellite Service under part 100 of title 47 of such

15 Code to establish and operate a channel of commu16 nications for distribution of signals, and owning or

17 leasing a capacity or service on a satellite in order

18 to provide such point-to-multipoint distribution.

19 ‘‘(19) SATURATED MARKET.—The term ‘satu20 rated market’ means any census tract in which, as of

21 the date of the enactment of this section—

22 ‘‘(A) current generation broadband services

23 have been provided by a single provider to 85

24 percent or more of the total number of potential
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1 residential subscribers residing in dwellings lo2 cated within such census tract, and

3 ‘‘(B) such services can be utilized—

4 ‘‘(i) at least a majority of the time

5 during periods of maximum demand by

6 each such subscriber who is utilizing such

7 services, and

8 ‘‘(ii) in a manner substantially the

9 same as such services are provided by the

10 provider to subscribers through equipment

11 with respect to which no deduction is al12 lowed under subsection (a)(1).

13 ‘‘(20) SUBSCRIBER.—The term ‘subscriber’

14 means any person who purchases current generation

15 broadband services or next generation broadband serv16 ices.

17 ‘‘(21) TELECOMMUNICATIONS CARRIER.—The

18 term ‘telecommunications carrier’ has the meaning

19 given such term by section 3(44) of the Communica20 tions Act of 1934 (47 U.S.C. 153(44)), but—

21 ‘‘(A) includes all members of an affiliated

22 group of which a telecommunications carrier is

23 a member, and

24 ‘‘(B) does not include a commercial mobile

25 service carrier.
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1 ‘‘(22) TOTAL POTENTIAL SUBSCRIBER POPU2 LATION.—The term ‘total potential subscriber popu3 lation’ means, with respect to any area and based on

4 the most recent census data, the total number of po5 tential residential subscribers residing in dwellings

6 located in such area and potential nonresidential sub7 scribers maintaining permanent places of business lo8 cated in such area.

9 ‘‘(23) UNDERSERVED AREA.—The term ‘under10 served area’ means—

11 ‘‘(A) any census tract which is located in—

12 ‘‘(i) an empowerment zone or enter13 prise community designated under section

14 1391, or

15 ‘‘(ii) the District of Columbia Enter16 prise Zone established under section 1400,

17 or

18 ‘‘(B) any census tract—

19 ‘‘(i) the poverty level of which is at

20 least 30 percent (based on the most recent

21 census data), and

22 ‘‘(ii) the median family income of

23 which does not exceed—

24 ‘‘(I) in the case of a census tract

25 located in a metropolitan statistical
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1 area, 70 percent of the greater of the

2 metropolitan area median family in3 come or the statewide median family

4 income, and

5 ‘‘(II) in the case of a census tract

6 located in a nonmetropolitan statis7 tical area, 70 percent of the nonmetro8 politan statewide median family in9 come.

10 ‘‘(24) UNDERSERVED SUBSCRIBER.—The term

11 ‘underserved subscriber’ means any residential sub12 scriber residing in a dwelling located in an under13 served area or nonresidential subscriber maintaining

14 a permanent place of business located in an under15 served area.

16 ‘‘(f) SPECIAL RULES.—

17 ‘‘(1) PROPERTY USED OUTSIDE THE UNITED

18 STATES, ETC., NOT QUALIFIED.—No expenditures

19 shall be taken into account under subsection (a)(1)

20 with respect to the portion of the cost of any property

21 referred to in section 50(b) or with respect to the por22 tion of the cost of any property specified in an elec23 tion under section 179.

24 ‘‘(2) BASIS REDUCTION.—
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1 ‘‘(A) IN GENERAL.—For purposes of this

2 title, the basis of any property shall be reduced

3 by the portion of the cost of such property taken

4 into account under subsection (a)(1).

5 ‘‘(B) ORDINARY INCOME RECAPTURE.—For

6 purposes of section 1245, the amount of the de7 duction allowable under subsection (a)(1) with

8 respect to any property which is of a character

9 subject to the allowance for depreciation shall be

10 treated as a deduction allowed for depreciation

11 under section 167.

12 ‘‘(3) COORDINATION WITH SECTION 38.—No cred13 it shall be allowed under section 38 with respect to

14 any amount for which a deduction is allowed under

15 subsection (a)(1).’’.

16 (b) SPECIAL RULE FOR MUTUAL OR COOPERATIVE

17 TELEPHONE COMPANIES.—Section 512(b) (relating to

18 modifications) is amended by adding at the end the fol19 lowing new paragraph:

20 ‘‘(18) SPECIAL RULE FOR MUTUAL OR COOPERA21 TIVE TELEPHONE COMPANIES.—A mutual or coopera22 tive telephone company which for the taxable year

23 satisfies the requirements of section 501(c)(12)(A)

24 may elect to reduce its unrelated business taxable in25 come for such year, if any, by an amount that does
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1 not exceed the qualified broadband expenditures which

2 would be taken into account under section 191 for

3 such year by such company if such company was not

4 exempt from taxation. Any amount which is allowed

5 as a deduction under this paragraph shall not be al6 lowed as a deduction under section 191 and the basis

7 of any property to which this paragraph applies shall

8 be reduced under section 1016(a)(29).’’.

9 (c) CONFORMING AMENDMENTS.—

10 (1) Section 263(a)(1) (relating to capital ex11 penditures) is amended by striking ‘‘or’’ at the end of

12 subparagraph (G), by striking the period at the end

13 of subparagraph (H) and inserting ‘‘, or’’, and by

14 adding at the end the following new subparagraph:

15 ‘‘(I) expenditures for which a deduction is

16 allowed under section 191.’’.

17 (2) Section 1016(a) of such Code is amended by

18 striking ‘‘and’’ at the end of paragraph (27), by strik19 ing the period at the end of paragraph (28) and in20 serting ‘‘, and’’, and by adding at the end the fol21 lowing new paragraph:

22 ‘‘(29) to the extent provided in section

23 191(f)(2).’’.

24 (3) The table of sections for part VI of sub25 chapter A of chapter 1 of such Code is amended by
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1 inserting after the item relating to section 190 the fol2 lowing new item:

‘‘Sec. 191. Broadband expenditures.’’.

3 (d) DESIGNATION OF CENSUS TRACTS.—

4 (1) IN GENERAL.—The Secretary of the Treasury

5 shall, not later than 90 days after the date of the en6 actment of this Act, designate and publish those cen7 sus tracts meeting the criteria described in para8 graphs (16), (22), and (23) of section 191(e) of the In9 ternal Revenue Code of 1986 (as added by this sec10 tion). In making such designations, the Secretary of

11 the Treasury shall consult with such other depart12 ments and agencies as the Secretary determines ap13 propriate.

14 (2) SATURATED MARKET.—

15 (A) IN GENERAL.—For purposes of desig16 nating and publishing those census tracts meet17 ing the criteria described in subsection (e)(19) of

18 such section 191—

19 (i) the Secretary of the Treasury shall

20 prescribe not later than 30 days after the

21 date of the enactment of this Act the form

22 upon which any provider which takes the

23 position that it meets such criteria with re24 spect to any census tract shall submit a list

25 of such census tracts (and any other infor-
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1 mation required by the Secretary) not later

2 than 60 days after the date of the publica3 tion of such form, and

4 (ii) the Secretary of the Treasury shall

5 publish an aggregate list of such census

6 tracts and the applicable providers not later

7 than 30 days after the last date such sub8 missions are allowed under clause (i).

9 (B) NO SUBSEQUENT LISTS REQUIRED.—

10 The Secretary of the Treasury shall not be re11 quired to publish any list of census tracts meet12 ing such criteria subsequent to the list described

13 in subparagraph (A)(ii).

14 (e) OTHER REGULATORY MATTERS.—

15 (1) PROHIBITION.—No Federal or State agency

16 or instrumentality shall adopt regulations or rate17 making procedures that would have the effect of elimi18 nating or reducing any deduction or portion thereof

19 allowed under section 191 of the Internal Revenue

20 Code of 1986 (as added by this section) or otherwise

21 subverting the purpose of this section.

22 (2) TREASURY REGULATORY AUTHORITY.—It is

23 the intent of Congress in providing the election to de24 duct qualified broadband expenditures under section

25 191 of the Internal Revenue Code of 1986 (as added
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1 by this section) to provide incentives for the purchase,

2 installation, and connection of equipment and facili3 ties offering expanded broadband access to the Inter4 net for users in certain low income and rural areas

5 of the United States, as well as to residential users

6 nationwide, in a manner that maintains competitive

7 neutrality among the various classes of providers of

8 broadband services. Accordingly, the Secretary of the

9 Treasury shall prescribe such regulations as may be

10 necessary or appropriate to carry out the purposes of

11 section 191 of such Code, including—

12 (A) regulations to determine how and when

13 a taxpayer that incurs qualified broadband ex14 penditures satisfies the requirements of section

15 191 of such Code to provide broadband services,

16 and

17 (B) regulations describing the information,

18 records, and data taxpayers are required to pro19 vide the Secretary to substantiate compliance

20 with the requirements of section 191 of such

21 Code.

22 (f) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to expenditures incurred after the date

24 of the enactment of this Act and before the date which is

25 12 months after the date of the enactment of this Act.
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1 SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DE2 TERMINATION OF PRODUCTION PERIOD FOR

3 DISTILLED SPIRITS UNDER SECTION 263A.

4 (a) IN GENERAL.—Section 263A(f) of the Internal

5 Revenue Code of 1986 (relating to general exceptions) is

6 amended by adding at the end the following new paragraph:

7 ‘‘(5) EXEMPTION OF NATURAL AGING PROCESS IN

8 DETERMINATION OF PRODUCTION PERIOD FOR DIS9 TILLED SPIRITS.—For purposes of this subsection, the

10 production period for distilled spirits shall be deter11 mined without regard to any period allocated to the

12 natural aging process.’’.

13 (b) EFFECTIVE DATE.—The amendment made by this

14 section shall apply to production periods beginning after

15 the date of the enactment of this Act.

16 SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION

17 UNDER SECTION 355.

18 (a) IN GENERAL.—Section 355(b) (defining active con19 duct of a trade or business) is amended by adding at the

20 end the following new paragraph:

21 ‘‘(3) SPECIAL RULES RELATING TO ACTIVE BUSI22 NESS REQUIREMENT.—

23 ‘‘(A) IN GENERAL.—For purposes of deter24 mining whether a corporation meets the require25 ment of paragraph (2)(A), all members of such

26 corporation’s separate affiliated group shall be
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1 treated as one corporation. For purposes of the

2 preceding sentence, a corporation’s separate af3 filiated group is the affiliated group which would

4 be determined under section 1504(a) if such cor5 poration were the common parent and section

6 1504(b) did not apply.

7 ‘‘(B) CONTROL.—For purposes of para8 graph (2)(D), all distributee corporations which

9 are members of the same affiliated group (as de10 fined in section 1504(a) without regard to sec11 tion 1504(b)) shall be treated as one distributee

12 corporation.’’.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subparagraph (A) of section 355(b)(2) is

15 amended to read as follows:

16 ‘‘(A) it is engaged in the active conduct of

17 a trade or business,’’.

18 (2) Section 355(b)(2) is amended by striking the

19 last sentence.

20 (c) EFFECTIVE DATE.—

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

22 this section shall apply—

23 (A) to distributions after the date of the en24 actment of this Act, and
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1 (B) for purposes of determining the contin2 ued qualification under section 355(b)(2)(A) of

3 the Internal Revenue Code of 1986 (as amended

4 by subsection (b)(1)) of distributions made before

5 such date, as a result of an acquisition, disposi6 tion, or other restructuring after such date.

7 (2) TRANSITION RULE.—The amendments made

8 by this section shall not apply to any distribution

9 pursuant to a transaction which is—

10 (A) made pursuant to an agreement which

11 was binding on such date of enactment and at

12 all times thereafter,

13 (B) described in a ruling request submitted

14 to the Internal Revenue Service on or before such

15 date, or

16 (C) described on or before such date in a

17 public announcement or in a filing with the Se18 curities and Exchange Commission.

19 (3) ELECTION TO HAVE AMENDMENTS APPLY.—

20 Paragraph (2) shall not apply if the distributing cor21 poration elects not to have such paragraph apply to

22 distributions of such corporation. Any such election,

23 once made, shall be irrevocable.
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1 SEC. 305. MODIFIED TAXATION OF IMPORTED ARCHERY

2 PRODUCTS.

3 (a) BOWS.—Paragraph (1) of section 4161(b) (relating

4 to bows) is amended to read as follows:

5 ‘‘(1) BOWS.—

6 ‘‘(A) IN GENERAL.—There is hereby im7 posed on the sale by the manufacturer, producer,

8 or importer of any bow which has a peak draw

9 weight of 30 pounds or more, a tax equal to 11

10 percent of the price for which so sold.

11 ‘‘(B) ARCHERY EQUIPMENT.—There is here12 by imposed on the sale by the manufacturer, pro13 ducer, or importer—

14 ‘‘(i) of any part or accessory suitable

15 for inclusion in or attachment to a bow de16 scribed in subparagraph (A), and

17 ‘‘(ii) of any quiver or broadhead suit18 able for use with an arrow described in

19 paragraph (2),

20 a tax equal to 11 percent of the price for which

21 so sold.’’.

22 (b) ARROWS.—Subsection (b) of section 4161 (relating

23 to bows and arrows, etc.) is amended by redesignating para24 graph (3) as paragraph (4) and inserting after paragraph

25 (2) the following:

26 ‘‘(3) ARROWS.—
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1 ‘‘(A) IN GENERAL.—There is hereby im2 posed on the sale by the manufacturer, producer,

3 or importer of any arrow, a tax equal to 12 per4 cent of the price for which so sold.

5 ‘‘(B) EXCEPTION.—In the case of any arrow

6 of which the shaft or any other component has

7 been previously taxed under paragraph (1) or

8 (2)—

9 ‘‘(i) section 6416(b)(3) shall not apply,

10 and

11 ‘‘(ii) the tax imposed by subparagraph

12 (A) shall be an amount equal to the excess

13 (if any) of—

14 ‘‘(I) the amount of tax imposed by

15 this paragraph (determined without re16 gard to this subparagraph), over

17 ‘‘(II) the amount of tax paid with

18 respect to the tax imposed under para19 graph (1) or (2) on such shaft or com20 ponent.

21 ‘‘(C) ARROW.—For purposes of this para22 graph, the term ‘arrow’ means any shaft de23 scribed in paragraph (2) to which additional

24 components are attached.’’.
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1 (c) CONFORMING AMENDMENTS.—Section 4161(b)(2)

2 is amended—

3 (1) by inserting ‘‘(other than broadheads)’’ after

4 ‘‘point’’, and

5 (2) by striking ‘‘ARROWS.—’’ in the heading and

6 inserting ‘‘ARROW COMPONENTS.—’’.

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

8 section shall apply to articles sold by the manufacturer,

9 producer, or importer after the date which is 30 days after

10 the date of the enactment of this Act.

11 SEC. 306. MODIFICATION TO COOPERATIVE MARKETING

12 RULES TO INCLUDE VALUE ADDED PROC13 ESSING INVOLVING ANIMALS.

14 (a) IN GENERAL.—Section 1388 (relating to defini15 tions and special rules) is amended by adding at the end

16 the following new subsection:

17 ‘‘(k) COOPERATIVE MARKETING INCLUDES VALUE18 ADDED PROCESSING INVOLVING ANIMALS.—For purposes

19 of section 521 and this subchapter, the marketing of the

20 products of members or other producers shall include the

21 feeding of such products to cattle, hogs, fish, chickens, or

22 other animals and the sale of the resulting animals or ani23 mal products.’’.

24 (b) CONFORMING AMENDMENT.—Section 521(b) is

25 amended by adding at the end the following new paragraph:
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1 ‘‘(7) CROSS REFERENCE.—

‘‘For treatment of value-added processing involving animals, see section 1388(k).’’.

2 (c) EFFECTIVE DATE.—The amendments made by this

3 section shall apply to taxable years beginning after the date

4 of the enactment of this Act.

5 SEC. 307. EXTENSION OF DECLARATORY JUDGMENT PROCE6 DURES TO FARMERS’ COOPERATIVE ORGANI7 ZATIONS.

8 (a) IN GENERAL.—Section 7428(a)(1) (relating to de9 claratory judgments of tax exempt organizations) is amend10 ed by striking ‘‘or’’ at the end of subparagraph (B) and

11 by adding at the end the following new subparagraph:

12 ‘‘(D) with respect to the initial classifica13 tion or continuing classification of a cooperative

14 as an organization described in section 521(b)

15 which is exempt from tax under section 521(a),

16 or’’.

17 (b) EFFECTIVE DATE.—The amendments made by this

18 section shall apply with respect to pleadings filed after the

19 date of the enactment of this Act.

20 SEC. 308. TEMPORARY SUSPENSION OF PERSONAL HOLD21 ING COMPANY TAX.

22 (a) IN GENERAL.—Section 541 (relating to imposition

23 of personal holding company tax) is amended by adding

24 at the end the following new sentence: ‘‘The preceding sen-
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1 tence shall not apply with respect to any taxable year to

2 which section 1(h)(11) (as in effect on the date of the enact3 ment of this sentence) applies.’’.

4 (b) COORDINATION WITH ACCUMULATED EARNINGS

5 TAX.—Section 532(b) is amended by adding at the end the

6 following flush sentence:

7 ‘‘Paragraph (1) shall not apply to any taxable year to

8 which section 541 does not apply.’’

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to taxable years beginning after Decem11 ber 31, 2003.

12 SEC. 309. INCREASE IN SECTION 179 EXPENSING.

13 (a) IN GENERAL.—Section 179(b)(2) (relating to re14 duction in limitation) is amended by inserting ‘‘50 percent

15 of’’ before ‘‘the amount’’.

16 (b) EFFECTIVE DATE.—The amendment made by this

17 section shall apply to taxable years beginning after Decem18 ber 31, 2002.

19 SEC. 310. FIVE-YEAR CARRYBACK OF NET OPERATING

20 LOSSES.

21 (a) IN GENERAL.—Subparagraph (H) of section

22 172(b)(1) is amended—

23 (1) by inserting ‘‘5-YEAR CARRYBACK OF CER24 TAIN LOSSES.—’’ after ‘‘(H)’’, and
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1 (2) by striking ‘‘or 2002’’ and inserting ‘‘, 2002,

2 or 2003’’.

3 (b) RULES RELATING TO CERTAIN EXTENDED NET

4 OPERATING LOSSES.—Section 172 is amended by redesig5 nating subsection (k) as subsection (l) and by inserting

6 after subsection (j) the following new subsection:

7 ‘‘(k) RULES RELATING TO CERTAIN EXTENDED NET

8 OPERATING LOSSES.—In the case of a taxpayer which has

9 a net operating loss for any taxable year ending during

10 2003 and does not make an election under subsection (j),

11 such taxpayer shall be treated as having made an election

12 under paragraphs (4)(E) and (2)(C)(iii) of section 168(k)

13 with respect to all classes of property for such taxable year.

14 (c) TEMPORARY SUSPENSION OF 90 PERCENT LIMIT

15 ON CERTAIN NOL CARRYOVERS.—Section

16 56(d)(1)(A)(ii)(I) (relating to general rule defining alter17 native tax net operating loss deduction) is amended—

18 (1) by striking ‘‘or 2002’’ and inserting ‘‘, 2002,

19 or 2003’’, and

20 (2) by striking ‘‘and 2002’’ and inserting ‘‘,

21 2002, and 2003’’.

22 (d) TECHNICAL CORRECTIONS.—

23 (1) Subparagraph (H) of section 172(b)(1) is

24 amended by striking ‘‘a taxpayer which has’’.
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1 (2) Section 102(c)(2) of the Job Creation and

2 Worker Assistance Act of 2002 (Public Law 107–147)

3 is amended by striking ‘‘before January 1, 2003’’ and

4 inserting ‘‘after December 31, 1990’’.

5 (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is

6 amended by striking ‘‘attributable to carryovers’’.

7 (B) Subclause (I) of section 56(d)(1)(A)(ii) is

8 amended—

9 (i) by striking ‘‘for taxable years’’ and in10 serting ‘‘from taxable years’’, and

11 (ii) by striking ‘‘carryforwards’’ and insert12 ing ‘‘carryovers’’.

13 (e) EFFECTIVE DATES.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section shall

16 apply to net operating losses for taxable years ending

17 after December 31, 2002.

18 (2) TECHNICAL CORRECTIONS.—The amend19 ments made by subsection (d) shall take effect as if

20 included in the amendments made by section 102 of

21 the Job Creation and Worker Assistance Act of 2002.

22 (3) ELECTION.—In the case of a net operating

23 loss for a taxable year ending during 2003—

24 (A) any election made under section

25 172(b)(3) of such Code may (notwithstanding
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1 such section) be revoked before November 15,

2 2004, and

3 (B) any election made under section 172(j)

4 of such Code shall (notwithstanding such section)

5 be treated as timely made if made before Novem6 ber 15, 2004.

7 (4) SPECIAL RULE FOR TAXPAYERS WITH TAX8 ABLE YEARS ENDING DURING JANUARY.—Any tax9 payer which has a taxable year ending during Janu10 ary may elect under this paragraph to apply section

11 172(b)(1)(H) of the Internal Revenue Code of 1986

12 (as amended by this section) to its taxable year end13 ing in 2004 rather than its taxable year ending in

14 2003. If such election is made, then section 172(k) of

15 such Code (as added by this section) shall be applied

16 to the taxpayer’s taxable year ending in 2004. Such

17 election shall be made in such manner and at such

18 time as may be prescribed by the Secretary of the

19 Treasury. Such election, once made, shall be irrev20 ocable.

21 SEC. 311. EXTENSION AND MODIFICATION OF RESEARCH

22 CREDIT.

23 (a) EXTENSION.—
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1 (1) IN GENERAL.—Section 41(h)(1)(B) (relating

2 to termination) is amended by striking ‘‘June 30,

3 2004’’ and inserting ‘‘December 31, 2005’’.

4 (2) CONFORMING AMENDMENT.—Section

5 45C(b)(1)(D) is amended by striking ‘‘June 30, 2004’’

6 and inserting ‘‘December 31, 2005’’.

7 (b) INCREASE IN RATES OF ALTERNATIVE INCRE8 MENTAL CREDIT.—Subparagraph (A) of section 41(c)(4)

9 (relating to election of alternative incremental credit) is

10 amended—

11 (1) by striking ‘‘2.65 percent’’ and inserting ‘‘3

12 percent’’,

13 (2) by striking ‘‘3.2 percent’’ and inserting ‘‘4

14 percent’’, and

15 (3) by striking ‘‘3.75 percent’’ and inserting ‘‘5

16 percent’’.

17 (c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED

18 RESEARCH EXPENSES.—

19 (1) IN GENERAL.—Subsection (c) of section 41

20 (relating to base amount) is amended by redesig21 nating paragraphs (5) and (6) as paragraphs (6) and

22 (7), respectively, and by inserting after paragraph (4)

23 the following new paragraph:

24 ‘‘(5) ELECTION OF ALTERNATIVE SIMPLIFIED

25 CREDIT.—
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1 ‘‘(A) IN GENERAL.—At the election of the

2 taxpayer, the credit determined under subsection

3 (a)(1) shall be equal to 12 percent of so much of

4 the qualified research expenses for the taxable

5 year as exceeds 50 percent of the average quali6 fied research expenses for the 3 taxable years pre7 ceding the taxable year for which the credit is

8 being determined.

9 ‘‘(B) SPECIAL RULE IN CASE OF NO QUALI10 FIED RESEARCH EXPENSES IN ANY OF 3 PRE11 CEDING TAXABLE YEARS.—

12 ‘‘(i) TAXPAYERS TO WHICH SUBPARA13 GRAPH APPLIES.—The credit under this

14 paragraph shall be determined under this

15 subparagraph if the taxpayer has no quali16 fied research expenses in any 1 of the 3 tax17 able years preceding the taxable year for

18 which the credit is being determined.

19 ‘‘(ii) CREDIT RATE.—The credit deter20 mined under this subparagraph shall be

21 equal to 6 percent of the qualified research

22 expenses for the taxable year.

23 ‘‘(C) ELECTION.—An election under this

24 paragraph shall apply to the taxable year for

25 which made and all succeeding taxable years un-
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1 less revoked with the consent of the Secretary. An

2 election under this paragraph may not be made

3 for any taxable year to which an election under

4 paragraph (4) applies.’’

5 (2) COORDINATION WITH ELECTION OF ALTER6 NATIVE INCREMENTAL CREDIT.—

7 (A) IN GENERAL.—Section 41(c)(4)(B) (re8 lating to election) is amended by adding at the

9 end the following: ‘‘An election under this para10 graph may not be made for any taxable year to

11 which an election under paragraph (5) applies.’’

12 (B) TRANSITION RULE.—In the case of an

13 election under section 41(c)(4) of the Internal

14 Revenue Code of 1986 which applies to the tax15 able year which includes the date of the enact16 ment of this Act, such election shall be treated as

17 revoked with the consent of the Secretary of the

18 Treasury if the taxpayer makes an election

19 under section 41(c)(5) of such Code (as added by

20 paragraph (1)) for such year.

21 (f) EFFECTIVE DATES.—

22 (1) SUBSECTION (a).—The amendments made by

23 subsection (a) shall apply to amounts paid or in24 curred after the date of the enactment of this Act.
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1 (2) SUBSECTIONS (b) AND (c).—The amendments

2 made by subsections (b) and (c) shall apply to taxable

3 years beginning after December 31, 2004.

4 SEC. 312. EXPANSION OF RESEARCH CREDIT.

5 (a) CREDIT FOR EXPENSES ATTRIBUTABLE TO CER6 TAIN COLLABORATIVE RESEARCH CONSORTIA.—

7 (1) IN GENERAL.—Section 41(a) (relating to

8 credit for increasing research activities) is amended

9 by striking ‘‘and’’ at the end of paragraph (1), by

10 striking the period at the end of paragraph (2) and

11 inserting ‘‘, and’’, and by adding at the end the fol12 lowing new paragraph:

13 ‘‘(3) 20 percent of the amounts paid or incurred

14 by the taxpayer in carrying on any trade or business

15 of the taxpayer during the taxable year (including as

16 contributions) to a research consortium.’’.

17 (2) RESEARCH CONSORTIUM DEFINED.—Section

18 41(f) (relating to special rules) is amended by adding

19 at the end the following new paragraph:

20 ‘‘(6) RESEARCH CONSORTIUM.—

21 ‘‘(A) IN GENERAL.—The term ‘research con22 sortium’ means any organization—

23 ‘‘(i) which is—

24 ‘‘(I) described in section 501(c)(3)

25 or 501(c)(6) and is exempt from tax
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1 under section 501(a) and is organized

2 and operated primarily to conduct re3 search, or

4 ‘‘(II) organized and operated pri5 marily to conduct research in the pub6 lic interest (within the meaning of sec7 tion 501(c)(3)),

8 ‘‘(ii) which is not a private founda9 tion,

10 ‘‘(iii) to which at least 5 unrelated

11 persons paid or incurred during the cal12 endar year in which the taxable year of the

13 organization begins amounts (including as

14 contributions) to such organization for re15 search, and

16 ‘‘(iv) to which no single person paid or

17 incurred (including as contributions) dur18 ing such calendar year an amount equal to

19 more than 50 percent of the total amounts

20 received by such organization during such

21 calendar year for research.

22 ‘‘(B) TREATMENT OF PERSONS.—All per23 sons treated as a single employer under sub24 section (a) or (b) of section 52 shall be treated

25 as related persons for purposes of subparagraph
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1 (A)(iii) and as a single person for purposes of

2 subparagraph (A)(iv).’’.

3 (3) CONFORMING AMENDMENT.—Section

4 41(b)(3)(C) is amended by inserting ‘‘(other than a

5 research consortium)’’ after ‘‘organization’’.

6 (b) REPEAL OF LIMITATION ON CONTRACT RESEARCH

7 EXPENSES PAID TO SMALL BUSINESSES, UNIVERSITIES,

8 AND FEDERAL LABORATORIES.—Section 41(b)(3) (relating

9 to contract research expenses) is amended by adding at the

10 end the following new subparagraph:

11 ‘‘(D) AMOUNTS PAID TO ELIGIBLE SMALL

12 BUSINESSES, UNIVERSITIES, AND FEDERAL LAB13 ORATORIES.—

14 ‘‘(i) IN GENERAL.—In the case of

15 amounts paid by the taxpayer to—

16 ‘‘(I) an eligible small business,

17 ‘‘(II) an institution of higher edu18 cation (as defined in section 3304(f)),

19 or

20 ‘‘(III) an organization which is a

21 Federal laboratory,

22 for qualified research, subparagraph (A)

23 shall be applied by substituting ‘100 per24 cent’ for ‘65 percent’.
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1 ‘‘(ii) ELIGIBLE SMALL BUSINESS.—For

2 purposes of this subparagraph, the term ‘eli3 gible small business’ means a small business

4 with respect to which the taxpayer does not

5 own (within the meaning of section 318) 50

6 percent or more of—

7 ‘‘(I) in the case of a corporation,

8 the outstanding stock of the corpora9 tion (either by vote or value), and

10 ‘‘(II) in the case of a small busi11 ness which is not a corporation, the

12 capital and profits interests of the

13 small business.

14 ‘‘(iii) SMALL BUSINESS.—For purposes

15 of this subparagraph—

16 ‘‘(I) IN GENERAL.—The term

17 ‘small business’ means, with respect to

18 any calendar year, any person if the

19 annual average number of employees

20 employed by such person during either

21 of the 2 preceding calendar years was

22 500 or fewer. For purposes of the pre23 ceding sentence, a preceding calendar

24 year may be taken into account only if
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1 the person was in existence throughout

2 the year.

3 ‘‘(II) STARTUPS, CONTROLLED

4 GROUPS, AND PREDECESSORS.—Rules

5 similar to the rules of subparagraphs

6 (B) and (D) of section 220(c)(4) shall

7 apply for purposes of this clause.

8 ‘‘(iv) FEDERAL LABORATORY.—For

9 purposes of this subparagraph, the term

10 ‘Federal laboratory’ has the meaning given

11 such term by section 4(6) of the Stevenson12 Wydler Technology Innovation Act of 1980

13 (15 U.S.C. 3703(6)), as in effect on the date

14 of the enactment of the Jumpstart Our

15 Business Strength (JOBS) Act.’’.

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

17 section shall apply to amounts paid or incurred after De18 cember 31, 2004.

19 SEC. 313. MANUFACTURER’S JOBS CREDIT.

20 (a) IN GENERAL.—Subpart D of part IV of subchapter

21 A of chapter 1 (relating to business-related credits), as

22 amended by this Act, is amended by adding at the end the

23 following:
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1 ‘‘SEC. 45S. MANUFACTURER’S JOBS CREDIT.

2 ‘‘(a) GENERAL RULE.—For purposes of section 38, in

3 the case of an eligible taxpayer, the manufacturer’s jobs

4 credit determined under this section is an amount equal

5 to 50 percent of the lesser of the following:

6 ‘‘(1) The excess of the W–2 wages paid by the

7 taxpayer during the taxable year over the W–2 wages

8 paid by the taxpayer during the preceding taxable

9 year.

10 ‘‘(2) The W–2 wages paid by the taxpayer dur11 ing the taxable year to any employee who is an eligi12 ble TAA recipient (as defined in section 35(c)(2)) for

13 any month during such taxable year.

14 ‘‘(3) 22.4 percent of the W–2 wages paid by the

15 taxpayer during the taxable year.

16 ‘‘(b) LIMITATION.—

17 ‘‘(1) IN GENERAL.—If there is an excess de18 scribed in paragraph (2)(A) for any taxable year, the

19 amount of credit determined under subsection (a)

20 (without regard to this subsection)—

21 ‘‘(A) if the value of domestic production de22 termined under section 199(g)(2) for the taxable

23 year does not exceed such value for the preceding

24 taxable year, shall be zero, and
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1 ‘‘(B) if subparagraph (A) does not apply,

2 shall be reduced (but not below zero) by the ap3 plicable percentage of such amount.

4 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

5 of paragraph (1), the term ‘applicable percentage’

6 means, with respect to any taxable year, the percent7 age equal to a fraction—

8 ‘‘(A) the numerator of which is the excess (if

9 any) of the modified value of worldwide produc10 tion of the taxpayer for the taxable year over

11 such modified value for the preceding taxable

12 year, and

13 ‘‘(B) the denominator of which is the excess

14 (if any) of the value of worldwide production of

15 the taxpayer for the taxable year over such value

16 for the preceding taxable year.

17 ‘‘(3) DEFINITIONS.—For purposes of this

18 subsection—

19 ‘‘(A) VALUE OF WORLDWIDE PRODUC20 TION.—The value of worldwide production for

21 any taxable year shall be determined under sec22 tion 199(g)(4).

23 ‘‘(B) MODIFIED VALUE.—The term ‘modi24 fied value of worldwide production’ means the

25 value of worldwide production determined by not
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1 taking into account any item taken into account

2 in determining the value of domestic production

3 under section 199(g)(2).

4 ‘‘(c) ELIGIBLE TAXPAYER.—For purposes of this sec5 tion, the term ‘eligible taxpayer’ means any taxpayer—

6 ‘‘(1) which has domestic production gross re7 ceipts for the taxable year and the preceding taxable

8 year, and

9 ‘‘(2) which is not treated at any time during the

10 taxable year as an inverted domestic corporation

11 under section 7874.

12 ‘‘(d) DEFINITIONS AND SPECIAL RULE.—For purposes

13 of this section—

14 ‘‘(1) IN GENERAL.—Any term used in this sec15 tion which is also used in section 199 shall have the

16 meaning given such term by section 199.

17 ‘‘(2) SPECIAL RULE FOR W–2 WAGES.—Notwith18 standing paragraph (1), the amount of W–2 wages

19 taken into account with respect to any employee for

20 any taxable year shall not exceed $50,000.

21 ‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur22 poses of this section, rules similar to the rules of section

23 52 shall apply.

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

25 any taxable year beginning after December 31, 2005.’’.
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1 (b) CREDIT TO BE PART OF GENERAL BUSINESS

2 CREDIT.—Section 38(b) (relating to current year business

3 credit), as amended by this Act, is amended by striking

4 ‘‘plus’’ at the end of paragraph (29), by striking the period

5 at the end of paragraph (30) and inserting ‘‘, plus’’, and

6 by adding at the end the following:

7 ‘‘(31) the manufacturer’s jobs credit determined

8 under section 45S.’’.

9 (c) CLERICAL AMENDMENT.—The table of sections for

10 subpart D of part IV of subchapter A of chapter 1, as

11 amended by this Act, is amended by adding at the end the

12 following:

‘‘Sec. 45S. Manufacturer’s jobs credit.’’.

13 (d) EFFECTIVE DATE.—The amendments made by this

14 section shall apply to taxable years beginning after Decem15 ber 31, 2003.

16 SEC. 314. BROWNFIELDS DEMONSTRATION PROGRAM FOR

17 QUALIFIED GREEN BUILDING AND SUSTAIN18 ABLE DESIGN PROJECTS.

19 (a) TREATMENT AS EXEMPT FACILITY BOND.—Sub20 section (a) of section 142 (relating to the definition of ex21 empt facility bond) is amended by striking ‘‘or’’ at the end

22 of paragraph (12), by striking the period at the end of para23 graph (13) and inserting ‘‘, or’’, and by inserting at the

24 end the following new paragraph:
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1 ‘‘(14) qualified green building and sustainable

2 design projects.’’.

3 (b) QUALIFIED GREEN BUILDING AND SUSTAINABLE

4 DESIGN PROJECTS.—Section 142 (relating to exempt facil5 ity bonds) is amended by adding at the end thereof the fol6 lowing new subsection:

7 ‘‘(l) QUALIFIED GREEN BUILDING AND SUSTAINABLE

8 DESIGN PROJECTS.—

9 ‘‘(1) IN GENERAL.—For purposes of subsection

10 (a)(14), the term ‘qualified green building and sus11 tainable design project’ means any project which is

12 designated by the Secretary, after consultation with

13 the Administrator of the Environmental Protection

14 Agency, as a qualified green building and sustainable

15 design project and which meets the requirements of

16 clauses (i), (ii), (iii), and (iv) of paragraph (4)(A).

17 ‘‘(2) DESIGNATIONS.—

18 ‘‘(A) IN GENERAL.—Within 60 days after

19 the end of the application period described in

20 paragraph (3)(A), the Secretary, after consulta21 tion with the Administrator of the Environ22 mental Protection Agency, shall designate quali23 fied green building and sustainable design

24 projects. At least one of the projects designated

25 shall be located in, or within a 10-mile radius
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1 of, an empowerment zone as designated pursuant

2 to section 1391, and at least one of the projects

3 designated shall be located in a rural State. No

4 more than one project shall be designated in a

5 State. A project shall not be designated if such

6 project includes a stadium or arena for profes7 sional sports exhibitions or games.

8 ‘‘(B) MINIMUM CONSERVATION AND TECH9 NOLOGY INNOVATION OBJECTIVES.—The Sec10 retary, after consultation with the Administrator

11 of the Environmental Protection Agency, shall

12 ensure that, in the aggregate, the projects des13 ignated shall—

14 ‘‘(i) reduce electric consumption by

15 more than 150 megawatts annually as com16 pared to conventional generation,

17 ‘‘(ii) reduce daily sulfur dioxide emis18 sions by at least 10 tons compared to coal

19 generation power,

20 ‘‘(iii) expand by 75 percent the domes21 tic solar photovoltaic market in the United

22 States (measured in megawatts) as com23 pared to the expansion of that market from

24 2001 to 2002, and
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1 ‘‘(iv) use at least 25 megawatts of fuel

2 cell energy generation.

3 ‘‘(3) LIMITED DESIGNATIONS.—A project may

4 not be designated under this subsection unless—

5 ‘‘(A) the project is nominated by a State or

6 local government within 180 days of the enact7 ment of this subsection, and

8 ‘‘(B) such State or local government pro9 vides written assurances that the project will sat10 isfy the eligibility criteria described in para11 graph (4).

12 ‘‘(4) APPLICATION.—

13 ‘‘(A) IN GENERAL.—A project may not be

14 designated under this subsection unless the appli15 cation for such designation includes a project

16 proposal which describes the energy efficiency,

17 renewable energy, and sustainable design fea18 tures of the project and demonstrates that the

19 project satisfies the following eligibility criteria:

20 ‘‘(i) GREEN BUILDING AND SUSTAIN21 ABLE DESIGN.—At least 75 percent of the

22 square footage of commercial buildings

23 which are part of the project is registered

24 for United States Green Building Council’s

25 LEED certification and is reasonably ex-
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1 pected (at the time of the designation) to re2 ceive such certification. For purposes of de3 termining LEED certification as required

4 under this clause, points shall be credited by

5 using the following:

6 ‘‘(I) For wood products, certifi7 cation under the Sustainable Forestry

8 Initiative Program and the American

9 Tree Farm System.

10 ‘‘(II) For renewable wood prod11 ucts, as credited for recycled content

12 otherwise provided under LEED cer13 tification.

14 ‘‘(III) For composite wood prod15 ucts, certification under standards es16 tablished by the American National

17 Standards Institute, or such other vol18 untary standards as published in the

19 Federal Register by the Administrator

20 of the Environmental Protection Agen21 cy.

22 ‘‘(ii) BROWNFIELD REDEVELOP23 MENT.—The project includes a brownfield

24 site as defined by section 101(39) of the

25 Comprehensive Environmental Response,
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1 Compensation, and Liability Act of 1980

2 (42 U.S.C. 9601), including a site described

3 in subparagraph (D)(ii)(II)(aa) thereof.

4 ‘‘(iii) STATE AND LOCAL SUPPORT.—

5 The project receives specific State or local

6 government resources which will support the

7 project in an amount equal to at least

8 $5,000,000. For purposes of the preceding

9 sentence, the term ‘resources’ includes tax

10 abatement benefits and contributions in

11 kind.

12 ‘‘(iv) SIZE.—The project includes at

13 least one of the following:

14 ‘‘(I) At least 1,000,000 square feet

15 of building.

16 ‘‘(II) At least 20 acres.

17 ‘‘(v) USE OF TAX BENEFIT.—The

18 project proposal includes a description of

19 the net benefit of the tax-exempt financing

20 provided under this subsection which will be

21 allocated for financing of one or more of the

22 following:

23 ‘‘(I) The purchase, construction,

24 integration, or other use of energy effi-
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1 ciency, renewable energy, and sustain2 able design features of the project.

3 ‘‘(II) Compliance with certifi4 cation standards cited under clause (i).

5 ‘‘(III) The purchase, remediation,

6 and foundation construction and prep7 aration of the brownfields site.

8 ‘‘(vi) PROHIBITED FACILITIES.—An

9 issue shall not be treated as an issue de10 scribed in subsection (a)(14) if any proceeds

11 of such issue are used to provide any facil12 ity the principal business of which is the

13 sale of food or alcoholic beverages for con14 sumption on the premises.

15 ‘‘(vii) EMPLOYMENT.—The project is

16 projected to provide permanent employment

17 of at least 1,500 full time equivalents (150

18 full time equivalents in rural States) when

19 completed and construction employment of

20 at least 1,000 full time equivalents (100 full

21 time equivalents in rural States).

22 The application shall include an independent

23 analysis which describes the project’s economic

24 impact, including the amount of projected em25 ployment.
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1 ‘‘(B) PROJECT DESCRIPTION.—Each appli2 cation described in subparagraph (A) shall con3 tain for each project a description of—

4 ‘‘(i) the amount of electric consump5 tion reduced as compared to conventional

6 construction,

7 ‘‘(ii) the amount of sulfur dioxide

8 daily emissions reduced compared to coal

9 generation,

10 ‘‘(iii) the amount of the gross installed

11 capacity of the project’s solar photovoltaic

12 capacity measured in megawatts, and

13 ‘‘(iv) the amount, in megawatts, of the

14 project’s fuel cell energy generation.

15 ‘‘(5) CERTIFICATION OF USE OF TAX BENEFIT.—

16 No later than 30 days after the completion of the

17 project, each project must certify to the Secretary that

18 the net benefit of the tax-exempt financing was used

19 for the purposes described in paragraph (4).

20 ‘‘(6) DEFINITIONS.—For purposes of this

21 subsection—

22 ‘‘(A) RURAL STATE.—The term ‘rural State’

23 means any State which has—

24 ‘‘(i) a population of less than

25 4,500,000 according to the 2000 census,
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1 ‘‘(ii) a population density of less than

2 150 people per square mile according to the

3 2000 census, and

4 ‘‘(iii) increased in population by less

5 than half the rate of the national increase

6 between the 1990 and 2000 censuses.

7 ‘‘(B) LOCAL GOVERNMENT.—The term ‘local

8 government’ has the meaning given such term by

9 section 1393(a)(5).

10 ‘‘(C) NET BENEFIT OF TAX-EXEMPT FINANC11 ING.—The term ‘net benefit of tax-exempt financ12 ing’ means the present value of the interest sav13 ings (determined by a calculation established by

14 the Secretary) which result from the tax-exempt

15 status of the bonds.

16 ‘‘(7) AGGREGATE FACE AMOUNT OF TAX-EXEMPT

17 FINANCING.—

18 ‘‘(A) IN GENERAL.—An issue shall not be

19 treated as an issue described in subsection

20 (a)(14) if the aggregate face amount of bonds

21 issued by the State or local government pursuant

22 thereto for a project (when added to the aggre23 gate face amount of bonds previously so issued

24 for such project) exceeds an amount designated

25 by the Secretary as part of the designation.
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1 ‘‘(B) LIMITATION ON AMOUNT OF BONDS.—

2 The Secretary may not allocate authority to

3 issue qualified green building and sustainable

4 design project bonds in an aggregate face amount

5 exceeding $2,000,000,000.

6 ‘‘(8) TERMINATION.—Subsection (a)(14) shall

7 not apply with respect to any bond issued after Sep8 tember 30, 2009.

9 ‘‘(9) TREATMENT OF CURRENT REFUNDING

10 BONDS.—Paragraphs (7)(B) and (8) shall not apply

11 to any bond (or series of bonds) issued to refund a

12 bond issued under subsection (a)(14) before October 1,

13 2009, if—

14 ‘‘(A) the average maturity date of the issue

15 of which the refunding bond is a part is not later

16 than the average maturity date of the bonds to

17 be refunded by such issue,

18 ‘‘(B) the amount of the refunding bond does

19 not exceed the outstanding amount of the re20 funded bond, and

21 ‘‘(C) the net proceeds of the refunding bond

22 are used to redeem the refunded bond not later

23 than 90 days after the date of the issuance of the

24 refunding bond.
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1 For purposes of subparagraph (A), average maturity shall

2 be determined in accordance with section 147(b)(2)(A).’’.

3 (c) EXEMPTION FROM GENERAL STATE VOLUME

4 CAPS.—Paragraph (3) of section 146(g) (relating to excep5 tion for certain bonds) is amended—

6 (1) by striking ‘‘or (13)’’ and inserting ‘‘(13), or

7 (14)’’, and

8 (2) by striking ‘‘and qualified public educational

9 facilities’’ and inserting ‘‘qualified public educational

10 facilities, and qualified green building and sustain11 able design projects’’.

12 (d) ACCOUNTABILITY.—Each issuer shall maintain, on

13 behalf of each project, an interest bearing reserve account

14 equal to 1 percent of the net proceeds of any bond issued

15 under this section for such project. Not later than 5 years

16 after the date of issuance, the Secretary of the Treasury,

17 after consultation with the Administrator of the Environ18 mental Protection Agency, shall determine whether the

19 project financed with such bonds has substantially complied

20 with the terms and conditions described in section 142(l)(4)

21 of the Internal Revenue Code of 1986 (as added by this sec22 tion). If the Secretary, after such consultation, certifies that

23 the project has substantially complied with such terms and

24 conditions and meets the commitments set forth in the ap25 plication for such project described in section 142(l)(4) of
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1 such Code, amounts in the reserve account, including all

2 interest, shall be released to the project. If the Secretary de3 termines that the project has not substantially complied

4 with such terms and conditions, amounts in the reserve ac5 count, including all interest, shall be paid to the United

6 States Treasury.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to bonds issued after December 31, 2004.

9 Subtitle B—Manufacturing

10 Relating to Films

11 SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELE12 VISION PRODUCTIONS.

13 (a) IN GENERAL.—Part VI of subchapter B of chapter

14 1 is amended by inserting after section 180 the following

15 new section:

16 ‘‘SEC. 181. TREATMENT OF QUALIFIED FILM AND TELE17 VISION PRODUCTIONS.

18 ‘‘(a) ELECTION TO TREAT CERTAIN COSTS OF QUALI19 FIED FILM AND TELEVISION PRODUCTIONS AS EX20 PENSES.—

21 ‘‘(1) IN GENERAL.—A taxpayer may elect to

22 treat the cost of any qualified film or television pro23 duction as an expense which is not chargeable to cap24 ital account. Any cost so treated shall be allowed as

25 a deduction.
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1 ‘‘(2) DOLLAR LIMITATION.—

2 ‘‘(A) IN GENERAL.—The aggregate cost

3 which may be taken into account under para4 graph (1) with respect to each qualified film or

5 television production shall not exceed

6 $15,000,000.

7 ‘‘(B) HIGHER DOLLAR LIMITATION FOR

8 PRODUCTIONS IN CERTAIN AREAS.—In the case

9 of any qualified film or television production the

10 aggregate cost of which is significantly incurred

11 in an area eligible for designation as—

12 ‘‘(i) a low-income community under

13 section 45D, or

14 ‘‘(ii) a distressed county or isolated

15 area of distress by the Delta Regional Au16 thority established under section 2009aa–1

17 of title 7, United States Code,

18 subparagraph (A) shall be applied by sub19 stituting ‘$20,000,000’ for ‘$15,000,000’.

20 ‘‘(b) AMORTIZATION OF REMAINING COSTS.—

21 ‘‘(1) IN GENERAL.—If an election is made under

22 subsection (a) with respect to any qualified film or

23 television production, that portion of the basis of such

24 production in excess of the amount taken into account

25 under subsection (a) shall be allowed as a deduction
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1 ratably over the 36-month period beginning with the

2 month in which such production is placed in service.

3 ‘‘(2) NO OTHER DEDUCTION OR AMORTIZATION

4 DEDUCTION ALLOWABLE.—With respect to the basis of

5 any qualified film or television production described

6 in paragraph (1), no other depreciation or amortiza7 tion deduction shall be allowable.

8 ‘‘(c) ELECTION.—

9 ‘‘(1) IN GENERAL.—An election under subsection

10 (a) with respect to any qualified film or television

11 production shall be made in such manner as pre12 scribed by the Secretary and by the due date (includ13 ing extensions) for filing the taxpayer’s return of tax

14 under this chapter for the taxable year in which costs

15 of the production are first incurred.

16 ‘‘(2) REVOCATION OF ELECTION.—Any election

17 made under subsection (a) may not be revoked with18 out the consent of the Secretary.

19 ‘‘(d) QUALIFIED FILM OR TELEVISION PRODUCTION.—

20 For purposes of this section—

21 ‘‘(1) IN GENERAL.—The term ‘qualified film or

22 television production’ means any production described

23 in paragraph (2) if 75 percent of the total compensa24 tion of the production is qualified compensation.

25 ‘‘(2) PRODUCTION.—
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1 ‘‘(A) IN GENERAL.—A production is de2 scribed in this paragraph if such production is

3 property described in section 168(f)(3). For pur4 poses of a television series, only the first 44 epi5 sodes of such series may be taken into account.

6 ‘‘(B) EXCEPTION.—A production is not de7 scribed in this paragraph if records are required

8 under section 2257 of title 18, United States

9 Code, to be maintained with respect to any per10 former in such production.

11 ‘‘(3) QUALIFIED COMPENSATION.—For purposes

12 of paragraph (1)—

13 ‘‘(A) IN GENERAL.—The term ‘qualified

14 compensation’ means compensation for services

15 performed in the United States by actors, direc16 tors, producers, and other relevant production

17 personnel.

18 ‘‘(B) PARTICIPATIONS AND RESIDUALS EX19 CLUDED.—The term ‘compensation’ does not in20 clude participations and residuals (as defined in

21 section 167(g)(7)(B)).

22 ‘‘(e) APPLICATION OF CERTAIN OTHER RULES.—For

23 purposes of this section, rules similar to the rules of sub24 sections (b)(2) and (c)(4) of section 194 shall apply.
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1 ‘‘(f) TERMINATION.—This section shall not apply to

2 qualified film and television productions commencing after

3 December 31, 2008.’’.

4 (b) CONFORMING AMENDMENT.—The table of sections

5 for part VI of subchapter B of chapter 1 is amended by

6 inserting after the item relating to section 180 the following

7 new item:

‘‘Sec. 181. Treatment of qualified film and television productions.’’.

8 (c) EFFECTIVE DATE.—The amendments made by this

9 section shall apply to qualified film and television produc10 tions (as defined in section 181(d)(1) of the Internal Rev11 enue Code of 1986, as added by this section) commencing

12 after the date of the enactment of this Act.

13 SEC. 322. MODIFICATION OF APPLICATION OF INCOME

14 FORECAST METHOD OF DEPRECIATION.

15 (a) IN GENERAL.—Section 167(g) (relating to depre16 ciation under income forecast method) is amended by add17 ing at the end the following new paragraph:

18 ‘‘(7) TREATMENT OF PARTICIPATIONS AND RE19 SIDUALS.—

20 ‘‘(A) IN GENERAL.—For purposes of deter21 mining the depreciation deduction allowable

22 with respect to a property under this subsection,

23 the taxpayer may include participations and re24 siduals with respect to such property in the ad25 justed basis of such property for the taxable year
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1 in which the property is placed in service, but

2 only to the extent that such participations and

3 residuals relate to income estimated (for pur4 poses of this subsection) to be earned in connec5 tion with the property before the close of the 10th

6 taxable year referred to in paragraph (1)(A).

7 ‘‘(B) PARTICIPATIONS AND RESIDUALS.—

8 For purposes of this paragraph, the term ‘par9 ticipations and residuals’ means, with respect to

10 any property, costs the amount of which by con11 tract varies with the amount of income earned in

12 connection with such property.

13 ‘‘(C) SPECIAL RULES RELATING TO RE14 COMPUTATION YEARS.—If the adjusted basis of

15 any property is determined under this para16 graph, paragraph (4) shall be applied by sub17 stituting ‘for each taxable year in such period’

18 for ‘for such period’.

19 ‘‘(D) OTHER SPECIAL RULES.—

20 ‘‘(i) PARTICIPATIONS AND RESIDU21 ALS.—Notwithstanding subparagraph (A),

22 the taxpayer may exclude participations

23 and residuals from the adjusted basis of

24 such property and deduct such participa-
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1 tions and residuals in the taxable year that

2 such participations and residuals are paid.

3 ‘‘(ii) COORDINATION WITH OTHER

4 RULES.—Deductions computed in accord5 ance with this paragraph shall be allowable

6 notwithstanding paragraph (1)(B) or sec7 tions 263, 263A, 404, 419, or 461(h).

8 ‘‘(E) AUTHORITY TO MAKE ADJUST9 MENTS.—The Secretary shall prescribe appro10 priate adjustments to the basis of property and

11 to the look-back method for the additional

12 amounts allowable as a deduction solely by rea13 son of this paragraph.’’.

14 (b) DETERMINATION OF INCOME.—Section 167(g)(5)

15 (relating to special rules) is amended by redesignating sub16 paragraphs (E) and (F) as subparagraphs (F) and (G), re17 spectively, and inserting after subparagraph (D) the fol18 lowing new subparagraph:

19 ‘‘(E) TREATMENT OF DISTRIBUTION

20 COSTS.—For purposes of this subsection, the in21 come with respect to any property shall be the

22 taxpayer’s gross income from such property.’’.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to property placed in service after the

25 date of the enactment of this Act.
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1 Subtitle C—Manufacturing

2 Relating to Timber

3 SEC. 331. EXPENSING OF CERTAIN REFORESTATION EX4 PENDITURES.

5 (a) IN GENERAL.—So much of subsection (b) of section

6 194 (relating to amortization of reforestation expenditures)

7 as precedes paragraph (2) is amended to read as follows:

8 ‘‘(b) TREATMENT AS EXPENSES.—

9 ‘‘(1) ELECTION TO TREAT CERTAIN REFOREST10 ATION EXPENDITURES AS EXPENSES.—

11 ‘‘(A) IN GENERAL.—In the case of any

12 qualified timber property with respect to which

13 the taxpayer has made (in accordance with regu14 lations prescribed by the Secretary) an election

15 under this subsection, the taxpayer shall treat re16 forestation expenditures which are paid or in17 curred during the taxable year with respect to

18 such property as an expense which is not charge19 able to capital account. The reforestation expend20 itures so treated shall be allowed as a deduction.

21 ‘‘(B) DOLLAR LIMITATION.—The aggregate

22 amount of reforestation expenditures which may

23 be taken into account under subparagraph (A)

24 with respect to each qualified timber property for

25 any taxable year shall not exceed $10,000
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1 ($5,000 in the case of a separate return by a

2 married individual (as defined in section

3 7703)).’’.

4 (b) NET AMORTIZABLE BASIS.—Section 194(c)(2) (de5 fining amortizable basis) is amended by inserting ‘‘which

6 have not been taken into account under subsection (b)’’ after

7 ‘‘expenditures’’.

8 (c) CONFORMING AMENDMENTS.—

9 (1) Section 194(b) is amended by striking para10 graphs (3) and (4).

11 (2) Section 194(b)(2) is amended by striking

12 ‘‘paragraph (1)’’ both places it appears and inserting

13 ‘‘paragraph (1)(B)’’.

14 (3) Section 194(c) is amended by striking para15 graph (4) and inserting the following new para16 graphs:

17 ‘‘(4) TREATMENT OF TRUSTS AND ESTATES.—

18 ‘‘(A) IN GENERAL.—Except as provided in

19 subparagraph (B), this section shall not apply to

20 trusts and estates.

21 ‘‘(B) AMORTIZATION DEDUCTION ALLOWED

22 TO ESTATES.—The benefit of the deduction for

23 amortization provided by subsection (a) shall be

24 allowed to estates in the same manner as in the

25 case of an individual. The allowable deduction
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1 shall be apportioned between the income bene2 ficiary and the fiduciary under regulations pre3 scribed by the Secretary. Any amount so appor4 tioned to a beneficiary shall be taken into ac5 count for purposes of determining the amount al6 lowable as a deduction under subsection (a) to

7 such beneficiary.

8 ‘‘(5) APPLICATION WITH OTHER DEDUCTIONS.—

9 No deduction shall be allowed under any other provi10 sion of this chapter with respect to any expenditure

11 with respect to which a deduction is allowed or allow12 able under this section to the taxpayer.’’.

13 (4) The heading for section 194 is amended by

14 striking ‘‘AMORTIZATION’’ and inserting ‘‘TREAT15 MENT’’.

16 (5) The item relating to section 194 in the table

17 of sections for part VI of subchapter B of chapter 1

18 is amended by striking ‘‘Amortization’’ and inserting

19 ‘‘Treatment’’.

20 (d) REPEAL OF REFORESTATION CREDIT.—

21 (1) IN GENERAL.—Section 46 (relating to

22 amount of credit) is amended—

23 (A) by adding ‘‘and’’ at the end of para24 graph (1),
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1 (B) by striking ‘‘, and’’ at the end of para2 graph (2) and inserting a period, and

3 (C) by striking paragraph (3).

4 (2) CONFORMING AMENDMENTS.—

5 (A) Section 48 is amended—

6 (i) by striking subsection (b),

7 (ii) by striking ‘‘this subsection’’ in

8 paragraph (5) of subsection (a) and insert9 ing ‘‘subsection (a)’’, and

10 (iii) by redesignating such paragraph

11 (5) as subsection (b).

12 (B) The heading for section 48 is amended

13 by striking ‘‘; REFORESTATION CREDIT’’.

14 (C) The item relating to section 48 in the

15 table of sections for subpart E of part IV of sub16 chapter A of chapter 1 is amended by striking ‘‘,

17 reforestation credit’’.

18 (D) Section 50(c)(3) is amended by striking

19 ‘‘or reforestation credit’’.

20 (e) EFFECTIVE DATE.—The amendments made by this

21 section shall apply with respect to expenditures paid or in22 curred after the date of the enactment of this Act.
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1 SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A

2 SALE OR EXCHANGE.

3 Any election under section 631(a) of the Internal Rev4 enue Code of 1986 made for a taxable year ending on or

5 before the date of the enactment of this Act may be revoked

6 by the taxpayer for any taxable year ending after such date.

7 For purposes of determining whether the taxpayer may

8 make a further election under such section, such election

9 (and any revocation under this section) shall not be taken

10 into account.

11 SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION

12 631(b) TO APPLY TO OUTRIGHT SALES BY

13 LANDOWNERS.

14 (a) IN GENERAL.—The first sentence of section 631(b)

15 (relating to disposal of timber with a retained economic in16 terest) is amended by striking ‘‘retains an economic interest

17 in such timber’’ and inserting ‘‘either retains an economic

18 interest in such timber or makes an outright sale of such

19 timber’’.

20 (b) CONFORMING AMENDMENTS.—

21 (1) The third sentence of section 631(b) is

22 amended by striking ‘‘The date of disposal’’ and in23 serting ‘‘In the case of disposal of timber with a re24 tained economic interest, the date of disposal’’.

25 (2) The heading for section 631(b) is amended by

26 striking ‘‘WITH A RETAINED ECONOMIC INTEREST’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to sales after the date of the enactment

3 of this Act.

4 SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIM5 BER REITS.

6 (a) EXPANSION OF PROHIBITED TRANSACTION SAFE

7 HARBOR.—Section 857(b)(6) (relating to income from pro8 hibited transactions) is amended by redesignating subpara9 graphs (D) and (E) as subparagraphs (E) and (F), respec10 tively, and by inserting after subparagraph (C) the fol11 lowing new subparagraph:

12 ‘‘(D) CERTAIN SALES NOT TO CONSTITUTE

13 PROHIBITED TRANSACTIONS.—For purposes of

14 this part, the term ‘prohibited transaction’ does

15 not include a sale of property which is a real es16 tate asset (as defined in section 856(c)(5)(B))

17 if—

18 ‘‘(i) the trust held the property for not

19 less than 4 years in connection with the

20 trade or business of producing timber,

21 ‘‘(ii) the aggregate expenditures made

22 by the trust, or a partner of the trust, dur23 ing the 4-year period preceding the date of

24 sale which—
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1 ‘‘(I) are includible in the basis of

2 the property (other than timberland

3 acquisition expenditures), and

4 ‘‘(II) are directly related to oper5 ation of the property for the produc6 tion of timber or for the preservation of

7 the property for use as timberland,

8 do not exceed 30 percent of the net selling

9 price of the property,

10 ‘‘(iii) the aggregate expenditures made

11 by the trust, or a partner of the trust, dur12 ing the 4-year period preceding the date of

13 sale which—

14 ‘‘(I) are includible in the basis of

15 the property (other than timberland

16 acquisition expenditures), and

17 ‘‘(II) are not directly related to

18 operation of the property for the pro19 duction of timber, or for the preserva20 tion of the property for use as

21 timberland,

22 do not exceed 5 percent of the net selling

23 price of the property,

24 ‘‘(iv)(I) during the taxable year the

25 trust does not make more than 7 sales of
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1 property (other than sales of foreclosure

2 property or sales to which section 1033 ap3 plies), or

4 ‘‘(II) the aggregate adjusted bases (as

5 determined for purposes of computing earn6 ings and profits) of property (other than

7 sales of foreclosure property or sales to

8 which section 1033 applies) sold during the

9 taxable year does not exceed 10 percent of

10 the aggregate bases (as so determined) of all

11 of the assets of the trust as of the beginning

12 of the taxable year,

13 ‘‘(v) in the case that the requirement of

14 clause (iv)(I) is not satisfied, substantially

15 all of the marketing expenditures with re16 spect to the property were made through an

17 independent contractor (as defined in sec18 tion 856(d)(3)) from whom the trust itself

19 does not derive or receive any income, and

20 ‘‘(vi) the sales price of the property

21 sold by the trust is not based in whole or in

22 part on income or profits, including income

23 or profits derived from the sale or operation

24 of such property.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after the date

3 of the enactment of this Act.

4 TITLE IV—ADDITIONAL

5 PROVISIONS

6 Subtitle A—Provisions Designed To

7 Curtail Tax Shelters

8 SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOC9 TRINE.

10 (a) IN GENERAL.—Section 7701 is amended by redes11 ignating subsection (n) as subsection (o) and by inserting

12 after subsection (m) the following new subsection:

13 ‘‘(n) CLARIFICATION OF ECONOMIC SUBSTANCE DOC14 TRINE; ETC.—

15 ‘‘(1) GENERAL RULES.—

16 ‘‘(A) IN GENERAL.—In any case in which a

17 court determines that the economic substance

18 doctrine is relevant for purposes of this title to

19 a transaction (or series of transactions), such

20 transaction (or series of transactions) shall have

21 economic substance only if the requirements of

22 this paragraph are met.

23 ‘‘(B) DEFINITION OF ECONOMIC SUB24 STANCE.—For purposes of subparagraph (A)—
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1 ‘‘(i) IN GENERAL.—A transaction has

2 economic substance only if—

3 ‘‘(I) the transaction changes in a

4 meaningful way (apart from Federal

5 tax effects) the taxpayer’s economic po6 sition, and

7 ‘‘(II) the taxpayer has a substan8 tial nontax purpose for entering into

9 such transaction and the transaction is

10 a reasonable means of accomplishing

11 such purpose.

12 In applying subclause (II), a purpose of

13 achieving a financial accounting benefit

14 shall not be taken into account in deter15 mining whether a transaction has a sub16 stantial nontax purpose if the origin of such

17 financial accounting benefit is a reduction

18 of income tax.

19 ‘‘(ii) SPECIAL RULE WHERE TAXPAYER

20 RELIES ON PROFIT POTENTIAL.—A trans21 action shall not be treated as having eco22 nomic substance by reason of having a po23 tential for profit unless—

24 ‘‘(I) the present value of the rea25 sonably expected pre-tax profit from
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1 the transaction is substantial in rela2 tion to the present value of the expected

3 net tax benefits that would be allowed

4 if the transaction were respected, and

5 ‘‘(II) the reasonably expected pre6 tax profit from the transaction exceeds

7 a risk-free rate of return.

8 ‘‘(C) TREATMENT OF FEES AND FOREIGN

9 TAXES.—Fees and other transaction expenses

10 and foreign taxes shall be taken into account as

11 expenses in determining pre-tax profit under

12 subparagraph (B)(ii).

13 ‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH

14 TAX-INDIFFERENT PARTIES.—

15 ‘‘(A) SPECIAL RULES FOR FINANCING

16 TRANSACTIONS.—The form of a transaction

17 which is in substance the borrowing of money or

18 the acquisition of financial capital directly or

19 indirectly from a tax-indifferent party shall not

20 be respected if the present value of the deductions

21 to be claimed with respect to the transaction is

22 substantially in excess of the present value of the

23 anticipated economic returns of the person lend24 ing the money or providing the financial capital.

25 A public offering shall be treated as a borrowing,
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1 or an acquisition of financial capital, from a

2 tax-indifferent party if it is reasonably expected

3 that at least 50 percent of the offering will be

4 placed with tax-indifferent parties.

5 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

6 BASIS ADJUSTMENTS.—The form of a trans7 action with a tax-indifferent party shall not be

8 respected if—

9 ‘‘(i) it results in an allocation of in10 come or gain to the tax-indifferent party in

11 excess of such party’s economic income or

12 gain, or

13 ‘‘(ii) it results in a basis adjustment or

14 shifting of basis on account of overstating

15 the income or gain of the tax-indifferent

16 party.

17 ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For

18 purposes of this subsection—

19 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—

20 The term ‘economic substance doctrine’ means

21 the common law doctrine under which tax bene22 fits under subtitle A with respect to a trans23 action are not allowable if the transaction does

24 not have economic substance or lacks a business

25 purpose.
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1 ‘‘(B) TAX-INDIFFERENT PARTY.—The term

2 ‘tax-indifferent party’ means any person or enti3 ty not subject to tax imposed by subtitle A. A

4 person shall be treated as a tax-indifferent party

5 with respect to a transaction if the items taken

6 into account with respect to the transaction have

7 no substantial impact on such person’s liability

8 under subtitle A.

9 ‘‘(C) EXCEPTION FOR PERSONAL TRANS10 ACTIONS OF INDIVIDUALS.—In the case of an in11 dividual, this subsection shall apply only to

12 transactions entered into in connection with a

13 trade or business or an activity engaged in for

14 the production of income.

15 ‘‘(D) TREATMENT OF LESSORS.—In apply16 ing paragraph (1)(B)(ii) to the lessor of tangible

17 property subject to a lease—

18 ‘‘(i) the expected net tax benefits with

19 respect to the leased property shall not in20 clude the benefits of—

21 ‘‘(I) depreciation,

22 ‘‘(II) any tax credit, or

23 ‘‘(III) any other deduction as pro24 vided in guidance by the Secretary,

25 and
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1 ‘‘(ii) subclause (II) of paragraph

2 (1)(B)(ii) shall be disregarded in deter3 mining whether any of such benefits are al4 lowable.

5 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF6 FECTED.—Except as specifically provided in this sub7 section, the provisions of this subsection shall not be

8 construed as altering or supplanting any other rule of

9 law, and the requirements of this subsection shall be

10 construed as being in addition to any such other rule

11 of law.

12 ‘‘(5) REGULATIONS.—The Secretary shall pre13 scribe such regulations as may be necessary or appro14 priate to carry out the purposes of this subsection.

15 Such regulations may include exemptions from the

16 application of this subsection.’’.

17 (b) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to transactions entered into after the

19 date of the enactment of this Act.

20 SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORT21 ABLE TRANSACTION.

22 (a) IN GENERAL.—Part I of subchapter B of chapter

23 68 (relating to assessable penalties) is amended by inserting

24 after section 6707 the following new section:
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1 ‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT2 ABLE TRANSACTION INFORMATION WITH RE3 TURN OR STATEMENT.

4 ‘‘(a) IMPOSITION OF PENALTY.—Any person who fails

5 to include on any return or statement any information with

6 respect to a reportable transaction which is required under

7 section 6011 to be included with such return or statement

8 shall pay a penalty in the amount determined under sub9 section (b).

10 ‘‘(b) AMOUNT OF PENALTY.—

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graphs (2) and (3), the amount of the penalty under

13 subsection (a) shall be $50,000.

14 ‘‘(2) LISTED TRANSACTION.—The amount of the

15 penalty under subsection (a) with respect to a listed

16 transaction shall be $100,000.

17 ‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES

18 AND HIGH NET WORTH INDIVIDUALS.—

19 ‘‘(A) IN GENERAL.—In the case of a failure

20 under subsection (a) by—

21 ‘‘(i) a large entity, or

22 ‘‘(ii) a high net worth individual,

23 the penalty under paragraph (1) or (2) shall be

24 twice the amount determined without regard to

25 this paragraph.
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1 ‘‘(B) LARGE ENTITY.—For purposes of sub2 paragraph (A), the term ‘large entity’ means,

3 with respect to any taxable year, a person (other

4 than a natural person) with gross receipts in ex5 cess of $10,000,000 for the taxable year in which

6 the reportable transaction occurs or the pre7 ceding taxable year. Rules similar to the rules of

8 paragraph (2) and subparagraphs (B), (C), and

9 (D) of paragraph (3) of section 448(c) shall

10 apply for purposes of this subparagraph.

11 ‘‘(C) HIGH NET WORTH INDIVIDUAL.—For

12 purposes of subparagraph (A), the term ‘high net

13 worth individual’ means, with respect to a re14 portable transaction, a natural person whose net

15 worth exceeds $2,000,000 immediately before the

16 transaction.

17 ‘‘(c) DEFINITIONS.—For purposes of this section—

18 ‘‘(1) REPORTABLE TRANSACTION.—The term ‘re19 portable transaction’ means any transaction with re20 spect to which information is required to be included

21 with a return or statement because, as determined

22 under regulations prescribed under section 6011, such

23 transaction is of a type which the Secretary deter24 mines as having a potential for tax avoidance or eva25 sion.
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1 ‘‘(2) LISTED TRANSACTION.—Except as provided

2 in regulations, the term ‘listed transaction’ means a

3 reportable transaction which is the same as, or sub4 stantially similar to, a transaction specifically identi5 fied by the Secretary as a tax avoidance transaction

6 for purposes of section 6011.

7 ‘‘(d) AUTHORITY TO RESCIND PENALTY.—

8 ‘‘(1) IN GENERAL.—The Commissioner of Inter9 nal Revenue may rescind all or any portion of any

10 penalty imposed by this section with respect to any

11 violation if—

12 ‘‘(A) the violation is with respect to a re13 portable transaction other than a listed trans14 action,

15 ‘‘(B) the person on whom the penalty is im16 posed has a history of complying with the re17 quirements of this title,

18 ‘‘(C) it is shown that the violation is due to

19 an unintentional mistake of fact;

20 ‘‘(D) imposing the penalty would be against

21 equity and good conscience, and

22 ‘‘(E) rescinding the penalty would promote

23 compliance with the requirements of this title

24 and effective tax administration.
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1 ‘‘(2) DISCRETION.—The exercise of authority

2 under paragraph (1) shall be at the sole discretion of

3 the Commissioner and may be delegated only to the

4 head of the Office of Tax Shelter Analysis. The Com5 missioner, in the Commissioner’s sole discretion, may

6 establish a procedure to determine if a penalty should

7 be referred to the Commissioner or the head of such

8 Office for a determination under paragraph (1).

9 ‘‘(3) NO APPEAL.—Notwithstanding any other

10 provision of law, any determination under this sub11 section may not be reviewed in any administrative or

12 judicial proceeding.

13 ‘‘(4) RECORDS.—If a penalty is rescinded under

14 paragraph (1), the Commissioner shall place in the

15 file in the Office of the Commissioner the opinion of

16 the Commissioner or the head of the Office of Tax

17 Shelter Analysis with respect to the determination,

18 including—

19 ‘‘(A) the facts and circumstances of the

20 transaction,

21 ‘‘(B) the reasons for the rescission, and

22 ‘‘(C) the amount of the penalty rescinded.

23 ‘‘(5) REPORT.—The Commissioner shall each

24 year report to the Committee on Ways and Means of
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1 the House of Representatives and the Committee on

2 Finance of the Senate—

3 ‘‘(A) a summary of the total number and

4 aggregate amount of penalties imposed, and re5 scinded, under this section, and

6 ‘‘(B) a description of each penalty rescinded

7 under this subsection and the reasons therefor.

8 ‘‘(e) PENALTY REPORTED TO SEC.—In the case of a

9 person—

10 ‘‘(1) which is required to file periodic reports

11 under section 13 or 15(d) of the Securities Exchange

12 Act of 1934 or is required to be consolidated with an13 other person for purposes of such reports, and

14 ‘‘(2) which—

15 ‘‘(A) is required to pay a penalty under

16 this section with respect to a listed transaction,

17 ‘‘(B) is required to pay a penalty under sec18 tion 6662A with respect to any reportable trans19 action at a rate prescribed under section

20 6662A(c), or

21 ‘‘(C) is required to pay a penalty under sec22 tion 6662B with respect to any noneconomic

23 substance transaction,

24 the requirement to pay such penalty shall be disclosed in

25 such reports filed by such person for such periods as the
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1 Secretary shall specify. Failure to make a disclosure in ac2 cordance with the preceding sentence shall be treated as a

3 failure to which the penalty under subsection (b)(2) applies.

4 ‘‘(f) COORDINATION WITH OTHER PENALTIES.—The

5 penalty imposed by this section is in addition to any pen6 alty imposed under this title.’’.

7 (b) DISCLOSURE BY SECRETARY.—

8 (1) IN GENERAL.—Section 6103 is amended by

9 redesignating subsection (q) as subsection (r) and by

10 inserting after subsection (p) the following new sub11 section:

12 ‘‘(q) DISCLOSURE RELATING TO PAYMENTS OF CER13 TAIN PENALTIES.—Notwithstanding any other provision of

14 this section, the Secretary shall make public the name of

15 any person required to pay a penalty described in section

16 6707A(e)(2) and the amount of the penalty.’’.

17 (2) RECORDS.—Section 6103(p)(3)(A) is amend18 ed by striking ‘‘or (n)’’ and inserting ‘‘(n), or (q)’’.

19 (c) CONFORMING AMENDMENT.—The table of sections

20 for part I of subchapter B of chapter 68 is amended by

21 inserting after the item relating to section 6707 the fol22 lowing:

‘‘Sec. 6707A. Penalty for failure to include reportable transaction

information with return or statement.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to returns and statements the due date

3 for which is after the date of the enactment of this Act.

4 SEC. 403. ACCURACY-RELATED PENALTY FOR LISTED

5 TRANSACTIONS AND OTHER REPORTABLE

6 TRANSACTIONS HAVING A SIGNIFICANT TAX

7 AVOIDANCE PURPOSE.

8 (a) IN GENERAL.—Subchapter A of chapter 68 is

9 amended by inserting after section 6662 the following new

10 section:

11 ‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY

12 ON UNDERSTATEMENTS WITH RESPECT TO

13 REPORTABLE TRANSACTIONS.

14 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a

15 reportable transaction understatement for any taxable year,

16 there shall be added to the tax an amount equal to 20 per17 cent of the amount of such understatement.

18 ‘‘(b) REPORTABLE TRANSACTION UNDERSTATE19 MENT.—For purposes of this section—

20 ‘‘(1) IN GENERAL.—The term ‘reportable trans21 action understatement’ means the sum of—

22 ‘‘(A) the product of—

23 ‘‘(i) the amount of the increase (if any)

24 in taxable income which results from a dif25 ference between the proper tax treatment of
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1 an item to which this section applies and

2 the taxpayer’s treatment of such item (as

3 shown on the taxpayer’s return of tax), and

4 ‘‘(ii) the highest rate of tax imposed by

5 section 1 (section 11 in the case of a tax6 payer which is a corporation), and

7 ‘‘(B) the amount of the decrease (if any) in

8 the aggregate amount of credits determined

9 under subtitle A which results from a difference

10 between the taxpayer’s treatment of an item to

11 which this section applies (as shown on the tax12 payer’s return of tax) and the proper tax treat13 ment of such item.

14 For purposes of subparagraph (A), any reduction of

15 the excess of deductions allowed for the taxable year

16 over gross income for such year, and any reduction

17 in the amount of capital losses which would (without

18 regard to section 1211) be allowed for such year, shall

19 be treated as an increase in taxable income.

20 ‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This

21 section shall apply to any item which is attributable

22 to—

23 ‘‘(A) any listed transaction, and

24 ‘‘(B) any reportable transaction (other than

25 a listed transaction) if a significant purpose of
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1 such transaction is the avoidance or evasion of

2 Federal income tax.

3 ‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED

4 AND OTHER AVOIDANCE TRANSACTIONS.—

5 ‘‘(1) IN GENERAL.—Subsection (a) shall be ap6 plied by substituting ‘30 percent’ for ‘20 percent’ with

7 respect to the portion of any reportable transaction

8 understatement with respect to which the requirement

9 of section 6664(d)(2)(A) is not met.

10 ‘‘(2) RULES APPLICABLE TO ASSERTION AND

11 COMPROMISE OF PENALTY.—

12 ‘‘(A) IN GENERAL.—Only upon the ap13 proval by the Chief Counsel for the Internal Rev14 enue Service or the Chief Counsel’s delegate at

15 the national office of the Internal Revenue Serv16 ice may a penalty to which paragraph (1) ap17 plies be included in a 1st letter of proposed defi18 ciency which allows the taxpayer an opportunity

19 for administrative review in the Internal Rev20 enue Service Office of Appeals. If such a letter is

21 provided to the taxpayer, only the Commissioner

22 of Internal Revenue may compromise all or any

23 portion of such penalty.

24 ‘‘(B) APPLICABLE RULES.—The rules of

25 paragraphs (2), (3), (4), and (5) of section
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1 6707A(d) shall apply for purposes of subpara2 graph (A).

3 ‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED

4 TRANSACTIONS.—For purposes of this section, the terms ‘re5 portable transaction’ and ‘listed transaction’ have the re6 spective meanings given to such terms by section 6707A(c).

7 ‘‘(e) SPECIAL RULES.—

8 ‘‘(1) COORDINATION WITH PENALTIES, ETC., ON

9 OTHER UNDERSTATEMENTS.—In the case of an under10 statement (as defined in section 6662(d)(2))—

11 ‘‘(A) the amount of such understatement

12 (determined without regard to this paragraph)

13 shall be increased by the aggregate amount of re14 portable transaction understatements and non15 economic substance transaction understatements

16 for purposes of determining whether such under17 statement is a substantial understatement under

18 section 6662(d)(1), and

19 ‘‘(B) the addition to tax under section

20 6662(a) shall apply only to the excess of the

21 amount of the substantial understatement (if

22 any) after the application of subparagraph (A)

23 over the aggregate amount of reportable trans24 action understatements and noneconomic sub25 stance transaction understatements.
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1 ‘‘(2) COORDINATION WITH OTHER PENALTIES.—

2 ‘‘(A) APPLICATION OF FRAUD PENALTY.—

3 References to an underpayment in section 6663

4 shall be treated as including references to a re5 portable transaction understatement and a non6 economic substance transaction understatement.

7 ‘‘(B) NO DOUBLE PENALTY.—This section

8 shall not apply to any portion of an understate9 ment on which a penalty is imposed under sec10 tion 6662B or 6663.

11 ‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—

12 Except as provided in regulations, in no event shall

13 any tax treatment included with an amendment or

14 supplement to a return of tax be taken into account

15 in determining the amount of any reportable trans16 action understatement or noneconomic substance

17 transaction understatement if the amendment or sup18 plement is filed after the earlier of the date the tax19 payer is first contacted by the Secretary regarding the

20 examination of the return or such other date as is

21 specified by the Secretary.

22 ‘‘(4) NONECONOMIC SUBSTANCE TRANS23 ACTION UNDERSTATEMENT.—For purposes of this

24 subsection, the term ‘noneconomic substance
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1 transaction understatement’ has the meaning

2 given such term by section 6662B(c).

3 ‘‘(5) CROSS REFERENCE.—

‘‘For reporting of section 6662A(c) penalty to the

Securities and Exchange Commission, see section

6707A(e).’’.

4 (b) DETERMINATION OF OTHER UNDERSTATE5 MENTS.—Subparagraph (A) of section 6662(d)(2) is

6 amended by adding at the end the following flush sentence:

7 ‘‘The excess under the preceding sentence shall be

8 determined without regard to items to which sec9 tion 6662A applies and without regard to items

10 with respect to which a penalty is imposed by

11 section 6662B.’’.

12 (c) REASONABLE CAUSE EXCEPTION.—

13 (1) IN GENERAL.—Section 6664 is amended by

14 adding at the end the following new subsection:

15 ‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORT16 ABLE TRANSACTION UNDERSTATEMENTS.—

17 ‘‘(1) IN GENERAL.—No penalty shall be imposed

18 under section 6662A with respect to any portion of a

19 reportable transaction understatement if it is shown

20 that there was a reasonable cause for such portion

21 and that the taxpayer acted in good faith with respect

22 to such portion.
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1 ‘‘(2) SPECIAL RULES.—Paragraph (1) shall not

2 apply to any reportable transaction understatement

3 unless—

4 ‘‘(A) the relevant facts affecting the tax

5 treatment of the item are adequately disclosed in

6 accordance with the regulations prescribed under

7 section 6011,

8 ‘‘(B) there is or was substantial authority

9 for such treatment, and

10 ‘‘(C) the taxpayer reasonably believed that

11 such treatment was more likely than not the

12 proper treatment.

13 A taxpayer failing to adequately disclose in accord14 ance with section 6011 shall be treated as meeting the

15 requirements of subparagraph (A) if the penalty for

16 such failure was rescinded under section 6707A(d).

17 ‘‘(3) RULES RELATING TO REASONABLE BE18 LIEF.—For purposes of paragraph (2)(C)—

19 ‘‘(A) IN GENERAL.—A taxpayer shall be

20 treated as having a reasonable belief with respect

21 to the tax treatment of an item only if such

22 belief—

23 ‘‘(i) is based on the facts and law that

24 exist at the time the return of tax which in25 cludes such tax treatment is filed, and
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1 ‘‘(ii) relates solely to the taxpayer’s

2 chances of success on the merits of such

3 treatment and does not take into account

4 the possibility that a return will not be au5 dited, such treatment will not be raised on

6 audit, or such treatment will be resolved

7 through settlement if it is raised.

8 ‘‘(B) CERTAIN OPINIONS MAY NOT BE RE9 LIED UPON.—

10 ‘‘(i) IN GENERAL.—An opinion of a

11 tax advisor may not be relied upon to estab12 lish the reasonable belief of a taxpayer if—

13 ‘‘(I) the tax advisor is described

14 in clause (ii), or

15 ‘‘(II) the opinion is described in

16 clause (iii).

17 ‘‘(ii) DISQUALIFIED TAX ADVISORS.—A

18 tax advisor is described in this clause if the

19 tax advisor—

20 ‘‘(I) is a material advisor (within

21 the meaning of section 6111(b)(1)) who

22 participates in the organization, man23 agement, promotion, or sale of the

24 transaction or who is related (within

25 the meaning of section 267(b) or
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1 707(b)(1)) to any person who so par2 ticipates,

3 ‘‘(II) is compensated directly or

4 indirectly by a material advisor with

5 respect to the transaction,

6 ‘‘(III) has a fee arrangement with

7 respect to the transaction which is con8 tingent on all or part of the intended

9 tax benefits from the transaction being

10 sustained,

11 ‘‘(IV) has an arrangement with

12 respect to the transaction which pro13 vides that contractual disputes between

14 the taxpayer and the advisor are to be

15 settled by arbitration or which limits

16 damages by reference to fees paid to the

17 advisor for such transaction, or

18 ‘‘(V) as determined under regula19 tions prescribed by the Secretary, has a

20 disqualifying financial interest with

21 respect to the transaction.

22 ‘‘(iii) DISQUALIFIED OPINIONS.—For

23 purposes of clause (i), an opinion is dis24 qualified if the opinion—
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1 ‘‘(I) is based on unreasonable fac2 tual or legal assumptions (including

3 assumptions as to future events),

4 ‘‘(II) unreasonably relies on rep5 resentations, statements, findings, or

6 agreements of the taxpayer or any

7 other person,

8 ‘‘(III) does not identify and con9 sider all relevant facts,

10 ‘‘(IV) is not signed by all individ11 uals who are principal authors of the

12 opinion, or

13 ‘‘(V) fails to meet any other re14 quirement as the Secretary may pre15 scribe.’’.

16 (2) CONFORMING AMENDMENT.—The heading for

17 subsection (c) of section 6664 is amended by inserting

18 ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’.

19 (d) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (C) of section 461(i)(3) is

21 amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ and

22 inserting ‘‘section 1274(b)(3)(C)’’.

23 (2) Paragraph (3) of section 1274(b) is

24 amended—
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1 (A) by striking ‘‘(as defined in section

2 6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and

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

4 subparagraph:

5 ‘‘(C) TAX SHELTER.—For purposes of sub6 paragraph (B), the term ‘tax shelter’ means—

7 ‘‘(i) a partnership or other entity,

8 ‘‘(ii) any investment plan or arrange9 ment, or

10 ‘‘(iii) any other plan or arrangement,

11 if a significant purpose of such partnership, en12 tity, plan, or arrangement is the avoidance or

13 evasion of Federal income tax.’’.

14 (3) Section 6662(d)(2) is amended by striking

15 subparagraphs (C) and (D).

16 (4) Section 6664(c)(1) is amended by striking

17 ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.

18 (5) Subsection (b) of section 7525 is amended by

19 striking ‘‘section 6662(d)(2)(C)(iii)’’ and inserting

20 ‘‘section 1274(b)(3)(C)’’.

21 (6)(A) The heading for section 6662 is amended

22 to read as follows:
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1 ‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY

2 ON UNDERPAYMENTS.’’.

3 (B) The table of sections for part II of sub4 chapter A of chapter 68 is amended by striking the

5 item relating to section 6662 and inserting the fol6 lowing new items:

‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments.

‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements with respect to reportable transactions.’’.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to taxable years ending after the date

9 of the enactment of this Act.

10 SEC. 404. PENALTY FOR UNDERSTATEMENTS ATTRIB11 UTABLE TO TRANSACTIONS LACKING ECO12 NOMIC SUBSTANCE, ETC.

13 (a) IN GENERAL.—Subchapter A of chapter 68 is

14 amended by inserting after section 6662A the following new

15 section:

16 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB17 UTABLE TO TRANSACTIONS LACKING ECO18 NOMIC SUBSTANCE, ETC.

19 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an

20 noneconomic substance transaction understatement for any

21 taxable year, there shall be added to the tax an amount

22 equal to 40 percent of the amount of such understatement.
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1 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED TRANS2 ACTIONS.—Subsection (a) shall be applied by substituting

3 ‘20 percent’ for ‘40 percent’ with respect to the portion of

4 any noneconomic substance transaction understatement

5 with respect to which the relevant facts affecting the tax

6 treatment of the item are adequately disclosed in the return

7 or a statement attached to the return.

8 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UNDER9 STATEMENT.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The term ‘noneconomic sub11 stance transaction understatement’ means any

12 amount which would be an understatement under sec13 tion 6662A(b)(1) if section 6662A were applied by

14 taking into account items attributable to noneconomic

15 substance transactions rather than items to which sec16 tion 6662A would apply without regard to this para17 graph.

18 ‘‘(2) NONECONOMIC SUBSTANCE TRANSACTION.—

19 The term ‘noneconomic substance transaction’ means

20 any transaction if—

21 ‘‘(A) there is a lack of economic substance

22 (within the meaning of section 7701(n)(1)) for

23 the transaction giving rise to the claimed benefit

24 or the transaction was not respected under sec25 tion 7701(n)(2), or
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1 ‘‘(B) the transaction fails to meet the re2 quirements of any similar rule of law.

3 ‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN4 ALTY.—

5 ‘‘(1) IN GENERAL.—If the 1st letter of proposed

6 deficiency which allows the taxpayer an opportunity

7 for administrative review in the Internal Revenue

8 Service Office of Appeals has been sent with respect

9 to a penalty to which this section applies, only the

10 Commissioner of Internal Revenue may compromise

11 all or any portion of such penalty.

12 ‘‘(2) APPLICABLE RULES.—The rules of para13 graphs (2), (3), (4), and (5) of section 6707A(d) shall

14 apply for purposes of paragraph (1).

15 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex16 cept as otherwise provided in this part, the penalty imposed

17 by this section shall be in addition to any other penalty

18 imposed by this title.

19 ‘‘(f) CROSS REFERENCES.—

‘‘(1) For coordination of penalty with understatements under section 6662 and other special rules, see

section 6662A(e).

‘‘(2) For reporting of penalty imposed under this

section to the Securities and Exchange Commission,

see section 6707A(e).’’.

20 (b) CLERICAL AMENDMENT.—The table of sections for

21 part II of subchapter A of chapter 68 is amended by insert-
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1 ing after the item relating to section 6662A the following

2 new item:

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.’’.

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

4 section shall apply to transactions entered into after the

5 date of the enactment of this Act.

6 SEC. 405. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE7 MENT PENALTY FOR NONREPORTABLE

8 TRANSACTIONS.

9 (a) SUBSTANTIAL UNDERSTATEMENT OF CORPORA10 TIONS.—Section 6662(d)(1)(B) (relating to special rule for

11 corporations) is amended to read as follows:

12 ‘‘(B) SPECIAL RULE FOR CORPORATIONS.—

13 In the case of a corporation other than an S cor14 poration or a personal holding company (as de15 fined in section 542), there is a substantial un16 derstatement of income tax for any taxable year

17 if the amount of the understatement for the tax18 able year exceeds the lesser of—

19 ‘‘(i) 10 percent of the tax required to

20 be shown on the return for the taxable year

21 (or, if greater, $10,000), or

22 ‘‘(ii) $10,000,000.’’.

23 (b) REDUCTION FOR UNDERSTATEMENT OF TAXPAYER

24 DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.—
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1 (1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re2 lating to substantial authority) is amended to read as

3 follows:

4 ‘‘(i) the tax treatment of any item by

5 the taxpayer if the taxpayer had reasonable

6 belief that the tax treatment was more likely

7 than not the proper treatment, or’’.

8 (2) CONFORMING AMENDMENT.—Section 6662(d)

9 is amended by adding at the end the following new

10 paragraph:

11 ‘‘(3) SECRETARIAL LIST.—For purposes of this

12 subsection, section 6664(d)(2), and section 6694(a)(1),

13 the Secretary may prescribe a list of positions for

14 which the Secretary believes there is not substantial

15 authority or there is no reasonable belief that the tax

16 treatment is more likely than not the proper tax

17 treatment. Such list (and any revisions thereof) shall

18 be published in the Federal Register or the Internal

19 Revenue Bulletin.’’.

20 (c) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to taxable years beginning after the date

22 of the enactment of this Act.
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1 SEC. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY

2 PRIVILEGES RELATING TO TAXPAYER COM3 MUNICATIONS.

4 (a) IN GENERAL.—Section 7525(b) (relating to section

5 not to apply to communications regarding corporate tax

6 shelters) is amended to read as follows:

7 ‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS

8 REGARDING TAX SHELTERS.—The privilege under sub9 section (a) shall not apply to any written communication

10 which is—

11 ‘‘(1) between a federally authorized tax practi12 tioner and—

13 ‘‘(A) any person,

14 ‘‘(B) any director, officer, employee, agent,

15 or representative of the person, or

16 ‘‘(C) any other person holding a capital or

17 profits interest in the person, and

18 ‘‘(2) in connection with the promotion of the di19 rect or indirect participation of the person in any tax

20 shelter (as defined in section 1274(b)(3)(C)).’’.

21 (b) EFFECTIVE DATE.—The amendment made by this

22 section shall apply to communications made on or after the

23 date of the enactment of this Act.

24 SEC. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.

25 (a) IN GENERAL.—Section 6111 (relating to registra26 tion of tax shelters) is amended to read as follows:
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1 ‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

2 ‘‘(a) IN GENERAL.—Each material advisor with re3 spect to any reportable transaction shall make a return (in

4 such form as the Secretary may prescribe) setting forth—

5 ‘‘(1) information identifying and describing the

6 transaction,

7 ‘‘(2) information describing any potential tax

8 benefits expected to result from the transaction, and

9 ‘‘(3) such other information as the Secretary

10 may prescribe.

11 Such return shall be filed not later than the date specified

12 by the Secretary.

13 ‘‘(b) DEFINITIONS.—For purposes of this section—

14 ‘‘(1) MATERIAL ADVISOR.—

15 ‘‘(A) IN GENERAL.—The term ‘material ad16 visor’ means any person—

17 ‘‘(i) who provides any material aid,

18 assistance, or advice with respect to orga19 nizing, managing, promoting, selling, im20 plementing, insuring, or carrying out any

21 reportable transaction, and

22 ‘‘(ii) who directly or indirectly derives

23 gross income in excess of the threshold

24 amount for such aid, assistance, or advice.

25 ‘‘(B) THRESHOLD AMOUNT.—For purposes

26 of subparagraph (A), the threshold amount is—
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1 ‘‘(i) $50,000 in the case of a reportable

2 transaction substantially all of the tax bene3 fits from which are provided to natural per4 sons, and

5 ‘‘(ii) $250,000 in any other case.

6 ‘‘(2) REPORTABLE TRANSACTION.—The term ‘re7 portable transaction’ has the meaning given to such

8 term by section 6707A(c).

9 ‘‘(c) REGULATIONS.—The Secretary may prescribe reg10 ulations which provide—

11 ‘‘(1) that only 1 person shall be required to meet

12 the requirements of subsection (a) in cases in which

13 2 or more persons would otherwise be required to meet

14 such requirements,

15 ‘‘(2) exemptions from the requirements of this

16 section, and

17 ‘‘(3) such rules as may be necessary or appro18 priate to carry out the purposes of this section.’’.

19 (b) CONFORMING AMENDMENTS.—

20 (1) The item relating to section 6111 in the table

21 of sections for subchapter B of chapter 61 is amended

22 to read as follows:

‘‘Sec. 6111. Disclosure of reportable transactions.’’.

23 (2)(A) So much of section 6112 as precedes sub24 section (c) thereof is amended to read as follows:
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1 ‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANS2 ACTIONS MUST KEEP LISTS OF ADVISEES.

3 ‘‘(a) IN GENERAL.—Each material advisor (as defined

4 in section 6111) with respect to any reportable transaction

5 (as defined in section 6707A(c)) shall maintain, in such

6 manner as the Secretary may by regulations prescribe, a

7 list—

8 ‘‘(1) identifying each person with respect to

9 whom such advisor acted as such a material advisor

10 with respect to such transaction, and

11 ‘‘(2) containing such other information as the

12 Secretary may by regulations require.

13 This section shall apply without regard to whether a mate14 rial advisor is required to file a return under section 6111

15 with respect to such transaction.’’.

16 (B) Section 6112 is amended by redesignating

17 subsection (c) as subsection (b).

18 (C) Section 6112(b), as redesignated by subpara19 graph (B), is amended—

20 (i) by inserting ‘‘written’’ before ‘‘request’’

21 in paragraph (1)(A), and

22 (ii) by striking ‘‘shall prescribe’’ in para23 graph (2) and inserting ‘‘may prescribe’’.

24 (D) The item relating to section 6112 in the

25 table of sections for subchapter B of chapter 61 is

26 amended to read as follows:
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‘‘Sec. 6112. Material advisors of reportable transactions must keep

lists of advisees.’’.

1 (3)(A) The heading for section 6708 is amended

2 to read as follows:

3 ‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES

4 WITH RESPECT TO REPORTABLE TRANS5 ACTIONS.’’.

6 (B) The item relating to section 6708 in the

7 table of sections for part I of subchapter B of chapter

8 68 is amended to read as follows:

‘‘Sec. 6708. Failure to maintain lists of advisees with respect to reportable transactions.’’.

9 (c) REQUIRED DISCLOSURE NOT SUBJECT TO CLAIM

10 OF CONFIDENTIALITY.—Subparagraph (A) of section

11 6112(b)(1), as redesignated by subsection (b)(2)(B), is

12 amended by adding at the end the following new flush sen13 tence:

14 ‘‘For purposes of this section, the identity of any per15 son on such list shall not be privileged.’’.

16 (d) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in para18 graph (2), the amendments made by this section shall

19 apply to transactions with respect to which material

20 aid, assistance, or advice referred to in section

21 6111(b)(1)(A)(i) of the Internal Revenue Code of 1986

22 (as added by this section) is provided after the date

23 of the enactment of this Act.
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1 (2) NO CLAIM OF CONFIDENTIALITY AGAINST DIS2 CLOSURE.—The amendment made by subsection (c)

3 shall take effect as if included in the amendments

4 made by section 142 of the Deficit Reduction Act of

5 1984.

6 SEC. 408. MODIFICATIONS TO PENALTY FOR FAILURE TO

7 REGISTER TAX SHELTERS.

8 (a) IN GENERAL.—Section 6707 (relating to failure to

9 furnish information regarding tax shelters) is amended to

10 read as follows:

11 ‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARD12 ING REPORTABLE TRANSACTIONS.

13 ‘‘(a) IN GENERAL.—If a person who is required to file

14 a return under section 6111(a) with respect to any report15 able transaction—

16 ‘‘(1) fails to file such return on or before the date

17 prescribed therefor, or

18 ‘‘(2) files false or incomplete information with

19 the Secretary with respect to such transaction,

20 such person shall pay a penalty with respect to such return

21 in the amount determined under subsection (b).

22 ‘‘(b) AMOUNT OF PENALTY.—

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (2), the penalty imposed under subsection (a)

25 with respect to any failure shall be $50,000.
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1 ‘‘(2) LISTED TRANSACTIONS.—The penalty im2 posed under subsection (a) with respect to any listed

3 transaction shall be an amount equal to the greater

4 of—

5 ‘‘(A) $200,000, or

6 ‘‘(B) 50 percent of the gross income derived

7 by such person with respect to aid, assistance, or

8 advice which is provided with respect to the list9 ed transaction before the date the return includ10 ing the transaction is filed under section 6111.

11 Subparagraph (B) shall be applied by substituting

12 ‘75 percent’ for ‘50 percent’ in the case of an inten13 tional failure or act described in subsection (a).

14 ‘‘(c) CERTAIN RULES TO APPLY.—The provisions of

15 section 6707A(d) shall apply to any penalty imposed under

16 this section.

17 ‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—The

18 terms ‘reportable transaction’ and ‘listed transaction’ have

19 the respective meanings given to such terms by section

20 6707A(c).’’.

21 (b) CLERICAL AMENDMENT.—The item relating to sec22 tion 6707 in the table of sections for part I of subchapter

23 B of chapter 68 is amended by striking ‘‘tax shelters’’ and

24 inserting ‘‘reportable transactions’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to returns the due date for which is after

3 the date of the enactment of this Act.

4 SEC. 409. MODIFICATION OF PENALTY FOR FAILURE TO

5 MAINTAIN LISTS OF INVESTORS.

6 (a) IN GENERAL.—Subsection (a) of section 6708 is

7 amended to read as follows:

8 ‘‘(a) IMPOSITION OF PENALTY.—

9 ‘‘(1) IN GENERAL.—If any person who is re10 quired to maintain a list under section 6112(a) fails

11 to make such list available upon written request to

12 the Secretary in accordance with section

13 6112(b)(1)(A) within 20 business days after the date

14 of the Secretary’s request, such person shall pay a

15 penalty of $10,000 for each day of such failure after

16 such 20th day.

17 ‘‘(2) REASONABLE CAUSE EXCEPTION.—No pen18 alty shall be imposed by paragraph (1) with respect

19 to the failure on any day if such failure is due to rea20 sonable cause.’’.

21 (b) EFFECTIVE DATE.—The amendment made by this

22 section shall apply to requests made after the date of the

23 enactment of this Act.
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1 SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN

2 CONDUCT RELATED TO TAX SHELTERS AND

3 REPORTABLE TRANSACTIONS.

4 (a) IN GENERAL.—Section 7408 (relating to action to

5 enjoin promoters of abusive tax shelters, etc.) is amended

6 by redesignating subsection (c) as subsection (d) and by

7 striking subsections (a) and (b) and inserting the following

8 new subsections:

9 ‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil ac10 tion in the name of the United States to enjoin any person

11 from further engaging in specified conduct may be com12 menced at the request of the Secretary. Any action under

13 this section shall be brought in the district court of the

14 United States for the district in which such person resides,

15 has his principal place of business, or has engaged in speci16 fied conduct. The court may exercise its jurisdiction over

17 such action (as provided in section 7402(a)) separate and

18 apart from any other action brought by the United States

19 against such person.

20 ‘‘(b) ADJUDICATION AND DECREE.—In any action

21 under subsection (a), if the court finds—

22 ‘‘(1) that the person has engaged in any specified

23 conduct, and

24 ‘‘(2) that injunctive relief is appropriate to pre25 vent recurrence of such conduct,
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1 the court may enjoin such person from engaging in such

2 conduct or in any other activity subject to penalty under

3 this title.

4 ‘‘(c) SPECIFIED CONDUCT.—For purposes of this sec5 tion, the term ‘specified conduct’ means any action, or fail6 ure to take action, which is—

7 ‘‘(1) subject to penalty under section 6700, 6701,

8 6707, or 6708, or

9 ‘‘(2) in violation of any requirement under regu10 lations issued under section 320 of title 31, United

11 States Code.’’.

12 (b) CONFORMING AMENDMENTS.—

13 (1) The heading for section 7408 is amended to

14 read as follows:

15 ‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RE16 LATED TO TAX SHELTERS AND REPORTABLE

17 TRANSACTIONS.’’.

18 (2) The table of sections for subchapter A of

19 chapter 67 is amended by striking the item relating

20 to section 7408 and inserting the following new item:

‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and reportable transactions.’’.

21 (c) EFFECTIVE DATE.—The amendment made by this

22 section shall take effect on the day after the date of the en23 actment of this Act.
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1 SEC. 411. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY

2 INCOME TAX RETURN PREPARER.

3 (a) STANDARDS CONFORMED TO TAXPAYER STAND4 ARDS.—Section 6694(a) (relating to understatements due to

5 unrealistic positions) is amended—

6 (1) by striking ‘‘realistic possibility of being sus7 tained on its merits’’ in paragraph (1) and inserting

8 ‘‘reasonable belief that the tax treatment in such posi9 tion was more likely than not the proper treatment’’,

10 (2) by striking ‘‘or was frivolous’’ in paragraph

11 (3) and inserting ‘‘or there was no reasonable basis

12 for the tax treatment of such position’’, and

13 (3) by striking ‘‘UNREALISTIC’’ in the heading

14 and inserting ‘‘IMPROPER’’.

15 (b) AMOUNT OF PENALTY.—Section 6694 is

16 amended—

17 (1) by striking ‘‘$250’’ in subsection (a) and in18 serting ‘‘$1,000’’, and

19 (2) by striking ‘‘$1,000’’ in subsection (b) and

20 inserting ‘‘$5,000’’.

21 (c) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to documents prepared after the date

23 of the enactment of this Act.
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1 SEC. 412. PENALTY ON FAILURE TO REPORT INTERESTS IN

2 FOREIGN FINANCIAL ACCOUNTS.

3 (a) IN GENERAL.—Section 5321(a)(5) of title 31,

4 United States Code, is amended to read as follows:

5 ‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION

6 VIOLATION.—

7 ‘‘(A) PENALTY AUTHORIZED.—The Sec8 retary of the Treasury may impose a civil money

9 penalty on any person who violates, or causes

10 any violation of, any provision of section 5314.

11 ‘‘(B) AMOUNT OF PENALTY.—

12 ‘‘(i) IN GENERAL.—Except as provided

13 in subparagraph (C), the amount of any

14 civil penalty imposed under subparagraph

15 (A) shall not exceed $10,000.

16 ‘‘(ii) REASONABLE CAUSE EXCEP17 TION.—No penalty shall be imposed under

18 subparagraph (A) with respect to any viola19 tion if—

20 ‘‘(I) such violation was due to

21 reasonable cause, and

22 ‘‘(II) the amount of the trans23 action or the balance in the account at

24 the time of the transaction was prop25 erly reported.
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1 ‘‘(C) WILLFUL VIOLATIONS.—In the case of

2 any person willfully violating, or willfully caus3 ing any violation of, any provision of section

4 5314—

5 ‘‘(i) the maximum penalty under sub6 paragraph (B)(i) shall be increased to the

7 greater of—

8 ‘‘(I) $100,000, or

9 ‘‘(II) 50 percent of the amount de10 termined under subparagraph (D), and

11 ‘‘(ii) subparagraph (B)(ii) shall not

12 apply.

13 ‘‘(D) AMOUNT.—The amount determined

14 under this subparagraph is—

15 ‘‘(i) in the case of a violation involving

16 a transaction, the amount of the trans17 action, or

18 ‘‘(ii) in the case of a violation involv19 ing a failure to report the existence of an

20 account or any identifying information re21 quired to be provided with respect to an ac22 count, the balance in the account at the

23 time of the violation.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to violations occurring after the date of

3 the enactment of this Act.

4 SEC. 413. FRIVOLOUS TAX SUBMISSIONS.

5 (a) CIVIL PENALTIES.—Section 6702 is amended to

6 read as follows:

7 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

8 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE9 TURNS.—A person shall pay a penalty of $5,000 if—

10 ‘‘(1) such person files what purports to be a re11 turn of a tax imposed by this title but which—

12 ‘‘(A) does not contain information on which

13 the substantial correctness of the self-assessment

14 may be judged, or

15 ‘‘(B) contains information that on its face

16 indicates that the self-assessment is substantially

17 incorrect; and

18 ‘‘(2) the conduct referred to in paragraph (1)—

19 ‘‘(A) is based on a position which the Sec20 retary has identified as frivolous under sub21 section (c), or

22 ‘‘(B) reflects a desire to delay or impede the

23 administration of Federal tax laws.

24 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB25 MISSIONS.—
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1 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro2 vided in paragraph (3), any person who submits a

3 specified frivolous submission shall pay a penalty of

4 $5,000.

5 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For

6 purposes of this section—

7 ‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—

8 The term ‘specified frivolous submission’ means

9 a specified submission if any portion of such

10 submission—

11 ‘‘(i) is based on a position which the

12 Secretary has identified as frivolous under

13 subsection (c), or

14 ‘‘(ii) reflects a desire to delay or im15 pede the administration of Federal tax

16 laws.

17 ‘‘(B) SPECIFIED SUBMISSION.—The term

18 ‘specified submission’ means—

19 ‘‘(i) a request for a hearing under—

20 ‘‘(I) section 6320 (relating to no21 tice and opportunity for hearing upon

22 filing of notice of lien), or

23 ‘‘(II) section 6330 (relating to no24 tice and opportunity for hearing before

25 levy), and
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1 ‘‘(ii) an application under—

2 ‘‘(I) section 6159 (relating to

3 agreements for payment of tax liability

4 in installments),

5 ‘‘(II) section 7122 (relating to

6 compromises), or

7 ‘‘(III) section 7811 (relating to

8 taxpayer assistance orders).

9 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS10 SION.—If the Secretary provides a person with notice

11 that a submission is a specified frivolous submission

12 and such person withdraws such submission within

13 30 days after such notice, the penalty imposed under

14 paragraph (1) shall not apply with respect to such

15 submission.

16 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec17 retary shall prescribe (and periodically revise) a list of posi18 tions which the Secretary has identified as being frivolous

19 for purposes of this subsection. The Secretary shall not in20 clude in such list any position that the Secretary deter21 mines meets the requirement of section

22 6662(d)(2)(B)(ii)(II).

23 ‘‘(d) REDUCTION OF PENALTY.—The Secretary may

24 reduce the amount of any penalty imposed under this sec25 tion if the Secretary determines that such reduction would
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1 promote compliance with and administration of the Federal

2 tax laws.

3 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN4 ALTIES.—The penalties imposed by this section shall be in

5 addition to any other penalty provided by law.’’.

6 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR7 INGS BEFORE LEVY.—

8 (1) FRIVOLOUS REQUESTS DISREGARDED.—Sec9 tion 6330 (relating to notice and opportunity for

10 hearing before levy) is amended by adding at the end

11 the following new subsection:

12 ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—Not13 withstanding any other provision of this section, if the Sec14 retary determines that any portion of a request for a hear15 ing under this section or section 6320 meets the requirement

16 of clause (i) or (ii) of section 6702(b)(2)(A), then the Sec17 retary may treat such portion as if it were never submitted

18 and such portion shall not be subject to any further admin19 istrative or judicial review.’’.

20 (2) PRECLUSION FROM RAISING FRIVOLOUS

21 ISSUES AT HEARING.—Section 6330(c)(4) is

22 amended—

23 (A) by striking ‘‘(A)’’ and inserting

24 ‘‘(A)(i)’’;

25 (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;
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1 (C) by striking the period at the end of the

2 first sentence and inserting ‘‘; or’’; and

3 (D) by inserting after subparagraph (A)(ii)

4 (as so redesignated) the following:

5 ‘‘(B) the issue meets the requirement of

6 clause (i) or (ii) of section 6702(b)(2)(A).’’.

7 (3) STATEMENT OF GROUNDS.—Section

8 6330(b)(1) is amended by striking ‘‘under subsection

9 (a)(3)(B)’’ and inserting ‘‘in writing under subsection

10 (a)(3)(B) and states the grounds for the requested

11 hearing’’.

12 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR13 INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is

14 amended—

15 (1) in subsection (b)(1), by striking ‘‘under sub16 section (a)(3)(B)’’ and inserting ‘‘in writing under

17 subsection (a)(3)(B) and states the grounds for the re18 quested hearing’’, and

19 (2) in subsection (c), by striking ‘‘and (e)’’ and

20 inserting ‘‘(e), and (g)’’.

21 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

22 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE23 MENTS.—Section 7122 is amended by adding at the end

24 the following new subsection:
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1 ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith2 standing any other provision of this section, if the Secretary

3 determines that any portion of an application for an offer4 in-compromise or installment agreement submitted under

5 this section or section 6159 meets the requirement of clause

6 (i) or (ii) of section 6702(b)(2)(A), then the Secretary may

7 treat such portion as if it were never submitted and such

8 portion shall not be subject to any further administrative

9 or judicial review.’’.

10 (e) CLERICAL AMENDMENT.—The table of sections for

11 part I of subchapter B of chapter 68 is amended by striking

12 the item relating to section 6702 and inserting the following

13 new item:

‘‘Sec. 6702. Frivolous tax submissions.’’.

14 (f) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to submissions made and issues raised

16 after the date on which the Secretary first prescribes a list

17 under section 6702(c) of the Internal Revenue Code of 1986,

18 as amended by subsection (a).

19 SEC. 414. REGULATION OF INDIVIDUALS PRACTICING BE20 FORE THE DEPARTMENT OF TREASURY.

21 (a) CENSURE; IMPOSITION OF PENALTY.—

22 (1) IN GENERAL.—Section 330(b) of title 31,

23 United States Code, is amended—

24 (A) by inserting ‘‘, or censure,’’ after ‘‘De25 partment’’, and
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1 (B) by adding at the end the following new

2 flush sentence:

3 ‘‘The Secretary may impose a monetary penalty on any

4 representative described in the preceding sentence. If the

5 representative was acting on behalf of an employer or any

6 firm or other entity in connection with the conduct giving

7 rise to such penalty, the Secretary may impose a monetary

8 penalty on such employer, firm, or entity if it knew, or

9 reasonably should have known, of such conduct. Such pen10 alty shall not exceed the gross income derived (or to be de11 rived) from the conduct giving rise to the penalty and may

12 be in addition to, or in lieu of, any suspension, disbarment,

13 or censure of the representative.’’.

14 (2) EFFECTIVE DATE.—The amendments made

15 by this subsection shall apply to actions taken after

16 the date of the enactment of this Act.

17 (b) TAX SHELTER OPINIONS, ETC.—Section 330 of

18 such title 31 is amended by adding at the end the following

19 new subsection:

20 ‘‘(d) Nothing in this section or in any other provision

21 of law shall be construed to limit the authority of the Sec22 retary of the Treasury to impose standards applicable to

23 the rendering of written advice with respect to any entity,

24 transaction plan or arrangement, or other plan or arrange-
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1 ment, which is of a type which the Secretary determines

2 as having a potential for tax avoidance or evasion.’’.

3 SEC. 415. PENALTY FOR PROMOTING ABUSIVE TAX SHEL4 TERS.

5 (a) PENALTY FOR PROMOTING ABUSIVE TAX SHEL6 TERS.—Section 6700 (relating to promoting abusive tax

7 shelters, etc.) is amended—

8 (1) by redesignating subsections (b) and (c) as

9 subsections (d) and (e), respectively,

10 (2) by striking ‘‘a penalty’’ and all that follows

11 through the period in the first sentence of subsection

12 (a) and inserting ‘‘a penalty determined under sub13 section (b)’’, and

14 (3) by inserting after subsection (a) the following

15 new subsections:

16 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN17 ALTY; LIABILITY FOR PENALTY.—

18 ‘‘(1) AMOUNT OF PENALTY.—The amount of the

19 penalty imposed by subsection (a) shall not exceed

20 100 percent of the gross income derived (or to be de21 rived) from such activity by the person or persons

22 subject to such penalty.

23 ‘‘(2) CALCULATION OF PENALTY.—The penalty

24 amount determined under paragraph (1) shall be cal25 culated with respect to each instance of an activity
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1 described in subsection (a), each instance in which in2 come was derived by the person or persons subject to

3 such penalty, and each person who participated in

4 such an activity.

5 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1

6 person is liable under subsection (a) with respect to

7 such activity, all such persons shall be jointly and

8 severally liable for the penalty under such subsection.

9 ‘‘(c) PENALTY NOT DEDUCTIBLE.—The payment of

10 any penalty imposed under this section or the payment of

11 any amount to settle or avoid the imposition of such pen12 alty shall not be deductible by the person who is subject

13 to such penalty or who makes such payment.’’.

14 (b) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to activities after the date of the enact16 ment of this Act.

17 SEC. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS

18 FOR WHICH REQUIRED LISTED TRANS19 ACTIONS NOT REPORTED.

20 (a) IN GENERAL.—Section 6501(c) (relating to excep21 tions) is amended by adding at the end the following new

22 paragraph:

23 ‘‘(10) LISTED TRANSACTIONS.—If a taxpayer

24 fails to include on any return or statement for any

25 taxable year any information with respect to a listed
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1 transaction (as defined in section 6707A(c)(2)) which

2 is required under section 6011 to be included with

3 such return or statement, the time for assessment of

4 any tax imposed by this title with respect to such

5 transaction shall not expire before the date which is

6 1 year after the earlier of—

7 ‘‘(A) the date on which the Secretary is fur8 nished the information so required; or

9 ‘‘(B) the date that a material advisor (as

10 defined in section 6111) meets the requirements

11 of section 6112 with respect to a request by the

12 Secretary under section 6112(b) relating to such

13 transaction with respect to such taxpayer.’’.

14 (b) EFFECTIVE DATE.—The amendment made by this

15 section shall apply to taxable years with respect to which

16 the period for assessing a deficiency did not expire before

17 the date of the enactment of this Act.

18 SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ON UN19 DERPAYMENTS ATTRIBUTABLE TO NONDIS20 CLOSED REPORTABLE AND NONECONOMIC

21 SUBSTANCE TRANSACTIONS.

22 (a) IN GENERAL.—Section 163 (relating to deduction

23 for interest) is amended by redesignating subsection (m) as

24 subsection (n) and by inserting after subsection (l) the fol25 lowing new subsection:
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1 ‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE TO

2 NONDISCLOSED REPORTABLE TRANSACTIONS AND NON3 ECONOMIC SUBSTANCE TRANSACTIONS.—No deduction shall

4 be allowed under this chapter for any interest paid or ac5 crued under section 6601 on any underpayment of tax

6 which is attributable to—

7 ‘‘(1) the portion of any reportable transaction

8 understatement (as defined in section 6662A(b)) with

9 respect to which the requirement of section

10 6664(d)(2)(A) is not met, or

11 ‘‘(2) any noneconomic substance transaction un12 derstatement (as defined in section 6662B(c)).’’.

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

14 section shall apply to transactions in taxable years begin15 ning after the date of the enactment of this Act.

16 SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX

17 LAW ENFORCEMENT.

18 There is authorized to be appropriated $300,000,000

19 for each fiscal year beginning after September 30, 2003, for

20 the purpose of carrying out tax law enforcement to combat

21 tax avoidance transactions and other tax shelters, including

22 the use of offshore financial accounts to conceal taxable in23 come.
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1 SEC. 419. PENALTY FOR AIDING AND ABETTING THE UN2 DERSTATEMENT OF TAX LIABILITY.

3 (a) IN GENERAL.—Section 6701(a) (relating to impo4 sition of penalty) is amended—

5 (1) by inserting ‘‘the tax liability or’’ after ‘‘re6 spect to,’’ in paragraph (1),

7 (2) by inserting ‘‘aid, assistance, procurement,

8 or advice with respect to such’’ before ‘‘portion’’ both

9 places it appears in paragraphs (2) and (3), and

10 (3) by inserting ‘‘instance of aid, assistance, pro11 curement, or advice or each such’’ before ‘‘document’’

12 in the matter following paragraph (3).

13 (b) AMOUNT OF PENALTY.—Subsection (b) of section

14 6701 (relating to penalties for aiding and abetting under15 statement of tax liability) is amended to read as follows:

16 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN17 ALTY; LIABILITY FOR PENALTY.—

18 ‘‘(1) AMOUNT OF PENALTY.—The amount of the

19 penalty imposed by subsection (a) shall not exceed

20 100 percent of the gross income derived (or to be de21 rived) from such aid, assistance, procurement, or ad22 vice provided by the person or persons subject to such

23 penalty.

24 ‘‘(2) CALCULATION OF PENALTY.—The penalty

25 amount determined under paragraph (1) shall be cal26 culated with respect to each instance of aid, assist-
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1 ance, procurement, or advice described in subsection

2 (a), each instance in which income was derived by the

3 person or persons subject to such penalty, and each

4 person who made such an understatement of the li5 ability for tax.

6 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1

7 person is liable under subsection (a) with respect to

8 providing such aid, assistance, procurement, or ad9 vice, all such persons shall be jointly and severally

10 liable for the penalty under such subsection.’’.

11 (c) PENALTY NOT DEDUCTIBLE.—Section 6701 is

12 amended by adding at the end the following new subsection:

13 ‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of

14 any penalty imposed under this section or the payment of

15 any amount to settle or avoid the imposition of such pen16 alty shall not be deductible by the person who is subject

17 to such penalty or who makes such payment.’’.

18 (d) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to activities after the date of the enact20 ment of this Act.

21 SEC. 420. STUDY ON INFORMATION SHARING AMONG LAW

22 ENFORCEMENT AGENCIES.

23 (a) STUDY.—The Secretary of the Treasury shall,

24 jointly with the Attorney General, the Securities and Ex25 change Commission, and the Commissioner of Internal Rev-
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1 enue, study the effectiveness of, and ways to improve, the

2 sharing of information related to the promotion of prohib3 ited tax shelters or tax avoidance schemes and other poten4 tial violations of Federal laws.

5 (b) REPORT.—The Secretary shall, not later than 1

6 year after the date of the enactment of this Act, report to

7 the appropriate committees of the Congress the results of

8 the study under subsection (a), including any recommenda9 tions for legislation.

10 Subtitle B—Other Corporate

11 Governance Provisions

12 SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGU13 LATION AUTHORITY.

14 (a) IN GENERAL.—Section 1502 (relating to consoli15 dated return regulations) is amended by adding at the end

16 the following new sentence: ‘‘In prescribing such regula17 tions, the Secretary may prescribe rules applicable to cor18 porations filing consolidated returns under section 1501

19 that are different from other provisions of this title that

20 would apply if such corporations filed separate returns.’’.

21 (b) RESULT NOT OVERTURNED.—Notwithstanding

22 subsection (a), the Internal Revenue Code of 1986 shall be

23 construed by treating Treasury regulation § 1.1502–

24 20(c)(1)(iii) (as in effect on January 1, 2001) as being in-
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1 applicable to the type of factual situation in 255 F.3d 1357

2 (Fed. Cir. 2001).

3 (c) EFFECTIVE DATE.—The provisions of this section

4 shall apply to taxable years beginning before, on, or after

5 the date of the enactment of this Act.

6 SEC. 422. DECLARATION BY CHIEF EXECUTIVE OFFICER RE7 LATING TO FEDERAL ANNUAL INCOME TAX

8 RETURN OF A CORPORATION.

9 (a) IN GENERAL.—The Federal annual tax return of

10 a corporation with respect to income shall also include a

11 declaration signed by the chief executive officer of such cor12 poration (or other such officer of the corporation as the Sec13 retary of the Treasury may designate if the corporation does

14 not have a chief executive officer), under penalties of per15 jury, that the corporation has in place processes and proce16 dures to ensure that such return complies with the Internal

17 Revenue Code of 1986 and that the chief executive officer

18 was provided reasonable assurance of the accuracy of all

19 material aspects of such return. The preceding sentence

20 shall not apply to any return of a regulated investment

21 company (within the meaning of section 851 of such Code).

22 (b) EFFECTIVE DATE.—This section shall apply to the

23 Federal annual tax return of a corporation with respect to

24 income for taxable years ending after the date of the enact25 ment of this Act.
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1 SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN2 ALTIES, AND OTHER AMOUNTS.

3 (a) IN GENERAL.—Subsection (f) of section 162 (relat4 ing to trade or business expenses) is amended to read as

5 follows:

6 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.—

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2), no deduction otherwise allowable shall be

9 allowed under this chapter for any amount paid or

10 incurred (whether by suit, agreement, or otherwise)

11 to, or at the direction of, a government or entity de12 scribed in paragraph (4) in relation to the violation

13 of any law or the investigation or inquiry by such

14 government or entity into the potential violation of

15 any law.

16 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

17 RESTITUTION.—Paragraph (1) shall not apply to any

18 amount which the taxpayer establishes constitutes res19 titution (including remediation of property) for dam20 age or harm caused by or which may be caused by

21 the violation of any law or the potential violation of

22 any law. This paragraph shall not apply to any

23 amount paid or incurred as reimbursement to the

24 government or entity for the costs of any investigation

25 or litigation.
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1 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN2 CURRED AS THE RESULT OF CERTAIN COURT OR3 DERS.—Paragraph (1) shall not apply to any

4 amount paid or incurred by order of a court in a suit

5 in which no government or entity described in para6 graph (4) is a party.

7 ‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY

8 ENTITIES.—An entity is described in this paragraph

9 if it is—

10 ‘‘(A) a nongovernmental entity which exer11 cises self-regulatory powers (including imposing

12 sanctions) in connection with a qualified board

13 or exchange (as defined in section 1256(g)(7)), or

14 ‘‘(B) to the extent provided in regulations,

15 a nongovernmental entity which exercises self16 regulatory powers (including imposing sanc17 tions) as part of performing an essential govern18 mental function.

19 ‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph

20 (1) shall not apply to any amount paid or incurred

21 as taxes due.’’.

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

23 section shall apply to amounts paid or incurred after April

24 27, 2003, except that such amendment shall not apply to

25 amounts paid or incurred under any binding order or
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1 agreement entered into on or before April 27, 2003. Such

2 exception shall not apply to an order or agreement requir3 ing court approval unless the approval was obtained on or

4 before April 27, 2003.

5 SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE

6 DAMAGES.

7 (a) DISALLOWANCE OF DEDUCTION.—

8 (1) IN GENERAL.—Section 162(g) (relating to

9 treble damage payments under the antitrust laws) is

10 amended—

11 (A) by redesignating paragraphs (1) and

12 (2) as subparagraphs (A) and (B), respectively,

13 (B) by striking ‘‘If’’ and inserting:

14 ‘‘(1) TREBLE DAMAGES.—If’’, and

15 (C) by adding at the end the following new

16 paragraph:

17 ‘‘(2) PUNITIVE DAMAGES.—No deduction shall be

18 allowed under this chapter for any amount paid or

19 incurred for punitive damages in connection with

20 any judgment in, or settlement of, any action. This

21 paragraph shall not apply to punitive damages de22 scribed in section 104(c).’’.

23 (2) CONFORMING AMENDMENT.—The heading for

24 section 162(g) is amended by inserting ‘‘OR PUNITIVE

25 DAMAGES’’ after ‘‘LAWS’’.
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1 (b) INCLUSION IN INCOME OF PUNITIVE DAMAGES

2 PAID BY INSURER OR OTHERWISE.—

3 (1) IN GENERAL.—Part II of subchapter B of

4 chapter 1 (relating to items specifically included in

5 gross income) is amended by adding at the end the

6 following new section:

7 ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR8 ANCE OR OTHERWISE.

9 ‘‘Gross income shall include any amount paid to or

10 on behalf of a taxpayer as insurance or otherwise by reason

11 of the taxpayer’s liability (or agreement) to pay punitive

12 damages.’’.

13 (2) REPORTING REQUIREMENTS.—Section 6041

14 (relating to information at source) is amended by

15 adding at the end the following new subsection:

16 ‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES COM17 PENSATION.—This section shall apply to payments by a

18 person to or on behalf of another person as insurance or

19 otherwise by reason of the other person’s liability (or agree20 ment) to pay punitive damages.’’.

21 (3) CONFORMING AMENDMENT.—The table of sec22 tions for part II of subchapter B of chapter 1 is

23 amended by adding at the end the following new item:

‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to damages paid or incurred on or after

3 the date of the enactment of this Act.

4 SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIM5 ITATION FOR THE UNDERPAYMENT OR OVER6 PAYMENT OF TAX DUE TO FRAUD.

7 (a) IN GENERAL.—Section 7206 (relating to fraud and

8 false statements) is amended—

9 (1) by striking ‘‘Any person who—’’ and insert10 ing ‘‘(a) IN GENERAL.—Any person who—’’, and

11 (2) by adding at the end the following new sub12 section:

13 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN14 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—

15 If any portion of any underpayment (as defined in section

16 6664(a)) or overpayment (as defined in section 6401(a)) of

17 tax required to be shown on a return is attributable to

18 fraudulent action described in subsection (a), the applicable

19 dollar amount under subsection (a) shall in no event be less

20 than an amount equal to such portion. A rule similar to

21 the rule under section 6663(b) shall apply for purposes of

22 determining the portion so attributable.’’.

23 (b) INCREASE IN PENALTIES.—

24 (1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec25 tion 7201 is amended—
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1 (A) by striking ‘‘$100,000’’ and inserting

2 ‘‘$250,000’’,

3 (B) by striking ‘‘$500,000’’ and inserting

4 ‘‘$1,000,000’’, and

5 (C) by striking ‘‘5 years’’ and inserting ‘‘10

6 years’’.

7 (2) WILLFUL FAILURE TO FILE RETURN, SUPPLY

8 INFORMATION, OR PAY TAX.—Section 7203 is

9 amended—

10 (A) in the first sentence—

11 (i) by striking ‘‘misdemeanor’’ and in12 serting ‘‘felony’’, and

13 (ii) by striking ‘‘1 year’’ and inserting

14 ‘‘10 years’’, and

15 (B) by striking the third sentence.

16 (3) FRAUD AND FALSE STATEMENTS.—Section

17 7206(a) (as redesignated by subsection (a)) is

18 amended—

19 (A) by striking ‘‘$100,000’’ and inserting

20 ‘‘$250,000’’,

21 (B) by striking ‘‘$500,000’’ and inserting

22 ‘‘$1,000,000’’, and

23 (C) by striking ‘‘3 years’’ and inserting ‘‘5

24 years’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to underpayments and overpayments at3 tributable to actions occurring after the date of the enact4 ment of this Act.

5 Subtitle C—Enron-Related Tax

6 Shelter Provisions

7 SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF

8 BUILT-IN LOSSES.

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

10 corporations) is amended by adding at the end the following

11 new subsection:

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

13 ‘‘(1) LIMITATION ON IMPORTATION OF BUILT-IN

14 LOSSES.—

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

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

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

18 net built-in loss, the basis of each property de19 scribed in subparagraph (B) which is acquired

20 in such transaction shall (notwithstanding sub21 sections (a) and (b)) be its fair market value im22 mediately after such transaction.

23 ‘‘(B) PROPERTY DESCRIBED.—For purposes

24 of subparagraph (A), property is described in

25 this subparagraph if—
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1 ‘‘(i) gain or loss with respect to such

2 property is not subject to tax under this

3 subtitle in the hands of the transferor imme4 diately before the transfer, and

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

6 property is subject to such tax in the hands

7 of the transferee immediately after such

8 transfer.

9 In any case in which the transferor is a partner10 ship, the preceding sentence shall be applied by

11 treating each partner in such partnership as

12 holding such partner’s proportionate share of the

13 property of such partnership.

14 ‘‘(C) IMPORTATION OF NET BUILT-IN

15 LOSS.—For purposes of subparagraph (A), there

16 is an importation of a net built-in loss in a

17 transaction if the transferee’s aggregate adjusted

18 bases of property described in subparagraph (B)

19 which is transferred in such transaction would

20 (but for this paragraph) exceed the fair market

21 value of such property immediately after such

22 transaction.

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

24 LOSSES IN SECTION 351 TRANSACTIONS.—

25 ‘‘(A) IN GENERAL.—If—
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1 ‘‘(i) property is transferred by a trans2 feror in any transaction which is described

3 in subsection (a) and which is not described

4 in paragraph (1) of this subsection, and

5 ‘‘(ii) the transferee’s aggregate adjusted

6 bases of such property so transferred would

7 (but for this paragraph) exceed the fair

8 market value of such property immediately

9 after such transaction,

10 then, notwithstanding subsection (a), the trans11 feree’s aggregate adjusted bases of the property so

12 transferred shall not exceed the fair market value

13 of such property immediately after such trans14 action.

15 ‘‘(B) ALLOCATION OF BASIS REDUCTION.—

16 The aggregate reduction in basis by reason of

17 subparagraph (A) shall be allocated among the

18 property so transferred in proportion to their re19 spective built-in losses immediately before the

20 transaction.

21 ‘‘(C) EXCEPTION FOR TRANSFERS WITHIN

22 AFFILIATED GROUP.—Subparagraph (A) shall

23 not apply to any transaction if the transferor

24 owns stock in the transferee meeting the require25 ments of section 1504(a)(2). In the case of prop-
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1 erty to which subparagraph (A) does not apply

2 by reason of the preceding sentence, the trans3 feror’s basis in the stock received for such prop4 erty shall not exceed its fair market value imme5 diately after the transfer.’’.

6 (b) COMPARABLE TREATMENT WHERE LIQUIDA7 TION.—Paragraph (1) of section 334(b) (relating to liquida8 tion of subsidiary) is amended to read as follows:

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

10 corporate distributee in a distribution in a complete

11 liquidation to which section 332 applies (or in a

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

13 such property in the hands of such distributee shall

14 be the same as it would be in the hands of the trans15 feror; except that the basis of such property in the

16 hands of such distributee shall be the fair market

17 value of the property at the time of the distribution—

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, and

24 the corporate distributee’s aggregate adjusted

25 bases of property described in section
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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 DATES.—

6 (1) IN GENERAL.—The amendment made by sub7 section (a) shall apply to transactions after December

8 31, 2003.

9 (2) LIQUIDATIONS.—The amendment made by

10 subsection (b) shall apply to liquidations after Decem11 ber 31, 2003.

12 SEC. 432. NO REDUCTION OF BASIS UNDER SECTION 734 IN

13 STOCK HELD BY PARTNERSHIP IN COR14 PORATE PARTNER.

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

16 at the end the following new subsection:

17 ‘‘(c) NO ALLOCATION OF BASIS DECREASE TO STOCK

18 OF CORPORATE PARTNER.—In making an allocation under

19 subsection (a) of any decrease in the adjusted basis of part20 nership property under section 734(b)—

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

22 corporation (or any person which is related (within

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

24 corporation) which is a partner in the partnership,

25 and
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1 ‘‘(2) any amount not allocable to stock by reason

2 of paragraph (1) shall be allocated under subsection

3 (a) to other partnership property in such manner as

4 the Secretary may prescribe.

5 Gain shall be recognized to the partnership to the extent

6 that the amount required to be allocated under paragraph

7 (2) to other partnership property exceeds the aggregate ad8 justed basis of such other property immediately before the

9 allocation required by paragraph (2).’’.

10 (b) EFFECTIVE DATE.—The amendment made by this

11 section shall apply to distributions after February 13, 2003.

12 SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS.

13 (a) IN GENERAL.—Part V of subchapter M of chapter

14 1 (relating to financial asset securitization investment

15 trusts) is hereby repealed.

16 (b) CONFORMING AMENDMENTS.—

17 (1) Paragraph (6) of section 56(g) is amended by

18 striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or

19 REMIC’’.

20 (2) Clause (ii) of section 382(l)(4)(B) is amended

21 by striking ‘‘a REMIC to which part IV of subchapter

22 M applies, or a FASIT to which part V of subchapter

23 M applies,’’ and inserting ‘‘or a REMIC to which

24 part IV of subchapter M applies,’’.
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1 (3) Paragraph (1) of section 582(c) is amended

2 by striking ‘‘, and any regular interest in a FASIT,’’.

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

4 amended by striking the last sentence.

5 (5)(A) Section 860G(a)(1) is amended by adding

6 at the end the following new sentence: ‘‘An interest

7 shall not fail to qualify as a regular interest solely be8 cause the specified principal amount of the regular

9 interest (or the amount of interest accrued on the reg10 ular interest) can be reduced as a result of the non11 occurrence of 1 or more contingent payments with re12 spect to any reverse mortgage loan held by the

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

14 sponsor reasonably believes that all principal and in15 terest due under the regular interest will be paid at

16 or prior to the liquidation of the REMIC.’’.

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

18 amended by inserting ‘‘, and any reverse mortgage

19 loan (and each balance increase on such loan meeting

20 the requirements of subparagraph (A)(iii)) shall be

21 treated as an obligation secured by an interest in real

22 property’’ before the period at the end.

23 (6) Paragraph (3) of section 860G(a) is amended

24 by adding ‘‘and’’ at the end of subparagraph (B), by
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1 striking ‘‘, and’’ at the end of subparagraph (C) and

2 inserting a period, and by striking subparagraph (D).

3 (7) Section 860G(a)(3), as amended by para4 graph (6), is amended by adding at the end the fol5 lowing new sentence: ‘‘For purposes of subparagraph

6 (A), if more than 50 percent of the obligations trans7 ferred to, or purchased by, the REMIC are originated

8 by the United States or any State (or any political

9 subdivision, agency, or instrumentality of the United

10 States or any State) and are principally secured by

11 an interest in real property, then each obligation

12 transferred to, or purchased by, the REMIC shall be

13 treated as secured by an interest in real property.’’.

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

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

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

17 clause (ii) the following new clause:

18 ‘‘(iii) represents an increase in the

19 principal amount under the original terms

20 of an obligation described in clause (i) or

21 (ii) if such increase—

22 ‘‘(I) is attributable to an advance

23 made to the obligor pursuant to the

24 original terms of the obligation,
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1 ‘‘(II) occurs after the startup day,

2 and

3 ‘‘(III) is purchased by the REMIC

4 pursuant to a fixed price contract in

5 effect on the startup day.’’.

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

7 follows:

8 ‘‘(B) QUALIFIED RESERVE FUND.—For pur9 poses of subparagraph (A), the term ‘qualified

10 reserve fund’ means any reasonably required re11 serve to—

12 ‘‘(i) provide for full payment of ex13 penses of the REMIC or amounts due on

14 regular interests in the event of defaults on

15 qualified mortgages or lower than expected

16 returns on cash flow investments, or

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

18 purchase of obligations described in clause

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

20 The aggregate fair market value of the assets held

21 in any such reserve shall not exceed 50 percent

22 of the aggregate fair market value of all of the

23 assets of the REMIC on the startup day, and the

24 amount of any such reserve shall be promptly

25 and appropriately reduced to the extent the
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1 amount held in such reserve is no longer reason2 ably required for purposes specified in clause (i)

3 or (ii) of this subparagraph.’’.

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

5 amended by striking ‘‘REMIC, or FASIT’’ and in6 serting ‘‘or REMIC’’.

7 (10) Clause (xi) of section 7701(a)(19)(C) is

8 amended—

9 (A) by striking ‘‘and any regular interest in

10 a FASIT,’’, and

11 (B) by striking ‘‘or FASIT’’ each place it

12 appears.

13 (11) Subparagraph (A) of section 7701(i)(2) is

14 amended by striking ‘‘or a FASIT’’.

15 (12) The table of parts for subchapter M of chap16 ter 1 is amended by striking the item relating to part

17 V.

18 (c) EFFECTIVE DATE.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section shall

21 take effect on February 14, 2003.

22 (2) EXCEPTION FOR EXISTING FASITS.—Para23 graph (1) shall not apply to any FASIT in existence

24 on the date of the enactment of this Act to the extent

25 that regular interests issued by the FASIT before such
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1 date continue to remain outstanding in accordance

2 with the original terms of issuance.

3 SEC. 434. EXPANDED DISALLOWANCE OF DEDUCTION FOR

4 INTEREST ON CONVERTIBLE DEBT.

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

6 amended by inserting ‘‘or equity held by the issuer (or any

7 related party) in any other person’’ after ‘‘or a related

8 party’’.

9 (b) CAPITALIZATION ALLOWED WITH RESPECT TO EQ10 UITY OF PERSONS OTHER THAN ISSUER AND RELATED

11 PARTIES.—Section 163(l) is amended by redesignating

12 paragraphs (4) and (5) as paragraphs (5) and (6) and by

13 inserting after paragraph (3) the following new paragraph:

14 ‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT

15 TO EQUITY OF PERSONS OTHER THAN ISSUER AND

16 RELATED PARTIES.—If the disqualified debt instru17 ment of a corporation is payable in equity held by the

18 issuer (or any related party) in any other person

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

20 shall be increased by the amount not allowed as a de21 duction by reason of paragraph (1) with respect to

22 the instrument.’’.

23 (c) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED

24 BY DEALERS IN SECURITIES.—Section 163(l), as amended

25 by subsection (b), is amended by redesignating paragraphs
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1 (5) and (6) as paragraphs (6) and (7) and by inserting

2 after paragraph (4) the following new paragraph:

3 ‘‘(5) EXCEPTION FOR CERTAIN INSTRUMENTS

4 ISSUED BY DEALERS IN SECURITIES.—For purposes

5 of this subsection, the term ‘disqualified debt instru6 ment’ does not include indebtedness issued by a dealer

7 in securities (or a related party) which is payable in,

8 or by reference to, equity (other than equity of the

9 issuer or a related party) held by such dealer in its

10 capacity as a dealer in securities. For purposes of

11 this paragraph, the term ‘dealer in securities’ has the

12 meaning given such term by section 475.’’.

13 (d) CONFORMING AMENDMENTS.—Paragraph (3) of

14 section 163(l) is amended—

15 (1) by striking ‘‘or a related party’’ in the mate16 rial preceding subparagraph (A) and inserting ‘‘or

17 any other person’’, and

18 (2) by striking ‘‘or interest’’ each place it ap19 pears.

20 (e) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to debt instruments issued after Feb22 ruary 13, 2003.
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1 SEC. 435. EXPANDED AUTHORITY TO DISALLOW TAX BENE2 FITS UNDER SECTION 269.

3 (a) IN GENERAL.—Subsection (a) of section 269 (relat4 ing to acquisitions made to evade or avoid income tax) is

5 amended to read as follows:

6 ‘‘(a) IN GENERAL.—If—

7 ‘‘(1)(A) any person or persons acquire, directly

8 or indirectly, control of a corporation, or

9 ‘‘(B) any corporation acquires, directly or indi10 rectly, property of another corporation and the basis

11 of such property, in the hands of the acquiring cor12 poration, is determined by reference to the basis in

13 the hands of the transferor corporation, and

14 ‘‘(2) the principal purpose for which such acqui15 sition was made is evasion or avoidance of Federal

16 income tax,

17 then the Secretary may disallow such deduction, credit, or

18 other allowance. For purposes of paragraph (1)(A), control

19 means the ownership of stock possessing at least 50 percent

20 of the total combined voting power of all classes of stock

21 entitled to vote or at least 50 percent of the total value of

22 all shares of all classes of stock of the corporation.’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to stock and property acquired after

25 February 13, 2003.
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1 SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUB2 PART F AND PASSIVE FOREIGN INVESTMENT

3 COMPANY RULES.

4 (a) LIMITATION ON EXCEPTION FROM PFIC RULES

5 FOR UNITED STATES SHAREHOLDERS OF CONTROLLED

6 FOREIGN CORPORATIONS.—Paragraph (2) of section

7 1297(e) (relating to passive foreign investment company)

8 is amended by adding at the end the following flush sen9 tence:

10 ‘‘Such term shall not include any period if the

11 earning of subpart F income by such corporation

12 during such period would result in only a remote

13 likelihood of an inclusion in gross income under

14 section 951(a)(1)(A)(i).’’.

15 (b) EFFECTIVE DATE.—The amendment made by this

16 section shall apply to taxable years of controlled foreign cor17 porations beginning after February 13, 2003, and to tax18 able years of United States shareholders with or within

19 which such taxable years of controlled foreign corporations

20 end.
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1 Subtitle D—Provisions to

2 Discourage Expatriation

3 SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTI4 TIES.

5 (a) IN GENERAL.—Subchapter C of chapter 80 (relat6 ing to provisions affecting more than one subtitle) is

7 amended by adding at the end the following new section:

8 ‘‘SEC. 7874. RULES RELATING TO INVERTED CORPORATE

9 ENTITIES.

10 ‘‘(a) INVERTED CORPORATIONS TREATED AS DOMES11 TIC CORPORATIONS.—

12 ‘‘(1) IN GENERAL.—If a foreign incorporated en13 tity is treated as an inverted domestic corporation,

14 then, notwithstanding section 7701(a)(4), such entity

15 shall be treated for purposes of this title as a domestic

16 corporation.

17 ‘‘(2) INVERTED DOMESTIC CORPORATION.—For

18 purposes of this section, a foreign incorporated entity

19 shall be treated as an inverted domestic corporation

20 if, pursuant to a plan (or a series of related trans21 actions)—

22 ‘‘(A) the entity completes after March 20,

23 2002, the direct or indirect acquisition of sub24 stantially all of the properties held directly or

25 indirectly by a domestic corporation or substan-
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1 tially all of the properties constituting a trade or

2 business of a domestic partnership,

3 ‘‘(B) after the acquisition at least 80 per4 cent of the stock (by vote or value) of the entity

5 is held—

6 ‘‘(i) in the case of an acquisition with

7 respect to a domestic corporation, by former

8 shareholders of the domestic corporation by

9 reason of holding stock in the domestic cor10 poration, or

11 ‘‘(ii) in the case of an acquisition with

12 respect to a domestic partnership, by former

13 partners of the domestic partnership by rea14 son of holding a capital or profits interest

15 in the domestic partnership, and

16 ‘‘(C) the expanded affiliated group which

17 after the acquisition includes the entity does not

18 have substantial business activities in the foreign

19 country in which or under the law of which the

20 entity is created or organized when compared to

21 the total business activities of such expanded af22 filiated group.

23 Except as provided in regulations, an acquisition of

24 properties of a domestic corporation shall not be

25 treated as described in subparagraph (A) if none of
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1 the corporation’s stock was readily tradeable on an es2 tablished securities market at any time during the 4-

3 year period ending on the date of the acquisition.

4 ‘‘(b) PRESERVATION OF DOMESTIC TAX BASE IN CER5 TAIN INVERSION TRANSACTIONS TO WHICH SUBSECTION

6 (a) DOES NOT APPLY.—

7 ‘‘(1) IN GENERAL.—If a foreign incorporated en8 tity would be treated as an inverted domestic corpora9 tion with respect to an acquired entity if either—

10 ‘‘(A) subsection (a)(2)(A) were applied by

11 substituting ‘after December 31, 1996, and on or

12 before March 20, 2002’ for ‘after March 20, 2002’

13 and subsection (a)(2)(B) were applied by sub14 stituting ‘more than 50 percent’ for ‘at least 80

15 percent’, or

16 ‘‘(B) subsection (a)(2)(B) were applied by

17 substituting ‘more than 50 percent’ for ‘at least

18 80 percent’,

19 then the rules of subsection (c) shall apply to any in20 version gain of the acquired entity during the appli21 cable period and the rules of subsection (d) shall

22 apply to any related party transaction of the ac23 quired entity during the applicable period. This sub24 section shall not apply for any taxable year if sub-
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1 section (a) applies to such foreign incorporated entity

2 for such taxable year.

3 ‘‘(2) ACQUIRED ENTITY.—For purposes of this

4 section—

5 ‘‘(A) IN GENERAL.—The term ‘acquired en6 tity’ means the domestic corporation or partner7 ship substantially all of the properties of which

8 are directly or indirectly acquired in an acquisi9 tion described in subsection (a)(2)(A) to which

10 this subsection applies.

11 ‘‘(B) AGGREGATION RULES.—Any domestic

12 person bearing a relationship described in sec13 tion 267(b) or 707(b) to an acquired entity shall

14 be treated as an acquired entity with respect to

15 the acquisition described in subparagraph (A).

16 ‘‘(3) APPLICABLE PERIOD.—For purposes of this

17 section—

18 ‘‘(A) IN GENERAL.—The term ‘applicable

19 period’ means the period—

20 ‘‘(i) beginning on the first date prop21 erties are acquired as part of the acquisi22 tion described in subsection (a)(2)(A) to

23 which this subsection applies, and
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1 ‘‘(ii) ending on the date which is 10

2 years after the last date properties are ac3 quired as part of such acquisition.

4 ‘‘(B) SPECIAL RULE FOR INVERSIONS OC5 CURRING BEFORE MARCH 21, 2002.—In the case

6 of any acquired entity to which paragraph

7 (1)(A) applies, the applicable period shall be the

8 10-year period beginning on January 1, 2003.

9 ‘‘(c) TAX ON INVERSION GAINS MAY NOT BE OFF10 SET.—If subsection (b) applies—

11 ‘‘(1) IN GENERAL.—The taxable income of an ac12 quired entity (or any expanded affiliated group which

13 includes such entity) for any taxable year which in14 cludes any portion of the applicable period shall in

15 no event be less than the inversion gain of the entity

16 for the taxable year.

17 ‘‘(2) CREDITS NOT ALLOWED AGAINST TAX ON IN18 VERSION GAIN.—Credits shall be allowed against the

19 tax imposed by this chapter on an acquired entity for

20 any taxable year described in paragraph (1) only to

21 the extent such tax exceeds the product of—

22 ‘‘(A) the amount of the inversion gain for

23 the taxable year, and

24 ‘‘(B) the highest rate of tax specified in sec25 tion 11(b)(1).
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1 For purposes of determining the credit allowed by sec2 tion 901 inversion gain shall be treated as from

3 sources within the United States.

4 ‘‘(3) SPECIAL RULES FOR PARTNERSHIPS.—In

5 the case of an acquired entity which is a

6 partnership—

7 ‘‘(A) the limitations of this subsection shall

8 apply at the partner rather than the partnership

9 level,

10 ‘‘(B) the inversion gain of any partner for

11 any taxable year shall be equal to the sum of—

12 ‘‘(i) the partner’s distributive share of

13 inversion gain of the partnership for such

14 taxable year, plus

15 ‘‘(ii) income or gain required to be rec16 ognized for the taxable year by the partner

17 under section 367(a), 741, or 1001, or

18 under any other provision of chapter 1, by

19 reason of the transfer during the applicable

20 period of any partnership interest of the

21 partner in such partnership to the foreign

22 incorporated entity, and

23 ‘‘(C) the highest rate of tax specified in the

24 rate schedule applicable to the partner under
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1 chapter 1 shall be substituted for the rate of tax

2 under paragraph (2)(B).

3 ‘‘(4) INVERSION GAIN.—For purposes of this sec4 tion, the term ‘inversion gain’ means any income or

5 gain required to be recognized under section 304,

6 311(b), 367, 1001, or 1248, or under any other provi7 sion of chapter 1, by reason of the transfer during the

8 applicable period of stock or other properties by an

9 acquired entity—

10 ‘‘(A) as part of the acquisition described in

11 subsection (a)(2)(A) to which subsection (b) ap12 plies, or

13 ‘‘(B) after such acquisition to a foreign re14 lated person.

15 The Secretary may provide that income or gain from

16 the sale of inventories or other transactions in the or17 dinary course of a trade or business shall not be treat18 ed as inversion gain under subparagraph (B) to the

19 extent the Secretary determines such treatment would

20 not be inconsistent with the purposes of this section.

21 ‘‘(5) COORDINATION WITH SECTION 172 AND MIN22 IMUM TAX.—Rules similar to the rules of paragraphs

23 (3) and (4) of section 860E(a) shall apply for pur24 poses of this section.

25 ‘‘(6) STATUTE OF LIMITATIONS.—
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1 ‘‘(A) IN GENERAL.—The statutory period

2 for the assessment of any deficiency attributable

3 to the inversion gain of any taxpayer for any

4 pre-inversion year shall not expire before the ex5 piration of 3 years from the date the Secretary

6 is notified by the taxpayer (in such manner as

7 the Secretary may prescribe) of the acquisition

8 described in subsection (a)(2)(A) to which such

9 gain relates and such deficiency may be assessed

10 before the expiration of such 3-year period not11 withstanding the provisions of any other law or

12 rule of law which would otherwise prevent such

13 assessment.

14 ‘‘(B) PRE-INVERSION YEAR.—For purposes

15 of subparagraph (A), the term ‘pre-inversion

16 year’ means any taxable year if—

17 ‘‘(i) any portion of the applicable pe18 riod is included in such taxable year, and

19 ‘‘(ii) such year ends before the taxable

20 year in which the acquisition described in

21 subsection (a)(2)(A) is completed.

22 ‘‘(d) SPECIAL RULES APPLICABLE TO ACQUIRED EN23 TITIES TO WHICH SUBSECTION (b) APPLIES.—
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1 ‘‘(1) INCREASES IN ACCURACY-RELATED PEN2 ALTIES.—In the case of any underpayment of tax of

3 an acquired entity to which subsection (b) applies—

4 ‘‘(A) section 6662(a) shall be applied with

5 respect to such underpayment by substituting ‘30

6 percent’ for ‘20 percent’, and

7 ‘‘(B) if such underpayment is attributable

8 to one or more gross valuation understatements,

9 the increase in the rate of penalty under section

10 6662(h) shall be to 50 percent rather than 40

11 percent.

12 ‘‘(2) MODIFICATIONS OF LIMITATION ON INTER13 EST DEDUCTION.—In the case of an acquired entity

14 to which subsection (b) applies, section 163(j) shall be

15 applied—

16 ‘‘(A) without regard to paragraph (2)(A)(ii)

17 thereof, and

18 ‘‘(B) by substituting ‘25 percent’ for ‘50

19 percent’ each place it appears in paragraph

20 (2)(B) thereof.

21 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For

22 purposes of this section—

23 ‘‘(1) RULES FOR APPLICATION OF SUBSECTION

24 (a)(2).—In applying subsection (a)(2) for purposes of
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1 subsections (a) and (b), the following rules shall

2 apply:

3 ‘‘(A) CERTAIN STOCK DISREGARDED.—

4 There shall not be taken into account in deter5 mining ownership for purposes of subsection

6 (a)(2)(B)—

7 ‘‘(i) stock held by members of the ex8 panded affiliated group which includes the

9 foreign incorporated entity, or

10 ‘‘(ii) stock of such entity which is sold

11 in a public offering or private placement re12 lated to the acquisition described in sub13 section (a)(2)(A).

14 ‘‘(B) PLAN DEEMED IN CERTAIN CASES.—If

15 a foreign incorporated entity acquires directly or

16 indirectly substantially all of the properties of a

17 domestic corporation or partnership during the

18 4-year period beginning on the date which is 2

19 years before the ownership requirements of sub20 section (a)(2)(B) are met with respect to such do21 mestic corporation or partnership, such actions

22 shall be treated as pursuant to a plan.

23 ‘‘(C) CERTAIN TRANSFERS DISREGARDED.—

24 The transfer of properties or liabilities (includ25 ing by contribution or distribution) shall be dis-
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1 regarded if such transfers are part of a plan a

2 principal purpose of which is to avoid the pur3 poses of this section.

4 ‘‘(D) SPECIAL RULE FOR RELATED PART5 NERSHIPS.—For purposes of applying subsection

6 (a)(2) to the acquisition of a domestic partner7 ship, except as provided in regulations, all part8 nerships which are under common control (with9 in the meaning of section 482) shall be treated

10 as 1 partnership.

11 ‘‘(E) TREATMENT OF CERTAIN RIGHTS.—

12 The Secretary shall prescribe such regulations as

13 may be necessary—

14 ‘‘(i) to treat warrants, options, con15 tracts to acquire stock, convertible debt in16 struments, and other similar interests as

17 stock, and

18 ‘‘(ii) to treat stock as not stock.

19 ‘‘(2) EXPANDED AFFILIATED GROUP.—The term

20 ‘expanded affiliated group’ means an affiliated group

21 as defined in section 1504(a) but without regard to

22 section 1504(b)(3), except that section 1504(a) shall

23 be applied by substituting ‘more than 50 percent’ for

24 ‘at least 80 percent’ each place it appears.
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1 ‘‘(3) FOREIGN INCORPORATED ENTITY.—The

2 term ‘foreign incorporated entity’ means any entity

3 which is, or but for subsection (a)(1) would be, treated

4 as a foreign corporation for purposes of this title.

5 ‘‘(4) FOREIGN RELATED PERSON.—The term ‘for6 eign related person’ means, with respect to any ac7 quired entity, a foreign person which—

8 ‘‘(A) bears a relationship to such entity de9 scribed in section 267(b) or 707(b), or

10 ‘‘(B) is under the same common control

11 (within the meaning of section 482) as such enti12 ty.

13 ‘‘(5) SUBSEQUENT ACQUISITIONS BY UNRELATED

14 DOMESTIC CORPORATIONS.—

15 ‘‘(A) IN GENERAL.—Subject to such condi16 tions, limitations, and exceptions as the Sec17 retary may prescribe, if, after an acquisition de18 scribed in subsection (a)(2)(A) to which sub19 section (b) applies, a domestic corporation stock

20 of which is traded on an established securities

21 market acquires directly or indirectly any prop22 erties of one or more acquired entities in a

23 transaction with respect to which the require24 ments of subparagraph (B) are met, this section
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1 shall cease to apply to any such acquired entity

2 with respect to which such requirements are met.

3 ‘‘(B) REQUIREMENTS.—The requirements of

4 the subparagraph are met with respect to a

5 transaction involving any acquisition described

6 in subparagraph (A) if—

7 ‘‘(i) before such transaction the domes8 tic corporation did not have a relationship

9 described in section 267(b) or 707(b), and

10 was not under common control (within the

11 meaning of section 482), with the acquired

12 entity, or any member of an expanded af13 filiated group including such entity, and

14 ‘‘(ii) after such transaction, such ac15 quired entity—

16 ‘‘(I) is a member of the same ex17 panded affiliated group which includes

18 the domestic corporation or has such a

19 relationship or is under such common

20 control with any member of such

21 group, and

22 ‘‘(II) is not a member of, and does

23 not have such a relationship and is not

24 under such common control with any

25 member of, the expanded affiliated
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1 group which before such acquisition in2 cluded such entity.

3 ‘‘(f) REGULATIONS.—The Secretary shall provide such

4 regulations as are necessary to carry out this section, in5 cluding regulations providing for such adjustments to the

6 application of this section as are necessary to prevent the

7 avoidance of the purposes of this section, including the

8 avoidance of such purposes through—

9 ‘‘(1) the use of related persons, pass-thru or other

10 noncorporate entities, or other intermediaries, or

11 ‘‘(2) transactions designed to have persons cease

12 to be (or not become) members of expanded affiliated

13 groups or related persons.’’.

14 (b) INFORMATION REPORTING.—The Secretary of the

15 Treasury shall exercise the Secretary’s authority under the

16 Internal Revenue Code of 1986 to require entities involved

17 in transactions to which section 7874 of such Code (as

18 added by subsection (a)) applies to report to the Secretary,

19 shareholders, partners, and such other persons as the Sec20 retary may prescribe such information as is necessary to

21 ensure the proper tax treatment of such transactions.

22 (c) CONFORMING AMENDMENT.—The table of sections

23 for subchapter C of chapter 80 is amended by adding at

24 the end the following new item:

‘‘Sec. 7874. Rules relating to inverted corporate entities.’’.
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1 (d) TRANSITION RULE FOR CERTAIN REGULATED IN2 VESTMENT COMPANIES AND UNIT INVESTMENT TRUSTS.—

3 Notwithstanding section 7874 of the Internal Revenue Code

4 of 1986 (as added by subsection (a)), a regulated investment

5 company, or other pooled fund or trust specified by the Sec6 retary of the Treasury, may elect to recognize gain by rea7 son of section 367(a) of such Code with respect to a trans8 action under which a foreign incorporated entity is treated

9 as an inverted domestic corporation under section 7874(a)

10 of such Code by reason of an acquisition completed after

11 March 20, 2002, and before January 1, 2004.

12 (e) DISCLOSURE OF CORPORATE EXPATRIATION

13 TRANSACTIONS.—

14 (1) IN GENERAL.—Section 14 of the Securities

15 Exchange Act of 1934 (15 U.S.C. 78n) is amended by

16 adding at the end the following new subsection:

17 ‘‘(i) PROXY SOLICITATIONS IN CONNECTION WITH

18 CORPORATE EXPATRIATION TRANSACTIONS.—

19 ‘‘(1) DISCLOSURE TO SHAREHOLDERS OF EF20 FECTS OF CORPORATE EXPATRIATION TRANS21 ACTION.—The Commission shall, by rule, require that

22 each domestic issuer shall prominently disclose, not

23 later than 5 business days before any shareholder vote

24 relating to a corporate expatriation transaction, as a
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1 separate and distinct document accompanying each

2 proxy statement relating to the transaction—

3 ‘‘(A) the number of employees of the domes4 tic issuer that would be located in the new for5 eign jurisdiction of incorporation or organiza6 tion of that issuer upon completion of the cor7 porate expatriation transaction;

8 ‘‘(B) how the rights of holders of the securi9 ties of the domestic issuer would be impacted by

10 a completed corporate expatriation transaction,

11 and any differences in such rights before and

12 after a completed corporate expatriation trans13 action; and

14 ‘‘(C) that, as a result of a completed cor15 porate expatriation transaction, any taxable

16 holder of the securities of the domestic issuer

17 shall be subject to the taxation of any capital

18 gains realized with respect to such securities,

19 and the amount of any such capital gains tax

20 that would apply as a result of the transaction.

21 ‘‘(2) DEFINITIONS.—In this subsection, the fol22 lowing definitions shall apply:

23 ‘‘(A) CORPORATE EXPATRIATION TRANS24 ACTION.—The term ‘corporate expatriation

25 transaction’ means any transaction, or series of
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1 related transactions, described in subsection (a)

2 or (b) of section 7874 of the Internal Revenue

3 Code of 1986.

4 ‘‘(A) DOMESTIC ISSUER.—The term ‘domes5 tic issuer’ means an issuer created or organized

6 in the United States or under the law of the

7 United States or of any State.’’

8 (2) EFFECTIVE DATE.—Section 14(i) of the Secu9 rities Exchange Act of 1934 (as added by this sub10 section) shall apply with respect to corporate expa11 triation transactions (as defined in that section 14(i))

12 proposed on and after the date of enactment of this

13 Act.

14 SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDI15 VIDUALS WHO EXPATRIATE.

16 (a) IN GENERAL.—Subpart A of part II of subchapter

17 N of chapter 1 is amended by inserting after section 877

18 the following new section:

19 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

20 ‘‘(a) GENERAL RULES.—For purposes of this

21 subtitle—

22 ‘‘(1) MARK TO MARKET.—Except as provided in

23 subsections (d) and (f), all property of a covered expa24 triate to whom this section applies shall be treated as
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1 sold on the day before the expatriation date for its

2 fair market value.

3 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

4 case of any sale under paragraph (1)—

5 ‘‘(A) notwithstanding any other provision of

6 this title, any gain arising from such sale shall

7 be taken into account for the taxable year of the

8 sale, and

9 ‘‘(B) any loss arising from such sale shall

10 be taken into account for the taxable year of the

11 sale to the extent otherwise provided by this title,

12 except that section 1091 shall not apply to any

13 such loss.

14 Proper adjustment shall be made in the amount of

15 any gain or loss subsequently realized for gain or loss

16 taken into account under the preceding sentence.

17 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—

18 ‘‘(A) IN GENERAL.—The amount which, but

19 for this paragraph, would be includible in the

20 gross income of any individual by reason of this

21 section shall be reduced (but not below zero) by

22 $600,000. For purposes of this paragraph, allo23 cable expatriation gain taken into account under

24 subsection (f)(2) shall be treated in the same
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1 manner as an amount required to be includible

2 in gross income.

3 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

4 ‘‘(i) IN GENERAL.—In the case of an

5 expatriation date occurring in any calendar

6 year after 2004, the $600,000 amount under

7 subparagraph (A) shall be increased by an

8 amount equal to—

9 ‘‘(I) such dollar amount, multi10 plied by

11 ‘‘(II) the cost-of-living adjustment

12 determined under section 1(f)(3) for

13 such calendar year, determined by sub14 stituting ‘calendar year 2003’ for ‘cal15 endar year 1992’ in subparagraph (B)

16 thereof.

17 ‘‘(ii) ROUNDING RULES.—If any

18 amount after adjustment under clause (i) is

19 not a multiple of $1,000, such amount shall

20 be rounded to the next lower multiple of

21 $1,000.

22 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

23 UNITED STATES CITIZEN.—

24 ‘‘(A) IN GENERAL.—If a covered expatriate

25 elects the application of this paragraph—
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1 ‘‘(i) this section (other than this para2 graph and subsection (i)) shall not apply to

3 the expatriate, but

4 ‘‘(ii) in the case of property to which

5 this section would apply but for such elec6 tion, the expatriate shall be subject to tax

7 under this title in the same manner as if

8 the individual were a United States citizen.

9 ‘‘(B) REQUIREMENTS.—Subparagraph (A)

10 shall not apply to an individual unless the

11 individual—

12 ‘‘(i) provides security for payment of

13 tax in such form and manner, and in such

14 amount, as the Secretary may require,

15 ‘‘(ii) consents to the waiver of any

16 right of the individual under any treaty of

17 the United States which would preclude as18 sessment or collection of any tax which may

19 be imposed by reason of this paragraph,

20 and

21 ‘‘(iii) complies with such other require22 ments as the Secretary may prescribe.

23 ‘‘(C) ELECTION.—An election under sub24 paragraph (A) shall apply to all property to

25 which this section would apply but for the elec-
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1 tion and, once made, shall be irrevocable. Such

2 election shall also apply to property the basis of

3 which is determined in whole or in part by ref4 erence to the property with respect to which the

5 election was made.

6 ‘‘(b) ELECTION TO DEFER TAX.—

7 ‘‘(1) IN GENERAL.—If the taxpayer elects the ap8 plication of this subsection with respect to any prop9 erty treated as sold by reason of subsection (a), the

10 payment of the additional tax attributable to such

11 property shall be postponed until the due date of the

12 return for the taxable year in which such property is

13 disposed of (or, in the case of property disposed of in

14 a transaction in which gain is not recognized in

15 whole or in part, until such other date as the Sec16 retary may prescribe).

17 ‘‘(2) DETERMINATION OF TAX WITH RESPECT TO

18 PROPERTY.—For purposes of paragraph (1), the addi19 tional tax attributable to any property is an amount

20 which bears the same ratio to the additional tax im21 posed by this chapter for the taxable year solely by

22 reason of subsection (a) as the gain taken into ac23 count under subsection (a) with respect to such prop24 erty bears to the total gain taken into account under
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1 subsection (a) with respect to all property to which

2 subsection (a) applies.

3 ‘‘(3) TERMINATION OF POSTPONEMENT.—No tax

4 may be postponed under this subsection later than the

5 due date for the return of tax imposed by this chapter

6 for the taxable year which includes the date of death

7 of the expatriate (or, if earlier, the time that the secu8 rity provided with respect to the property fails to

9 meet the requirements of paragraph (4), unless the

10 taxpayer corrects such failure within the time speci11 fied by the Secretary).

12 ‘‘(4) SECURITY.—

13 ‘‘(A) IN GENERAL.—No election may be

14 made under paragraph (1) with respect to any

15 property unless adequate security is provided to

16 the Secretary with respect to such property.

17 ‘‘(B) ADEQUATE SECURITY.—For purposes

18 of subparagraph (A), security with respect to

19 any property shall be treated as adequate secu20 rity if—

21 ‘‘(i) it is a bond in an amount equal

22 to the deferred tax amount under paragraph

23 (2) for the property, or
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1 ‘‘(ii) the taxpayer otherwise establishes

2 to the satisfaction of the Secretary that the

3 security is adequate.

4 ‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election

5 may be made under paragraph (1) unless the tax6 payer consents to the waiver of any right under any

7 treaty of the United States which would preclude as8 sessment or collection of any tax imposed by reason

9 of this section.

10 ‘‘(6) ELECTIONS.—An election under paragraph

11 (1) shall only apply to property described in the elec12 tion and, once made, is irrevocable. An election may

13 be made under paragraph (1) with respect to an in14 terest in a trust with respect to which gain is re15 quired to be recognized under subsection (f)(1).

16 ‘‘(7) INTEREST.—For purposes of section 6601—

17 ‘‘(A) the last date for the payment of tax

18 shall be determined without regard to the election

19 under this subsection, and

20 ‘‘(B) section 6621(a)(2) shall be applied by

21 substituting ‘5 percentage points’ for ‘3 percent22 age points’ in subparagraph (B) thereof.

23 ‘‘(c) COVERED EXPATRIATE.—For purposes of this

24 section—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), the term ‘covered expatriate’ means an ex3 patriate.

4 ‘‘(2) EXCEPTIONS.—An individual shall not be

5 treated as a covered expatriate if—

6 ‘‘(A) the individual—

7 ‘‘(i) became at birth a citizen of the

8 United States and a citizen of another

9 country and, as of the expatriation date,

10 continues to be a citizen of, and is taxed as

11 a resident of, such other country, and

12 ‘‘(ii) has not been a resident of the

13 United States (as defined in section

14 7701(b)(1)(A)(ii)) during the 5 taxable

15 years ending with the taxable year during

16 which the expatriation date occurs, or

17 ‘‘(B)(i) the individual’s relinquishment of

18 United States citizenship occurs before such individual attains age 181 19 ⁄2, and

20 ‘‘(ii) the individual has been a resident of

21 the United States (as so defined) for not more

22 than 5 taxable years before the date of relin23 quishment.

24 ‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN25 SION PLANS.—
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1 ‘‘(1) EXEMPT PROPERTY.—This section shall not

2 apply to the following:

3 ‘‘(A) UNITED STATES REAL PROPERTY IN4 TERESTS.—Any United States real property in5 terest (as defined in section 897(c)(1)), other

6 than stock of a United States real property hold7 ing corporation which does not, on the day before

8 the expatriation date, meet the requirements of

9 section 897(c)(2).

10 ‘‘(B) SPECIFIED PROPERTY.—Any property

11 or interest in property not described in subpara12 graph (A) which the Secretary specifies in regu13 lations.

14 ‘‘(2) SPECIAL RULES FOR CERTAIN RETIREMENT

15 PLANS.—

16 ‘‘(A) IN GENERAL.—If a covered expatriate

17 holds on the day before the expatriation date any

18 interest in a retirement plan to which this para19 graph applies—

20 ‘‘(i) such interest shall not be treated

21 as sold for purposes of subsection (a)(1), but

22 ‘‘(ii) an amount equal to the present

23 value of the expatriate’s nonforfeitable ac24 crued benefit shall be treated as having been
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1 received by such individual on such date as

2 a distribution under the plan.

3 ‘‘(B) TREATMENT OF SUBSEQUENT DIS4 TRIBUTIONS.—In the case of any distribution on

5 or after the expatriation date to or on behalf of

6 the covered expatriate from a plan from which

7 the expatriate was treated as receiving a dis8 tribution under subparagraph (A), the amount

9 otherwise includible in gross income by reason of

10 the subsequent distribution shall be reduced by

11 the excess of the amount includible in gross in12 come under subparagraph (A) over any portion

13 of such amount to which this subparagraph pre14 viously applied.

15 ‘‘(C) TREATMENT OF SUBSEQUENT DIS16 TRIBUTIONS BY PLAN.—For purposes of this title,

17 a retirement plan to which this paragraph ap18 plies, and any person acting on the plan’s behalf,

19 shall treat any subsequent distribution described

20 in subparagraph (B) in the same manner as

21 such distribution would be treated without re22 gard to this paragraph.

23 ‘‘(D) APPLICABLE PLANS.—This paragraph

24 shall apply to—
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1 ‘‘(i) any qualified retirement plan (as

2 defined in section 4974(c)),

3 ‘‘(ii) an eligible deferred compensation

4 plan (as defined in section 457(b)) of an el5 igible employer described in section

6 457(e)(1)(A), and

7 ‘‘(iii) to the extent provided in regula8 tions, any foreign pension plan or similar

9 retirement arrangements or programs.

10 ‘‘(e) DEFINITIONS.—For purposes of this section—

11 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

12 means—

13 ‘‘(A) any United States citizen who relin14 quishes citizenship, and

15 ‘‘(B) any long-term resident of the United

16 States who—

17 ‘‘(i) ceases to be a lawful permanent

18 resident of the United States (within the

19 meaning of section 7701(b)(6)), or

20 ‘‘(ii) commences to be treated as a resi21 dent of a foreign country under the provi22 sions of a tax treaty between the United

23 States and the foreign country and who

24 does not waive the benefits of such treaty
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1 applicable to residents of the foreign coun2 try.

3 ‘‘(2) EXPATRIATION DATE.—The term ‘expatria4 tion date’ means—

5 ‘‘(A) the date an individual relinquishes

6 United States citizenship, or

7 ‘‘(B) in the case of a long-term resident of

8 the United States, the date of the event described

9 in clause (i) or (ii) of paragraph (1)(B).

10 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A cit11 izen shall be treated as relinquishing United States

12 citizenship on the earliest of—

13 ‘‘(A) the date the individual renounces such

14 individual’s United States nationality before a

15 diplomatic or consular officer of the United

16 States pursuant to paragraph (5) of section

17 349(a) of the Immigration and Nationality Act

18 (8 U.S.C. 1481(a)(5)),

19 ‘‘(B) the date the individual furnishes to the

20 United States Department of State a signed

21 statement of voluntary relinquishment of United

22 States nationality confirming the performance of

23 an act of expatriation specified in paragraph

24 (1), (2), (3), or (4) of section 349(a) of the Im-
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1 migration and Nationality Act (8 U.S.C.

2 1481(a)(1)–(4)),

3 ‘‘(C) the date the United States Department

4 of State issues to the individual a certificate of

5 loss of nationality, or

6 ‘‘(D) the date a court of the United States

7 cancels a naturalized citizen’s certificate of natu8 ralization.

9 Subparagraph (A) or (B) shall not apply to any in10 dividual unless the renunciation or voluntary relin11 quishment is subsequently approved by the issuance to

12 the individual of a certificate of loss of nationality by

13 the United States Department of State.

14 ‘‘(4) LONG-TERM RESIDENT.—The term ‘long15 term resident’ has the meaning given to such term by

16 section 877(e)(2).

17 ‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’

18 INTERESTS IN TRUST.—

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), if an individual is determined under para21 graph (3) to hold an interest in a trust on the day

22 before the expatriation date—

23 ‘‘(A) the individual shall not be treated as

24 having sold such interest,
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1 ‘‘(B) such interest shall be treated as a sep2 arate share in the trust, and

3 ‘‘(C)(i) such separate share shall be treated

4 as a separate trust consisting of the assets allo5 cable to such share,

6 ‘‘(ii) the separate trust shall be treated as

7 having sold its assets on the day before the expa8 triation date for their fair market value and as

9 having distributed all of its assets to the indi10 vidual as of such time, and

11 ‘‘(iii) the individual shall be treated as hav12 ing recontributed the assets to the separate trust.

13 Subsection (a)(2) shall apply to any income, gain, or

14 loss of the individual arising from a distribution de15 scribed in subparagraph (C)(ii). In determining the

16 amount of such distribution, proper adjustments shall

17 be made for liabilities of the trust allocable to an in18 dividual’s share in the trust.

19 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI20 FIED TRUSTS.—

21 ‘‘(A) IN GENERAL.—If the trust interest de22 scribed in paragraph (1) is an interest in a

23 qualified trust—

24 ‘‘(i) paragraph (1) and subsection (a)

25 shall not apply, and
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1 ‘‘(ii) in addition to any other tax im2 posed by this title, there is hereby imposed

3 on each distribution with respect to such in4 terest a tax in the amount determined

5 under subparagraph (B).

6 ‘‘(B) AMOUNT OF TAX.—The amount of tax

7 under subparagraph (A)(ii) shall be equal to the

8 lesser of—

9 ‘‘(i) the highest rate of tax imposed by

10 section 1(e) for the taxable year which in11 cludes the day before the expatriation date,

12 multiplied by the amount of the distribu13 tion, or

14 ‘‘(ii) the balance in the deferred tax ac15 count immediately before the distribution

16 determined without regard to any increases

17 under subparagraph (C)(ii) after the 30th

18 day preceding the distribution.

19 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur20 poses of subparagraph (B)(ii)—

21 ‘‘(i) OPENING BALANCE.—The opening

22 balance in a deferred tax account with re23 spect to any trust interest is an amount

24 equal to the tax which would have been im25 posed on the allocable expatriation gain
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1 with respect to the trust interest if such

2 gain had been included in gross income

3 under subsection (a).

4 ‘‘(ii) INCREASE FOR INTEREST.—The

5 balance in the deferred tax account shall be

6 increased by the amount of interest deter7 mined (on the balance in the account at the

8 time the interest accrues), for periods after

9 the 90th day after the expatriation date, by

10 using the rates and method applicable

11 under section 6621 for underpayments of

12 tax for such periods, except that section

13 6621(a)(2) shall be applied by substituting

14 ‘5 percentage points’ for ‘3 percentage

15 points’ in subparagraph (B) thereof.

16 ‘‘(iii) DECREASE FOR TAXES PRE17 VIOUSLY PAID.—The balance in the tax de18 ferred account shall be reduced—

19 ‘‘(I) by the amount of taxes im20 posed by subparagraph (A) on any dis21 tribution to the person holding the

22 trust interest, and

23 ‘‘(II) in the case of a person hold24 ing a nonvested interest, to the extent

25 provided in regulations, by the amount
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1 of taxes imposed by subparagraph (A)

2 on distributions from the trust with re3 spect to nonvested interests not held by

4 such person.

5 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For

6 purposes of this paragraph, the allocable expa7 triation gain with respect to any beneficiary’s

8 interest in a trust is the amount of gain which

9 would be allocable to such beneficiary’s vested

10 and nonvested interests in the trust if the bene11 ficiary held directly all assets allocable to such

12 interests.

13 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

14 ‘‘(i) IN GENERAL.—The tax imposed by

15 subparagraph (A)(ii) shall be deducted and

16 withheld by the trustees from the distribu17 tion to which it relates.

18 ‘‘(ii) EXCEPTION WHERE FAILURE TO

19 WAIVE TREATY RIGHTS.—If an amount may

20 not be deducted and withheld under clause

21 (i) by reason of the distributee failing to

22 waive any treaty right with respect to such

23 distribution—

24 ‘‘(I) the tax imposed by subpara25 graph (A)(ii) shall be imposed on the
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1 trust and each trustee shall be person2 ally liable for the amount of such tax,

3 and

4 ‘‘(II) any other beneficiary of the

5 trust shall be entitled to recover from

6 the distributee the amount of such tax

7 imposed on the other beneficiary.

8 ‘‘(F) DISPOSITION.—If a trust ceases to be

9 a qualified trust at any time, a covered expa10 triate disposes of an interest in a qualified trust,

11 or a covered expatriate holding an interest in a

12 qualified trust dies, then, in lieu of the tax im13 posed by subparagraph (A)(ii), there is hereby

14 imposed a tax equal to the lesser of—

15 ‘‘(i) the tax determined under para16 graph (1) as if the day before the expatria17 tion date were the date of such cessation,

18 disposition, or death, whichever is applica19 ble, or

20 ‘‘(ii) the balance in the tax deferred ac21 count immediately before such date.

22 Such tax shall be imposed on the trust and each

23 trustee shall be personally liable for the amount

24 of such tax and any other beneficiary of the trust

25 shall be entitled to recover from the covered expa-
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1 triate or the estate the amount of such tax im2 posed on the other beneficiary.

3 ‘‘(G) DEFINITIONS AND SPECIAL RULES.—

4 For purposes of this paragraph—

5 ‘‘(i) QUALIFIED TRUST.—The term

6 ‘qualified trust’ means a trust which is de7 scribed in section 7701(a)(30)(E).

8 ‘‘(ii) VESTED INTEREST.—The term

9 ‘vested interest’ means any interest which,

10 as of the day before the expatriation date, is

11 vested in the beneficiary.

12 ‘‘(iii) NONVESTED INTEREST.—The

13 term ‘nonvested interest’ means, with re14 spect to any beneficiary, any interest in a

15 trust which is not a vested interest. Such

16 interest shall be determined by assuming the

17 maximum exercise of discretion in favor of

18 the beneficiary and the occurrence of all

19 contingencies in favor of the beneficiary.

20 ‘‘(iv) ADJUSTMENTS.—The Secretary

21 may provide for such adjustments to the

22 bases of assets in a trust or a deferred tax

23 account, and the timing of such adjust24 ments, in order to ensure that gain is taxed

25 only once.
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1 ‘‘(v) COORDINATION WITH RETIREMENT

2 PLAN RULES.—This subsection shall not

3 apply to an interest in a trust which is

4 part of a retirement plan to which sub5 section (d)(2) applies.

6 ‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER7 EST IN TRUST.—

8 ‘‘(A) DETERMINATIONS UNDER PARAGRAPH

9 (1).—For purposes of paragraph (1), a bene10 ficiary’s interest in a trust shall be based upon

11 all relevant facts and circumstances, including

12 the terms of the trust instrument and any letter

13 of wishes or similar document, historical pat14 terns of trust distributions, and the existence of

15 and functions performed by a trust protector or

16 any similar adviser.

17 ‘‘(B) OTHER DETERMINATIONS.—For pur18 poses of this section—

19 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a

20 beneficiary of a trust is a corporation, part21 nership, trust, or estate, the shareholders,

22 partners, or beneficiaries shall be deemed to

23 be the trust beneficiaries for purposes of this

24 section.
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1 ‘‘(ii) TAXPAYER RETURN POSITION.—A

2 taxpayer shall clearly indicate on its in3 come tax return—

4 ‘‘(I) the methodology used to de5 termine that taxpayer’s trust interest

6 under this section, and

7 ‘‘(II) if the taxpayer knows (or

8 has reason to know) that any other

9 beneficiary of such trust is using a dif10 ferent methodology to determine such

11 beneficiary’s trust interest under this

12 section.

13 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the case

14 of any covered expatriate, notwithstanding any other provi15 sion of this title—

16 ‘‘(1) any period during which recognition of in17 come or gain is deferred shall terminate on the day

18 before the expatriation date, and

19 ‘‘(2) any extension of time for payment of tax

20 shall cease to apply on the day before the expatriation

21 date and the unpaid portion of such tax shall be due

22 and payable at the time and in the manner pre23 scribed by the Secretary.

24 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—
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1 ‘‘(1) IN GENERAL.—If an individual is required

2 to include any amount in gross income under sub3 section (a) for any taxable year, there is hereby im4 posed, immediately before the expatriation date, a tax

5 in an amount equal to the amount of tax which

6 would be imposed if the taxable year were a short tax7 able year ending on the expatriation date.

8 ‘‘(2) DUE DATE.—The due date for any tax im9 posed by paragraph (1) shall be the 90th day after the

10 expatriation date.

11 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

12 paragraph (1) shall be treated as a payment of the

13 tax imposed by this chapter for the taxable year to

14 which subsection (a) applies.

15 ‘‘(4) DEFERRAL OF TAX.—The provisions of sub16 section (b) shall apply to the tax imposed by this sub17 section to the extent attributable to gain includible in

18 gross income by reason of this section.

19 ‘‘(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS.—

20 ‘‘(1) IMPOSITION OF LIEN.—

21 ‘‘(A) IN GENERAL.—If a covered expatriate

22 makes an election under subsection (a)(4) or (b)

23 which results in the deferral of any tax imposed

24 by reason of subsection (a), the deferred amount

25 (including any interest, additional amount, ad-
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1 dition to tax, assessable penalty, and costs at2 tributable to the deferred amount) shall be a lien

3 in favor of the United States on all property of

4 the expatriate located in the United States (with5 out regard to whether this section applies to the

6 property).

7 ‘‘(B) DEFERRED AMOUNT.—For purposes of

8 this subsection, the deferred amount is the

9 amount of the increase in the covered expatri10 ate’s income tax which, but for the election under

11 subsection (a)(4) or (b), would have occurred by

12 reason of this section for the taxable year includ13 ing the expatriation date.

14 ‘‘(2) PERIOD OF LIEN.—The lien imposed by this

15 subsection shall arise on the expatriation date and

16 continue until—

17 ‘‘(A) the liability for tax by reason of this

18 section is satisfied or has become unenforceable

19 by reason of lapse of time, or

20 ‘‘(B) it is established to the satisfaction of

21 the Secretary that no further tax liability may

22 arise by reason of this section.

23 ‘‘(3) CERTAIN RULES APPLY.—The rules set forth

24 in paragraphs (1), (3), and (4) of section 6324A(d)

25 shall apply with respect to the lien imposed by this
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1 subsection as if it were a lien imposed by section

2 6324A.

3 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section.’’.

6 (b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS

7 RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS

8 FROM EXPATRIATES.—Section 102 (relating to gifts, etc.

9 not included in gross income) is amended by adding at the

10 end the following new subsection:

11 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX12 PATRIATES.—

13 ‘‘(1) IN GENERAL.—Subsection (a) shall not ex14 clude from gross income the value of any property ac15 quired by gift, bequest, devise, or inheritance from a

16 covered expatriate after the expatriation date. For

17 purposes of this subsection, any term used in this sub18 section which is also used in section 877A shall have

19 the same meaning as when used in section 877A.

20 ‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE

21 SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1)

22 shall not apply to any property if either—

23 ‘‘(A) the gift, bequest, devise, or inheritance

24 is—
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1 ‘‘(i) shown on a timely filed return of

2 tax imposed by chapter 12 as a taxable gift

3 by the covered expatriate, or

4 ‘‘(ii) included in the gross estate of the

5 covered expatriate for purposes of chapter

6 11 and shown on a timely filed return of

7 tax imposed by chapter 11 of the estate of

8 the covered expatriate, or

9 ‘‘(B) no such return was timely filed but no

10 such return would have been required to be filed

11 even if the covered expatriate were a citizen or

12 long-term resident of the United States.’’.

13 (c) DEFINITION OF TERMINATION OF UNITED STATES

14 CITIZENSHIP.—Section 7701(a) is amended by adding at

15 the end the following new paragraph:

16 ‘‘(48) TERMINATION OF UNITED STATES CITIZEN17 SHIP.—

18 ‘‘(A) IN GENERAL.—An individual shall not

19 cease to be treated as a United States citizen be20 fore the date on which the individual’s citizen21 ship is treated as relinquished under section

22 877A(e)(3).

23 ‘‘(B) DUAL CITIZENS.—Under regulations

24 prescribed by the Secretary, subparagraph (A)

25 shall not apply to an individual who became at
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1 birth a citizen of the United States and a citizen

2 of another country.’’.

3 (d) INELIGIBILITY FOR VISA OR ADMISSION TO

4 UNITED STATES.—

5 (1) IN GENERAL.—Section 212(a)(10)(E) of the

6 Immigration and Nationality Act (8 U.S.C.

7 1182(a)(10)(E)) is amended to read as follows:

8 ‘‘(E) FORMER CITIZENS NOT IN COMPLI9 ANCE WITH EXPATRIATION REVENUE PROVI10 SIONS.—Any alien who is a former citizen of the

11 United States who relinquishes United States

12 citizenship (within the meaning of section

13 877A(e)(3) of the Internal Revenue Code of 1986)

14 and who is not in compliance with section 877A

15 of such Code (relating to expatriation).’’.

16 (2) AVAILABILITY OF INFORMATION.—

17 (A) IN GENERAL.—Section 6103(l) (relating

18 to disclosure of returns and return information

19 for purposes other than tax administration) is

20 amended by adding at the end the following new

21 paragraph:

22 ‘‘(19) DISCLOSURE TO DENY VISA OR ADMISSION

23 TO CERTAIN EXPATRIATES.—Upon written request of

24 the Attorney General or the Attorney General’s dele25 gate, the Secretary shall disclose whether an indi-
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1 vidual is in compliance with section 877A (and if not

2 in compliance, any items of noncompliance) to offi3 cers and employees of the Federal agency responsible

4 for administering section 212(a)(10)(E) of the Immi5 gration and Nationality Act solely for the purpose of,

6 and to the extent necessary in, administering such

7 section 212(a)(10)(E).’’.

8 (B) SAFEGUARDS.—

9 (i) TECHNICAL AMENDMENTS.—Para10 graph (4) of section 6103(p) of the Internal

11 Revenue Code of 1986, as amended by sec12 tion 202(b)(2)(B) of the Trade Act of 2002

13 (Public Law 107–210; 116 Stat. 961), is

14 amended by striking ‘‘or (17)’’ after ‘‘any

15 other person described in subsection (l)(16)’’

16 each place it appears and inserting ‘‘or

17 (18)’’.

18 (ii) CONFORMING AMENDMENTS.—Sec19 tion 6103(p)(4) (relating to safeguards), as

20 amended by clause (i), is amended by strik21 ing ‘‘or (18)’’ after ‘‘any other person de22 scribed in subsection (l)(16)’’ each place it

23 appears and inserting ‘‘(18), or (19)’’.

24 (3) EFFECTIVE DATES.—
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1 (A) IN GENERAL.—Except as provided in

2 subparagraph (B), the amendments made by this

3 subsection shall apply to individuals who relin4 quish United States citizenship on or after the

5 date of the enactment of this Act.

6 (B) TECHNICAL AMENDMENTS.—The

7 amendments made by paragraph (2)(B)(i) shall

8 take effect as if included in the amendments

9 made by section 202(b)(2)(B) of the Trade Act of

10 2002 (Public Law 107–210; 116 Stat. 961).

11 (e) CONFORMING AMENDMENTS.—

12 (1) Section 877 is amended by adding at the end

13 the following new subsection:

14 ‘‘(g) APPLICATION.—This section shall not apply to an

15 expatriate (as defined in section 877A(e)) whose expatria16 tion date (as so defined) occurs on or after January 1,

17 2004.’’.

18 (2) Section 2107 is amended by adding at the

19 end the following new subsection:

20 ‘‘(f) APPLICATION.—This section shall not apply to

21 any expatriate subject to section 877A.’’.

22 (3) Section 2501(a)(3) is amended by adding at

23 the end the following new subparagraph:
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1 ‘‘(F) APPLICATION.—This paragraph shall

2 not apply to any expatriate subject to section

3 877A.’’.

4 (4)(A) Paragraph (1) of section 6039G(d) is

5 amended by inserting ‘‘or 877A’’ after ‘‘section 877’’.

6 (B) The second sentence of section 6039G(e) is

7 amended by inserting ‘‘or who relinquishes United

8 States citizenship (within the meaning of section

9 877A(e)(3))’’ after ‘‘877(a))’’.

10 (C) Section 6039G(f) is amended by inserting

11 ‘‘or 877A(e)(2)(B)’’ after ‘‘877(e)(1)’’.

12 (f) CLERICAL AMENDMENT.—The table of sections for

13 subpart A of part II of subchapter N of chapter 1 is amend14 ed by inserting after the item relating to section 877 the

15 following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’.

16 (g) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in this

18 subsection, the amendments made by this section shall

19 apply to expatriates (within the meaning of section

20 877A(e) of the Internal Revenue Code of 1986, as

21 added by this section) whose expatriation date (as so

22 defined) occurs on or after January 1, 2004.

23 (2) GIFTS AND BEQUESTS.—Section 102(d) of

24 the Internal Revenue Code of 1986 (as added by sub25 section (b)) shall apply to gifts and bequests received
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1 on or after January 1, 2004, from an individual or

2 the estate of an individual whose expatriation date

3 (as so defined) occurs after such date.

4 (3) DUE DATE FOR TENTATIVE TAX.—The due

5 date under section 877A(h)(2) of the Internal Revenue

6 Code of 1986, as added by this section, shall in no

7 event occur before the 90th day after the date of the

8 enactment of this Act.

9 SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSID10 ERS IN INVERTED CORPORATIONS.

11 (a) IN GENERAL.—Subtitle D is amended by adding

12 at the end the following new chapter:

13 ‘‘CHAPTER 48—STOCK COMPENSATION OF

14 INSIDERS IN INVERTED CORPORATIONS

‘‘Sec. 5000A. Stock compensation of insiders in inverted corporations entities.

15 ‘‘SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN IN16 VERTED CORPORATIONS.

17 ‘‘(a) IMPOSITION OF TAX.—In the case of an indi18 vidual who is a disqualified individual with respect to any

19 inverted corporation, there is hereby imposed on such per20 son a tax equal to 20 percent of the value (determined under

21 subsection (b)) of the specified stock compensation held (di22 rectly or indirectly) by or for the benefit of such individual

23 or a member of such individual’s family (as defined in sec24 tion 267) at any time during the 12-month period begin-
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1 ning on the date which is 6 months before the inversion

2 date.

3 ‘‘(b) VALUE.—For purposes of subsection (a)—

4 ‘‘(1) IN GENERAL.—The value of specified stock

5 compensation shall be—

6 ‘‘(A) in the case of a stock option (or other

7 similar right) or any stock appreciation right,

8 the fair value of such option or right, and

9 ‘‘(B) in any other case, the fair market

10 value of such compensation.

11 ‘‘(2) DATE FOR DETERMINING VALUE.—The de12 termination of value shall be made—

13 ‘‘(A) in the case of specified stock compensa14 tion held on the inversion date, on such date,

15 ‘‘(B) in the case of such compensation which

16 is canceled during the 6 months before the inver17 sion date, on the day before such cancellation,

18 and

19 ‘‘(C) in the case of such compensation which

20 is granted after the inversion date, on the date

21 such compensation is granted.

22 ‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN

23 RECOGNIZED.—Subsection (a) shall apply to any disquali24 fied individual with respect to an inverted corporation only

25 if gain (if any) on any stock in such corporation is recog-
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1 nized in whole or part by any shareholder by reason of the

2 acquisition referred to in section 7874(a)(2)(A) (determined

3 by substituting ‘July 10, 2002’ for ‘March 20, 2002’) with

4 respect to such corporation.

5 ‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON COM6 PENSATION.—Subsection (a) shall not apply to—

7 ‘‘(1) any stock option which is exercised on the

8 inversion date or during the 6-month period before

9 such date and to the stock acquired in such exercise,

10 if income is recognized under section 83 on or before

11 the inversion date with respect to the stock acquired

12 pursuant to such exercise, and

13 ‘‘(2) any specified stock compensation which is

14 exercised, sold, exchanged, distributed, cashed out, or

15 otherwise paid during such period in a transaction in

16 which gain or loss is recognized in full.

17 ‘‘(e) DEFINITIONS.—For purposes of this section—

18 ‘‘(1) DISQUALIFIED INDIVIDUAL.—The term ‘dis19 qualified individual’ means, with respect to a cor20 poration, any individual who, at any time during the

21 12-month period beginning on the date which is 6

22 months before the inversion date—

23 ‘‘(A) is subject to the requirements of section

24 16(a) of the Securities Exchange Act of 1934

25 with respect to such corporation, or
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1 ‘‘(B) would be subject to such requirements

2 if such corporation were an issuer of equity secu3 rities referred to in such section.

4 ‘‘(2) INVERTED CORPORATION; INVERSION

5 DATE.—

6 ‘‘(A) INVERTED CORPORATION.—The term

7 ‘inverted corporation’ means any corporation to

8 which subsection (a) or (b) of section 7874 ap9 plies determined—

10 ‘‘(i) by substituting ‘July 10, 2002’ for

11 ‘March 20, 2002’ in section 7874(a)(2)(A),

12 and

13 ‘‘(ii) without regard to subsection

14 (b)(1)(A).

15 Such term includes any predecessor or successor

16 of such a corporation.

17 ‘‘(B) INVERSION DATE.—The term ‘inver18 sion date’ means, with respect to a corporation,

19 the date on which the corporation first becomes

20 an inverted corporation.

21 ‘‘(3) SPECIFIED STOCK COMPENSATION.—

22 ‘‘(A) IN GENERAL.—The term ‘specified

23 stock compensation’ means payment (or right to

24 payment) granted by the inverted corporation

25 (or by any member of the expanded affiliated
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1 group which includes such corporation) to any

2 person in connection with the performance of

3 services by a disqualified individual for such cor4 poration or member if the value of such payment

5 or right is based on (or determined by reference

6 to) the value (or change in value) of stock in

7 such corporation (or any such member).

8 ‘‘(B) EXCEPTIONS.—Such term shall not

9 include—

10 ‘‘(i) any option to which part II of

11 subchapter D of chapter 1 applies, or

12 ‘‘(ii) any payment or right to payment

13 from a plan referred to in section

14 280G(b)(6).

15 ‘‘(4) EXPANDED AFFILIATED GROUP.—The term

16 ‘expanded affiliated group’ means an affiliated group

17 (as defined in section 1504(a) without regard to sec18 tion 1504(b)(3)); except that section 1504(a) shall be

19 applied by substituting ‘more than 50 percent’ for ‘at

20 least 80 percent’ each place it appears.

21 ‘‘(f) SPECIAL RULES.—For purposes of this section—

22 ‘‘(1) CANCELLATION OF RESTRICTION.—The can23 cellation of a restriction which by its terms will never

24 lapse shall be treated as a grant.
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1 ‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY

2 CORPORATION TREATED AS SPECIFIED STOCK COM3 PENSATION.—Any payment of the tax imposed by this

4 section directly or indirectly by the inverted corpora5 tion or by any member of the expanded affiliated

6 group which includes such corporation—

7 ‘‘(A) shall be treated as specified stock com8 pensation, and

9 ‘‘(B) shall not be allowed as a deduction

10 under any provision of chapter 1.

11 ‘‘(3) CERTAIN RESTRICTIONS IGNORED.—Wheth12 er there is specified stock compensation, and the value

13 thereof, shall be determined without regard to any re14 striction other than a restriction which by its terms

15 will never lapse.

16 ‘‘(4) PROPERTY TRANSFERS.—Any transfer of

17 property shall be treated as a payment and any right

18 to a transfer of property shall be treated as a right

19 to a payment.

20 ‘‘(5) OTHER ADMINISTRATIVE PROVISIONS.—For

21 purposes of subtitle F, any tax imposed by this sec22 tion shall be treated as a tax imposed by subtitle A.

23 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

24 such regulations as may be necessary or appropriate to

25 carry out the purposes of this section.’’.
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1 (b) DENIAL OF DEDUCTION.—

2 (1) IN GENERAL.—Paragraph (6) of section

3 275(a) is amended by inserting ‘‘48,’’ after ‘‘46,’’.

4 (2) $1,000,000 LIMIT ON DEDUCTIBLE COM5 PENSATION REDUCED BY PAYMENT OF EXCISE TAX ON

6 SPECIFIED STOCK COMPENSATION.—Paragraph (4) of

7 section 162(m) is amended by adding at the end the

8 following new subparagraph:

9 ‘‘(G) COORDINATION WITH EXCISE TAX ON

10 SPECIFIED STOCK COMPENSATION.—The dollar

11 limitation contained in paragraph (1) with re12 spect to any covered employee shall be reduced

13 (but not below zero) by the amount of any pay14 ment (with respect to such employee) of the tax

15 imposed by section 5000A directly or indirectly

16 by the inverted corporation (as defined in such

17 section) or by any member of the expanded affili18 ated group (as defined in such section) which in19 cludes such corporation.’’.

20 (c) CONFORMING AMENDMENTS.—

21 (1) The last sentence of section 3121(v)(2)(A) is

22 amended by inserting before the period ‘‘or to any

23 specified stock compensation (as defined in section

24 5000A) on which tax is imposed by section 5000A’’.
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1 (2) The table of chapters for subtitle D is amend2 ed by adding at the end the following new item:

‘‘Chapter 48. Stock compensation of insiders in inverted corporations.’’.

3 (d) EFFECTIVE DATE.—The amendments made by this

4 section shall take effect on July 11, 2002; except that periods

5 before such date shall not be taken into account in applying

6 the periods in subsections (a) and (e)(1) of section 5000A

7 of the Internal Revenue Code of 1986, as added by this sec8 tion.

9 SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOR10 EIGN JURISDICTIONS.

11 (a) IN GENERAL.—Section 845(a) (relating to alloca12 tion in case of reinsurance agreement involving tax avoid13 ance or evasion) is amended by striking ‘‘source and char14 acter’’ and inserting ‘‘amount, source, or character’’.

15 (b) EFFECTIVE DATE.—The amendments made by this

16 section shall apply to any risk reinsured after April 11,

17 2002.

18 SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISI19 TIONS.

20 (a) IN GENERAL.—Subpart B of part III of subchapter

21 A of chapter 61 is amended by inserting after section 6043

22 the following new section:
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1 ‘‘SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

2 ‘‘(a) IN GENERAL.—The acquiring corporation in any

3 taxable acquisition shall make a return (according to the

4 forms or regulations prescribed by the Secretary) setting

5 forth—

6 ‘‘(1) a description of the acquisition,

7 ‘‘(2) the name and address of each shareholder of

8 the acquired corporation who is required to recognize

9 gain (if any) as a result of the acquisition,

10 ‘‘(3) the amount of money and the fair market

11 value of other property transferred to each such share12 holder as part of such acquisition, and

13 ‘‘(4) such other information as the Secretary

14 may prescribe.

15 To the extent provided by the Secretary, the requirements

16 of this section applicable to the acquiring corporation shall

17 be applicable to the acquired corporation and not to the

18 acquiring corporation.

19 ‘‘(b) NOMINEE REPORTING.—Any person who holds

20 stock as a nominee for another person shall furnish in the

21 manner prescribed by the Secretary to such other person

22 the information provided by the corporation under sub23 section (d).

24 ‘‘(c) TAXABLE ACQUISITION.—For purposes of this sec25 tion, the term ‘taxable acquisition’ means any acquisition

26 by a corporation of stock in or property of another corpora-
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1 tion if any shareholder of the acquired corporation is re2 quired to recognize gain (if any) as a result of such acquisi3 tion.

4 ‘‘(d) STATEMENTS TO BE FURNISHED TO SHARE5 HOLDERS.—Every person required to make a return under

6 subsection (a) shall furnish to each shareholder whose name

7 is required to be set forth in such return a written statement

8 showing—

9 ‘‘(1) the name, address, and phone number of the

10 information contact of the person required to make

11 such return,

12 ‘‘(2) the information required to be shown on

13 such return with respect to such shareholder, and

14 ‘‘(3) such other information as the Secretary

15 may prescribe.

16 The written statement required under the preceding sen17 tence shall be furnished to the shareholder on or before Jan18 uary 31 of the year following the calendar year during

19 which the taxable acquisition occurred.’’.

20 (b) ASSESSABLE PENALTIES.—

21 (1) Subparagraph (B) of section 6724(d)(1) (de22 fining information return) is amended by redesig23 nating clauses (ii) through (xviii) as clauses (iii)

24 through (xix), respectively, and by inserting after

25 clause (i) the following new clause:
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1 ‘‘(ii) section 6043A(a) (relating to re2 turns relating to taxable mergers and acqui3 sitions),’’.

4 (2) Paragraph (2) of section 6724(d) (relating to

5 definitions) is amended by redesignating subpara6 graphs (F) through (BB) as subparagraphs (G)

7 through (CC), respectively, and by inserting after sub8 paragraph (E) the following new subparagraph:

9 ‘‘(F) subsections (b) and (d) of section

10 6043A (relating to returns relating to taxable

11 mergers and acquisitions).’’.

12 (c) CLERICAL AMENDMENT.—The table of sections for

13 subpart B of part III of subchapter A of chapter 61 is

14 amended by inserting after the item relating to section 6043

15 the following new item:

‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’.

16 (d) EFFECTIVE DATE.—The amendments made by this

17 section shall apply to acquisitions after the date of the en18 actment of this Act.

19 Subtitle E—International Tax

20 SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PUR21 POSES OF DETERMINING INVESTMENT OF

22 EARNINGS IN UNITED STATES PROPERTY.

23 (a) IN GENERAL.—Subparagraph (A) of section

24 956(c)(2) is amended to read as follows:
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1 ‘‘(A) obligations of the United States,

2 money, or deposits with persons described in

3 paragraph (4);’’.

4 (b) ELIGIBLE PERSONS.—Section 956(c) (relating to

5 exceptions to definition of United States property) is

6 amended by adding at the end the following new paragraph:

7 ‘‘(4) FINANCIAL SERVICES PROVIDERS.—

8 ‘‘(A) IN GENERAL.—For purposes of para9 graph (2)(A), a person is described in this para10 graph if at least 80 percent of the person’s in11 come is income described in section

12 904(d)(2)(C)(ii) (and the regulations thereunder)

13 which is derived from persons who are not re14 lated persons.

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

16 subparagraph (A)—

17 ‘‘(i) all related persons shall be treated

18 as 1 person in applying the 80-percent test,

19 and

20 ‘‘(ii) there shall be disregarded any

21 item of income or gain from a transaction

22 or series of transactions a principal purpose

23 of which is the qualification of a person as

24 a person described in this paragraph.
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1 ‘‘(C) RELATED PERSON.—For purposes of

2 this paragraph, the term ‘related person’ has the

3 meaning given such term by section 954(d)(3).’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall take effect on the date of the enactment of this

6 Act.

7 SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN

8 THROUGH COMPLETE LIQUIDATION OF

9 HOLDING COMPANY.

10 (a) IN GENERAL.—Section 332 is amended by adding

11 at the end the following new subsection:

12 ‘‘(d) RECOGNITION OF GAIN ON LIQUIDATION OF CER13 TAIN HOLDING COMPANIES.—

14 ‘‘(1) IN GENERAL.—In the case of any distribu15 tion to a foreign corporation in complete liquidation

16 of an applicable holding company—

17 ‘‘(A) subsection (a) and section 331 shall

18 not apply to such distribution, and

19 ‘‘(B) such distribution shall be treated as a

20 distribution to which section 301 applies.

21 ‘‘(2) APPLICABLE HOLDING COMPANY.—For pur22 poses of this subsection—

23 ‘‘(A) IN GENERAL.—The term ‘applicable

24 holding company’ means any domestic

25 corporation—
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1 ‘‘(i) which is a common parent of an

2 affiliated group,

3 ‘‘(ii) stock of which is directly owned

4 by the distributee foreign corporation,

5 ‘‘(iii) substantially all of the assets of

6 which consist of stock in other members of

7 such affiliated group, and

8 ‘‘(iv) which has not been in existence

9 at all times during the 5 years immediately

10 preceding the date of the liquidation.

11 ‘‘(B) AFFILIATED GROUP.—For purposes of

12 this subsection, the term ‘affiliated group’ has the

13 meaning given such term by section 1504(a)

14 (without regard to paragraphs (2) and (4) 0f

15 section 1504(b)).

16 ‘‘(3) COORDINATION WITH SUBPART F.—If the

17 distributee of a distribution described in paragraph

18 (1) is a controlled foreign corporation (as defined in

19 section 957), then notwithstanding paragraph (1) or

20 subsection (a), such distribution shall be treated as a

21 distribution to which section 331 applies.

22 ‘‘(4) REGULATIONS.—The Secretary shall pro23 vide such regulations as appropriate to prevent the

24 abuse of this subsection, including regulations which

25 provide, for the purposes of clause (iv) of paragraph
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1 (2)(A), that a corporation is not in existence for any

2 period unless it is engaged in the active conduct of a

3 trade or business or owns a significant ownership in4 terest in another corporation so engaged.’’.

5 (b) EFFECTIVE DATE.—The amendment made by this

6 section shall apply to distributions in complete liquidation

7 occurring on or after the date of the enactment of this Act.

8 SEC. 453. PREVENTION OF MISMATCHING OF INTEREST

9 AND ORIGINAL ISSUE DISCOUNT DEDUC10 TIONS AND INCOME INCLUSIONS IN TRANS11 ACTIONS WITH RELATED FOREIGN PERSONS.

12 (a) ORIGINAL ISSUE DISCOUNT.—Section 163(e)(3)

13 (relating to special rule for original issue discount on obli14 gation held by related foreign person) is amended by redes15 ignating subparagraph (B) as subparagraph (C) and by in16 serting after subparagraph (A) the following new subpara17 graph:

18 ‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN

19 ENTITIES.—

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

21 debt instrument having original issue dis22 count which is held by a related foreign per23 son which is a foreign personal holding

24 company (as defined in section 552), a con25 trolled foreign corporation (as defined in
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1 section 957), or a passive foreign investment

2 company (as defined in section 1297), a de3 duction shall be allowable to the issuer with

4 respect to such original issue discount for

5 any taxable year before the taxable year in

6 which paid only to the extent such original

7 issue discount (reduced by properly allow8 able deductions and qualified deficits under

9 section 952(c)(1)(B)) is includible during

10 such prior taxable year in the gross income

11 of a United States person who owns (within

12 the meaning of section 958(a)) stock in such

13 corporation.

14 ‘‘(ii) SECRETARIAL AUTHORITY.—The

15 Secretary may by regulation exempt trans16 actions from the application of clause (i),

17 including any transaction which is entered

18 into by a payor in the ordinary course of

19 a trade or business in which the payor is

20 predominantly engaged.’’.

21 (b) INTEREST AND OTHER DEDUCTIBLE AMOUNTS.—

22 Section 267(a)(3) is amended—

23 (1) by striking ‘‘The Secretary’’ and inserting:

24 ‘‘(A) IN GENERAL.—The Secretary’’, and
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1 (2) by adding at the end the following new sub2 paragraph:

3 ‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN

4 ENTITIES.—

5 ‘‘(i) IN GENERAL.—Notwithstanding

6 subparagraph (A), in the case of any item

7 payable to a foreign personal holding com8 pany (as defined in section 552), a con9 trolled foreign corporation (as defined in

10 section 957), or a passive foreign investment

11 company (as defined in section 1297), a de12 duction shall be allowable to the payor with

13 respect to such amount for any taxable year

14 before the taxable year in which paid only

15 to the extent that an amount attributable to

16 such item (reduced by properly allowable

17 deductions and qualified deficits under sec18 tion 952(c)(1)(B)) is includible during such

19 prior taxable year in the gross income of a

20 United States person who owns (within the

21 meaning of section 958(a)) stock in such

22 corporation.

23 ‘‘(ii) SECRETARIAL AUTHORITY.—The

24 Secretary may by regulation exempt trans25 actions from the application of clause (i),
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1 including any transaction which is entered

2 into by a payor in the ordinary course of

3 a trade or business in which the payor is

4 predominantly engaged and in which the

5 payment of the accrued amounts occurs

within 81 6 ⁄2 months after accrual or within

7 such other period as the Secretary may pre8 scribe.’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to payments accrued on or after the date

11 of the enactment of this Act.

12 SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE

13 CERTAIN FOREIGN SOURCE INCOME.

14 (a) IN GENERAL.—Section 864(c)(4)(B) (relating to

15 treatment of income from sources without the United States

16 as effectively connected income) is amended by adding at

17 the end the following new flush sentence:

18 ‘‘Any income or gain which is equivalent to any

19 item of income or gain described in clause (i),

20 (ii), or (iii) shall be treated in the same manner

21 as such item for purposes of this subparagraph.’’.

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

23 section shall apply to taxable years beginning after the date

24 of the enactment of this Act.
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1 SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON

2 SALE OF CONTROLLED FOREIGN CORPORA3 TION.

4 (a) IN GENERAL.—Section 904(f)(3) (relating to dis5 positions) is amending by adding at the end the following

6 new subparagraph:

7 ‘‘(D) APPLICATION TO CERTAIN DISPOSI8 TIONS OF STOCK IN CONTROLLED FOREIGN COR9 PORATION.—

10 ‘‘(i) IN GENERAL.—This paragraph

11 shall apply to an applicable disposition in

12 the same manner as if it were a disposition

13 of property described in subparagraph (A),

14 except that the exception contained in sub15 paragraph (C)(i) shall not apply.

16 ‘‘(ii) APPLICABLE DISPOSITION.—For

17 purposes of clause (i), the term ‘applicable

18 disposition’ means any disposition of any

19 share of stock in a controlled foreign cor20 poration in a transaction or series of trans21 actions if, immediately before such trans22 action or series of transactions, the tax23 payer owned more than 50 percent (by vote

24 or value) of the stock of the controlled for25 eign corporation.
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1 ‘‘(iii) EXCEPTION.—A disposition shall

2 not be treated as an applicable disposition

3 under clause (ii) if it is part of a trans4 action or series of transactions—

5 ‘‘(I) to which section 351 or 721

6 applies, or under which the transferor

7 receives stock in a foreign corporation

8 in exchange for the stock in the con9 trolled foreign corporation and the

10 stock received is exchanged basis prop11 erty (as defined in section

12 7701(a)(44)), and

13 ‘‘(II) immediately after which, the

14 transferor owns (by vote or value) at

15 least the same percentage of stock in

16 the controlled foreign corporation (or,

17 if the controlled foreign corporation is

18 not in existence after such transaction

19 or series of transactions, in another

20 foreign corporation stock in which was

21 received by the transferor in exchange

22 for stock in the controlled foreign cor23 poration) as the percentage of stock in

24 the controlled foreign corporation

25 which the taxpayer owned immediately
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1 before such transaction or series of

2 transactions.

3 Clause (i) shall apply to any gain recog4 nized on any disposition to which this

5 clause applies.

6 ‘‘(iv) CONTROLLED FOREIGN CORPORA7 TION.—For purposes of this subparagraph,

8 the term ‘controlled foreign corporation’ has

9 the meaning given such term by section 957.

10 ‘‘(v) STOCK OWNERSHIP.—For pur11 poses of this subparagraph, ownership of

12 stock shall be determined under the rules of

13 subsections (a) and (b) of section 958.

14 (b) EFFECTIVE DATE.—The amendment made by this

15 section shall apply to dispositions after the date of the en16 actment of this Act.

17 SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX

18 CREDIT ON WITHHOLDING TAXES ON INCOME

19 OTHER THAN DIVIDENDS.

20 (a) IN GENERAL.—Section 901 is amended by redesig21 nating subsection (l) as subsection (m) and by inserting

22 after subsection (k) the following new subsection:

23 ‘‘(l) MINIMUM HOLDING PERIOD FOR WITHHOLDING

24 TAXES ON GAIN AND INCOME OTHER THAN DIVIDENDS

25 ETC.—
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1 ‘‘(1) IN GENERAL.—In no event shall a credit be

2 allowed under subsection (a) for any withholding tax

3 (as defined in subsection (k)) on any item of income

4 or gain with respect to any property if—

5 ‘‘(A) such property is held by the recipient

6 of the item for 15 days or less during the 30-day

7 period beginning on the date which is 15 days

8 before the date on which the right to receive pay9 ment of such item arises, or

10 ‘‘(B) to the extent that the recipient of the

11 item is under an obligation (whether pursuant to

12 a short sale or otherwise) to make related pay13 ments with respect to positions in substantially

14 similar or related property.

15 This paragraph shall not apply to any dividend to

16 which subsection (k) applies.

17 ‘‘(2) EXCEPTION FOR TAXES PAID BY DEAL18 ERS.—

19 ‘‘(A) IN GENERAL.—Paragraph (1) shall

20 not apply to any qualified tax with respect to

21 any property held in the active conduct in a for22 eign country of a business as a dealer in such

23 property.

24 ‘‘(B) QUALIFIED TAX.—For purposes of sub25 paragraph (A), the term ‘qualified tax’ means a
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1 tax paid to a foreign country (other than the for2 eign country referred to in subparagraph (A))

3 if—

4 ‘‘(i) the item to which such tax is at5 tributable is subject to taxation on a net

6 basis by the country referred to in subpara7 graph (A), and

8 ‘‘(ii) such country allows a credit

9 against its net basis tax for the full amount

10 of the tax paid to such other foreign coun11 try.

12 ‘‘(C) DEALER.—For purposes of subpara13 graph (A), the term ‘dealer’ means—

14 ‘‘(i) with respect to a security, any

15 person to whom paragraphs (1) and (2) of

16 subsection (k) would not apply by reason of

17 paragraph (4) thereof if such security were

18 stock, and

19 ‘‘(ii) with respect to any other prop20 erty, any person with respect to whom such

21 property is described in section 1221(a)(1).

22 ‘‘(D) REGULATIONS.—The Secretary may

23 prescribe such regulations as may be appropriate

24 to carry out this paragraph, including regula25 tions to prevent the abuse of the exception pro-
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1 vided by this paragraph and to treat other taxes

2 as qualified taxes.

3 ‘‘(3) EXCEPTIONS.—The Secretary may by regu4 lation provide that paragraph (1) shall not apply to

5 property where the Secretary determines that the ap6 plication of paragraph (1) to such property is not

7 necessary to carry out the purposes of this subsection.

8 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

9 to the rules of paragraphs (5), (6), and (7) of sub10 section (k) shall apply for purposes of this subsection.

11 ‘‘(5) DETERMINATION OF HOLDING PERIOD.—

12 Holding periods shall be determined for purposes of

13 this subsection without regard to section 1235 or any

14 similar rule.’’.

15 (b) CONFORMING AMENDMENT.—The heading of sub16 section (k) of section 901 is amended by inserting ‘‘ON DIVI17 DENDS’’ after ‘‘TAXES’’.

18 (c) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to amounts paid or accrued more than

20 30 days after the date of the enactment of this Act.
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1 Subtitle F—Other Revenue

2 Provisions

3 PART I—FINANCIAL INSTRUMENTS

4 SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND

5 AND PREFERRED STOCK FUNDS, ETC.

6 (a) IN GENERAL.—Section 1286 (relating to tax treat7 ment of stripped bonds) is amended by redesignating sub8 section (f) as subsection (g) and by inserting after sub9 section (e) the following new subsection:

10 ‘‘(f) TREATMENT OF STRIPPED INTERESTS IN BOND

11 AND PREFERRED STOCK FUNDS, ETC.—In the case of an

12 account or entity substantially all of the assets of which

13 consist of bonds, preferred stock, or a combination thereof,

14 the Secretary may by regulations provide that rules similar

15 to the rules of this section and 305(e), as appropriate, shall

16 apply to interests in such account or entity to which (but

17 for this subsection) this section or section 305(e), as the case

18 may be, would not apply.’’.

19 (b) CROSS REFERENCE.—Subsection (e) of section 305

20 is amended by adding at the end the following new para21 graph:
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1 ‘‘(7) CROSS REFERENCE.—

‘‘For treatment of stripped interests in certain accounts or entities holding preferred stock, see section

1286(f).’’.

2 (c) EFFECTIVE DATE.—The amendments made by this

3 section shall apply to purchases and dispositions after the

4 date of the enactment of this Act.

5 SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO

6 PARTNERS WHICH ARE C CORPORATIONS.

7 (a) IN GENERAL.—Section 163(j) (relating to limita8 tion on deduction for interest on certain indebtedness) is

9 amended by redesignating paragraph (8) as paragraph (9)

10 and by inserting after paragraph (7) the following new

11 paragraph:

12 ‘‘(8) ALLOCATIONS TO CERTAIN CORPORATE

13 PARTNERS.—If a C corporation is a partner in a

14 partnership—

15 ‘‘(A) the corporation’s allocable share of in16 debtedness and interest income of the partnership

17 shall be taken into account in applying this sub18 section to the corporation, and

19 ‘‘(B) if a deduction is not disallowed under

20 this subsection with respect to any interest ex21 pense of the partnership, this subsection shall be

22 applied separately in determining whether a de23 duction is allowable to the corporation with re-
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1 spect to the corporation’s allocable share of such

2 interest expense.’’.

3 (b) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to taxable years beginning after the date

5 of the enactment of this Act.

6 SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTED7 NESS INCOME REALIZED ON SATISFACTION

8 OF DEBT WITH PARTNERSHIP INTEREST.

9 (a) IN GENERAL.—Paragraph (8) of section 108(e) (re10 lating to general rules for discharge of indebtedness (includ11 ing discharges not in title 11 cases or insolvency)) is

12 amended to read as follows:

13 ‘‘(8) INDEBTEDNESS SATISFIED BY CORPORATE

14 STOCK OR PARTNERSHIP INTEREST.—For purposes of

15 determining income of a debtor from discharge of in16 debtedness, if—

17 ‘‘(A) a debtor corporation transfers stock, or

18 ‘‘(B) a debtor partnership transfers a cap19 ital or profits interest in such partnership,

20 to a creditor in satisfaction of its recourse or non21 recourse indebtedness, such corporation or partnership

22 shall be treated as having satisfied the indebtedness

23 with an amount of money equal to the fair market

24 value of the stock or interest. In the case of any part25 nership, any discharge of indebtedness income recog-
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1 nized under this paragraph shall be included in the

2 distributive shares of taxpayers which were the part3 ners in the partnership immediately before such dis4 charge.’’.

5 (b) EFFECTIVE DATE.—The amendment made by this

6 section shall apply with respect to cancellations of indebted7 ness occurring on or after the date of the enactment of this

8 Act.

9 SEC. 464. MODIFICATION OF STRADDLE RULES.

10 (a) RULES RELATING TO IDENTIFIED STRADDLES.—

11 (1) IN GENERAL.—Subparagraph (A) of section

12 1092(a)(2) (relating to special rule for identified

13 straddles) is amended to read as follows:

14 ‘‘(A) IN GENERAL.—In the case of any

15 straddle which is an identified straddle—

16 ‘‘(i) paragraph (1) shall not apply

17 with respect to identified positions com18 prising the identified straddle,

19 ‘‘(ii) if there is any loss with respect to

20 any identified position of the identified

21 straddle, the basis of each of the identified

22 offsetting positions in the identified straddle

23 shall be increased by an amount which

24 bears the same ratio to the loss as the unrec25 ognized gain with respect to such offsetting
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1 position bears to the aggregate unrecognized

2 gain with respect to all such offsetting posi3 tions, and

4 ‘‘(iii) any loss described in clause (ii)

5 shall not otherwise be taken into account for

6 purposes of this title.’’.

7 (2) IDENTIFIED STRADDLE.—Section

8 1092(a)(2)(B) (defining identified straddle) is

9 amended—

10 (A) by striking clause (ii) and inserting the

11 following:

12 ‘‘(ii) to the extent provided by regula13 tions, the value of each position of which (in

14 the hands of the taxpayer immediately be15 fore the creation of the straddle) is not less

16 than the basis of such position in the hands

17 of the taxpayer at the time the straddle is

18 created, and’’, and

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

20 flush sentence:

21 ‘‘The Secretary shall prescribe regulations which

22 specify the proper methods for clearly identifying

23 a straddle as an identified straddle (and the po24 sitions comprising such straddle), which specify

25 the rules for the application of this section for a
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1 taxpayer which fails to properly identify the po2 sitions of an identified straddle, and which

3 specify the ordering rules in cases where a tax4 payer disposes of less than an entire position

5 which is part of an identified straddle.’’.

6 (3) UNRECOGNIZED GAIN.—Section 1092(a)(3)

7 (defining unrecognized gain) is amended by redesig8 nating subparagraph (B) as subparagraph (C) and

9 by inserting after subparagraph (A) the following new

10 subparagraph:

11 ‘‘(B) SPECIAL RULE FOR IDENTIFIED

12 STRADDLES.—For purposes of paragraph

13 (2)(A)(ii), the unrecognized gain with respect to

14 any identified offsetting position shall be the ex15 cess of the fair market value of the position at

16 the time of the determination over the fair mar17 ket value of the position at the time the taxpayer

18 identified the position as a position in an identi19 fied straddle.’’.

20 (4) CONFORMING AMENDMENT.—Section

21 1092(c)(2) is amended by striking subparagraph (B)

22 and by redesignating subparagraph (C) as subpara23 graph (B).
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1 (b) PHYSICALLY SETTLED POSITIONS.—Section

2 1092(d) (relating to definitions and special rules) is amend3 ed by adding at the end the following new paragraph:

4 ‘‘(8) SPECIAL RULES FOR PHYSICALLY SETTLED

5 POSITIONS.—For purposes of subsection (a), if a tax6 payer settles a position which is part of a straddle by

7 delivering property to which the position relates (and

8 such position, if terminated, would result in a real9 ization of a loss), then such taxpayer shall be treated

10 as if such taxpayer—

11 ‘‘(A) terminated the position for its fair

12 market value immediately before the settlement,

13 and

14 ‘‘(B) sold the property so delivered by the

15 taxpayer at its fair market value.’’.

16 (c) REPEAL OF STOCK EXCEPTION.—

17 (1) IN GENERAL.—Paragraph (3) of section

18 1092(d) (relating to definitions and special rules) is

19 amended to read as follows:

20 ‘‘(3) SPECIAL RULES FOR STOCK.—For purposes

21 of paragraph (1)—

22 ‘‘(A) IN GENERAL.—The term ‘personal

23 property’ includes—

24 ‘‘(i) any stock which is a part of a

25 straddle at least 1 of the offsetting positions
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1 of which is a position with respect to such

2 stock or substantially similar or related

3 property, or

4 ‘‘(ii) any stock of a corporation formed

5 or availed of to take positions in personal

6 property which offset positions taken by any

7 shareholder.

8 ‘‘(B) RULE FOR APPLICATION.—For pur9 poses of determining whether subsection (e) ap10 plies to any transaction with respect to stock de11 scribed in subparagraph (A)(ii), all includible

12 corporations of an affiliated group (within the

13 meaning of section 1504(a)) shall be treated as

14 1 taxpayer.’’.

15 (2) CONFORMING AMENDMENT.—Section

16 1258(d)(1) is amended by striking ‘‘; except that the

17 term ‘personal property’ shall include stock’’.

18 (d) MODIFICATIONS OF QUALIFIED COVERED CALL

19 EXCEPTION.—

20 (1) MARKETS ON WHICH OPTIONS MAY BE TRAD21 ED.—

22 (A) IN GENERAL.—Section 1092(c)(4)(B)(i)

23 is amended by striking ‘‘or other market which

24 the Secretary determines has rules adequate to

25 carry out the purposes of this paragraph’’.
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1 (B) REGULATIONS.—Section 1092(c)(4)(H)

2 is amended by adding at the end the following

3 new sentence: ‘‘Such regulations shall not add

4 any exchange or market not described in sub5 paragraph (B)(i) to the exchanges or markets on

6 which qualified covered call options may be trad7 ed.’’

8 (2) HOLDING PERIOD FOR DIVIDEND EXCLU9 SION.—The last sentence of section 246(c) is amended

10 by inserting: ‘‘, other than a qualified covered call op11 tion to which section 1092(f) applies’’ before the pe12 riod at the end.

13 (e) EFFECTIVE DATE.—The amendments made by this

14 section shall apply to positions established on or after the

15 date of the enactment of this Act.

16 SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR

17 ALL READILY TRADEABLE DEBT.

18 (a) IN GENERAL.—Section 453(f)(4)(B) (relating to

19 purchaser evidences of indebtedness payable on demand or

20 readily tradeable) is amended by striking ‘‘is issued by a

21 corporation or a government or political subdivision thereof

22 and’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to sales occurring on or after the date

25 of the enactment of this Act.
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1 PART II—CORPORATIONS AND PARTNERSHIPS

2 SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS

3 TO CREDITORS IN DIVISIVE REORGANIZA4 TIONS.

5 (a) IN GENERAL.—Section 361(b)(3) (relating to treat6 ment of transfers to creditors) is amended by adding at the

7 end the following new sentence: ‘‘In the case of a reorganiza8 tion described in section 368(a)(1)(D) with respect to which

9 stock or securities of the corporation to which the assets are

10 transferred are distributed in a transaction which qualifies

11 under section 355, this paragraph shall apply only to the

12 extent that the sum of the money and the fair market value

13 of other property transferred to such creditors does not ex14 ceed the adjusted bases of such assets transferred.’’.

15 (b) LIABILITIES IN EXCESS OF BASIS.—Section

16 357(c)(1)(B) is amended by inserting ‘‘with respect to

17 which stock or securities of the corporation to which the as18 sets are transferred are distributed in a transaction which

19 qualifies under section 355’’ after ‘‘section 368(a)(1)(D)’’.

20 (c) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to transfers of money or other property,

22 or liabilities assumed, in connection with a reorganization

23 occurring on or after the date of the enactment of this Act.
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1 SEC. 467. CLARIFICATION OF DEFINITION OF NON2 QUALIFIED PREFERRED STOCK.

3 (a) IN GENERAL.—Section 351(g)(3)(A) is amended

4 by adding at the end the following: ‘‘Stock shall not be treat5 ed as participating in corporate growth to any significant

6 extent unless there is a real and meaningful likelihood of

7 the shareholder actually participating in the earnings and

8 growth of the corporation.’’.

9 (b) EFFECTIVE DATE.—The amendment made by this

10 section shall apply to transactions after May 14, 2003.

11 SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED

12 GROUP OF CORPORATIONS.

13 (a) IN GENERAL.—Section 1563(a)(2) (relating to

14 brother-sister controlled group) is amended by striking

15 ‘‘possessing—’’ and all that follows through ‘‘(B)’’ and in16 serting ‘‘possessing’’.

17 (b) APPLICATION OF EXISTING RULES TO OTHER

18 CODE PROVISIONS.—Section 1563(f) (relating to other defi19 nitions and rules) is amended by adding at the end the

20 following new paragraph:

21 ‘‘(5) BROTHER-SISTER CONTROLLED GROUP DEF22 INITION FOR PROVISIONS OTHER THAN THIS PART.—

23 ‘‘(A) IN GENERAL.—Except as specifically

24 provided in an applicable provision, subsection

25 (a)(2) shall be applied to an applicable provision

26 as if it read as follows:
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1 ‘‘‘(2) BROTHER-SISTER CONTROLLED GROUP.—

2 Two or more corporations if 5 or fewer persons who

3 are individuals, estates, or trusts own (within the

4 meaning of subsection (d)(2) stock possessing—

5 ‘‘‘(A) at least 80 percent of the total com6 bined voting power of all classes of stock entitled

7 to vote, or at least 80 percent of the total value

8 of shares of all classes of stock, of each corpora9 tion, and

10 ‘‘‘(B) more than 50 percent of the total com11 bined voting power of all classes of stock entitled

12 to vote or more than 50 percent of the total value

13 of shares of all classes of stock of each corpora14 tion, taking into account the stock ownership of

15 each such person only to the extent such stock

16 ownership is identical with respect to each such

17 corporation.’

18 ‘‘(B) APPLICABLE PROVISION.—For pur19 poses of this paragraph, an applicable provision

20 is any provision of law (other than this part)

21 which incorporates the definition of controlled

22 group of corporations under subsection (a).’’.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to taxable years beginning after the date

25 of the enactment of this Act.
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1 SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNEC2 TION WITH PARTNERSHIP DISTRIBUTIONS

3 AND TRANSFERS OF PARTNERSHIP INTER4 ESTS.

5 (a) IN GENERAL.—Section 754 is repealed.

6 (b) ADJUSTMENT TO BASIS OF UNDISTRIBUTED PART7 NERSHIP PROPERTY.—Section 734 is amended—

8 (1) by striking ‘‘, with respect to which the elec9 tion provided in section 754 is in effect,’’ in the mat10 ter preceding paragraph (1) of subsection (b),

11 (2) by striking ‘‘(as adjusted by section 732(d))’’

12 both places it appears in subsection (b),

13 (3) by striking the last sentence of subsection (b),

14 (4) by striking subsection (a) and by redesig15 nating subsections (b) and (c) as subsections (a) and

16 (b), respectively, and

17 (5) by striking ‘‘OPTIONAL’’ in the heading.

18 (c) ADJUSTMENT TO BASIS OF PARTNERSHIP PROP19 ERTY.—Section 743 is amended—

20 (1) by striking ‘‘with respect to which the elec21 tion provided in section 754 is in effect’’ in the mat22 ter preceding paragraph (1) of subsection (b),

23 (2) by striking subsection (a) and by redesig24 nating subsections (b) and (c) as subsections (a) and

25 (b), respectively,
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1 (3) by adding at the end the following new sub2 section:

3 ‘‘(c) ELECTION TO ADJUST BASIS FOR TRANSFERS

4 UPON DEATH OF PARTNER.—Subsection (a) shall not

5 apply and no adjustments shall be made in the case of any

6 transfer of an interest in a partnership upon the death of

7 a partner unless an election to do so is made by the partner8 ship. Such an election shall apply with respect to all such

9 transfers of interests in the partnership. Any election under

10 section 754 in effect on the date of the enactment of this

11 subsection shall constitute an election made under this sub12 section. Such election may be revoked by the partnership,

13 subject to such limitations as may be provided by regula14 tions prescribed by the Secretary.’’, and

15 (4) by striking ‘‘OPTIONAL’’ in the heading.

16 (d) CONFORMING AMENDMENTS.—

17 (1) Subsection (d) of section 732 is repealed.

18 (2) Section 755(a) is amended—

19 (A) by striking ‘‘section 734(b) (relating to

20 the optional adjustment’’ and inserting ‘‘section

21 734(a) (relating to the adjustment’’, and

22 (B) by striking ‘‘section 743(b) (relating to

23 the optional adjustment’’ and inserting ‘‘section

24 743(a) (relating to the adjustment’’.
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1 (3) Section 755(c), as added by this Act, is

2 amended by striking ‘‘section 734(b)’’ and inserting

3 ‘‘section 734(a)’’.

4 (4) Section 761(e)(2) is amended by striking

5 ‘‘optional’’.

6 (5) Section 774(a) is amended by striking

7 ‘‘743(b)’’ both places it appears and inserting

8 ‘‘743(a)’’.

9 (6) The item relating to section 734 in the table

10 of sections for subpart B of part II of subchapter K

11 of chapter 1 is amended by striking ‘‘Optional’’.

12 (7) The item relating to section 743 in the table

13 of sections for subpart C of part II of subchapter K

14 of chapter 1 is amended by striking ‘‘Optional’’.

15 (e) EFFECTIVE DATES.—

16 (1) IN GENERAL.—Except as provided in para17 graph (2), the amendments made by this section shall

18 apply to transfers and distributions made after the

19 date of the enactment of this Act.

20 (2) REPEAL OF SECTION 732(d).—The amend21 ments made by subsections (b)(2) and (d)(1) shall

22 apply to—

23 (A) except as provided in subparagraph

24 (B), transfers made after the date of the enact25 ment of this Act, and
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1 (B) in the case of any transfer made on or

2 before such date to which section 732(d) applies,

3 distributions made after the date which is 2

4 years after such date of enactment.

5 PART III—DEPRECIATION AND AMORTIZATION

6 SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES

7 TO SPORTS FRANCHISES.

8 (a) IN GENERAL.—Section 197(e) (relating to excep9 tions to definition of section 197 intangible) is amended

10 by striking paragraph (6) and by redesignating paragraphs

11 (7) and (8) as paragraphs (6) and (7), respectively.

12 (b) CONFORMING AMENDMENTS.—

13 (1)(A) Section 1056 (relating to basis limitation

14 for player contracts transferred in connection with

15 the sale of a franchise) is repealed.

16 (B) The table of sections for part IV of sub17 chapter O of chapter 1 is amended by striking the

18 item relating to section 1056.

19 (2) Section 1245(a) (relating to gain from dis20 position of certain depreciable property) is amended

21 by striking paragraph (4).

22 (3) Section 1253 (relating to transfers of fran23 chises, trademarks, and trade names) is amended by

24 striking subsection (e).

25 (c) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section shall

3 apply to property acquired after the date of the enact4 ment of this Act.

5 (2) SECTION 1245.—The amendment made by

6 subsection (b)(2) shall apply to franchises acquired

7 after the date of the enactment of this Act.

8 SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

9 (a) GAS UTILITY PROPERTY.—Section 168(e)(3)(E)

10 (defining 15-year property) is amended by striking ‘‘and’’

11 at the end of clause (ii), by striking the period at the end

12 of clause (iii) and inserting ‘‘, and’’, and by adding at the

13 end the following new clause:

14 ‘‘(iv) initial clearing and grading land

15 improvements with respect to gas utility

16 property.’’.

17 (b) ELECTRIC UTILITY PROPERTY.—Section 168(e)(3)

18 is amended by adding at the end the following new subpara19 graph:

20 ‘‘(F) 20-YEAR PROPERTY.—The term ‘20-

21 year property’ means initial clearing and grad22 ing land improvements with respect to any elec23 tric utility transmission and distribution

24 plant.’’.
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1 (c) CONFORMING AMENDMENTS.—The table contained

2 in section 168(g)(3)(B) is amended—

3 (1) by inserting ‘‘or (E)(iv)’’ after ‘‘(E)(iii)’’,

4 and

5 (2) by adding at the end the following new item:

‘‘(F) ................................................................................................. 25’’.

6 (d) EFFECTIVE DATE.—The amendments made by this

7 section shall apply to property placed in service after the

8 date of the enactment of this Act.

9 SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION

10 OF CERTAIN PASSENGER AUTOMOBILES.

11 (a) IN GENERAL.—Section 179(b) of the Internal Rev12 enue Code of 1986 (relating to limitations) is amended by

13 adding at the end the following new paragraph:

14 ‘‘(6) LIMITATION ON COST TAKEN INTO ACCOUNT

15 FOR CERTAIN PASSENGER VEHICLES.—

16 ‘‘(A) IN GENERAL.—The cost of any sport

17 utility vehicle for any taxable year which may

18 be taken into account under this section shall not

19 exceed $25,000.

20 ‘‘(B) SPORT UTILITY VEHICLE.—For pur21 poses of subparagraph (A)—

22 ‘‘(i) IN GENERAL.—The term ‘sport

23 utility vehicle’ means any 4-wheeled

24 vehicle—
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1 ‘‘(I) which is primarily designed

2 or which can be used to carry pas3 sengers over public streets, roads, or

4 highways (except any vehicle operated

5 exclusively on a rail or rails),

6 ‘‘(II) which is not subject to sec7 tion 280F, and

8 ‘‘(III) which is rated at not more

9 than 14,000 pounds gross vehicle

10 weight.

11 ‘‘(ii) CERTAIN VEHICLES EXCLUDED.—

12 Such term does not include any vehicle

13 which—

14 ‘‘(I) is designed to have a seating

15 capacity of more than 9 persons behind

16 the driver’s seat,

17 ‘‘(II) is equipped with a cargo

18 area of at least 6 feet in interior length

19 which is an open area or is designed

20 for use as an open area but is enclosed

21 by a cap and is not readily accessible

22 directly from the passenger compart23 ment, or

24 ‘‘(III) has an integral enclosure,

25 fully enclosing the driver compartment
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1 and load carrying device, does not have

2 seating rearward of the driver’s seat,

3 and has no body section protruding

4 more than 30 inches ahead of the lead5 ing edge of the windshield.’’.

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

7 section shall apply to property placed in service after the

8 date of the enactment of this Act.

9 SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR IN10 TANGIBLES.

11 (a) START-UP EXPENDITURES.—

12 (1) ALLOWANCE OF DEDUCTION.—Paragraph (1)

13 of section 195(b) (relating to start-up expenditures) is

14 amended to read as follows:

15 ‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer

16 elects the application of this subsection with respect to

17 any start-up expenditures—

18 ‘‘(A) the taxpayer shall be allowed a deduc19 tion for the taxable year in which the active

20 trade or business begins in an amount equal to

21 the lesser of—

22 ‘‘(i) the amount of start-up expendi23 tures with respect to the active trade or

24 business, or
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1 ‘‘(ii) $5,000, reduced (but not below

2 zero) by the amount by which such start-up

3 expenditures exceed $50,000, and

4 ‘‘(B) the remainder of such start-up expend5 itures shall be allowed as a deduction ratably

6 over the 180-month period beginning with the

7 month in which the active trade or business be8 gins.’’.

9 (2) CONFORMING AMENDMENT.—Subsection (b)

10 of section 195 is amended by striking ‘‘AMORTIZE’’

11 and inserting ‘‘DEDUCT’’ in the heading.

12 (b) ORGANIZATIONAL EXPENDITURES.—Subsection (a)

13 of section 248 (relating to organizational expenditures) is

14 amended to read as follows:

15 ‘‘(a) ELECTION TO DEDUCT.—If a corporation elects

16 the application of this subsection (in accordance with regu17 lations prescribed by the Secretary) with respect to any or18 ganizational expenditures—

19 ‘‘(1) the corporation shall be allowed a deduction

20 for the taxable year in which the corporation begins

21 business in an amount equal to the lesser of—

22 ‘‘(A) the amount of organizational expendi23 tures with respect to the taxpayer, or
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1 ‘‘(B) $5,000, reduced (but not below zero) by

2 the amount by which such organizational ex3 penditures exceed $50,000, and

4 ‘‘(2) the remainder of such organizational ex5 penditures shall be allowed as a deduction ratably

6 over the 180-month period beginning with the month

7 in which the corporation begins business.’’.

8 (c) TREATMENT OF ORGANIZATIONAL AND SYNDICA9 TION FEES OR PARTNERSHIPS.—

10 (1) IN GENERAL.—Section 709(b) (relating to

11 amortization of organization fees) is amended by re12 designating paragraph (2) as paragraph (3) and by

13 amending paragraph (1) to read as follows:

14 ‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer

15 elects the application of this subsection (in accordance

16 with regulations prescribed by the Secretary) with re17 spect to any organizational expenses—

18 ‘‘(A) the taxpayer shall be allowed a deduc19 tion for the taxable year in which the partner20 ship begins business in an amount equal to the

21 lesser of—

22 ‘‘(i) the amount of organizational ex23 penses with respect to the partnership, or
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1 ‘‘(ii) $5,000, reduced (but not below

2 zero) by the amount by which such organi3 zational expenses exceed $50,000, and

4 ‘‘(B) the remainder of such organizational

5 expenses shall be allowed as a deduction ratably

6 over the 180-month period beginning with the

7 month in which the partnership begins business.

8 ‘‘(2) DISPOSITIONS BEFORE CLOSE OF AMORTI9 ZATION PERIOD.—In any case in which a partnership

10 is liquidated before the end of the period to which

11 paragraph (1)(B) applies, any deferred expenses at12 tributable to the partnership which were not allowed

13 as a deduction by reason of this section may be de14 ducted to the extent allowable under section 165.’’.

15 (2) CONFORMING AMENDMENT.—Subsection (b)

16 of section 709 is amended by striking ‘‘AMORTIZA17 TION’’ and inserting ‘‘DEDUCTION’’ in the heading.

18 (d) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to amounts paid or incurred after the

20 date of the enactment of this Act.

21 SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPER22 ATIONS.

23 (a) CLARIFICATION OF RECOVERY PERIOD FOR TAX24 EXEMPT USE PROPERTY SUBJECT TO LEASE.—Subpara25 graph (A) of section 168(g)(3) (relating to special rules for
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1 determining class life) is amended by inserting ‘‘(notwith2 standing any other subparagraph of this paragraph)’’ after

3 ‘‘shall’’.

4 (b) LIMITATION ON DEPRECIATION PERIOD FOR SOFT5 WARE LEASED TO TAX-EXEMPT ENTITY.—Paragraph (1)

6 of section 167(f) is amended by adding at the end the fol7 lowing new subparagraph:

8 ‘‘(C) TAX-EXEMPT USE PROPERTY SUBJECT

9 TO LEASE.—In the case of computer software

10 which would be tax-exempt use property as de11 fined in subsection (h) of section 168 if such sec12 tion applied to computer software, the useful life

13 under subparagraph (A) shall not be less than

14 125 percent of the lease term (within the mean15 ing of section 168(i)(3)).’’

16 (c) LEASE TERM TO INCLUDE RELATED SERVICE

17 CONTRACTS.—Subparagraph (A) of section 168(i)(3) (relat18 ing to lease term) is amended by striking ‘‘and’’ at the end

19 of clause (i), by redesignating clause (ii) as clause (iii), and

20 by inserting after clause (i) the following new clause:

21 ‘‘(ii) the term of a lease shall include

22 the term of any service contract or similar

23 arrangement (whether or not treated as a

24 lease under section 7701(e))—
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1 ‘‘(I) which is part of the same

2 transaction (or series of related trans3 actions) which includes the lease, and

4 ‘‘(II) which is with respect to the

5 property subject to the lease or substan6 tially similar property, and’’.

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

8 section shall apply to leases entered into after December 31,

9 2003.

10 SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO

11 PROPERTY USED BY GOVERNMENTS OR

12 OTHER TAX-EXEMPT ENTITIES.

13 (a) IN GENERAL.—Subpart C of part II of subchapter

14 E of chapter 1 (relating to taxable year for which deduc15 tions taken) is amended by adding at the end the following

16 new section:

17 ‘‘SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE

18 PROPERTY.

19 ‘‘(a) LIMITATION ON LOSSES.—Except as otherwise

20 provided in this section, a tax-exempt use loss for any tax21 able year shall not be allowed.

22 ‘‘(b) DISALLOWED LOSS CARRIED TO NEXT YEAR.—

23 Any tax-exempt use loss with respect to any tax-exempt use

24 property which is disallowed under subsection (a) for any
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1 taxable year shall be treated as a deduction with respect

2 to such property in the next taxable year.

3 ‘‘(c) DEFINITIONS.—For purposes of this section—

4 ‘‘(1) TAX-EXEMPT USE LOSS.—The term ‘tax-ex5 empt use loss’ means, with respect to any taxable

6 year, the amount (if any) by which—

7 ‘‘(A) the sum of—

8 ‘‘(i) the aggregate deductions (other

9 than interest) directly allocable to a tax-ex10 empt use property, plus

11 ‘‘(ii) the aggregate deductions for inter12 est properly allocable to such property, ex13 ceed

14 ‘‘(B) the aggregate income from such prop15 erty.

16 ‘‘(2) TAX-EXEMPT USE PROPERTY.—The term

17 ‘tax-exempt use property’ has the meaning given to

18 such term by section 168(h) (without regard to para19 graph (1)(C) or (3) thereof and determined as if

20 property described in section 167(f)(1)(B) were tan21 gible property). Such term shall not include property

22 with respect to which the credit under section 42 is

23 allowed and which, but for this sentence, would be

24 tax-exempt property solely by reason of section

25 168(h)(6).
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1 ‘‘(d) EXCEPTION FOR CERTAIN LEASES.—This section

2 shall not apply to any lease of property which meets the

3 requirements of all of the following paragraphs:

4 ‘‘(1) PROPERTY NOT FINANCED WITH TAX-EX5 EMPT BONDS OR FEDERAL FUNDS.—A lease of prop6 erty meets the requirements of this paragraph if no

7 part of the property was financed (directly or indi8 rectly) from—

9 ‘‘(A) the proceeds of an obligation the inter10 est on which is exempt from tax under section

11 103(a) and which (or any refunding bond of

12 which) is outstanding when the lease is entered

13 into, or

14 ‘‘(B) Federal funds.

15 The Secretary may by regulations provide for a de

16 minimis exception from this paragraph.

17 ‘‘(2) AVAILABILITY OF FUNDS.—

18 ‘‘(A) IN GENERAL.—A lease of property

19 meets the requirements of this paragraph if (at

20 any time during the lease term) not more than

21 an allowable amount of funds are—

22 ‘‘(i) subject to any arrangement re23 ferred to in subparagraph (B), or

24 ‘‘(ii) set aside or expected to be set

25 aside,
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1 to or for the benefit of the lessor or a lender, or

2 to or for the benefit of the lessee to satisfy the les3 see’s obligations or options under the lease.

4 Funds shall be treated as described in clause (ii)

5 only if a reasonable person would conclude,

6 based on the facts and circumstances, that such

7 funds are so described.

8 ‘‘(B) ARRANGEMENTS.—The arrangements

9 referred to in this subparagraph are—

10 ‘‘(i) a defeasance arrangement, a loan

11 by the lessee to the lessor or a lender, a de12 posit arrangement, a letter of credit

13 collateralized with cash or cash equivalents,

14 a payment undertaking agreement, a lease

15 prepayment, a sinking fund arrangement,

16 or any similar arrangement (whether or not

17 such arrangement provides credit support),

18 and

19 ‘‘(ii) any other arrangement identified

20 by the Secretary in regulations.

21 ‘‘(C) ALLOWABLE AMOUNT.—

22 ‘‘(i) IN GENERAL.—Except as otherwise

23 provided in this subparagraph, the term ‘al24 lowable amount’ means an amount equal to

25 20 percent of the lessor’s adjusted basis in
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1 the property at the time the lease is entered

2 into.

3 ‘‘(ii) HIGHER AMOUNT PERMITTED IN

4 CERTAIN CASES.—To the extent provided in

5 regulations, a higher percentage shall be

6 permitted under clause (i) where necessary

7 because of the credit-worthiness of the lessee.

8 In no event may such regulations permit a

9 percentage of more than 50 percent.

10 ‘‘(iii) OPTION TO PURCHASE.—If

11 under the lease the lessee has the option to

12 purchase the property for a fixed price or

13 for other than the fair market value of the

14 property (determined at the time of exer15 cise), the allowable amount at the time such

16 option may be exercised may not exceed 50

17 percent of the price at which such option

18 may be exercised.

19 ‘‘(iv) NO ALLOWABLE AMOUNT FOR

20 CERTAIN ARRANGEMENTS.—The allowable

21 amount shall be zero in the case of any ar22 rangement which involves—

23 ‘‘(I) a loan from the lessee to the

24 lessor or a lender,
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1 ‘‘(II) any deposit, letter of credit,

2 or payment undertaking agreement in3 volving a lender, or

4 ‘‘(III) any credit support made

5 available to the lessor in which a lend6 er (if any) does not have a claim which

7 is senior to the lessor.

8 For purposes of subclause (I), the term

9 ‘loan’ shall not include any amount treated

10 as a loan under section 467 with respect to

11 a section 467 rental agreement.

12 ‘‘(3) LESSOR MUST MAKE SUBSTANTIAL EQUITY

13 INVESTMENT.—A lease of property meets the require14 ments of this paragraph if—

15 ‘‘(A) the lessor—

16 ‘‘(i) has at the time the lease is entered

17 into an unconditional at-risk equity invest18 ment (as determined by the Secretary) in

19 the property of at least 20 percent of the les20 sor’s adjusted basis in the property as of

21 that time, and

22 ‘‘(ii) maintains such investment

23 throughout the term of the lease, and

24 ‘‘(B) the fair market value of the property

25 at the end of the lease term is reasonably ex-
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1 pected to be equal to at least 20 percent of such

2 basis.

3 Subparagraphs (A)(ii) and (B) shall not apply if the

4 lease term is described in section 168(h)(1)(C)(ii), or

5 in the case of qualified technological equipment, is de6 scribed in section 168(h)(3). For purposes of subpara7 graph (B), the fair market value at the end of the

8 lease term shall be reduced to the extent that a person

9 other than the lessor bears a risk of loss in the value

10 of the property.

11 ‘‘(4) LESSEE MAY NOT BEAR MORE THAN MINI12 MAL RISK OF LOSS.—

13 ‘‘(A) IN GENERAL.—A lease of property

14 meets the requirements of this paragraph if there

15 is no arrangement under which more than a

16 minimal risk of loss (as determined under regu17 lations) in the value of the property is borne by

18 the lessee.

19 ‘‘(B) CERTAIN ARRANGEMENTS FAIL RE20 QUIREMENT.—In no event will the requirements

21 of this paragraph be met if there is any arrange22 ment under which the lessee bears—

23 ‘‘(i) any portion of the loss that would

24 occur if the fair market value of the leased

25 property were 25 percent less than its rea-
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1 sonably expected fair market value at the

2 time the lease is terminated, or

3 ‘‘(ii) more than 50 percent of the loss

4 that would occur if the fair market value of

5 the leased property at the time the lease is

6 terminated were zero.

7 ‘‘(5) PROPERTY WITH MORE THAN 7-YEAR CLASS

8 LIFE.—In the case of a lease—

9 ‘‘(A) of property with a class life (as de10 fined in section 168(i)(1)) of more than 7 years,

11 and

12 ‘‘(B) under which the lessee has the option

13 to purchase the property,

14 the lease meets the requirements of this paragraph

15 only if the purchase price under the option equals the

16 fair market value of the property (determined at the

17 time of exercise).

18 ‘‘(6) REGULATORY REQUIREMENTS.—A lease of

19 property meets the requirements of this paragraph if

20 such lease of property meets such requirements as the

21 Secretary may prescribe by regulations.

22 ‘‘(e) SPECIAL RULES.—

23 ‘‘(1) TREATMENT OF FORMER TAX-EXEMPT USE

24 PROPERTY.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 former tax-exempt use property—

3 ‘‘(i) any deduction allowable under

4 subsection (b) with respect to such property

5 for any taxable year shall be allowed only

6 to the extent of any net income (without re7 gard to such deduction) from such property

8 for such taxable year, and

9 ‘‘(ii) any portion of such unused de10 duction remaining after application of

11 clause (i) shall be treated as allowable

12 under subsection (b) with respect to such

13 property in the next taxable year.

14 ‘‘(B) FORMER TAX-EXEMPT USE PROP15 ERTY.—For purposes of this subsection, the term

16 ‘former tax-exempt use property’ means any

17 property which—

18 ‘‘(i) is not tax-exempt use property for

19 the taxable year, but

20 ‘‘(ii) was tax-exempt use property for

21 any prior taxable year.

22 ‘‘(2) DISPOSITION OF ENTIRE INTEREST IN

23 PROPERTY.—If during the taxable year a taxpayer

24 disposes of the taxpayer’s entire interest in tax-ex25 empt use property (or former tax-exempt use prop-
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1 erty), rules similar to the rules of section 469(g) shall

2 apply for purposes of this section.

3 ‘‘(3) COORDINATION WITH SECTION 469.—This

4 section shall be applied before the application of sec5 tion 469.

6 ‘‘(f) OTHER DEFINITIONS.—For purposes of this

7 section—

8 ‘‘(1) RELATED PARTIES.—The terms ‘lessor’, ‘les9 see’, and ‘lender’ include any related party (within

10 the meaning of section 197(f)(9)(C)(i)).

11 ‘‘(2) LEASE TERM.—The term ‘lease term’ has

12 the meaning given to such term by section 168(i)(3).

13 ‘‘(3) LENDER.—The term ‘lender’ means, with

14 respect to any lease, a person that makes a loan to

15 the lessor which is secured (or economically similar to

16 being secured) by the lease or the leased property.

17 ‘‘(4) LOAN.—The term ‘loan’ includes any simi18 lar arrangement.

19 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

20 such regulations as may be necessary or appropriate to

21 carry out the purposes of this section, including regulation

22 which—

23 ‘‘(1) allow in appropriate cases the aggregation

24 of property subject to the same lease, and
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1 ‘‘(2) provide for the determination of the alloca2 tion of interest expense for purposes of this section.’’

3 (b) CONFORMING AMENDMENT.—The table of sections

4 for subpart C of part II of subchapter E of chapter 1 is

5 amended by adding at the end the following new item:

‘‘Sec. 470. Limitations on losses from tax-exempt use property.’’

6 (c) EFFECTIVE DATES.—

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

8 this section shall apply to leases entered into after No9 vember 18, 2003.

10 (2) LEASES TO FOREIGN ENTITIES.—In the case

11 of tax-exempt use property leased to a tax-exempt en12 tity which is a foreign person or entity, the amend13 ments made by this section shall apply to taxable

14 years beginning after January 31, 2004, with respect

15 to leases entered into on or before November 18, 2003.

16 PART IV—ADMINISTRATIVE PROVISIONS

17 SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTI18 MATED TAX FOR CERTAIN DEEMED ASSET

19 SALES.

20 (a) IN GENERAL.—Paragraph (13) of section 338(h)

21 (relating to tax on deemed sale not taken into account for

22 estimated tax purposes) is amended by adding at the end

23 the following: ‘‘The preceding sentence shall not apply with

24 respect to a qualified stock purchase for which an election

25 is made under paragraph (10).’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to transactions occurring after the

3 date of the enactment of this Act.

4 SEC. 482. EXTENSION OF IRS USER FEES.

5 (a) IN GENERAL.—Section 7528(c) (relating to termi6 nation) is amended by striking ‘‘December 31, 2004’’ and

7 inserting ‘‘September 30, 2013’’.

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

9 section shall apply to requests after the date of the enact10 ment of this Act.

11 SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND

12 INTEREST ON UNDERPAYMENTS RELATED TO

13 CERTAIN OFFSHORE FINANCIAL ARRANGE14 MENT.

15 (a) DETERMINATION OF PENALTY.—

16 (1) IN GENERAL.—Notwithstanding any other

17 provision of law, in the case of an applicable

18 taxpayer—

19 (A) the determination as to whether any in20 terest or applicable penalty is to be imposed with

21 respect to any arrangement to which any initia22 tive described in paragraph (2) applied, or to

23 any underpayment of Federal income tax attrib24 utable to items arising in connection with any

25 arrangement described in paragraph (2), shall be
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1 made without regard to section 6664 of the Inter2 nal Revenue Code of 1986, and

3 (B) if any such interest or applicable pen4 alty is imposed, the amount of such interest or

5 penalty shall be equal to twice that determined

6 without regard to this section.

7 (2) APPLICABLE TAXPAYER.—For purposes of

8 this subsection, the term ‘‘applicable taxpayer’’ means

9 a taxpayer eligible to participate in—

10 (A) the Department of the Treasury’s Off11 shore Voluntary Compliance Initiative, or

12 (B) the Department of the Treasury’s vol13 untary disclosure initiative which applies to the

14 taxpayer by reason of the taxpayer’s under15 reporting of United States income tax liability

16 through financial arrangements which rely on

17 the use of offshore arrangements which were the

18 subject of the initiative described in subpara19 graph (A).

20 (b) DEFINITIONS AND RULES.—For purposes of this

21 section—

22 (1) APPLICABLE PENALTY.—The term ‘‘applica23 ble penalty’’ means any penalty, addition to tax, or

24 fine imposed under chapter 68 of the Internal Rev25 enue Code of 1986.
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1 (2) VOLUNTARY OFFSHORE COMPLIANCE INITIA2 TIVE.—The term ‘‘Voluntary Offshore Compliance

3 Initiative’’ means the program established by the De4 partment of the Treasury in January of 2003 under

5 which any taxpayer was eligible to voluntarily dis6 close previously undisclosed income on assets placed

7 in offshore accounts and accessed through credit card

8 and other financial arrangements.

9 (3) PARTICIPATION.—A taxpayer shall be treated

10 as having participated in the Voluntary Offshore

11 Compliance Initiative if the taxpayer submitted the

12 request in a timely manner and all information re13 quested by the Secretary of the Treasury or his dele14 gate within a reasonable period of time following the

15 request.

16 (c) EFFECTIVE DATE.—The provisions of this section

17 shall apply to interest, penalties, additions to tax, and fines

18 with respect to any taxable year if as of the date of the

19 enactment of this Act, the assessment of any tax, penalty,

20 or interest with respect to such taxable year is not prevented

21 by the operation of any law or rule of law.

22 SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL23 MENT AGREEMENTS.

24 (a) IN GENERAL.—
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1 (1) Section 6159(a) (relating to authorization of

2 agreements) is amended—

3 (A) by striking ‘‘satisfy liability for pay4 ment of’’ and inserting ‘‘make payment on’’, and

5 (B) by inserting ‘‘full or partial’’ after ‘‘fa6 cilitate’’.

7 (2) Section 6159(c) (relating to Secretary re8 quired to enter into installment agreements in certain

9 cases) is amended in the matter preceding paragraph

10 (1) by inserting ‘‘full’’ before ‘‘payment’’.

11 (b) REQUIREMENT TO REVIEW PARTIAL PAYMENT

12 AGREEMENTS EVERY TWO YEARS.—Section 6159, as

13 amended by this Act, is amended by redesignating sub14 sections (d), (e), and (f) as subsections (e), (f), and (g), re15 spectively, and inserting after subsection (c) the following

16 new subsection:

17 ‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL18 MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO

19 YEARS.—In the case of an agreement entered into by the

20 Secretary under subsection (a) for partial collection of a

21 tax liability, the Secretary shall review the agreement at

22 least once every 2 years.’’.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to agreements entered into on or after

25 the date of the enactment of this Act.
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1 SEC. 485. EXTENSION OF CUSTOMS USER FEES.

2 Section 13031(j)(3) of the Consolidated Omnibus

3 Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is

4 amended by striking ‘‘March 1, 2005’’ and inserting ‘‘Sep5 tember 30, 2013’’.

6 SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF IN7 TEREST ON POTENTIAL UNDERPAYMENTS.

8 (a) IN GENERAL.—Subchapter A of chapter 67 (relat9 ing to interest on underpayments) is amended by adding

10 at the end the following new section:

11 ‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN12 TEREST ON POTENTIAL UNDERPAYMENTS,

13 ETC.

14 ‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN

15 AS PAYMENT OF TAX.—A taxpayer may make a cash de16 posit with the Secretary which may be used by the Sec17 retary to pay any tax imposed under subtitle A or B or

18 chapter 41, 42, 43, or 44 which has not been assessed at

19 the time of the deposit. Such a deposit shall be made in

20 such manner as the Secretary shall prescribe.

21 ‘‘(b) NO INTEREST IMPOSED.—To the extent that such

22 deposit is used by the Secretary to pay tax, for purposes

23 of section 6601 (relating to interest on underpayments), the

24 tax shall be treated as paid when the deposit is made.

25 ‘‘(c) RETURN OF DEPOSIT.—Except in a case where

26 the Secretary determines that collection of tax is in jeop-
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1 ardy, the Secretary shall return to the taxpayer any

2 amount of the deposit (to the extent not used for a payment

3 of tax) which the taxpayer requests in writing.

4 ‘‘(d) PAYMENT OF INTEREST.—

5 ‘‘(1) IN GENERAL.—For purposes of section 6611

6 (relating to interest on overpayments), a deposit

7 which is returned to a taxpayer shall be treated as a

8 payment of tax for any period to the extent (and only

9 to the extent) attributable to a disputable tax for such

10 period. Under regulations prescribed by the Secretary,

11 rules similar to the rules of section 6611(b)(2) shall

12 apply.

13 ‘‘(2) DISPUTABLE TAX.—

14 ‘‘(A) IN GENERAL.—For purposes of this

15 section, the term ‘disputable tax’ means the

16 amount of tax specified at the time of the deposit

17 as the taxpayer’s reasonable estimate of the max18 imum amount of any tax attributable to disput19 able items.

20 ‘‘(B) SAFE HARBOR BASED ON 30-DAY LET21 TER.—In the case of a taxpayer who has been

22 issued a 30-day letter, the maximum amount of

23 tax under subparagraph (A) shall not be less

24 than the amount of the proposed deficiency speci25 fied in such letter.
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1 ‘‘(3) OTHER DEFINITIONS.—For purposes of

2 paragraph (2)—

3 ‘‘(A) DISPUTABLE ITEM.—The term ‘disput4 able item’ means any item of income, gain, loss,

5 deduction, or credit if the taxpayer—

6 ‘‘(i) has a reasonable basis for its

7 treatment of such item, and

8 ‘‘(ii) reasonably believes that the Sec9 retary also has a reasonable basis for dis10 allowing the taxpayer’s treatment of such

11 item.

12 ‘‘(B) 30-DAY LETTER.—The term ‘30-day

13 letter’ means the first letter of proposed defi14 ciency which allows the taxpayer an opportunity

15 for administrative review in the Internal Rev16 enue Service Office of Appeals.

17 ‘‘(4) RATE OF INTEREST.—The rate of interest

18 allowable under this subsection shall be the Federal

19 short-term rate determined under section 6621(b),

20 compounded daily.

21 ‘‘(e) USE OF DEPOSITS.—

22 ‘‘(1) PAYMENT OF TAX.—Except as otherwise

23 provided by the taxpayer, deposits shall be treated as

24 used for the payment of tax in the order deposited.
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1 ‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be

2 treated as returned to the taxpayer on a last-in, first3 out basis.’’.

4 (b) CLERICAL AMENDMENT.—The table of sections for

5 subchapter A of chapter 67 is amended by adding at the

6 end the following new item:

‘‘Sec. 6603. Deposits made to suspend running of interest on potential underpayments, etc.’’.

7 (c) EFFECTIVE DATE.—

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

9 this section shall apply to deposits made after the

10 date of the enactment of this Act.

11 (2) COORDINATION WITH DEPOSITS MADE UNDER

12 REVENUE PROCEDURE 84–58.—In the case of an

13 amount held by the Secretary of the Treasury or his

14 delegate on the date of the enactment of this Act as

15 a deposit in the nature of a cash bond deposit pursu16 ant to Revenue Procedure 84–58, the date that the

17 taxpayer identifies such amount as a deposit made

18 pursuant to section 6603 of the Internal Revenue

19 Code (as added by this Act) shall be treated as the

20 date such amount is deposited for purposes of such

21 section 6603.

22 SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

23 (a) CONTRACT REQUIREMENTS.—
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1 (1) IN GENERAL.—Subchapter A of chapter 64

2 (relating to collection) is amended by adding at the

3 end the following new section:

4 ‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

5 ‘‘(a) IN GENERAL.—Nothing in any provision of law

6 shall be construed to prevent the Secretary from entering

7 into a qualified tax collection contract.

8 ‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.—For

9 purposes of this section, the term ‘qualified tax collection

10 contract’ means any contract which—

11 ‘‘(1) is for the services of any person (other than

12 an officer or employee of the Treasury Department)—

13 ‘‘(A) to locate and contact any taxpayer

14 specified by the Secretary,

15 ‘‘(B) to request full payment from such tax16 payer of an amount of Federal tax specified by

17 the Secretary and, if such request cannot be met

18 by the taxpayer, to offer the taxpayer an install19 ment agreement providing for full payment of

20 such amount during a period not to exceed 3

21 years, and

22 ‘‘(C) to obtain financial information speci23 fied by the Secretary with respect to such tax24 payer,
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1 ‘‘(2) prohibits each person providing such serv2 ices under such contract from committing any act or

3 omission which employees of the Internal Revenue

4 Service are prohibited from committing in the per5 formance of similar services,

6 ‘‘(3) prohibits subcontractors from—

7 ‘‘(A) having contacts with taxpayers,

8 ‘‘(B) providing quality assurance services,

9 and

10 ‘‘(C) composing debt collection notices, and

11 ‘‘(4) permits subcontractors to perform other

12 services only with the approval of the Secretary.

13 ‘‘(c) FEES AND EXPENSES.—The Secretary may retain

14 and use—

15 ‘‘(1) an amount not in excess of 25 percent of the

16 amount collected under any qualified tax collection

17 contract for the costs of services performed under such

18 contract, and

19 ‘‘(2) an amount not in excess of 25 percent of

20 such amount collected for collection enforcement ac21 tivities of the Internal Revenue Service.

22 The Secretary shall keep adequate records regarding

23 amounts so retained and used. The amount credited as paid

24 by any taxpayer shall be determined without regard to this

25 subsection.
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1 ‘‘(d) NO FEDERAL LIABILITY.—The United States

2 shall not be liable for any act or omission of any person

3 performing services under a qualified tax collection con4 tract.

5 ‘‘(e) APPLICATION OF FAIR DEBT COLLECTION PRAC6 TICES ACT.—The provisions of the Fair Debt Collection

7 Practices Act (15 U.S.C. 1692 et seq.) shall apply to any

8 qualified tax collection contract, except to the extent super9 seded by section 6304, section 7602(c), or by any other pro10 vision of this title.

11 ‘‘(f) APPLICATION OF SECTION.—In no event may the

12 term of any qualified tax collection contract extend beyond

13 the date which is 5 years after the date of the enactment

14 of this section.

15 ‘‘(g) CROSS REFERENCES.—

16 ‘‘(1) For damages for certain unauthorized col17 lection actions by persons performing services under

18 a qualified tax collection contract, see section 7433A.

19 ‘‘(2) For application of Taxpayer Assistance Or20 ders to persons performing services under a qualified

21 tax collection contract, see section 7811(a)(4).’’.

22 (2) CONFORMING AMENDMENTS.—

23 (A) Section 7809(a) is amended by insert24 ing ‘‘6306,’’ before ‘‘7651’’.
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1 (B) The table of sections for subchapter A of

2 chapter 64 is amended by adding at the end the

3 following new item:

‘‘Sec. 6306. Qualified Tax Collection Contracts.’’.

4 (b) CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED

5 COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES

6 UNDER QUALIFIED TAX COLLECTION CONTRACTS.—

7 (1) IN GENERAL.—Subchapter B of chapter 76

8 (relating to proceedings by taxpayers and third par9 ties) is amended by inserting after section 7433 the

10 following new section:

11 ‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED

12 COLLECTION ACTIONS BY PERSONS PER13 FORMING SERVICES UNDER QUALIFIED TAX

14 COLLECTION CONTRACTS.

15 ‘‘(a) IN GENERAL.—Subject to the modifications pro16 vided by subsection (b), section 7433 shall apply to the acts

17 and omissions of any person performing services under a

18 qualified tax collection contract (as defined in section

19 6306(b)) to the same extent and in the same manner as

20 if such person were an employee of the Internal Revenue

21 Service.

22 ‘‘(b) MODIFICATIONS.—For purposes of subsection

23 (a)—

24 ‘‘(1) Any civil action brought under section 7433

25 by reason of this section shall be brought against the
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1 person who entered into the qualified tax collection

2 contract with the Secretary and shall not be brought

3 against the United States.

4 ‘‘(2) Such person and not the United States shall

5 be liable for any damages and costs determined in

6 such civil action.

7 ‘‘(3) Such civil action shall not be an exclusive

8 remedy with respect to such person.

9 ‘‘(4) Subsections (c), (d)(1), and (e) of section

10 7433 shall not apply.’’.

11 (2) CLERICAL AMENDMENT.—The table of sec12 tions for subchapter B of chapter 76 is amended by

13 inserting after the item relating to section 7433 the

14 following new item:

‘‘Sec. 7433A. Civil damages for certain unauthorized collection actions by persons performing services under a qualified tax collection contract.’’.

15 (c) APPLICATION OF TAXPAYER ASSISTANCE ORDERS

16 TO PERSONS PERFORMING SERVICES UNDER A QUALIFIED

17 TAX COLLECTION CONTRACT.—Section 7811 (relating to

18 taxpayer assistance orders) is amended by adding at the

19 end the following new subsection:

20 ‘‘(g) APPLICATION TO PERSONS PERFORMING SERV21 ICES UNDER A QUALIFIED TAX COLLECTION CONTRACT.—

22 Any order issued or action taken by the National Taxpayer

23 Advocate pursuant to this section shall apply to persons

24 performing services under a qualified tax collection contract
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1 (as defined in section 6306(b)) to the same extent and in

2 the same manner as such order or action applies to the Sec3 retary.’’.

4 (d) INELIGIBILITY OF INDIVIDUALS WHO COMMIT MIS5 CONDUCT TO PERFORM UNDER CONTRACT.—Section 1203

6 of the Internal Revenue Service Restructuring Act of 1998

7 (relating to termination of employment for misconduct) is

8 amended by adding at the end the following new subsection:

9 ‘‘(e) INDIVIDUALS PERFORMING SERVICES UNDER A

10 QUALIFIED TAX COLLECTION CONTRACT.—An individual

11 shall cease to be permitted to perform any services under

12 any qualified tax collection contract (as defined in section

13 6306(b) of the Internal Revenue Code of 1986) if there is

14 a final determination by the Secretary of the Treasury

15 under such contract that such individual committed any

16 act or omission described under subsection (b) in connection

17 with the performance of such services.’’.

18 (e) BIENNIAL REPORT.—The Secretary of the Treasury

19 shall biennially submit (beginning in 2005) to the Com20 mittee on Finance of the Senate and the Committee on

21 Ways and Means of the House of Representatives a report

22 with respect to qualified tax collection contracts under sec23 tion 6306 of the Internal Revenue Code of 1986 (as added

24 by this section) which includes—

25 (1) a complete cost benefit analysis,
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1 (2) the impact of such contracts on collection en2 forcement staff levels in the Internal Revenue Service,

3 (3) the amounts collected and the collection costs

4 incurred (directly and indirectly),

5 (4) an evaluation of contractor performance,

6 (5) a disclosure safeguard report in a form simi7 lar to that required under section 6103(p)(5) of such

8 Code, and

9 (6) a measurement plan which includes a com10 parison of the best practices used by the private col11 lectors with the Internal Revenue Service’s own collec12 tion techniques) and mechanisms to identify and cap13 ture information on successful collection techniques

14 used by the contractors which could be adopted by the

15 Internal Revenue Service.

16 (f) EFFECTIVE DATE.—The amendments made to this

17 section shall take effect on the date of the enactment of this

18 Act.

19 SEC. 488. WHISTLEBLOWER REFORMS.

20 (a) IN GENERAL.—Section 7623 (relating to expenses

21 of detection of underpayments and fraud, etc.) is

22 amended—

23 (1) by striking ‘‘The Secretary’’ and inserting

24 ‘‘(a) IN GENERAL.—The Secretary’’,
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1 (2) by striking ‘‘and’’ at the end of paragraph

2 (1) and inserting ‘‘or’’,

3 (3) by striking ‘‘(other than interest)’’, and

4 (4) by adding at the end the following new sub5 sections:

6 ‘‘(b) AWARDS TO WHISTLEBLOWERS.—

7 ‘‘(1) IN GENERAL.—If the Secretary proceeds

8 with any administrative or judicial action described

9 in subsection (a) based on information brought to the

10 Secretary’s attention by an individual, such indi11 vidual shall, subject to paragraph (2), receive as an

12 award at least 15 percent but not more than 30 per13 cent of the collected proceeds (including penalties, in14 terest, additions to tax, and additional amounts) re15 sulting from the action (including any related ac16 tions) or from any settlement in response to such ac17 tion. The determination of the amount of such award

18 by the Whistleblower Office shall depend upon the ex19 tent to which the individual substantially contributed

20 to such action.

21 ‘‘(2) AWARD IN CASE OF LESS SUBSTANTIAL

22 CONTRIBUTION.—

23 ‘‘(A) IN GENERAL.—In the event the action

24 described in paragraph (1) is one which the

25 Whistleblower Office determines to be based prin-
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1 cipally on disclosures of specific allegations

2 (other than information provided by the indi3 vidual described in paragraph (1)) resulting

4 from a judicial or administrative hearing, from

5 a governmental report, hearing, audit, or inves6 tigation, or from the news media, the Whistle7 blower Office may award such sums as it con8 siders appropriate, but in no case more than 10

9 percent of the collected proceeds (including pen10 alties, interest, additions to tax, and additional

11 amounts) resulting from the action (including

12 any related actions) or from any settlement in

13 response to such action, taking into account the

14 significance of the individual’s information and

15 the role of such individual and any legal rep16 resentative of such individual in contributing to

17 such action.

18 ‘‘(B) NONAPPLICATION OF PARAGRAPH

19 WHERE INDIVIDUAL IS ORIGINAL SOURCE OF IN20 FORMATION.—Subparagraph (A) shall not apply

21 if the information resulting in the initiation of

22 the action described in paragraph (1) was origi23 nally provided by the individual described in

24 paragraph (1).
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1 ‘‘(3) APPEAL OF AWARD DETERMINATION.—Any

2 determination regarding an award under paragraph

3 (1) or (2) shall be subject to the filing by the indi4 vidual described in such paragraph of a petition for

5 review with the Tax Court under rules similar to the

6 rules under section 7463 (without regard to the

7 amount in dispute) and such review shall be subject

8 to the rules under section 7461(b)(1).

9 ‘‘(4) APPLICATION OF THIS SUBSECTION.—This

10 subsection shall apply with respect to any action—

11 ‘‘(A) against any taxpayer, but in the case

12 of any individual, only if such individual’s gross

13 income exceeds $200,000 for any taxable year

14 subject to such action, and

15 ‘‘(B) if the tax, penalties, interest, additions

16 to tax, and additional amounts in dispute exceed

17 $20,000.

18 ‘‘(5) ADDITIONAL RULES.—

19 ‘‘(A) NO CONTRACT NECESSARY.—No con20 tract with the Internal Revenue Service is nec21 essary for any individual to receive an award

22 under this subsection.

23 ‘‘(B) REPRESENTATION.—Any individual

24 described in paragraph (1) or (2) may be rep25 resented by counsel.
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1 ‘‘(C) AWARD NOT SUBJECT TO INDIVIDUAL

2 ALTERNATIVE MINIMUM TAX.—No award received

3 under this subsection shall be included in gross

4 income for purposes of determining alternative

5 minimum taxable income.

6 ‘‘(c) WHISTLEBLOWER OFFICE.—

7 ‘‘(1) IN GENERAL.—There is established in the

8 Internal Revenue Service an office to be known as the

9 ‘Whistleblower Office’ which—

10 ‘‘(A) shall analyze information received

11 from any individual described in subsection (b)

12 and either investigate the matter itself or assign

13 it to the appropriate Internal Revenue Service

14 office,

15 ‘‘(B) shall monitor any action taken with

16 respect to such matter,

17 ‘‘(C) shall inform such individual that it

18 has accepted the individual’s information for

19 further review,

20 ‘‘(D) may require such individual and any

21 legal representative of such individual to not dis22 close any information so provided,

23 ‘‘(E) may ask for additional assistance from

24 such individual or any legal representative of

25 such individual, and
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1 ‘‘(F) shall determine the amount to be

2 awarded to such individual under subsection (b).

3 ‘‘(2) FUNDING FOR OFFICE.—From the amounts

4 available for expenditure under subsection (a), the

5 Whistleblower Office shall be credited with an amount

6 equal to the awards made under subsection (b). These

7 funds shall be used to maintain the Whistleblower Of8 fice and also to reimburse other Internal Revenue

9 Service offices for related costs, such as costs of inves10 tigation and collection.

11 ‘‘(3) REQUEST FOR ASSISTANCE.—

12 ‘‘(A) IN GENERAL.—Any assistance re13 quested under paragraph (1)(E) shall be under

14 the direction and control of the Whistleblower Of15 fice or the office assigned to investigate the mat16 ter under subparagraph (A). To the extent the

17 disclosure of any returns or return information

18 to the individual or legal representative is re19 quired for the performance of such assistance,

20 such disclosure shall be pursuant to a contract

21 entered into between the Secretary and the re22 cipients of such disclosure subject to section

23 6103(n).

24 ‘‘(B) FUNDING OF ASSISTANCE.—From the

25 funds made available to the Whistleblower Office
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1 under paragraph (2), the Whistleblower Office

2 may reimburse the costs incurred by any legal

3 representative in providing assistance described

4 in subparagraph (A).’’.

5 (b) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to information provided on or after the

7 date of the enactment of this Act.

8 SEC. 489. PROTECTION OF OVERTIME PAY.

9 Section 13 of the Fair Labor Standards Act of 1938

10 (29 U.S.C. 213) is amended by adding at the end the fol11 lowing:

12 ‘‘(k)(1) The Secretary shall not promulgate any rule

13 under subsection (a)(1) that exempts from the overtime pay

14 provisions of section 7 any employee who earns less than

15 $23,660 per year.

16 ‘‘(2) The Secretary shall not promulgate any rule

17 under subsection (a)(1) concerning the right to overtime

18 pay that is not as protective, or more protective, of the over19 time pay rights of employees in the occupations or job clas20 sifications described in paragraph (3) as the protections

21 provided for such employees under the regulations in effect

22 under such subsection on March 31, 2003.

23 ‘‘(3) The occupations or job classifications described in

24 this paragraph are as follows:

25 ‘‘(A) Any worker paid on an hourly basis.
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1 ‘‘(B) Blue collar workers.

2 ‘‘(C) Any worker provided overtime under a col3 lective bargaining agreement.

4 ‘‘(D) Team leaders.

5 ‘‘(E) Computer programmers.

6 ‘‘(F) Registered nurses.

7 ‘‘(G) Licensed practical nurses.

8 ‘‘(H) Nurse midwives.

9 ‘‘(I) Nursery school teachers.

10 ‘‘(J) Oil and gas pipeline workers.

11 ‘‘(K) Oil and gas field workers.

12 ‘‘(L) Oil and gas platform workers.

13 ‘‘(M) Refinery workers.

14 ‘‘(N) Steel workers.

15 ‘‘(O) Shipyard and ship scrapping workers.

16 ‘‘(P) Teachers.

17 ‘‘(Q) Technicians.

18 ‘‘(R) Journalists.

19 ‘‘(S) Chefs.

20 ‘‘(T) Cooks.

21 ‘‘(U) Police officers.

22 ‘‘(V) Firefighters.

23 ‘‘(W) Fire sergeants.

24 ‘‘(X) Police sergeants.

25 ‘‘(Y) Emergency medical technicians.
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1 ‘‘(Z) Paramedics.

2 ‘‘(AA) Waste disposal workers.

3 ‘‘(BB) Day care workers.

4 ‘‘(CC) Maintenance employees.

5 ‘‘(DD) Production line employees.

6 ‘‘(EE) Construction employees.

7 ‘‘(FF) Carpenters.

8 ‘‘(GG) Mechanics.

9 ‘‘(HH) Plumbers.

10 ‘‘(II) Iron workers.

11 ‘‘(JJ) Craftsmen.

12 ‘‘(KK) Operating engineers.

13 ‘‘(LL) Laborers.

14 ‘‘(MM) Painters.

15 ‘‘(NN) Cement masons.

16 ‘‘(OO) Stone and brick masons.

17 ‘‘(PP) Sheet metal workers.

18 ‘‘(QQ) Utility workers.

19 ‘‘(RR) Longshoremen.

20 ‘‘(SS) Stationary engineers.

21 ‘‘(TT) Welders.

22 ‘‘(UU) Boilermakers.

23 ‘‘(VV) Funeral directors.

24 ‘‘(WW) Athletic trainers.

25 ‘‘(XX) Outside sales employees.
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1 ‘‘(YY) Inside sales employees.

2 ‘‘(ZZ) Grocery store managers.

3 ‘‘(AAA) Financial services industry workers.

4 ‘‘(BBB) Route drivers.

5 ‘‘(CCC) Assistant retail managers.

6 ‘‘(4) Any portion of a rule promulgated under sub7 section (a)(1) after March 31, 2003, that modifies the over8 time pay provisions of section 7 in a manner that is incon9 sistent with paragraphs (2) and (3) shall have no force or

10 effect as it relates to the occupation or job classification in11 volved.’’.

12 SEC. 490. PROTECTION OF OVERTIME PAY.

13 Section 13 of the Fair Labor Standards Act of 1938

14 (29 U.S.C. 213) is amended by adding at the end the fol15 lowing:

16 ‘‘(k) Notwithstanding the provisions of subchapter II

17 of chapter 5 and chapter 7 of title 5, United States Code

18 (commonly referred to as the Administrative Procedures

19 Act) or any other provision of law, any portion of the final

20 rule promulgated on April 23, 2004, revising part 541 of

21 title 29, Code of Federal Regulations, that exempts from the

22 overtime pay provisions of section 7 any employee who

23 would not otherwise be exempt if the regulations in effect

24 on March 31, 2003 remained in effect, shall have no force

25 or effect and that portion of such regulations (as in effect
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1 on March 31, 2003) that would prevent such employee from

2 being exempt shall remain in effect. Notwithstanding the

3 preceding sentence, the increased salary requirements pro4 vided for in such final rule at section 541.600 of such title

5 29, shall remain in effect.’’.

6 PART V—MISCELLANEOUS PROVISIONS

7 SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO

8 LIST OF TAXABLE VACCINES.

9 (a) IN GENERAL.—Section 4132(a)(1) (defining tax10 able vaccine) is amended by redesignating subparagraphs

11 (I), (J), (K), and (L) as subparagraphs (J), (K), (L), and

12 (M), respectively, and by inserting after subparagraph (H)

13 the following new subparagraph:

14 ‘‘(I) Any vaccine against hepatitis A.’’.

15 (b) CONFORMING AMENDMENT.—Section

16 9510(c)(1)(A) is amended by striking ‘‘October 18, 2000’’

17 and inserting ‘‘the date of the enactment of the Jumpstart

18 Our Business Strength (JOBS) Act’’.

19 (c) EFFECTIVE DATE.—

20 (1) SALES, ETC.—The amendments made by this

21 section shall apply to sales and uses on or after the

22 first day of the first month which begins more than

23 4 weeks after the date of the enactment of this Act.

24 (2) DELIVERIES.—For purposes of paragraph

25 (1) and section 4131 of the Internal Revenue Code of
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1 1986, in the case of sales on or before the effective date

2 described in such paragraph for which delivery is

3 made after such date, the delivery date shall be con4 sidered the sale date.

5 SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A

6 PRINCIPAL RESIDENCE ACQUIRED IN A LIKE7 KIND EXCHANGE WITHIN 5 YEARS OF SALE.

8 (a) IN GENERAL.—Section 121(d) (relating to special

9 rules for exclusion of gain from sale of principal residence)

10 is amended by adding at the end the following new para11 graph:

12 ‘‘(10) PROPERTY ACQUIRED IN LIKE-KIND EX13 CHANGE.—If a taxpayer acquired property in an ex14 change to which section 1031 applied, subsection (a)

15 shall not apply to the sale or exchange of such prop16 erty if it occurs during the 5-year period beginning

17 with the date of the acquisition of such property.’’.

18 (b) EFFECTIVE DATE.—The amendment made by this

19 section shall apply to sales or exchanges after the date of

20 the enactment of this Act.
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1 SEC. 493. MODIFICATION OF EXEMPTION FROM TAX FOR

2 SMALL PROPERTY AND CASUALTY INSUR3 ANCE COMPANIES.

4 (a) PREMIUMS AS PERCENTAGE OF GROSS RECEIPTS

5 INCREASED.—Section 501(c)(15)(A)(i)(II) is amended by

6 striking ‘‘50 percent’’ and inserting ‘‘60 percent’’.

7 (b) LIMITATION ON NET WRITTEN PREMIUMS IN8 CREASED.—Section 831(b)(2) (relating to companies to

9 which this subsection applies) is amended—

10 (1) by striking ‘‘$1,200,000’’ and inserting

11 ‘‘$1,890,000’’, and

12 (2) by adding at the end the following new sub13 paragraph:

14 ‘‘(C) INFLATION ADJUSTMENTS.—

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

16 taxable year beginning in a calendar year

17 after 2005, the dollar amount in subpara18 graph (A)(i) shall be increased by an

19 amount equal to—

20 ‘‘(I) such dollar amount, multi21 plied by

22 ‘‘(II) the cost-of-living adjustment

23 determined under section 1(f)(3) for

24 the calendar year in which the taxable

25 year begins, by substituting ‘calendar
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1 year 2004’ for ‘calendar year 1992’ in

2 subparagraph (B) thereof.

3 ‘‘(ii) ROUNDING.—If the amount in

4 subparagraph (A)(i) as increased under

5 clause (i) is not a multiple of $10,000, such

6 amount shall be rounded to the nearest mul7 tiple of $10,000.’’.

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided in para10 graph (2), the amendments made by this section shall

11 apply to taxable years beginning after December 31,

12 2004.

13 (2) TRANSITION RULE FOR COMPANIES IN RE14 CEIVERSHIP OR LIQUIDATION.—In the case of a com15 pany or association which—

16 (A) for the taxable year which includes

17 April 1, 2004, meets the requirements of section

18 501(c)(15)(A) of the Internal Revenue Code of

19 1986, as in effect for the last taxable year begin20 ning before January 1, 2004, and

21 (B) on April 1, 2004, is in a receivership,

22 liquidation, or similar proceeding under the su23 pervision of a State court,

24 the amendments made by this section shall apply to

25 taxable years beginning after the earlier of the date
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1 such proceeding ends (or, if later, December 31, 2004)

2 or December 31, 2007.

3 SEC. 494. TREATMENT OF CHARITABLE CONTRIBUTIONS OF

4 PATENTS AND SIMILAR PROPERTY.

5 (a) IN GENERAL.—Section 170(e)(1)(B) (relating to

6 certain contributions of ordinary income and capital gain

7 property) is amended by striking ‘‘or’’ at the end of clause

8 (i), by adding ‘‘or’’ at the end of clause (ii), and by insert9 ing after clause (ii) the following new clause:

10 ‘‘(iii) of any patent, copyright, trade11 mark, trade name, trade secret, know-how,

12 software (other than software described in

13 section 197(e)(3)(A)(i)), or similar prop14 erty, or applications or registrations of such

15 property,’’.

16 (b) ADDITIONAL DEDUCTION FOR CERTAIN CONTRIBU17 TIONS OF PATENTS AND SIMILAR PROPERTY.—Section

18 170(e) is amended by adding at the end the following new

19 paragraph:

20 ‘‘(7) ADDITIONAL DEDUCTION FOR CERTAIN CON21 TRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.—

22 ‘‘(A) IN GENERAL.—In the case of a chari23 table contribution of any property described in

24 paragraph (1)(B)(iii) (other than copyrights de25 scribed in section 1221(a)(3) or 1231(b)(1)(C) or
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1 property contributed to or for the use of an orga2 nization described in paragraph (1)(B)(ii)), if—

3 ‘‘(i) the lesser of—

4 ‘‘(I) 5 percent of the fair market

5 value of such property (determined at

6 the time of such contribution), or

7 ‘‘(II) $1,000,000, exceeds

8 ‘‘(ii) the amount of such contribution

9 as determined under paragraph (1),

10 then the amount of the charitable contribution of

11 such property otherwise taken into account

12 under this section shall equal the amount deter13 mined under clause (i).’’.

14 (c) CERTAIN DONEE INCOME FROM INTELLECTUAL

15 PROPERTY TREATED AS AN ADDITIONAL CHARITABLE CON16 TRIBUTION.—Section 170 is amended by redesignating sub17 section (m) as subsection (n) and by inserting after sub18 section (l) the following new subsection:

19 ‘‘(m) CERTAIN DONEE INCOME FROM INTELLECTUAL

20 PROPERTY TREATED AS AN ADDITIONAL CHARITABLE CON21 TRIBUTION.—

22 ‘‘(1) TREATMENT AS ADDITIONAL CONTRIBU23 TION.—In the case of a taxpayer who makes a quali24 fied intellectual property contribution, the deduction

25 allowed under subsection (a) for each taxable year of
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1 the taxpayer ending on or after the date of such con2 tribution shall be increased (subject to the limitations

3 under subsection (b)) by the applicable percentage of

4 qualified donee income with respect to such contribu5 tion which is properly allocable to such year under

6 this subsection.

7 ‘‘(2) QUALIFIED DONEE INCOME.—For purposes

8 of this subsection, the term ‘qualified donee income’

9 means any net income received by or accrued to the

10 donee which is properly allocable to the qualified in11 tellectual property.

12 ‘‘(3) ALLOCATION OF QUALIFIED DONEE INCOME

13 TO TAXABLE YEARS OF DONOR.—For purposes of this

14 subsection, qualified donee income shall be treated as

15 properly allocable to a taxable year of the donor if

16 such income is received by or accrued to the donee for

17 the taxable year of the donee which ends within or

18 with such taxable year of the donor.

19 ‘‘(4) 10-YEAR LIMITATION.—Income shall not be

20 treated as properly allocable to qualified intellectual

21 property for purposes of this subsection if such income

22 is received by or accrued to the donee after the 10-

23 year period beginning on the date of the contribution

24 of such property.
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1 ‘‘(5) BENEFIT LIMITED TO LIFE OF INTELLEC2 TUAL PROPERTY.—Income shall not be treated as

3 properly allocable to qualified intellectual property

4 for purposes of this subsection if such income is re5 ceived by or accrued to the donee after the expiration

6 of the legal life of such property.

7 ‘‘(6) APPLICABLE PERCENTAGE.—For purposes

8 of this subsection, the term ‘applicable percentage’

9 means the percentage determined under the following

10 table which corresponds to a taxable year of the donor

11 ending on or after the date of the qualified intellectual

12 property contribution:

‘‘Taxable Year of Donor Ending On or After Date of

Contribution:

Applicable Percentage:

1st or 2d ......................................................................................... 100

3rd ................................................................................................... 90

4th................................................................................................... 80

5th................................................................................................... 70

6th................................................................................................... 60

7th................................................................................................... 50

8th................................................................................................... 40

9th................................................................................................... 30

10th................................................................................................. 20

11th or 12th .................................................................................... 10.

13 ‘‘(7) QUALIFIED INTELLECTUAL PROPERTY CON14 TRIBUTION.—For purposes of this subsection, the term

15 ‘qualified intellectual property contribution’ means

16 any charitable contribution of qualified intellectual

17 property—

18 ‘‘(A) the amount of which taken into ac19 count under this section—
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1 ‘‘(i) is reduced by reason of subsection

2 (e)(1), or

3 ‘‘(ii) determined under subsection

4 (e)(7), and

5 ‘‘(B) with respect to which the donor in6 forms the donee at the time of such contribution

7 that the donor intends to treat such contribution

8 as a qualified intellectual property contribution

9 for purposes of this subsection and section

10 6050L.

11 ‘‘(8) QUALIFIED INTELLECTUAL PROPERTY.—For

12 purposes of this subsection, the term ‘qualified intel13 lectual property’ means property described in sub14 section (e)(1)(B)(iii) (other than copyrights described

15 in section 1221(a)(3) or 1231(b)(1)(C) or property

16 contributed to or for the use of an organization de17 scribed in subsection (e)(1)(B)(ii)).

18 ‘‘(9) OTHER SPECIAL RULES.—

19 ‘‘(A) APPLICATION OF LIMITATIONS ON

20 CHARITABLE CONTRIBUTIONS.—Any increase

21 under this subsection of the deduction provided

22 under subparagraph (a) shall be treated for pur23 poses of subsection (b) as a deduction which is

24 attributable to a charitable contribution to the

25 donee to which such increase relates.
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1 ‘‘(B) NET INCOME DETERMINED BY

2 DONEE.—The net income taken into account

3 under paragraph (2) shall not exceed the amount

4 of such income reported under section

5 6050L(b)(1).

6 ‘‘(C) DEDUCTION LIMITED TO 12 TAXABLE

7 YEARS.—Except as may be provided under sub8 paragraph (D)(i), this subsection shall not apply

9 with respect to any qualified intellectual prop10 erty contribution for any taxable year of the

11 donor after the 12th taxable year of the donor

12 which ends on or after the date of such contribu13 tion.

14 ‘‘(D) REGULATIONS.—The Secretary may

15 issue regulations or other guidance to carry out

16 the purposes of this subsection, including regula17 tions or guidance—

18 ‘‘(i) modifying the application of this

19 subsection in the case of a donor or donee

20 with a short taxable year, and

21 ‘‘(ii) providing for the determination

22 of an amount to be treated as net income of

23 the donee which is properly allocable to

24 qualified intellectual property in the case of

25 a donee who uses such property to further
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1 a purpose or function constituting the basis

2 of the donee’s exemption under section 501

3 (or, in the case of a governmental unit, any

4 purpose described in section 170(c)) and

5 does not possess a right to receive any pay6 ment from a third party with respect to

7 such property.’’.

8 (d) REPORTING REQUIREMENTS.—Section 6050L (re9 lating to returns relating to certain dispositions of donated

10 property) is amended to read as follows:

11 ‘‘SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED

12 PROPERTY.

13 ‘‘(a) DISPOSITIONS OF DONATED PROPERTY.—

14 ‘‘(1) IN GENERAL.—If the donee of any chari15 table deduction property sells, exchanges, or otherwise

16 disposes of such property within 2 years after its re17 ceipt, the donee shall make a return (in accordance

18 with forms and regulations prescribed by the Sec19 retary) showing—

20 ‘‘(A) the name, address, and TIN of the

21 donor,

22 ‘‘(B) a description of the property,

23 ‘‘(C) the date of the contribution,

24 ‘‘(D) the amount received on the disposi25 tion, and
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1 ‘‘(E) the date of such disposition.

2 ‘‘(2) DEFINITIONS.—For purposes of this

3 subsection—

4 ‘‘(A) CHARITABLE DEDUCTION PROPERTY.—

5 The term ‘charitable deduction property’ means

6 any property (other than publicly traded securi7 ties) contributed in a contribution for which a

8 deduction was claimed under section 170 if the

9 claimed value of such property (plus the claimed

10 value of all similar items of property donated by

11 the donor to 1 or more donees) exceeds $5,000.

12 ‘‘(B) PUBLICLY TRADED SECURITIES.—The

13 term ‘publicly traded securities’ means securities

14 for which (as of the date of the contribution)

15 market quotations are readily available on an es16 tablished securities market.

17 ‘‘(b) QUALIFIED INTELLECTUAL PROPERTY CONTRIBU18 TIONS.—

19 ‘‘(1) IN GENERAL.—Each donee with respect to a

20 qualified intellectual property contribution shall make

21 a return (at such time and in such form and manner

22 as the Secretary may by regulations prescribe) with

23 respect to each specified taxable year of the donee

24 showing—
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1 ‘‘(A) the name, address, and TIN of the

2 donor,

3 ‘‘(B) a description of the qualified intellec4 tual property contributed,

5 ‘‘(C) the date of the contribution, and

6 ‘‘(D) the amount of net income of the donee

7 for the taxable year which is properly allocable

8 to the qualified intellectual property (determined

9 without regard to paragraph (9)(B) of section

10 170(m) and with the modifications described in

11 paragraphs (4) and (5) of such section).

12 ‘‘(2) DEFINITIONS.—For purposes of this

13 subsection—

14 ‘‘(A) IN GENERAL.—Terms used in this sub15 section which are also used in section 170(m)

16 have the respective meanings given such terms in

17 such section.

18 ‘‘(B) SPECIFIED TAXABLE YEAR.—The term

19 ‘specified taxable year’ means, with respect to

20 any qualified intellectual property contribution,

21 any taxable year of the donee any portion of

22 which is part of the 10-year period beginning on

23 the date of such contribution.

24 ‘‘(c) STATEMENT TO BE FURNISHED TO DONORS.—

25 Every person making a return under subsection (a) or (b)
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1 shall furnish a copy of such return to the donor at such

2 time and in such manner as the Secretary may by regula3 tions prescribe.’’.

4 (e) PROCESSING FEE.—Section 170, as amended by

5 subsection (b), is amended by redesignating subsection (n)

6 as subsection (o) and by inserting after subsection (m) the

7 following new subsection:

8 ‘‘(n) PROCESSING FEE.—In the case of a deduction al9 lowed for any taxable year under this section with respect

10 to a charitable contribution of any property described in

11 subsection (e)(1)(B)(iii) (other than copyrights described in

12 section 1221(a)(3) or 1231(b)(1)(C) or property contributed

13 to or for the use of an organization described in subsection

14 (e)(1)(B)(ii)), the taxpayer shall include, with the tax15 payer’s return of tax including such deduction, a fee equal

16 to 1 percent of the amount of such deduction. Such fee shall

17 be credited by the Secretary to the operations of the Exempt

18 Organizations unit within the Internal Revenue Service.’’.

19 (f) MODIFICATION OF SUBSTANTIAL VALUATIONS

20 MISSTATEMENT PENALTY FOR CHARITABLE CONTRIBU21 TIONS OF PROPERTY.—

22 (1) SUBSTANTIAL MISSTATEMENTS.—Section

23 6662(e)(1)(A) (relating to substantial valuation

24 misstatements under chapter 1) is amended by insert25 ing ‘‘(50 percent or more in the case of a charitable
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1 contribution of any property described in section

2 170(e)(1)(B)(iii))’’ after ‘‘200 percent or more’’.

3 (2) GROSS MISSTATEMENTS.—Section

4 6662(h)(2)(A) (defining gross valuation

5 misstatements) is amended by striking clause (ii) and

6 inserting the following new clauses:

7 ‘‘(ii) ‘100 percent or more’ for ‘50 per8 cent or more’,

9 ‘‘(iii) ‘25 percent or less’ for ‘50 per10 cent or less’, and’’.

11 (g) ANTI-ABUSE RULES.—The Secretary of the

12 Treasury—

13 (1) may prescribe such regulations or other guid14 ance as may be necessary or appropriate to prevent

15 the avoidance of the purposes of paragraphs

16 (1)(B)(iii) and (7) of section 170(e) of the Internal

17 Revenue Code of 1986 (as added by subsections (a)

18 and (b)), including preventing—

19 (A) the circumvention of the reduction of

20 the charitable deduction by embedding or bun21 dling the patent or similar property as part of

22 a charitable contribution of property that in23 cludes the patent or similar property,

24 (B) the manipulation of the basis of the

25 property to increase the amount of the charitable
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1 deduction through the use of related persons,

2 pass-thru entities, or other intermediaries, or

3 through the use of any provision of law or regu4 lation (including the consolidated return regula5 tions), and

6 (C) a donor from changing the form of the

7 patent or similar property to property of a form

8 for which different deduction rules would apply,

9 and

10 (2) shall prescribe guidance on appraisal stand11 ards for contributions of property described in section

12 170(e)(1)(B)(iii) of the Internal Revenue Code of

13 1986 (as added by this section).

14 (h) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to contributions made after the date of

16 the enactment of this Act.

17 SEC. 495. INCREASE IN AGE OF MINOR CHILDREN WHOSE

18 UNEARNED INCOME IS TAXED AS IF PARENT’S

19 INCOME.

20 (a) IN GENERAL.—Section 1(g)(2)(A) (relating to

21 child to whom subsection applies) is amended by striking

22 ‘‘age 14’’ and inserting ‘‘age 18’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 2003.
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1 SEC. 496. HOLDING PERIOD FOR PREFERRED STOCK.

2 (a) IN GENERAL.—Section 1(h)(11)(B)(iii)(I) is

3 amended to read as follows:

4 ‘‘(I) with respect to which the

5 holding period requirements of section

6 246(c) are not met, determined by sub7 stituting ‘60 days’ for ‘45’ days each

8 place it appears, by substituting ‘120-

9 day’ for ‘90-day’ each place it appears,

10 and by substituting ‘120 days’ for ‘90

11 days’ and ‘240-day’ for ‘180-day’ in

12 paragraph (2).’’

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

14 section shall apply to taxable years beginning after the date

15 of the enactment of this Act.

16 SEC. 497. SUBSTANTIAL PRESENCE TEST REQUIRED TO DE17 TERMINE BONA FIDE RESIDENCE IN UNITED

18 STATES POSSESSIONS.

19 (a) SUBSTANTIAL PRESENCE TEST.—

20 (1) IN GENERAL.—Subpart D of part III of sub21 chapter N of chapter 1 (relating to possessions of the

22 United States) is amended by adding at the end the

23 following new section:

24 ‘‘SEC. 937. BONA FIDE RESIDENT.

25 ‘‘For purposes of this subpart, section 865(g)(3), sec26 tion 876, section 881(b), paragraphs (2) and (3) of section
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1 901(b), section 957(c), section 3401(a)(8)(C), and section

2 7654(a), the term ‘bona fide resident’ means a person who

3 satisfies a test, determined by the Secretary, similar to the

4 substantial presence test under section 7701(b)(3) with re5 spect to Guam, American Samoa, the Northern Mariana

6 Islands, Puerto Rico, or the Virgin Islands, as the case may

7 be.’’.

8 (2) CONFORMING AMENDMENTS.—

9 (A) The following provisions are amended

10 by striking ‘‘during the entire taxable year’’ and

11 inserting ‘‘for the taxable year’’:

12 (i) Paragraph (3) of section 865(g).

13 (ii) Subsection (a) of section 876(a).

14 (iii) Paragraphs (2) and (3) of section

15 901(b).

16 (iv) Subsection (a) of section 931.

17 (v) Paragraphs (1) and (2) of section

18 933.

19 (B) Section 931(d) is amended by striking

20 paragraph (3).

21 (C) Section 932 is amended by striking ‘‘at

22 the close of the taxable year’’ and inserting ‘‘for

23 the taxable year’’ each place it appears.

24 (3) CLERICAL AMENDMENT.—The table of sec25 tions of subpart D of part III of subchapter N of
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1 chapter 1 is amended by adding at the end the fol2 lowing new item:

‘‘Sec. 937. Bona fide resident.’’.

3 (b) REPORTING REQUIREMENTS FOR BONA FIDE

4 RESIDENTS OF THE VIRGIN ISLANDS.—Paragraph (2) of

5 section 932(c) (relating to treatment of Virgin Islands resi6 dents) is amended to read as follows:

7 ‘‘(2) FILING REQUIREMENTS.—

8 ‘‘(A) IN GENERAL.—Notwithstanding para9 graph (4), each individual to whom this sub10 section applies for the taxable year shall file an

11 income tax return for the taxable year with—

12 ‘‘(i) the Virgin Islands, and

13 ‘‘(ii) the United States.

14 ‘‘(B) FILING FEE.—The Secretary shall

15 charge a processing fee with respect to the return

16 filed under subparagraph (A)(ii) of an amount

17 appropriate to cover the administrative costs of

18 the requirements of subparagraph (A)(ii) and the

19 enforcement of the purposes of subparagraph

20 (A)(ii).’’.

21 (c) PENALTIES.—

22 (1) IN GENERAL.—Part I of subchapter B of

23 chapter 68 is amended by adding at the end the fol24 lowing new section:
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1 ‘‘SEC. 6717. FAILURE OF VIRGIN ISLANDS RESIDENTS TO

2 FILE RETURNS WITH THE UNITED STATES.

3 ‘‘(a) PENALTY AUTHORIZED.—The Secretary may im4 pose a civil money penalty on any person who violates, or

5 causes any violation of, the requirements of section

6 932(c)(2)(A)(ii).

7 ‘‘(b) AMOUNT OF PENALTY.—

8 ‘‘(1) IN GENERAL.—Except as provided in sub9 section (c), the amount of any civil penalty imposed

10 under subsection (a) shall not exceed $5,000.

11 ‘‘(2) REASONABLE CAUSE EXCEPTION.—No pen12 alty shall be imposed under subsection (a) with re13 spect to any violation if such violation was due to

14 reasonable cause and the taxpayer acted in good faith.

15 ‘‘(c) WILLFUL VIOLATIONS.—In the case of any person

16 willfully violating, or willfully causing any violation of,

17 any requirement of section 932(c)(2)(A)(ii)—

18 ‘‘(1) the maximum penalty under subsection

19 (b)(1) shall be increased to $25,000 and

20 ‘‘(2) subsection (b)(2) shall not apply.’’.

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for Part I of subchapter B of chapter 68 is

23 amended by adding at the end the following new item:

‘‘Sec. 6717. Failure of Virgin Islands residents to file returns with

the United States.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years ending after the date

3 of the enactment of this Act.

4 TITLE V—PROTECTION OF

5 UNITED STATES WORKERS

6 FROM COMPETITION OF FOR7 EIGN WORKFORCES

8 SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF

9 CONTRACTS.

10 (a) LIMITATIONS.—

11 (1) IN GENERAL.—The Office of Federal Procure12 ment Policy Act (41 U.S.C. 403 et seq.) is amended

13 by adding at the end the following new section:

14 ‘‘SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF

15 CONTRACTS.

16 ‘‘(a) CONVERSIONS TO CONTRACTOR PERFORMANCE OF

17 FEDERAL ACTIVITIES.—An activity or function of an exec18 utive agency that is converted to contractor performance

19 under Office of Management and Budget Circular A–76

20 may not be performed by the contractor or any subcon21 tractor at a location outside the United States except to the

22 extent that such activity or function was previously per23 formed by Federal Government employees outside the

24 United States.
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1 ‘‘(b) OTHER FEDERAL CONTRACTS.—(1) A contract

2 that is entered into by the head of an executive agency may

3 not be performed outside the United States except to meet

4 a requirement of the executive agency for the contract to

5 be performed specifically at a location outside the United

6 States.

7 ‘‘(2) The prohibition in paragraph (1) does not apply

8 in the case of a contract of an executive agency if—

9 ‘‘(A) the President determines in writing that it

10 is necessary in the national security interests of the

11 United States for the contract to be performed outside

12 the United States; or

13 ‘‘(B) the head of such executive agency makes a

14 determination and reports such determination on a

15 timely basis to the Director of the Office of Manage16 ment and Budget that—

17 ‘‘(i) the property or services needed by the

18 executive agency are available only by means of

19 performance of the contract outside the United

20 States; and

21 ‘‘(ii) no property or services available by

22 means of performance of the contract inside the

23 United States would satisfy the executive agen24 cy’s need.
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1 ‘‘(3) Paragraph (1) does not apply to the performance

2 of a contract outside the United States under the exception

3 provided in subsection (a).

4 ‘‘(c) STATE CONTRACTS.—(1) Except as provided in

5 paragraph (2), funds appropriated for financial assistance

6 for a State may not be disbursed to or for such State during

7 a fiscal year unless the chief executive of that State has

8 transmitted to the Administrator for Federal Procurement

9 Policy, not later than April 1 of the preceding fiscal year,

10 a written certification that none of such funds will be ex11 pended for the performance outside the United States of con12 tracts entered into by such State.

13 ‘‘(2) The prohibition on disbursement of funds to or

14 for a State under paragraph (1) does not apply with respect

15 to the performance of a State contract outside the United

16 States if—

17 ‘‘(A) the chief executive of such State—

18 ‘‘(i) determines that the property or services

19 needed by the State are available only by means

20 of performance of the contract outside the United

21 States and no property or services available by

22 means of performance of the contract inside the

23 United States would satisfy the State’s need; and

24 ‘‘(ii) transmits a notification of such deter25 mination to the head of the executive agency of
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1 the United States that administers the authority

2 under which such funds are disbursed to or for

3 the State; and

4 ‘‘(B) the head of the executive agency receiving

5 the notification of such determination—

6 ‘‘(i) confirms that the facts warrant the de7 termination;

8 ‘‘(ii) approves the determination; and

9 ‘‘(iii) transmits a notification of the ap10 proval of the determination to the Director of the

11 Office of Management and Budget.

12 ‘‘(3) In this subsection, the term ‘State’ means each

13 of the several States of the United States, the District of

14 Columbia, the Commonwealth of Puerto Rico, the Common15 wealth of the Northern Mariana Islands, the Virgin Islands,

16 Guam, American Samoa, and the Trust Territory of the

17 Pacific Islands.

18 ‘‘(d) Subsections (b) and (c) shall not apply to pro19 curement covered by the World Trade Organization Govern20 ment Procurement Agreement.

21 ‘‘(e) NATIONAL SECURITY EXEMPTION.—Subsection

22 (b) shall not apply to any procurement for national secu23 rity purposes entered into by—

24 ‘‘(1) the Department of Defense or any agency or

25 entity thereof;
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1 ‘‘(2) the Department of the Army, the Depart2 ment of the Navy, the Department of the Air Force,

3 or any agency or entity of any of the military depart4 ments;

5 ‘‘(3) the Department of Homeland Security;

6 ‘‘(4) the Department of Energy or any agency or

7 entity thereof, with respect to the national security

8 programs of that Department; or

9 ‘‘(5) any element of the intelligence community.

10 ‘‘(f) RESPONSIBILITIES OF OMB.—The Director of the

11 Office of Management and Budget shall—

12 ‘‘(1) maintain—

13 ‘‘(A) the waivers granted under subsection

14 (b)(2), together with the determinations and cer15 tifications on which such waivers were based;

16 and

17 ‘‘(B) the notifications received under sub18 section (c)(2)(B)(iii); and

19 ‘‘(2) submit to Congress promptly after the end

20 of each quarter of each fiscal year a report that sets

21 forth—

22 ‘‘(A) the waivers that were granted under

23 subsection (b)(2) during such quarter; and
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1 ‘‘(B) the notifications that were received

2 under subsection (c)(2)(B)(iii) during such quar3 ter.

4 ‘‘(g) ANNUAL GAO REVIEW.—The Comptroller Gen5 eral shall—

6 ‘‘(1) review, each fiscal year, the waivers granted

7 during such fiscal year under subsection (b)(2) and

8 the disbursements of funds authorized pursuant to the

9 exceptions in subsections (c)(2) and (e); and

10 ‘‘(2) promptly after the end of such fiscal year,

11 transmit to Congress a report containing a list of the

12 contracts covered by such waivers and exception to13 gether with a brief description of the performance of

14 each such contract to the maximum extent feasible

15 outside the United States.’’.

16 (2) CLERICAL AMENDMENT.—The table of sec17 tions in section 1(b) of such Act is amended by add18 ing at the end the following new item:

‘‘Sec. 42. Limitations on off-shore performance of contracts.’’.

19 (b) INAPPLICABILITY TO STATES DURING FIRST TWO

20 FISCAL YEARS.—Section 42(c) of the Office of Federal Pro21 curement Policy Act (as added by subsection (a)) shall not

22 apply to disbursements of funds to a State during the fiscal

23 year in which this Act is enacted and the next fiscal year.
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1 SEC. 502. REPEAL OF SUPERSEDED LAW.

2 Section 647 of the Transportation, Treasury, and

3 Independent Agencies Appropriations Act, 2004 (division

4 F of Public Law 108–199) is amended by striking sub5 section (e).

6 SEC. 503. EFFECTIVE DATE AND APPLICABILITY.

7 (a) IN GENERAL.—This title and the amendments

8 made by this title shall take effect 30 days after the Sec9 retary of Commerce certifies that the amendments made by

10 this title will not result in the loss of more jobs than it

11 will protect and will not cause harm to the United States

12 economy. The initial certification shall be made by the Sec13 retary of Commerce no later than 90 days after the enact14 ment of this Act. Such certification must be renewed on or

15 before January 1 of each year in order for the amendments

16 made by this title to be in effect for that year.

17 (b) CONSISTENCY WITH INTERNATIONAL AGREE18 MENTS.—The provisions of this title shall not apply to the

19 extent that they may be inconsistent with obligations under

20 international agreements. Within 90 days of this legisla21 tion, the Office of Management and Budget, in consultation

22 with the Office of the United States Trade Representative,

23 shall develop guidelines for the implementation of this pro24 vision.
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1 TITLE VI—OTHER PROVISIONS

2 Subtitle A—Provisions Relating to

3 Housing

4 SEC. 601. TREATMENT OF QUALIFIED MORTGAGE BONDS.

5 (a) YEAR HOLIDAY.—Section 143(a)(2)(A)(iv) of the

6 Internal Revenue Code of 1986 shall not apply to amounts

7 received during the 1-year period beginning on the date of

8 the enactment of this Act with respect to any bond out9 standing on such date.

10 (b) REPEAL OF REQUIRED USE OF CERTAIN PRIN11 CIPAL REPAYMENTS ON MORTGAGE SUBSIDY BOND

12 FINANCINGS TO REDEEM BONDS.—

13 (1) IN GENERAL.—Subparagraph (A) of section

14 143(a)(2) (defining qualified mortgage issue) is

15 amended by adding ‘‘and’’ at the end of clause (ii),

16 by striking ‘‘, and’’ at the end of clause (iii) and in17 serting a period, and by striking clause (iv) and the

18 last sentence.

19 (2) CONFORMING AMENDMENT.—Clause (ii) of

20 section 143(a)(2)(D) is amended by striking ‘‘(and

21 clause (iv) of subparagraph (A))’’.

22 (3) EFFECTIVE DATE.—The amendments made

23 by this subsection shall apply to bonds originally

24 issued after the date of the enactment of this Act.
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1 SEC. 602. PREMIUMS FOR MORTGAGE INSURANCE.

2 (a) IN GENERAL.—Paragraph (3) of section 163(h)

3 (relating to qualified residence interest) is amended by add4 ing after subparagraph (D) the following new subpara5 graph:

6 ‘‘(E) MORTGAGE INSURANCE PREMIUMS

7 TREATED AS INTEREST.—

8 ‘‘(i) IN GENERAL.—Premiums paid or

9 accrued for qualified mortgage insurance by

10 a taxpayer during the taxable year in con11 nection with acquisition indebtedness with

12 respect to a qualified residence of the tax13 payer shall be treated for purposes of this

14 subsection as qualified residence interest.

15 ‘‘(ii) PHASEOUT.—The amount other16 wise allowable as a deduction under clause

17 (i) shall be reduced (but not below zero) by

18 10 percent of such amount for each $1,000

19 ($500 in the case of a married individual

20 filing a separate return) (or fraction there21 of) that the taxpayer’s adjusted gross in22 come for the taxable year exceeds $100,000

23 ($50,000 in the case of a married indi24 vidual filing a separate return).’’.

25 (b) DEFINITION AND SPECIAL RULES.—Paragraph (4)

26 of section 163(h) (relating to other definitions and special
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1 rules) is amended by adding at the end the following new

2 subparagraphs:

3 ‘‘(E) QUALIFIED MORTGAGE INSURANCE.—

4 The term ‘qualified mortgage insurance’

5 means—

6 ‘‘(i) the Home Loan Guaranty Pro7 gram of the Department of Veterans Affairs,

8 and mortgage insurance provided by the

9 Federal Housing Administration or the

10 Rural Housing Administration, and

11 ‘‘(ii) private mortgage insurance (as

12 defined by section 2 of the Homeowners

13 Protection Act of 1998 (12 U.S.C. 4901), as

14 in effect on the date of the enactment of this

15 subparagraph).

16 ‘‘(F) SPECIAL RULES FOR PREPAID QUALI17 FIED MORTGAGE INSURANCE.—Any amount paid

18 by the taxpayer for qualified mortgage insurance

19 that is properly allocable to any mortgage the

20 payment of which extends to periods that are

21 after the close of the taxable year in which such

22 amount is paid shall be chargeable to capital ac23 count and shall be treated as paid in such peri24 ods to which so allocated. No deduction shall be

25 allowed for the unamortized balance of such ac-
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1 count if such mortgage is satisfied before the end

2 of its term. The preceding sentences shall not

3 apply to amounts paid for qualified mortgage

4 insurance provided by the Department of Vet5 erans Affairs or the Rural Housing Administra6 tion.’’.

7 (c) INFORMATION RETURNS RELATING TO MORTGAGE

8 INSURANCE.—Section 6050H (relating to returns relating

9 to mortgage interest received in trade or business from indi10 viduals) is amended by adding at the end the following new

11 subsection:

12 ‘‘(h) RETURNS RELATING TO MORTGAGE INSURANCE

13 PREMIUMS.—

14 ‘‘(1) IN GENERAL.—The Secretary may pre15 scribe, by regulations, that any person who, in the

16 course of a trade or business, receives from any indi17 vidual premiums for mortgage insurance aggregating

18 $600 or more for any calendar year, shall make a re19 turn with respect to each such individual. Such re20 turn shall be in such form, shall be made at such

21 time, and shall contain such information as the Sec22 retary may prescribe.

23 ‘‘(2) STATEMENT TO BE FURNISHED TO INDIVID24 UALS WITH RESPECT TO WHOM INFORMATION IS RE25 QUIRED.—Every person required to make a return
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1 under paragraph (1) shall furnish to each individual

2 with respect to whom a return is made a written

3 statement showing such information as the Secretary

4 may prescribe. Such written statement shall be fur5 nished on or before January 31 of the year following

6 the calendar year for which the return under para7 graph (1) was required to be made.

8 ‘‘(3) SPECIAL RULES.—For purposes of this

9 subsection—

10 ‘‘(A) rules similar to the rules of subsection

11 (c) shall apply, and

12 ‘‘(B) the term ‘mortgage insurance’

13 means—

14 ‘‘(i) the Home Loan Guaranty Pro15 gram of the Department of Veterans Affairs,

16 and mortgage insurance provided by the

17 Federal Housing Administration or the

18 Rural Housing Administration, and

19 ‘‘(ii) private mortgage insurance (as

20 defined by section 2 of the Homeowners

21 Protection Act of 1998 (12 U.S.C. 4901), as

22 in effect on the date of the enactment of this

23 subparagraph).’’.

24 (d) EFFECTIVE DATE.—The amendments made by this

25 section shall apply to amounts paid or accrued in taxable
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1 years beginning after December 31, 2004, and ending before

2 January 1, 2006.

3 SEC. 603. INCREASE IN HISTORIC REHABILITATION CREDIT

4 FOR CERTAIN LOW-INCOME HOUSING FOR

5 THE ELDERLY.

6 (a) IN GENERAL.—Section 47 (relating to rehabilita7 tion credit) is amended by adding at the end the following

8 new subsection:

9 ‘‘(e) SPECIAL RULE REGARDING CERTAIN HISTORIC

10 STRUCTURES.—In the case of any qualified rehabilitation

11 expenditure with respect to any certified historic

12 structure—

13 ‘‘(1) which is placed in service after the date of

14 the enactment of this subsection,

15 ‘‘(2) which is part of a qualified low-income

16 building with respect to which a credit under section

17 42 is allowed, and

18 ‘‘(3) substantially all of the residential rental

19 units of which are used for tenants who have attained

20 the age of 65,

21 subsection (a)(2) shall be applied by substituting ‘25 per22 cent’ for ‘20 percent’.’’.

23 (b) APPLICATION OF MACRS.—The Internal Revenue

24 Code of 1986 shall be applied and administered as if para25 graph (4)(X) of section 251(d) of the Tax Reform Act of
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1 1986 as applied to the amendments made by section 201

2 of such Act had not been enacted with respect to any prop3 erty described in such paragraph and placed in service after

4 the date of the enactment of this Act.

5 (c) EFFECTIVE DATE.—The amendment made by sub6 section (a) shall apply to property placed in service after

7 the date of the enactment of this Act.

8 Subtitle B—Provisions Relating to

9 Bonds

10 SEC. 611. EXPANSION OF NEW YORK LIBERTY ZONE TAX

11 BENEFITS.

12 (a) ADDITIONAL EXTENSION OF TAX-EXEMPT BOND

13 FINANCING.—Section 1400L(d)(2)(D), as amended by this

14 Act, is amended by striking ‘‘2006’’ and inserting ‘‘2010’’.

15 (b) EXTENSION OF ADVANCE REFUNDINGS.—Section

16 1400L(e)(1) is amended by striking ‘‘2005’’ and inserting

17 ‘‘2006’’.

18 SEC. 612. MODIFICATIONS OF TREATMENT OF QUALIFIED

19 ZONE ACADEMY BONDS.

20 (a) PROCEEDS OF BONDS MAY BE USED FOR CON21 STRUCTION AND LAND ACQUISITION.—Paragraph (5) of

22 section 1397E(d) (defining qualified purpose) is amended—

23 (1) by striking ‘‘rehabilitating or repairing’’ in

24 subparagraph (A) and inserting ‘‘constructing, reha25 bilitating, or repairing’’, and
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1 (2) by redesignating subparagraphs (B), (C),

2 and (D) as subparagraphs (C), (D), and (E), respec3 tively, and by inserting after subparagraph (A) the

4 following:

5 ‘‘(B) acquiring the land on which the facil6 ity is to be constructed,’’.

7 (b) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to obligations issued after December 31,

9 2003.

10 SEC. 613. MODIFICATIONS OF AUTHORITY OF INDIAN TRIB11 AL GOVERNMENTS TO ISSUE TAX-EXEMPT

12 BONDS.

13 (a) IN GENERAL.—Paragraph (1) of section 7871(c)

14 (relating to Indian tribal governments treated as States for

15 certain purposes) is amended to read as follows:

16 ‘‘(1) IN GENERAL.—Subsection (a) of section 103

17 shall apply to any obligation issued by an Indian

18 tribal government (or subdivision thereof) only if—

19 ‘‘(A) such obligation—

20 ‘‘(i) is part of an issue 95 percent or

21 more of the net proceeds of which are to be

22 used to finance any facility located on an

23 Indian reservation, and

24 ‘‘(ii) is issued before January 1, 2006,

25 or
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1 ‘‘(B) such obligation is part of an issue sub2 stantially all of the proceeds of which are to be

3 used in the exercise of any essential govern4 mental function.’’.

5 (b) SPECIAL RULES AND DEFINITIONS.—Subsection

6 (c) of section 7871 is amended by inserting at the end the

7 following new paragraph:

8 ‘‘(4) SPECIAL RULES AND DEFINITIONS.—

9 ‘‘(A) EXCLUSION OF GAMING.—An obliga10 tion described in subparagraph (A) or (B) of

11 paragraph (1) may not be used to finance any

12 portion of a building in which class II or III

13 gaming (as defined in section 4 of the Indian

14 Gaming Regulatory Act (25 U.S.C. 2702)) is

15 conducted or housed.

16 ‘‘(B) INDIAN RESERVATION.—For purposes

17 of paragraph (1), the term ‘Indian reservation’

18 means—

19 ‘‘(i) a reservation, as defined in section

20 4(10) of the Indian Child Welfare Act of

21 1978 (25 U.S.C. 1903(10)), and

22 ‘‘(ii) lands held under the provisions of

23 the Alaska Native Claims Settlement Act

24 (43 U.S.C. 1601 et seq.) by a Native cor-
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1 poration as defined in section 3(m) of such

2 Act (43 U.S.C. 1602(m)).’’.

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

4 section shall apply to obligations issued after the date of

5 the enactment of this Act.

6 SEC. 614. DEFINITION OF MANUFACTURING FACILITY FOR

7 SMALL ISSUE BONDS.

8 (a) IN GENERAL.—Section 144(a)(12) (relating to ter9 mination dates) is amended by striking subparagraph (C)

10 and inserting the following new subparagraphs:

11 ‘‘(C) MANUFACTURING FACILITY.—For pur12 poses of this paragraph, the term ‘manufacturing

13 facility’ means any facility which is used in—

14 ‘‘(i) the manufacture of tangible per15 sonal property (including processing which

16 results in a change in the condition of such

17 property),

18 ‘‘(ii) the manufacture or development

19 of any software product or process if—

20 ‘‘(I) it takes more than 6 months

21 to manufacture or develop such prod22 uct,

23 ‘‘(II) the manufacture or develop24 ment could not with due diligence be
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1 reasonably expected to occur in less

2 than 6 months, and

3 ‘‘(III) the software product or

4 process comprises programs, routines,

5 and attendant documentation devel6 oped and maintained for use in com7 puter and telecommunications tech8 nology, or

9 ‘‘(iii) the manufacture or development

10 of any biobased product or bioenergy if—

11 ‘‘(I) it takes more than 6 months

12 to manufacture or develop, and

13 ‘‘(II) the manufacture or develop14 ment could not with due diligence be

15 reasonably expected to occur in less

16 than 6 months.

17 ‘‘(D) RELATED FACILITIES.—For purposes

18 of subparagraph (C), the term ‘manufacturing

19 facility’ includes a facility which is directly and

20 functionally related to a manufacturing facility

21 (determined without regard to subparagraph

22 (C)) if—

23 ‘‘(i) such facility, including an office

24 facility and a research and development fa-
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1 cility, is located on the same site as the

2 manufacturing facility, and

3 ‘‘(ii) not more than 40 percent of the

4 net proceeds of the issue are used to provide

5 such facility.

6 ‘‘(E) OTHER DEFINITIONS.—For purposes

7 of subparagraph (C)(iii)—

8 ‘‘(i) BIOBASED PRODUCT.—The term

9 ‘biobased product’ means a commercial or

10 industrial product (other than food or feed)

11 which utilizes biological products or renew12 able domestic agricultural (plant, animal,

13 and marine) or forestry materials.

14 ‘‘(ii) BIOENERGY.—The term ‘bio15 energy’ means biomass used in the produc16 tion of energy, including liquid, solid, or

17 gaseous fuels, electricity, and heat.’’.

18 (b) EFFECTIVE DATE.—The amendment made by this

19 section shall apply to obligations issued after the date of

20 the enactment of this Act.

21 SEC. 615. CONSERVATION BONDS.

22 (a) TAX-EXEMPT BOND FINANCING.—

23 (1) IN GENERAL.—For purposes of the Internal

24 Revenue Code of 1986, any qualified forest conserva-
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1 tion bond shall be treated as an exempt facility bond

2 under section 142 of such Code.

3 (2) QUALIFIED FOREST CONSERVATION BOND.—

4 For purposes of this section, the term ‘‘qualified forest

5 conservation bond’’ means any bond issued as part of

6 an issue if—

7 (A) 95 percent or more of the net proceeds

8 (as defined in section 150(a)(3) of such Code) of

9 such issue are to be used for qualified project

10 costs,

11 (B) such bond is issued for a qualified orga12 nization, and

13 (C) such bond is issued before December 31,

14 2006.

15 (3) LIMITATION ON AGGREGATE AMOUNT

16 ISSUED.—

17 (A) IN GENERAL.—The maximum aggregate

18 face amount of bonds which may be issued under

19 this subsection shall not exceed $1,500,000,000

20 for all projects (excluding refunding bonds).

21 (B) ALLOCATION OF LIMITATION.—The lim22 itation described in subparagraph (A) shall be

23 allocated by the Secretary of the Treasury among

24 qualified organizations based on criteria estab25 lished by the Secretary not later than 180 days
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1 after the date of the enactment of this section,

2 after consultation with the Chief of the Forest

3 Service.

4 (4) QUALIFIED PROJECT COSTS.—For purposes

5 of this subsection, the term ‘‘qualified project costs’’

6 means the sum of—

7 (A) the cost of acquisition by the qualified

8 organization from an unrelated person of forests

9 and forest land which at the time of acquisition

10 or immediately thereafter are subject to a con11 servation restriction described in subsection

12 (c)(2),

13 (B) capitalized interest on the qualified for14 est conservation bonds for the 3-year period be15 ginning on the date of issuance of such bonds,

16 and

17 (C) credit enhancement fees which constitute

18 qualified guarantee fees (within the meaning of

19 section 148 of such Code).

20 (5) SPECIAL RULES.—In applying the Internal

21 Revenue Code of 1986 to any qualified forest con22 servation bond, the following modifications shall

23 apply:

24 (A) Section 146 of such Code (relating to

25 volume cap) shall not apply.
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1 (B) For purposes of section 147(b) of such

2 Code (relating to maturity may not exceed 120

3 percent of economic life), the land and standing

4 timber acquired with proceeds of qualified forest

5 conservation bonds shall have an economic life of

6 35 years.

7 (C) Subsections (c) and (d) of section 147

8 of such Code (relating to limitations on acquisi9 tion of land and existing property) shall not

10 apply.

11 (D) Section 57(a)(5) of such Code (relating

12 to tax-exempt interest) shall not apply to interest

13 on qualified forest conservation bonds.

14 (6) TREATMENT OF CURRENT REFUNDING

15 BONDS.—Paragraphs (2)(C) and (3) shall not apply

16 to any bond (or series of bonds) issued to refund a

17 qualified forest conservation bond issued before De18 cember 31, 2006, if—

19 (A) the average maturity date of the issue

20 of which the refunding bond is a part is not later

21 than the average maturity date of the bonds to

22 be refunded by such issue,

23 (B) the amount of the refunding bond does

24 not exceed the outstanding amount of the re25 funded bond, and
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1 (C) the net proceeds of the refunding bond

2 are used to redeem the refunded bond not later

3 than 90 days after the date of the issuance of the

4 refunding bond.

5 For purposes of subparagraph (A), average maturity

6 shall be determined in accordance with section

7 147(b)(2)(A) of such Code.

8 (7) EFFECTIVE DATE.—This subsection shall

9 apply to obligations issued on or after the date which

10 is 180 days after the enactment of this Act.

11 (b) ITEMS FROM QUALIFIED HARVESTING ACTIVITIES

12 NOT SUBJECT TO TAX OR TAKEN INTO ACCOUNT.—

13 (1) IN GENERAL.—Income, gains, deductions,

14 losses, or credits from a qualified harvesting activity

15 conducted by a qualified organization shall not be

16 subject to tax or taken into account under subtitle A

17 of the Internal Revenue Code of 1986.

18 (2) LIMITATION.—The amount of income ex19 cluded from gross income under paragraph (1) for

20 any taxable year shall not exceed the amount used by

21 the qualified organization to make debt service pay22 ments during such taxable year for qualified forest

23 conservation bonds.

24 (3) QUALIFIED HARVESTING ACTIVITY.—For

25 purposes of paragraph (1)—
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1 (A) IN GENERAL.—The term ‘‘qualified har2 vesting activity’’ means the sale, lease, or har3 vesting, of standing timber—

4 (i) on land owned by a qualified orga5 nization which was acquired with proceeds

6 of qualified forest conservation bonds,

7 (ii) with respect to which a written ac8 knowledgement has been obtained by the

9 qualified organization from the State or

10 local governments with jurisdiction over

11 such land that the acquisition lessens the

12 burdens of such government with respect to

13 such land, and

14 (iii) pursuant to a qualified conserva15 tion plan adopted by the qualified organiza16 tion.

17 (B) EXCEPTIONS.—

18 (i) CESSATION AS QUALIFIED ORGANI19 ZATION.—The term ‘‘qualified harvesting

20 activity’’ shall not include any sale, lease,

21 or harvesting for any period during which

22 the organization ceases to qualify as a

23 qualified organization.

24 (ii) EXCEEDING LIMITS ON HAR25 VESTING.—The term ‘‘qualified harvesting
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1 activity’’ shall not include any sale, lease,

2 or harvesting of standing timber on land

3 acquired with proceeds of qualified forest

4 conservation bonds to the extent that—

5 (I) the average annual area of

6 timber harvested from such land ex7 ceeds 2.5 percent of the total area of

8 such land or,

9 (II) the quantity of timber re10 moved from such land exceeds the

11 quantity which can be removed from

12 such land annually in perpetuity on a

13 sustained-yield basis with respect to

14 such land.

15 The limitations under subclauses (I) and

16 (II) shall not apply to post-fire restoration

17 and rehabilitation or sanitation harvesting

18 of timber stands which are substantially

19 damaged by fire, windthrow, or other catas20 trophes, or which are in imminent danger

21 from insect or disease attack.

22 (4) TERMINATION.—This subsection shall not

23 apply to any qualified harvesting activity of a quali24 fied organization occurring after the date on which

25 there is no outstanding qualified forest conservation
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1 bond with respect to such qualified organization or

2 any such bond ceases to be a tax-exempt bond.

3 (5) PARTIAL RECAPTURE OF BENEFITS IF HAR4 VESTING LIMIT EXCEEDED.—If, as of the date that

5 this subsection ceases to apply under paragraph (3),

6 the average annual area of timber harvested from the

7 land exceeds the requirement of paragraph

8 (3)(B)(ii)(I), the tax imposed by chapter 1 of the In9 ternal Revenue Code of 1986 shall be increased, under

10 rules prescribed by the Secretary of the Treasury, by

11 the sum of the tax benefits attributable to such excess

12 and interest at the underpayment rate under section

13 6621 of such Code for the period of the underpayment.

14 (c) DEFINITIONS.—For purposes of this section—

15 (1) QUALIFIED CONSERVATION PLAN.—The term

16 ‘‘qualified conservation plan’’ means a multiple land

17 use program or plan which—

18 (A) is designed and administered primarily

19 for the purposes of protecting and enhancing

20 wildlife and fish, timber, scenic attributes, recre21 ation, and soil and water quality of the forest

22 and forest land,

23 (B) mandates that conservation of forest

24 and forest land is the single-most significant use

25 of the forest and forest land, and
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1 (C) requires that timber harvesting be con2 sistent with—

3 (i) restoring and maintaining reference

4 conditions for the region’s ecotype,

5 (ii) restoring and maintaining a rep6 resentative sample of young, mid, and late

7 successional forest age classes,

8 (iii) maintaining or restoring the re9 sources’ ecological health for purposes of

10 preventing damage from fire, insect, or dis11 ease,

12 (iv) maintaining or enhancing wildlife

13 or fish habitat, or

14 (v) enhancing research opportunities

15 in sustainable renewable resource uses.

16 (2) CONSERVATION RESTRICTION.—The conserva17 tion restriction described in this paragraph is a re18 striction which—

19 (A) is granted in perpetuity to an unrelated

20 person which is described in section 170(h)(3) of

21 such Code and which, in the case of a nongovern22 mental unit, is organized and operated for con23 servation purposes,

24 (B) meets the requirements of clause (ii) or

25 (iii)(II) of section 170(h)(4)(A) of such Code,
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1 (C) obligates the qualified organization to

2 pay the costs incurred by the holder of the con3 servation restriction in monitoring compliance

4 with such restriction, and

5 (D) requires an increasing level of conserva6 tion benefits to be provided whenever cir7 cumstances allow it.

8 (3) QUALIFIED ORGANIZATION.—The term

9 ‘‘qualified organization’’ means an organization—

10 (A) which is a nonprofit organization sub11 stantially all the activities of which are chari12 table, scientific, or educational, including ac13 quiring, protecting, restoring, managing, and de14 veloping forest lands and other renewable re15 sources for the long-term charitable, educational,

16 scientific and public benefit,

17 (B) more than half of the value of the prop18 erty of which consists of forests and forest land

19 acquired with the proceeds from qualified forest

20 conservation bonds,

21 (C) which periodically conducts educational

22 programs designed to inform the public of envi23 ronmentally sensitive forestry management and

24 conservation techniques,
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1 (D) which has at all times a board of

2 directors—

3 (i) at least 20 percent of the members

4 of which represent the holders of the con5 servation restriction described in paragraph

6 (2),

7 (ii) at least 20 percent of the members

8 of which are public officials, and

9 (iii) not more than one-third of the

10 members of which are individuals who are

11 or were at any time within 5 years before

12 the beginning of a term of membership on

13 the board, an employee of, independent con14 tractor with respect to, officer of, director of,

15 or held a material financial interest in, a

16 commercial forest products enterprise with

17 which the qualified organization has a con18 tractual or other financial arrangement,

19 (E) the bylaws of which require at least

20 two-thirds of the members of the board of direc21 tors to vote affirmatively to approve the qualified

22 conservation plan and any change thereto, and

23 (F) upon dissolution, is required to dedicate

24 its assets to—
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1 (i) an organization described in section

2 501(c)(3) of such Code which is organized

3 and operated for conservation purposes, or

4 (ii) a governmental unit described in

5 section 170(c)(1) of such Code.

6 (4) UNRELATED PERSON.—The term ‘‘unrelated

7 person’’ means a person who is not a related person.

8 (5) RELATED PERSON.—A person shall be treat9 ed as related to another person if—

10 (A) such person bears a relationship to such

11 other person described in section 267(b) (deter12 mined without regard to paragraph (9) thereof),

13 or 707(b)(1), of such Code, determined by sub14 stituting ‘‘25 percent’’ for ‘‘50 percent’’ each

15 place it appears therein, and

16 (B) in the case such other person is a non17 profit organization, if such person controls di18 rectly or indirectly more than 25 percent of the

19 governing body of such organization.

20 SEC. 616. INDIAN SCHOOL CONSTRUCTION.

21 (a) DEFINITIONS.—In this section:

22 (1) BUREAU.—The term ‘‘Bureau’’ means the

23 Bureau of Indian Affairs of the Department.

24 (2) DEPARTMENT.—The term ‘‘Department’’

25 means the Department of the Interior.
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1 (3) ESCROW ACCOUNT.—The term ‘‘escrow ac2 count’’ means the tribal school modernization escrow

3 account established under subsection (b)(6)(B)(i).

4 (4) INDIAN.—The term ‘‘Indian’’ means any in5 dividual who is a member of an Indian tribe.

6 (5) INDIAN TRIBE.—

7 (A) IN GENERAL.—The term ‘‘Indian tribe’’

8 has the meaning given the term ‘‘Indian tribal

9 government’’ by section 7701(a)(40) of the Inter10 nal Revenue Code of 1986 (including the appli11 cation of section 7871(d) of that Code).

12 (B) INCLUSION.—The term ‘‘Indian tribe’’

13 includes a consortium of Indian tribes approved

14 by the Secretary.

15 (6) SECRETARY.—The term ‘‘Secretary’’ means

16 the Secretary of the Interior.

17 (7) TRIBAL SCHOOL.—The term ‘‘tribal school’’

18 means an elementary school, secondary school, or dor19 mitory that—

20 (A) is operated by a tribal organization or

21 the Bureau for the education of Indian children;

22 and

23 (B) under a contract, a grant, or an agree24 ment, or for a Bureau-operated school, receives
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1 financial assistance to pay the costs of operation

2 from funds made available under—

3 (i) section 102, 103(a), or 208 of the

4 Indian Self-Determination and Education

5 Assistance Act (25 U.S.C. 450f, 450h(a),

6 458d); or

7 (ii) the Tribally Controlled Schools Act

8 of 1988 (25 U.S.C. 2501 et seq.).

9 (b) ISSUANCE OF BONDS.—

10 (1) IN GENERAL.—The Secretary shall establish

11 a pilot program under which eligible Indian tribes

12 may issue qualified tribal school modernization bonds

13 to provide funding for the construction, rehabilita14 tion, or repair of tribal schools (including the advance

15 planning and design of tribal schools).

16 (2) ELIGIBILITY.—

17 (A) IN GENERAL.—To be eligible to issue

18 any qualified tribal school modernization bond

19 under the program under paragraph (1), an In20 dian tribe shall—

21 (i) prepare and submit to the Sec22 retary a plan of construction that meets the

23 requirements of subparagraph (B);

24 (ii) provide for quarterly and final in25 spection of the project by the Bureau; and
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1 (iii) pledge that the facilities financed

2 by the bond will be used primarily for ele3 mentary and secondary educational pur4 poses for not less than the period during

5 which the bond remains outstanding.

6 (B) PLAN OF CONSTRUCTION.—A plan of

7 construction referred to in subparagraph (A)(i)

8 meets the requirements of this subparagraph if

9 the plan—

10 (i) contains a description of the con11 struction to be carried out with funding

12 provided under a qualified tribal school

13 modernization bond;

14 (ii) demonstrates that a comprehensive

15 survey has been completed to determine the

16 construction needs of the tribal school in17 volved;

18 (iii) contains assurances that funding

19 under the bond will be used only for the ac20 tivities described in the plan;

21 (iv) contains a response to the evalua22 tion criteria contained in Instructions and

23 Application for Replacement School Con24 struction, Revision 6, dated February 6,

25 1999; and
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1 (v) contains any other reasonable and

2 related information determined to be appro3 priate by the Secretary.

4 (C) PRIORITY.—In determining whether an

5 Indian tribe is eligible to participate in the pro6 gram under this subsection, the Secretary shall

7 give priority to an Indian tribe that, as dem8 onstrated by the relevant plans of construction,

9 will fund projects—

10 (i) described in the Education Facili11 ties Replacement Construction Priorities

12 List, as of fiscal year 2000, of the Bureau

13 (65 Fed. Reg. 4623);

14 (ii) described in any subsequent prior15 ities list published in the Federal Register;

16 or

17 (iii) that meet the criteria for ranking

18 schools as described in Instructions and Ap19 plication for Replacement School Construc20 tion, Revision 6, dated February 6, 1999.

21 (D) ADVANCE PLANNING AND DESIGN FUND22 ING.—

23 (i) IN GENERAL.—An Indian tribe

24 may propose in the plan of construction of

25 the Indian tribe to receive advance plan-
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1 ning and design funding from the escrow

2 account.

3 (ii) CONDITIONS ON ALLOCATION OF

4 FUNDS.—As a condition to the allocation to

5 an Indian tribe of advance planning and

6 design funds from the escrow account under

7 clause (i), the Indian tribe shall agree—

8 (I) to issue qualified tribal school

9 modernization bonds after the date of

10 receipt of the funds; and

11 (II) as a condition of each bond

12 issuance, that the Indian tribe will de13 posit into the escrow account, or a

14 fund managed by the trustee as de15 scribed in paragraph (4)(C), an

16 amount equal to the amount of funds

17 received from the escrow account.

18 (3) PERMISSIBLE ACTIVITIES.—In addition to

19 the use of funds permitted under paragraph (1), an

20 Indian tribe may use amounts received through the

21 issuance of a qualified tribal school modernization

22 bond—

23 (A) to enter into and make payments under

24 contracts with licensed and bonded architects,

25 engineers, and construction firms—
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1 (i) to determine the needs of the tribal

2 school; and

3 (ii) for the design and engineering of

4 the tribal school;

5 (B) enter into and make payments under

6 contracts with financial advisers, underwriters,

7 attorneys, trustees, and other professionals who

8 would be able to provide assistance to the Indian

9 tribe in issuing bonds; and

10 (C) carry out other activities determined to

11 be appropriate by the Secretary.

12 (4) BOND TRUSTEE.—

13 (A) IN GENERAL.—Notwithstanding any

14 other provision of law, any qualified tribal

15 school modernization bond issued by an Indian

16 tribe under this subsection shall be subject to a

17 trust agreement between the Indian tribe and a

18 trustee.

19 (B) TRUSTEE.—Any bank or trust company

20 that meets requirements established by the Sec21 retary may be designated as a trustee under sub22 paragraph (A).

23 (C) CONTENT OF TRUST AGREEMENT.—A

24 trust agreement entered into by an Indian tribe

25 under this paragraph shall specify that the trust-
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1 ee, with respect to any bond issued under this

2 subsection, shall—

3 (i) act as a repository for the proceeds

4 of the bond;

5 (ii) make payments to bondholders;

6 (iii) receive, as a condition to the

7 issuance of the bond, a transfer of funds

8 from the escrow account, or from other

9 funds furnished by or on behalf of the In10 dian tribe, in an amount that (including

11 interest earnings from the investment of the

12 funds in obligations of, or fully guaranteed

13 by, the United States, or from other invest14 ments authorized by paragraph (10)) will

15 produce funds sufficient to timely pay in

16 full the entire principal amount of the bond

17 on the stated maturity date of the bond;

18 (iv) invest the funds transferred under

19 clause (iii) in an investment described in

20 that clause; and

21 (v)(I) hold and invest the funds trans22 ferred under clause (iii) in a segregated

23 fund or account under the agreement; and
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1 (II) use the fund or account solely for

2 payment of the costs of items described in

3 paragraph (3).

4 (D) REQUIREMENTS FOR MAKING DIRECT

5 PAYMENTS.—

6 (i) PAYMENTS.—

7 (I) IN GENERAL.—Notwith8 standing any other provision of law,

9 the trustee shall make any payment re10 ferred to in subparagraph (C)(v) in ac11 cordance with such requirements as the

12 Indian tribe shall prescribe in the trust

13 agreement entered into under subpara14 graph (C).

15 (II) INSPECTION.—Before making

16 a payment for a project to a contractor

17 under subparagraph (C)(v), to ensure

18 completion of the project, the trustee

19 shall require an inspection of the

20 project by—

21 (aa) a local financial institu22 tion; or

23 (bb) an independent inspect24 ing architect or engineer.
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1 (ii) CONTRACTS.—Each contract re2 ferred to in paragraph (3) shall specify, or

3 be renegotiated to specify, that payments

4 under the contract shall be made in accord5 ance with this paragraph.

6 (5) PAYMENTS OF PRINCIPAL AND INTEREST.—

7 (A) PRINCIPAL.—

8 (i) IN GENERAL.—No principal pay9 ment on any qualified tribal school mod10 ernization bond shall be required under this

11 subsection until the final, stated date on

12 which the bond reaches maturity.

13 (ii) MATURITY; OUTSTANDING PRIN14 CIPAL.—With respect to a qualified tribal

15 school modernization bond issued under this

16 subsection—

17 (I) the bond shall reach maturity

18 not later than 15 years after the date

19 of issuance of the bond; and

20 (II) on the date on which the bond

21 reaches maturity, the entire out22 standing principal under the bond

23 shall become due and payable.

24 (B) INTEREST.—There shall be awarded a

25 tax credit under section 1400M of the Internal
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1 Revenue Code of 1986 in lieu of interest on a

2 qualified tribal school modernization bond issued

3 under this subsection.

4 (6) BOND GUARANTEES.—

5 (A) IN GENERAL.—Payment of the prin6 cipal portion of a qualified tribal school mod7 ernization bond issued under this subsection

8 shall be guaranteed solely by amounts deposited

9 with each respective bond trustee as described in

10 paragraph (4)(C)(iii).

11 (B) ESTABLISHMENT OF ACCOUNT.—

12 (i) IN GENERAL.—Notwithstanding

13 any other provision of law, the Secretary

14 may—

15 (I) establish a tribal school mod16 ernization escrow account; and

17 (II) beginning in fiscal year 2005,

18 from amounts made available for

19 school replacement under the construc20 tion account of the Bureau, deposit not

21 more than $30,000,000 for each fiscal

22 year into the escrow account.

23 (ii) TRANSFERS OF EXCESS PRO24 CEEDS.—Excess proceeds held under any

25 trust agreement that are not needed for any
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1 of the purposes described in clauses (iii)

2 and (v) of paragraph (4)(C) shall be trans3 ferred, from time to time, by the trustee for

4 deposit into the escrow account.

5 (iii) PAYMENTS.—The Secretary shall

6 use any amounts deposited in the escrow ac7 count under clauses (i) and (ii)—

8 (I) to make payments to trustees

9 appointed and acting in accordance

10 with paragraph (4); or

11 (II) to make payments described

12 in paragraph (2)(D).

13 (7) LIMITATIONS.—

14 (A) OBLIGATION TO REPAY.—

15 (i) IN GENERAL.—Notwithstanding

16 any other provision of law, the principal

17 amount on any qualified tribal school mod18 ernization bond issued under this subsection

19 shall be repaid only to the extent of any

20 escrowed funds provided under paragraph

21 (4)(C)(iii).

22 (ii) NO GUARANTEE.—No qualified

23 tribal school modernization bond issued by

24 an Indian tribe under this subsection shall

25 be an obligation of, and no payment of the
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1 principal of such a bond shall be guaran2 teed by—

3 (I) the United States;

4 (II) the Indian tribe; or

5 (III) the tribal school for which

6 the bond was issued.

7 (B) LAND AND FACILITIES.—No land or fa8 cility purchased or improved with amounts de9 rived from a qualified tribal school moderniza10 tion bond issued under this subsection shall be

11 mortgaged or used as collateral for the bond.

12 (8) SALE OF BONDS.—A qualified tribal school

13 modernization bond may be sold at a purchase price

14 equal to, in excess of, or at a discount from, the par

15 amount of the bond.

16 (9) TREATMENT OF TRUST AGREEMENT EARN17 INGS.—No amount earned through the investment of

18 funds under the control of a trustee under any trust

19 agreement described in paragraph (4) shall be subject

20 to Federal income taxation.

21 (10) INVESTMENT OF SINKING FUNDS.—A sink22 ing fund established for the purpose of the payment

23 of principal on a qualified tribal school moderniza24 tion bond issued under this subsection shall be in25 vested in—
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1 (A) obligations issued by or guaranteed by

2 the United States; or

3 (B) such other assets as the Secretary of the

4 Treasury may by regulation allow.

5 (c) EXPANSION OF INCENTIVES FOR TRIBAL

6 SCHOOLS.—Chapter 1 is amended by adding at the end the

7 following new subchapter:

8 ‘‘Subchapter Z—Tribal School Modernization

9 Provisions

‘‘Sec. 1400M. Credit to holders of qualified tribal school modernization bonds.

10 ‘‘SEC. 1400M. CREDIT TO HOLDERS OF QUALIFIED TRIBAL

11 SCHOOL MODERNIZATION BONDS.

12 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax13 payer who holds a qualified tribal school modernization

14 bond on a credit allowance date of such bond which occurs

15 during the taxable year, there shall be allowed as a credit

16 against the tax imposed by this chapter for such taxable

17 year an amount equal to the sum of the credits determined

18 under subsection (b) with respect to credit allowance dates

19 during such year on which the taxpayer holds such bond.

20 ‘‘(b) AMOUNT OF CREDIT.—

21 ‘‘(1) IN GENERAL.—The amount of the credit de22 termined under this subsection with respect to any

23 credit allowance date for a qualified tribal school
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1 modernization bond is 25 percent of the annual credit

2 determined with respect to such bond.

3 ‘‘(2) ANNUAL CREDIT.—The annual credit deter4 mined with respect to any qualified tribal school

5 modernization bond is the product of—

6 ‘‘(A) the applicable credit rate, multiplied

7 by

8 ‘‘(B) the outstanding face amount of the

9 bond.

10 ‘‘(3) APPLICABLE CREDIT RATE.—For purposes

11 of paragraph (1), the applicable credit rate with re12 spect to an issue is the rate equal to an average mar13 ket yield (as of the date of sale of the issue) on out14 standing long-term corporate obligations (as deter15 mined by the Secretary).

16 ‘‘(4) SPECIAL RULE FOR ISSUANCE AND REDEMP17 TION.—In the case of a bond which is issued during

18 the 3-month period ending on a credit allowance date,

19 the amount of the credit determined under this sub20 section with respect to such credit allowance date

21 shall be a ratable portion of the credit otherwise deter22 mined based on the portion of the 3-month period

23 during which the bond is outstanding. A similar rule

24 shall apply when the bond is redeemed.

25 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—
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1 ‘‘(1) IN GENERAL.—The credit allowed under

2 subsection (a) for any taxable year shall not exceed

3 the excess of—

4 ‘‘(A) the sum of the regular tax liability (as

5 defined in section 26(b)) plus the tax imposed by

6 section 55, over

7 ‘‘(B) the sum of the credits allowable under

8 part IV of subchapter A (other than subpart C

9 thereof, relating to refundable credits).

10 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the

11 credit allowable under subsection (a) exceeds the limi12 tation imposed by paragraph (1) for such taxable

13 year, such excess shall be carried to the succeeding

14 taxable year and added to the credit allowable under

15 subsection (a) for such taxable year.

16 ‘‘(d) QUALIFIED TRIBAL SCHOOL MODERNIZATION

17 BOND; OTHER DEFINITIONS.—For purposes of this

18 section—

19 ‘‘(1) QUALIFIED TRIBAL SCHOOL MODERNIZA20 TION BOND.—

21 ‘‘(A) IN GENERAL.—The term ‘qualified

22 tribal school modernization bond’ means, subject

23 to subparagraph (B), any bond issued as part of

24 an issue under section 616(b) of the Jumpstart
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1 Our Business Strength (JOBS) Act, as in effect

2 on the date of the enactment of this section, if—

3 ‘‘(i) 95 percent or more of the proceeds

4 of such issue are to be used for the construc5 tion, rehabilitation, or repair of a school fa6 cility funded by the Bureau of Indian Af7 fairs of the Department of the Interior or

8 for the acquisition of land on which such a

9 facility is to be constructed with part of the

10 proceeds of such issue,

11 ‘‘(ii) the bond is issued by an Indian

12 tribe,

13 ‘‘(iii) the issuer designates such bond

14 for purposes of this section, and

15 ‘‘(iv) the term of each bond which is

16 part of such issue does not exceed 15 years.

17 ‘‘(B) NATIONAL LIMITATION ON AMOUNT OF

18 BONDS DESIGNATED.—

19 ‘‘(i) NATIONAL LIMITATION.—There is

20 a national qualified tribal school mod21 ernization bond limitation for each cal22 endar year. Such limitation is—

23 ‘‘(I) $200,000,000 for 2005,

24 ‘‘(II) $200,000,000 for 2006, and

25 ‘‘(III) zero after 2006.
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1 ‘‘(ii) ALLOCATION OF LIMITATION.—

2 The national qualified tribal school mod3 ernization bond limitation shall be allocated

4 to Indian tribes by the Secretary of the In5 terior subject to the provisions of section

6 616 of the Jumpstart Our Business

7 Strength (JOBS) Act, as in effect on the

8 date of the enactment of this section.

9 ‘‘(iii) DESIGNATION SUBJECT TO LIMI10 TATION AMOUNT.—The maximum aggregate

11 face amount of bonds issued during any cal12 endar year which may be designated under

13 subsection (d)(1) with respect to any Indian

14 tribe shall not exceed the limitation amount

15 allocated to such government under clause

16 (ii) for such calendar year.

17 ‘‘(iv) CARRYOVER OF UNUSED LIMITA18 TION.—If for any calendar year—

19 ‘‘(I) the limitation amount under

20 this subparagraph, exceeds

21 ‘‘(II) the amount of qualified trib22 al school modernization bonds issued

23 during such year,

24 the limitation amount under this subpara25 graph for the following calendar year shall
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1 be increased by the amount of such excess.

2 The preceding sentence shall not apply if

3 such following calendar year is after 2012.

4 ‘‘(2) CREDIT ALLOWANCE DATE.—The term

5 ‘credit allowance date’ means—

6 ‘‘(A) March 15,

7 ‘‘(B) June 15,

8 ‘‘(C) September 15, and

9 ‘‘(D) December 15.

10 Such term includes the last day on which the bond is

11 outstanding.

12 ‘‘(3) BOND.—The term ‘bond’ includes any obli13 gation.

14 ‘‘(4) TRIBE.—The term ‘tribe’ has the meaning

15 given the term ‘Indian tribal government’ by section

16 7701(a)(40), including the application of section

17 7871(d). Such term includes any consortium of tribes

18 approved by the Secretary of the Interior.

19 ‘‘(e) CREDIT INCLUDED IN GROSS INCOME.—Gross in20 come includes the amount of the credit allowed to the tax21 payer under this section (determined without regard to sub22 section (c)) and the amount so included shall be treated as

23 interest income.

24 ‘‘(f) BONDS HELD BY REGULATED INVESTMENT COM25 PANIES.—If any qualified tribal school modernization bond
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1 is held by a regulated investment company, the credit deter2 mined under subsection (a) shall be allowed to shareholders

3 of such company under procedures prescribed by the Sec4 retary.

5 ‘‘(g) TREATMENT FOR ESTIMATED TAX PURPOSES.—

6 Solely for purposes of sections 6654 and 6655, the credit

7 allowed by this section to a taxpayer by reason of holding

8 a qualified tribal school modernization bonds on a credit

9 allowance date shall be treated as if it were a payment of

10 estimated tax made by the taxpayer on such date.

11 ‘‘(h) CREDIT TREATED AS ALLOWED UNDER PART IV

12 OF SUBCHAPTER A.—For purposes of subtitle F, the credit

13 allowed by this section shall be treated as a credit allowable

14 under part IV of subchapter A of this chapter.

15 ‘‘(i) REPORTING.—Issuers of qualified tribal school

16 modernization bonds shall submit reports similar to the re17 ports required under section 149(e).’’.

18 (d) CONFORMING AMENDMENT.—The table of sub19 chapters for chapter 1 is amended by adding at the end

20 the following new item:

‘‘SUBCHAPTER Z. Tribal school modernization provisions.’’.

21 (e) ADDITIONAL PROVISIONS.—

22 (1) SOVEREIGN IMMUNITY.—This section and the

23 amendments made by this section shall not be con24 strued to impact, limit, or affect the sovereign immu-
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1 nity of the Federal Government or any State or tribal

2 government.

3 (2) APPLICATION.—This section and the amend4 ments made by this section shall take effect on the

5 date of the enactment of this Act with respect to bonds

6 issued after December 31, 2004, regardless of the sta7 tus of regulations promulgated thereunder.

8 Subtitle C—Provisions Relating to

9 Depreciation

10 SEC. 621. SPECIAL PLACED IN SERVICE RULE FOR BONUS

11 DEPRECIATION PROPERTY.

12 (a) IN GENERAL.—Section 168(k)(2)(D) (relating to

13 special rules) is amended by adding at the end the following

14 new clause:

15 ‘‘(iii) SYNDICATION.—For purposes of

16 subparagraph (A)(ii), if—

17 ‘‘(I) property is originally placed

18 in service after September 10, 2001, by

19 the lessor of such property,

20 ‘‘(II) such property is sold by

21 such lessor or any subsequent pur22 chaser within 3 months after the date

23 so placed in service (or, in the case of

24 multiple units of property subject to

25 the same lease, within 3 months after
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1 the date the final unit is placed in

2 service, so long as the period between

3 the time the first unit is placed in

4 service and the time the last unit is

5 placed in service does not exceed 12

6 months), and

7 ‘‘(III) the user of such property

8 after the last sale during such 3-month

9 period remains the same as when such

10 property was originally placed in serv11 ice,

12 such property shall be treated as originally

13 placed in service not earlier than the date

14 of such last sale, so long as no previous

15 owner of such property elects the applica16 tion of this subsection with respect to such

17 property.’’.

18 (b) EFFECTIVE DATE.—The amendment made by this

19 section shall apply to sales after the date of the enactment

20 of this Act.

21 SEC. 622. MODIFICATION OF DEPRECIATION ALLOWANCE

22 FOR AIRCRAFT.

23 (a) AIRCRAFT TREATED AS QUALIFIED PROPERTY.—

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

25 168(k) is amended by redesignating subparagraphs
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1 (C) through (F) as subparagraphs (D) through (G),

2 respectively, and by inserting after subparagraph (B)

3 the following new subparagraph:

4 ‘‘(C) CERTAIN AIRCRAFT.—The term ‘quali5 fied property’ includes property—

6 ‘‘(i) which meets the requirements of

7 clauses (ii) and (iii) of subparagraph (A),

8 ‘‘(ii) which is an aircraft which is not

9 a transportation property (as defined in

10 subparagraph (B)(iii)) other than for agri11 cultural or firefighting purposes,

12 ‘‘(iii) which is purchased and on which

13 such purchaser, at the time of the contract

14 for purchase, has made a nonrefundable de15 posit of the lesser of—

16 ‘‘(I) 10 percent of the cost, or

17 ‘‘(II) $100,000, and

18 ‘‘(iv) which has—

19 ‘‘(I) an estimated production pe20 riod exceeding 4 months, and

21 ‘‘(II) a cost exceeding $200,000.’’.

22 (2) PLACED IN SERVICE DATE.—Clause (iv) of

23 section 168(k)(2)(A) is amended by striking ‘‘sub24 paragraph (B)’’ and inserting ‘‘subparagraphs (B)

25 and (C)’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 168(k)(2)(B) is amended by adding

3 at the end the following new clause:

4 ‘‘(iv) APPLICATION OF SUBPARA5 GRAPH.—This subparagraph shall not

6 apply to any property which is described in

7 subparagraph (C).’’.

8 (2) Section 168(k)(4)(A)(ii) is amended by strik9 ing ‘‘paragraph (2)(C)’’ and inserting ‘‘paragraph

10 (2)(D)’’.

11 (3) Section 168(k)(4)(B)(iii) is amended by in12 serting ‘‘and paragraph (2)(C)’’ after ‘‘of this para13 graph)’’.

14 (4) Section 168(k)(4)(C) is amended by striking

15 ‘‘subparagraphs (B) and (D)’’ and inserting ‘‘sub16 paragraphs (B), (C), and (E)’’.

17 (5) Section 168(k)(4)(D) is amended by striking

18 ‘‘Paragraph (2)(E)’’ and inserting ‘‘Paragraph

19 (2)(F)’’.

20 (c) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to taxable years beginning after the date

22 of the enactment of this Act.
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1 SEC. 623. MODIFICATION OF CLASS LIFE FOR CERTAIN

2 TRACK FACILITIES.

3 (a) 7-YEAR PROPERTY.—Subparagraph (C) of section

4 168(e)(3) (relating to classification of certain property) is

5 amended by redesignating clause (ii) as clause (iii) and by

6 inserting after clause (i) the following new clause:

7 ‘‘(ii) any motorsports entertainment

8 complex, and’’.

9 (b) DEFINITION.—Section 168(i) (relating to defini10 tions and special rules) is amended by adding at the end

11 the following new paragraph:

12 ‘‘(15) MOTORSPORTS ENTERTAINMENT COM13 PLEX.—

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

15 entertainment complex’ means a racing track fa16 cility which—

17 ‘‘(i) is permanently situated on land,

18 and

19 ‘‘(ii) during the 36-month period fol20 lowing the first day of the month in which

21 the asset is placed in service, is scheduled to

22 host 1 or more racing events for automobiles

23 (of any type), trucks, or motorcycles which

24 are open to the public for the price of ad25 mission.
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1 ‘‘(B) ANCILLARY AND SUPPORT FACILI2 TIES.—Such term shall include, if owned by the

3 complex and provided for the benefit of patrons

4 of the complex—

5 ‘‘(i) ancillary grounds and facilities

6 and land improvements in support of the

7 complex’s activities (including parking lots,

8 sidewalks, waterways, bridges, fences, and

9 landscaping),

10 ‘‘(ii) support facilities (including food

11 and beverage retailing, souvenir vending,

12 and other nonlodging accommodations), and

13 ‘‘(iii) appurtenances associated with

14 such facilities and related attractions and

15 amusements (including ticket booths, race

16 track surfaces, suites and hospitality facili17 ties, grandstands and viewing structures,

18 props, walls, facilities that support the de19 livery of entertainment services, other spe20 cial purpose structures, facades, shop inte21 riors, and buildings).

22 ‘‘(C) EXCEPTION.—Such term shall not in23 clude any transportation equipment, administra24 tive services assets, warehouses, administrative

25 buildings, hotels, or motels.’’.
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1 (c) EFFECTIVE DATE.—

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

3 this section shall apply to any property placed in

4 service after the date of the enactment of this Act and

5 before January 1, 2008.

6 (2) NO INFERENCE.—Nothing in the amend7 ments made by this section shall be construed to affect

8 the treatment of expenses incurred on or before the

9 date of the enactment of this Act.

10 SEC. 624. MINIMUM TAX RELIEF FOR CERTAIN TAXPAYERS.

11 (a) ELECTION TO INCREASE MINIMUM TAX CREDIT

12 LIMITATION IN LIEU OF BONUS DEPRECIATION.—

13 (1) IN GENERAL.—Section 53 (relating to credit

14 for prior year minimum tax liability) is amended by

15 adding at the end the following new subsection:

16 ‘‘(e) ADDITIONAL CREDIT IN LIEU OF BONUS DEPRE17 CIATION.—

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

19 making an election under this subsection for a taxable

20 year, the limitation under subsection (c) shall be in21 creased by an amount equal to 50 percent of the

22 bonus depreciation amount.

23 ‘‘(2) BONUS DEPRECIATION AMOUNT.—For pur24 poses of paragraph (1), the bonus depreciation
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1 amount for any taxable year is an amount (not in

2 excess of $25,000,000) equal to the product of—

3 ‘‘(A) 30 percent, and

4 ‘‘(B) the excess (if any) of—

5 ‘‘(i) the aggregate amount of deprecia6 tion which would be determined under sec7 tion 168 for property placed in service dur8 ing such taxable year if no election under

9 this subsection were made, over

10 ‘‘(ii) the aggregate allowance for depre11 ciation allowable with respect to such prop12 erty placed in service for such taxable year.

13 ‘‘(3) AGGREGATION RULE.—All members of the

14 same controlled group of corporations shall be treated

15 as 1 corporation for purposes of this subsection.

16 ‘‘(4) ELECTION.—Sections 168(k) (other than

17 paragraph (2)(F) thereof) shall not apply to any

18 property placed in service during a taxable year by

19 a corporation making an election under this sub20 section for such taxable year. An election under this

21 subsection may only be revoked with the consent of the

22 Secretary.

23 ‘‘(5) CREDIT REFUNDABLE.—The aggregate in24 crease in the credit allowed by this section for any

25 taxable year by reason of this subsection shall for pur-
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1 poses of this title (other than subsection (b)(2) of this

2 section) be treated as a credit allowed to the taxpayer

3 under subpart C.’’.

4 (2) CONFORMING AMENDMENTS.—Subsection (k)

5 of section 168 is amended by adding at the end the

6 following new paragraph:

7 ‘‘(5) CROSS REFERENCE.—For an election to

8 claim certain minimum tax credits in lieu of the al9 lowance determined under this subsection, see section

10 53(e).’’.

11 (3) EFFECTIVE DATE.—The amendments made

12 by this subsection shall apply to taxable years ending

13 after December 31, 2003.

14 (b) USE OF GENERAL BUSINESS CREDITS AGAINST

15 ALTERNATIVE MINIMUM TAX.—

16 (1) IN GENERAL.—Section 38(c) (relating to lim17 itations based on amount of tax) is amended by redes18 ignating paragraph (4) as paragraph (5) and by in19 serting after paragraph (3) the following new para20 graph:

21 ‘‘(4) SPECIAL RULE FOR 2004.—Notwithstanding

22 the preceding provisions of this paragraph, in the

23 case of any taxable year beginning in 2004, the credit

24 allowed under subsection (a) shall not exceed the

25 greater of—
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1 ‘‘(A) the amount determined under this sub2 section without regard to this paragraph, or

3 ‘‘(B) 50 percent of the lesser of—

4 ‘‘(i) the amount which would be deter5 mined under this subsection if the tentative

6 minimum tax were treated as being zero in

7 applying paragraph (1) to such credit, or

8 ‘‘(ii) the amount of the current year

9 business credit.’’.

10 (2) EFFECTIVE DATE.—The amendments made

11 by this subsection shall apply to taxable years begin12 ning in 2004.

13 Subtitle D—Expansion of Business

14 Credit

15 SEC. 631. NEW MARKETS TAX CREDIT FOR NATIVE AMER16 ICAN RESERVATIONS.

17 (a) IN GENERAL.—Subpart D of part IV of subchapter

18 A of chapter 1 (relating to business related credits) is

19 amended by redesignating sections 45E and 45F as sections

20 45F and 45G, respectively, and by inserting after section

21 45D the following new section:

22 ‘‘SEC. 45E. NEW MARKETS TAX CREDIT FOR NATIVE AMER23 ICAN RESERVATIONS.

24 ‘‘(a) ALLOWANCE OF CREDIT.—
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1 ‘‘(1) IN GENERAL.—For purposes of section 38,

2 in the case of a taxpayer who holds a qualified equity

3 investment on a credit allowance date of such invest4 ment which occurs during the taxable year, the Native

5 American new markets tax credit determined under

6 this section for such taxable year is an amount equal

7 to the applicable percentage of the amount paid to the

8 reservation development entity for such investment at

9 its original issue.

10 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

11 of paragraph (1), the applicable percentage is—

12 ‘‘(A) 5 percent with respect to the first 3

13 credit allowance dates, and

14 ‘‘(B) 6 percent with respect to the remain15 der of the credit allowance dates.

16 ‘‘(3) CREDIT ALLOWANCE DATE.—For purposes

17 of paragraph (1), the term ‘credit allowance date’

18 means, with respect to any qualified equity

19 investment—

20 ‘‘(A) the date on which such investment is

21 initially made, and

22 ‘‘(B) each of the 6 anniversary dates of such

23 date thereafter.

24 ‘‘(b) QUALIFIED EQUITY INVESTMENT.—For purposes

25 of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified equity

2 investment’ means any equity investment in a res3 ervation development entity if—

4 ‘‘(A) such investment is acquired by the tax5 payer at its original issue (directly or through

6 an underwriter) solely in exchange for cash,

7 ‘‘(B) substantially all of such cash is used

8 by the reservation development entity to make

9 qualified low-income reservation investments,

10 and

11 ‘‘(C) such investment is designated for pur12 poses of this section by the reservation develop13 ment entity.

14 Such term shall not include any equity investment

15 issued by a reservation development entity more than

16 5 years after the date that such entity receives an al17 location under subsection (f ). Any allocation not used

18 within such 5-year period may be reallocated by the

19 Secretary under subsection (f ).

20 ‘‘(2) LIMITATION.—The maximum amount of eq21 uity investments issued by a reservation development

22 entity which may be designated under paragraph

23 (1)(C) by such entity shall not exceed the portion of

24 the limitation amount allocated under subsection (f )

25 to such entity.
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1 ‘‘(3) SAFE HARBOR FOR DETERMINING USE OF

2 CASH.—The requirement of paragraph (1)(B) shall be

3 treated as met if at least 85 percent of the aggregate

4 gross assets of the reservation development entity are

5 invested in qualified low-income reservation invest6 ments.

7 ‘‘(4) TREATMENT OF SUBSEQUENT PUR8 CHASERS.—The term ‘qualified equity investment’ in9 cludes any equity investment which would (but for

10 paragraph (1)(A)) be a qualified equity investment in

11 the hands of the taxpayer if such investment was a

12 qualified equity investment in the hands of a prior

13 holder.

14 ‘‘(5) REDEMPTIONS.—A rule similar to the rule

15 of section 1202(c)(3) shall apply for purposes of this

16 subsection.

17 ‘‘(6) EQUITY INVESTMENT.—The term ‘equity in18 vestment’ means—

19 ‘‘(A) any stock (other than nonqualified

20 preferred stock as defined in section 351(g)(2))

21 in an entity which is a corporation, and

22 ‘‘(B) any capital interest in an entity

23 which is a partnership.

24 ‘‘(c) RESERVATION DEVELOPMENT ENTITY.—For pur25 poses of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘reservation devel2 opment entity’ means any domestic corporation or

3 partnership if—

4 ‘‘(A) the primary mission of the entity is

5 serving, or providing investment capital for, low6 income reservations,

7 ‘‘(B) the entity maintains accountability to

8 residents of low-income reservations through

9 their representation on any governing board of

10 the entity or on any advisory board to the enti11 ty, and

12 ‘‘(C) the entity is certified by the Secretary

13 for purposes of this section as being a reservation

14 development entity.

15 ‘‘(2) EXCEPTION.—For purposes of subparagraph

16 (C) of paragraph (1), the Secretary shall not certify

17 an entity as a reservation development entity if such

18 entity is also certified as a qualified community de19 velopment entity under section 45D(c).

20 ‘‘(d) QUALIFIED LOW-INCOME RESERVATION INVEST21 MENTS.—For purposes of this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualified low-in23 come reservation investment’ means—
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1 ‘‘(A) any capital or equity investment in,

2 or loan to, any qualified active low-income res3 ervation business,

4 ‘‘(B) the purchase from another reservation

5 development entity of any loan made by such en6 tity which is a qualified low-income reservation

7 investment,

8 ‘‘(C) financial counseling and other services

9 specified in regulations prescribed by the Sec10 retary to businesses located in, and residents of,

11 low-income reservations, and

12 ‘‘(D) any equity investment in, or loan to,

13 any reservation development entity.

14 ‘‘(2) QUALIFIED ACTIVE LOW-INCOME RESERVA15 TION BUSINESS.—

16 ‘‘(A) IN GENERAL.—For purposes of para17 graph (1), the term ‘qualified active low-income

18 reservation business’ means, with respect to any

19 taxable year, any corporation (including a non20 profit corporation) or partnership if for such

21 year—

22 ‘‘(i) at least 50 percent of the total

23 gross income of such entity is derived from

24 the active conduct of a qualified business

25 within any low-income reservation,
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1 ‘‘(ii) a substantial portion of the use of

2 the tangible property of such entity (wheth3 er owned or leased) is within any low-in4 come reservation,

5 ‘‘(iii) a substantial portion of the serv6 ices performed for such entity by its em7 ployees are performed in any low-income

8 reservation,

9 ‘‘(iv) less than 5 percent of the average

10 of the aggregate unadjusted bases of the

11 property of such entity is attributable to

12 collectibles (as defined in section 408(m)(2))

13 other than collectibles that are held pri14 marily for sale to customers in the ordinary

15 course of such business, and

16 ‘‘(v) less than 5 percent of the average

17 of the aggregate unadjusted bases of the

18 property of such entity is attributable to

19 nonqualified financial property (as defined

20 in section 1397C(e)).

21 ‘‘(B) PROPRIETORSHIP.—Such term shall

22 include any business carried on by an indi23 vidual as a proprietor if such business would

24 meet the requirements of subparagraph (A) were

25 it incorporated.
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1 ‘‘(C) PORTIONS OF BUSINESS MAY BE

2 QUALIFIED ACTIVE LOW-INCOME RESERVATION

3 BUSINESS.—The term ‘qualified active low-in4 come reservation business’ includes any trades or

5 businesses which would qualify as a qualified ac6 tive low-income reservation business if such

7 trades or businesses were separately incor8 porated.

9 ‘‘(3) QUALIFIED BUSINESS.—For purposes of

10 this subsection, the term ‘qualified business’ has the

11 meaning given to such term by section 45D(d)(3).

12 ‘‘(e) LOW-INCOME RESERVATION.—For purposes of

13 this section, the term ‘low-income reservation’ means any

14 Indian reservation (as defined in section 168(j)(6)) which

15 has a poverty rate of at least 40 percent.

16 ‘‘(f ) NATIONAL LIMITATION ON AMOUNT OF INVEST17 MENTS DESIGNATED.—

18 ‘‘(1) IN GENERAL.—There is a Native American

19 new markets tax credit limitation of $50,000,000 for

20 each of calendar years 2004 through 2007.

21 ‘‘(2) ALLOCATION OF LIMITATION.—The limita22 tion under paragraph (1) shall be allocated by the

23 Secretary among reservation development entities se24 lected by the Secretary. In making allocations under
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1 the preceding sentence, the Secretary shall give pri2 ority to any entity—

3 ‘‘(A) with a record of having successfully

4 provided capital or technical assistance to dis5 advantaged businesses or communities, or

6 ‘‘(B) which intends to satisfy the require7 ment under subsection (b)(1)(B) by making

8 qualified low-income reservation investments in

9 1 or more businesses in which persons unrelated

10 to such entity (within the meaning of section

11 267(b) or 707(b)(1)) hold the majority equity in12 terest.

13 ‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If

14 the Native American new markets tax credit limita15 tion for any calendar year exceeds the aggregate

16 amount allocated under paragraph (2) for such year,

17 such limitation for the succeeding calendar year shall

18 be increased by the amount of such excess. No amount

19 may be carried under the preceding sentence to any

20 calendar year after 2014.

21 ‘‘(g) RECAPTURE OF CREDIT IN CERTAIN CASES.—

22 ‘‘(1) IN GENERAL.—If, at any time during the 7-

23 year period beginning on the date of the original

24 issue of a qualified equity investment in a reservation

25 development entity, there is a recapture event with re-
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1 spect to such investment, then the tax imposed by this

2 chapter for the taxable year in which such event oc3 curs shall be increased by the credit recapture

4 amount.

5 ‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur6 poses of paragraph (1), the credit recapture amount

7 is an amount equal to the sum of—

8 ‘‘(A) the aggregate decrease in the credits

9 allowed to the taxpayer under section 38 for all

10 prior taxable years which would have resulted if

11 no credit had been determined under this section

12 with respect to such investment, plus

13 ‘‘(B) interest at the underpayment rate es14 tablished under section 6621 on the amount de15 termined under subparagraph (A) for each prior

16 taxable year for the period beginning on the due

17 date for filing the return for the prior taxable

18 year involved.

19 No deduction shall be allowed under this chapter for

20 interest described in subparagraph (B).

21 ‘‘(3) RECAPTURE EVENT.—For purposes of para22 graph (1), there is a recapture event with respect to

23 an equity investment in a reservation development

24 entity if—
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1 ‘‘(A) such entity ceases to be a reservation

2 development entity,

3 ‘‘(B) the proceeds of the investment cease to

4 be used as required of subsection (b)(1)(B), or

5 ‘‘(C) such investment is redeemed by such

6 entity.

7 ‘‘(4) SPECIAL RULES.—

8 ‘‘(A) TAX BENEFIT RULE.—The tax for the

9 taxable year shall be increased under paragraph

10 (1) only with respect to credits allowed by reason

11 of this section which were used to reduce tax li12 ability. In the case of credits not so used to re13 duce tax liability, the carryforwards and

14 carrybacks under section 39 shall be appro15 priately adjusted.

16 ‘‘(B) NO CREDITS AGAINST TAX.—Any in17 crease in tax under this subsection shall not be

18 treated as a tax imposed by this chapter for pur19 poses of determining the amount of any credit

20 under this chapter or for purposes of section 55.

21 ‘‘(h) BASIS REDUCTION.—The basis of any qualified

22 equity investment shall be reduced by the amount of any

23 credit determined under this section with respect to such

24 investment. This subsection shall not apply for purposes of

25 sections 1202, 1400B, and 1400F.
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1 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be appropriate to carry out this

3 section, including regulations—

4 ‘‘(1) which limit the credit for investments which

5 are directly or indirectly subsidized by other Federal

6 tax benefits (including the credit under section 42

7 and the exclusion from gross income under section

8 103),

9 ‘‘(2) which prevent the abuse of the purposes of

10 this section,

11 ‘‘(3) which provide rules for determining whether

12 the requirement of subsection (b)(1)(B) is treated as

13 met,

14 ‘‘(4) which impose appropriate reporting re15 quirements, and

16 ‘‘(5) which apply the provisions of this section to

17 newly formed entities.’’.

18 (b) CREDIT MADE PART OF GENERAL BUSINESS

19 CREDIT.—

20 (1) IN GENERAL.—Subsection (b) of section 38 is

21 amended by redesignating paragraphs (14) and (15)

22 as paragraphs (15) and (16), respectively, and by in23 serting after paragraph (13) the following new para24 graph:
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1 ‘‘(14) the Native American new markets tax

2 credit determined under section 45E(a),’’.

3 (2) LIMITATION ON CARRYBACK.—Subsection (d)

4 of section 39 is amended by redesignating paragraph

5 (10) as paragraph (11) and by inserting after para6 graph (9) the following new paragraph:

7 ‘‘(10) NO CARRYBACK OF NATIVE AMERICAN NEW

8 MARKETS TAX CREDIT BEFORE JANUARY 1, 2004.—No

9 portion of the unused business credit for any taxable

10 year which is attributable to the credit under section

11 45E may be carried back to a taxable year ending be12 fore January 1, 2004.’’.

13 (c) DEDUCTION FOR UNUSED CREDIT.—Subsection (c)

14 of section 196 is amended by redesignating paragraph (10)

15 as paragraph (11), by striking ‘‘and’’ at the end of para16 graph (9), and by inserting after paragraph (9) the fol17 lowing new paragraph:

18 ‘‘(10) the Native American new markets tax

19 credit determined under section 45E(a), and’’.

20 (d) CONFORMING AMENDMENTS.—

21 (1) Section 38(b)(15), as redesignated by sub22 section (b)(1), is amended—

23 (A) by striking ‘‘45E(c)’’ and inserting

24 ‘‘45F(c)’’, and
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1 (B) by striking ‘‘45E(a)’’ and inserting

2 ‘‘45F(a)’’.

3 (2) Section 38(b)(16), as redesignated by sub4 section (b)(1), is amended by striking ‘‘45F(a)’’ and

5 inserting ‘‘45G(a)’’.

6 (3) Section 39(d)(11), as redesignated by sub7 section (b)(2), is amended by striking ‘‘section 45E’’

8 and inserting ‘‘section 45F’’.

9 (4) Section 196(c)(11), as redesignated by sub10 section (c), is amended by striking ‘‘45E(a)’’ and in11 serting ‘‘45F(a)’’.

12 (5) Section 1016(a)(28) is amended—

13 (A) by striking ‘‘under section 45F’’ and in14 serting ‘‘under section 45G’’, and

15 (B) by striking ‘‘section 45F(f)(1)’’ and in16 serting ‘‘section 45G(f)(1)’’.

17 (e) CLERICAL AMENDMENT.—The table of sections for

18 subpart D of part IV of subchapter A of chapter 1 is amend19 ed by striking the items relating to sections 45E and 45F

20 and inserting the following:

‘‘Sec. 45E. New markets tax credit for Native American reservations.

‘‘Sec. 45F. Small employer pension plan startup costs.

‘‘Sec. 45G. Employer-provided child care credit.’’.

21 (e) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to investments made after December 31,

23 2003.
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1 (f ) GUIDANCE ON ALLOCATION OF NATIONAL LIMITA2 TION.—Not later than 120 days after the date of the enact3 ment of this Act, the Secretary of the Treasury or the Sec4 retary’s delegate shall issue guidance which specifies—

5 (1) how entities shall apply for an allocation

6 under section 45E(f )(2) of the Internal Revenue Code

7 of 1986, as added by this section;

8 (2) the competitive procedure through which such

9 allocations are made; and

10 (3) the actions that such Secretary or delegate

11 shall take to ensure that such allocations are properly

12 made to appropriate entities.

13 (g) AUDIT AND REPORT.—Not later than January 31

14 of 2007 and 2010, the Comptroller General of the United

15 States shall, pursuant to an audit of the Native American

16 new markets tax credit program established under section

17 45E of the Internal Revenue Code of 1986 (as added by

18 subsection (a)), report to Congress on such program, includ19 ing all reservation development entities that receive an allo20 cation under the Native American new markets credit under

21 such section.

22 (h) GRANTS IN COORDINATION WITH CREDIT.—

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

24 is authorized to award a grant of not more than

25 $1,000,000 to the First Nations Oweesta Corporation.
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1 (2) USE OF FUNDS.—The grant awarded under

2 paragraph (1) may be used—

3 (A) to enhance the capacity of people living

4 on low-income reservations (within the meaning

5 of section 45E(e) of the Internal Revenue Code of

6 1986, as added by this section) to access, apply,

7 control, create, leverage, utilize, and retain the

8 financial benefits to such low-income reservations

9 which are attributable to qualified low-income

10 reservation investments (within the meaning of

11 section 45E(d) of such Code), and

12 (B) to provide access to appropriate finan13 cial capital for the development of such low-in14 come reservations.

15 (3) AUTHORIZATION OF APPROPRIATIONS.—

16 There are authorized to be appropriated $1,000,000

17 for fiscal years 2004 through 2014 to carry out the

18 provisions of this subsection.

19 SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE

20 CREDIT AND READY RESERVE-NATIONAL

21 GUARD REPLACEMENT EMPLOYEE CREDIT.

22 (a) READY RESERVE-NATIONAL GUARD CREDIT.—

23 (1) IN GENERAL.—Subpart D of part IV of sub24 chapter A of chapter 1 (relating to business-related
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1 credits), as amended by this Act, is amended by add2 ing at the end the following:

3 ‘‘SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE

4 CREDIT.

5 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

6 Ready Reserve-National Guard employee credit determined

7 under this section for any taxable year with respect to each

8 Ready Reserve-National Guard employee of an employer is

9 an amount equal to 50 percent of the lesser of—

10 ‘‘(1) the actual compensation amount with re11 spect to such employee for such taxable year, or

12 ‘‘(2) $30,000.

13 ‘‘(b) DEFINITION OF ACTUAL COMPENSATION

14 AMOUNT.—For purposes of this section, the term ‘actual

15 compensation amount’ means the amount of compensation

16 paid or incurred by an employer with respect to a Ready

17 Reserve-National Guard employee on any day when the em18 ployee was absent from employment for the purpose of per19 forming qualified active duty.

20 ‘‘(c) LIMITATIONS.—No credit shall be allowed with re21 spect to any day that a Ready Reserve-National Guard em22 ployee who performs qualified active duty was not scheduled

23 to work (for reason other than to participate in qualified

24 active duty).
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1 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section—

3 ‘‘(1) QUALIFIED ACTIVE DUTY.—The term ‘quali4 fied active duty’ means—

5 ‘‘(A) active duty, other than the training

6 duty specified in section 10147 of title 10,

7 United States Code (relating to training require8 ments for the Ready Reserve), or section 502(a)

9 of title 32, United States Code (relating to re10 quired drills and field exercises for the National

11 Guard), in connection with which an employee is

12 entitled to reemployment rights and other bene13 fits or to a leave of absence from employment

14 under chapter 43 of title 38, United States Code,

15 and

16 ‘‘(B) hospitalization incident to such duty.

17 ‘‘(2) COMPENSATION.—The term ‘compensation’

18 means any remuneration for employment, whether in

19 cash or in kind, which is paid or incurred by a tax20 payer and which is deductible from the taxpayer’s

21 gross income under section 162(a)(1).

22 ‘‘(3) READY RESERVE-NATIONAL GUARD EM23 PLOYEE.—The term ‘Ready Reserve-National Guard

24 employee’ means an employee who is a member of the

25 Ready Reserve of a reserve component of an Armed
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1 Force of the United States as described in sections

2 10142 and 10101 of title 10, United States Code.

3 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

4 to the rules of section 52 shall apply.

5 ‘‘(e) PORTION OF CREDIT REFUNDABLE.—

6 ‘‘(1) IN GENERAL.—In the case of an employer

7 of a qualified first responder, the aggregate credits al8 lowed to a taxpayer under subpart C shall be in9 creased by the lesser of—

10 ‘‘(A) the credit which would be allowed

11 under this section without regard to this sub12 section and the limitation under section 38(c), or

13 ‘‘(B) the amount by which the aggregate

14 amount of credits allowed by this subpart (deter15 mined without regard to this subsection) would

16 increase if the limitation imposed by section

17 38(c) for any taxable year were increased by the

18 amount of employer payroll taxes imposed on the

19 taxpayer during the calendar year in which the

20 taxable year begins.

21 The amount of the credit allowed under this sub22 section shall not be treated as a credit allowed under

23 this subpart and shall reduce the amount of the credit

24 otherwise allowable under subsection (a) without re25 gard to section 38(c).
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1 ‘‘(2) EMPLOYER PAYROLL TAXES.—For purposes

2 of this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘employer

4 payroll taxes’ means the taxes imposed by—

5 ‘‘(i) section 3111(b), and

6 ‘‘(ii) sections 3211(a) and 3221(a) (de7 termined at a rate equal to the rate under

8 section 3111(b)).

9 ‘‘(B) SPECIAL RULE.—A rule similar to the

10 rule of section 24(d)(2)(C) shall apply for pur11 poses of subparagraph (A).

12 ‘‘(3) QUALIFIED FIRST RESPONDER.—For pur13 poses of this subsection, the term ‘qualified first re14 sponder’ means any person who is—

15 ‘‘(A) employed as a law enforcement offi16 cial, a firefighter, or a paramedic, and

17 ‘‘(B) a Ready Reserve-National Guard em18 ployee.’’.

19 (2) CREDIT TO BE PART OF GENERAL BUSINESS

20 CREDIT.—Subsection (b) of section 38 (relating to

21 general business credit), as amended by this Act, is

22 amended by striking ‘‘plus’’ at the end of paragraph

23 (15), by striking the period at the end of paragraph

24 (16) and inserting ‘‘, plus’’, and by adding at the end

25 the following:
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1 ‘‘(17) the Ready Reserve-National Guard em2 ployee credit determined under section 45H(a).’’.

3 (3) DENIAL OF DOUBLE BENEFIT.—Section

4 280C(a) (relating to rule for employment credits) is

5 amended by inserting ‘‘45H(a),’’ after ‘‘45A(a),’’.

6 (4) CONFORMING AMENDMENT.—The table of sec7 tions for subpart D of part IV of subchapter A of

8 chapter 1, as amended by this Act, is amended by in9 serting after the item relating to section 45G the fol10 lowing:

‘‘Sec. 45H. Ready Reserve-National Guard employee credit.’’.

11 (5) EFFECTIVE DATE.—The amendments made

12 by this subsection shall apply to amounts paid or in13 curred after September 30, 2004, in taxable years

14 ending after such date.

15 (b) READY RESERVE-NATIONAL GUARD REPLACEMENT

16 EMPLOYEE CREDIT.—

17 (1) IN GENERAL.—Subpart B of part IV of sub18 chapter A of chapter 1 (relating to foreign tax credit,

19 etc.), as amended by this Act, is amended by adding

20 after section 30C the following new section:

21 ‘‘SEC. 30D. READY RESERVE-NATIONAL GUARD REPLACE22 MENT EMPLOYEE CREDIT.

23 ‘‘(a) ALLOWANCE OF CREDIT.—

24 ‘‘(1) IN GENERAL.—In the case of an eligible tax25 payer, there shall be allowed as a credit against the
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1 tax imposed by this chapter for the taxable year the

2 sum of the employment credits for each qualified re3 placement employee under this section.

4 ‘‘(2) EMPLOYMENT CREDIT.—The employment

5 credit with respect to a qualified replacement em6 ployee of the taxpayer for any taxable year is equal

7 to 50 percent of the lesser of—

8 ‘‘(A) the individual’s qualified compensa9 tion attributable to service rendered as a quali10 fied replacement employee, or

11 ‘‘(B) $12,000.

12 ‘‘(b) QUALIFIED COMPENSATION.—The term ‘qualified

13 compensation’ means—

14 ‘‘(1) compensation which is normally contingent

15 on the qualified replacement employee’s presence for

16 work and which is deductible from the taxpayer’s

17 gross income under section 162(a)(1),

18 ‘‘(2) compensation which is not characterized by

19 the taxpayer as vacation or holiday pay, or as sick

20 leave or pay, or as any other form of pay for a non21 specific leave of absence, and

22 ‘‘(3) group health plan costs (if any) with respect

23 to the qualified replacement employee.

24 ‘‘(c) QUALIFIED REPLACEMENT EMPLOYEE.—For pur25 poses of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified replace2 ment employee’ means an individual who is hired to

3 replace a Ready Reserve-National Guard employee or

4 a Ready Reserve-National Guard self-employed tax5 payer, but only with respect to the period during

6 which such Ready Reserve-National Guard employee

7 or Ready Reserve-National Guard self-employed tax8 payer participates in qualified active duty, including

9 time spent in travel status.

10 ‘‘(2) READY RESERVE-NATIONAL GUARD EM11 PLOYEE.—The term ‘Ready Reserve-National Guard

12 employee’ has the meaning given such term by section

13 45H(d)(3).

14 ‘‘(3) READY RESERVE-NATIONAL GUARD SELF15 EMPLOYED TAXPAYER.—The term ‘Ready Reserve-Na16 tional Guard self-employed taxpayer’ means a tax17 payer who—

18 ‘‘(A) has net earnings from self-employment

19 (as defined in section 1402(a)) for the taxable

20 year, and

21 ‘‘(B) is a member of the Ready Reserve of

22 a reserve component of an Armed Force of the

23 United States as described in section 10142 and

24 10101 of title 10, United States Code.
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1 ‘‘(d) COORDINATION WITH OTHER CREDITS.—The

2 amount of credit otherwise allowable under sections 51(a)

3 and 1396(a) with respect to any employee shall be reduced

4 by the credit allowed by this section with respect to such

5 employee.

6 ‘‘(e) LIMITATIONS.—

7 ‘‘(1) APPLICATION WITH OTHER CREDITS.—The

8 credit allowed under subsection (a) for any taxable

9 year shall not exceed the excess (if any) of—

10 ‘‘(A) the regular tax for the taxable year re11 duced by the sum of the credits allowable under

12 subpart A and sections 27, 29, and 30, over

13 ‘‘(B) the tentative minimum tax for the tax14 able year.

15 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

16 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

17 MEMBERS OF THE RESERVE COMPONENTS OF THE

18 ARMED FORCES OF THE UNITED STATES.—No credit

19 shall be allowed under subsection (a) to a taxpayer

20 for—

21 ‘‘(A) any taxable year, beginning after the

22 date of the enactment of this section, in which

23 the taxpayer is under a final order, judgment, or

24 other process issued or required by a district

25 court of the United States under section 4323 of
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1 title 38 of the United States Code with respect to

2 a violation of chapter 43 of such title, and

3 ‘‘(B) the 2 succeeding taxable years.

4 ‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.—

5 For purposes of this section—

6 ‘‘(1) ELIGIBLE TAXPAYER.—The term ‘eligible

7 taxpayer’ means a small business employer or a

8 Ready Reserve-National Guard self-employed tax9 payer.

10 ‘‘(2) SMALL BUSINESS EMPLOYER.—

11 ‘‘(A) IN GENERAL.—The term ‘small busi12 ness employer’ means, with respect to any tax13 able year, any employer who employed an aver14 age of 50 or fewer employees on business days

15 during such taxable year.

16 ‘‘(B) CONTROLLED GROUPS.—For purposes

17 of subparagraph (A), all persons treated as a

18 single employer under subsection (b), (c), (m), or

19 (o) of section 414 shall be treated as a single em20 ployer.

21 ‘‘(3) QUALIFIED ACTIVE DUTY.—The term ‘quali22 fied active duty’ has the meaning given such term by

23 section 45H(d)(1).

24 ‘‘(4) SPECIAL RULES FOR CERTAIN MANUFAC25 TURERS.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 qualified manufacturer—

3 ‘‘(i) subsection (a)(2)(B) shall be ap4 plied by substituting ‘$20,000’ for ‘$12,000’,

5 and

6 ‘‘(ii) paragraph (2)(A) of this sub7 section shall be applied by substituting ‘100’

8 for ‘50’.

9 ‘‘(B) QUALIFIED MANUFACTURER.—For

10 purposes of this paragraph, the term ‘qualified

11 manufacturer’ means any person if—

12 ‘‘(i) the primary business of such per13 son is classified in sector 31, 32, or 33 of

14 the North American Industrial Classifica15 tion System, and

16 ‘‘(ii) all of such person’s facilities

17 which are used for production in such busi18 ness are located in the United States.

19 ‘‘(5) CARRYBACK AND CARRYFORWARD AL20 LOWED.—

21 ‘‘(A) IN GENERAL.—If the credit allowable

22 under subsection (a) for a taxable year exceeds

23 the amount of the limitation under subsection

24 (e)(1) for such taxable year (in this paragraph

25 referred to as the ‘unused credit year’), such ex-
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1 cess shall be a credit carryback to each of the 3

2 taxable years preceding the unused credit year

3 and a credit carryforward to each of the 20 tax4 able years following the unused credit year.

5 ‘‘(B) RULES.—Rules similar to the rules of

6 section 39 shall apply with respect to the credit

7 carryback and credit carryforward under sub8 paragraph (A).

9 ‘‘(6) CERTAIN RULES TO APPLY.—Rules similar

10 to the rules of subsections (c), (d), and (e) of section

11 52 shall apply.’’.

12 (2) NO DEDUCTION FOR COMPENSATION TAKEN

13 INTO ACCOUNT FOR CREDIT.—Section 280C(a) (relat14 ing to rule for employment credits), as amended by

15 this Act, is amended—

16 (A) by inserting ‘‘or compensation’’ after

17 ‘‘salaries’’, and

18 (B) by inserting ‘‘30D,’’ before ‘‘45A(a),’’.

19 (3) CONFORMING AMENDMENT.—Section

20 55(c)(2), as amended by this Act, is amended by in21 serting ‘‘30D(e)(1),’’ after ‘‘30C(e),’’.

22 (4) CLERICAL AMENDMENT.—The table of sec23 tions for subpart B of part IV of subchapter A of

24 chapter 1, as amended by this Act, is amended by
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1 adding after the item relating to section 30C the fol2 lowing new item:

‘‘Sec. 30D. Credit for replacement of activated military reservists.’’.

3 (5) EFFECTIVE DATE.—The amendments made

4 by this subsection shall apply to amounts paid or in5 curred after September 30, 2004, in taxable years

6 ending after such date.

7 (c) APPLICATION OF ANNUAL EXCLUSION LIMIT

8 UNDER SECTION 911 TO HOUSING COSTS.—

9 (1) IN GENERAL.—Section 911(c) (relating to

10 housing cost amount) is amended by adding at the

11 end the following new paragraph:

12 ‘‘(4) LIMIT ON EXCLUSION FOR EMPLOYER PRO13 VIDED HOUSING COSTS.—The housing cost amount for

14 any individual for any taxable year attributable to

15 employer provided amounts shall not exceed the excess

16 (if any) of—

17 ‘‘(A) the product of—

18 ‘‘(i) the exclusion amount determined

19 under subsection (b)(2)(D) for the taxable

20 year, and

21 ‘‘(ii) a fraction equal to the number of

22 days of the taxable year within the applica23 ble period described in subparagraph (A) or

24 (B) of subsection (d)(1) divided by the num25 ber of days in the taxable year, over
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1 ‘‘(B) the foreign earned income of the indi2 vidual excluded under subsection (a)(1) for the

3 taxable year.’’

4 (2) CONFORMING AMENDMENT.—Section

5 911(c)(1) is amended by striking ‘‘The’’ and inserting

6 ‘‘Except as provided in paragraph (4), the’’.

7 (3) EFFECTIVE DATE.—The amendments made

8 by this subsection shall apply to taxable years begin9 ning after December 31, 2003.

10 SEC. 633. RURAL INVESTMENT TAX CREDIT.

11 (a) IN GENERAL.—Subpart D of part IV of subchapter

12 A of chapter 1 (relating to business related credits) is

13 amended by adding at the end the following:

14 ‘‘SEC. 42A. RURAL INVESTMENT CREDIT.

15 ‘‘(a) IN GENERAL.—For purposes of section 38, the

16 amount of the rural investment credit determined under

17 this section for any taxable year in the credit period shall

18 be an amount equal to the applicable percentage of the eligi19 ble basis of each qualified rural investment building.

20 ‘‘(b) APPLICABLE PERCENTAGE: 70 PERCENT

21 PRESENT VALUE CREDIT FOR NEW BUILDINGS; 30 PER22 CENT PRESENT VALUE CREDIT FOR EXISTING BUILD23 INGS.—For purposes of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘applicable per2 centage’ means the appropriate percentage prescribed

3 by the Secretary for the earlier of—

4 ‘‘(A) the first month of the credit period

5 with respect to a rural investment building, or

6 ‘‘(B) at the election of the taxpayer, the

7 month in which the taxpayer and the rural in8 vestment credit agency enter into an agreement

9 with respect to such building (which is binding

10 on such agency, the taxpayer, and all successors

11 in interest) as to the rural investment credit dol12 lar amount to be allocated to such building.

13 A month may be elected under subparagraph (B) only

14 if the election is made not later than the 5th day after

15 the close of such month. Such an election, once made,

16 shall be irrevocable.

17 ‘‘(2) METHOD OF PRESCRIBING PERCENTAGES.—

18 The percentages prescribed by the Secretary for any

19 month shall be percentages which will yield over a 10-

20 year period amounts of credit under subsection (a)

21 which have a present value equal to—

22 ‘‘(A) 70 percent of the eligible basis of a

23 new building, and

24 ‘‘(B) 30 percent of the eligible basis of an

25 existing building.
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1 ‘‘(3) METHOD OF DISCOUNTING.—The present

2 value under paragraph (2) shall be determined—

3 ‘‘(A) as of the last day of the 1st year of the

4 10-year period referred to in paragraph (2),

5 ‘‘(B) by using a discount rate equal to 72

6 percent of the average of the annual Federal

7 mid-term rate and the annual Federal long-term

8 rate applicable under section 1274(d)(1) to the

9 month applicable under subparagraph (A) or (B)

10 of paragraph (1) and compounded annually, and

11 ‘‘(C) by assuming that the credit allowable

12 under this section for any year is received on the

13 last day of such year.

14 ‘‘(c) ELIGIBLE BASIS; QUALIFIED RURAL INVESTMENT

15 BUILDING.—For purposes of this section—

16 ‘‘(1) ELIGIBLE BASIS.—

17 ‘‘(A) IN GENERAL.—The eligible basis of

18 any qualified rural investment building for any

19 taxable year shall be determined under rules

20 similar to the rules under section 42(d), except

21 that—

22 ‘‘(i) the determination of the adjusted

23 basis of any building shall be made as of

24 the beginning of the credit period, and
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1 ‘‘(ii) such basis shall include develop2 ment costs properly attributable to such

3 building.

4 ‘‘(B) DEVELOPMENT COSTS.—For purposes

5 of subparagraph (A)(ii), the term ‘development

6 costs’ includes—

7 ‘‘(i) site preparation costs,

8 ‘‘(ii) State and local impact fees,

9 ‘‘(iii) reasonable development costs,

10 ‘‘(iv) professional fees related to basis

11 items,

12 ‘‘(v) construction financing costs re13 lated to basis items other than land, and

14 ‘‘(vi) on-site and adjacent improve15 ments required by State and local govern16 ments.

17 ‘‘(2) QUALIFIED RURAL INVESTMENT BUILD18 ING.—The term ‘qualified rural investment building’

19 means any building which is part of a qualified rural

20 investment project at all times during the period—

21 ‘‘(A) beginning on the 1st day in the com22 pliance period on which such building is part of

23 such an investment project, and

24 ‘‘(B) ending on the last day of the compli25 ance period with respect to such building.
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1 ‘‘(d) REHABILITATION EXPENDITURES TREATED AS

2 SEPARATE NEW BUILDING.—Rehabilitation expenditures

3 paid or incurred by the taxpayer with respect to any build4 ing shall be treated for purposes of this section as a separate

5 new building under the rules of section 42(e).

6 ‘‘(e) DEFINITION AND SPECIAL RULES RELATING TO

7 CREDIT PERIOD.—

8 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes of

9 this section, the term ‘credit period’ means, with re10 spect to any building, the period of 10 taxable years

11 beginning with the taxable year in which the building

12 is first placed in service.

13 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

14 PERIOD.—

15 ‘‘(A) IN GENERAL.—The credit allowable

16 under subsection (a) with respect to any building

17 for the 1st taxable year of the credit period shall

18 be determined by multiplying such credit by the

19 fraction—

20 ‘‘(i) the numerator of which is the

21 number of full months of such year during

22 which such building was in service, and

23 ‘‘(ii) the denominator of which is 12.

24 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL25 LOWED IN 11TH YEAR.—Any reduction by reason
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1 of subparagraph (A) in the credit allowable

2 (without regard to subparagraph (A)) for the 1st

3 taxable year of the credit period shall be allow4 able under subsection (a) for the 1st taxable year

5 following the credit period.

6 ‘‘(3) CREDIT PERIOD FOR EXISTING BUILDINGS

7 NOT TO BEGIN BEFORE REHABILITATION CREDIT AL8 LOWED.—The credit period for an existing building

9 shall not begin before the 1st taxable year of the credit

10 period for rehabilitation expenditures with respect to

11 the building.

12 ‘‘(f) QUALIFIED RURAL INVESTMENT PROJECT; QUALI13 FYING COUNTY.—For purposes of this section—

14 ‘‘(1) QUALIFIED RURAL INVESTMENT PROJECT.—

15 The term ‘qualified rural investment project’ means

16 any investment project of 1 or more qualified rural

17 investment buildings located in a qualifying county

18 (and, if necessary to the project, any contiguous coun19 ty) and selected by the State according to its qualified

20 rural investment plan.

21 ‘‘(2) QUALIFYING COUNTY.—The term ‘qualifying

22 county’ means any county which—

23 ‘‘(A) is outside a metropolitan statistical

24 area (defined as such by the Office of Manage25 ment and Budget), and
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1 ‘‘(B) during the 20-year period ending with

2 the year in which the most recent census was

3 conducted, has a net out-migration of inhab4 itants from the county of at least 10 percent of

5 the population of the county at the beginning of

6 such period.

7 ‘‘(g) LIMITATION ON AGGREGATE CREDIT ALLOWABLE

8 WITH RESPECT TO INVESTMENT PROJECTS LOCATED IN A

9 STATE.—

10 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT AMOUNT

11 ALLOCATED TO BUILDING.—The amount of the credit

12 determined under this section for any taxable year

13 with respect to any building shall not exceed the rural

14 investment credit dollar amount allocated to such

15 building under rules similar to the rules of section

16 42(h)(1).

17 ‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY TO

18 ALL TAXABLE YEARS ENDING DURING OR AFTER

19 CREDIT ALLOCATION YEAR.—Any rural investment

20 credit dollar amount allocated to any building for

21 any calendar year—

22 ‘‘(A) shall apply to such building for all

23 taxable years in the credit period ending during

24 or after such calendar year, and
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1 ‘‘(B) shall reduce the aggregate rural invest2 ment credit dollar amount of the allocating agen3 cy only for such calendar year.

4 ‘‘(3) RURAL INVESTMENT CREDIT DOLLAR

5 AMOUNT FOR AGENCIES.—

6 ‘‘(A) IN GENERAL.—The aggregate rural in7 vestment credit dollar amount which a rural in8 vestment credit agency may allocate for any cal9 endar year is the portion of the State rural in10 vestment credit ceiling allocated under this para11 graph for such calendar year to such agency.

12 ‘‘(B) STATE CEILING INITIALLY ALLOCATED

13 TO STATE RURAL INVESTMENT CREDIT AGEN14 CIES.—Except as provided in subparagraphs (D)

15 and (E), the State rural investment credit ceil16 ing for each calendar year shall be allocated to

17 the rural investment credit agency of such State.

18 If there is more than 1 rural investment credit

19 agency of a State, all such agencies shall be

20 treated as a single agency.

21 ‘‘(C) STATE RURAL INVESTMENT CREDIT

22 CEILING.—The State rural investment credit

23 ceiling applicable to any State and any calendar

24 year shall be an amount equal to the sum of—
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1 ‘‘(i) the unused State rural investment

2 credit ceiling (if any) of such State for the

3 preceding calendar year,

4 ‘‘(ii) $185,000 for each qualifying

5 county in the State,

6 ‘‘(iii) the amount of State rural invest7 ment credit ceiling returned in the calendar

8 year, plus

9 ‘‘(iv) the amount (if any) allocated

10 under subparagraph (D) to such State by

11 the Secretary.

12 For purposes of clause (i), the unused State

13 rural investment credit ceiling for any calendar

14 year is the excess (if any) of the sum of the

15 amounts described in clauses (ii) through (iv)

16 over the aggregate rural investment credit dollar

17 amount allocated for such year. For purposes of

18 clause (iii), the amount of State rural invest19 ment credit ceiling returned in the calendar year

20 equals the rural investment credit dollar amount

21 previously allocated within the State to any in22 vestment project which fails to meet the 10 per23 cent test under section 42(h)(1)(E)(ii) on a date

24 after the close of the calendar year in which the

25 allocation was made or which does not become a
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1 qualified rural investment project within the pe2 riod required by this section or the terms of the

3 allocation or to any investment project with re4 spect to which an allocation is canceled by mu5 tual consent of the rural investment credit agen6 cy and the allocation recipient.

7 ‘‘(D) UNUSED RURAL INVESTMENT CREDIT

8 CARRYOVERS ALLOCATED AMONG CERTAIN

9 STATES.—

10 ‘‘(i) IN GENERAL.—The unused rural

11 investment credit carryover of a State for

12 any calendar year shall be assigned to the

13 Secretary for allocation among qualified

14 States for the succeeding calendar year.

15 ‘‘(ii) UNUSED RURAL INVESTMENT

16 CREDIT CARRYOVER.—For purposes of this

17 subparagraph, the unused rural investment

18 credit carryover of a State for any calendar

19 year is the excess (if any) of the unused

20 State rural investment credit ceiling for

21 such year (as defined in subparagraph

22 (C)(i)) over the excess (if any) of—

23 ‘‘(I) the unused State rural in24 vestment credit ceiling for the year

25 preceding such year, over
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1 ‘‘(II) the aggregate rural invest2 ment credit dollar amount allocated for

3 such year.

4 ‘‘(iii) FORMULA FOR ALLOCATION OF

5 UNUSED RURAL INVESTMENT CREDIT

6 CARRYOVERS AMONG QUALIFIED STATES.—

7 The amount allocated under this subpara8 graph to a qualified State for any calendar

9 year shall be the amount determined by the

10 Secretary to bear the same ratio to the ag11 gregate unused rural investment credit

12 carryovers of all States for the preceding

13 calendar year as such State’s population for

14 the calendar year bears to the population of

15 all qualified States for the calendar year.

16 For purposes of the preceding sentence, pop17 ulation shall be determined in accordance

18 with section 146(j).

19 ‘‘(iv) QUALIFIED STATE.—For pur20 poses of this subparagraph, the term ‘quali21 fied State’ means, with respect to a cal22 endar year, any State—

23 ‘‘(I) which allocated its entire

24 State rural investment credit ceiling

25 for the preceding calendar year, and
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1 ‘‘(II) for which a request is made

2 (not later than May 1 of the calendar

3 year) to receive an allocation under

4 clause (iii).

5 ‘‘(E) STATE MAY PROVIDE FOR DIFFERENT

6 ALLOCATION.—Rules similar to the rules of sec7 tion 146(e) (other than paragraph (2)(B) there8 of) shall apply for purposes of this paragraph.

9 ‘‘(F) POPULATION.—For purposes of this

10 paragraph, population shall be determined in ac11 cordance with section 146(j).

12 ‘‘(G) COST-OF-LIVING ADJUSTMENT.—

13 ‘‘(i) IN GENERAL.—In the case of a

14 calendar year after 2005, the $185,000

15 amount in subparagraph (C) shall be in16 creased by an amount equal to—

17 ‘‘(I) such dollar amount, multi18 plied by

19 ‘‘(II) the cost-of-living adjustment

20 determined under section 1(f )(3) for

21 such calendar year by substituting ‘cal22 endar year 2004’ for ‘calendar year

23 1992’ in subparagraph (B) thereof.

24 ‘‘(ii) ROUNDING.—Any increase under

25 clause (i) which is not a multiple of $5,000
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1 shall be rounded to the next lowest multiple

2 of $5,000.

3 ‘‘(4) PORTION OF STATE CEILING SET-ASIDE FOR

4 CERTAIN INVESTMENT PROJECTS INVOLVING QUALI5 FIED NONPROFIT ORGANIZATIONS.—

6 ‘‘(A) IN GENERAL.—At least 10 percent of

7 the State rural investment credit ceiling for any

8 State for any calendar year shall be allocated to

9 qualified rural investment projects described in

10 subparagraph (B).

11 ‘‘(B) INVESTMENT PROJECTS INVOLVING

12 QUALIFIED NONPROFIT ORGANIZATIONS.—For

13 purposes of subparagraph (A), a qualified rural

14 investment project is described in this subpara15 graph if a qualified nonprofit organization is to

16 materially participate (within the meaning of

17 section 469(h)) in the development and operation

18 of the investment project throughout the compli19 ance period.

20 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA21 TION.—For purposes of this paragraph, the term

22 ‘qualified nonprofit organization’ means any or23 ganization if—
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1 ‘‘(i) such organization is described in

2 any paragraph of section 501(c) and is ex3 empt from tax under section 501(a),

4 ‘‘(ii) such organization is determined

5 by the State rural investment credit agency

6 not to be affiliated with or controlled by a

7 for-profit organization; and

8 ‘‘(iii) 1 of the exempt purposes of such

9 organization includes the fostering of rural

10 investment.

11 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI12 ARIES.—

13 ‘‘(i) IN GENERAL.—For purposes of

14 this paragraph, a qualified nonprofit orga15 nization shall be treated as satisfying the

16 ownership and material participation test

17 of subparagraph (B) if any qualified cor18 poration in which such organization holds

19 stock satisfies such test.

20 ‘‘(ii) QUALIFIED CORPORATION.—For

21 purposes of clause (i), the term ‘qualified

22 corporation’ means any corporation if 100

23 percent of the stock of such corporation is

24 held by 1 or more qualified nonprofit orga-
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1 nizations at all times during the period

2 such corporation is in existence.

3 ‘‘(E) STATE MAY NOT OVERRIDE SET4 ASIDE.—Nothing in subparagraph (F) of para5 graph (3) shall be construed to permit a State

6 not to comply with subparagraph (A) of this

7 paragraph.

8 ‘‘(F) CREDITS FOR QUALIFIED NONPROFIT

9 ORGANIZATIONS.—

10 ‘‘(i) ALLOWANCE OF CREDIT.—Any

11 credit which would be allowable under sub12 section (a) with respect to a qualified rural

13 investment building of a qualified nonprofit

14 organization if such organization were not

15 exempt from tax under this chapter shall be

16 treated as a credit allowable under subpart

17 C to such organization.

18 ‘‘(ii) USE OF CREDIT.—A qualified

19 nonprofit organization may assign, trade,

20 sell, or otherwise transfer any credit allow21 able to such organization under subpara22 graph (A) to any taxpayer.

23 ‘‘(iii) CREDIT NOT INCOME.—A trans24 fer under subparagraph (B) of any credit
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1 allowable under subparagraph (A) shall not

2 result in income for purposes of section 511.

3 ‘‘(5) SPECIAL RULES.—

4 ‘‘(A) BUILDING MUST BE LOCATED WITHIN

5 JURISDICTION OF CREDIT AGENCY.—A rural in6 vestment credit agency may allocate its aggregate

7 rural investment credit dollar amount only to

8 buildings located in the jurisdiction of the gov9 ernmental unit of which such agency is a part.

10 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

11 LIMIT.—If the aggregate rural investment credit

12 dollar amounts allocated by a rural investment

13 credit agency for any calendar year exceed the

14 portion of the State rural investment credit ceil15 ing allocated to such agency for such calendar

16 year, the rural investment credit dollar amounts

17 so allocated shall be reduced (to the extent of

18 such excess) for buildings in the reverse of the

19 order in which the allocations of such amounts

20 were made.

21 ‘‘(C) CREDIT REDUCED IF ALLOCATED

22 CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT

23 WHICH WOULD BE ALLOWABLE WITHOUT RE24 GARD TO SALES CONVENTION, ETC.—
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1 ‘‘(i) IN GENERAL.—The amount of the

2 credit determined under this section with

3 respect to any building shall not exceed the

4 clause (ii) percentage of the amount of the

5 credit which would (but for this subpara6 graph) be determined under this section

7 with respect to such building.

8 ‘‘(ii) DETERMINATION OF PERCENT9 AGE.—For purposes of clause (i), the clause

10 (ii) percentage with respect to any building

11 is the percentage which—

12 ‘‘(I) the rural investment credit

13 dollar amount allocated to such build14 ing bears to

15 ‘‘(II) the credit amount deter16 mined in accordance with clause (iii).

17 ‘‘(iii) DETERMINATION OF CREDIT

18 AMOUNT.—The credit amount determined in

19 accordance with this clause is the amount of

20 the credit which would (but for this sub21 paragraph) be determined under this section

22 with respect to the building if this section

23 were applied without regard to paragraph

24 (2)(A) of subsection (e).
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1 ‘‘(D) RURAL INVESTMENT CREDIT AGENCY

2 TO SPECIFY APPLICABLE PERCENTAGE AND MAX3 IMUM ELIGIBLE BASIS.—In allocating a rural

4 investment credit dollar amount to any building,

5 the rural investment credit agency shall specify

6 the applicable percentage and the maximum eli7 gible basis which may be taken into account

8 under this section with respect to such building.

9 The applicable percentage and maximum eligible

10 basis so specified shall not exceed the applicable

11 percentage and eligible basis determined under

12 this section without regard to this subsection.

13 ‘‘(6) OTHER DEFINITIONS.—For purposes of this

14 subsection—

15 ‘‘(A) RURAL INVESTMENT CREDIT AGEN16 CY.—The term ‘rural investment credit agency’

17 means any agency authorized to carry out this

18 subsection.

19 ‘‘(B) POSSESSIONS TREATED AS STATES.—

20 The term ‘State’ includes a possession of the

21 United States.

22 ‘‘(7) PORTION OF STATE CEILING SET-ASIDE FOR

23 QUALIFIED RURAL SMALL BUSINESS INVESTMENT

24 CREDITS.—Not more than 10 percent of the State

25 rural investment credit ceiling for any State for any
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1 calendar year may be allocated to qualified rural

2 small business investment credits under section 42B.

3 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur4 poses of this section—

5 ‘‘(1) COMPLIANCE PERIOD.—The term ‘compli6 ance period’ means, with respect to any building, the

7 period of 10 taxable years beginning with the 1st tax8 able year of the credit period with respect thereto.

9 ‘‘(2) NEW BUILDING.—The term ‘new building’

10 means a building the original use of which begins

11 with the taxpayer.

12 ‘‘(3) EXISTING BUILDING.—The term ‘existing

13 building’ means any building which is not a new

14 building.

15 ‘‘(4) APPLICATION TO ESTATES AND TRUSTS.—In

16 the case of an estate or trust, the amount of the credit

17 determined under subsection (a) and any increase in

18 tax under subsection (i) shall be apportioned between

19 the estate or trust and the beneficiaries on the basis

20 of the income of the estate or trust allocable to each.

21 ‘‘(i) RECAPTURE OF CREDIT.—If—

22 ‘‘(1) as of the close of any taxable year in the

23 compliance period, the amount of the eligible basis of

24 any building with respect to the taxpayer is less than
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1 ‘‘(2) the amount of such basis as of the close of

2 the preceding taxable year,

3 then the taxpayer’s tax under this chapter for the tax4 able year shall be increased by the credit recapture

5 amount determined under rules similar to the rules of

6 section 42(j).

7 ‘‘(j) CERTIFICATIONS AND OTHER REPORTS TO SEC8 RETARY.—

9 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST YEAR

10 OF CREDIT PERIOD.—Following the close of the 1st

11 taxable year in the credit period with respect to any

12 qualified rural investment building, the taxpayer

13 shall certify to the Secretary (at such time and in

14 such form and in such manner as the Secretary pre15 scribes)—

16 ‘‘(A) the taxable year, and calendar year, in

17 which such building was first placed in service,

18 ‘‘(B) the eligible basis of such building as of

19 the beginning of the credit period,

20 ‘‘(C) the maximum applicable percentage

21 and eligible basis permitted to be taken into ac22 count by the appropriate rural investment credit

23 agency under subsection (g),
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1 ‘‘(D) the election made under subsection (f)

2 with respect to the qualified rural investment

3 project of which such building is a part, and

4 ‘‘(E) such other information as the Sec5 retary may require.

6 In the case of a failure to make the certification re7 quired by the preceding sentence on the date pre8 scribed therefor, unless it is shown that such failure

9 is due to reasonable cause and not to willful neglect,

10 no credit shall be allowable by reason of subsection (a)

11 with respect to such building for any taxable year

12 ending before such certification is made.

13 ‘‘(2) ANNUAL REPORTS TO THE SECRETARY.—

14 The Secretary may require taxpayers to submit an

15 information return (at such time and in such form

16 and manner as the Secretary prescribes) for each tax17 able year setting forth—

18 ‘‘(A) the eligible basis for the taxable year

19 of each qualified rural investment building of the

20 taxpayer,

21 ‘‘(B) the information described in para22 graph (1)(C) for the taxable year, and

23 ‘‘(C) such other information as the Sec24 retary may require.
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1 The penalty under section 6652(j) shall apply to any

2 failure to submit the return required by the Secretary

3 under the preceding sentence on the date prescribed

4 therefor.

5 ‘‘(3) ANNUAL REPORTS FROM RURAL INVEST6 MENT CREDIT AGENCIES.—Each agency which allo7 cates any rural investment credit amount to any

8 building for any calendar year shall submit to the

9 Secretary (at such time and in such manner as the

10 Secretary shall prescribe) an annual report

11 specifying—

12 ‘‘(A) the amount of rural investment credit

13 amount allocated to each building for such year,

14 ‘‘(B) sufficient information to identify each

15 such building and the taxpayer with respect

16 thereto, and

17 ‘‘(C) such other information as the Sec18 retary may require.

19 The penalty under section 6652(j) shall apply to any

20 failure to submit the report required by the preceding

21 sentence on the date prescribed therefor.

22 ‘‘(k) RESPONSIBILITIES OF RURAL INVESTMENT

23 CREDIT AGENCIES.—

24 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT AMONG

25 INVESTMENT PROJECTS.—
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1 ‘‘(A) IN GENERAL.—Notwithstanding any

2 other provision of this section, the rural invest3 ment credit dollar amount with respect to any

4 building shall be zero unless—

5 ‘‘(i) such amount was allocated pursu6 ant to a qualified rural investment plan of

7 the agency which is approved by the govern8 mental unit (in accordance with rules simi9 lar to the rules of section 147(f)(2) (other

10 than subparagraph (B)(ii) thereof)) of

11 which such agency is a part,

12 ‘‘(ii) such agency notifies the chief ex13 ecutive officer (or the equivalent) of the local

14 jurisdiction within which the building is lo15 cated of such investment project and pro16 vides such individual a reasonable oppor17 tunity to comment on the investment

18 project,

19 ‘‘(iii) a comprehensive market study of

20 the development needs of individuals in the

21 qualifying county to be served by the invest22 ment project is conducted before the credit

23 allocation is made and at the developer’s ex24 pense by a disinterested party who is ap25 proved by such agency, and
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1 ‘‘(iv) a written explanation is avail2 able to the general public for any allocation

3 of a rural investment credit dollar amount

4 which is not made in accordance with es5 tablished priorities and selection criteria of

6 the rural investment credit agency.

7 ‘‘(B) QUALIFIED RURAL INVESTMENT

8 PLAN.—For purposes of this section, the term

9 ‘qualified rural investment plan’ means any

10 plan—

11 ‘‘(i) which sets forth selection criteria

12 to be used to determine priorities of the

13 rural investment credit agency which are

14 appropriate to qualifying counties,

15 ‘‘(ii) which also gives preference in al16 locating rural investment credit dollar

17 amounts among selected investment projects

18 to—

19 ‘‘(I) investment projects that tar20 get those small rural counties with con21 sistently high rates of net out-migra22 tion,

23 ‘‘(II) investment projects that link

24 the economic development and job cre25 ation efforts of 2 or more small rural
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1 counties with high rates of net out-mi2 gration, and

3 ‘‘(III) investment projects that

4 link the economic development and job

5 creation efforts of 1 or more small

6 rural counties in the State with high

7 rates of net out-migration to related ef8 forts in regions of such State experi9 encing economic growth, and

10 ‘‘(iii) which provides a procedure that

11 the agency (or an agent or other private

12 contractor of such agency) will follow in

13 monitoring for noncompliance with the pro14 visions of this section and in notifying the

15 Internal Revenue Service of such non16 compliance which such agency becomes

17 aware of and in monitoring for noncompli18 ance through regular site visits.

19 ‘‘(C) CERTAIN SELECTION CRITERIA MUST

20 BE USED.—The selection criteria set forth in a

21 qualified rural investment plan must include—

22 ‘‘(i) investment project location,

23 ‘‘(ii) technology and transportation in24 frastructure needs, and

25 ‘‘(iii) private development trends.
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1 ‘‘(2) CREDIT ALLOCATED TO BUILDING NOT TO

2 EXCEED AMOUNT NECESSARY TO ASSURE INVESTMENT

3 PROJECT FEASIBILITY.—

4 ‘‘(A) IN GENERAL.—The rural investment

5 credit dollar amount allocated to an investment

6 project shall not exceed the amount the rural in7 vestment credit agency determines is necessary

8 for the financial feasibility of the investment

9 project and its viability as a qualified rural in10 vestment project throughout the compliance pe11 riod.

12 ‘‘(B) AGENCY EVALUATION.—In making the

13 determination under subparagraph (A), the

14 rural investment credit agency shall consider—

15 ‘‘(i) the sources and uses of funds and

16 the total financing planned for the invest17 ment project,

18 ‘‘(ii) any proceeds or receipts expected

19 to be generated by reason of tax benefits,

20 ‘‘(iii) the percentage of the rural in21 vestment credit dollar amount used for in22 vestment project costs other than the cost of

23 intermediaries, and
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1 ‘‘(iv) the reasonableness of the develop2 mental and operational costs of the invest3 ment project.

4 Clause (iii) shall not be applied so as to impede

5 the development of investment projects in hard6 to-develop areas.

7 ‘‘(C) DETERMINATION MADE WHEN CREDIT

8 AMOUNT APPLIED FOR AND WHEN BUILDING

9 PLACED IN SERVICE.—

10 ‘‘(i) IN GENERAL.—A determination

11 under subparagraph (A) shall be made as of

12 each of the following times:

13 ‘‘(I) The application for the rural

14 investment credit dollar amount.

15 ‘‘(II) The allocation of the rural

16 investment credit dollar amount.

17 ‘‘(III) The date the building is

18 first placed in service.

19 ‘‘(ii) CERTIFICATION AS TO AMOUNT OF

20 OTHER SUBSIDIES.—Prior to each deter21 mination under clause (i), the taxpayer

22 shall certify to the rural investment credit

23 agency the full extent of all Federal, State,

24 and local subsidies which apply (or which
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1 the taxpayer expects to apply) with respect

2 to the building.

3 ‘‘(l) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary or appropriate to

5 carry out the purposes of this section, including

6 regulations—

7 ‘‘(1) dealing with—

8 ‘‘(A) investment projects which include

9 more than 1 building or only a portion of a

10 building,

11 ‘‘(B) buildings which are sold in portions,

12 ‘‘(2) providing for the application of this section

13 to short taxable years,

14 ‘‘(3) preventing the avoidance of the rules of this

15 section, and

16 ‘‘(4) providing the opportunity for rural invest17 ment credit agencies to correct administrative errors

18 and omissions with respect to allocations and record

19 keeping within a reasonable period after their dis20 covery, taking into account the availability of regula21 tions and other administrative guidance from the Sec22 retary.’’.

23 (b) CURRENT YEAR BUSINESS CREDIT CALCULA24 TION.—Section 38(b) (relating to current year business

25 credit), as amended by this Act, is amended by striking
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1 ‘‘plus’’ at the end of paragraph (16), by striking the period

2 at the end of paragraph (17) and inserting ‘‘, plus’’, and

3 by adding at the end the following:

4 ‘‘(18) the rural investment credit determined

5 under section 42A(a).’’.

6 (c) LIMITATION ON CARRYBACK.—Subsection (d) of

7 section 39 (relating to carryback and carryforward of un8 used credits), as amended by this Act, is amended by adding

9 at the end the following:

10 ‘‘(12) NO CARRYBACK OF RURAL INVESTMENT

11 CREDIT BEFORE EFFECTIVE DATE.—No portion of the

12 unused business credit for any taxable year which is

13 attributable to the rural investment credit determined

14 under section 42A may be carried back to a taxable

15 year beginning before the date of the enactment of the

16 Jumpstart Our Business Strength (JOBS) Act.’’.

17 (d) CONFORMING AMENDMENTS.—

18 (1) Section 55(c)(1) is amended by inserting ‘‘or

19 subsection (i) or (j) of section 42A’’ after ‘‘section 42’’.

20 (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and

21 (k)(1) of section 469 are each amended by inserting

22 ‘‘or 42A’’ after ‘‘section 42’’.

23 (3) Section 772(a) is amended by striking ‘‘and’’

24 at the end of paragraph (10), by redesignating para-
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1 graph (11) as paragraph (12), and by inserting after

2 paragraph (10) the following:

3 ‘‘(11) the rural investment credit determined

4 under section 42A, and’’.

5 (4) Section 774(b)(4) is amended by inserting ‘‘,

6 42A(i),’’ after ‘‘section 42(j)’’.

7 (e) CLERICAL AMENDMENT.—The table of sections for

8 subpart D of part IV of subchapter A of chapter 1 is amend9 ed by inserting after the item relating to section 42 the fol10 lowing:

‘‘Sec. 42A. Rural investment credit.’’.

11 (f) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to expenditures made in taxable years

13 beginning after the date of the enactment of this Act.

14 SEC. 634. QUALIFIED RURAL SMALL BUSINESS INVESTMENT

15 CREDIT.

16 (a) IN GENERAL.—Subpart D of part IV of subchapter

17 A of chapter 1 (relating to business related credits), as

18 amended by this Act, is amended by adding at the end the

19 following:

20 ‘‘SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVEST21 MENT CREDIT.

22 ‘‘(a) IN GENERAL.—For purposes of section 38, in the

23 case of a qualified rural small business, the amount of the

24 qualified rural small business investment credit determined

25 under this section for any taxable year is equal to 30 per-
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1 cent of the qualified expenditures for the taxable year of

2 such business.

3 ‘‘(b) DOLLAR LIMITATION.—

4 ‘‘(1) IN GENERAL.—The credit allowable under

5 subsection (a) for any taxable year shall not exceed

6 the lesser of—

7 ‘‘(A) $5,000, or

8 ‘‘(B) the amount when added to the aggre9 gate credits allowable to the taxpayer under sub10 section (a) for all preceding taxable years does

11 not exceed $25,000.

12 ‘‘(2) NO DOUBLE CREDIT ALLOWED.—In the case

13 of any qualified rural small business which places in

14 service a qualified rural investment building with re15 spect to which a rural investment credit is allowed

16 under section 42A for any taxable year, paragraph

17 (1)(A) shall be applied with respect to such taxable

18 year by substituting ‘zero’ for ‘$5,000’.

19 ‘‘(c) QUALIFIED RURAL SMALL BUSINESS.—For pur20 poses of this section, the term ‘qualified rural small busi21 ness’ means any person if such person—

22 ‘‘(1) employed not more than 5 full-time employ23 ees during the taxable year,

24 ‘‘(2) materially and substantially participates in

25 management,
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1 ‘‘(3) is located in a qualifying county, and

2 ‘‘(4) submitted a qualified business plan with re3 spect to which the rural investment credit agency

4 with jurisdiction over such qualifying county has al5 located a portion of the State rural investment ceiling

6 for such taxable year under section 42A(g)(7).

7 For purposes of paragraph (1), an employee shall be consid8 ered full-time if such employee is employed at least 30 hours

9 per week for 20 or more calendar weeks in the taxable year.

10 ‘‘(d) QUALIFIED EXPENDITURES.—For purposes of

11 this section—

12 ‘‘(1) IN GENERAL.—The term ‘qualified expendi13 tures’ means expenditures normally associated with

14 starting or expanding a business and included in a

15 qualified business plan, including costs for capital,

16 plant and equipment, inventory expenses, and wages,

17 but not including interest costs.

18 ‘‘(2) ONLY CERTAIN EXPENDITURES INCLUDED

19 FOR EXISTING BUSINESSES.—In the case of a quali20 fied rural small business with respect to which a cred21 it under subsection (a) was allowed for a preceding

22 taxable year, such term shall include only so much of

23 the expenditures described in paragraph (1) for the

24 taxable year as exceed the aggregate of such expendi25 tures for the preceding taxable year.
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1 ‘‘(e) QUALIFIED BUSINESS PLAN.—For purposes of

2 this section, the term ‘qualified business plan’ means a busi3 ness plan which—

4 ‘‘(1) has been approved by the rural investment

5 credit agency with jurisdiction over the qualifying

6 county in which the qualified rural small business is

7 located pursuant to such agency’s rural investment

8 plan, and

9 ‘‘(2) meets such requirements as the agency may

10 specify.

11 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—In the case of the

12 amount of the credit determined under this section—

13 ‘‘(1) no deduction or credit shall be allowed for

14 such amount under any other provision of this chap15 ter, and

16 ‘‘(2) no increase in the adjusted basis of any

17 property shall result from such amount.

18 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur19 poses of this section—

20 ‘‘(1) any term which is used in this section

21 which is used in section 42A shall have the meaning

22 given such term by section 42A, and

23 ‘‘(2) rules similar to the rules under subsections

24 (j)(2), (j)(3), and (k) of section 42A shall apply.’’.
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1 (b) CURRENT YEAR BUSINESS CREDIT CALCULA2 TION.—Section 38(b) (relating to current year business

3 credit), as amended by this Act, is amended by striking

4 ‘‘plus’’ at the end of paragraph (17), by striking the period

5 at the end of paragraph (18) and inserting ‘‘, plus’’, and

6 by adding at the end the following:

7 ‘‘(19) the qualified rural small business invest8 ment credit determined under section 42B(a).’’.

9 (c) LIMITATION ON CARRYBACK.—Subsection (d) of

10 section 39 (relating to carryback and carryforward of un11 used credits), as amended by this Act, is amended by adding

12 at the end the following:

13 ‘‘(13) NO CARRYBACK OF QUALIFIED RURAL

14 SMALL BUSINESS INVESTMENT CREDIT BEFORE EF15 FECTIVE DATE.—No portion of the unused business

16 credit for any taxable year which is attributable to

17 the qualified rural small business investment credit

18 determined under section 42B may be carried back to

19 a taxable year beginning before the date of the enact20 ment of the Jumpstart Our Business Strength

21 (JOBS) Act.’’.

22 (d) CLERICAL AMENDMENT.—The table of sections for

23 subpart D of part IV of subchapter A of chapter 1, as

24 amended by this Act, is amended by inserting after the item

25 relating to section 42A the following:

‘‘Sec. 42B. Qualified rural small business investment credit.’’.
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1 (e) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to expenditures made in taxable years

3 beginning after the date of the enactment of this Act.

4 SEC. 635. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.

5 (a) IN GENERAL.—Subpart D of part IV of subchapter

6 A of chapter 1 (relating to business-related credits), as

7 amended by this Act, is amended by adding at the end the

8 following new section:

9 ‘‘SEC. 45I. RAILROAD TRACK MAINTENANCE CREDIT.

10 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

11 railroad track maintenance credit determined under this

12 section for the taxable year is an amount equal to 30 per13 cent of the qualified railroad track maintenance expendi14 tures paid or incurred by an eligible taxpayer during the

15 taxable year.

16 ‘‘(b) LIMITATION.—The credit allowed under sub17 section (a) for any taxable year shall not exceed the product

18 of—

19 ‘‘(1) $3,500, and

20 ‘‘(2) the number of miles of railroad track owned

21 or leased by the eligible taxpayer as of the close of the

22 taxable year.

23 ‘‘(c) ELIGIBLE TAXPAYER.—For purposes of this sec24 tion, the term ‘eligible taxpayer’ means—

25 ‘‘(1) any Class II or Class III railroad, and
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1 ‘‘(2) any person who transports property using

2 the rail facilities of a person described in paragraph

3 (1) or who furnishes railroad-related property or serv4 ices to such a person.

5 ‘‘(d) QUALIFIED RAILROAD TRACK MAINTENANCE EX6 PENDITURES.—For purposes of this section, the term ‘quali7 fied railroad track maintenance expenditures’ means ex8 penditures (whether or not otherwise chargeable to capital

9 account) for maintaining railroad track (including road10 bed, bridges, and related track structures) owned or leased

11 as of January 1, 2005, by a Class II or Class III railroad.

12 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—

13 ‘‘(1) CLASS II OR CLASS III RAILROAD.—For

14 purposes of this section, the terms ‘Class II railroad’

15 and ‘Class III railroad’ have the meanings given such

16 terms by the Surface Transportation Board.

17 ‘‘(2) CONTROLLED GROUPS.—Rules similar to

18 the rules of paragraph (1) of section 41(f) shall apply

19 for purposes of this section.

20 ‘‘(3) BASIS ADJUSTMENT.—For purposes of this

21 subtitle, if a credit is allowed under this section with

22 respect to any railroad track, the basis of such track

23 shall be reduced by the amount of the credit so al24 lowed.
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1 ‘‘(f) APPLICATION OF SECTION.—This section shall

2 apply to qualified railroad track maintenance expenditures

3 paid or incurred during taxable years beginning after De4 cember 31, 2004, and before January 1, 2008.’’.

5 (b) LIMITATION ON CARRYBACK.—Section 39(d) (relat6 ing to transition rules), as amended by this Act, is amended

7 by adding at the end the following new paragraph:

8 ‘‘(14) NO CARRYBACK OF RAILROAD TRACK MAIN9 TENANCE CREDIT BEFORE EFFECTIVE DATE.—No por10 tion of the unused business credit for any taxable year

11 which is attributable to the railroad track mainte12 nance credit determined under section 45I may be

13 carried to a taxable year beginning before January 1,

14 2005.’’.

15 (c) CONFORMING AMENDMENTS.—

16 (1) Section 38(b) (relating to general business

17 credit), as amended by this Act, is amended by strik18 ing ‘‘plus’’ at the end of paragraph (18), by striking

19 the period at the end of paragraph (19) and inserting

20 ‘‘, plus’’, and by adding at the end the following new

21 paragraph:

22 ‘‘(20) the railroad track maintenance credit de23 termined under section 45I(a).’’.

24 (2) Subsection (a) of section 1016, as amended

25 by this Act, is amended by striking ‘‘and’’ at the end
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1 of paragraph (28), by striking the period at the end

2 of paragraph (29) and inserting ‘‘, and’’, and by add3 ing at the end the following new paragraph:

4 ‘‘(30) in the case of railroad track with respect

5 to which a credit was allowed under section 45I, to

6 the extent provided in section 45I(e)(3).’’.

7 (d) CLERICAL AMENDMENT.—The table of sections for

8 subpart D of part IV of subchapter A of chapter 1, as

9 amended by this Act, is amended by inserting after the item

10 relating to section 45H the following new item:

‘‘Sec. 45I. Railroad track maintenance credit.’’.

11 (e) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to taxable years beginning after Decem13 ber 31, 2004.

14 SEC. 636. RAILROAD REVITALIZATION AND SECURITY IN15 VESTMENT CREDIT.

16 (a) RAILROAD REVITALIZATION AND SECURITY IN17 VESTMENT CREDIT.—

18 (1) IN GENERAL.—Subpart D of part IV of sub19 chapter A of chapter 1 (relating to business-related

20 credits), as amended by this Act, is amended by add21 ing at the end the following new section:

22 ‘‘SEC. 45J. RAILROAD REVITALIZATION AND SECURITY IN23 VESTMENT CREDIT.

24 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

25 railroad revitalization and security investment credit deter-
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1 mined under this section for the taxable year is the amount

2 equal to 50 percent of the qualified project expenditures

3 paid or incurred by the taxpayer during the taxable year.

4 ‘‘(b) QUALIFIED PROJECT EXPENDITURES.—

5 ‘‘(1) IN GENERAL.—For purposes of this section,

6 the term ‘qualified project expenditures’ means, with

7 respect to any project for intercity passenger rail

8 transportation (as defined under section 24102 of title

9 49, United States Code) which is included in a State

10 rail plan, expenditures (whether or not otherwise

11 chargeable to capital account) for—

12 ‘‘(A) planning,

13 ‘‘(B) environmental review and environ14 mental impact mitigation,

15 ‘‘(C) track and track structure rehabilita16 tion, relocation, improvement, and development,

17 ‘‘(D) railroad safety and security improve18 ments,

19 ‘‘(E) communications and signaling im20 provements,

21 ‘‘(F) intercity passenger rail equipment ac22 quisition, and

23 ‘‘(G) rail station and intermodal facilities

24 development.
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1 ‘‘(2) EXCEPTIONS.—An expenditure shall not be

2 treated as a qualified project expenditure unless all

3 persons which conduct rail operations over the infra4 structure with respect to which such an expenditure

5 is made—

6 ‘‘(A) are employers for purposes of the Rail7 road Retirement Act of 1974 and are carriers for

8 purposes of the Railway Labor Act (unless such

9 a person is an operator with respect to commuter

10 rail passenger transportation (as defined in sec11 tion 24102(4) of title 49, United States Code) of

12 a State or local government authority (as such

13 terms are defined in section 5302 of such title)

14 eligible to receive financial assistance under sec15 tion 5307 of such title, a contractor performing

16 services in connection with the operations with

17 respect to commuter rail passenger transpor18 tation (as so defined), or the Alaska Railroad or

19 its contractors),

20 ‘‘(B) provide assurances to the State that

21 any collective bargaining agreements with such a

22 person’s employees (including terms regulating

23 the contracting of work) will remain in full force

24 and effect according to the terms of the agree-
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1 ments for work performed for such a person on

2 the railroad transportation corridor, and

3 ‘‘(C) comply with the protective agreements

4 established under section 504 of the Railroad Re5 vitalization and Regulatory Reform Act of 1976

6 with respect to employees affected by actions

7 taken in connection with the project.

8 ‘‘(c) LIMITATION.—

9 ‘‘(1) IN GENERAL.—The amount of the credit al10 lowed under subsection (a) for any taxable year with

11 respect to any project for which qualified project ex12 penditures are made shall not exceed the limitation

13 allocated to such project under this subsection for the

14 calendar year in which the taxable year begins.

15 ‘‘(2) STATE LIMITATION.—

16 ‘‘(A) IN GENERAL.—There is a State rail17 road revitalization and security investment cred18 it limitation for each calendar year. Such limi19 tation is the amount which bears the same ratio

20 to $165,000,000 as the allocation number for

21 such State bears to the allocation number for all

22 States.

23 ‘‘(B) ALLOCATION NUMBER.—For purposes

24 of subparagraph (A), the allocation number is,
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1 with respect to any State, the sum of the fol2 lowing:

3 ‘‘(i) The number of railroad and public

4 road at grade crossings on intercity pas5 senger rail routes within the State.

6 ‘‘(ii) The number of intercity passenger

7 train miles within the State.

8 ‘‘(iii) The number of intercity embar9 kations and disembarkations for each pas10 senger within the State.

11 ‘‘(3) UNUSED CREDIT CARRYOVERS ALLOCATED

12 AMONG CERTAIN STATES.—

13 ‘‘(A) IN GENERAL.—The unused credit car14 ryover for all States for any calendar year shall

15 be reallocated to each qualified State in an

16 amount which bears the same ratio to the unused

17 credit carryover for all States for the calendar as

18 the allocation number for such qualified State

19 bears to the allocation number for all qualified

20 States.

21 ‘‘(B) UNUSED CREDIT CARRYOVER.—For

22 purposes of this paragraph, the term ‘unused

23 credit carryover’ means, with respect to any

24 State, the excess of the State limitation (deter25 mined under paragraph (2)) for the calendar
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1 year over the amount allocated by the State

2 under paragraph (4) for such calendar year.

3 ‘‘(C) QUALIFIED STATES.—For purposes of

4 this paragraph, the term ‘qualified State’ means

5 any State—

6 ‘‘(i) which allocated its entire State

7 limitation amount under paragraph (4) for

8 the calendar year, and

9 ‘‘(ii) for which a request is made to re10 ceive an allocation under this paragraph.

11 ‘‘(4) ALLOCATION WITHIN STATES.—Each State

12 shall allocate the limitation amount allocated to such

13 State under paragraphs (2) and (3) to projects for

14 intercity passenger rail transportation which are in15 cluded in the State rail plan of such State.

16 ‘‘(5) NEW YORK CITY RAIL PROJECTS.—

17 ‘‘(A) IN GENERAL.—In addition to the

18 amounts allocated under paragraph (2), the Sec19 retary shall allocate a limitation of $200,000,000

20 to New York City, New York, for qualified

21 project expenditures within the New York Lib22 erty Zone (as defined in section 1400L(h)) for

23 the period described in subsection (h).
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1 ‘‘(B) ALLOCATION AMONG PROJECTS.—Of

2 the limitation allocated under subparagraph

3 (A)—

4 ‘‘(i) $100,000,000 shall be allocated to

5 projects designated by the Mayor of New

6 York City, New York, and

7 ‘‘(ii) $100,000,000 shall be allocated to

8 projects designated by the Governor of New

9 York.

10 ‘‘(C) SPECIAL RULE REGARDING QUALIFIED

11 PROJECT EXPENDITURES.—For purposes of this

12 paragraph, a qualified project expenditure shall

13 include any expenditure for improvements to

14 subway systems, for commuter rail systems, for

15 rail links to airports, and for public infrastruc16 ture improvements in the vicinity of rail or sub17 way stations.

18 ‘‘(d) STATE RAIL PLAN.—For purposes of this section,

19 the term ‘State rail plan’ means a plan prepared and

20 maintained in accordance with chapter 225 of title 49,

21 United States Code.

22 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub23 title, if a credit is allowed under this section with respect

24 to any property, the basis of such property shall be reduced

25 by the amount of the credit so allowed.
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1 ‘‘(f) NO DOUBLE BENEFIT.—No credit shall be allowed

2 under this section with respect to any expenditures for

3 which a credit is allowed under section 45I.

4 ‘‘(g) CREDIT TRANSFERABILITY.—Any credit allow5 able under this section may be transferred (but not more

6 than once) if—

7 ‘‘(1) the credit exceeds the tax liability of the

8 taxpayer for the taxable year, or

9 ‘‘(2) the taxpayer is not subject to any tax im10 posed by this chapter by reason of having a tax-ex11 empt status.

12 ‘‘(h) APPLICATION OF SECTION.—This section shall

13 apply to qualified project expenditures paid or incurred

14 during taxable years beginning after December 31, 2004,

15 and before January 1, 2008.’’.

16 (2) LIMITATION ON CARRYBACK.—Section 39(d)

17 (relating to transition rules), as amended by this Act,

18 is amended by adding at the end the following new

19 paragraph:

20 ‘‘(15) NO CARRYBACK OF SECTION 45J CREDIT

21 BEFORE EFFECTIVE DATE.—No portion of the unused

22 business credit for any taxable year which is attrib23 utable to the credit determined under section 45J(a)

24 may be carried back to any taxable year beginning

25 before January 1, 2005.’’.
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1 (3) CONFORMING AMENDMENTS.—

2 (A) Section 38(b) (relating to general busi3 ness credit), as amended by this Act, is amended

4 by striking ‘‘plus’’ at the end of paragraph (19),

5 by striking the period at the end of paragraph

6 (20) and inserting ‘‘, plus’’, and by adding at

7 the end the following new paragraph:

8 ‘‘(21) the railroad revitalization and security in9 vestment credit determined under section 45J(a).’’.

10 (B) Subsection (a) of section 1016, as

11 amended by this Act, is amended by striking

12 ‘‘and’’ at the end of paragraph (29), by striking

13 the period at the end of paragraph (30) and in14 serting ‘‘, and’’, and by adding at the end the

15 following new paragraph:

16 ‘‘(31) in the case of property with respect to

17 which a credit was allowed under section 45J, to the

18 extent provided in section 45J(e).’’.

19 (4) CLERICAL AMENDMENT.—The table of sec20 tions for subpart D of part IV of subchapter A of

21 chapter 1, as amended by this Act, is amended by in22 serting after the item relating to section 45I the fol23 lowing new item:

‘‘Sec. 45J. Railroad revitalization and security investment credit.’’.
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1 (5) EFFECTIVE DATE.—The amendments made

2 by this section shall apply to taxable years beginning

3 after December 31, 2004.

4 (b) STATE RAIL PLANS.—

5 (1) IN GENERAL.—Part B of subtitle V of title

6 49, United States Code, is amended by adding at the

7 end the following:

8 ‘‘CHAPTER 225—STATE RAIL PLANS

‘‘Sec.

‘‘22501. Authority.

‘‘22502. Purposes.

‘‘22503. Transparency; coordination.

‘‘22504. Content.

‘‘22505. Approval.

‘‘22506. Definitions.

9 ‘‘§ 22501. Authority

10 ‘‘(a) IN GENERAL.—Each State may prepare and

11 maintain a State rail plan in accordance with the provi12 sions of this chapter.

13 ‘‘(b) REQUIREMENTS.—For the preparation and peri14 odic revision of a State rail plan, a State shall—

15 ‘‘(1) establish or designate a State rail transpor16 tation authority to prepare, maintain, coordinate,

17 and administer the plan;

18 ‘‘(2) establish or designate a State rail plan ap19 proval authority to approve the plan;
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1 ‘‘(3) make the State’s approved plan available to

2 the public and transmit a copy to the Secretary of

3 Transportation; and

4 ‘‘(4) revise the plan no less frequently than once

5 every 5 years.

6 ‘‘§ 22502. Purposes

7 ‘‘(a) PURPOSES.—The purposes of a State rail plan

8 are as follows:

9 ‘‘(1) To set forth State policy involving freight

10 and passenger rail transportation, including com11 muter rail operations, in the State.

12 ‘‘(2) To present priorities and strategies to en13 hance rail service in the State that benefits the public.

14 ‘‘(3) To serve as the basis for Federal and State

15 rail investments within the State.

16 ‘‘(b) CONTENT.—The State rail plan shall establish the

17 period covered by such plan.

18 ‘‘(c) CONSISTENCY WITH STATE TRANSPORTATION EF19 FORTS.—A State rail plan shall be consistent with the State

20 transportation planning goals and programs and shall set

21 forth rail transportation’s role within the State transpor22 tation system.

23 ‘‘§ 22503. Transparency; coordination

24 ‘‘(a) PREPARATION.—A State shall provide adequate

25 and reasonable notice and opportunity for comment and
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1 other input on a proposed State rail plan under this chap2 ter to the following:

3 ‘‘(1) The public.

4 ‘‘(2) Rail carriers.

5 ‘‘(3) Commuter and transit authorities operating

6 in, or affected by rail operations within, the State.

7 ‘‘(4) Units of local government.

8 ‘‘(5) Other parties interested in the preparation

9 and review of the State rail plan.

10 ‘‘(b) INTERGOVERNMENTAL COORDINATION.—A State

11 shall review the freight and passenger rail service activities

12 and initiatives of regional planning agencies, regional

13 transportation authorities, and municipalities within the

14 State, or in the region in which the State is located, while

15 preparing the plan, and shall include any recommendations

16 made by such agencies, authorities, and municipalities as

17 deemed appropriate by the State.

18 ‘‘§ 22504. Content

19 ‘‘(a) IN GENERAL.—Each State rail plan shall contain

20 the following:

21 ‘‘(1) An inventory of the existing overall rail

22 transportation system and rail services and facilities

23 within the State and an analysis of the role of rail

24 transportation within the State’s surface transpor25 tation system.
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1 ‘‘(2) A comprehensive review of all rail lines

2 within the State, including proposed high speed rail

3 corridors and significant rail line segments not cur4 rently in service.

5 ‘‘(3) A statement of the State’s passenger rail

6 service objectives, including minimum service levels,

7 for intercity passenger rail transportation routes in

8 the State.

9 ‘‘(4) A general analysis of rail’s transportation,

10 economic, and environmental impacts in the State,

11 including congestion mitigation, trade and economic

12 development, air quality, land-use, energy-use, and

13 community impacts.

14 ‘‘(5) A long-range rail investment program for

15 current and future freight and passenger infrastruc16 ture in the State that meets the requirements of sub17 section (b).

18 ‘‘(6) A statement of public financing issues for

19 rail projects and service in the State, including a list

20 of current and prospective public capital and oper21 ating funding resources, public subsidies, State tax22 ation, and other financial policies relating to rail in23 frastructure development.
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1 ‘‘(7) An identification of rail infrastructure

2 issues within the State that reflects consultation with

3 all relevant stake holders.

4 ‘‘(8) A review of major passenger and freight

5 intermodal rail connections and facilities within the

6 State, including seaports, and prioritized options to

7 maximize service integration and efficiency between

8 rail and other modes of transportation within the

9 State.

10 ‘‘(9) A review of publicly funded projects within

11 the State to improve rail transportation safety and

12 security, including all major projects funded under

13 section 130 of title 23.

14 ‘‘(10) A performance evaluation of passenger rail

15 services operating in the State, including possible im16 provements in those services, and a description of

17 strategies to achieve those improvements.

18 ‘‘(11) A compilation of studies and reports on

19 high-speed rail corridor development within the State

20 not included in a previous plan under this chapter,

21 and a plan for funding any recommended develop22 ment of such corridors in the State.

23 ‘‘(12) A statement that the State satisfies the

24 conditions set forth in section 22102.
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1 ‘‘(b) LONG-RANGE SERVICE AND INVESTMENT PRO2 GRAM.—

3 ‘‘(1) PROGRAM CONTENT.—A long-range rail in4 vestment program included in a State rail plan

5 under subsection (a)(5) shall include the following

6 matters:

7 ‘‘(A) Two lists for rail capital projects, 1

8 list for freight rail capital projects and 1 list for

9 intercity passenger rail capital projects.

10 ‘‘(B) A detailed funding plan for the

11 projects.

12 ‘‘(2) PROJECT LIST CONTENT.—The lists of

13 freight and intercity passenger rail capital projects

14 shall contain—

15 ‘‘(A) a description of the anticipated public

16 and private benefits of each such project; and

17 ‘‘(B) a statement of the correlation

18 between—

19 ‘‘(i) public funding contributions for

20 the projects; and

21 ‘‘(ii) the public benefits.

22 ‘‘(3) CONSIDERATIONS FOR PROJECT LIST.—In

23 preparing the list of freight and intercity passenger

24 rail capital projects, a State rail transportation au-
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1 thority shall take into consideration the following

2 matters:

3 ‘‘(A) Contributions made by non-Federal

4 and non-State sources through user fees, match5 ing funds, or other private capital involvement.

6 ‘‘(B) Rail capacity and congestion effects.

7 ‘‘(C) Effects to highway, aviation, and mar8 itime capacity, congestion, or safety.

9 ‘‘(D) Regional balance.

10 ‘‘(E) Environmental impact.

11 ‘‘(F) Economic and employment impacts.

12 ‘‘(G) Projected ridership and other service

13 measures for passenger rail projects.

14 ‘‘§ 22505. Approval

15 ‘‘The State rail plan approval authority established or

16 designated under section 22501(b)(2) may approve a State

17 rail plan for the purposes of this chapter if—

18 ‘‘(1) the plan meets all of the requirements appli19 cable to State plans under this chapter;

20 ‘‘(2) for each ready-to-commence project listed on

21 the ranked list of freight and intercity passenger rail

22 capital improvement projects under the plan—

23 ‘‘(A) the project meets all safety and envi24 ronmental requirements, including those pre25 scribed under the National Environmental Pol-
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1 icy Act of 1969 (42 U.S.C. 4331 et seq.) that are

2 applicable to the project under law; and

3 ‘‘(B) the State has entered into an agree4 ment with any owner of rail infrastructure or

5 right-of-way directly affected by the project that

6 provides for the State to proceed with the project

7 and includes assurances regarding capacity and

8 compensation for use of such infrastructure or

9 right-of-way, if applicable; and

10 ‘‘(3) the content of the plan is coordinated with

11 State transportation plans developed pursuant to sec12 tion 135 of title 23.

13 ‘‘§ 22506. Definitions

14 ‘‘In this chapter:

15 ‘‘(1) PRIVATE BENEFIT.—The term ‘private

16 benefit’—

17 ‘‘(A) means a benefit accrued to a person or

18 private entity, other than the National Railroad

19 Passenger Corporation, that directly improves

20 the economic and competitive condition of that

21 person or entity through improved assets, cost re22 ductions, service improvements, or other means;

23 and

24 ‘‘(B) shall be determined on a project-by25 project basis, based upon an agreement between
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1 the State and the affected persons or private en2 tities.

3 ‘‘(2) PUBLIC BENEFIT.—The term ‘public

4 benefit’—

5 ‘‘(A) means a benefit accrued to the public

6 in the form of enhanced mobility of people or

7 goods, environmental protection or enhancement,

8 congestion mitigation, enhanced trade and eco9 nomic development, improved air quality or

10 land use, more efficient energy use, enhanced

11 public safety or security, reduction of public ex12 penditures due to improved transportation effi13 ciency or infrastructure preservation, and other

14 positive community effects; and

15 ‘‘(B) shall be determined on a project-by16 project basis, based upon an agreement between

17 the State and the persons or private entities in18 volved in the project.

19 ‘‘(3) STATE.—The term ‘State’ means any of the

20 50 States and the District of Columbia.

21 ‘‘(4) STATE RAIL TRANSPORTATION AUTHOR22 ITY.—The term ‘State rail transportation authority’

23 means the State agency or official responsible under

24 the direction of the Chief Executive of the State or a

25 State law for preparation, maintenance, coordina-
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1 tion, and administration of the State rail plan under

2 this chapter.’’.

3 (2) CLERICAL AMENDMENT.—The table of chap4 ters at the beginning of subtitle V of title 49, United

5 States Code, is amended by inserting after the item

6 relating to chapter 223 the following:

‘‘225. STATE RAIL PLANS...................................................................................22501.’’.

7 SEC. 637. MODIFICATION OF TARGETED AREAS DES8 IGNATED FOR NEW MARKETS TAX CREDIT.

9 (a) IN GENERAL.—Paragraph (2) of section 45D(e) is

10 amended to read as follows:

11 ‘‘(2) TARGETED POPULATIONS.—The Secretary

12 shall prescribe regulations under which 1 or more tar13 geted populations (within the meaning of section

14 103(20) of the Riegle Community Development and

15 Regulatory Improvement Act of 1994 (12 U.S.C.

16 4702(20))) may be treated as low-income commu17 nities. Such regulations shall include procedures for

18 determining which entities are qualified active low19 income community businesses with respect to such

20 populations.’’.

21 (b) EFFECTIVE DATE.—The amendment made by this

22 section shall apply to designations made by the Secretary

23 of the Treasury after the date of the enactment of this Act.
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1 SEC. 638. MODIFICATION OF INCOME REQUIREMENT FOR

2 CENSUS TRACTS WITHIN HIGH MIGRATION

3 RURAL COUNTIES.

4 (a) IN GENERAL.—Section 45D(e) (relating to low-in5 come community) is amended by adding at the end the fol6 lowing new paragraph:

7 ‘‘(4) MODIFICATION OF INCOME REQUIREMENT

8 FOR CENSUS TRACTS WITHIN HIGH MIGRATION RURAL

9 COUNTIES.—

10 ‘‘(A) IN GENERAL.—In the case of a popu11 lation census tract located within a high migra12 tion rural county, paragraph (1)(B)(i) shall be

13 applied by substituting ‘85 percent’ for ‘80 per14 cent’.

15 ‘‘(B) HIGH MIGRATION RURAL COUNTY.—

16 For purposes of this paragraph, the term ‘high

17 migration rural county’ means any county

18 which, during the 20-year period ending with the

19 year in which the most recent census was con20 ducted, has a net out-migration of inhabitants

21 from the county of at least 10 percent of the pop22 ulation of the county at the beginning of such pe23 riod.’’.

24 (b) EFFECTIVE DATE.—The amendment made by this

25 section shall take effect as if included in the amendment
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1 made by section 121(a) of the Community Renewal Tax Re2 lief Act of 2000.

3 SEC. 639. CREDIT FOR INVESTMENT IN TECHNOLOGY TO

4 MAKE MOTION PICTURES MORE ACCESSIBLE

5 TO THE DEAF AND HARD OF HEARING.

6 (a) IN GENERAL.—

7 (1) ALLOWANCE OF CREDIT.—Subpart D of part

8 IV of subchapter A of chapter 1 (relating to business

9 related credits), as amended by this Act, is amended

10 by adding at the end the following new section:

11 ‘‘SEC. 45T. EXPENDITURES TO PROVIDE ACCESS TO MOTION

12 PICTURES FOR THE DEAF AND HARD OF

13 HEARING.

14 ‘‘(a) GENERAL RULE.—For purposes of section 38, in

15 the case of an eligible taxpayer, the motion picture accessi16 bility credit for any taxable year shall be an amount equal

17 to 50 percent of the qualified expenditures made by the eli18 gible taxpayer during the taxable year.

19 ‘‘(b) ELIGIBLE TAXPAYER.—For purposes of this sec20 tion, the term ‘eligible taxpayer’ means a taxpayer who is

21 in the business of—

22 ‘‘(1) showing motion pictures to the public in

23 theaters, or

24 ‘‘(2) producing or distributing such motion pic25 tures.
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1 ‘‘(c) QUALIFIED EXPENDITURES.—For purposes of

2 this section, the term ‘qualified expenditures’ means

3 amounts paid or incurred by the taxpayer for the purpose

4 of making motion pictures accessible to individuals who are

5 deaf or hard of hearing through the use of captioning tech6 nology.

7 ‘‘(d) BASIS ADJUSTMENT.—For purposes of this sub8 title, if a credit is allowed under this section with respect

9 to any property, the basis of such property shall be reduced

10 by the amount of the credit so allowed.

11 ‘‘(e) NO DOUBLE BENEFIT.—In the case of the credit

12 determined under this section, no deduction or credit shall

13 be allowed for such amount under any other provision of

14 this chapter.’’.

15 (2) CONFORMING AMENDMENTS.—

16 (A) Section 38(b) (relating to general busi17 ness credit), as amended by this Act, is amended

18 by striking ‘‘plus’’ at the end of paragraph (30),

19 by striking the period at the end of paragraph

20 (31) and inserting ‘‘, plus’’, and by adding at

21 the end the following new paragraph:

22 ‘‘(32) the motion picture accessibility credit de23 termined under section 45T(a).’’.

24 (B) Subsection (a) of section 1016, as

25 amended by this Act, is amended by striking
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1 ‘‘and’’ at the end of paragraph (38), by striking

2 the period at the end of paragraph (39) and in3 serting ‘‘, and’’, and by adding at the end the

4 following new paragraph:

5 ‘‘(40) in the case of property with respect to

6 which a credit was allowed under section 45T, to the

7 extent provided in section 45T(d).’’.

8 (b) LIMITATION ON CARRYBACK.—Section 39(d) (relat9 ing to transition rules) is amended by adding at the end

10 the following new paragraph:

11 ‘‘(16) NO CARRYBACK OF MOTION PICTURE AC12 CESSIBILITY CREDIT BEFORE EFFECTIVE DATE.—No

13 portion of the unused business credit for any taxable

14 year which is attributable to the motion picture acces15 sibility credit determined under section 45T may be

16 carried to a taxable year beginning before January 1,

17 2004.’’.

18 (c) CLERICAL AMENDMENT.—The table of sections for

19 subpart D of part IV of subchapter A of chapter 1, as

20 amended by this Act, is amended by inserting after the item

21 relating to section 45S the following new item:

‘‘Sec. 45T. Expenditures to provide access to motion pictures for the

deaf and hard of hearing.’’.

22 (d) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to taxable years beginning after Decem24 ber 31, 2003.
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1 Subtitle E—Miscellaneous

2 Provisions

3 SEC. 641. EXCLUSION OF GAIN OR LOSS ON SALE OR EX4 CHANGE OF CERTAIN BROWNFIELD SITES

5 FROM UNRELATED BUSINESS TAXABLE IN6 COME.

7 (a) IN GENERAL.—Subsection (b) of section 512 (relat8 ing to unrelated business taxable income), as amended by

9 this Act, is amended by adding at the end the following

10 new paragraph:

11 ‘‘(19) TREATMENT OF GAIN OR LOSS ON SALE OR

12 EXCHANGE OF CERTAIN BROWNFIELD SITES.—

13 ‘‘(A) IN GENERAL.—Notwithstanding para14 graph (5)(B), there shall be excluded any gain or

15 loss from the qualified sale, exchange, or other

16 disposition of any qualifying brownfield prop17 erty by an eligible taxpayer.

18 ‘‘(B) ELIGIBLE TAXPAYER.—For purposes of

19 this paragraph—

20 ‘‘(i) IN GENERAL.—The term ‘eligible

21 taxpayer’ means, with respect to a property,

22 any organization exempt from tax under

23 section 501(a) which—
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1 ‘‘(I) acquires from an unrelated

2 person a qualifying brownfield prop3 erty, and

4 ‘‘(II) pays or incurs eligible reme5 diation expenditures with respect to

6 such property in an amount which ex7 ceeds the greater of $550,000 or 12 per8 cent of the fair market value of the

9 property at the time such property was

10 acquired by the eligible taxpayer, de11 termined as if there was not a presence

12 of a hazardous substance, pollutant, or

13 contaminant on the property which is

14 complicating the expansion, redevelop15 ment, or reuse of the property.

16 ‘‘(ii) EXCEPTION.—Such term shall not

17 include any organization which is—

18 ‘‘(I) potentially liable under sec19 tion 107 of the Comprehensive Envi20 ronmental Response, Compensation,

21 and Liability Act of 1980 with respect

22 to the qualifying brownfield property,

23 ‘‘(II) affiliated with any other

24 person which is so potentially liable

25 through any direct or indirect familial
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1 relationship or any contractual, cor2 porate, or financial relationship (other

3 than a contractual, corporate, or fi4 nancial relationship which is created

5 by the instruments by which title to

6 any qualifying brownfield property is

7 conveyed or financed or by a contract

8 of sale of goods or services), or

9 ‘‘(III) the result of a reorganiza10 tion of a business entity which was so

11 potentially liable.

12 ‘‘(C) QUALIFYING BROWNFIELD PROP13 ERTY.—For purposes of this paragraph—

14 ‘‘(i) IN GENERAL.—The term ‘quali15 fying brownfield property’ means any real

16 property which is certified, before the tax17 payer incurs any eligible remediation ex18 penditures (other than to obtain a Phase I

19 environmental site assessment), by an ap20 propriate State agency (within the meaning

21 of section 198(c)(4)) in the State in which

22 such property is located as a brownfield site

23 within the meaning of section 101(39) of the

24 Comprehensive Environmental Response,

25 Compensation, and Liability Act of 1980
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1 (as in effect on the date of the enactment of

2 this paragraph).

3 ‘‘(ii) REQUEST FOR CERTIFICATION.—

4 Any request by an eligible taxpayer for a

5 certification described in clause (i) shall in6 clude a sworn statement by the eligible tax7 payer and supporting documentation of the

8 presence of a hazardous substance, pollut9 ant, or contaminant on the property which

10 is complicating the expansion, redevelop11 ment, or reuse of the property given the

12 property’s reasonably anticipated future

13 land uses or capacity for uses of the prop14 erty (including a Phase I environmental

15 site assessment and, if applicable, evidence

16 of the property’s presence on a local, State,

17 or Federal list of brownfields or contami18 nated property) and other environmental

19 assessments prepared or obtained by the

20 taxpayer.

21 ‘‘(D) QUALIFIED SALE, EXCHANGE, OR

22 OTHER DISPOSITION.—For purposes of this

23 paragraph—
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1 ‘‘(i) IN GENERAL.—A sale, exchange, or

2 other disposition of property shall be con3 sidered as qualified if—

4 ‘‘(I) such property is transferred

5 by the eligible taxpayer to an unrelated

6 person, and

7 ‘‘(II) within 1 year of such trans8 fer the eligible taxpayer has received a

9 certification from the Environmental

10 Protection Agency or an appropriate

11 State agency (within the meaning of

12 section 198(c)(4)) in the State in

13 which such property is located that, as

14 a result of the eligible taxpayer’s reme15 diation actions, such property would

16 not be treated as a qualifying

17 brownfield property in the hands of the

18 transferee.

19 For purposes of subclause (II), before

20 issuing such certification, the Environ21 mental Protection Agency or appropriate

22 State agency shall respond to comments re23 ceived pursuant to clause (ii)(V) in the

24 same form and manner as required under

25 section 117(b) of the Comprehensive Envi-
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1 ronmental Response, Compensation, and Li2 ability Act of 1980 (as in effect on the date

3 of the enactment of this paragraph).

4 ‘‘(ii) REQUEST FOR CERTIFICATION.—

5 Any request by an eligible taxpayer for a

6 certification described in clause (i) shall be

7 made not later than the date of the transfer

8 and shall include a sworn statement by the

9 eligible taxpayer certifying the following:

10 ‘‘(I) Remedial actions which com11 ply with all applicable or relevant and

12 appropriate requirements (consistent

13 with section 121(d) of the Comprehen14 sive Environmental Response, Com15 pensation, and Liability Act of 1980)

16 have been substantially completed, such

17 that there are no hazardous substances,

18 pollutants, or contaminants which

19 complicate the expansion, redevelop20 ment, or reuse of the property given the

21 property’s reasonably anticipated fu22 ture land uses or capacity for uses of

23 the property.

24 ‘‘(II) The reasonably anticipated

25 future land uses or capacity for uses of
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1 the property are more economically

2 productive or environmentally bene3 ficial than the uses of the property in

4 existence on the date of the certification

5 described in subparagraph (C)(i). For

6 purposes of the preceding sentence, use

7 of property as a landfill or other haz8 ardous waste facility shall not be con9 sidered more economically productive

10 or environmentally beneficial.

11 ‘‘(III) A remediation plan has

12 been implemented to bring the property

13 into compliance with all applicable

14 local, State, and Federal environ15 mental laws, regulations, and stand16 ards and to ensure that the remedi17 ation protects human health and the

18 environment.

19 ‘‘(IV) The remediation plan de20 scribed in subclause (III), including

21 any physical improvements required to

22 remediate the property, is either com23 plete or substantially complete, and, if

24 substantially complete, sufficient moni25 toring, funding, institutional controls,
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1 and financial assurances have been put

2 in place to ensure the complete remedi3 ation of the property in accordance

4 with the remediation plan as soon as

5 is reasonably practicable after the sale,

6 exchange, or other disposition of such

7 property.

8 ‘‘(V) Public notice and the oppor9 tunity for comment on the request for

10 certification was completed before the

11 date of such request. Such notice and

12 opportunity for comment shall be in

13 the same form and manner as required

14 for public participation required under

15 section 117(a) of the Comprehensive

16 Environmental Response, Compensa17 tion, and Liability Act of 1980 (as in

18 effect on the date of the enactment of

19 this paragraph). For purposes of this

20 subclause, public notice shall include,

21 at a minimum, publication in a major

22 local newspaper of general circulation.

23 ‘‘(iii) ATTACHMENT TO TAX RE24 TURNS.—A copy of each of the requests for

25 certification described in clause (ii) of sub-
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1 paragraph (C) and this subparagraph shall

2 be included in the tax return of the eligible

3 taxpayer (and, where applicable, of the

4 qualifying partnership) for the taxable year

5 during which the transfer occurs.

6 ‘‘(iv) SUBSTANTIAL COMPLETION.—For

7 purposes of this subparagraph, a remedial

8 action is substantially complete when any

9 necessary physical construction is complete,

10 all immediate threats have been eliminated,

11 and all long-term threats are under control.

12 ‘‘(E) ELIGIBLE REMEDIATION EXPENDI13 TURES.—For purposes of this paragraph—

14 ‘‘(i) IN GENERAL.—The term ‘eligible

15 remediation expenditures’ means, with re16 spect to any qualifying brownfield property,

17 any amount paid or incurred by the eligible

18 taxpayer to an unrelated third person to ob19 tain a Phase I environmental site assess20 ment of the property, and any amount so

21 paid or incurred after the date of the certifi22 cation described in subparagraph (C)(i) for

23 goods and services necessary to obtain a cer24 tification described in subparagraph (D)(i)
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1 with respect to such property, including

2 expenditures—

3 ‘‘(I) to manage, remove, control,

4 contain, abate, or otherwise remediate

5 a hazardous substance, pollutant, or

6 contaminant on the property,

7 ‘‘(II) to obtain a Phase II envi8 ronmental site assessment of the prop9 erty, including any expenditure to

10 monitor, sample, study, assess, or oth11 erwise evaluate the release, threat of re12 lease, or presence of a hazardous sub13 stance, pollutant, or contaminant on

14 the property,

15 ‘‘(III) to obtain environmental

16 regulatory certifications and approvals

17 required to manage the remediation

18 and monitoring of the hazardous sub19 stance, pollutant, or contaminant on

20 the property, and

21 ‘‘(IV) regardless of whether it is

22 necessary to obtain a certification de23 scribed in subparagraph (D)(i)(II), to

24 obtain remediation cost-cap or stop25 loss coverage, re-opener or regulatory
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1 action coverage, or similar coverage

2 under environmental insurance poli3 cies, or financial guarantees required

4 to manage such remediation and moni5 toring.

6 ‘‘(ii) EXCEPTIONS.—Such term shall

7 not include—

8 ‘‘(I) any portion of the purchase

9 price paid or incurred by the eligible

10 taxpayer to acquire the qualifying

11 brownfield property,

12 ‘‘(II) environmental insurance

13 costs paid or incurred to obtain legal

14 defense coverage, owner/operator liabil15 ity coverage, lender liability coverage,

16 professional liability coverage, or simi17 lar types of coverage,

18 ‘‘(III) any amount paid or in19 curred to the extent such amount is re20 imbursed, funded, or otherwise sub21 sidized by grants provided by the

22 United States, a State, or a political

23 subdivision of a State for use in con24 nection with the property, proceeds of

25 an issue of State or local government
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1 obligations used to provide financing

2 for the property the interest of which is

3 exempt from tax under section 103, or

4 subsidized financing provided (directly

5 or indirectly) under a Federal, State,

6 or local program provided in connec7 tion with the property, or

8 ‘‘(IV) any expenditure paid or in9 curred before the date of the enactment

10 of this paragraph.

11 For purposes of subclause (III), the Sec12 retary may issue guidance regarding the

13 treatment of government-provided funds for

14 purposes of determining eligible remediation

15 expenditures.

16 ‘‘(F) DETERMINATION OF GAIN OR LOSS.—

17 For purposes of this paragraph, the determina18 tion of gain or loss shall not include an amount

19 treated as gain which is ordinary income with

20 respect to section 1245 or section 1250 property,

21 including amounts deducted as section 198 ex22 penses which are subject to the recapture rules of

23 section 198(e), if the taxpayer had deducted such

24 amounts in the computation of its unrelated

25 business taxable income.
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1 ‘‘(G) SPECIAL RULES FOR PARTNER2 SHIPS.—

3 ‘‘(i) IN GENERAL.—In the case of an

4 eligible taxpayer which is a partner of a

5 qualifying partnership which acquires, re6 mediates, and sells, exchanges, or otherwise

7 disposes of a qualifying brownfield prop8 erty, this paragraph shall apply to the eligi9 ble taxpayer’s distributive share of the

10 qualifying partnership’s gain or loss from

11 the sale, exchange, or other disposition of

12 such property.

13 ‘‘(ii) QUALIFYING PARTNERSHIP.—The

14 term ‘qualifying partnership’ means a part15 nership which—

16 ‘‘(I) has a partnership agreement

17 which satisfies the requirements of sec18 tion 514(c)(9)(B)(vi) at all times be19 ginning on the date of the first certifi20 cation received by the partnership

21 under subparagraph (C)(i),

22 ‘‘(II) satisfies the requirements of

23 subparagraphs (B)(i), (C), (D), and

24 (E), if ‘qualified partnership’ is sub25 stituted for ‘eligible taxpayer’ each
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1 place it appears therein (except sub2 paragraph (D)(iii)), and

3 ‘‘(III) is not an organization

4 which would be prevented from consti5 tuting an eligible taxpayer by reason

6 of subparagraph (B)(ii).

7 ‘‘(iii) REQUIREMENT THAT TAX-EX8 EMPT PARTNER BE A PARTNER SINCE FIRST

9 CERTIFICATION.—This paragraph shall

10 apply with respect to any eligible taxpayer

11 which is a partner of a partnership which

12 acquires, remediates, and sells, exchanges, or

13 otherwise disposes of a qualifying

14 brownfield property only if such eligible

15 taxpayer was a partner of the qualifying

16 partnership at all times beginning on the

17 date of the first certification received by the

18 partnership under subparagraph (C)(i) and

19 ending on the date of the sale, exchange, or

20 other disposition of the property by the

21 partnership.

22 ‘‘(iv) REGULATIONS.—The Secretary

23 shall prescribe such regulations as are nec24 essary to prevent abuse of the requirements
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1 of this subparagraph, including abuse

2 through—

3 ‘‘(I) the use of special allocations

4 of gains or losses, or

5 ‘‘(II) changes in ownership of

6 partnership interests held by eligible

7 taxpayers.

8 ‘‘(H) SPECIAL RULES FOR MULTIPLE PROP9 ERTIES.—

10 ‘‘(i) IN GENERAL.—An eligible tax11 payer or a qualifying partnership of which

12 the eligible taxpayer is a partner may make

13 a 1-time election to apply this paragraph to

14 more than 1 qualifying brownfield property

15 by averaging the eligible remediation ex16 penditures for all such properties acquired

17 during the election period. If the eligible

18 taxpayer or qualifying partnership makes

19 such an election, the election shall apply to

20 all qualified sales, exchanges, or other dis21 positions of qualifying brownfield properties

22 the acquisition and transfer of which occur

23 during the period for which the election re24 mains in effect.
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1 ‘‘(ii) ELECTION.—An election under

2 clause (i) shall be made with the eligible

3 taxpayer’s or qualifying partnership’s time4 ly filed tax return (including extensions) for

5 the first taxable year for which the taxpayer

6 or qualifying partnership intends to have

7 the election apply. An election under clause

8 (i) is effective for the period—

9 ‘‘(I) beginning on the date which

10 is the first day of the taxable year of

11 the return in which the election is in12 cluded or a later day in such taxable

13 year selected by the eligible taxpayer or

14 qualifying partnership, and

15 ‘‘(II) ending on the date which is

16 the earliest of a date of revocation se17 lected by the eligible taxpayer or quali18 fying partnership, the date which is 8

19 years after the date described in sub20 clause (I), or, in the case of an election

21 by a qualifying partnership of which

22 the eligible taxpayer is a partner, the

23 date of the termination of the quali24 fying partnership.
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1 ‘‘(iii) REVOCATION.—An eligible tax2 payer or qualifying partnership may revoke

3 an election under clause (i)(II) by filing a

4 statement of revocation with a timely filed

5 tax return (including extensions). A revoca6 tion is effective as of the first day of the

7 taxable year of the return in which the rev8 ocation is included or a later day in such

9 taxable year selected by the eligible taxpayer

10 or qualifying partnership. Once an eligible

11 taxpayer or qualifying partnership revokes

12 the election, the eligible taxpayer or quali13 fying partnership is ineligible to make an14 other election under clause (i) with respect

15 to any qualifying brownfield property sub16 ject to the revoked election.

17 ‘‘(I) RECAPTURE.—If an eligible taxpayer

18 excludes gain or loss from a sale, exchange, or

19 other disposition of property to which an election

20 under subparagraph (H) applies, and such prop21 erty fails to satisfy the requirements of this

22 paragraph, the unrelated business taxable income

23 of the eligible taxpayer for the taxable year in

24 which such failure occurs shall be determined by

25 including any previously excluded gain or loss
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1 from such sale, exchange, or other disposition al2 locable to such taxpayer, and interest shall be de3 termined at the overpayment rate established

4 under section 6621 on any resulting tax for the

5 period beginning with the due date of the return

6 for the taxable year during which such sale, ex7 change, or other disposition occurred, and ending

8 on the date of payment of the tax.

9 ‘‘(J) RELATED PERSONS.—For purposes of

10 this paragraph, a person shall be treated as re11 lated to another person if—

12 ‘‘(i) such person bears a relationship to

13 such other person described in section

14 267(b) (determined without regard to para15 graph (9) thereof), or section 707(b)(1), de16 termined by substituting ‘25 percent’ for ‘50

17 percent’ each place it appears therein, and

18 ‘‘(ii) in the case such other person is a

19 nonprofit organization, if such person con20 trols directly or indirectly more than 25

21 percent of the governing body of such orga22 nization.’’

23 (b) EXCLUSION FROM DEFINITION OF DEBT-FINANCED

24 PROPERTY.—Section 514(b)(1) (defining debt-financed

25 property) is amended by striking ‘‘or’’ at the end of sub-
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1 paragraph (C), by striking the period at the end of subpara2 graph (D) and inserting ‘‘; or’’, and by inserting after sub3 paragraph (D) the following new subparagraph:

4 ‘‘(E) any property the gain or loss from the

5 sale, exchange, or other disposition of which

6 would be excluded by reason of the provisions of

7 section 512(b)(19) in computing the gross income

8 of any unrelated trade or business.’’.

9 (c) SAVINGS CLAUSE.—Nothing in the amendments

10 made by this section shall affect any duty, liability, or other

11 requirement imposed under any other Federal or State law.

12 Notwithstanding section 128(b) of the Comprehensive Envi13 ronmental Response, Compensation, and Liability Act of

14 1980, a certification provided by the Environmental Protec15 tion Agency or an appropriate State agency (within the

16 meaning of section 198(c)(4) of the Internal Revenue Code

17 of 1986) shall not affect the liability of any person under

18 section 107(a) of such Act.

19 (d) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to any gain or loss on the sale, exchange,

21 or other disposition of any property acquired by the tax22 payer after December 31, 2004.
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1 SEC. 642. MODIFICATION OF UNRELATED BUSINESS IN2 COME LIMITATION ON INVESTMENT IN CER3 TAIN DEBT-FINANCED PROPERTIES.

4 (a) IN GENERAL.—Section 514(c)(6) (relating to ac5 quisition indebtedness) is amended—

6 (1) by striking ‘‘include an obligation’’ and in7 serting ‘‘include—

8 ‘‘(A) an obligation’’,

9 (2) by striking the period at the end and insert10 ing ‘‘, or’’, and

11 (3) by adding at the end the following:

12 ‘‘(B) indebtedness incurred by a small busi13 ness investment company licensed under the

14 Small Business Investment Act of 1958 which is

15 evidenced by a debenture—

16 ‘‘(i) issued by such company under sec17 tion 303(a) of such Act, and

18 ‘‘(ii) held or guaranteed by the Small

19 Business Administration.’’.

20 (b) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to acquisitions made on or after the date

22 of the enactment of this Act.

23 SEC. 643. CIVIL RIGHTS TAX RELIEF.

24 (a) DEDUCTION ALLOWED WHETHER OR NOT TAX25 PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
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1 section 62 (defining adjusted gross income) is amended by

2 inserting after paragraph (18) the following new item:

3 ‘‘(19) COSTS INVOLVING DISCRIMINATION SUITS,

4 ETC.—Any deduction allowable under this chapter for

5 attorney fees and court costs paid by, or on behalf of,

6 the taxpayer in connection with any action involving

7 a claim of unlawful discrimination (as defined in

8 subsection (e)) or a claim of a violation of subchapter

9 III of chapter 37 of title 31, United States Code or

10 a claim made under section 1862(b)(3)(A) of the So11 cial Security Act (42 U.S.C. 1395y(b)(3)(A)). The

12 preceding sentence shall not apply to any deduction

13 in excess of the amount includible in the taxpayer’s

14 gross income for the taxable year on account of a

15 judgment or settlement (whether by suit or agreement

16 and whether as lump sum or periodic payments) re17 sulting from such claim.’’.

18 (b) UNLAWFUL DISCRIMINATION DEFINED.—Section

19 62 is amended by adding at the end the following new sub20 section:

21 ‘‘(e) UNLAWFUL DISCRIMINATION DEFINED.—For pur22 poses of subsection (a)(19), the term ‘unlawful discrimina23 tion’ means an act that is unlawful under any of the fol24 lowing:
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1 ‘‘(1) Section 302 of the Civil Rights Act of 1991

2 (2 U.S.C. 1202).

3 ‘‘(2) Section 201, 202, 203, 204, 205, 206, or 207

4 of the Congressional Accountability Act of 1995 (2

5 U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or 1317).

6 ‘‘(3) The National Labor Relations Act (29

7 U.S.C. 151 et seq.).

8 ‘‘(4) The Fair Labor Standards Act of 1938 (29

9 U.S.C. 201 et seq.).

10 ‘‘(5) Section 4 or 15 of the Age Discrimination

11 in Employment Act of 1967 (29 U.S.C. 623 or 633a).

12 ‘‘(6) Section 501 or 504 of the Rehabilitation Act

13 of 1973 (29 U.S.C. 791 or 794).

14 ‘‘(7) Section 510 of the Employee Retirement In15 come Security Act of 1974 (29 U.S.C. 1140).

16 ‘‘(8) Title IX of the Education Amendments of

17 1972 (29 U.S.C. 1681 et seq.).

18 ‘‘(9) The Employee Polygraph Protection Act of

19 1988 (29 U.S.C. 201 et seq.).

20 ‘‘(10) The Worker Adjustment and Retraining

21 Notification Act (29 U.S.C. 2102 et seq.).

22 ‘‘(11) Section 105 of the Family and Medical

23 Leave Act of 1993 (29 U.S.C. 2615).
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1 ‘‘(12) Chapter 43 of title 38, United States Code

2 (relating to employment and reemployment rights of

3 members of the uniformed services).

4 ‘‘(13) Section 1977, 1979, or 1980 of the Revised

5 Statutes (42 U.S.C. 1981, 1983, or 1985).

6 ‘‘(14) Section 703, 704, or 717 of the Civil

7 Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3, or

8 2000e–16).

9 ‘‘(15) Section 804, 805, 806, 808, or 818 of the

10 Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608,

11 or 3617).

12 ‘‘(16) Section 102, 202, 302, or 503 of the Amer13 icans with Disabilities Act of 1990 (42 U.S.C. 12112,

14 12132, 12182, or 12203).

15 ‘‘(17) Any provision of Federal law (popularly

16 known as whistleblower protection provisions) prohib17 iting the discharge of an employee, the discrimination

18 against an employee, or any other form of retaliation

19 or reprisal against an employee for asserting rights or

20 taking other actions permitted under Federal law.

21 ‘‘(18) Any provision of Fderal, State, or local

22 law, or common law claims permitted under Federal,

23 State, or local law—

24 ‘‘(i) providing for the enforcement of

25 civil rights, or
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1 ‘‘(ii) regulating any aspect of the em2 ployment relationship, including claims for

3 wages, compensation, or benefits, or prohib4 iting the discharge of an employee, the dis5 crimination against an employee, or any

6 other form of retaliation or reprisal against

7 an employee for asserting rights or taking

8 other actions permitted by law.’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to fees and costs paid after December

11 31, 2002, with respect to any judgment or settlement occur12 ring after such date.

13 SEC. 644. EXCLUSION FOR PAYMENTS TO INDIVIDUALS

14 UNDER NATIONAL HEALTH SERVICE CORPS

15 LOAN REPAYMENT PROGRAM AND CERTAIN

16 STATE LOAN REPAYMENT PROGRAMS.

17 (a) IN GENERAL.—Section 108(f) (relating to student

18 loans) is amended by adding at the end the following new

19 paragraph:

20 ‘‘(4) PAYMENTS UNDER NATIONAL HEALTH SERV21 ICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN

22 STATE LOAN REPAYMENT PROGRAMS.—In the case of

23 an individual, gross income shall not include any

24 amount received under section 338B(g) of the Public
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1 Health Service Act or under a State program de2 scribed in section 338I of such Act.’’.

3 (b) TREATMENT FOR PURPOSES OF EMPLOYMENT

4 TAXES.—Each of the following provisions is amended by

5 inserting ‘‘108(f)(4),’’ after ‘‘74(c),’’:

6 (1) Section 3121(a)(20).

7 (2) Section 3231(e)(5).

8 (3) Section 3306(b)(16).

9 (4) Section 3401(a)(19).

10 (5) Section 209(a)(17) of the Social Security

11 Act.

12 (c) EFFECTIVE DATE.—The amendments made by this

13 section shall apply to amounts received by an individual

14 in taxable years beginning after December 31, 2003.

15 SEC. 645. CERTAIN EXPENSES OF RURAL LETTER CAR16 RIERS.

17 (a) IN GENERAL.—Section 162(o) (relating to treat18 ment of certain reimbursed expenses of rural mail carriers)

19 is amended by redesignating paragraph (2) as paragraph

20 (3) and by inserting after paragraph (1) the following:

21 ‘‘(2) SPECIAL RULE WHERE EXPENSES EXCEED

22 REIMBURSEMENTS.—Notwithstanding paragraph

23 (1)(A), if the expenses incurred by an employee for

24 the use of a vehicle in performing services described

25 in paragraph (1) exceed the qualified reimbursements
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1 for such expenses, such excess shall be taken into ac2 count in computing the miscellaneous itemized deduc3 tions of the employee under section 67.’’.

4 (b) CONFORMING AMENDMENT.—The heading for sec5 tion 162(o) is amended by striking ‘‘REIMBURSED’’.

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

7 section shall apply to taxable years beginning after Decem8 ber 31, 2003.

9 SEC. 646. METHOD OF ACCOUNTING FOR NAVAL SHIP10 BUILDERS.

11 (a) IN GENERAL.—In the case of a qualified naval

12 ship contract, the taxable income of such contract during

13 the 5-taxable year period beginning with the taxable year

14 in which the contract commencement date occurs shall be

15 determined under a method identical to the method used

16 in the case of a qualified ship contract (as defined in section

17 10203(b)(2)(B) of the Revenue Act of 1987).

18 (b) RECAPTURE OF TAX BENEFIT.—In the case of a

19 qualified naval ship contract to which subsection (a) ap20 plies, the taxpayer’s tax imposed by chapter 1 of the Inter21 nal Revenue Code of 1986 for the first taxable year fol22 lowing the 5-taxable year period described in subsection (a)

23 shall be increased by the excess (if any) of—
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1 (1) the amount of tax which would have been im2 posed during such period if this section had not been

3 enacted, over

4 (2) the amount of tax so imposed during such

5 period.

6 (c) QUALIFIED NAVAL SHIP CONTRACT.—For purposes

7 of this section—

8 (1) IN GENERAL.—The term ‘‘qualified naval

9 ship contract’’ means any contract or portion thereof

10 that is for the construction in the United States of 1

11 ship or submarine for the Federal Government if the

12 taxpayer reasonably expects the acceptance date will

13 occur no later than 9 years after the construction

14 commencement date.

15 (2) ACCEPTANCE DATE.—The term ‘‘acceptance

16 date’’ means the date 1 year after the date on which

17 the Federal Government issues a letter of acceptance

18 or other similar document for the ship or submarine.

19 (3) CONSTRUCTION COMMENCEMENT DATE.—The

20 term ‘‘construction commencement date’’ means the

21 date on which the physical fabrication of any section

22 or component of the ship or submarine begins.

23 (d) EFFECTIVE DATE.—This section shall apply to

24 contracts for ships or submarines with respect to which the
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1 construction commencement date occurs after the date of the

2 enactment of this Act.

3 SEC. 647. SUSPENSION OF POLICYHOLDERS SURPLUS AC4 COUNT PROVISIONS.

5 (a) DISTRIBUTIONS TO SHAREHOLDERS FROM PRE6 1984 POLICYHOLDERS SURPLUS ACCOUNT.—Section 815

7 (relating to distributions to shareholders from pre-1984 pol8 icyholders surplus account) is amended by adding at the

9 end the following:

10 ‘‘(g) SPECIAL RULES APPLICABLE DURING 2004 AND

11 2005.—In the case of any taxable year of a stock life insur12 ance company beginning after December 31, 2003, and be13 fore January 1, 2006—

14 ‘‘(1) the amount under subsection (a)(2) for such

15 taxable year shall be treated as zero, and

16 ‘‘(2) notwithstanding subsection (b), in deter17 mining any subtractions from an account under sub18 sections (c)(3) and (d)(3), any distribution to share19 holders during such taxable year shall be treated as

20 made first out of the policyholders surplus account,

21 then out of the shareholders surplus account, and fi22 nally out of other accounts.’’.

23 (b) EFFECTIVE DATE.—The amendment made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 2003.
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1 SEC. 648. PAYMENT OF DIVIDENDS ON STOCK OF COOPERA2 TIVES WITHOUT REDUCING PATRONAGE DIVI3 DENDS.

4 (a) IN GENERAL.—Subsection (a) of section 1388 (re5 lating to patronage dividend defined) is amended by adding

6 at the end the following new sentence: ‘‘For purposes of

7 paragraph (3), net earnings shall not be reduced by

8 amounts paid during the year as dividends on capital stock

9 or other proprietary capital interests of the organization

10 to the extent that the articles of incorporation or bylaws

11 of such organization or other contract with patrons provide

12 that such dividends are in addition to amounts otherwise

13 payable to patrons which are derived from business done

14 with or for patrons during the taxable year.’’.

15 (b) EFFECTIVE DATE.—The amendment made by this

16 section shall apply to distributions in taxable years begin17 ning after the date of the enactment of this Act.

18 SEC. 649. SPECIAL RULES FOR LIVESTOCK SOLD ON AC19 COUNT OF WEATHER-RELATED CONDITIONS.

20 (a) REPLACEMENT OF LIVESTOCK WITH OTHER FARM

21 PROPERTY.—Subsection (f) of section 1033 (relating to in22 voluntary conversions) is amended—

23 (1) by inserting ‘‘drought, flood, or other weath24 er-related conditions, or’’ after ‘‘because of’’,
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1 (2) by inserting ‘‘in the case of soil contamina2 tion or other environmental contamination’’ after

3 ‘‘including real property’’, and

4 (3) by striking ‘‘WHERE THERE HAS BEEN EN5 VIRONMENTAL CONTAMINATION’’ in the heading and

6 inserting ‘‘IN CERTAIN CASES’’.

7 (b) EXTENSION OF REPLACEMENT PERIOD OF INVOL8 UNTARILY CONVERTED LIVESTOCK.—Subsection (e) of sec9 tion 1033 (relating to involuntary conversions) is

10 amended—

11 (1) by striking ‘‘CONDITIONS.—For purposes’’

12 and inserting ‘‘CONDITIONS.—

13 ‘‘(1) IN GENERAL.—For purposes’’, and

14 (2) by adding at the end the following new para15 graph:

16 ‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—

17 ‘‘(A) IN GENERAL.—In the case of drought,

18 flood, or other weather-related conditions de19 scribed in paragraph (1) which result in the

20 area being designated as eligible for assistance

21 by the Federal Government, subsection (a)(2)(B)

22 shall be applied with respect to any converted

23 property by substituting ‘4 years’ for ‘2 years’.

24 ‘‘(B) FURTHER EXTENSION BY SEC25 RETARY.—The Secretary may extend on a re-
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1 gional basis the period for replacement under

2 this section (after the application of subpara3 graph (A)) for such additional time as the Sec4 retary determines appropriate if the weather-re5 lated conditions which resulted in such applica6 tion continue for more than 3 years.’’.

7 (c) INCOME INCLUSION RULES.—Section 451(e) (relat8 ing to special rule for proceeds from livestock sold on ac9 count of drought, flood, or other weather-related conditions)

10 is amended by adding at the end the following new para11 graph:

12 ‘‘(3) SPECIAL ELECTION RULES.—If section

13 1033(e)(2) applies to a sale or exchange of livestock

14 described in paragraph (1), the election under para15 graph (1) shall be deemed valid if made during the

16 replacement period described in such section.’’.

17 (d) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to taxable years beginning after Decem19 ber 31, 2001.

20 SEC. 650. MOTOR VEHICLE DEALER TRANSITIONAL ASSIST21 ANCE.

22 (a) IN GENERAL.—For purposes of subtitle A of the

23 Internal Revenue Code of 1986, in the case of a taxpayer

24 who elects the application of this section and who was a

25 party to a motor vehicle sales and service agreement with
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1 a motor vehicle manufacturer who announced in December

2 2000 that it would phase-out the motor vehicle brand to

3 which such agreement relates—

4 (1) amounts received by such taxpayer from such

5 manufacturer on account of the termination of such

6 agreement (hereafter in this section referred to as

7 ‘‘termination payment’’) are considered to be received

8 for property used in the trade or business of a motor

9 vehicle retail sales and service dealership, and

10 (2) to the extent such termination payment is re11 invested in property used in a motor vehicle retail

12 sales and service dealership located within the United

13 States, such property shall qualify as like-kind re14 placement property to which section 1031 of the In15 ternal Revenue Code of 1986 shall apply with the fol16 lowing modifications:

17 (A) Such section shall be applied without

18 regard to subparagraphs (A) and (B)(ii) of sub19 section (a)(3).

20 (B) The period described in section

21 1031(a)(3)(B) of such Code shall be applied by

22 substituting ‘‘2 years’’ for ‘‘180 days’’.

23 (b) RULES FOR ELECTION.—

24 (1) FORM OF ELECTION.—The taxpayer shall

25 make an election under this section in such form and
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1 manner as the Secretary of the Treasury may pre2 scribe and shall include in such election the amount

3 of the termination payment received, the identifica4 tion of the replacement property purchased, and such

5 other information as the Secretary may prescribe.

6 (2) ELECTION ON AMENDED RETURN.—The Sec7 retary of the Treasury shall permit an election under

8 this section on an amended tax return for taxable

9 years beginning before the date of the enactment of

10 this Act.

11 (c) STATUTE OF LIMITATIONS.—Notwithstanding the

12 provisions of any other law or rule of law, the statutory

13 period for the assessment for any deficiency attributable to

14 any termination payment gain shall be extended until 3

15 years after the date the Secretary of the Treasury is notified

16 by the taxpayer of the like-kind replacement property or

17 an intention not to replace.

18 (d) EFFECTIVE DATE.—This section shall apply to

19 amounts received after December 12, 2000, in taxable years

20 ending after such date.

21 SEC. 651. EXPANSION OF DESIGNATED RENEWAL COMMU22 NITY AREA BASED ON 2000 CENSUS DATA.

23 (a) RENEWAL COMMUNITIES.—Section 1400E (relat24 ing to designation of renewal communities) is amended by

25 adding at the end the following new subsection:
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1 ‘‘(g) EXPANSION OF DESIGNATED AREAS.—

2 ‘‘(1) EXPANSION BASED ON 2000 CENSUS.—At

3 the request of the nominating entity with respect to

4 a renewal community, the Secretary of Housing and

5 Urban Development may expand the area of a re6 newal community to include any census tract—

7 ‘‘(A) which, at the time such community

8 was nominated, met the requirements of this sec9 tion for inclusion in such community but for the

10 failure of such tract to meet 1 or more of the

11 population and poverty rate requirements of this

12 section using 1990 census data, and

13 ‘‘(B) which meets all failed population and

14 poverty rate requirements of this section using

15 2000 census data.

16 ‘‘(2) EXPANSION TO CERTAIN AREAS WHICH DO

17 NOT MEET POPULATION REQUIREMENTS.—

18 ‘‘(A) IN GENERAL.—At the request of 1 or

19 more local governments and the State or States

20 in which an area described in subparagraph (B)

21 is located, the Secretary of Housing and Urban

22 Development may expand a designated area to

23 include such area.

24 ‘‘(B) AREA.—An area is described in this

25 subparagraph if—
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1 ‘‘(i) the area is adjacent to at least 1

2 other area designated as a renewal commu3 nity,

4 ‘‘(ii) the area has a population less

5 than the population required under sub6 section (c)(2)(C), and

7 ‘‘(iii)(I) the area meets the require8 ments of subparagraphs (A) and (B) of sub9 section (c)(2) and subparagraph (A) of sub10 section (c)(3), or

11 ‘‘(II) the area contains a population of

12 less than 100 people.

13 ‘‘(3) APPLICABILITY.—Any expansion of a re14 newal community under this section shall take effect

15 as provided in subsection (b).’’.

16 (b) EFFECTIVE DATE.—The amendment made by this

17 subsection shall take effect as if included in the amendments

18 made by section 101 of the Community Renewal Tax Relief

19 Act of 2000.

20 SEC. 652. REDUCTION OF HOLDING PERIOD TO 12 MONTHS

21 FOR PURPOSES OF DETERMINING WHETHER

22 HORSES ARE SECTION 1231 ASSETS.

23 (a) IN GENERAL.—Subparagraph (A) of section

24 1231(b)(3) (relating to definition of property used in the

25 trade or business) is amended by striking ‘‘and horses’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2003.

4 SEC. 653. BLUE RIBBON COMMISSION ON COMPREHENSIVE

5 TAX REFORM.

6 (a) ESTABLISHMENT.—

7 (1) IN GENERAL.—There is established the ‘‘Blue

8 Ribbon Commission on Comprehensive Tax Reform’’

9 (in this section referred to as the ‘‘Commission’’).

10 (2) MEMBERSHIP.—

11 (A) COMPOSITION.—The Commission shall

12 be composed of 17 members of whom—

13 (i) 3 shall be appointed by the major14 ity leader of the Senate;

15 (ii) 3 shall be appointed by the minor16 ity leader of the Senate;

17 (iii) 3 shall be appointed by the Speak18 er of the House of Representatives;

19 (iv) 3 shall be appointed by the minor20 ity leader of the House of Representatives;

21 and

22 (v) 5 shall be appointed by the Presi23 dent, of which no more than 3 shall be of

24 the same party as the President.
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1 (B) FEDERAL EMPLOYEES.—The members

2 of the Commission may be employees or former

3 employees of the Federal Government.

4 (C) DATE.—The appointments of the mem5 bers of the Commission shall be made not later

6 than October 30, 2004.

7 (3) PERIOD OF APPOINTMENT; VACANCIES.—

8 Members shall be appointed for the life of the Com9 mission. Any vacancy in the Commission shall not af10 fect its powers, but shall be filled in the same manner

11 as the original appointment.

12 (4) INITIAL MEETING.—Not later than 30 days

13 after the date on which all members of the Commis14 sion have been appointed, the Commission shall hold

15 its first meeting.

16 (5) MEETINGS.—The Commission shall meet at

17 the call of the Chairman.

18 (6) QUORUM.—A majority of the members of the

19 Commission shall constitute a quorum, but a lesser

20 number of members may hold hearings.

21 (7) CHAIRMAN AND VICE CHAIRMAN.—The Presi22 dent shall select a Chairman and Vice Chairman

23 from among its members.

24 (b) DUTIES OF THE COMMISSION.—
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1 (1) STUDY.—The Commission shall conduct a

2 thorough study of all matters relating to a com3 prehensive reform of the Federal tax system, including

4 the reform of the Internal Revenue Code of 1986 and

5 the implementation (if appropriate) of other types of

6 tax systems.

7 (2) RECOMMENDATIONS.—The Commission shall

8 develop recommendations on how to comprehensively

9 reform the Federal tax system in a manner that gen10 erates appropriate revenue for the Federal Govern11 ment.

12 (3) REPORT.—Not later than 18 months after the

13 date on which all initial members of the commission

14 have been appointed pursuant to subsection (a)(2),

15 the Commission shall submit a report to the President

16 and Congress which shall contain a detailed state17 ment of the findings and conclusions of the Commis18 sion, together with its recommendations for such legis19 lation and administrative actions as it considers ap20 propriate.

21 (c) POWERS OF THE COMMISSION.—

22 (1) HEARINGS.—The Commission may hold such

23 hearings, sit and act at such times and places, take

24 such testimony, and receive such evidence as the Com25 mission considers advisable to carry out this Act.
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1 (2) INFORMATION FROM FEDERAL AGENCIES.—

2 The Commission may secure directly from any Fed3 eral department or agency such information as the

4 Commission considers necessary to carry out this Act.

5 Upon request of the Chairman of the Commission, the

6 head of such department or agency shall furnish such

7 information to the Commission.

8 (3) POSTAL SERVICES.—The Commission may

9 use the United States mails in the same manner and

10 under the same conditions as other departments and

11 agencies of the Federal Government.

12 (4) GIFTS.—The Commission may accept, use,

13 and dispose of gifts or donations of services or prop14 erty.

15 (d) COMMISSION PERSONNEL MATTERS.—

16 (1) COMPENSATION OF MEMBERS.—Each mem17 ber of the Commission who is not an officer or em18 ployee of the Federal Government shall be com19 pensated at a rate equal to the daily equivalent of the

20 annual rate of basic pay prescribed for level IV of the

21 Executive Schedule under section 5315 of title 5,

22 United States Code, for each day (including travel

23 time) during which such member is engaged in the

24 performance of the duties of the Commission. All

25 members of the Commission who are officers or em-
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1 ployees of the United States shall serve without com2 pensation in addition to that received for their serv3 ices as officers or employees of the United States.

4 (2) TRAVEL EXPENSES.—The members of the

5 Commission shall be allowed travel expenses, includ6 ing per diem in lieu of subsistence, at rates author7 ized for employees of agencies under subchapter I of

8 chapter 57 of title 5, United States Code, while away

9 from their homes or regular places of business in the

10 performance of services for the Commission.

11 (3) STAFF.—

12 (A) IN GENERAL.—The Chairman of the

13 Commission may, without regard to the civil

14 service laws and regulations, appoint and termi15 nate an executive director and such other addi16 tional personnel as may be necessary to enable

17 the Commission to perform its duties. The em18 ployment of an executive director shall be subject

19 to confirmation by the Commission.

20 (B) COMPENSATION.—The Chairman of the

21 Commission may fix the compensation of the ex22 ecutive director and other personnel without re23 gard to chapter 51 and subchapter III of chapter

24 53 of title 5, United States Code, relating to clas25 sification of positions and General Schedule pay
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1 rates, except that the rate of pay for the executive

2 director and other personnel may not exceed the

3 rate payable for level V of the Executive Schedule

4 under section 5316 of such title.

5 (4) DETAIL OF GOVERNMENT EMPLOYEES.—Any

6 Federal Government employee may be detailed to the

7 Commission without reimbursement, and such detail

8 shall be without interruption or loss of civil service

9 status or privilege.

10 (5) PROCUREMENT OF TEMPORARY AND INTER11 MITTENT SERVICES.—The Chairman of the Commis12 sion may procure temporary and intermittent services

13 under section 3109(b) of title 5, United States Code,

14 at rates for individuals which do not exceed the daily

15 equivalent of the annual rate of basic pay prescribed

16 for level V of the Executive Schedule under section

17 5316 of such title.

18 (e) TERMINATION OF THE COMMISSION.—The Com19 mission shall terminate 90 days after the date on which

20 the Commission submits its report under subsection (b).

21 (f) AUTHORIZATION OF APPROPRIATIONS.—There are

22 authorized to be appropriated such sums as are necessary

23 to the Commission to carry out this section.
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1 SEC. 654. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH

2 RESPECT TO S CORPORATION STOCK.

3 (a) IN GENERAL.—Section 4975(d) of the Internal

4 Revenue Code of 1986 is amended by adding at the end

5 the following new flush sentences:

6 ‘‘A plan shall not be treated as violating the requirements

7 of section 401, 409, or subsection (e)(7), or as engaging in

8 a prohibited transaction for purposes of paragraph (3),

9 merely by reason of any distribution described in section

10 1368(a) with respect to S corporation stock which con11 stitutes qualifying employer securities if the distribution is,

12 in accordance with the plan provisions, used to make pay13 ments on a loan described in paragraph (3) the proceeds

14 of which were used to acquire the qualifying employer secu15 rities (whether or not allocated to participants). The pre16 ceding sentence shall not apply in the case of a distribution

17 which is paid with respect to any employer security which

18 is allocated to a participant unless the plan provides that

19 employer securities with a fair market value of not less than

20 the amount of such distribution are allocated to such partic21 ipant for the year which (but for the preceding sentence)

22 such distribution would have been allocated to such partici23 pant.’’

24 (b) EFFECTIVE DATE.—The amendment made by this

25 section shall take effect on January 1, 1998.
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1 SEC. 655. CLARIFICATION OF WORKING CAPITAL FOR REA2 SONABLY ANTICIPATED NEEDS OF A BUSI3 NESS FOR PURPOSES OF ACCUMULATED

4 EARNINGS TAX.

5 (a) IN GENERAL.—Section 537(b) (relating to special

6 rules) is amended by adding at the end the following new

7 paragraph:

8 ‘‘(6) WORKING CAPITAL.—The reasonably antici9 pated needs of a business for any taxable year shall

10 include working capital for the business in an

11 amount which is not less than the sum of the cost of

12 goods, operating expenses, taxes, and interest expense

13 which the business incurred during the preceding tax14 able year. Any amounts incurred as part of a plan

15 a principal purpose of which is to increase the limi16 tation under this subsection shall not be taken into

17 account.’’.

18 (b) EFFECTIVE DATE.—The amendment made by this

19 section shall apply to taxable years beginning after Decem20 ber 31, 2003, and before January 1, 2009.

21 SEC. 656. TAX TREATMENT OF STATE OWNERSHIP OF RAIL22 ROAD REAL ESTATE INVESTMENT TRUST.

23 (a) IN GENERAL.—If a State owns all of the out24 standing stock of a corporation which is a real estate invest25 ment trust, which is a non-operating class III railroad, and

26 substantially all of the activities of which consist of the
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1 ownership, leasing, and operation by such corporation of

2 facilities, equipment, and other property used by the cor3 poration or other persons in railroad transportation, then,

4 for purposes of section 115 of the Internal Revenue Code

5 of 1986—

6 (1) income derived from such activities by the

7 corporation shall be treated as accruing to the State,

8 and

9 (2) such activities shall be treated as the exercise

10 of an essential governmental function of the State to

11 the extent such activities are of a type which are an

12 essential government function (within the meaning of

13 section 115 of such Code).

14 (b) GAIN OR LOSS NOT RECOGNIZED ON CONVER15 SION.—Notwithstanding section 337(d) of the Internal Rev16 enue Code of 1986—

17 (1) no gain or loss shall be recognized under sec18 tion 336 or 337 of such Code, and

19 (2) no change in basis of the property of such

20 corporation shall occur,

21 because of any change of status of the corporation to a tax22 exempt entity by reason of the application of subsection (a).

23 (c) TAX-EXEMPT FINANCING.—Any obligation issued

24 by an entity described in subsection (a) shall be treated as

25 an obligation of the State for purposes of applying section
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1 103 and part IV of subchapter B of chapter 1 of the Internal

2 Revenue Code of 1986.

3 (d) DEFINITIONS.—For purposes of this section—

4 (1) REAL ESTATE INVESTMENT TRUST.—The

5 term ‘‘real estate investment trust’’ has the meaning

6 given such term by section 856(a) of the Internal Rev7 enue Code of 1986.

8 (2) NON-OPERATING CLASS III RAILROAD.—The

9 term ‘‘non-operating class III railroad’’ has the

10 meaning given such term by part A of subtitle IV of

11 title 49, United States Code (49 U.S.C. 10101 et seq.)

12 and the regulations thereunder.

13 (3) STATE.—The term ‘‘State’’ includes—

14 (A) the District of Columbia and any pos15 session of the United States, and

16 (B) any authority, agency, or public cor17 poration of a State.

18 (e) APPLICABILITY.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), this section shall apply on and after the

21 date on which a State becomes the owner of all of the

22 outstanding stock of a corporation described in sub23 section (a).

24 (2) EXCEPTION.—This section shall not apply to

25 any State which—
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1 (A) becomes the owner of all of the voting

2 stock of a corporation described in subsection (a)

3 after December 31, 2003, or

4 (B) becomes the owner of all of the out5 standing stock of a corporation described in sub6 section (a) after December 31, 2005.

7 SEC. 657. CLARIFICATION OF CONTRIBUTION IN AID OF

8 CONSTRUCTION FOR WATER AND SEWERAGE

9 DISPOSAL UTILITIES.

10 (a) IN GENERAL.—Subparagraph (A) of section

11 118(c)(3) (relating to definitions) is amended to read as

12 follows:

13 ‘‘(A) CONTRIBUTION IN AID OF CONSTRUC14 TION.—The term ‘contribution in aid of con15 struction’ shall be defined by regulations pre16 scribed by the Secretary, except that such term—

17 ‘‘(i) shall include amounts paid as cus18 tomer connection fees (including amounts

19 paid to connect the customer’s water service

20 line or sewer lateral line to the utility’s dis21 tribution or collection system or extend a

22 main water or sewer line to provide service

23 to a customer), and
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1 ‘‘(ii) shall not include amounts paid as

2 service charges for starting or stopping serv3 ices.’’.

4 (b) EFFECTIVE DATE.—The amendment made by sub5 section (a) shall apply to contributions made after the date

6 of the enactment of this Act.

7 SEC. 658. CREDIT FOR PURCHASE AND INSTALLATION OF

8 AGRICULTURAL WATER CONSERVATION SYS9 TEMS.

10 (a) IN GENERAL.—Subpart B of part IV of subchapter

11 A of chapter 1 (relating to foreign tax credit, etc.) is amend12 ed by adding at the end the following new section:

13 ‘‘SEC. 30B. PURCHASE AND INSTALLATION OF AGRICUL14 TURAL WATER CONSERVATION SYSTEMS.

15 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligi16 ble taxpayer, there shall be allowed as a credit against the

17 tax imposed by this chapter for the taxable year an amount

18 equal to 30 percent of the water conservation system ex19 penses paid or incurred by the taxpayer during such year.

20 ‘‘(b) LIMITATIONS.—The credit allowed by subsection

21 (a) with respect to any acre of land which is served by a

22 water conservation system shall not exceed the excess of—

23 ‘‘(1) $500, over
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1 ‘‘(2) the amount of credit allowed under this sec2 tion with respect to such acre for all prior taxable

3 years.

4 ‘‘(c) DEFINITIONS.—For purposes of this section—

5 ‘‘(1) ELIGIBLE TAXPAYER.—The term ‘eligible

6 taxpayer’ means any taxpayer if—

7 ‘‘(A) at least 50 percent of such taxpayer’s

8 gross income is normally derived from farm

9 land, and

10 ‘‘(B) such taxpayer complies with all Fed11 eral, State, and local water rights and environ12 mental laws.

13 ‘‘(2) WATER CONSERVATION SYSTEM EX14 PENSES.—

15 ‘‘(A) IN GENERAL.—The term ‘water con16 servation system expenses’ means expenses for the

17 purchase and installation of a water conserva18 tion system but only if—

19 ‘‘(i) the land served by the water con20 servation system is entirely in a county or

21 county-equivalent area which has received,

22 in the taxable year the expenses were paid

23 or incurred or in any of the 3 preceding

24 taxable years, a primary-county designa-
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1 tion due to drought by the Secretary of Ag2 riculture, and

3 ‘‘(ii) such system is certified as saving

4 at least 5 percent more irrigation water

5 than the irrigation system which was used

6 on such land immediately prior to the in7 stallation of such water conservation sys8 tem.

9 For purposes of clause (ii), irrigation water sav10 ings shall be determined and certified under reg11 ulations prescribed jointly by the Natural Re12 sources Conservation Service of the Department

13 of Agriculture and the Bureau of Reclamation of

14 the Department of the Interior. Such regulations

15 shall include a list of individuals or organiza16 tions qualified to make such certification.

17 ‘‘(B) WATER CONSERVATION SYSTEM.—The

18 term ‘water conservation system’ means, with re19 spect to farm land—

20 ‘‘(i) new or replacement irrigation

21 equipment and machinery, including sprin22 klers, pipes, siphons, nozzles, pumps, mo23 tors, and engines, and

24 ‘‘(ii) computer systems for irrigation

25 and water management.
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1 ‘‘(C) FARM LAND.—The term ‘farm land’

2 means land used in a trade or business by the

3 taxpayer or a tenant of the taxpayer for—

4 ‘‘(i) the production of crops, fruits, or

5 other agricultural products,

6 ‘‘(ii) the raising, harvesting, or grow7 ing of trees, or

8 ‘‘(iii) the sustenance of livestock.

9 ‘‘(d) YEAR EXPENDITURE MADE.—For purposes of

10 this section, an expenditure with respect to a water con11 servation system shall be treated as made when the original

12 installation of the system is completed.

13 ‘‘(e) LIMITATION BASED ON AMOUNT OF TAX.—

14 ‘‘(1) LIABILITY FOR TAX.—The credit allowable

15 under subsection (a) for any taxable year shall not

16 exceed the excess (if any) of—

17 ‘‘(A) the regular tax for the taxable year, re18 duced by the sum of the credits allowable under

19 subpart A and the preceding sections of this sub20 part, over

21 ‘‘(B) the tentative minimum tax for the tax22 able year.

23 ‘‘(2) CARRYFORWARD OF UNUSED CREDIT.—If

24 the amount of the credit allowable under subsection

25 (a) for any taxable year exceeds the limitation under
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1 paragraph (1) for the taxable year, the excess shall be

2 carried to the succeeding taxable year and added to

3 the amount allowable as a credit under subsection (a)

4 for such succeeding taxable year.

5 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction

6 shall be allowed under this chapter with respect to any ex7 pense which is taken into account in determining the credit

8 under this section, and any increase in the basis of any

9 property which would (but for this subsection) result from

10 such expense shall be reduced by the amount of credit al11 lowed under this section for such expense.

12 ‘‘(g) TERMINATION.—This section shall not apply to

13 amounts paid or incurred with respect any water conserva14 tion system the installation of which is completed after De15 cember 31, 2006.’’.

16 (b) TECHNICAL AMENDMENT.—Subsection (a) of sec17 tion 1016, as amended by this Act, is amended by striking

18 ‘‘and’’ at the end of paragraph (30), by striking the period

19 at the end of paragraph (31) and inserting ‘‘; and’’, and

20 by adding at the end the following new paragraph:

21 ‘‘(32) to the extent provided in section 30B(f), in

22 the case of amounts with respect to which a credit has

23 been allowed under section 30B.’’.
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1 (c) CLERICAL AMENDMENT.—The table of sections for

2 subpart B of part IV of subchapter A of chapter 1 is amend3 ed by adding at the end the following new item:

‘‘Sec. 30B. Purchase and installation of agricultural water conservation systems.’’.

4 (d) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to amounts paid or incurred after the

6 date of the enactment of this Act with respect any water

7 conservation system the installation of which is completed

8 after December 31, 2004.

9 SEC. 659. MODIFICATION OF INVOLUNTARY CONVERSION

10 RULES FOR BUSINESSES AFFECTED BY THE

11 SEPTEMBER 11TH TERRORIST ATTACKS.

12 (a) IN GENERAL.—Subsection (g) of section 1400L is

13 amended to read as follows:

14 ‘‘(g) MODIFICATION OF RULES APPLICABLE TO NON15 RECOGNITION OF GAIN.—In the case of property which is

16 compulsorily or involuntarily converted as a result of the

17 terrorist attacks on September 11, 2001, in the New York

18 Liberty Zone—

19 ‘‘(1) which was held by a corporation which is

20 a member of an affiliated group filing a consolidated

21 return, such corporation shall be treated as satisfying

22 the purchase requirement of section 1033(a)(2) with

23 respect to such property to the extent such require24 ment is satisfied by another member of the group, and
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1 ‘‘(2) notwithstanding subsections (g) and (h) of

2 section 1033, clause (i) of section 1033(a)(2)(B) shall

3 be applied by substituting ‘5 years’ for ‘2 years’ with

4 respect to property which is compulsorily or involun5 tarily converted as a result of the terrorist attacks on

6 September 11, 2001, in the New York Liberty Zone

7 but only if substantially all of the use of the replace8 ment property is in the City of New York, New

9 York.’’.

10 (b) EFFECTIVE DATE.—The amendments made by this

11 Act shall apply to involuntary conversions occurring on or

12 after September 11, 2001.

13 SEC. 660. REPEAL OF APPLICATION OF BELOW-MARKET

14 LOAN RULES TO AMOUNTS PAID TO CERTAIN

15 CONTINUING CARE FACILITIES.

16 (a) IN GENERAL.—Section 7872(c)(1) (relating to

17 below-market loans to which section applies) is amended—

18 (1) by striking subparagraph (F), and

19 (2) by striking ‘‘(C), or (F)’’ in subparagraph

20 (E) and inserting ‘‘or (C)’’.

21 (b) FULL EXCEPTION.—Section 7872(g) (relating to

22 exception for certain loans to qualified continuing care fa23 cilities) is amended—

24 (1) by striking ‘‘made by a lender to a qualified

25 continuing care facility pursuant to a continuing
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1 care contract’’ in paragraph (1) and inserting ‘‘owed

2 by a facility which on the last day of such year is

3 a qualified continuing care facility, if such loan was

4 made pursuant to a continuing care contract and’’,

5 (2) by striking ‘‘increased personal care services

6 or’’ in paragraph (3)(C),

7 (3) by adding at the end of paragraph (3) the

8 following new flush sentence:

9 ‘‘The Secretary shall issue guidance which limits such

10 term to contracts which provide to an individual or

11 individual’s spouse only facilities, care, and services

12 described in this paragraph which are customarily of13 fered by continuing care facilities.’’,

14 (4) by inserting ‘‘independent living unit’’ after

15 ‘‘all of the’’ in paragraph (4)(A)(ii),

16 (5) by striking paragraphs (2) and (5),

17 (6) by redesignating paragraphs (3) and (4) as

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

19 (7) by striking ‘‘CERTAIN’’ in the heading there20 of.

21 (c) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to calendar years beginning after 2004.
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1 SEC. 661. GOLD, SILVER, PLATINUM, AND PALLADIUM

2 TREATED IN THE SAME MANNER AS STOCKS

3 AND BONDS FOR MAXIMUM CAPITAL GAINS

4 RATE FOR INDIVIDUALS.

5 (a) IN GENERAL.—Section 1(h)(5) (relating to defini6 tion of collectibles gain and loss) is amended—

7 (1) by striking ‘‘(as defined in section 408(m)

8 without regard to paragraph (3) thereof)’’ in subpara9 graph (A) thereof, and

10 (2) by adding at the end the following new sub11 paragraph:

12 ‘‘(C) COLLECTIBLE.—For purposes of this

13 paragraph, the term ‘collectible’ has the meaning

14 given such term by section 408(m), except that

15 in applying paragraph (3)(B) thereof the deter16 mination of whether any bullion is excluded

17 from treatment as a collectible shall be made

18 without regard to the person who is in physical

19 possession of the bullion.’’

20 (b) EFFECTIVE DATE.—The amendments made by sub21 section (a) shall apply to taxable years beginning after De22 cember 31, 2003.
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1 SEC. 662. INCLUSION OF PRIMARY AND SECONDARY MED2 ICAL STRATEGIES FOR CHILDREN AND

3 ADULTS WITH SICKLE CELL DISEASE AS MED4 ICAL ASSISTANCE UNDER THE MEDICAID

5 PROGRAM.

6 (a) OPTIONAL MEDICAL ASSISTANCE.—

7 (1) IN GENERAL.—Section 1905 of the Social Se8 curity Act (42 U.S.C. 1396d) is amended—

9 (A) in subsection (a)—

10 (i) by striking ‘‘and’’ at the end of

11 paragraph (26);

12 (ii) by redesignating paragraph (27)

13 as paragraph (28); and

14 (iii) by inserting after paragraph (26),

15 the following:

16 ‘‘(27) subject to subsection (x), primary and sec17 ondary medical strategies and treatment and services

18 for individuals who have Sickle Cell Disease; and’’;

19 and

20 (B) by adding at the end the following:

21 ‘‘(x) For purposes of subsection (a)(27), the strategies,

22 treatment, and services described in that subsection include

23 the following:

24 ‘‘(1) Chronic blood transfusion (with

25 deferoxamine chelation) to prevent stroke in individ-
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1 uals with Sickle Cell Disease who have been identified

2 as being at high risk for stroke.

3 ‘‘(2) Genetic counseling and testing for individ4 uals with Sickle Cell Disease or the sickle cell trait

5 to allow health care professionals to treat such indi6 viduals and to prevent symptoms of Sickle Cell Dis7 ease.

8 ‘‘(3) Other treatment and services to prevent in9 dividuals who have Sickle Cell Disease and who have

10 had a stroke from having another stroke.’’.

11 (2) RULE OF CONSTRUCTION.—Nothing in sub12 sections (a)(27) or (x) of section 1905 of the Social

13 Security Act (42 U.S.C. 1396d), as added by para14 graph (1), shall be construed as implying that a State

15 medicaid program under title XIX of such Act could

16 not have treated, prior to the date of enactment of this

17 Act, any of the primary and secondary medical strat18 egies and treatment and services described in such

19 subsections as medical assistance under such pro20 gram, including as early and periodic screening, di21 agnostic, and treatment services under section 1905(r)

22 of such Act.

23 (b) FEDERAL REIMBURSEMENT FOR EDUCATION AND

24 OTHER SERVICES RELATED TO THE PREVENTION AND

25 TREATMENT OF SICKLE CELL DISEASE.—Section
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1 1903(a)(3) of the Social Security Act (42 U.S.C.

2 1396b(a)(3)) is amended—

3 (1) in subparagraph (D), by striking ‘‘plus’’ at

4 the end and inserting ‘‘and’’; and

5 (2) by adding at the end the following:

6 ‘‘(E) 50 percent of the sums expended with

7 respect to costs incurred during such quarter as

8 are attributable to providing—

9 ‘‘(i) services to identify and educate in10 dividuals who are likely to be eligible for

11 medical assistance under this title and who

12 have Sickle Cell Disease or who are carriers

13 of the sickle cell gene, including education

14 regarding how to identify such individuals;

15 or

16 ‘‘(ii) education regarding the risks of

17 stroke and other complications, as well as

18 the prevention of stroke and other complica19 tions, in individuals who are likely to be el20 igible for medical assistance under this title

21 and who have Sickle Cell Disease; plus’’.

22 (c) DEMONSTRATION PROGRAM FOR THE DEVELOP23 MENT AND ESTABLISHMENT OF SYSTEMIC MECHANISMS

24 FOR THE PREVENTION AND TREATMENT OF SICKLE CELL

25 DISEASE.—
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1 (1) AUTHORITY TO CONDUCT DEMONSTRATION

2 PROGRAM.—

3 (A) IN GENERAL.—The Administrator,

4 through the Bureau of Primary Health Care and

5 the Maternal and Child Health Bureau, shall

6 conduct a demonstration program by making

7 grants to up to 40 eligible entities for each fiscal

8 year in which the program is conducted under

9 this section for the purpose of developing and es10 tablishing systemic mechanisms to improve the

11 prevention and treatment of Sickle Cell Disease,

12 including through—

13 (i) the coordination of service delivery

14 for individuals with Sickle Cell Disease;

15 (ii) genetic counseling and testing;

16 (iii) bundling of technical services re17 lated to the prevention and treatment of

18 Sickle Cell Disease;

19 (iv) training of health professionals;

20 and

21 (v) identifying and establishing other

22 efforts related to the expansion and coordi23 nation of education, treatment, and con24 tinuity of care programs for individuals

25 with Sickle Cell Disease.
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1 (B) GRANT AWARD REQUIREMENTS.—

2 (i) GEOGRAPHIC DIVERSITY.—The Ad3 ministrator shall, to the extent practicable,

4 award grants under this section to eligible

5 entities located in different regions of the

6 United States.

7 (ii) PRIORITY.—In awarding grants

8 under this subsection, the Administrator

9 shall give priority to awarding grants to el10 igible entities that are—

11 (I) Federally-qualified health cen12 ters that have a partnership or other

13 arrangement with a comprehensive

14 Sickle Cell Disease treatment center

15 that does not receive funds from the

16 National Institutes of Health; or

17 (II) Federally-qualified health

18 centers that intend to develop a part19 nership or other arrangement with a

20 comprehensive Sickle Cell Disease

21 treatment center that does not receive

22 funds from the National Institutes of

23 Health.

24 (2) ADDITIONAL REQUIREMENTS.—An eligible

25 entity awarded a grant under this subsection shall
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1 use funds made available under the grant to carry

2 out, in addition to the activities described in para3 graph (1)(A), the following activities:

4 (A) To facilitate and coordinate the delivery

5 of education, treatment, and continuity of care

6 for individuals with Sickle Cell Disease under—

7 (i) the entity’s collaborative agreement

8 with a community-based Sickle Cell Disease

9 organization or a nonprofit entity that

10 works with individuals who have Sickle Cell

11 Disease;

12 (ii) the Sickle Cell Disease newborn

13 screening program for the State in which

14 the entity is located; and

15 (iii) the maternal and child health

16 program under title V of the Social Secu17 rity Act (42 U.S.C. 701 et seq.) for the

18 State in which the entity is located.

19 (B) To train nursing and other health staff

20 who provide care for individuals with Sickle Cell

21 Disease.

22 (C) To enter into a partnership with adult

23 or pediatric hematologists in the region and

24 other regional experts in Sickle Cell Disease at
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1 tertiary and academic health centers and State

2 and county health offices.

3 (D) To identify and secure resources for en4 suring reimbursement under the medicaid pro5 gram, State children’s health insurance program,

6 and other health programs for the prevention

7 and treatment of Sickle Cell Disease.

8 (3) NATIONAL COORDINATING CENTER.—

9 (A) ESTABLISHMENT.—The Administrator

10 shall enter into a contract with an entity to

11 serve as the National Coordinating Center for the

12 demonstration program conducted under this

13 subsection.

14 (B) ACTIVITIES DESCRIBED.—The National

15 Coordinating Center shall—

16 (i) collect, coordinate, monitor, and

17 distribute data, best practices, and findings

18 regarding the activities funded under grants

19 made to eligible entities under the dem20 onstration program;

21 (ii) develop a model protocol for eligi22 ble entities with respect to the prevention

23 and treatment of Sickle Cell Disease;
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1 (iii) develop educational materials re2 garding the prevention and treatment of

3 Sickle Cell Disease; and

4 (iv) prepare and submit to Congress a

5 final report that includes recommendations

6 regarding the effectiveness of the demonstra7 tion program conducted under this sub8 section and such direct outcome measures

9 as—

10 (I) the number and type of health

11 care resources utilized (such as emer12 gency room visits, hospital visits,

13 length of stay, and physician visits for

14 individuals with Sickle Cell Disease);

15 and

16 (II) the number of individuals

17 that were tested and subsequently re18 ceived genetic counseling for the sickle

19 cell trait.

20 (4) APPLICATION.—An eligible entity desiring a

21 grant under this subsection shall submit an applica22 tion to the Administrator at such time, in such man23 ner, and containing such information as the Admin24 istrator may require.

25 (5) DEFINITIONS.—In this subsection:
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1 (A) ADMINISTRATOR.—The term ‘‘Adminis2 trator’’ means the Administrator of the Health

3 Resources and Services Administration.

4 (B) ELIGIBLE ENTITY.—The term ‘‘eligible

5 entity’’ means a Federally-qualified health cen6 ter, a nonprofit hospital or clinic, or a univer7 sity health center that provides primary health

8 care, that—

9 (i) has a collaborative agreement with

10 a community-based Sickle Cell Disease or11 ganization or a nonprofit entity with expe12 rience in working with individuals who

13 have Sickle Cell Disease; and

14 (ii) demonstrates to the Administrator

15 that either the Federally-qualified health

16 center, the nonprofit hospital or clinic, the

17 university health center, the organization or

18 entity described in clause (i), or the experts

19 described in paragraph (2)(C), has at least

20 5 years of experience in working with indi21 viduals who have Sickle Cell Disease.

22 (C) FEDERALLY-QUALIFIED HEALTH CEN23 TER.—The term ‘‘Federally-qualified health cen24 ter’’ has the meaning given that term in section
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1 1905(l)(2)(B) of the Social Security Act (42

2 U.S.C. 1396d(l)(2)(B)).

3 (6) AUTHORIZATION OF APPROPRIATIONS.—

4 There is authorized to be appropriated to carry out

5 this subsection, $10,000,000 for each of fiscal years

6 2005 through 2009.

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

8 subsections (a) and (b) take effect on the date of enactment

9 of this Act and apply to medical assistance and services

10 provided under title XIX of the Social Security Act (42

11 U.S.C. 1396 et seq.) on or after that date.

12 Subtitle F—Revenue Provisions

13 PART I—GENERAL REVENUE PROVISIONS

14 SEC. 661A. TREASURY REGULATIONS ON FOREIGN TAX

15 CREDIT.

16 Section 901, as amended by this Act, is amended by

17 redesignating subsection (m) as subsection (n) and by in18 serting after subsection (l) the following new subsection:

19 ‘‘(m) REGULATIONS.—The Secretary may prescribe

20 regulations disallowing a credit under subsection (a) for all

21 or a portion of any foreign tax, or allocating a foreign tax

22 among 2 or more persons, in cases where the foreign tax

23 is imposed on any person in respect of income of another

24 person or in other cases involving the inappropriate separa25 tion of the foreign tax from the related foreign income.’’.
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1 SEC. 662B. FREEZE OF PROVISIONS REGARDING SUSPEN2 SION OF INTEREST WHERE SECRETARY FAILS

3 TO CONTACT TAXPAYER.

4 (a) IN GENERAL.—Section 6404(g) (relating to sus5 pension of interest and certain penalties where Secretary

6 fails to contact taxpayer) is amended by striking ‘‘1-year

7 period (18-month period in the case of taxable years begin8 ning before January 1, 2004)’’ both places it appears and

9 inserting ‘‘18-month period’’.

10 (b) EXCEPTION FOR GROSS MISSTATEMENT.—Section

11 6404(g)(2) (relating to exceptions) is amended by striking

12 ‘‘or’’ at the end of subparagraph (C), by redesignating sub13 paragraph (D) as subparagraph (E), and by inserting after

14 subparagraph (C) the following new subparagraph:

15 ‘‘(D) any interest, penalty, addition to tax,

16 or additional amount with respect to any gross

17 misstatement; or’’.

18 (c) EXCEPTION FOR LISTED AND REPORTABLE TRANS19 ACTIONS.—Section 6404(g)(2) (relating to exceptions), as

20 amended by subsection (b), is amended by striking ‘‘or’’ at

21 the end of subparagraph (D), by redesignating subpara22 graph (E) as subparagraph (F), and by inserting after sub23 paragraph (D) the following new subparagraph:

24 ‘‘(E) any interest, penalty, addition to tax,

25 or additional amount with respect to any report-
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1 able transaction or listed transaction (as defined

2 in 6707A(c)); or’’.

3 (d) EFFECTIVE DATES.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section shall

6 apply to taxable years beginning after December 31,

7 2003.

8 (2) EXCEPTION FOR REPORTABLE OR LISTED

9 TRANSACTIONS.—The amendments made by sub10 section (c) shall apply with respect to interest accru11 ing after May 5, 2004.

12 PART II—PENSION AND DEFERRED

13 COMPENSATION

14 SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COM15 PENSATION PLANS.

16 (a) IN GENERAL.—Subpart A of part I of subchapter

17 D of chapter 1 is amended by adding at the end the fol18 lowing new section:

19 ‘‘SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED

20 COMPENSATION UNDER NONQUALIFIED DE21 FERRED COMPENSATION PLANS.

22 ‘‘(a) RULES RELATING TO CONSTRUCTIVE RECEIPT.—

23 ‘‘(1) IN GENERAL.—
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1 ‘‘(A) GROSS INCOME INCLUSION.—If at any

2 time during a taxable year a nonqualified de3 ferred compensation plan—

4 ‘‘(i) fails to meet the requirements of

5 paragraphs (2), (3), (4), and (5), or

6 ‘‘(ii) is not operated in accordance

7 with such requirements,

8 all compensation deferred under the plan for the

9 taxable year and all preceding taxable years

10 shall be includible in gross income for the taxable

11 year to the extent not subject to a substantial

12 risk of forfeiture and not previously included in

13 gross income.

14 ‘‘(B) INTEREST AND ADDITIONAL TAX PAY15 ABLE WITH RESPECT TO PREVIOUSLY DEFERRED

16 COMPENSATION.—

17 ‘‘(i) IN GENERAL.—If compensation is

18 required to be included in gross income

19 under subparagraph (A) for a taxable year,

20 the tax imposed by this chapter for the tax21 able year of inclusion shall be increased by

22 the sum of—

23 ‘‘(I) the amount of interest deter24 mined under clause (ii), and
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1 ‘‘(II) an amount equal to 10 per2 cent of the compensation which is re3 quired to be included in gross income.

4 ‘‘(ii) INTEREST.—For purposes of

5 clause (i), the interest determined under

6 this clause for any taxable year is the

7 amount of interest at the underpayment

8 rate on the underpayments that would have

9 occurred had the deferred compensation been

10 includible in gross income for the taxable

11 year in which first deferred or, if later, the

12 first taxable year in which such deferred

13 compensation is not subject to a substantial

14 risk of forfeiture.

15 ‘‘(2) DISTRIBUTIONS.—

16 ‘‘(A) IN GENERAL.—The requirements of

17 this paragraph are met if the plan provides that

18 compensation deferred under the plan may not

19 be distributed earlier than—

20 ‘‘(i) except as provided in subpara21 graph (B)(i), separation from service (as

22 determined by the Secretary),

23 ‘‘(ii) the date the participant becomes

24 disabled (within the meaning of subpara25 graph (C)),
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1 ‘‘(iii) death,

2 ‘‘(iv) a specified time (or pursuant to

3 a fixed schedule) specified under the plan as

4 of the date of the deferral of such compensa5 tion,

6 ‘‘(v) to the extent provided by the Sec7 retary, a change in the ownership or effec8 tive control of the corporation, or in the

9 ownership of a substantial portion of the as10 sets of the corporation, or

11 ‘‘(vi) the occurrence of an unforeseeable

12 emergency.

13 ‘‘(B) SPECIAL RULES.—

14 ‘‘(i) SEPARATION FROM SERVICE OF

15 SPECIFIED EMPLOYEES.—In the case of

16 specified employees, the requirement of sub17 paragraph (A)(i) is met only if distribu18 tions may not be made earlier than 6

19 months after the date of separation from

20 service. For purposes of the preceding sen21 tence, a specified employee is a key em22 ployee (as defined in section 416(i)) of a

23 corporation the stock in which is publicly

24 traded on an established securities market

25 or otherwise.
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1 ‘‘(ii) CHANGES IN OWNERSHIP OR CON2 TROL.—In the case of a participant who is

3 subject to the requirements of section 16(a)

4 of the Securities Exchange Act of 1934, the

5 requirement of subparagraph (A)(v) is met

6 only if distributions may not be made ear7 lier than 1 year after the date of the change

8 in ownership or effective control.

9 ‘‘(iii) UNFORESEEABLE EMERGENCY.—

10 For purposes of subparagraph (A)(vi)—

11 ‘‘(I) IN GENERAL.—The term ‘un12 foreseeable emergency’ means a severe

13 financial hardship to the participant

14 or beneficiary resulting from a sudden

15 and unexpected illness or accident of

16 the participant or beneficiary, the par17 ticipant’s or beneficiary’s spouse, or

18 the participant’s or beneficiary’s de19 pendent (as defined in section 152(a)),

20 loss of the participant’s or beneficiary’s

21 property due to casualty, or other

22 similar extraordinary and unforesee23 able circumstances arising as a result

24 of events beyond the control of the par25 ticipant or beneficiary.
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1 ‘‘(II) LIMITATION ON DISTRIBU2 TIONS.—The requirement of subpara3 graph (A)(vi) is met only if, as deter4 mined under regulations of the Sec5 retary, the amounts distributed with

6 respect to an emergency do not exceed

7 the amounts necessary to satisfy such

8 emergency plus amounts necessary to

9 pay taxes reasonably anticipated as a

10 result of the distribution, after taking

11 into account the extent to which such

12 hardship is or may be relieved through

13 reimbursement or compensation by in14 surance or otherwise or by liquidation

15 of the participant’s or beneficiary’s as16 sets (to the extent the liquidation of

17 such assets would not itself cause severe

18 financial hardship).

19 ‘‘(C) DISABLED.—For purposes of subpara20 graph (A)(ii), a participant shall be considered

21 disabled if the participant—

22 ‘‘(i) is unable to engage in any sub23 stantial gainful activity by reason of any

24 medically determinable physical or mental

25 impairment which can be expected to result
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1 in death or can be expected to last for a

2 continuous period of not less than 12

3 months, or

4 ‘‘(ii) is, by reason of any medically de5 terminable physical or mental impairment

6 which can be expected to result in death or

7 can be expected to last for a continuous pe8 riod of not less than 12 months, receiving

9 income replacement benefits for a period of

10 not less than 3 months under an accident

11 and health plan covering employees of the

12 participant’s employer.

13 ‘‘(3) INVESTMENT OPTIONS.—The requirements

14 of this paragraph are met if the plan provides that

15 the investment options a participant may elect under

16 the plan—

17 ‘‘(A) are comparable to the investment op18 tions which a participant may elect under the

19 defined contribution plan of the employer

20 which—

21 ‘‘(i) meets the requirement of section

22 401(a) and includes a trust exempt from

23 taxation under section 501(a), and

24 ‘‘(ii) has the fewest investment options,

25 or
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1 ‘‘(B) if there is no such defined contribution

2 plan, meet such requirements as the Secretary

3 may prescribe (including requirements limiting

4 such options to permissible investment options

5 specified by the Secretary).

6 ‘‘(4) ACCELERATION OF BENEFITS.—The require7 ments of this paragraph are met if the plan does not

8 permit the acceleration of the time or schedule of any

9 payment under the plan, except as provided by the

10 Secretary in regulations.

11 ‘‘(5) ELECTIONS.—

12 ‘‘(A) IN GENERAL.—The requirements of

13 this paragraph are met if the requirements of

14 subparagraphs (B) and (C) are met.

15 ‘‘(B) INITIAL DEFERRAL DECISION.—The

16 requirements of this subparagraph are met if the

17 plan provides that compensation for services per18 formed during a taxable year may be deferred at

19 the participant’s election only if the election to

20 defer such compensation is made during the pre21 ceding taxable year or at such other time as pro22 vided in regulations. In the case of the first year

23 in which a participant becomes eligible to par24 ticipate in the plan, such election may be made

25 with respect to services to be performed subse-
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1 quent to the election within 30 days after the

2 date the participant becomes eligible to partici3 pate in such plan.

4 ‘‘(C) CHANGES IN TIME AND FORM OF DIS5 TRIBUTION.—The requirements of this subpara6 graph are met if, in the case of a plan which

7 permits under a subsequent election a delay in

8 a payment or a change in the form of

9 payment—

10 ‘‘(i) the plan requires that such election

11 may not take effect until at least 12 months

12 after the date on which the election is made,

13 ‘‘(ii) in the case an election related to

14 a payment not described in clause (ii), (iii),

15 or (vi) of paragraph (2)(A), the plan re16 quires that the first payment with respect to

17 which such election is made be deferred for

18 a period of not less than 5 years from the

19 date such payment would otherwise have

20 been made, and

21 ‘‘(iii) the plan requires that any elec22 tion related to a payment described in

23 paragraph (2)(A)(iv) may not be made less

24 than 12 months prior to the date of the first

25 scheduled payment under such paragraph.
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1 A plan shall be treated as failing to meet the re2 quirements of this subparagraph if the plan per3 mits more than 1 subsequent election to delay

4 any payment.

5 ‘‘(b) RULES RELATING TO FUNDING.—

6 ‘‘(1) OFFSHORE PROPERTY IN A TRUST.—In the

7 case of assets set aside (directly or indirectly) in a

8 trust (or other arrangement determined by the Sec9 retary) for purposes of paying deferred compensation

10 under a nonqualified deferred compensation plan,

11 such assets shall be treated for purposes of section 83

12 as property transferred in connection with the per13 formance of services whether or not such assets are

14 available to satisfy claims of general creditors—

15 ‘‘(A) at the time set aside if such assets are

16 located outside of the United States, or

17 ‘‘(B) at the time transferred if such assets

18 are subsequently transferred outside of the

19 United States.

20 This paragraph shall not apply to assets located in

21 a foreign jurisdiction if substantially all of the serv22 ices to which the nonqualified deferred compensation

23 relates are performed in such jurisdiction.

24 ‘‘(2) EMPLOYER’S FINANCIAL HEALTH.—In the

25 case of a nonqualified deferred compensation plan,
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1 there is a transfer of property within the meaning of

2 section 83 as of the earlier of—

3 ‘‘(A) the date on which the plan first pro4 vides that assets will become restricted to the

5 provision of benefits under the plan in connec6 tion with a change in the employer’s financial

7 health, or

8 ‘‘(B) the date on which assets are so re9 stricted.

10 ‘‘(3) INCOME INCLUSION FOR OFFSHORE TRUSTS

11 AND EMPLOYER’S FINANCIAL HEALTH.—For each tax12 able year that assets treated as transferred under this

13 subsection remain set aside in a trust or other ar14 rangement subject to paragraph (1) or (2), any in15 crease in value in, or earnings with respect to, such

16 assets shall be treated as an additional transfer of

17 property under this subsection (to the extent not pre18 viously included in income).

19 ‘‘(4) INTEREST ON TAX LIABILITY PAYABLE WITH

20 RESPECT TO TRANSFERRED PROPERTY.—

21 ‘‘(A) IN GENERAL.—If amounts are re22 quired to be included in gross income by reason

23 of paragraph (1) or (2) for a taxable year, the

24 tax imposed by this chapter for such taxable year

25 shall be increased by the sum of—
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1 ‘‘(i) the amount of interest determined

2 under subparagraph (B), and

3 ‘‘(ii) an amount equal to 10 percent of

4 the amounts required to be included in gross

5 income.

6 ‘‘(B) INTEREST.—For purposes of subpara7 graph (A), the interest determined under this

8 subparagraph for any taxable year is the

9 amount of interest at the underpayment rate on

10 the underpayments that would have occurred had

11 the amounts so required to be included in gross

12 income by paragraph (1) or (2) been includible

13 in gross income for the taxable year in which

14 first deferred or, if later, the first taxable year in

15 which such amounts are not subject to a substan16 tial risk of forfeiture.

17 ‘‘(c) NO INFERENCE ON EARLIER INCOME INCLU18 SION.—Nothing in this section shall be construed to prevent

19 the inclusion of amounts in gross income under any other

20 provision of this chapter or any other rule of law earlier

21 than the time provided in this section. Any amount in22 cluded in gross income under this section shall not be re23 quired to be included in gross income under any other pro24 vision of this chapter or any other rule of law later than

25 the time provided in this section.
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1 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—For

2 purposes of this section—

3 ‘‘(1) NONQUALIFIED DEFERRED COMPENSATION

4 PLAN.—The term ‘nonqualified deferred compensation

5 plan’ means any plan that provides for the deferral

6 of compensation, other than—

7 ‘‘(A) a qualified employer plan, and

8 ‘‘(B) any bona fide vacation leave, sick

9 leave, compensatory time, disability pay, or

10 death benefit plan.

11 ‘‘(2) QUALIFIED EMPLOYER PLAN.—The term

12 ‘qualified employer plan’ means—

13 ‘‘(A) any plan, contract, pension, account,

14 or trust described in subparagraph (A) or (B) of

15 section 219(g)(5), and

16 ‘‘(B) any eligible deferred compensation

17 plan (within the meaning of section 457(b)) of

18 an employer described in section 457(e)(1)(A).

19 ‘‘(3) PLAN INCLUDES ARRANGEMENTS, ETC.—The

20 term ‘plan’ includes any agreement or arrangement,

21 including an agreement or arrangement that includes

22 one person.

23 ‘‘(4) SUBSTANTIAL RISK OF FORFEITURE.—The

24 rights of a person to compensation are subject to a

25 substantial risk of forfeiture if such person’s rights to
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1 such compensation are conditioned upon the future

2 performance of substantial services by any individual.

3 ‘‘(5) TREATMENT OF EARNINGS.—References to

4 deferred compensation shall be treated as including

5 references to income (whether actual or notional) at6 tributable to such compensation or such income.

7 ‘‘(6) EXCEPTION FOR NONELECTIVE DEFERRED

8 COMPENSATION.—This section shall not apply to any

9 nonelective deferred compensation to which section

10 457 does not apply by reason of section 457(e)(12),

11 but only if such compensation is provided under a

12 nonqualified deferred compensation plan which was

13 in existence on May 1, 2004, and which was pro14 viding nonelective deferred compensation described in

15 section 457(e)(12) on such date. If, after May 1, 2004,

16 a plan described in the preceding sentence adopts a

17 plan amemdment which provides a material change

18 in the classes of individuals eligible to participate in

19 the plan, this paragraph shall not apply to any non20 elective deferred compensation provided under the

21 plan on or after the date of the adoption of the

22 amendment.

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

24 such regulations as may be necessary or appropriate to
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1 carry out the purposes of this section, including

2 regulations—

3 ‘‘(1) providing for the determination of amounts

4 of deferral in the case of a nonqualified deferred com5 pensation plan which is a defined benefit plan,

6 ‘‘(2) relating to changes in the ownership and

7 control of a corporation or assets of a corporation for

8 purposes of subsection (a)(2)(A)(v),

9 ‘‘(3) exempting arrangements from the applica10 tion of subsection (b) if such arrangements will not

11 result in an improper deferral of United States tax

12 and will not result in assets being effectively beyond

13 the reach of creditors,

14 ‘‘(4) defining financial health for purposes of

15 subsection (b)(2), and

16 ‘‘(5) disregarding a substantial risk of forfeiture

17 in cases where necessary to carry out the purposes of

18 this section.’’.

19 (b) APPLICATION OF GOLDEN PARACHUTE PAYMENT

20 PROVISIONS.—Section 280G of such Code (relating to gold21 en parachute payments) is amended by redesignating sub22 section (e) as subsection (f) and by inserting after subsection

23 (d) the following new subsection:

24 ‘‘(e) SPECIAL RULES FOR CERTAIN PAYMENTS FROM

25 NONQUALIFIED DEFERRED COMPENSATION PLANS.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding any other

2 provision of this section, an applicable payment shall

3 be treated as an excess parachute payment for pur4 poses of this section and section 4999.

5 ‘‘(2) COORDINATION WITH OTHER PAYMENTS.—

6 ‘‘(A) APPLICABLE PAYMENTS WHICH ARE

7 PARACHUTE PAYMENTS.—If any applicable pay8 ment is a parachute payment (determined with9 out regard to subsection (b)(2)(A)(ii))—

10 ‘‘(i) except as provided in paragraph

11 (4), this section shall be applied to such

12 payment in the same manner as if this sub13 section had not been enacted, and

14 ‘‘(ii) if such application results in an

15 excess parachute payment, any tax under

16 section 4999 on the excess parachute pay17 ment shall be in addition to the tax im18 posed by reason of paragraph (1).

19 ‘‘(B) APPLICABLE PAYMENTS WHICH ARE

20 NOT PARACHUTE PAYMENTS.—An applicable

21 payment not described in subparagraph (A)

22 shall be taken into account in determining

23 whether any payment described in subparagraph

24 (A) or any payment which is not an applicable
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1 payment is a parachute payment under sub2 section (b)(2).

3 ‘‘(3) APPLICABLE PAYMENT.—For purposes of

4 this subsection, the term ‘applicable payment’ means

5 any distribution (including any distribution treated

6 as a parachute payment without regard to this sub7 section) from a nonqualified deferred compensation

8 plan (as defined in section 409A(d)) which is made—

9 ‘‘(A) to a participant who is subject to the

10 requirements of section 16(a) of the Securities

11 Exchange Act of 1934, and

12 ‘‘(B) during the 1-year period following a

13 change in the ownership or effective control of

14 the corporation or in the ownership of a substan15 tial portion of the assets of the corporation.

16 Such terms shall not include any distribution by rea17 son of the death of the participant or the participant

18 becoming disabled (within the meaning of section

19 409A(a)(2)(C)).

20 ‘‘(4) NO DOUBLE COUNTING.—Under regulations,

21 proper adjustments shall be made in the application

22 of this subsection to prevent a deduction from being

23 disallowed more than once.’’.

24 (c) W–2 FORMS.—
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1 (1) IN GENERAL.—Subsection (a) of section 6051

2 (relating to receipts for employees) is amended by

3 striking ‘‘and’’ at the end of paragraph (11), by strik4 ing the period at the end of paragraph (12) and in5 serting ‘‘, and’’, and by inserting after paragraph

6 (12) the following new paragraph:

7 ‘‘(13) the total amount of deferrals under a non8 qualified deferred compensation plan (within the

9 meaning of section 409A(d)).’’.

10 (2) THRESHOLD.—Subsection (a) of section 6051

11 is amended by adding at the end the following: ‘‘In

12 the case of the amounts required to be shown by para13 graph (13), the Secretary may (by regulation) estab14 lish a minimum amount of deferrals below which

15 paragraph (13) does not apply.’’.

16 (d) CONFORMING AND CLERICAL AMENDMENTS.—

17 (1) Section 414(b) is amended by inserting

18 ‘‘409A,’’ after ‘‘408(p),’’.

19 (2) Section 414(c) is amended by inserting

20 ‘‘409A,’’ after ‘‘408(p),’’.

21 (3) The table of sections for such subpart A is

22 amended by adding at the end the following new item:

‘‘Sec. 409A. Inclusion in gross income of deferred compensation

under nonqualified deferred compensation plans.’’.

23 (e) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to amounts deferred in tax3 able years beginning after December 31, 2004.

4 (2) EARNINGS ATTRIBUTABLE TO AMOUNT PRE5 VIOUSLY DEFERRED.—The amendments made by this

6 section shall apply to earnings on deferred compensa7 tion only to the extent that such amendments apply

8 to such compensation.

9 (f) GUIDANCE RELATING TO CHANGE OF OWNERSHIP

10 OR CONTROL.—Not later than 90 days after the date of the

11 enactment of this Act, the Secretary of the Treasury shall

12 issue guidance on what constitutes a change in ownership

13 or effective control for purposes of section 409A of the Inter14 nal Revenue Code of 1986, as added by this section.

15 (g) GUIDANCE RELATING TO TERMINATION OF CER16 TAIN EXISTING ARRANGEMENTS.—Not later than 90 days

17 after the date of the enactment of this Act, the Secretary

18 of the Treasury shall issue guidance providing a limited

19 period during which an individual participating in a non20 qualified deferred compensation plan adopted on or before

21 December 31, 2004, may, without violating the require22 ments of paragraphs (2), (3), (4), and (5) of section 409A(a)

23 of the Internal Revenue Code of 1986 (as added by this sec24 tion), terminate participation or cancel an outstanding de25 ferral election with regard to amounts earned after Decem-
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1 ber 31, 2004, if such amounts are includible in income as

2 earned.

3 SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE

4 EXERCISE OF STOCK OPTIONS AND RE5 STRICTED STOCK GAINS THROUGH DE6 FERRED COMPENSATION ARRANGEMENTS.

7 (a) IN GENERAL.—Section 83 (relating to property

8 transferred in connection with performance of services) is

9 amending by adding at the end the following new sub10 section:

11 ‘‘(i) PROHIBITION ON ADDITIONAL DEFERRAL

12 THROUGH DEFERRED COMPENSATION ARRANGEMENTS.—

13 If a taxpayer exchanges—

14 ‘‘(1) an option to purchase employer securities—

15 ‘‘(A) to which subsection (a) applies, or

16 ‘‘(B) which is described in subsection (e)(3),

17 or

18 ‘‘(2) employer securities or any other property

19 based on employer securities transferred to the tax20 payer,

21 for a right to receive future payments, then, notwith22 standing any other provision of this title, there shall be in23 cluded in gross income for the taxable year of the exchange

24 an amount equal to the present value of such right (or such

25 other amount as the Secretary may by regulations specify).
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1 For purposes of this subsection, the term ‘employer securi2 ties’ includes any security issued by the employer.’’.

3 (b) CONTROLLED GROUP RULES.—Section 414(t)(2) is

4 amended by inserting ‘‘83(i),’’ after ‘‘79,’’.

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

6 section shall apply to any exchange after December 31,

7 2004.

8 SEC. 673. INCREASE IN WITHHOLDING FROM SUPPLE9 MENTAL WAGE PAYMENTS IN EXCESS OF

10 $1,000,000.

11 (a) IN GENERAL.—If an employer elects under Treas12 ury Regulation 31.3402(g)–1 to determine the amount to

13 be deducted and withheld from any supplemental wage pay14 ment by using a flat percentage rate, the rate to be used

15 in determining the amount to be so deducted and withheld

16 shall not be less than 28 percent (or the corresponding rate

17 in effect under section 1(i)(2) of the Internal Revenue Code

18 of 1986 for taxable years beginning in the calendar year

19 in which the payment is made).

20 (b) SPECIAL RULE FOR LARGE PAYMENTS.—

21 (1) IN GENERAL.—Notwithstanding subsection

22 (a), if the supplemental wage payment, when added

23 to all such payments previously made by the employer

24 to the employee during the calendar year, exceeds

25 $1,000,000, the rate used with respect to such excess
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1 shall be equal to the maximum rate of tax in effect

2 under section 1 of such Code for taxable years begin3 ning in such calendar year.

4 (2) AGGREGATION.—All persons treated as a sin5 gle employer under subsection (a) or (b) of section 52

6 of the Internal Revenue Code of 1986 shall be treated

7 as a single employer for purposes of this subsection.

8 (c) CONFORMING AMENDMENT.—Section 13273 of the

9 Revenue Reconciliation Act of 1993 (Public Law 103–66)

10 is repealed.

11 (d) EFFECTIVE DATE.—The provisions of, and the

12 amendment made by, this section shall apply to payments

13 made after December 31, 2003.

14 SEC. 674. TREATMENT OF SALE OF STOCK ACQUIRED PUR15 SUANT TO EXERCISE OF STOCK OPTIONS TO

16 COMPLY WITH CONFLICT-OF-INTEREST RE17 QUIREMENTS.

18 (a) IN GENERAL.—Section 421 of the Internal Revenue

19 Code of 1986 (relating to general rules for certain stock op20 tions) is amended by adding at the end the following new

21 subsection:

22 ‘‘(d) CERTAIN SALES TO COMPLY WITH CONFLICT-OF23 INTEREST REQUIREMENTS.—If—

24 ‘‘(1) a share of stock is transferred to an eligible

25 person (as defined in section 1043(b)(1)) pursuant to
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1 such person’s exercise of an option to which this part

2 applies, and

3 ‘‘(2) such share is disposed of by such person

4 pursuant to a certificate of divestiture (as defined in

5 section 1043(b)(2)),

6 such disposition shall be treated as meeting the require7 ments of section 422(a)(1) or 423(a)(1), whichever is appli8 cable.’’

9 (b) EFFECTIVE DATE.—The amendment made by this

10 section shall apply to sales after the date of the enactment

11 of this Act.

12 SEC. 675. APPLICATION OF BASIS RULES TO EMPLOYER

13 AND EMPLOYEE CONTRIBUTIONS ON BEHALF

14 OF NONRESIDENT ALIENS.

15 (a) IN GENERAL.—Section 72 (relating to annuities

16 and certain proceeds of endowment and life insurance con17 tracts) is amended by redesignating subsection (w) as sub18 section (x) and by inserting after subsection (v) the fol19 lowing new subsection:

20 ‘‘(w) APPLICATION OF BASIS RULES TO EMPLOYER

21 AND EMPLOYEE CONTRIBUTIONS MADE ON BEHALF OF

22 NONRESIDENT ALIENS.—

23 ‘‘(1) IN GENERAL.—Notwithstanding any other

24 provision of this section, for purposes of determining

25 the portion of any distribution which is includible in
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1 gross income of a distributee who is a citizen or resi2 dent of the United States, the investment in the con3 tract shall not include any applicable nontaxable con4 tributions.

5 ‘‘(2) APPLICABLE NONTAXABLE CONTRIBUTION.—

6 For purposes of this subsection, the term ‘applicable

7 nontaxable contribution’ means any employer or em8 ployee contribution—

9 ‘‘(A) which was made with respect to com10 pensation for labor or personal services by an

11 employee who, at the time the services were per12 formed, was a nonresident alien for purposes of

13 the laws of the United States in effect at such

14 time, but only if such compensation is treated as

15 from sources without the United States, and

16 ‘‘(B) which was not subject to income tax

17 under the laws of the United States or any for18 eign country.

19 ‘‘(3) REGULATIONS.—The Secretary shall pre20 scribe such regulations as may be necessary to carry

21 out the provisions of this subsection, including regula22 tions treating contributions as not subject to tax

23 under the laws of any foreign country where appro24 priate to carry out the purposes of this subsection.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to distributions on or after the date of

3 the enactment of this Act.

4 TITLE VII—EXTENSIONS OF

5 CERTAIN EXPIRING PROVISIONS

6 Subtitle A—Extensions

7 SEC. 701. PARITY IN THE APPLICATION OF CERTAIN LIMITS

8 TO MENTAL HEALTH BENEFITS.

9 (a) IN GENERAL.—Section 9812(f) is amended—

10 (1) by striking ‘‘and’’ at the end of paragraph

11 (1), and

12 (2) by striking paragraph (2) and inserting the

13 following new paragraphs:

14 ‘‘(2) on or after January 1, 2004, and before the

15 date of the enactment of the Jumpstart Our Business

16 Strength (JOBS) Act, and

17 ‘‘(3) after December 31, 2005.’’.

18 (b) ERISA.—Section 712(f) of the Employee Retire19 ment Income Security Act of 1974 (29 U.S.C. 1185a(f)) is

20 amended by striking ‘‘on or after December 31, 2004’’ and

21 inserting ‘‘after December 31, 2005’’.

22 (c) PHSA.—Section 2705(f) of the Public Health Serv23 ice Act (42 U.S.C. 300gg-5(f)) is amended by striking ‘‘on

24 or after December 31, 2004’’ and inserting ‘‘after December

25 31, 2005’’.
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1 (d) EFFECTIVE DATES.—

2 (1) SUBSECTION (a).—The amendments made by

3 subsection (a) shall apply to benefits for services fur4 nished on or after December 31, 2003.

5 (2) SUBSECTIONS (b) AND (c).—The amendments

6 made by subsections (b) and (c) shall apply to bene7 fits for services furnished on or after December 31,

8 2004.

9 SEC. 702. MODIFICATIONS TO WORK OPPORTUNITY CREDIT

10 AND WELFARE-TO-WORK CREDIT.

11 (a) PERMANENT EXTENSION OF CREDIT.—

12 (1) IN GENERAL.—Section 51(c) is amended by

13 striking paragraph (4).

14 (2) LONG-TERM FAMILY ASSISTANCE RECIPI15 ENTS.—

16 (A) IN GENERAL.—Section 51A is amended

17 by striking subsection (f).

18 (B) CONFORMING AMENDMENTS.—

19 (i) The heading for section 51A is

20 amended by striking ‘‘TEMPORARY’’.

21 (ii) The item relating to section 51A in

22 the table of sections for subpart F of part IV

23 of subchapter A of chapter 1 is amended by

24 striking ‘‘Temporary incentives’’ and insert25 ing ‘‘Incentives’’.
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1 (b) ELIGIBILITY OF EX-FELONS DETERMINED WITH2 OUT REGARD TO FAMILY INCOME.—Paragraph (4) of sec3 tion 51(d) is amended by adding ‘‘and’’ at the end of sub4 paragraph (A), by striking ‘‘, and’’ at the end of subpara5 graph (B) and inserting a period, and by striking all that

6 follows subparagraph (B).

7 (c) INCREASE IN MAXIMUM AGE FOR ELIGIBILITY OF

8 FOOD STAMP RECIPIENTS.—Clause (i) of section

9 51(d)(8)(A) is amended by striking ‘‘25’’ and inserting

10 ‘‘40’’.

11 (d) INCREASE IN MAXIMUM AGE FOR DESIGNATED

12 COMMUNITY RESIDENTS.—

13 (1) IN GENERAL.—Paragraph (5) of section

14 51(d) is amended to read as follows:

15 ‘‘(5) DESIGNATED COMMUNITY RESIDENTS.—

16 ‘‘(A) IN GENERAL.—The term ‘designated

17 community resident’ means any individual who

18 is certified by the designated local agency—

19 ‘‘(i) as having attained age 18 but not

20 age 40 on the hiring date, and

21 ‘‘(ii) as having his principal place of

22 abode within an empowerment zone, enter23 prise community, or renewal community.

24 ‘‘(B) INDIVIDUAL MUST CONTINUE TO RE25 SIDE IN ZONE OR COMMUNITY.—In the case of a
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1 designated community resident, the term ‘quali2 fied wages’ shall not include wages paid or in3 curred for services performed while the individ4 ual’s principal place of abode is outside an em5 powerment zone, enterprise community, or re6 newal community.’’

7 (2) CONFORMING AMENDMENT.—Subparagraph

8 (D) of section 51(d)(1) is amended to read as follows:

9 ‘‘(D) a designated community resident,’’.

10 (e) EFFECTIVE DATES.—

11 (1) EXTENSION OF CREDITS.—The amendments

12 made by subsection (a) shall apply to individuals who

13 begin work for the employer after December 31, 2003.

14 (2) MODIFICATIONS.—The amendments made by

15 subsections (b), (c), and (d) shall apply to individuals

16 who begin work for the employer after December 31,

17 2004.

18 SEC. 703. CONSOLIDATION OF WORK OPPORTUNITY CREDIT

19 WITH WELFARE-TO-WORK CREDIT.

20 (a) IN GENERAL.—Paragraph (1) of section 51(d) is

21 amended by striking ‘‘or’’ at the end of subparagraph (G),

22 by striking the period at the end of subparagraph (H) and

23 inserting ‘‘, or’’, and by adding at the end the following

24 new subparagraph:
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1 ‘‘(I) a long-term family assistance recipi2 ent.’’

3 (b) LONG-TERM FAMILY ASSISTANCE RECIPIENT.—

4 Subsection (d) of section 51 is amended by redesignating

5 paragraphs (10) through (12) as paragraphs (11) through

6 (13), respectively, and by inserting after paragraph (9) the

7 following new paragraph:

8 ‘‘(10) LONG-TERM FAMILY ASSISTANCE RECIPI9 ENT.—The term ‘long-term family assistance recipi10 ent’ means any individual who is certified by the des11 ignated local agency—

12 ‘‘(A) as being a member of a family receiv13 ing assistance under a IV–A program (as defined

14 in paragraph (2)(B)) for at least the 18-month

15 period ending on the hiring date,

16 ‘‘(B)(i) as being a member of a family re17 ceiving such assistance for 18 months beginning

18 after August 5, 1997, and

19 ‘‘(ii) as having a hiring date which is not

20 more than 2 years after the end of the earliest

21 such 18-month period, or

22 ‘‘(C)(i) as being a member of a family

23 which ceased to be eligible for such assistance by

24 reason of any limitation imposed by Federal or
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1 State law on the maximum period such assist2 ance is payable to a family, and

3 ‘‘(ii) as having a hiring date which is not

4 more than 2 years after the date of such ces5 sation.’’

6 (c) INCREASED CREDIT FOR EMPLOYMENT OF LONG7 TERM FAMILY ASSISTANCE RECIPIENTS.—Section 51 is

8 amended by inserting after subsection (d) the following new

9 subsection:

10 ‘‘(e) CREDIT FOR EMPLOYMENT OF LONG-TERM FAM11 ILY ASSISTANCE RECIPIENTS.—

12 ‘‘(1) IN GENERAL.—With respect to the employ13 ment of a long-term family assistance recipient—

14 ‘‘(A) the amount of the work opportunity

15 credit determined under this section for the tax16 able year shall include 50 percent of the qualified

17 second-year wages for such year, and

18 ‘‘(B) in lieu of applying subsection (b)(3),

19 the amount of the qualified first-year wages, and

20 the amount of qualified second-year wages, which

21 may be taken into account with respect to such

22 a recipient shall not exceed $10,000 per year.

23 ‘‘(2) QUALIFIED SECOND-YEAR WAGES.—For

24 purposes of this subsection, the term ‘qualified second25 year wages’ means qualified wages—
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1 ‘‘(A) which are paid to a long-term family

2 assistance recipient, and

3 ‘‘(B) which are attributable to service ren4 dered during the 1-year period beginning on the

5 day after the last day of the 1-year period with

6 respect to such recipient determined under sub7 section (b)(2).

8 ‘‘(3) SPECIAL RULES FOR AGRICULTURAL AND

9 RAILWAY LABOR.—If such recipient is an employee to

10 whom subparagraph (A) or (B) of subsection (h)(1)

11 applies, rules similar to the rules of such subpara12 graphs shall apply except that—

13 ‘‘(A) such subparagraph (A) shall be ap14 plied by substituting ‘$10,000’ for ‘$6,000’, and

15 ‘‘(B) such subparagraph (B) shall be ap16 plied by substituting ‘$833.33’ for ‘$500’.’’

17 (d) REPEAL OF SEPARATE WELFARE-TO-WORK CRED18 IT.—

19 (1) IN GENERAL.—Section 51A is hereby re20 pealed.

21 (2) CLERICAL AMENDMENT.—The table of sec22 tions for subpart F of part IV of subchapter A of

23 chapter 1 is amended by striking the item relating to

24 section 51A.
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1 (e) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to individuals who begin work for the

3 employer after December 31, 2004.

4 SEC. 704. QUALIFIED ZONE ACADEMY BONDS.

5 (a) IN GENERAL.—Paragraph (1) of section 1397E(e)

6 is amended by striking ‘‘and 2003’’ and inserting ‘‘2003,

7 2004, and 2005’’.

8 (b) EFFECTIVE DATE.—The amendment made by sub9 section (a) shall apply to obligations issued after December

10 31, 2003.

11 SEC. 705. COVER OVER OF TAX ON DISTILLED SPIRITS.

12 (a) IN GENERAL.—Paragraph (1) of section 7652(f) is

13 amended by striking ‘‘January 1, 2004’’ and inserting

14 ‘‘January 1, 2006’’.

15 (b) EFFECTIVE DATE.—The amendment made by sub16 section (a) shall apply to articles brought into the United

17 States after December 31, 2003.

18 SEC. 706. DEDUCTION FOR CORPORATE DONATIONS OF SCI19 ENTIFIC PROPERTY AND COMPUTER TECH20 NOLOGY.

21 (a) SCIENTIFIC PROPERTY USED FOR RESEARCH.—

22 (1) IN GENERAL.—Clause (ii) of section

23 170(e)(4)(B) (defining qualified research contribu24 tions) is amended by inserting ‘‘or assembled’’ after

25 ‘‘constructed’’.
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1 (2) CONFORMING AMENDMENT.—Clause (iii) of

2 section 170(e)(4)(B) is amended by inserting ‘‘or as3 sembling’’ after ‘‘construction’’.

4 (b) COMPUTER TECHNOLOGY AND EQUIPMENT FOR

5 EDUCATIONAL PURPOSES.—

6 (1) IN GENERAL.—Clause (ii) of section

7 170(e)(6)(B) is amended by inserting ‘‘or assembled’’

8 after ‘‘constructed’’ and ‘‘or assembling’’ after ‘‘con9 struction’’.

10 (2) SPECIAL RULE EXTENDED.—Section

11 170(e)(6)(G) is amended by striking ‘‘2003’’ and in12 serting ‘‘2005’’.

13 (3) CONFORMING AMENDMENTS.—Subparagraph

14 (D) of section 170(e)(6) is amended by inserting ‘‘or

15 assembled’’ after ‘‘constructed’’ and ‘‘or assembling’’

16 after ‘‘construction’’.

17 (c) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to contributions made in taxable years

19 beginning after December 31, 2003.

20 SEC. 707. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL

21 TEACHERS.

22 (a) IN GENERAL.—Subparagraph (D) of section

23 62(a)(2) is amended by striking ‘‘or 2003’’ and inserting

24 ‘‘, 2003, 2004, or 2005’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to expenses paid or incurred in tax3 able years beginning after December 31, 2003.

4 SEC. 708. EXPENSING OF ENVIRONMENTAL REMEDIATION

5 COSTS.

6 (a) EXTENSION OF TERMINATION DATE.—Subsection

7 (h) of section 198 is amended by striking ‘‘December 31,

8 2003’’ and inserting ‘‘December 31, 2005’’.

9 (b) EFFECTIVE DATE.—The amendment made by sub10 section (a) shall apply to expenditures paid or incurred

11 after December 31, 2003.

12 SEC. 709. EXPANSION OF CERTAIN NEW YORK LIBERTY

13 ZONE BENEFITS.

14 (a) EXTENSION OF TAX-EXEMPT BOND FINANCING.—

15 Subparagraph (D) of section 1400L(d)(2) is amended by

16 striking ‘‘2005’’ and inserting ‘‘2006’’.

17 (b) CLARIFICATION OF BONDS ELIGIBLE FOR ADVANCE

18 REFUNDING.—Section 1400L(e)(2)(B) (relating to bonds

19 described) is amended by striking ‘‘, or’’ and inserting ‘‘or

20 the Municipal Assistance Corporation, or’’.

21 (c) ELECTION OUT TECHNICAL AMENDMENT.—Sub22 section (c) of section 1400L is amended by adding at the

23 end the following new paragraph:
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1 ‘‘(5) ELECTION OUT.—For purposes of this sub2 section, rules similar to the rules of section

3 168(k)(2)(C)(iii) shall apply.’’.

4 (d) EFFECTIVE DATE.—The amendments made by sub5 sections (b) and (c) shall take effect as if included in the

6 amendments made by section 301 of the Job Creation and

7 Worker Assistance Act of 2002.

8 SEC. 710. REPEAL OF REDUCTION OF DEDUCTIONS FOR MU9 TUAL LIFE INSURANCE COMPANIES.

10 (a) IN GENERAL.—Section 809 of the Internal Revenue

11 Code of 1986 (relating to reductions in certain deduction

12 of mutual life insurance companies) is hereby repealed.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subsections (a)(2)(B) and (b)(1)(B) of sec15 tion 807 of such Code are each amended by striking

16 ‘‘the sum of (i)’’ and by striking ‘‘plus (ii) any excess

17 described in section 809(a)(2) for the taxable year,’’.

18 (2)(A) The last sentence of section 807(d)(1) of

19 such Code is amended by striking ‘‘section

20 809(b)(4)(B)’’ and inserting ‘‘paragraph (6)’’.

21 (B) Subsection (d) of section 807 of such Code is

22 amended by adding at the end the following new

23 paragraph:

24 ‘‘(6) STATUTORY RESERVES.—The term ‘statu25 tory reserves’ means the aggregate amount set forth in
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1 the annual statement with respect to items described

2 in section 807(c). Such term shall not include any re3 serve attributable to a deferred and uncollected pre4 mium if the establishment of such reserve is not per5 mitted under section 811(c).’’

6 (3) Subsection (c) of section 808 of such Code is

7 amended to read as follows:

8 ‘‘(c) AMOUNT OF DEDUCTION.—The deduction for pol9 icyholder dividends for any taxable year shall be an amount

10 equal to the policyholder dividends paid or accrued during

11 the taxable year.’’

12 (4) Subparagraph (A) of section 812(b)(3) of

13 such Code is amended by striking ‘‘sections 808 and

14 809’’ and inserting ‘‘section 808’’.

15 (5) Subsection (c) of section 817 of such Code is

16 amended by striking ‘‘(other than section 809)’’.

17 (6) Subsection (c) of section 842 of such Code is

18 amended by striking paragraph (3) and by redesig19 nating paragraph (4) as paragraph (3).

20 (7) The table of sections for subpart C of part I

21 of subchapter L of chapter 1 of such Code is amended

22 by striking the item relating to section 809.

23 (c) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to taxable years beginning after Decem25 ber 31, 2003.
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1 SEC. 711. TAX INCENTIVES FOR INVESTMENT IN THE DIS2 TRICT OF COLUMBIA.

3 (a) DESIGNATION OF ZONE.—Subsection (f) of section

4 1400 is amended by striking ‘‘December 31, 2003’’ both

5 places it appears and inserting ‘‘December 31, 2005’’.

6 (b) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.—

7 Subsection (b) of section 1400A is amended by striking ‘‘De8 cember 31, 2003’’ and inserting ‘‘December 31, 2005’’.

9 (c) ZERO PERCENT CAPITAL GAINS RATE.—

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

11 1400B is amended by striking ‘‘January 1, 2004’’

12 each place it appears and inserting ‘‘January 1,

13 2006’’.

14 (2) CONFORMING AMENDMENTS.—

15 (A) Section 1400B(e)(2) is amended—

16 (i) by striking ‘‘December 31, 2008’’

17 and inserting ‘‘December 31, 2010’’, and

18 (ii) by striking ‘‘2008’’ in the heading

19 and inserting ‘‘2010’’.

20 (B) Section 1400B(g)(2) is amended by

21 striking ‘‘December 31, 2008’’ and inserting ‘‘De22 cember 31, 2010’’.

23 (C) Section 1400F(d) is amended by strik24 ing ‘‘December 31, 2008’’ and inserting ‘‘Decem25 ber 31, 2010’’.
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1 (d) FIRST-TIME HOMEBUYER CREDIT.—Subsection (i)

2 of section 1400C is amended by striking ‘‘January 1, 2004’’

3 and inserting ‘‘January 1, 2006’’.

4 (e) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section shall

7 take effect on January 1, 2004.

8 (2) TAX-EXEMPT ECONOMIC DEVELOPMENT

9 BONDS.—The amendment made by subsection (b)

10 shall apply to obligations issued after the date of the

11 enactment of this Act.

12 SEC. 712. DISCLOSURE OF TAX INFORMATION TO FACILI13 TATE COMBINED EMPLOYMENT TAX REPORT14 ING.

15 (a) IN GENERAL.—Paragraph (5) of section 6103(d)

16 (relating to disclosure to State tax officials and State and

17 local law enforcement agencies) is amended to read as fol18 lows:

19 ‘‘(5) DISCLOSURE FOR COMBINED EMPLOYMENT

20 TAX REPORTING.—The Secretary may disclose tax21 payer identity information and signatures to any

22 agency, body, or commission of any State for the pur23 pose of carrying out with such agency, body, or com24 mission a combined Federal and State employment

25 tax reporting program approved by the Secretary.
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1 Subsections (a)(2) and (p)(4) and sections 7213 and

2 7213A shall not apply with respect to disclosures or

3 inspections made pursuant to this paragraph.’’.

4 (b) EFFECTIVE DATE.—The amendment made by this

5 section shall take effect on the date of the enactment of this

6 Act.

7 SEC. 713. ALLOWANCE OF NONREFUNDABLE PERSONAL

8 CREDITS AGAINST REGULAR AND MINIMUM

9 TAX LIABILITY.

10 (a) IN GENERAL.—Paragraph (2) of section 26(a) is

11 amended—

12 (1) by striking ‘‘RULE FOR 2000, 2001, 2002, AND

13 2003.—’’ and inserting ‘‘RULE FOR TAXABLE YEARS

14 2000 THROUGH 2004.—’’, and

15 (2) by striking ‘‘or 2003’’ and inserting ‘‘2003,

16 or 2004’’.

17 (b) CONFORMING PROVISIONS.—

18 (1) Section 904(i), as redesignated by this Act,

19 is amended by striking ‘‘or 2003’’ and inserting

20 ‘‘2003, or 2004’’.

21 (2) The amendments made by sections 201(b),

22 202(f), and 618(b) of the Economic Growth and Tax

23 Relief Reconciliation Act of 2001 shall not apply to

24 taxable years beginning during 2004.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2003.

4 SEC. 714. CREDIT FOR ELECTRICITY PRODUCED FROM CER5 TAIN RENEWABLE RESOURCES.

6 (a) IN GENERAL.—Subparagraphs (A), (B), and (C)

7 of section 45(c)(3) are each amended by striking ‘‘January

8 1, 2004’’ and inserting ‘‘January 1, 2005’’.

9 (b) EFFECTIVE DATE.—The amendments made by sub10 section (a) shall apply to facilities placed in service after

11 December 31, 2003.

12 SEC. 715. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE13 TION FOR OIL AND NATURAL GAS PRODUCED

14 FROM MARGINAL PROPERTIES.

15 (a) IN GENERAL.—Subparagraph (H) of section

16 613A(c)(6) is amended by striking ‘‘January 1, 2004’’ and

17 inserting ‘‘January 1, 2005’’.

18 (b) EFFECTIVE DATE.—The amendment made by sub19 section (a) shall apply to taxable years beginning after De20 cember 31, 2003.

21 SEC. 716. INDIAN EMPLOYMENT TAX CREDIT.

22 Section 45A(f) (relating to termination) is amended

23 by striking ‘‘December 31, 2004’’ and inserting ‘‘December

24 31, 2005’’.
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1 SEC. 717. ACCELERATED DEPRECIATION FOR BUSINESS

2 PROPERTY ON INDIAN RESERVATION.

3 Section 168(j)(8) (relating to termination) is amended

4 by striking ‘‘December 31, 2004’’ and inserting ‘‘December

5 31, 2005’’.

6 SEC. 718. DISCLOSURE OF RETURN INFORMATION RELAT7 ING TO STUDENT LOANS.

8 Section 6103(l)(13)(D) (relating to termination) is

9 amended by striking ‘‘December 31, 2004’’ and inserting

10 ‘‘December 31, 2005’’.

11 SEC. 719. EXTENSION OF TRANSFERS OF EXCESS PENSION

12 ASSETS TO RETIREE HEALTH ACCOUNTS.

13 (a) AMENDMENTS OF ERISA.—

14 (1) Section 101(e)(3) of the Employee Retirement

15 Income Security Act of 1974 (29 U.S.C. 1021(e)(3))

16 is amended by striking ‘‘Pension Funding Equity Act

17 of 2004’’ and inserting ‘‘Jumpstart Our Business

18 Strength (JOBS) Act’’.

19 (2) Section 403(c)(1) of such Act (29 U.S.C.

20 1103(c)(1)) is amended by striking ‘‘Pension Funding

21 Equity Act of 2004’’ and inserting ‘‘Jumpstart Our

22 Business Strength (JOBS) Act’’.

23 (3) Paragraph (13) of section 408(b) of such Act

24 (29 U.S.C. 1108(b)(3)) is amended by striking ‘‘Pen25 sion Funding Equity Act of 2004’’ and inserting

26 ‘‘Jumpstart Our Business Strength (JOBS) Act’’.
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1 (b) MINIMUM COST REQUIREMENTS.—

2 (1) IN GENERAL.—Section 420(c)(3)(E) is

3 amended by adding at the end the following new

4 clause:

5 ‘‘(ii) INSIGNIFICANT COST REDUCTIONS

6 PERMITTED.—

7 ‘‘(I) IN GENERAL.—An eligible

8 employer shall not be treated as failing

9 to meet the requirements of this para10 graph for any taxable year if, in lieu

11 of any reduction of retiree health cov12 erage permitted under the regulations

13 prescribed under clause (i), the em14 ployer reduces applicable employer cost

15 by an amount not in excess of the re16 duction in costs which would have oc17 curred if the employer had made the

18 maximum permissible reduction in re19 tiree health coverage under such regu20 lations. In applying such regulations

21 to any subsequent taxable year, any re22 duction in applicable employer cost

23 under this clause shall be treated as if

24 it were an equivalent reduction in re25 tiree health coverage.
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1 ‘‘(II) ELIGIBLE EMPLOYER.—For

2 purposes of subclause (I), an employer

3 shall be treated as an eligible employer

4 for any taxable year if, for the pre5 ceding taxable year, the qualified cur6 rent retiree health liabilities of the em7 ployer were at least 5 percent of the

8 gross receipts of the employer. For pur9 poses of this subclause, the rules of

10 paragraphs (2), (3)(B), and (3)(C) of

11 section 448(c) shall apply in deter12 mining the amount of an employer’s

13 gross receipts.’’.

14 (2) CONFORMING AMENDMENT.—Section

15 420(c)(3)(E) is amended by striking ‘‘The Secretary’’

16 and inserting:

17 ‘‘(i) IN GENERAL.—The Secretary’’.

18 (3) EFFECTIVE DATE.—The amendments made

19 by this subsection shall apply to taxable years ending

20 after the date of the enactment of this Act.

21 SEC. 720. ELIMINATION OF PHASEOUT OF CREDIT FOR

22 QUALIFIED ELECTRIC VEHICLES.

23 (a) IN GENERAL.—Section 30(b) is amended by strik24 ing paragraph (2) and by redesignating paragraph (3) as

25 paragraph (2).
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 53(d)(1)(B)(iii) is amended by strik3 ing ‘‘section 30(b)(3)(B)’’ and inserting ‘‘section

4 30(b)(2)(B)’’.

5 (2) Section 55(c)(2) is amended by striking

6 ‘‘30(b)(3)’’ and inserting ‘‘30(b)(2)’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to property placed in service after De9 cember 31, 2003.

10 SEC. 721. ELIMINATION OF PHASEOUT FOR DEDUCTION

11 FOR CLEAN-FUEL VEHICLE PROPERTY.

12 (a) IN GENERAL.—Paragraph (1) of section 179A(b)

13 is amended to read as follows:

14 ‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP15 ERTY.—The cost which may be taken into account

16 under subsection (a)(1)(A) with respect to any motor

17 vehicle shall not exceed—

18 ‘‘(A) in the case of a motor vehicle not de19 scribed in subparagraph (B) or (C), $2,000,

20 ‘‘(B) in the case of any truck or van with

21 a gross vehicle weight rating greater than 10,000

22 pounds but not greater than 26,000 pounds,

23 $5,000, or

24 ‘‘(C) $50,000 in the case of—
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1 ‘‘(i) a truck or van with a gross vehicle

2 weight rating greater than 26,000 pounds,

3 or

4 ‘‘(ii) any bus which has a seating ca5 pacity of at least 20 adults (not including

6 the driver).’’.

7 (b) EFFECTIVE DATE.—The amendment made by sub8 section (a) shall apply to property placed in service after

9 December 31, 2003.

10 Subtitle B—Revenue Provisions

11 SEC. 731. DONATIONS OF MOTOR VEHICLES, BOATS, AND

12 AIRPLANES.

13 (a) IN GENERAL.—Subsection (f) of section 170 (relat14 ing to disallowance of deduction in certain cases and spe15 cial rules) is amended by adding at the end the following

16 new paragraph:

17 ‘‘(11) CONTRIBUTIONS OF USED MOTOR VEHI18 CLES, BOATS, AND AIRPLANES.—

19 ‘‘(A) IN GENERAL.—In the case of a con20 tribution of a qualified vehicle in excess of

21 $500—

22 ‘‘(i) paragraph (8) shall not apply and

23 no deduction shall be allowed under sub24 section (a) for such contribution unless the

25 taxpayer substantiates the contribution by a
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1 contemporaneous written acknowledgement

2 of the contribution by the donee organiza3 tion that meets the requirements of subpara4 graph (B) and includes the acknowledge5 ment with the taxpayer’s return of tax

6 which includes the deduction, and

7 ‘‘(ii) if the organization sells the vehi8 cle without any significant intervening use

9 or material improvement of such vehicle by

10 the organization, the amount of the deduc11 tion allowed under subsection (a) shall not

12 exceed the gross proceeds received from such

13 sale.

14 ‘‘(B) CONTENT OF ACKNOWLEDGEMENT.—

15 An acknowledgement meets the requirements of

16 this subparagraph if it includes the following in17 formation:

18 ‘‘(i) The name and taxpayer identi19 fication number of the donor.

20 ‘‘(ii) The vehicle identification number

21 or similar number.

22 ‘‘(iii) In the case of a qualified vehicle

23 to which subparagraph (A)(ii) applies and

24 which is sold by the donee organization—
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1 ‘‘(I) a certification that the vehi2 cle was sold in an arm’s length trans3 action between unrelated parties,

4 ‘‘(II) the gross proceeds from the

5 sale, and

6 ‘‘(III) that the deductible amount

7 may not exceed the amount of such

8 gross proceeds.

9 ‘‘(iv) In the case of a qualified vehicle

10 to which subparagraph (A)(ii) does not

11 apply—

12 ‘‘(I) a certification of the intended

13 use or material improvement of the ve14 hicle and the intended duration of such

15 use, and

16 ‘‘(II) a certification that the vehi17 cle would not be transferred in ex18 change for money, other property, or

19 services before completion of such use

20 or improvement.

21 ‘‘(C) CONTEMPORANEOUS.—For purposes of

22 subparagraph (A), an acknowledgement shall be

23 considered to be contemporaneous if the donee or24 ganization provides it within 30 days of—

25 ‘‘(i) the sale of the qualified vehicle, or
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1 ‘‘(ii) in the case of an acknowledge2 ment including a certification described in

3 subparagraph (B)(iv), the contribution of

4 the qualified vehicle.

5 ‘‘(D) INFORMATION TO SECRETARY.—A

6 donee organization required to provide an ac7 knowledgement under this paragraph shall pro8 vide to the Secretary the information contained

9 in the acknowledgement. Such information shall

10 be provided at such time and in such manner as

11 the Secretary may prescribe.

12 ‘‘(E) QUALIFIED VEHICLE.—For purposes of

13 this paragraph, the term ‘qualified vehicle’

14 means any—

15 ‘‘(i) self-propelled vehicle manufactured

16 primarily for use on public streets, roads,

17 and highways,

18 ‘‘(ii) boat, or

19 ‘‘(iii) airplane.

20 Such term shall not include any property which

21 is described in section 1221(a)(1).

22 ‘‘(F) REGULATIONS OR OTHER GUIDANCE.—

23 The Secretary shall prescribe such regulations or

24 other guidance as may be necessary to carry out

25 the purposes of this paragraph.’’.
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1 (b) PENALTY FOR FRAUDULENT ACKNOWLEDG2 MENTS.—

3 (1) IN GENERAL.—Part I of subchapter B of

4 chapter 68 (relating to assessable penalities), as

5 amended by section 882(c) of this Act, is amended

6 adding at the end the following new section:

7 ‘‘SEC. 6720A. FRAUDULENT ACKNOWLEDGMENTS WITH RE8 SPECT TO DONATIONS OF MOTOR VEHICLES,

9 BOATS, AND AIRPLANES.

10 ‘‘Any donee organization required under section

11 170(f)(11)(A) to furnish a contemporaneous written ac12 knowledgment to a donor which knowingly furnishes a false

13 or fraudulent acknowledgment, or which knowingly fails to

14 furnish such acknowledgment in the manner, at the time,

15 and showing the information required under section

16 170(f)(11), or regulations prescribed thereunder, shall for

17 each such act, or for each such failure, be subject to a pen18 alty equal to—

19 ‘‘(1) in the case of an acknowledgment with re20 spect to a qualified vehicle to which section

21 170(f)(11)(A)(ii) applies, the greater of the value of

22 the tax benefit to the donor or the gross proceeds from

23 the sale of such vehicle, and

24 ‘‘(2) in the case of an acknowledgment with re25 spect to any other qualified vehicle to which section
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1 170(f)(11) applies, the greater of the value of the tax

2 benefit to the donor or $5,000.’’.

3 (2) CONFORMING AMENDMENT.—The table of sec4 tions for part I of subchapter B of chapter 68, as

5 amended by section 882(c) of this Act, is amended by

6 adding at the end the following new item:

‘‘Sec. 6720A. Fraudulent acknowledgments with respect to donations of motor vehicles, boats, and airplanes.’’.

7 (c) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to contributions after June 30, 2004.

9 SEC. 732. ADDITION OF VACCINES AGAINST INFLUENZA TO

10 LIST OF TAXABLE VACCINES.

11 (a) IN GENERAL.—Section 4132(a)(1) (defining tax12 able vaccine), as amended by this Act, is amended adding

13 at the end the following new subparagraph:

14 ‘‘(N) Any trivalent vaccine against influ15 enza.’’.

16 (b) EFFECTIVE DATE.—

17 (1) SALES, ETC.—The amendment made by this

18 section shall apply to sales and uses on or after the

19 later of—

20 (A) the first day of the first month which

21 begins more than 4 weeks after the date of the en22 actment of this Act, or

23 (B) the date on which the Secretary of

24 Health and Human Services lists any vaccine
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1 against influenza for purposes of compensation

2 for any vaccine-related injury or death through

3 the Vaccine Injury Compensation Trust Fund.

4 (2) DELIVERIES.—For purposes of paragraph

5 (1) and section 4131 of the Internal Revenue Code of

6 1986, in the case of sales on or before the effective date

7 described in such paragraph for which delivery is

8 made after such date, the delivery date shall be con9 sidered the sale date.

10 SEC. 733. TREATMENT OF CONTINGENT PAYMENT CON11 VERTIBLE DEBT INSTRUMENTS.

12 (a) IN GENERAL.—Section 1275(d) (relating to regula13 tion authority) is amended—

14 (1) by striking ‘‘The Secretary’’ and inserting

15 the following:

16 ‘‘(1) IN GENERAL.—The Secretary’’, and

17 (2) by adding at the end the following new para18 graph:

19 ‘‘(2) TREATMENT OF CONTINGENT PAYMENT CON20 VERTIBLE DEBT.—

21 ‘‘(A) IN GENERAL.—In the case of a debt in22 strument which—

23 ‘‘(i) is convertible into stock of the

24 issuing corporation, into stock or debt of a

25 related party (within the meaning of section
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1 267(b) or 707(b)(1)), or into cash or other

2 property in an amount equal to the approx3 imate value of such stock or debt, and

4 ‘‘(ii) provides for contingent payments,

5 any regulations which require original issue dis6 count to be determined by reference to the com7 parable yield of a noncontingent fixed rate debt

8 instrument shall be applied as requiring that

9 such comparable yield be determined by reference

10 to a noncontingent fixed rate debt instrument

11 which is convertible into stock.

12 ‘‘(B) SPECIAL RULE.—For purposes of sub13 paragraph (A), the comparable yield shall be de14 termined without taking into account the yield

15 resulting from the conversion of a debt instru16 ment into stock.’’.

17 (b) CROSS REFERENCE.—Section 163(e)(6) (relating

18 to cross references) is amended by adding at the end the

19 following:

20 ‘‘For the treatment of contingent payment con21 vertible debt, see section 1275(d)(2).’’.

22 (c) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to debt instruments issued after the date

24 of the enactment of this Act.
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1 SEC. 734. MODIFICATION OF CONTINUING LEVY ON PAY2 MENTS TO FEDERAL VENDERS.

3 (a) IN GENERAL.—Section 6331(h) (relating to con4 tinuing levy on certain payments) is amended by adding

5 at the end the following new paragraph:

6 ‘‘(3) INCREASE IN LEVY FOR CERTAIN PAY7 MENTS.—Paragraph (1) shall be applied by sub8 stituting ‘100 percent’ for ‘15 percent’ in the case of

9 any specified payment due to a vendor of goods or

10 services sold or leased to the Federal Government.’’.

11 (b) EFFECTIVE DATE.—The amendment made by this

12 section shall take effect on the date of the enactment of this

13 Act.

14 TITLE VIII—ENERGY TAX

15 INCENTIVES

16 SEC. 800. SHORT TITLE.

17 This title may be cited as the ‘‘Energy Tax Incentives

18 Act’’.

19 Subtitle A—Renewable Electricity

20 Production Tax Credit

21 SEC. 801. EXTENSION AND EXPANSION OF CREDIT FOR

22 ELECTRICITY PRODUCED FROM CERTAIN RE23 NEWABLE RESOURCES.

24 (a) EXPANSION OF QUALIFIED ENERGY RE25 SOURCES.—Subsection (c) of section 45 (relating to elec-
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1 tricity produced from certain renewable resources) is

2 amended to read as follows:

3 ‘‘(c) QUALIFIED ENERGY RESOURCES.—For purposes

4 of this section—

5 ‘‘(1) IN GENERAL.—The term ‘qualified energy

6 resources’ means—

7 ‘‘(A) wind,

8 ‘‘(B) closed-loop biomass,

9 ‘‘(C) open-loop biomass,

10 ‘‘(D) geothermal energy,

11 ‘‘(E) solar energy,

12 ‘‘(F) small irrigation power,

13 ‘‘(G) biosolids and sludge, and

14 ‘‘(H) municipal solid waste.

15 ‘‘(2) CLOSED-LOOP BIOMASS.—The term ‘closed16 loop biomass’ means any organic material from a

17 plant which is planted exclusively for purposes of

18 being used at a qualified facility to produce elec19 tricity.

20 ‘‘(3) OPEN-LOOP BIOMASS.—

21 ‘‘(A) IN GENERAL.—The term ‘open-loop

22 biomass’ means—

23 ‘‘(i) any agricultural livestock waste

24 nutrients, or
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1 ‘‘(ii) any solid, nonhazardous, cel2 lulosic waste material which is segregated

3 from other waste materials and which is de4 rived from—

5 ‘‘(I) any of the following forest-re6 lated resources: mill and harvesting

7 residues, precommercial thinnings,

8 slash, and brush; but not including

9 spent chemicals from pulp manufac10 turing,

11 ‘‘(II) solid wood waste materials,

12 including waste pallets, crates,

13 dunnage, manufacturing and construc14 tion wood wastes (other than pressure15 treated, chemically-treated, or painted

16 wood wastes), and landscape or right17 of-way tree trimmings, but not includ18 ing municipal solid waste, gas derived

19 from the biodegradation of solid waste,

20 or paper which is commonly recycled,

21 or

22 ‘‘(III) agriculture sources, includ23 ing orchard tree crops, vineyard,

24 grain, legumes, sugar, and other crop

25 by-products or residues.
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1 ‘‘(B) AGRICULTURAL LIVESTOCK WASTE NU2 TRIENTS.—

3 ‘‘(i) IN GENERAL.—The term ‘agricul4 tural livestock waste nutrients’ means agri5 cultural livestock manure and litter, includ6 ing wood shavings, straw, rice hulls, and

7 other bedding material for the disposition of

8 manure.

9 ‘‘(ii) AGRICULTURAL LIVESTOCK.—The

10 term ‘agricultural livestock’ includes bovine,

11 swine, poultry, and sheep.

12 ‘‘(C) EXCEPTIONS.—The term ‘open-loop

13 biomass’ does not include—

14 ‘‘(i) closed-loop biomass, or

15 ‘‘(ii) biomass burned in conjunction

16 with fossil fuel (cofiring) beyond such fossil

17 fuel required for startup and flame sta18 bilization.

19 ‘‘(4) GEOTHERMAL ENERGY.—The term ‘geo20 thermal energy’ means energy derived from a geo21 thermal deposit (within the meaning of section

22 613(e)(2)).

23 ‘‘(5) SMALL IRRIGATION POWER.—The term

24 ‘small irrigation power’ means power—
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1 ‘‘(A) generated without any dam or im2 poundment of water through an irrigation sys3 tem canal or ditch, and

4 ‘‘(B) the installed capacity of which is less

5 than 5 megawatts.

6 ‘‘(6) BIOSOLIDS AND SLUDGE.—The term ‘bio7 solids and sludge’ means the residue or solids removed

8 in the treatment of commercial, industrial, or munic9 ipal wastewater.

10 ‘‘(7) MUNICIPAL SOLID WASTE.—The term ‘mu11 nicipal solid waste’ has the meaning given the term

12 ‘solid waste’ under section 2(27) of the Solid Waste

13 Disposal Act (42 U.S.C. 6903).’’.

14 (b) EXTENSION AND EXPANSION OF QUALIFIED FA15 CILITIES.—

16 (1) IN GENERAL.—Section 45 is amended by re17 designating subsection (d) as subsection (e) and by

18 inserting after subsection (c) the following new sub19 section:

20 ‘‘(d) QUALIFIED FACILITIES.—For purposes of this

21 section—

22 ‘‘(1) WIND FACILITY.—In the case of a facility

23 using wind to produce electricity, the term ‘qualified

24 facility’ means any facility owned by the taxpayer
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1 which is originally placed in service after December

2 31, 1993, and before January 1, 2007.

3 ‘‘(2) CLOSED-LOOP BIOMASS FACILITY.—

4 ‘‘(A) IN GENERAL.—In the case of a facility

5 using closed-loop biomass to produce electricity,

6 the term ‘qualified facility’ means any facility—

7 ‘‘(i) owned by the taxpayer which is

8 originally placed in service after December

9 31, 1992, and before January 1, 2007, or

10 ‘‘(ii) owned by the taxpayer which be11 fore January 1, 2007, is originally placed

12 in service and modified to use closed-loop

13 biomass to co-fire with coal, with other bio14 mass, or with both, but only if the modifica15 tion is approved under the Biomass Power

16 for Rural Development Programs or is part

17 of a pilot project of the Commodity Credit

18 Corporation as described in 65 Fed. Reg.

19 63052.

20 ‘‘(B) SPECIAL RULES.—In the case of a

21 qualified facility described in subparagraph

22 (A)(ii)—

23 ‘‘(i) the 10-year period referred to in

24 subsection (a) shall be treated as beginning

25 no earlier than January 1, 2005,
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1 ‘‘(ii) the amount of the credit deter2 mined under subsection (a) with respect to

3 the facility shall be an amount equal to the

4 amount determined without regard to this

5 clause multiplied by the ratio of the thermal

6 content of the closed-loop biomass used in

7 such facility to the thermal content of all

8 fuels used in such facility, and

9 ‘‘(iii) if the owner of such facility is

10 not the producer of the electricity, the per11 son eligible for the credit allowable under

12 subsection (a) shall be the lessee or the oper13 ator of such facility.

14 ‘‘(3) OPEN-LOOP BIOMASS FACILITY.—

15 ‘‘(A) IN GENERAL.—In the case of a facility

16 using open-loop biomass to produce electricity

17 for grid sale in excess of its internal require18 ments, the term ‘qualified facility’ means any fa19 cility owned by the taxpayer which—

20 ‘‘(i) in the case of a facility using agri21 cultural livestock waste nutrients, is origi22 nally placed in service after December 31,

23 2004, and before January 1, 2007, and
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1 ‘‘(ii) in the case of any other facility,

2 is originally placed in service before Janu3 ary 1, 2005.

4 ‘‘(B) SPECIAL RULES FOR PREEFFECTIVE

5 DATE FACILITIES.—In the case of any facility

6 described in subparagraph (A)(ii) which is

7 placed in service before January 1, 2005—

8 ‘‘(i) subsection (a)(1) shall be applied

9 by substituting ‘1.2 cents’ for ‘1.5 cents’,

10 and

11 ‘‘(ii) the 5-year period beginning on

12 January 1, 2005, shall be substituted for the

13 10-year period in subsection (a)(2)(A)(ii).

14 ‘‘(C) CREDIT ELIGIBILITY.—In the case of

15 any facility described in subparagraph (A), if

16 the owner of such facility is not the producer of

17 the electricity, the person eligible for the credit

18 allowable under subsection (a) shall be the lessee

19 or the operator of such facility.

20 ‘‘(4) GEOTHERMAL OR SOLAR ENERGY FACIL21 ITY.—In the case of a facility using geothermal or

22 solar energy to produce electricity, the term ‘qualified

23 facility’ means any facility owned by the taxpayer

24 which is originally placed in service after December

25 31, 2004, and before January 1, 2007. Such term
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1 shall not include any property described in section

2 48(a)(3) the basis of which is taken into account by

3 the taxpayer for purposes of determining the energy

4 credit under section 48.

5 ‘‘(5) SMALL IRRIGATION POWER FACILITY.—In

6 the case of a facility using small irrigation power to

7 produce electricity, the term ‘qualified facility’ means

8 any facility owned by the taxpayer which is origi9 nally placed in service after December 31, 2004, and

10 before January 1, 2007.

11 ‘‘(6) BIOSOLIDS AND SLUDGE FACILITY.—In the

12 case of a facility using waste heat from the inciner13 ation of biosolids and sludge to produce electricity,

14 the term ‘qualified facility’ means any facility owned

15 by the taxpayer which is originally placed in service

16 after December 31, 2004, and before January 1, 2007.

17 Such term shall not include any property described in

18 section 48(a)(3) the basis of which is taken into ac19 count for purposes of the energy credit under section

20 46.

21 ‘‘(7) MUNICIPAL SOLID WASTE FACILITY.—

22 ‘‘(A) IN GENERAL.—In the case of a facility

23 or unit incinerating municipal solid waste to

24 produce electricity, the term ‘qualified facility’

25 means any facility or unit owned by the tax-
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1 payer which is originally placed in service after

2 December 31, 2004, and before January 1, 2007.

3 ‘‘(B) SPECIAL RULE.—In the case of any fa4 cility or unit described in subparagraph (A), the

5 5-year period beginning on the date the facility

6 or unit was originally placed in service shall be

7 substituted for the 10-year period in subsection

8 (a)(2)(A)(ii).

9 ‘‘(C) CREDIT ELIGIBILITY.—In the case of

10 any qualified facility described in subparagraph

11 (A), if the owner of such facility is not the pro12 ducer of the electricity, the person eligible for the

13 credit allowable under subsection (a) shall be the

14 lessee or the operator of such facility.’’.

15 (2) NO CREDIT FOR CERTAIN PRODUCTION.—Sec16 tion 45(e) (relating to definitions and special rules),

17 as redesignated by paragraph (1), is amended by

18 striking paragraph (6) and inserting the following

19 new paragraph:

20 ‘‘(6) OPERATIONS INCONSISTENT WITH SOLID

21 WASTE DISPOSAL ACT.—In the case of a qualified fa22 cility described in subsection (d)(6)(A), subsection (a)

23 shall not apply to electricity produced at such facility

24 during any taxable year if, during a portion of such

25 year, there is a certification in effect by the Adminis-
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1 trator of the Environmental Protection Agency that

2 such facility was permitted to operate in a manner

3 inconsistent with section 4003(d) of the Solid Waste

4 Disposal Act (42 U.S.C. 6943(d)).’’.

5 (3) CONFORMING AMENDMENT.—Section 45(e),

6 as so redesignated, is amended by striking ‘‘subsection

7 (c)(3)(A)’’ in paragraph (7)(A)(i) and inserting ‘‘sub8 section (d)(1)’’.

9 (c) CREDIT RATE FOR ELECTRICITY PRODUCED FROM

10 NEW FACILITIES.—

11 (1) IN GENERAL.—Section 45(a) is amended by

12 adding at the end the following new flush sentence:

13 ‘‘In the case of electricity produced after December 31, 2004,

14 at any qualified facility originally placed in service after

15 such date, paragraph (1) shall be applied by substituting

16 ‘1.8 cents’ for ‘1.5 cents’.’’.

17 (2) NEW RATE NOT SUBJECT TO INFLATION AD18 JUSTMENT.—Section 45(b)(2) (relating to credit and

19 phaseout adjustment based on inflation) is amended

20 by adding at the end the following new sentence:

21 ‘‘This paragraph shall not apply to any amount

22 which is substituted for the 1.5 cent amount in sub23 section (a) by reason of any provision of this sec24 tion.’’.
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1 (d) ELIMINATION OF CERTAIN CREDIT REDUC2 TIONS.—Section 45(b)(3)(A) (relating to credit reduced for

3 grants, tax-exempt bonds, subsidized energy financing, and

4 other credits) is amended—

5 (1) by striking clause (ii),

6 (2) by redesignating clauses (iii) and (iv) as

7 clauses (ii) and (iii),

8 (3) by inserting ‘‘(other than proceeds of an issue

9 of State or local government obligations the interest

10 on which is exempt from tax under section 103, or

11 any loan, debt, or other obligation incurred under

12 subchapter I of chapter 31 of title 7 of the Rural Elec13 trification Act of 1936 (7 U.S.C. 901 et seq.), as in

14 effect on the date of the enactment of the Energy Tax

15 Incentives Act)’’ after ‘‘project’’ in clause (ii) (as so

16 redesignated),

17 (4) by adding at the end the following new sen18 tence: ‘‘This paragraph shall not apply with respect

19 to any facility described in subsection (d)(2)(A)(ii).’’,

20 and

21 (5) by striking ‘‘TAX-EXEMPT BONDS,’’ in the

22 heading and inserting ‘‘CERTAIN’’.

23 (e) TREATMENT OF PERSONS NOT ABLE TO USE EN24 TIRE CREDIT.—Section 45(e) (relating to definitions and
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1 special rules), as redesignated by subsection (b)(1), is

2 amended by adding at the end the following new paragraph:

3 ‘‘(8) TREATMENT OF PERSONS NOT ABLE TO USE

4 ENTIRE CREDIT.—

5 ‘‘(A) ALLOWANCE OF CREDIT.—

6 ‘‘(i) IN GENERAL.—Except as otherwise

7 provided in this subsection—

8 ‘‘(I) any credit allowable under

9 subsection (a) with respect to a quali10 fied facility owned by a person de11 scribed in clause (ii) may be trans12 ferred or used as provided in this

13 paragraph, and

14 ‘‘(II) the determination as to

15 whether the credit is allowable shall be

16 made without regard to the tax-exempt

17 status of the person.

18 ‘‘(ii) PERSONS DESCRIBED.—A person

19 is described in this clause if the person is—

20 ‘‘(I) an organization described in

21 section 501(c)(12)(C) and exempt from

22 tax under section 501(a),

23 ‘‘(II) an organization described in

24 section 1381(a)(2)(C),
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1 ‘‘(III) a public utility (as defined

2 in section 136(c)(2)(B)), which is ex3 empt from income tax under this sub4 title,

5 ‘‘(IV) any State or political sub6 division thereof, the District of Colum7 bia, any possession of the United

8 States, or any agency or instrumen9 tality of any of the foregoing,

10 ‘‘(V) any Indian tribal govern11 ment (within the meaning of section

12 7871) or any agency or instrumen13 tality thereof, or

14 ‘‘(VI) the Tennessee Valley Au15 thority.

16 ‘‘(B) TRANSFER OF CREDIT.—

17 ‘‘(i) IN GENERAL.—A person described

18 in subclause (I), (II), (III), (IV), or (V) of

19 subparagraph (A)(ii) may transfer any

20 credit to which subparagraph (A)(i) applies

21 through an assignment to any other person

22 not described in subparagraph (A)(ii). Such

23 transfer may be revoked only with the con24 sent of the Secretary.
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1 ‘‘(ii) REGULATIONS.—The Secretary

2 shall prescribe such regulations as necessary

3 to ensure that any credit described in clause

4 (i) is assigned once and not reassigned by

5 such other person.

6 ‘‘(iii) TRANSFER PROCEEDS TREATED

7 AS ARISING FROM ESSENTIAL GOVERNMENT

8 FUNCTION.—Any proceeds derived by a per9 son described in subclause (III), (IV), or (V)

10 of subparagraph (A)(ii) from the transfer of

11 any credit under clause (i) shall be treated

12 as arising from the exercise of an essential

13 government function.

14 ‘‘(C) USE OF CREDIT AS AN OFFSET.—Not15 withstanding any other provision of law, in the

16 case of a person described in subclause (I), (II),

17 or (V) of subparagraph (A)(ii), any credit to

18 which subparagraph (A)(i) applies may be ap19 plied by such person, to the extent provided by

20 the Secretary of Agriculture, as a prepayment of

21 any loan, debt, or other obligation the entity has

22 incurred under subchapter I of chapter 31 of title

23 7 of the Rural Electrification Act of 1936 (7

24 U.S.C. 901 et seq.), as in effect on the date of the

25 enactment of the Energy Tax Incentives Act.
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1 ‘‘(D) USE BY TVA.—

2 ‘‘(i) IN GENERAL.—Notwithstanding

3 any other provision of law, in the case of a

4 person described in subparagraph

5 (A)(ii)(VI), any credit to which subpara6 graph (A)(i) applies may be applied as a

7 credit against the payments required to be

8 made in any fiscal year under section

9 15d(e) of the Tennessee Valley Authority Act

10 of 1933 (16 U.S.C. 831n–4(e)) as an annual

11 return on the appropriations investment

12 and an annual repayment sum.

13 ‘‘(ii) TREATMENT OF CREDITS.—The

14 aggregate amount of credits described in

15 subparagraph (A)(i) with respect to such

16 person shall be treated in the same manner

17 and to the same extent as if such credits

18 were a payment in cash and shall be ap19 plied first against the annual return on the

20 appropriations investment.

21 ‘‘(iii) CREDIT CARRYOVER.—With re22 spect to any fiscal year, if the aggregate

23 amount of credits described subparagraph

24 (A)(i) with respect to such person exceeds

25 the aggregate amount of payment obliga-
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1 tions described in clause (i), the excess

2 amount shall remain available for applica3 tion as credits against the amounts of such

4 payment obligations in succeeding fiscal

5 years in the same manner as described in

6 this subparagraph.

7 ‘‘(E) CREDIT NOT INCOME.—Any transfer

8 under subparagraph (B) or use under subpara9 graph (C) of any credit to which subparagraph

10 (A)(i) applies shall not be treated as income for

11 purposes of section 501(c)(12).

12 ‘‘(F) TREATMENT OF UNRELATED PER13 SONS.—For purposes of subsection (a)(2)(B),

14 sales of electricity among and between persons

15 described in subparagraph (A)(ii) shall be treat16 ed as sales between unrelated parties.’’.

17 (f) EFFECTIVE DATES.—

18 (1) IN GENERAL.—Except as otherwise provided

19 in this subsection, the amendments made by this sec20 tion shall apply to electricity produced and sold after

21 December 31, 2004, in taxable years ending after such

22 date.

23 (2) CERTAIN BIOMASS FACILITIES.—With respect

24 to any facility described in section 45(d)(3)(A)(ii) of

25 the Internal Revenue Code of 1986, as added by sub-
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1 section (b)(1), which is placed in service before the

2 date of the enactment of this Act, the amendments

3 made by this section shall apply to electricity pro4 duced and sold after December 31, 2004, in taxable

5 years ending after such date.

6 (3) CREDIT RATE FOR NEW FACILITIES.—The

7 amendments made by subsection (c) shall apply to

8 electricity produced and sold after December 31, 2004,

9 in taxable years ending after such date.

10 (4) NONAPPLICATION OF AMENDMENTS TO

11 PREEFFECTIVE DATE POULTRY WASTE FACILITIES.—

12 The amendments made by this section shall not apply

13 with respect to any poultry waste facility (within the

14 meaning of section 45(c)(3)(C), as in effect on Decem15 ber 31, 2004) placed in service on or before such date.

16 Subtitle B—Alternative Motor

17 Vehicles and Fuels Incentives

18 SEC. 811. ALTERNATIVE MOTOR VEHICLE CREDIT.

19 (a) IN GENERAL.—Subpart B of part IV of subchapter

20 A of chapter 1 (relating to foreign tax credit, etc.), as

21 amended by this Act, is amended by adding at the end the

22 following new section:
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1 ‘‘SEC. 30C. ALTERNATIVE MOTOR VEHICLE CREDIT.

2 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed

3 as a credit against the tax imposed by this chapter for the

4 taxable year an amount equal to the sum of—

5 ‘‘(1) the new qualified fuel cell motor vehicle

6 credit determined under subsection (b),

7 ‘‘(2) the new qualified hybrid motor vehicle cred8 it determined under subsection (c), and

9 ‘‘(3) the new qualified alternative fuel motor ve10 hicle credit determined under subsection (d).

11 ‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE

12 CREDIT.—

13 ‘‘(1) IN GENERAL.—For purposes of subsection

14 (a), the new qualified fuel cell motor vehicle credit de15 termined under this subsection with respect to a new

16 qualified fuel cell motor vehicle placed in service by

17 the taxpayer during the taxable year is—

18 ‘‘(A) $4,000, if such vehicle has a gross ve19 hicle weight rating of not more than 8,500

20 pounds,

21 ‘‘(B) $10,000, if such vehicle has a gross ve22 hicle weight rating of more than 8,500 pounds

23 but not more than 14,000 pounds,

24 ‘‘(C) $20,000, if such vehicle has a gross ve25 hicle weight rating of more than 14,000 pounds

26 but not more than 26,000 pounds, and
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1 ‘‘(D) $40,000, if such vehicle has a gross ve2 hicle weight rating of more than 26,000 pounds.

3 ‘‘(2) INCREASE FOR FUEL EFFICIENCY.—

4 ‘‘(A) IN GENERAL.—The amount determined

5 under paragraph (1)(A) with respect to a new

6 qualified fuel cell motor vehicle which is a pas7 senger automobile or light truck shall be in8 creased by—

9 ‘‘(i) $1,000, if such vehicle achieves at

10 least 150 percent but less than 175 percent

11 of the 2002 model year city fuel economy,

12 ‘‘(ii) $1,500, if such vehicle achieves at

13 least 175 percent but less than 200 percent

14 of the 2002 model year city fuel economy,

15 ‘‘(iii) $2,000, if such vehicle achieves

16 at least 200 percent but less than 225 per17 cent of the 2002 model year city fuel econ18 omy,

19 ‘‘(iv) $2,500, if such vehicle achieves at

20 least 225 percent but less than 250 percent

21 of the 2002 model year city fuel economy,

22 ‘‘(v) $3,000, if such vehicle achieves at

23 least 250 percent but less than 275 percent

24 of the 2002 model year city fuel economy,
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1 ‘‘(vi) $3,500, if such vehicle achieves at

2 least 275 percent but less than 300 percent

3 of the 2002 model year city fuel economy,

4 and

5 ‘‘(vii) $4,000, if such vehicle achieves

6 at least 300 percent of the 2002 model year

7 city fuel economy.

8 ‘‘(B) 2002 MODEL YEAR CITY FUEL ECON9 OMY.—For purposes of subparagraph (A), the

10 2002 model year city fuel economy with respect

11 to a vehicle shall be determined in accordance

12 with the following tables:

13 ‘‘(i) In the case of a passenger auto14 mobile:

The 2002 model year city

‘‘If vehicle inertia weight class is: fuel economy is:

1,500 or 1,750 lbs .......................................................................... 45.2 mpg

2,000 lbs .......................................................................................... 39.6 mpg

2,250 lbs .......................................................................................... 35.2 mpg

2,500 lbs .......................................................................................... 31.7 mpg

2,750 lbs .......................................................................................... 28.8 mpg

3,000 lbs .......................................................................................... 26.4 mpg

3,500 lbs .......................................................................................... 22.6 mpg

4,000 lbs .......................................................................................... 19.8 mpg

4,500 lbs .......................................................................................... 17.6 mpg

5,000 lbs .......................................................................................... 15.9 mpg

5,500 lbs .......................................................................................... 14.4 mpg

6,000 lbs .......................................................................................... 13.2 mpg

6,500 lbs .......................................................................................... 12.2 mpg

7,000 to 8,500 lbs ........................................................................... 11.3 mpg.

15 ‘‘(ii) In the case of a light truck:

The 2002 model year city

‘‘If vehicle inertia weight class is: fuel economy is:

1,500 or 1,750 lbs .......................................................................... 39.4 mpg

2,000 lbs .......................................................................................... 35.2 mpg

2,250 lbs .......................................................................................... 31.8 mpg

2,500 lbs .......................................................................................... 29.0 mpg
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The 2002 model year city

‘‘If vehicle inertia weight class is: fuel economy is:

2,750 lbs .......................................................................................... 26.8 mpg

3,000 lbs .......................................................................................... 24.9 mpg

3,500 lbs .......................................................................................... 21.8 mpg

4,000 lbs .......................................................................................... 19.4 mpg

4,500 lbs .......................................................................................... 17.6 mpg

5,000 lbs .......................................................................................... 16.1 mpg

5,500 lbs .......................................................................................... 14.8 mpg

6,000 lbs .......................................................................................... 13.7 mpg

6,500 lbs .......................................................................................... 12.8 mpg

7,000 to 8,500 lbs ........................................................................... 12.1 mpg.

1 ‘‘(C) VEHICLE INERTIA WEIGHT CLASS.—

2 For purposes of subparagraph (B), the term ‘ve3 hicle inertia weight class’ has the same meaning

4 as when defined in regulations prescribed by the

5 Administrator of the Environmental Protection

6 Agency for purposes of the administration of title

7 II of the Clean Air Act (42 U.S.C. 7521 et seq.).

8 ‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI9 CLE.—For purposes of this subsection, the term ‘new

10 qualified fuel cell motor vehicle’ means a motor

11 vehicle—

12 ‘‘(A) which is propelled by power derived

13 from 1 or more cells which convert chemical en14 ergy directly into electricity by combining oxy15 gen with hydrogen fuel which is stored on board

16 the vehicle in any form and may or may not re17 quire reformation prior to use,

18 ‘‘(B) which, in the case of a passenger auto19 mobile or light truck—
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1 ‘‘(i) for 2002 and later model vehicles,

2 has received a certificate of conformity

3 under the Clean Air Act and meets or ex4 ceeds the equivalent qualifying California

5 low emission vehicle standard under section

6 243(e)(2) of the Clean Air Act for that make

7 and model year, and

8 ‘‘(ii) for 2004 and later model vehicles,

9 has received a certificate that such vehicle

10 meets or exceeds the Bin 5 Tier II emission

11 level established in regulations prescribed by

12 the Administrator of the Environmental

13 Protection Agency under section 202(i) of

14 the Clean Air Act for that make and model

15 year vehicle,

16 ‘‘(C) the original use of which commences

17 with the taxpayer,

18 ‘‘(D) which is acquired for use or lease by

19 the taxpayer and not for resale, and

20 ‘‘(E) which is made by a manufacturer.

21 ‘‘(c) NEW QUALIFIED HYBRID MOTOR VEHICLE CRED22 IT.—

23 ‘‘(1) IN GENERAL.—For purposes of subsection

24 (a), the new qualified hybrid motor vehicle credit de25 termined under this subsection with respect to a new
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1 qualified hybrid motor vehicle placed in service by the

2 taxpayer during the taxable year is the credit amount

3 determined under paragraph (2).

4 ‘‘(2) CREDIT AMOUNT.—

5 ‘‘(A) IN GENERAL.—The credit amount de6 termined under this paragraph shall be deter7 mined in accordance with the following tables:

8 ‘‘(i) In the case of a new qualified hy9 brid motor vehicle which is a passenger

10 automobile, medium duty passenger vehicle,

11 or light truck and which provides the fol12 lowing percentage of the maximum avail13 able power:

‘‘If percentage of the maximum

available power is: The credit amount is:

At least 4 percent but less than 10 percent ................................. $250

At least 10 percent but less than 20 percent ............................... $500

At least 20 percent but less than 30 percent ............................... $750

At least 30 percent ......................................................................... $1,000.

14 ‘‘(ii) In the case of a new qualified hy15 brid motor vehicle which is a heavy duty

16 hybrid motor vehicle and which provides the

17 following percentage of the maximum avail18 able power:

19 ‘‘(I) If such vehicle has a gross ve20 hicle weight rating of not more than

21 14,000 pounds:

‘‘If percentage of the maximum

available power is: The credit amount is:

At least 20 percent but less than 30 percent ............................... $1,000
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‘‘If percentage of the maximum

available power is: The credit amount is:

At least 30 percent but less than 40 percent ............................... $1,750

At least 40 percent but less than 50 percent ............................... $2,000

At least 50 percent but less than 60 percent ............................... $2,250

At least 60 percent ......................................................................... $2,500.

1 ‘‘(II) If such vehicle has a gross

2 vehicle weight rating of more than

3 14,000 but not more than 26,000

4 pounds:

‘‘If percentage of the maximum

available power is: The credit amount is:

At least 20 percent but less than 30 percent ............................... $4,000

At least 30 percent but less than 40 percent ............................... $4,500

At least 40 percent but less than 50 percent ............................... $5,000

At least 50 percent but less than 60 percent ............................... $5,500

At least 60 percent ......................................................................... $6,000.

5 ‘‘(III) If such vehicle has a gross

6 vehicle weight rating of more than

7 26,000 pounds:

‘‘If percentage of the maximum

available power is: The credit amount is:

At least 20 percent but less than 30 percent ............................... $6,000

At least 30 percent but less than 40 percent ............................... $7,000

At least 40 percent but less than 50 percent ............................... $8,000

At least 50 percent but less than 60 percent ............................... $9,000

At least 60 percent ......................................................................... $10,000.

8 ‘‘(B) INCREASE FOR FUEL EFFICIENCY.—

9 ‘‘(i) AMOUNT.—The amount deter10 mined under subparagraph (A)(i) with re11 spect to a new qualified hybrid motor vehi12 cle which is a passenger automobile or light

13 truck shall be increased by—

14 ‘‘(I) $500, if such vehicle achieves

15 at least 125 percent but less than 150
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1 percent of the 2002 model year city

2 fuel economy,

3 ‘‘(II) $1,000, if such vehicle

4 achieves at least 150 percent but less

5 than 175 percent of the 2002 model

6 year city fuel economy,

7 ‘‘(III) $1,500, if such vehicle

8 achieves at least 175 percent but less

9 than 200 percent of the 2002 model

10 year city fuel economy,

11 ‘‘(IV) $2,000, if such vehicle

12 achieves at least 200 percent but less

13 than 225 percent of the 2002 model

14 year city fuel economy,

15 ‘‘(V) $2,500, if such vehicle

16 achieves at least 225 percent but less

17 than 250 percent of the 2002 model

18 year city fuel economy, and

19 ‘‘(VI) $3,000, if such vehicle

20 achieves at least 250 percent of the

21 2002 model year city fuel economy.

22 ‘‘(ii) 2002 MODEL YEAR CITY FUEL

23 ECONOMY.—For purposes of clause (i), the

24 2002 model year city fuel economy with re25 spect to a vehicle shall be determined on a
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1 gasoline gallon equivalent basis as deter2 mined by the Administrator of the Environ3 mental Protection Agency using the tables

4 provided in subsection (b)(2)(B) with re5 spect to such vehicle.

6 ‘‘(C) INCREASE FOR ACCELERATED EMIS7 SIONS PERFORMANCE.—The amount determined

8 under subparagraph (A)(ii) with respect to an

9 applicable heavy duty hybrid motor vehicle shall

10 be increased by the increased credit amount de11 termined in accordance with the following tables:

12 ‘‘(i) In the case of a vehicle which has

13 a gross vehicle weight rating of not more

14 than 14,000 pounds:

‘‘If the model year is: The increased credit amount is:

2004 ................................................................................................ $2,500

2005 ................................................................................................ $2,000

2006 ................................................................................................ $1,500.

15 ‘‘(ii) In the case of a vehicle which has

16 a gross vehicle weight rating of more than

17 14,000 pounds but not more than 26,000

18 pounds:

‘‘If the model year is: The increased credit amount is:

2004 ................................................................................................ $6,500

2005 ................................................................................................ $5,250

2006 ................................................................................................ $4,000.

19 ‘‘(iii) In the case of a vehicle which has

20 a gross vehicle weight rating of more than

21 26,000 pounds:
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‘‘If the model year is: The increased credit amount is:

2004 ................................................................................................ $10,000

2005 ................................................................................................ $8,000

2006 ................................................................................................ $6,000.

1 ‘‘(D) DEFINITIONS RELATING TO CREDIT

2 AMOUNT.—

3 ‘‘(i) APPLICABLE HEAVY DUTY HYBRID

4 MOTOR VEHICLE.—For purposes of subpara5 graph (C), the term ‘applicable heavy duty

6 hybrid motor vehicle’ means a heavy duty

7 hybrid motor vehicle which is powered by

8 an internal combustion or heat engine

9 which is certified as meeting the emission

10 standards set in the regulations prescribed

11 by the Administrator of the Environmental

12 Protection Agency for 2007 and later model

13 year diesel heavy duty engines, or for 2008

14 and later model year ottocycle heavy duty

15 engines, as applicable.

16 ‘‘(ii) MAXIMUM AVAILABLE POWER.—

17 ‘‘(I) PASSENGER AUTOMOBILE,

18 MEDIUM DUTY PASSENGER VEHICLE,

19 OR LIGHT TRUCK.—For purposes of

20 subparagraph (A)(i), the term ‘max21 imum available power’ means the max22 imum power available from the re23 chargeable energy storage system, dur-
†

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1 ing a standard 10 second pulse power

2 or equivalent test, divided by such

3 maximum power and the SAE net

4 power of the heat engine.

5 ‘‘(II) HEAVY DUTY HYBRID MOTOR

6 VEHICLE.—For purposes of subpara7 graph (A)(ii), the term ‘maximum

8 available power’ means the maximum

9 power available from the rechargeable

10 energy storage system, during a stand11 ard 10 second pulse power or equiva12 lent test, divided by the vehicle’s total

13 traction power. The term ‘total trac14 tion power’ means the sum of the peak

15 power from the rechargeable energy

16 storage system and the heat engine

17 peak power of the vehicle, except that if

18 such storage system is the sole means

19 by which the vehicle can be driven, the

20 total traction power is the peak power

21 of such storage system.

22 ‘‘(3) NEW QUALIFIED HYBRID MOTOR VEHI23 CLE.—For purposes of this subsection—

24 ‘‘(A) IN GENERAL.—The term ‘new qualified

25 hybrid motor vehicle’ means a motor vehicle—
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1 ‘‘(i) which draws propulsion energy

2 from onboard sources of stored energy which

3 are both—

4 ‘‘(I) an internal combustion or

5 heat engine using consumable fuel, and

6 ‘‘(II) a rechargeable energy stor7 age system,

8 ‘‘(ii) which, in the case of a passenger

9 automobile, medium duty passenger vehicle,

10 or light truck—

11 ‘‘(I) for 2002 and later model ve12 hicles, has received a certificate of con13 formity under the Clean Air Act and

14 meets or exceeds the equivalent quali15 fying California low emission vehicle

16 standard under section 243(e)(2) of the

17 Clean Air Act for that make and model

18 year, and

19 ‘‘(II) for 2004 and later model ve20 hicles, has received a certificate that

21 such vehicle meets or exceeds the Bin 5

22 Tier II emission level established in

23 regulations prescribed by the Adminis24 trator of the Environmental Protection

25 Agency under section 202(i) of the
†

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1 Clean Air Act for that make and model

2 year vehicle,

3 ‘‘(iii) which, in the case of a heavy

4 duty hybrid motor vehicle, has an internal

5 combustion or heat engine which has re6 ceived a certificate of conformity under the

7 Clean Air Act as meeting the emission

8 standards set in the regulations prescribed

9 by the Administrator of the Environmental

10 Protection Agency for 2004 through 2007

11 model year diesel heavy duty engines or

12 ottocycle heavy duty engines, as applicable,

13 ‘‘(iv) the original use of which com14 mences with the taxpayer,

15 ‘‘(v) which is acquired for use or lease

16 by the taxpayer and not for resale, and

17 ‘‘(vi) which is made by a manufac18 turer.

19 ‘‘(B) CONSUMABLE FUEL.—For purposes of

20 subparagraph (A)(i)(I), the term ‘consumable

21 fuel’ means any solid, liquid, or gaseous matter

22 which releases energy when consumed by an aux23 iliary power unit.

24 ‘‘(4) HEAVY DUTY HYBRID MOTOR VEHICLE.—

25 For purposes of this subsection, the term ‘heavy duty
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1 hybrid motor vehicle’ means a new qualified hybrid

2 motor vehicle which has a gross vehicle weight rating

3 of more than 8,500 pounds. Such term does not in4 clude a medium duty passenger vehicle.

5 ‘‘(d) NEW QUALIFIED ALTERNATIVE FUEL MOTOR VE6 HICLE CREDIT.—

7 ‘‘(1) ALLOWANCE OF CREDIT.—Except as pro8 vided in paragraph (5), the new qualified alternative

9 fuel motor vehicle credit determined under this sub10 section is an amount equal to the applicable percent11 age of the incremental cost of any new qualified alter12 native fuel motor vehicle placed in service by the tax13 payer during the taxable year.

14 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

15 of paragraph (1), the applicable percentage with re16 spect to any new qualified alternative fuel motor vehi17 cle is—

18 ‘‘(A) 40 percent, plus

19 ‘‘(B) 30 percent, if such vehicle—

20 ‘‘(i) has received a certificate of con21 formity under the Clean Air Act and meets

22 or exceeds the most stringent standard

23 available for certification under the Clean

24 Air Act for that make and model year vehi25 cle (other than a zero emission standard), or
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1 ‘‘(ii) has received an order certifying

2 the vehicle as meeting the same require3 ments as vehicles which may be sold or

4 leased in California and meets or exceeds

5 the most stringent standard available for

6 certification under the State laws of Cali7 fornia (enacted in accordance with a waiver

8 granted under section 209(b) of the Clean

9 Air Act) for that make and model year vehi10 cle (other than a zero emission standard).

11 For purposes of the preceding sentence, in the case of

12 any new qualified alternative fuel motor vehicle

13 which weighs more than 14,000 pounds gross vehicle

14 weight rating, the most stringent standard available

15 shall be such standard available for certification on

16 the date of the enactment of the Energy Tax Incen17 tives Act.

18 ‘‘(3) INCREMENTAL COST.—For purposes of this

19 subsection, the incremental cost of any new qualified

20 alternative fuel motor vehicle is equal to the amount

21 of the excess of the manufacturer’s suggested retail

22 price for such vehicle over such price for a gasoline

23 or diesel fuel motor vehicle of the same model, to the

24 extent such amount does not exceed—
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1 ‘‘(A) $5,000, if such vehicle has a gross ve2 hicle weight rating of not more than 8,500

3 pounds,

4 ‘‘(B) $10,000, if such vehicle has a gross ve5 hicle weight rating of more than 8,500 pounds

6 but not more than 14,000 pounds,

7 ‘‘(C) $25,000, if such vehicle has a gross ve8 hicle weight rating of more than 14,000 pounds

9 but not more than 26,000 pounds, and

10 ‘‘(D) $40,000, if such vehicle has a gross ve11 hicle weight rating of more than 26,000 pounds.

12 ‘‘(4) NEW QUALIFIED ALTERNATIVE FUEL MOTOR

13 VEHICLE.—For purposes of this subsection—

14 ‘‘(A) IN GENERAL.—The term ‘new qualified

15 alternative fuel motor vehicle’ means any motor

16 vehicle—

17 ‘‘(i) which is only capable of operating

18 on an alternative fuel,

19 ‘‘(ii) the original use of which com20 mences with the taxpayer,

21 ‘‘(iii) which is acquired by the tax22 payer for use or lease, but not for resale,

23 and

24 ‘‘(iv) which is made by a manufac25 turer.
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1 ‘‘(B) ALTERNATIVE FUEL.—The term ‘alter2 native fuel’ means compressed natural gas, lique3 fied natural gas, liquefied petroleum gas, hydro4 gen, and any liquid at least 85 percent of the

5 volume of which consists of methanol.

6 ‘‘(5) CREDIT FOR MIXED-FUEL VEHICLES.—

7 ‘‘(A) IN GENERAL.—In the case of a mixed8 fuel vehicle placed in service by the taxpayer

9 during the taxable year, the credit determined

10 under this subsection is an amount equal to—

11 ‘‘(i) in the case of a 75/25 mixed-fuel

12 vehicle, 70 percent of the credit which would

13 have been allowed under this subsection if

14 such vehicle was a qualified alternative fuel

15 motor vehicle, and

16 ‘‘(ii) in the case of a 90/10 mixed-fuel

17 vehicle, 90 percent of the credit which would

18 have been allowed under this subsection if

19 such vehicle was a qualified alternative fuel

20 motor vehicle.

21 ‘‘(B) MIXED-FUEL VEHICLE.—For purposes

22 of this subsection, the term ‘mixed-fuel vehicle’

23 means any motor vehicle described in subpara24 graph (C) or (D) of paragraph (3), which—
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1 ‘‘(i) is certified by the manufacturer as

2 being able to perform efficiently in normal

3 operation on a combination of an alter4 native fuel and a petroleum-based fuel,

5 ‘‘(ii) either—

6 ‘‘(I) has received a certificate of

7 conformity under the Clean Air Act, or

8 ‘‘(II) has received an order certi9 fying the vehicle as meeting the same

10 requirements as vehicles which may be

11 sold or leased in California and meets

12 or exceeds the low emission vehicle

13 standard under section 88.105–94 of

14 title 40, Code of Federal Regulations,

15 for that make and model year vehicle,

16 ‘‘(iii) the original use of which com17 mences with the taxpayer,

18 ‘‘(iv) which is acquired by the tax19 payer for use or lease, but not for resale,

20 and

21 ‘‘(v) which is made by a manufacturer.

22 ‘‘(C) 75/25 MIXED-FUEL VEHICLE.—For

23 purposes of this subsection, the term ‘75/25

24 mixed-fuel vehicle’ means a mixed-fuel vehicle

25 which operates using at least 75 percent alter-
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1 native fuel and not more than 25 percent petro2 leum-based fuel.

3 ‘‘(D) 90/10 MIXED-FUEL VEHICLE.—For

4 purposes of this subsection, the term ‘90/10

5 mixed-fuel vehicle’ means a mixed-fuel vehicle

6 which operates using at least 90 percent alter7 native fuel and not more than 10 percent petro8 leum-based fuel.

9 ‘‘(e) APPLICATION WITH OTHER CREDITS.—The credit

10 allowed under subsection (a) for any taxable year shall not

11 exceed the excess (if any) of—

12 ‘‘(1) the regular tax for the taxable year reduced

13 by the sum of the credits allowable under subpart A

14 and sections 27, 29, and 30, over

15 ‘‘(2) the tentative minimum tax for the taxable

16 year.

17 ‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—For

18 purposes of this section—

19 ‘‘(1) MOTOR VEHICLE.—The term ‘motor vehicle’

20 has the meaning given such term by section 30(c)(2).

21 ‘‘(2) CITY FUEL ECONOMY.—The city fuel econ22 omy with respect to any vehicle shall be measured in

23 a manner which is substantially similar to the man24 ner city fuel economy is measured in accordance with

25 procedures under part 600 of subchapter Q of chapter
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1 I of title 40, Code of Federal Regulations, as in effect

2 on the date of the enactment of this section.

3 ‘‘(3) OTHER TERMS.—The terms ‘automobile’,

4 ‘passenger automobile’, ‘medium duty passenger vehi5 cle’, ‘light truck’, and ‘manufacturer’ have the mean6 ings given such terms in regulations prescribed by the

7 Administrator of the Environmental Protection Agen8 cy for purposes of the administration of title II of the

9 Clean Air Act (42 U.S.C. 7521 et seq.).

10 ‘‘(4) REDUCTION IN BASIS.—For purposes of this

11 subtitle, the basis of any property for which a credit

12 is allowable under subsection (a) shall be reduced by

13 the amount of such credit so allowed (determined

14 without regard to subsection (e)).

15 ‘‘(5) NO DOUBLE BENEFIT.—The amount of any

16 deduction or other credit allowable under this

17 chapter—

18 ‘‘(A) for any incremental cost taken into ac19 count in computing the amount of the credit de20 termined under subsection (d) shall be reduced

21 by the amount of such credit attributable to such

22 cost, and

23 ‘‘(B) with respect to a vehicle described

24 under subsection (b) or (c), shall be reduced by
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1 the amount of credit allowed under subsection

2 (a) for such vehicle for the taxable year.

3 ‘‘(6) PROPERTY USED BY TAX-EXEMPT ENTI4 TIES.—In the case of a credit amount which is allow5 able with respect to a motor vehicle which is acquired

6 by an entity exempt from tax under this chapter, the

7 person which sells or leases such vehicle to the entity

8 shall be treated as the taxpayer with respect to the ve9 hicle for purposes of this section and the credit shall

10 be allowed to such person, but only if the person

11 clearly discloses to the entity at the time of any sale

12 or lease the specific amount of any credit otherwise

13 allowable to the entity under this section.

14 ‘‘(7) RECAPTURE.—The Secretary shall, by regu15 lations, provide for recapturing the benefit of any

16 credit allowable under subsection (a) with respect to

17 any property which ceases to be property eligible for

18 such credit (including recapture in the case of a lease

19 period of less than the economic life of a vehicle).

20 ‘‘(8) PROPERTY USED OUTSIDE UNITED STATES,

21 ETC., NOT QUALIFIED.—No credit shall be allowed

22 under subsection (a) with respect to any property re23 ferred to in section 50(b) or with respect to the por24 tion of the cost of any property taken into account

25 under section 179.
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1 ‘‘(9) ELECTION TO NOT TAKE CREDIT.—No credit

2 shall be allowed under subsection (a) for any vehicle

3 if the taxpayer elects to not have this section apply

4 to such vehicle.

5 ‘‘(10) CARRYBACK AND CARRYFORWARD AL6 LOWED.—

7 ‘‘(A) IN GENERAL.—If the credit allowable

8 under subsection (a) for a taxable year exceeds

9 the amount of the limitation under subsection (e)

10 for such taxable year (in this paragraph referred

11 to as the ‘unused credit year’), such excess shall

12 be a credit carryback to each of the 3 taxable

13 years preceding the unused credit year and a

14 credit carryforward to each of the 20 taxable

15 years following the unused credit year, except

16 that no excess may be carried to a taxable year

17 beginning before January 1, 2005.

18 ‘‘(B) RULES.—Rules similar to the rules of

19 section 39 shall apply with respect to the credit

20 carryback and credit carryforward under sub21 paragraph (A).

22 ‘‘(11) INTERACTION WITH AIR QUALITY AND

23 MOTOR VEHICLE SAFETY STANDARDS.—Unless other24 wise provided in this section, a motor vehicle shall
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1 not be considered eligible for a credit under this sec2 tion unless such vehicle is in compliance with—

3 ‘‘(A) the applicable provisions of the Clean

4 Air Act for the applicable make and model year

5 of the vehicle (or applicable air quality provi6 sions of State law in the case of a State which

7 has adopted such provision under a waiver

8 under section 209(b) of the Clean Air Act), and

9 ‘‘(B) the motor vehicle safety provisions of

10 sections 30101 through 30169 of title 49, United

11 States Code.

12 ‘‘(g) REGULATIONS.—

13 ‘‘(1) IN GENERAL.—Except as provided in para14 graph (2), the Secretary shall promulgate such regula15 tions as necessary to carry out the provisions of this

16 section.

17 ‘‘(2) COORDINATION IN PRESCRIPTION OF CER18 TAIN REGULATIONS.—The Secretary of the Treasury,

19 in coordination with the Secretary of Transportation

20 and the Administrator of the Environmental Protec21 tion Agency, shall prescribe such regulations as nec22 essary to determine whether a motor vehicle meets the

23 requirements to be eligible for a credit under this sec24 tion.
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1 ‘‘(h) TERMINATION.—This section shall not apply to

2 any property purchased after—

3 ‘‘(1) in the case of a new qualified fuel cell motor

4 vehicle (as described in subsection (b)), December 31,

5 2011, and

6 ‘‘(2) in the case of any other property, December

7 31, 2006.’’.

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 1016(a) is amended by striking

10 ‘‘and’’ at the end of paragraph (31), by striking the

11 period at the end of paragraph (32) and inserting ‘‘,

12 and’’, and by adding at the end the following new

13 paragraph:

14 ‘‘(33) to the extent provided in section

15 30C(f)(4).’’.

16 (2) Section 55(c)(2), as amended by this Act, is

17 amended by inserting ‘‘30C(e),’’ after ‘‘30(b)(2),’’.

18 (3) Section 6501(m) is amended by inserting

19 ‘‘30C(f)(9),’’ after ‘‘30(d)(4),’’.

20 (4) The table of sections for subpart B of part IV

21 of subchapter A of chapter 1, as amended by this Act,

22 is amended by inserting after the item relating to sec23 tion 30B the following new item:

‘‘Sec. 30C. Alternative motor vehicle credit.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to property placed in service after De3 cember 31, 2004, in taxable years ending after such date.

4 SEC. 812. MODIFICATION OF CREDIT FOR QUALIFIED ELEC5 TRIC VEHICLES.

6 (a) AMOUNT OF CREDIT.—

7 (1) IN GENERAL.—Section 30(a) (relating to al8 lowance of credit) is amended by striking ‘‘10 percent

9 of’’.

10 (2) LIMITATION OF CREDIT ACCORDING TO TYPE

11 OF VEHICLE.—Paragraph (1) of section 30(b) (relat12 ing to limitations) is amended to read as follows:

13 ‘‘(1) LIMITATION ACCORDING TO TYPE OF VEHI14 CLE.—The amount of the credit allowed under sub15 section (a) for any vehicle shall not exceed the greatest

16 of the following amounts applicable to such vehicle:

17 ‘‘(A) In the case of a vehicle with a gross

18 vehicle weight rating not exceeding 8,500

19 pounds—

20 ‘‘(i) except as provided in clause (ii) or

21 (iii), $3,500,

22 ‘‘(ii) $6,000, if such vehicle is—

23 ‘‘(I) capable of a driving range of

24 at least 100 miles on a single charge of

25 the vehicle’s rechargeable batteries as
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1 measured pursuant to the urban dyna2 mometer schedules under appendix I to

3 part 86 of title 40, Code of Federal

4 Regulations, or

5 ‘‘(II) capable of a payload capac6 ity of at least 1,000 pounds, and

7 ‘‘(iii) if such vehicle is a low-speed ve8 hicle which conforms to Standard 500 pre9 scribed by the Secretary of Transportation

10 (49 C.F.R. 571.500), as in effect on the date

11 of the enactment of the Energy Tax Incen12 tives Act, the lesser of—

13 ‘‘(I) 10 percent of the manufactur14 er’s suggested retail price of the vehicle,

15 or

16 ‘‘(II) $1,500.

17 ‘‘(B) In the case of a vehicle with a gross

18 vehicle weight rating exceeding 8,500 but not ex19 ceeding 14,000 pounds, $10,000.

20 ‘‘(C) In the case of a vehicle with a gross

21 vehicle weight rating exceeding 14,000 but not

22 exceeding 26,000 pounds, $20,000.

23 ‘‘(D) In the case of a vehicle with a gross

24 vehicle weight rating exceeding 26,000 pounds,

25 $40,000.’’.
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1 (b) QUALIFIED BATTERY ELECTRIC VEHICLE.—

2 (1) IN GENERAL.—Section 30(c)(1)(A) (defining

3 qualified electric vehicle) is amended to read as fol4 lows:

5 ‘‘(A) which is—

6 ‘‘(i) operated solely by use of a battery

7 or battery pack, or

8 ‘‘(ii) powered primarily through the

9 use of an electric battery or battery pack

10 using a flywheel or capacitor which stores

11 energy produced by an electric motor

12 through regenerative braking to assist in ve13 hicle operation,’’.

14 (2) LEASED VEHICLES.—Section 30(c)(1)(C) is

15 amended by inserting ‘‘or lease’’ after ‘‘use’’.

16 (3) CONFORMING AMENDMENTS.—

17 (A) Subsections (a), (b)(2), and (c) of sec18 tion 30 are each amended by inserting ‘‘battery’’

19 after ‘‘qualified’’ each place it appears.

20 (B) The heading of subsection (c) of section

21 30 is amended by inserting ‘‘BATTERY’’ after

22 ‘‘QUALIFIED’’.

23 (C) The heading of section 30 is amended

24 by inserting ‘‘BATTERY’’ after ‘‘QUALIFIED’’.
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1 (D) The item relating to section 30 in the

2 table of sections for subpart B of part IV of sub3 chapter A of chapter 1 is amended by inserting

4 ‘‘battery’’ after ‘‘qualified’’.

5 (E) Section 179A(c)(3) is amended by in6 serting ‘‘battery’’ before ‘‘electric’’.

7 (F) The heading of paragraph (3) of section

8 179A(c) is amended by inserting ‘‘BATTERY’’ be9 fore ‘‘ELECTRIC’’.

10 (c) ADDITIONAL SPECIAL RULES.—Section 30(d) (re11 lating to special rules) is amended by adding at the end

12 the following new paragraphs:

13 ‘‘(5) NO DOUBLE BENEFIT.—The amount of any

14 deduction or other credit allowable under this chapter

15 for any cost taken into account in computing the

16 amount of the credit determined under subsection (a)

17 shall be reduced by the amount of such credit attrib18 utable to such cost.

19 ‘‘(6) PROPERTY USED BY TAX-EXEMPT ENTI20 TIES.—In the case of a credit amount which is allow21 able with respect to a vehicle which is acquired by an

22 entity exempt from tax under this chapter, the person

23 which sells or leases such vehicle to the entity shall be

24 treated as the taxpayer with respect to the vehicle for

25 purposes of this section and the credit shall be allowed
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1 to such person, but only if the person clearly discloses

2 to the entity at the time of any sale or lease the spe3 cific amount of any credit otherwise allowable to the

4 entity under this section.

5 ‘‘(7) CARRYBACK AND CARRYFORWARD AL6 LOWED.—

7 ‘‘(A) IN GENERAL.—If the credit allowable

8 under subsection (a) for a taxable year exceeds

9 the amount of the limitation under subsection

10 (b)(2) for such taxable year (in this paragraph

11 referred to as the ‘unused credit year’), such ex12 cess shall be a credit carryback to each of the 3

13 taxable years preceding the unused credit year

14 and a credit carryforward to each of the 20 tax15 able years following the unused credit year, ex16 cept that no excess may be carried to a taxable

17 year beginning before January 1, 2005.

18 ‘‘(B) RULES.—Rules similar to the rules of

19 section 39 shall apply with respect to the credit

20 carryback and credit carryforward under sub21 paragraph (A).’’.

22 (d) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to property placed in service after De24 cember 31, 2004, in taxable years ending after such date.
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1 SEC. 813. CREDIT FOR INSTALLATION OF ALTERNATIVE

2 FUELING STATIONS.

3 (a) IN GENERAL.—Subpart B of part IV of subchapter

4 A of chapter 1 (relating to foreign tax credit, etc.), as

5 amended by this Act, is amended by adding at the end the

6 following new section:

7 ‘‘SEC. 30D. CLEAN-FUEL VEHICLE REFUELING PROPERTY

8 CREDIT.

9 ‘‘(a) CREDIT ALLOWED.—There shall be allowed as a

10 credit against the tax imposed by this chapter for the tax11 able year an amount equal to 50 percent of the amount

12 paid or incurred by the taxpayer during the taxable year

13 for the installation of qualified clean-fuel vehicle refueling

14 property.

15 ‘‘(b) LIMITATION.—The credit allowed under sub16 section (a)—

17 ‘‘(1) with respect to any retail clean-fuel vehicle

18 refueling property, shall not exceed $30,000, and

19 ‘‘(2) with respect to any residential clean-fuel ve20 hicle refueling property, shall not exceed $1,000.

21 ‘‘(c) YEAR CREDIT ALLOWED.—Notwithstanding sub22 section (a), no credit shall be allowed under subsection (a)

23 with respect to any qualified clean-fuel vehicle refueling

24 property before the taxable year in which the property is

25 placed in service by the taxpayer.

26 ‘‘(d) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE REFUEL2 ING PROPERTY.—The term ‘qualified clean-fuel vehicle

3 refueling property’ has the same meaning given such

4 term by section 179A(d).

5 ‘‘(2) RESIDENTIAL CLEAN-FUEL VEHICLE RE6 FUELING PROPERTY.—The term ‘residential clean-fuel

7 vehicle refueling property’ means qualified clean-fuel

8 vehicle refueling property which is installed on prop9 erty which is used as the principal residence (within

10 the meaning of section 121) of the taxpayer.

11 ‘‘(3) RETAIL CLEAN-FUEL VEHICLE REFUELING

12 PROPERTY.—The term ‘retail clean-fuel vehicle refuel13 ing property’ means qualified clean-fuel vehicle refuel14 ing property which is installed on property (other

15 than property described in paragraph (2)) used in a

16 trade or business of the taxpayer.

17 ‘‘(e) APPLICATION WITH OTHER CREDITS.—The credit

18 allowed under subsection (a) for any taxable year shall not

19 exceed the excess (if any) of—

20 ‘‘(1) the regular tax for the taxable year reduced

21 by the sum of the credits allowable under subpart A

22 and sections 27, 29, 30, and 30C, over

23 ‘‘(2) the tentative minimum tax for the taxable

24 year.
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1 ‘‘(f) BASIS REDUCTION.—For purposes of this title, the

2 basis of any property shall be reduced by the portion of

3 the cost of such property taken into account under sub4 section (a).

5 ‘‘(g) NO DOUBLE BENEFIT.—

6 ‘‘(1) COORDINATION WITH OTHER DEDUCTIONS

7 AND CREDITS.—Except as provided in paragraph (2),

8 the amount of any deduction or other credit allowable

9 under this chapter for any cost taken into account in

10 computing the amount of the credit determined under

11 subsection (a) shall be reduced by the amount of such

12 credit attributable to such cost.

13 ‘‘(2) NO DEDUCTION ALLOWED UNDER SECTION

14 179A.—No deduction shall be allowed under section

15 179A with respect to any property with respect to

16 which a credit is allowed under subsection (a).

17 ‘‘(h) REFUELING PROPERTY INSTALLED FOR TAX-EX18 EMPT ENTITIES.—In the case of qualified clean-fuel vehicle

19 refueling property installed on property owned or used by

20 an entity exempt from tax under this chapter, the person

21 which installs such refueling property for the entity shall

22 be treated as the taxpayer with respect to the refueling prop23 erty for purposes of this section (and such refueling prop24 erty shall be treated as retail clean-fuel vehicle refueling

25 property) and the credit shall be allowed to such person,
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1 but only if the person clearly discloses to the entity in any

2 installation contract the specific amount of the credit allow3 able under this section.

4 ‘‘(i) CARRYFORWARD ALLOWED.—

5 ‘‘(1) IN GENERAL.—If the credit allowable under

6 subsection (a) for a taxable year exceeds the amount

7 of the limitation under subsection (e) for such taxable

8 year, such excess shall be a credit carryforward to

9 each of the 20 taxable years following such taxable

10 year.

11 ‘‘(2) RULES.—Rules similar to the rules of sec12 tion 39 shall apply with respect to the credit

13 carryforward under paragraph (1).

14 ‘‘(j) SPECIAL RULES.—Rules similar to the rules of

15 paragraphs (4) and (5) of section 179A(e) shall apply.

16 ‘‘(k) REGULATIONS.—The Secretary shall prescribe

17 such regulations as necessary to carry out the provisions

18 of this section.

19 ‘‘(l) TERMINATION.—This section shall not apply to

20 any property placed in service—

21 ‘‘(1) in the case of property relating to hydrogen,

22 after December 31, 2011, and

23 ‘‘(2) in the case of any other property, after De24 cember 31, 2007.’’.
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1 (b) MODIFICATIONS TO EXTENSION OF DEDUCTION

2 FOR CERTAIN REFUELING PROPERTY.—Subsection (f) of

3 section 179A is amended to read as follows:

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

5 any property placed in service—

6 ‘‘(1) in the case of property relating to hydrogen,

7 after December 31, 2011, and

8 ‘‘(2) in the case of any other property, after De9 cember 31, 2007.’’.

10 (c) INCENTIVE FOR PRODUCTION OF HYDROGEN AT

11 QUALIFIED CLEAN-FUEL VEHICLE REFUELING PROP12 ERTY.—Section 179A(d) (defining qualified clean-fuel vehi13 cle refueling property) is amended by adding at the end

14 the following new flush sentence:

15 ‘‘In the case of clean-burning fuel which is hydrogen pro16 duced from another clean-burning fuel, paragraph (3)(A)

17 shall be applied by substituting ‘production, storage, or dis18 pensing’ for ‘storage or dispensing’ both places it appears.’’.

19 (d) CONFORMING AMENDMENTS.—

20 (1) Section 1016(a), as amended by this Act, is

21 amended by striking ‘‘and’’ at the end of paragraph

22 (32), by striking the period at the end of paragraph

23 (33) and inserting ‘‘, and’’, and by adding at the end

24 the following new paragraph:

25 ‘‘(34) to the extent provided in section 30D(f).’’.
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1 (2) Section 55(c)(2), as amended by this Act, is

2 amended by inserting ‘‘30D(e),’’ after ‘‘30C(e),’’.

3 (3) The table of sections for subpart B of part IV

4 of subchapter A of chapter 1, as amended by this Act,

5 is amended by inserting after the item relating to sec6 tion 30C the following new item:

‘‘Sec. 30D. Clean-fuel vehicle refueling property credit.’’.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to property placed in service after De9 cember 31, 2004, in taxable years ending after such date.

10 SEC. 814. CREDIT FOR RETAIL SALE OF ALTERNATIVE

11 FUELS AS MOTOR VEHICLE FUEL.

12 (a) IN GENERAL.—Subpart D of part IV of subchapter

13 A of chapter 1 (relating to business related credits) is

14 amended by inserting after section 40 the following new sec15 tion:

16 ‘‘SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE

17 FUELS AS MOTOR VEHICLE FUEL.

18 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

19 alternative fuel retail sales credit for any taxable year is

20 the applicable amount for each gasoline gallon equivalent

21 of alternative fuel sold at retail by the taxpayer during such

22 year as a fuel to propel any qualified motor vehicle.

23 ‘‘(b) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) APPLICABLE AMOUNT.—The term ‘applica2 ble amount’ means the amount determined in accord3 ance with the following table:

‘‘In the case of any taxable year

ending in— The applicable amount is—

2005 and 2006 ............................................................................... 50 cents.

4 ‘‘(2) ALTERNATIVE FUEL.—The term ‘alternative

5 fuel’ means compressed natural gas, liquefied natural

6 gas, liquefied petroleum gas, hydrogen, or any liquid

7 at least 85 percent of the volume of which consists of

8 methanol or ethanol.

9 ‘‘(3) GASOLINE GALLON EQUIVALENT.—The term

10 ‘gasoline gallon equivalent’ means, with respect to

11 any alternative fuel, the amount (determined by the

12 Secretary) of such fuel having a Btu content of

13 114,000.

14 ‘‘(4) QUALIFIED MOTOR VEHICLE.—The term

15 ‘qualified motor vehicle’ means any motor vehicle (as

16 defined in section 30(c)(2)) which meets any applica17 ble Federal or State emissions standards with respect

18 to each fuel by which such vehicle is designed to be

19 propelled.

20 ‘‘(5) SOLD AT RETAIL.—

21 ‘‘(A) IN GENERAL.—The term ‘sold at retail’

22 means the sale, for a purpose other than resale,

23 after manufacture, production, or importation.
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1 ‘‘(B) USE TREATED AS SALE.—If any per2 son uses alternative fuel (including any use after

3 importation) as a fuel to propel any new quali4 fied alternative fuel motor vehicle (as defined in

5 section 30C(d)(4)) before such fuel is sold at re6 tail, then such use shall be treated in the same

7 manner as if such fuel were sold at retail as a

8 fuel to propel such a vehicle by such person.

9 ‘‘(c) NO DOUBLE BENEFIT.—The amount of any de10 duction or other credit allowable under this chapter for any

11 fuel taken into account in computing the amount of the

12 credit determined under subsection (a) shall be reduced by

13 the amount of such credit attributable to such fuel.

14 ‘‘(d) PASS-THRU IN THE CASE OF ESTATES AND

15 TRUSTS.—Under regulations prescribed by the Secretary,

16 rules similar to the rules of subsection (d) of section 52 shall

17 apply.

18 ‘‘(e) TERMINATION.—This section shall not apply to

19 any fuel sold at retail after December 31, 2006.’’.

20 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section

21 38(b) (relating to current year business credit) is amended

22 by striking ‘‘plus’’ at the end of paragraph (20), by striking

23 the period at the end of paragraph (21) and inserting ‘‘,

24 plus’’, and by adding at the end the following new para25 graph:
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1 ‘‘(22) the alternative fuel retail sales credit deter2 mined under section 40A(a).’’.

3 (c) LIMITATION ON CARRYBACK.—

4 (1) IN GENERAL.—Subsection (d) of section 39,

5 as amended by this Act, is amended to read as fol6 lows:

7 ‘‘(d) TRANSITIONAL RULE.—No portion of the unused

8 business credit for any taxable year which is attributable

9 to a credit specified in section 38(b) may be carried back

10 to any taxable year before the first taxable year for which

11 such specified credit is allowable.’’.

12 (2) EFFECTIVE DATE.—The amendment made by

13 paragraph (1) shall apply with respect to taxable

14 years beginning after December 31, 2003.

15 (d) CLERICAL AMENDMENT.—The table of sections for

16 subpart D of part IV of subchapter A of chapter 1 is amend17 ed by inserting after the item relating to section 40 the fol18 lowing new item:

‘‘Sec. 40A. Credit for retail sale of alternative fuels as motor vehicle fuel.’’.

19 (e) EFFECTIVE DATE.—Except as otherwise provided,

20 the amendments made by this section shall apply to fuel

21 sold at retail after December 31, 2004, in taxable years end22 ing after such date.

23 SEC. 815. SMALL ETHANOL PRODUCER CREDIT.

24 (a) ALLOCATION OF ALCOHOL FUELS CREDIT TO PA25 TRONS OF A COOPERATIVE.—Section 40(g) (relating to defi-
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1 nitions and special rules for eligible small ethanol producer

2 credit) is amended by adding at the end the following new

3 paragraph:

4 ‘‘(6) ALLOCATION OF SMALL ETHANOL PRO5 DUCER CREDIT TO PATRONS OF COOPERATIVE.—

6 ‘‘(A) ELECTION TO ALLOCATE.—

7 ‘‘(i) IN GENERAL.—In the case of a co8 operative organization described in section

9 1381(a), any portion of the credit deter10 mined under subsection (a)(3) for the tax11 able year may, at the election of the organi12 zation, be apportioned pro rata among pa13 trons of the organization on the basis of the

14 quantity or value of business done with or

15 for such patrons for the taxable year.

16 ‘‘(ii) FORM AND EFFECT OF ELEC17 TION.—An election under clause (i) for any

18 taxable year shall be made on a timely filed

19 return for such year. Such election, once

20 made, shall be irrevocable for such taxable

21 year.

22 ‘‘(B) TREATMENT OF ORGANIZATIONS AND

23 PATRONS.—The amount of the credit apportioned

24 to patrons under subparagraph (A)—
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1 ‘‘(i) shall not be included in the

2 amount determined under subsection (a)

3 with respect to the organization for the tax4 able year, and

5 ‘‘(ii) shall be included in the amount

6 determined under subsection (a) for the tax7 able year of each patron for which the pa8 tronage dividends for the taxable year de9 scribed in subparagraph (A) are included in

10 gross income.

11 ‘‘(C) SPECIAL RULES FOR DECREASE IN

12 CREDITS FOR TAXABLE YEAR.—If the amount of

13 the credit of a cooperative organization deter14 mined under subsection (a)(3) for a taxable year

15 is less than the amount of such credit shown on

16 the return of the cooperative organization for

17 such year, an amount equal to the excess of—

18 ‘‘(i) such reduction, over

19 ‘‘(ii) the amount not apportioned to

20 such patrons under subparagraph (A) for

21 the taxable year,

22 shall be treated as an increase in tax imposed by

23 this chapter on the organization. Such increase

24 shall not be treated as tax imposed by this chap25 ter for purposes of determining the amount of
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1 any credit under this chapter or for purposes of

2 section 55.’’.

3 (b) IMPROVEMENTS TO SMALL ETHANOL PRODUCER

4 CREDIT.—

5 (1) DEFINITION OF SMALL ETHANOL PRO6 DUCER.—Section 40(g) (relating to definitions and

7 special rules for eligible small ethanol producer cred8 it) is amended by striking ‘‘30,000,000’’ each place it

9 appears and inserting ‘‘60,000,000’’.

10 (2) SMALL ETHANOL PRODUCER CREDIT NOT A

11 PASSIVE ACTIVITY CREDIT.—Clause (i) of section

12 469(d)(2)(A) is amended by striking ‘‘subpart D’’ and

13 inserting ‘‘subpart D, other than section 40(a)(3),’’.

14 (3) SMALL ETHANOL PRODUCER CREDIT NOT

15 ADDED BACK TO INCOME UNDER SECTION 87.—Sec16 tion 87 (relating to income inclusion of alcohol fuel

17 credit) is amended to read as follows:

18 ‘‘SEC. 87. ALCOHOL FUEL CREDIT.

19 ‘‘Gross income includes an amount equal to the sum

20 of—

21 ‘‘(1) the amount of the alcohol mixture credit de22 termined with respect to the taxpayer for the taxable

23 year under section 40(a)(1), and
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1 ‘‘(2) the alcohol credit determined with respect to

2 the taxpayer for the taxable year under section

3 40(a)(2).’’.

4 (c) CONFORMING AMENDMENT.—Section 1388 (relat5 ing to definitions and special rules for cooperative organi6 zations), as amended by this Act, is amended by adding

7 at the end the following new subsection:

8 ‘‘(l) CROSS REFERENCE.—For provisions relating to

9 the apportionment of the alcohol fuels credit between cooper10 ative organizations and their patrons, see section

11 40(g)(6).’’.

12 (d) EFFECTIVE DATE.—The amendments made by this

13 section shall apply to taxable years ending after the date

14 of the enactment of this Act.

15 Subtitle C—Conservation and

16 Energy Efficiency Provisions

17 SEC. 821. CREDIT FOR CONSTRUCTION OF NEW ENERGY EF18 FICIENT HOME.

19 (a) IN GENERAL.—Subpart D of part IV of subchapter

20 A of chapter 1 (relating to business related credits), as

21 amended by this Act, is amended by adding at the end the

22 following new section:

23 ‘‘SEC. 45K. NEW ENERGY EFFICIENT HOME CREDIT.

24 ‘‘(a) IN GENERAL.—For purposes of section 38, in the

25 case of an eligible contractor, the credit determined under
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1 this section for the taxable year is an amount equal to the

2 aggregate adjusted bases of all energy efficient property in3 stalled in a qualifying new home during construction of

4 such home.

5 ‘‘(b) LIMITATIONS.—

6 ‘‘(1) MAXIMUM CREDIT.—

7 ‘‘(A) IN GENERAL.—The credit allowed by

8 this section with respect to a qualifying new

9 home shall not exceed—

10 ‘‘(i) in the case of a 30-percent home,

11 $1,000, and

12 ‘‘(ii) in the case of a 50-percent home,

13 $2,000.

14 ‘‘(B) 30- OR 50-PERCENT HOME.—For pur15 poses of subparagraph (A)—

16 ‘‘(i) 30-PERCENT HOME.—The term

17 ‘30-percent home’ means—

18 ‘‘(I) a qualifying new home which

19 is certified to have a projected level of

20 annual heating and cooling energy

21 consumption, measured in terms of av22 erage annual energy cost to the home23 owner, which is at least 30 percent less

24 than the annual level of heating and

25 cooling energy consumption of a quali-
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1 fying new home constructed in accord2 ance with the latest standards of chap3 ter 4 of the International Energy Con4 servation Code approved by the De5 partment of Energy before the con6 struction of such qualifying new home

7 and any applicable Federal minimum

8 efficiency standards for equipment, or

9 ‘‘(II) in the case of a qualifying

10 new home which is a manufactured

11 home, a home which meets the applica12 ble standards required by the Adminis13 trator of the Environmental Protection

14 Agency under the Energy Star Labeled

15 Homes program.

16 ‘‘(ii) 50-PERCENT HOME.—The term

17 ‘50-percent home’ means a qualifying new

18 home which would be described in clause

19 (i)(I) if 50 percent were substituted for 30

20 percent.

21 ‘‘(C) PRIOR CREDIT AMOUNTS ON SAME

22 HOME TAKEN INTO ACCOUNT.—The amount of

23 the credit otherwise allowable for the taxable

24 year with respect to a qualifying new home

25 under clause (i) or (ii) of subparagraph (A) shall
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1 be reduced by the sum of the credits allowed

2 under subsection (a) to any taxpayer with re3 spect to the home for all preceding taxable years.

4 ‘‘(2) COORDINATION WITH CERTAIN CREDITS.—

5 For purposes of this section—

6 ‘‘(A) the basis of any property referred to in

7 subsection (a) shall be reduced by that portion of

8 the basis of any property which is attributable to

9 the rehabilitation credit (as determined under

10 section 47(a)) or to the energy credit (as deter11 mined under section 48(a)), and

12 ‘‘(B) expenditures taken into account under

13 section 25D, 47, or 48(a) shall not be taken into

14 account under this section.

15 ‘‘(3) PROVIDER LIMITATION.—Any eligible con16 tractor who directly or indirectly provides the guar17 antee of energy savings under a guarantee-based

18 method of certification described in subsection

19 (d)(1)(D) shall not be eligible to receive the credit al20 lowed by this section.

21 ‘‘(c) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligible

23 contractor’ means—

24 ‘‘(A) the person who constructed the quali25 fying new home, or
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1 ‘‘(B) in the case of a qualifying new home

2 which is a manufactured home, the manufac3 tured home producer of such home.

4 If more than 1 person is described in subparagraph

5 (A) or (B) with respect to any qualifying new home,

6 such term means the person designated as such by the

7 owner of such home.

8 ‘‘(2) ENERGY EFFICIENT PROPERTY.—The term

9 ‘energy efficient property’ means any energy efficient

10 building envelope component, and any energy effi11 cient heating or cooling equipment or system which

12 can, individually or in combination with other com13 ponents, meet the requirements of this section.

14 ‘‘(3) QUALIFYING NEW HOME.—

15 ‘‘(A) IN GENERAL.—The term ‘qualifying

16 new home’ means a dwelling—

17 ‘‘(i) located in the United States,

18 ‘‘(ii) the construction of which is sub19 stantially completed after December 31,

20 2004, and

21 ‘‘(iii) the first use of which after con22 struction is as a principal residence (within

23 the meaning of section 121).

24 ‘‘(B) MANUFACTURED HOME INCLUDED.—

25 The term ‘qualifying new home’ includes a man-
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1 ufactured home conforming to Federal Manufac2 tured Home Construction and Safety Standards

3 (24 C.F.R. 3280).

4 ‘‘(4) CONSTRUCTION.—The term ‘construction’

5 includes reconstruction and rehabilitation.

6 ‘‘(5) BUILDING ENVELOPE COMPONENT.—The

7 term ‘building envelope component’ means—

8 ‘‘(A) any insulation material or system

9 which is specifically and primarily designed to

10 reduce the heat loss or gain of a qualifying new

11 home when installed in or on such home,

12 ‘‘(B) exterior windows (including skylights),

13 and

14 ‘‘(C) exterior doors.

15 ‘‘(d) CERTIFICATION.—

16 ‘‘(1) METHOD OF CERTIFICATION.—

17 ‘‘(A) IN GENERAL.—A certification de18 scribed in subsection (b)(1)(B) shall be deter19 mined either by a component-based method, a

20 performance-based method, or a guarantee-based

21 method, or, in the case of a qualifying new home

22 which is a manufactured home, by a method pre23 scribed by the Administrator of the Environ24 mental Protection Agency under the Energy Star

25 Labeled Homes program.
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1 ‘‘(B) COMPONENT-BASED METHOD.—A com2 ponent-based method is a method which uses the

3 applicable technical energy efficiency specifica4 tions or ratings (including product labeling re5 quirements) for the energy efficient building en6 velope component or energy efficient heating or

7 cooling equipment. The Secretary shall, in con8 sultation with the Administrator of the Environ9 mental Protection Agency, develop prescriptive

10 component-based packages which are equivalent

11 in energy performance to properties which qual12 ify under subparagraph (C).

13 ‘‘(C) PERFORMANCE-BASED METHOD.—

14 ‘‘(i) IN GENERAL.—A performance15 based method is a method which calculates

16 projected energy usage and cost reductions

17 in the qualifying new home in relation to a

18 new home—

19 ‘‘(I) heated by the same fuel type,

20 and

21 ‘‘(II) constructed in accordance

22 with the latest standards of chapter 4

23 of the International Energy Conserva24 tion Code approved by the Department

25 of Energy before the construction of
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1 such qualifying new home and any ap2 plicable Federal minimum efficiency

3 standards for equipment.

4 ‘‘(ii) COMPUTER SOFTWARE.—Com5 puter software shall be used in support of a

6 performance-based method certification

7 under clause (i). Such software shall meet

8 procedures and methods for calculating en9 ergy and cost savings in regulations pro10 mulgated by the Secretary of Energy.

11 ‘‘(D) GUARANTEE-BASED METHOD.—

12 ‘‘(i) IN GENERAL.—A guarantee-based

13 method is a method which guarantees in

14 writing to the homeowner energy savings of

15 either 30 percent or 50 percent over the

16 2000 International Energy Conservation

17 Code for heating and cooling costs. The

18 guarantee shall be provided for a minimum

19 of 2 years and shall fully reimburse the

20 homeowner any heating and cooling costs in

21 excess of the guaranteed amount.

22 ‘‘(ii) COMPUTER SOFTWARE.—Com23 puter software shall be selected by the pro24 vider to support the guarantee-based method

25 certification under clause (i). Such software
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1 shall meet procedures and methods for cal2 culating energy and cost savings in regula3 tions promulgated by the Secretary of En4 ergy.

5 ‘‘(2) PROVIDER.—A certification described in

6 subsection (b)(1)(B) shall be provided by—

7 ‘‘(A) in the case of a component-based meth8 od, a local building regulatory authority, a util9 ity, or a home energy rating organization,

10 ‘‘(B) in the case of a performance-based

11 method or a guarantee-based method, an indi12 vidual recognized by an organization designated

13 by the Secretary for such purposes, or

14 ‘‘(C) in the case of a qualifying new home

15 which is a manufactured home, a manufactured

16 home primary inspection agency.

17 ‘‘(3) FORM.—

18 ‘‘(A) IN GENERAL.—A certification de19 scribed in subsection (b)(1)(B) shall be made in

20 writing in a manner which specifies in readily

21 verifiable fashion the energy efficient building

22 envelope components and energy efficient heating

23 or cooling equipment installed and their respec24 tive rated energy efficiency performance, and
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1 ‘‘(i) in the case of a performance-based

2 method, accompanied by a written analysis

3 documenting the proper application of a

4 permissible energy performance calculation

5 method to the specific circumstances of such

6 qualifying new home, and

7 ‘‘(ii) in the case of a qualifying new

8 home which is a manufactured home, ac9 companied by such documentation as re10 quired by the Administrator of the Environ11 mental Protection Agency under the Energy

12 Star Labeled Homes program.

13 ‘‘(B) FORM PROVIDED TO BUYER.—A form

14 documenting the energy efficient building enve15 lope components and energy efficient heating or

16 cooling equipment installed and their rated en17 ergy efficiency performance shall be provided to

18 the buyer of the qualifying new home. The form

19 shall include labeled R-value for insulation prod20 ucts, NFRC-labeled U-factor and solar heat gain

21 coefficient for windows, skylights, and doors, la22 beled annual fuel utilization efficiency (AFUE)

23 ratings for furnaces and boilers, labeled heating

24 seasonal performance factor (HSPF) ratings for

25 electric heat pumps, and labeled seasonal energy
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1 efficiency ratio (SEER) ratings for air condi2 tioners.

3 ‘‘(C) RATINGS LABEL AFFIXED IN DWELL4 ING.—A permanent label documenting the rat5 ings in subparagraph (B) shall be affixed to the

6 front of the electrical distribution panel of the

7 qualifying new home, or shall be otherwise per8 manently displayed in a readily inspectable lo9 cation in such home.

10 ‘‘(4) REGULATIONS.—

11 ‘‘(A) IN GENERAL.—In prescribing regula12 tions under this subsection for performance-based

13 and guarantee-based certification methods, the

14 Secretary shall prescribe procedures for calcu15 lating annual energy usage and cost reductions

16 for heating and cooling and for the reporting of

17 the results. Such regulations shall—

18 ‘‘(i) provide that any calculation pro19 cedures be fuel neutral such that the same

20 energy efficiency measures allow a quali21 fying new home to be eligible for the credit

22 under this section regardless of whether such

23 home uses a gas or oil furnace or boiler or

24 an electric heat pump, and
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1 ‘‘(ii) require that any computer soft2 ware allow for the printing of the Federal

3 tax forms necessary for the credit under this

4 section and for the printing of forms for

5 disclosure to the homebuyer.

6 ‘‘(B) PROVIDERS.—For purposes of para7 graph (2)(B), the Secretary shall establish re8 quirements for the designation of individuals

9 based on the requirements for energy consultants

10 and home energy raters specified by the Mort11 gage Industry National Home Energy Rating

12 Standards.

13 ‘‘(e) APPLICATION.—Subsection (a) shall apply to

14 qualifying new homes the construction of which is substan15 tially completed after December 31, 2004, and purchased

16 during the period beginning on such date and ending on—

17 ‘‘(1) in the case of any 30-percent home, Decem18 ber 31, 2005, and

19 ‘‘(2) in the case of any 50-percent home, Decem20 ber 31, 2007.’’.

21 (b) CREDIT MADE PART OF GENERAL BUSINESS

22 CREDIT.—Section 38(b) (relating to current year business

23 credit), as amended by this Act, is amended by striking

24 ‘‘plus’’ at the end of paragraph (21), by striking the period
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1 at the end of paragraph (22) and inserting ‘‘, plus’’, and

2 by adding at the end the following new paragraph:

3 ‘‘(23) the new energy efficient home credit deter4 mined under section 45K(a).’’.

5 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re6 lating to certain expenses for which credits are allowable)

7 is amended by adding at the end the following new sub8 section:

9 ‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—No

10 deduction shall be allowed for that portion of expenses for

11 a qualifying new home otherwise allowable as a deduction

12 for the taxable year which is equal to the amount of the

13 credit determined for such taxable year under section

14 45K(a).’’.

15 (d) DEDUCTION FOR CERTAIN UNUSED BUSINESS

16 CREDITS.—Section 196(c) (defining qualified business cred17 its), as amended by this Act, is amended by striking ‘‘and’’

18 at the end of paragraph (10), by striking the period at the

19 end of paragraph (11) and inserting ‘‘, and’’, and by add20 ing after paragraph (11) the following new paragraph:

21 ‘‘(12) the new energy efficient home credit deter22 mined under section 45K(a).’’.

23 (e) CLERICAL AMENDMENT.—The table of sections for

24 subpart D of part IV of subchapter A of chapter 1, as
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1 amended by this Act, is amended by adding at the end the

2 following new item:

‘‘Sec. 45K. New energy efficient home credit.’’.

3 (f) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to homes the construction of which is

5 substantially completed after December 31, 2004.

6 SEC. 822. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

7 (a) IN GENERAL.—Subpart D of part IV of subchapter

8 A of chapter 1 (relating to business-related credits), as

9 amended by this Act, is amended by adding at the end the

10 following new section:

11 ‘‘SEC. 45L. ENERGY EFFICIENT APPLIANCE CREDIT.

12 ‘‘(a) ALLOWANCE OF CREDIT.—

13 ‘‘(1) IN GENERAL.—For purposes of section 38,

14 the energy efficient appliance credit determined under

15 this section for the taxable year is an amount equal

16 to the sum of the amounts determined under para17 graph (2) for qualified energy efficient appliances

18 produced by the taxpayer during the calendar year

19 ending with or within the taxable year.

20 ‘‘(2) AMOUNT.—The amount determined under

21 this paragraph for any category described in sub22 section (b)(2)(B) shall be the product of the applicable

23 amount for appliances in the category and the eligible

24 production for the category.
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1 ‘‘(b) APPLICABLE AMOUNT; ELIGIBLE PRODUCTION.—

2 For purposes of subsection (a)—

3 ‘‘(1) APPLICABLE AMOUNT.—The applicable

4 amount is—

5 ‘‘(A) $50, in the case of—

6 ‘‘(i) a clothes washer which is manu7 factured with at least a 1.42 MEF, or

8 ‘‘(ii) a refrigerator which consumes at

9 least 10 percent less kilowatt hours per year

10 than the energy conservation standards for

11 refrigerators promulgated by the Depart12 ment of Energy and effective on July 1,

13 2001,

14 ‘‘(B) $100, in the case of—

15 ‘‘(i) a clothes washer which is manu16 factured with at least a 1.50 MEF, or

17 ‘‘(ii) a refrigerator which consumes at

18 least 15 percent (20 percent in the case of

19 a refrigerator manufactured after 2006) less

20 kilowatt hours per year than such energy

21 conservation standards, and

22 ‘‘(C) $150, in the case of a refrigerator

23 manufactured before 2007 which consumes at

24 least 20 percent less kilowatt hours per year than

25 such energy conservation standards.
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1 ‘‘(2) ELIGIBLE PRODUCTION.—

2 ‘‘(A) IN GENERAL.—The eligible production

3 of each category of qualified energy efficient ap4 pliances is the excess of—

5 ‘‘(i) the number of appliances in such

6 category which are produced by the tax7 payer during such calendar year, over

8 ‘‘(ii) the average number of appliances

9 in such category which were produced by

10 the taxpayer during calendar years 2001,

11 2002, and 2003.

12 ‘‘(B) CATEGORIES.—For purposes of sub13 paragraph (A), the categories are—

14 ‘‘(i) clothes washers described in para15 graph (1)(A)(i),

16 ‘‘(ii) clothes washers described in para17 graph (1)(B)(i),

18 ‘‘(iii) refrigerators described in para19 graph (1)(A)(ii),

20 ‘‘(iv) refrigerators described in para21 graph (1)(B)(ii), and

22 ‘‘(v) refrigerators described in para23 graph (1)(C).

24 ‘‘(c) LIMITATION ON MAXIMUM CREDIT.—
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1 ‘‘(1) IN GENERAL.—The amount of credit al2 lowed under subsection (a) with respect to a taxpayer

3 for all taxable years shall not exceed $60,000,000, of

4 which not more than $30,000,000 may be allowed

5 with respect to the credit determined by using the ap6 plicable amount under subsection (b)(1)(A).

7 ‘‘(2) LIMITATION BASED ON GROSS RECEIPTS.—

8 The credit allowed under subsection (a) with respect

9 to a taxpayer for the taxable year shall not exceed an

10 amount equal to 2 percent of the average annual gross

11 receipts of the taxpayer for the 3 taxable years pre12 ceding the taxable year in which the credit is deter13 mined.

14 ‘‘(3) GROSS RECEIPTS.—For purposes of this

15 subsection, the rules of paragraphs (2) and (3) of sec16 tion 448(c) shall apply.

17 ‘‘(d) DEFINITIONS.—For purposes of this section—

18 ‘‘(1) QUALIFIED ENERGY EFFICIENT APPLI19 ANCE.—The term ‘qualified energy efficient appliance’

20 means—

21 ‘‘(A) a clothes washer described in subpara22 graph (A)(i) or (B)(i) of subsection (b)(1), or

23 ‘‘(B) a refrigerator described in subpara24 graph (A)(ii), (B)(ii), or (C) of subsection (b)(1).
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1 ‘‘(2) CLOTHES WASHER.—The term ‘clothes

2 washer’ means a residential clothes washer, including

3 a residential style coin operated washer.

4 ‘‘(3) REFRIGERATOR.—The term ‘refrigerator’

5 means an automatic defrost refrigerator-freezer which

6 has an internal volume of at least 16.5 cubic feet.

7 ‘‘(4) MEF.—The term ‘MEF’ means Modified

8 Energy Factor (as determined by the Secretary of En9 ergy).

10 ‘‘(e) SPECIAL RULES.—

11 ‘‘(1) IN GENERAL.—Rules similar to the rules of

12 subsections (c), (d), and (e) of section 52 shall apply

13 for purposes of this section.

14 ‘‘(2) AGGREGATION RULES.—All persons treated

15 as a single employer under subsection (a) or (b) of

16 section 52 or subsection (m) or (o) of section 414 shall

17 be treated as 1 person for purposes of subsection (a).

18 ‘‘(f) VERIFICATION.—The taxpayer shall submit such

19 information or certification as the Secretary, in consulta20 tion with the Secretary of Energy, determines necessary to

21 claim the credit amount under subsection (a).

22 ‘‘(g) TERMINATION.—This section shall not apply—

23 ‘‘(1) with respect to refrigerators described in

24 subsection (b)(1)(A)(ii) produced after December 31,

25 2005, and
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1 ‘‘(2) with respect to all other qualified energy ef2 ficient appliances produced after December 31,

3 2007.’’.

4 (b) CREDIT MADE PART OF GENERAL BUSINESS

5 CREDIT.—Section 38(b) (relating to current year business

6 credit), as amended by this Act, is amended by striking

7 ‘‘plus’’ at the end of paragraph (22), by striking the period

8 at the end of paragraph (23) and inserting ‘‘, plus’’, and

9 by adding at the end the following new paragraph:

10 ‘‘(24) the energy efficient appliance credit deter11 mined under section 45L(a).’’.

12 (c) CLERICAL AMENDMENT.—The table of sections for

13 subpart D of part IV of subchapter A of chapter 1, as

14 amended by this Act, is amended by adding at the end the

15 following new item:

‘‘Sec. 45L. Energy efficient appliance credit.’’.

16 (d) EFFECTIVE DATE.—The amendments made by this

17 section shall apply to appliances produced after December

18 31, 2004, in taxable years ending after such date.

19 SEC. 823. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT

20 PROPERTY.

21 (a) IN GENERAL.—Subpart A of part IV of subchapter

22 A of chapter 1 (relating to nonrefundable personal credits)

23 is amended by inserting after section 25B the following new

24 section:
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1 ‘‘SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

2 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi3 vidual, there shall be allowed as a credit against the tax

4 imposed by this chapter for the taxable year an amount

5 equal to the sum of—

6 ‘‘(1) 15 percent of the qualified photovoltaic

7 property expenditures made by the taxpayer during

8 such year,

9 ‘‘(2) 15 percent of the qualified solar water heat10 ing property expenditures made by the taxpayer dur11 ing such year,

12 ‘‘(3) 30 percent of the qualified fuel cell property

13 expenditures made by the taxpayer during such year,

14 ‘‘(4) 30 percent of the qualified wind energy

15 property expenditures made by the taxpayer during

16 such year, and

17 ‘‘(5) the sum of the qualified Tier 2 energy effi18 cient building property expenditures made by the tax19 payer during such year.

20 ‘‘(b) LIMITATIONS.—

21 ‘‘(1) MAXIMUM CREDIT.—The credit allowed

22 under subsection (a) shall not exceed—

23 ‘‘(A) $2,000 for property described in para24 graph (1), (2), or (5) of subsection (d),

25 ‘‘(B) $500 for each 0.5 kilowatt of capacity

26 of property described in subsection (d)(4), and
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1 ‘‘(C) for property described in subsection

2 (d)(6)—

3 ‘‘(i) $150 for each electric heat pump

4 water heater,

5 ‘‘(ii) $125 for each advanced natural

6 gas, oil, propane furnace, or hot water boil7 er,

8 ‘‘(iii) $150 for each advanced natural

9 gas, oil, or propane water heater,

10 ‘‘(iv) $50 for each natural gas, oil, or

11 propane water heater,

12 ‘‘(v) $50 for an advanced main air cir13 culating fan,

14 ‘‘(vi) $150 for each advanced combina15 tion space and water heating system,

16 ‘‘(vii) $50 for each combination space

17 and water heating system, and

18 ‘‘(viii) $250 for each geothermal heat

19 pump.

20 ‘‘(2) SAFETY CERTIFICATIONS.—No credit shall

21 be allowed under this section for an item of property

22 unless—

23 ‘‘(A) in the case of solar water heating

24 property, such property is certified for perform25 ance and safety by the non-profit Solar Rating
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1 Certification Corporation or a comparable entity

2 endorsed by the government of the State in which

3 such property is installed,

4 ‘‘(B) in the case of a photovoltaic property,

5 a fuel cell property, or a wind energy property,

6 such property meets appropriate fire and electric

7 code requirements, and

8 ‘‘(C) in the case of property described in

9 subsection (d)(6), such property meets the per10 formance and quality standards, and the certifi11 cation requirements (if any), which—

12 ‘‘(i) have been prescribed by the Sec13 retary by regulations (after consultation

14 with the Secretary of Energy or the Admin15 istrator of the Environmental Protection

16 Agency, as appropriate),

17 ‘‘(ii) in the case of the energy efficiency

18 ratio (EER) for property described in sub19 section (d)(6)(B)(viii)—

20 ‘‘(I) require measurements to be

21 based on published data which is tested

22 by manufacturers at 95 degrees Fahr23 enheit, and

24 ‘‘(II) do not require ratings to be

25 based on certified data of the Air Con-
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1 ditioning and Refrigeration Institute,

2 and

3 ‘‘(iii) are in effect at the time of the

4 acquisition of the property.

5 ‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the

6 credit allowable under subsection (a) exceeds the limitation

7 imposed by section 26(a) for such taxable year reduced by

8 the sum of the credits allowable under this subpart (other

9 than this section and section 25D), such excess shall be car10 ried to the succeeding taxable year and added to the credit

11 allowable under subsection (a) for such succeeding taxable

12 year.

13 ‘‘(d) DEFINITIONS.—For purposes of this section—

14 ‘‘(1) QUALIFIED SOLAR WATER HEATING PROP15 ERTY EXPENDITURE.—The term ‘qualified solar water

16 heating property expenditure’ means an expenditure

17 for property to heat water for use in a dwelling unit

18 located in the United States and used as a residence

19 by the taxpayer if at least half of the energy used by

20 such property for such purpose is derived from the

21 sun.

22 ‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX23 PENDITURE.—The term ‘qualified photovoltaic prop24 erty expenditure’ means an expenditure for property

25 which uses solar energy to generate electricity for use
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1 in a dwelling unit located in the United States and

2 used as a residence by the taxpayer.

3 ‘‘(3) SOLAR PANELS.—No expenditure relating to

4 a solar panel or other property installed as a roof (or

5 portion thereof) shall fail to be treated as property de6 scribed in paragraph (1) or (2) solely because it con7 stitutes a structural component of the structure on

8 which it is installed.

9 ‘‘(4) QUALIFIED FUEL CELL PROPERTY EXPENDI10 TURE.—The term ‘qualified fuel cell property expend11 iture’ means an expenditure for qualified fuel cell

12 property (as defined in section 48(a)(4)) installed on

13 or in connection with a dwelling unit located in the

14 United States and used as a principal residence

15 (within the meaning of section 121) by the taxpayer.

16 ‘‘(5) QUALIFIED WIND ENERGY PROPERTY EX17 PENDITURE.—The term ‘qualified wind energy prop18 erty expenditure’ means an expenditure for property

19 which uses wind energy to generate electricity for use

20 in a dwelling unit located in the United States and

21 used as a residence by the taxpayer.

22 ‘‘(6) QUALIFIED TIER 2 ENERGY EFFICIENT

23 BUILDING PROPERTY EXPENDITURE.—

24 ‘‘(A) IN GENERAL.—The term ‘qualified

25 Tier 2 energy efficient building property expend-
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1 iture’ means an expenditure for any Tier 2 en2 ergy efficient building property.

3 ‘‘(B) TIER 2 ENERGY EFFICIENT BUILDING

4 PROPERTY.—The term ‘Tier 2 energy efficient

5 building property’ means—

6 ‘‘(i) an electric heat pump water heater

7 which yields an energy factor of at least 1.7

8 in the standard Department of Energy test

9 procedure,

10 ‘‘(ii) an advanced natural gas, oil,

11 propane furnace, or hot water boiler which

12 achieves at least 95 percent annual fuel uti13 lization efficiency (AFUE),

14 ‘‘(iii) an advanced natural gas, oil, or

15 propane water heater which has an energy

16 factor of at least 0.80 in the standard De17 partment of Energy test procedure,

18 ‘‘(iv) a natural gas, oil, or propane

19 water heater which has an energy factor of

20 at least 0.65 but less than 0.80 in the stand21 ard Department of Energy test procedure,

22 ‘‘(v) an advanced main air circulating

23 fan used in a new natural gas, propane, or

24 oil-fired furnace, including main air circu25 lating fans that use a brushless permanent
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1 magnet motor or another type of motor

2 which achieves similar or higher efficiency

3 at half and full speed, as determined by the

4 Secretary,

5 ‘‘(vi) an advanced combination space

6 and water heating system which has a com7 bined energy factor of at least 0.80 and a

8 combined annual fuel utilization efficiency

9 (AFUE) of at least 78 percent in the stand10 ard Department of Energy test procedure,

11 ‘‘(vii) a combination space and water

12 heating system which has a combined en13 ergy factor of at least 0.65 but less than

14 0.80 and a combined annual fuel utilization

15 efficiency (AFUE) of at least 78 percent in

16 the standard Department of Energy test

17 procedure, and

18 ‘‘(viii) a geothermal heat pump which

19 has an energy efficiency ratio (EER) of at

20 least 21.

21 ‘‘(7) LABOR COSTS.—Expenditures for labor

22 costs properly allocable to the onsite preparation, as23 sembly, or original installation of the property de24 scribed in paragraph (1), (2), (4), (5), or (6) and for

25 piping or wiring to interconnect such property to the
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1 dwelling unit shall be taken into account for purposes

2 of this section.

3 ‘‘(8) SWIMMING POOLS, ETC., USED AS STORAGE

4 MEDIUM.—Expenditures which are properly allocable

5 to a swimming pool, hot tub, or any other energy

6 storage medium which has a function other than the

7 function of such storage shall not be taken into ac8 count for purposes of this section.

9 ‘‘(e) SPECIAL RULES.—For purposes of this section—

10 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCU11 PANCY.—In the case of any dwelling unit which is

12 jointly occupied and used during any calendar year

13 as a residence by 2 or more individuals the following

14 rules shall apply:

15 ‘‘(A) The amount of the credit allowable,

16 under subsection (a) by reason of expenditures

17 (as the case may be) made during such calendar

18 year by any of such individuals with respect to

19 such dwelling unit shall be determined by treat20 ing all of such individuals as 1 taxpayer whose

21 taxable year is such calendar year.

22 ‘‘(B) There shall be allowable, with respect

23 to such expenditures to each of such individuals,

24 a credit under subsection (a) for the taxable year

25 in which such calendar year ends in an amount
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1 which bears the same ratio to the amount deter2 mined under subparagraph (A) as the amount of

3 such expenditures made by such individual dur4 ing such calendar year bears to the aggregate of

5 such expenditures made by all of such individ6 uals during such calendar year.

7 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

8 HOUSING CORPORATION.—In the case of an indi9 vidual who is a tenant-stockholder (as defined in sec10 tion 216) in a cooperative housing corporation (as de11 fined in such section), such individual shall be treated

12 as having made his tenant-stockholder’s proportionate

13 share (as defined in section 216(b)(3)) of any expend14 itures of such corporation.

15 ‘‘(3) CONDOMINIUMS.—

16 ‘‘(A) IN GENERAL.—In the case of an indi17 vidual who is a member of a condominium man18 agement association with respect to a condo19 minium which the individual owns, such indi20 vidual shall be treated as having made the indi21 vidual’s proportionate share of any expenditures

22 of such association.

23 ‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA24 TION.—For purposes of this paragraph, the term

25 ‘condominium management association’ means
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1 an organization which meets the requirements of

2 paragraph (1) of section 528(c) (other than sub3 paragraph (E) thereof) with respect to a condo4 minium project substantially all of the units of

5 which are used as residences.

6 ‘‘(4) ALLOCATION IN CERTAIN CASES.—Except in

7 the case of qualified wind energy property expendi8 tures, if less than 80 percent of the use of an item is

9 for nonbusiness purposes, only that portion of the ex10 penditures for such item which is properly allocable

11 to use for nonbusiness purposes shall be taken into ac12 count.

13 ‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF

14 EXPENDITURE.—

15 ‘‘(A) IN GENERAL.—Except as provided in

16 subparagraph (B), an expenditure with respect

17 to an item shall be treated as made when the

18 original installation of the item is completed.

19 ‘‘(B) EXPENDITURES PART OF BUILDING

20 CONSTRUCTION.—In the case of an expenditure

21 in connection with the construction or recon22 struction of a structure, such expenditure shall be

23 treated as made when the original use of the con24 structed or reconstructed structure by the tax25 payer begins.
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1 ‘‘(C) AMOUNT.—The amount of any expend2 iture shall be the cost thereof.

3 ‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN4 ERGY FINANCING.—For purposes of determining the

5 amount of expenditures made by any individual with

6 respect to any dwelling unit, there shall not be taken

7 into account expenditures which are made from sub8 sidized energy financing (as defined in section

9 48(a)(5)(C)).

10 ‘‘(f) BASIS ADJUSTMENTS.—For purposes of this sub11 title, if a credit is allowed under this section for any ex12 penditure with respect to any property, the increase in the

13 basis of such property which would (but for this subsection)

14 result from such expenditure shall be reduced by the amount

15 of the credit so allowed.

16 ‘‘(g) TERMINATION.—The credit allowed under this

17 section shall not apply to expenditures after December 31,

18 2007.’’.

19 (b) CREDIT ALLOWED AGAINST REGULAR TAX AND

20 ALTERNATIVE MINIMUM TAX.—

21 (1) IN GENERAL.—Section 25C(b), as added by

22 subsection (a), is amended by adding at the end the

23 following new paragraph:
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1 ‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—

2 The credit allowed under subsection (a) for the tax3 able year shall not exceed the excess of—

4 ‘‘(A) the sum of the regular tax liability (as

5 defined in section 26(b)) plus the tax imposed by

6 section 55, over

7 ‘‘(B) the sum of the credits allowable under

8 this subpart (other than this section and section

9 25D) and section 27 for the taxable year.’’.

10 (2) CONFORMING AMENDMENTS.—

11 (A) Section 25C(c), as added by subsection

12 (a), is amended by striking ‘‘section 26(a) for

13 such taxable year reduced by the sum of the cred14 its allowable under this subpart (other than this

15 section and section 25D)’’ and inserting ‘‘sub16 section (b)(3)’’.

17 (B) Section 23(b)(4)(B) is amended by in18 serting ‘‘and section 25C’’ after ‘‘this section’’.

19 (C) Section 24(b)(3)(B) is amended by

20 striking ‘‘23 and 25B’’ and inserting ‘‘23, 25B,

21 and 25C’’.

22 (D) Section 25(e)(1)(C) is amended by in23 serting ‘‘25C,’’ after ‘‘25B,’’.
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1 (E) Section 25B(g)(2) is amended by strik2 ing ‘‘section 23’’ and inserting ‘‘sections 23 and

3 25C’’.

4 (F) Section 26(a)(1) is amended by striking

5 ‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.

6 (G) Section 904(i), as redesignated and

7 amended by this Act, is amended by striking

8 ‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.

9 (H) Section 1400C(d) is amended by strik10 ing ‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.

11 (c) ADDITIONAL CONFORMING AMENDMENTS.—

12 (1) Section 1016(a), as amended by this Act, is

13 amended by striking ‘‘and’’ at the end of paragraph

14 (33), by striking the period at the end of paragraph

15 (34) and inserting ‘‘, and’’, and by adding at the end

16 the following new paragraph:

17 ‘‘(35) to the extent provided in section 25C(f), in

18 the case of amounts with respect to which a credit has

19 been allowed under section 25C.’’.

20 (2) The table of sections for subpart A of part IV

21 of subchapter A of chapter 1 is amended by inserting

22 after the item relating to section 25B the following

23 new item:

‘‘Sec. 25C. Residential energy efficient property.’’.

24 (d) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—Except as provided by para2 graph (2), the amendments made by this section shall

3 apply to expenditures after December 31, 2004, in

4 taxable years ending after such date.

5 (2) SUBSECTION (b).—The amendments made by

6 subsection (b) shall apply to taxable years beginning

7 after December 31, 2004.

8 SEC. 824. CREDIT FOR BUSINESS INSTALLATION OF QUALI9 FIED FUEL CELLS AND STATIONARY MICRO10 TURBINE POWER PLANTS.

11 (a) IN GENERAL.—Section 48(a)(3)(A) (defining en12 ergy property) is amended by striking ‘‘or’’ at the end of

13 clause (i), by adding ‘‘or’’ at the end of clause (ii), and

14 by inserting after clause (ii) the following new clause:

15 ‘‘(iii) qualified fuel cell property or

16 qualified microturbine property,’’.

17 (b) QUALIFIED FUEL CELL PROPERTY; QUALIFIED

18 MICROTURBINE PROPERTY.—Section 48(a) (relating to en19 ergy credit) is amended by redesignating paragraphs (4)

20 and (5) as paragraphs (5) and (6), respectively, and by

21 inserting after paragraph (3) the following new paragraph:

22 ‘‘(4) QUALIFIED FUEL CELL PROPERTY; QUALI23 FIED MICROTURBINE PROPERTY.—For purposes of

24 this subsection—

25 ‘‘(A) QUALIFIED FUEL CELL PROPERTY.—
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1 ‘‘(i) IN GENERAL.—The term ‘qualified

2 fuel cell property’ means a fuel cell power

3 plant which—

4 ‘‘(I) generates at least 0.5 kilowatt

5 of electricity using an electrochemical

6 process, and

7 ‘‘(II) has an electricity-only gen8 eration efficiency greater than 30 per9 cent.

10 ‘‘(ii) LIMITATION.—In the case of

11 qualified fuel cell property placed in service

12 during the taxable year, the credit otherwise

13 determined under paragraph (1) for such

14 year with respect to such property shall not

15 exceed an amount equal to $500 for each 0.5

16 kilowatt of capacity of such property.

17 ‘‘(iii) FUEL CELL POWER PLANT.—The

18 term ‘fuel cell power plant’ means an inte19 grated system comprised of a fuel cell stack

20 assembly and associated balance of plant

21 components which converts a fuel into elec22 tricity using electrochemical means.

23 ‘‘(iv) TERMINATION.—The term ‘quali24 fied fuel cell property’ shall not include any
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1 property placed in service after December

2 31, 2007.

3 ‘‘(B) QUALIFIED MICROTURBINE PROP4 ERTY.—

5 ‘‘(i) IN GENERAL.—The term ‘qualified

6 microturbine property’ means a stationary

7 microturbine power plant which—

8 ‘‘(I) has a capacity of less than

9 2,000 kilowatts, and

10 ‘‘(II) has an electricity-only gen11 eration efficiency of not less than 26

12 percent at International Standard Or13 ganization conditions.

14 ‘‘(ii) LIMITATION.—In the case of

15 qualified microturbine property placed in

16 service during the taxable year, the credit

17 otherwise determined under paragraph (1)

18 for such year with respect to such property

19 shall not exceed an amount equal $200 for

20 each kilowatt of capacity of such property.

21 ‘‘(iii) STATIONARY MICROTURBINE

22 POWER PLANT.—The term ‘stationary

23 microturbine power plant’ means an inte24 grated system comprised of a gas turbine

25 engine, a combustor, a recuperator or regen-
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1 erator, a generator or alternator, and asso2 ciated balance of plant components which

3 converts a fuel into electricity and thermal

4 energy. Such term also includes all sec5 ondary components located between the ex6 isting infrastructure for fuel delivery and

7 the existing infrastructure for power dis8 tribution, including equipment and controls

9 for meeting relevant power standards, such

10 as voltage, frequency, and power factors.

11 ‘‘(iv) TERMINATION.—The term ‘quali12 fied microturbine property’ shall not in13 clude any property placed in service after

14 December 31, 2006.’’.

15 (c) ENERGY PERCENTAGE.—Section 48(a)(2)(A) (re16 lating to energy percentage) is amended to read as follows:

17 ‘‘(A) IN GENERAL.—The energy percentage

18 is—

19 ‘‘(i) in the case of qualified fuel cell

20 property, 30 percent, and

21 ‘‘(ii) in the case of any other energy

22 property, 10 percent.’’.

23 (d) CONFORMING AMENDMENTS.—
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1 (A) Section 29(b)(3)(A)(i)(III) is amended

2 by striking ‘‘section 48(a)(4)(C)’’ and inserting

3 ‘‘section 48(a)(5)(C)’’.

4 (B) Section 48(a)(1) is amended by insert5 ing ‘‘except as provided in subparagraph (A)(ii)

6 or (B)(ii) of paragraph (4),’’ before ‘‘the energy’’.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to property placed in service after De9 cember 31, 2004, in taxable years ending after such date,

10 under rules similar to the rules of section 48(m) of the In11 ternal Revenue Code of 1986 (as in effect on the day before

12 the date of the enactment of the Revenue Reconciliation Act

13 of 1990).

14 SEC. 825. ENERGY EFFICIENT COMMERCIAL BUILDINGS DE15 DUCTION.

16 (a) IN GENERAL.—Part VI of subchapter B of chapter

17 1 (relating to itemized deductions for individuals and cor18 porations) is amended by inserting after section 179A the

19 following new section:

20 ‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS

21 DEDUCTION.

22 ‘‘(a) IN GENERAL.—There shall be allowed as a deduc23 tion for the taxable year in which a building is placed in

24 service by a taxpayer, an amount equal to the energy effi25 cient commercial building property expenditures made by
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1 such taxpayer with respect to the construction or recon2 struction of such building for the taxable year or any pre3 ceding taxable year.

4 ‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The amount

5 of energy efficient commercial building property expendi6 tures taken into account under subsection (a) shall not ex7 ceed an amount equal to the product of—

8 ‘‘(1) $2.25, and

9 ‘‘(2) the square footage of the building with re10 spect to which the expenditures are made.

11 ‘‘(c) ENERGY EFFICIENT COMMERCIAL BUILDING

12 PROPERTY EXPENDITURES.—For purposes of this section—

13 ‘‘(1) IN GENERAL.—The term ‘energy efficient

14 commercial building property expenditures’ means

15 amounts paid or incurred for energy efficient prop16 erty installed on or in connection with the construc17 tion or reconstruction of a building—

18 ‘‘(A) for which depreciation is allowable

19 under section 167,

20 ‘‘(B) which is located in the United States,

21 and

22 ‘‘(C) which is the type of structure to which

23 the Standard 90.1–2001 of the American Society

24 of Heating, Refrigerating, and Air Conditioning
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1 Engineers and the Illuminating Engineering So2 ciety of North America is applicable.

3 Such term includes expenditures for labor costs prop4 erly allocable to the onsite preparation, assembly, or

5 original installation of the property.

6 ‘‘(2) ENERGY EFFICIENT PROPERTY.—For pur7 poses of paragraph (1)—

8 ‘‘(A) IN GENERAL.—The term ‘energy effi9 cient property’ means any property which re10 duces total annual energy and power costs with

11 respect to the lighting, heating, cooling, ventila12 tion, and hot water supply systems of the build13 ing by 50 percent or more in comparison to a

14 building which meets the minimum requirements

15 of Standard 90.1–2001 of the American Society

16 of Heating, Refrigerating, and Air Conditioning

17 Engineers and the Illuminating Engineering So18 ciety of North America, using methods of cal19 culation described in subparagraph (B) and cer20 tified by qualified individuals as provided under

21 paragraph (5).

22 ‘‘(B) METHODS OF CALCULATION.—The

23 Secretary, in consultation with the Secretary of

24 Energy, shall promulgate regulations which de-
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1 scribe in detail methods for calculating and

2 verifying energy and power costs.

3 ‘‘(C) COMPUTER SOFTWARE.—

4 ‘‘(i) IN GENERAL.—Any calculation de5 scribed in subparagraph (B) shall be pre6 pared by qualified computer software.

7 ‘‘(ii) QUALIFIED COMPUTER SOFT8 WARE.—For purposes of this subparagraph,

9 the term ‘qualified computer software’

10 means software—

11 ‘‘(I) for which the software de12 signer has certified that the software

13 meets all procedures and detailed meth14 ods for calculating energy and power

15 costs as required by the Secretary,

16 ‘‘(II) which provides such forms

17 as required to be filed by the Secretary

18 in connection with energy efficiency of

19 property and the deduction allowed

20 under this section, and

21 ‘‘(III) which provides a notice

22 form which summarizes the energy effi23 ciency features of the building and its

24 projected annual energy costs.
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1 ‘‘(3) ALLOCATION OF DEDUCTION FOR PUBLIC

2 PROPERTY.—In the case of energy efficient commer3 cial building property expenditures made by a public

4 entity with respect to the construction or reconstruc5 tion of a public building, the Secretary shall promul6 gate regulations under which the value of the deduc7 tion with respect to such expenditures which would be

8 allowable to the public entity under this section (de9 termined without regard to the tax-exempt status of

10 such entity) may be allocated to the person primarily

11 responsible for designing the energy efficient property.

12 Such person shall be treated as the taxpayer for pur13 poses of this section.

14 ‘‘(4) NOTICE TO OWNER.—Any qualified indi15 vidual providing a certification under paragraph (5)

16 shall provide an explanation to the owner of the

17 building regarding the energy efficiency features of

18 the building and its projected annual energy costs as

19 provided in the notice under paragraph

20 (2)(C)(ii)(III).

21 ‘‘(5) CERTIFICATION.—

22 ‘‘(A) IN GENERAL.—The Secretary shall

23 prescribe procedures for the inspection and test24 ing for compliance of buildings by qualified in-
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1 dividuals described in subparagraph (B). Such

2 procedures shall be—

3 ‘‘(i) comparable, given the difference

4 between commercial and residential build5 ings, to the requirements in the Mortgage

6 Industry National Home Energy Rating

7 Standards, and

8 ‘‘(ii) fuel neutral such that the same

9 energy efficiency measures allow a building

10 to be eligible for the credit under this sec11 tion regardless of whether such building uses

12 a gas or oil furnace or boiler or an electric

13 heat pump.

14 ‘‘(B) QUALIFIED INDIVIDUALS.—Individ15 uals qualified to determine compliance shall be

16 only those individuals who are recognized by an

17 organization certified by the Secretary for such

18 purposes. The Secretary may qualify a home en19 ergy ratings organization, a local building regu20 latory authority, a State or local energy office,

21 a utility, or any other organization which meets

22 the requirements prescribed under this para23 graph.

24 ‘‘(C) PROFICIENCY OF QUALIFIED INDIVID25 UALS.—The Secretary shall consult with non-
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1 profit organizations and State agencies with ex2 pertise in energy efficiency calculations and in3 spections to develop proficiency tests and train4 ing programs to qualify individuals to determine

5 compliance.

6 ‘‘(d) BASIS REDUCTION.—For purposes of this subtitle,

7 if a deduction is allowed under this section with respect

8 to any energy efficient property, the basis of such property

9 shall be reduced by the amount of the deduction so allowed.

10 ‘‘(e) INTERIM RULES FOR LIGHTING SYSTEMS.—Until

11 such time as the Secretary issues final regulations under

12 subsection (c)(2)(B) with respect to property which is part

13 of a lighting system—

14 ‘‘(1) IN GENERAL.—The lighting system target

15 under subsection (d)(1)(A)(ii) shall be a reduction in

16 lighting power density of 25 percent (50 percent in

17 the case of a warehouse) of the minimum require18 ments in Table 9.3.1.1 or Table 9.3.1.2 (not including

19 additional interior lighting power allowances) of

20 Standard 90.1–2001.

21 ‘‘(2) REDUCTION IN CREDIT IF REDUCTION LESS

22 THAN 40 PERCENT.—

23 ‘‘(A) IN GENERAL.—If, with respect to the

24 lighting system of any building other than a

25 warehouse, the reduction of lighting power den-
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1 sity of the lighting system is not at least 40 per2 cent, only the applicable percentage of the

3 amount of credit otherwise allowable under this

4 section with respect to such property shall be al5 lowed.

6 ‘‘(B) APPLICABLE PERCENTAGE.—For pur7 poses of subparagraph (A), the applicable per8 centage is the number of percentage points (not

9 greater than 100) equal to the sum of—

10 ‘‘(i) 50, and

11 ‘‘(ii) the amount which bears the same

12 ratio to 50 as the excess of the reduction of

13 lighting power density of the lighting sys14 tem over 25 percentage points bears to 15.

15 ‘‘(C) EXCEPTIONS.—This subsection shall

16 not apply to any system—

17 ‘‘(i) the controls and circuiting of

18 which do not comply fully with the manda19 tory and prescriptive requirements of

20 Standard 90.1–2001 and which do not in21 clude provision for bilevel switching in all

22 occupancies except hotel and motel guest

23 rooms, store rooms, restrooms, and public

24 lobbies, or
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1 ‘‘(ii) which does not meet the min2 imum requirements for calculated lighting

3 levels as set forth in the Illuminating Engi4 neering Society of North America Lighting

5 Handbook, Performance and Application,

6 Ninth Edition, 2000.

7 ‘‘(f) REGULATIONS.—The Secretary shall promulgate

8 such regulations as necessary to take into account new tech9 nologies regarding energy efficiency and renewable energy

10 for purposes of determining energy efficiency and savings

11 under this section.

12 ‘‘(g) TERMINATION.—This section shall not apply with

13 respect to any energy efficient commercial building prop14 erty expenditures in connection with a building the con15 struction of which is not completed on or before December

16 31, 2009.’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 1016(a), as amended by this Act, is

19 amended by striking ‘‘and’’ at the end of paragraph

20 (34), by striking the period at the end of paragraph

21 (35) and inserting ‘‘, and’’, and by adding at the end

22 the following new paragraph:

23 ‘‘(36) to the extent provided in section

24 179B(d).’’.
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1 (2) Section 1245(a) is amended by inserting

2 ‘‘179B,’’ after ‘‘179A,’’ both places it appears in

3 paragraphs (2)(C) and (3)(C).

4 (3) Section 1250(b)(3) is amended by inserting

5 before the period at the end of the first sentence ‘‘or

6 by section 179B’’.

7 (4) Section 263(a)(1), as amended by this Act, is

8 amended by striking ‘‘or’’ at the end of subparagraph

9 (H), by striking the period at the end of subpara10 graph (I) and inserting ‘‘, or’’, and by inserting after

11 subparagraph (I) the following new subparagraph:

12 ‘‘(J) expenditures for which a deduction is

13 allowed under section 179B.’’.

14 (5) Section 312(k)(3)(B) is amended by striking

15 ‘‘or 179A’’ each place it appears in the heading and

16 text and inserting ‘‘, 179A, or 179B’’.

17 (c) CLERICAL AMENDMENT.—The table of sections for

18 part VI of subchapter B of chapter 1 is amended by insert19 ing after section 179A the following new item:

‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’.

20 (d) EFFECTIVE DATE.—The amendments made by this

21 section shall apply to taxable years beginning after Decem22 ber 31, 2004.
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1 SEC. 826. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR

2 DEPRECIATION OF QUALIFIED ENERGY MAN3 AGEMENT DEVICES.

4 (a) IN GENERAL.—Section 168(e)(3)(A) (defining 3-

5 year property) is amended by striking ‘‘and’’ at the end

6 of clause (ii), by striking the period at the end of clause

7 (iii) and inserting ‘‘, and’’, and by adding at the end the

8 following new clause:

9 ‘‘(iv) any qualified energy manage10 ment device.’’.

11 (b) DEFINITION OF QUALIFIED ENERGY MANAGEMENT

12 DEVICE.—Section 168(i) (relating to definitions and spe13 cial rules), as amended by this Act, is amended by inserting

14 at the end the following new paragraph:

15 ‘‘(17) QUALIFIED ENERGY MANAGEMENT DE16 VICE.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified en18 ergy management device’ means any energy

19 management device which is placed in service be20 fore January 1, 2008, by a taxpayer who is a

21 supplier of electric energy or a provider of elec22 tric energy services.

23 ‘‘(B) ENERGY MANAGEMENT DEVICE.—For

24 purposes of subparagraph (A), the term ‘energy

25 management device’ means any meter or meter26 ing device which is used by the taxpayer—
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1 ‘‘(i) to measure and record electricity

2 usage data on a time-differentiated basis in

3 at least 4 separate time segments per day,

4 and

5 ‘‘(ii) to provide such data on at least

6 a monthly basis to both consumers and the

7 taxpayer.’’.

8 (c) ALTERNATIVE SYSTEM.—The table contained in

9 section 168(g)(3)(B) is amended by inserting after the item

10 relating to subparagraph (A)(iii) the following:

‘‘(A)(iv) .............................................................................................................. 20’’.

11 (d) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to property placed in service after De13 cember 31, 2004, in taxable years ending after such date.

14 SEC. 827. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR

15 DEPRECIATION OF QUALIFIED WATER SUB16 METERING DEVICES.

17 (a) IN GENERAL.—Section 168(e)(3)(A) (defining 3-

18 year property), as amended by this Act, is amended by

19 striking ‘‘and’’ at the end of clause (iii), by striking the

20 period at the end of clause (iv) and inserting ‘‘, and’’, and

21 by adding at the end the following new clause:

22 ‘‘(v) any qualified water submetering

23 device.’’.

24 (b) DEFINITION OF QUALIFIED WATER SUBMETERING

25 DEVICE.—Section 168(i) (relating to definitions and spe-
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1 cial rules), as amended by this Act, is amended by inserting

2 at the end the following new paragraph:

3 ‘‘(16) QUALIFIED WATER SUBMETERING DE4 VICE.—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 water submetering device’ means any water sub7 metering device which is placed in service before

8 January 1, 2008, by a taxpayer who is an eligi9 ble resupplier with respect to the unit for which

10 the device is placed in service.

11 ‘‘(B) WATER SUBMETERING DEVICE.—For

12 purposes of this paragraph, the term ‘water sub13 metering device’ means any submetering device

14 which is used by the taxpayer—

15 ‘‘(i) to measure and record water usage

16 data, and

17 ‘‘(ii) to provide such data on at least

18 a monthly basis to both consumers and the

19 taxpayer.

20 ‘‘(C) ELIGIBLE RESUPPLIER.—For purposes

21 of subparagraph (A), the term ‘eligible resup22 plier’ means any taxpayer who purchases and

23 installs qualified water submetering devices in

24 every unit in any multi-unit property.’’.
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1 (c) ALTERNATIVE SYSTEM.—The table contained in

2 section 168(g)(3)(B), as amended by this Act, is amended

3 by inserting after the item relating to subparagraph (A)(iv)

4 the following:

‘‘(A)(v) ............................................................................................................... 20’’.

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

6 section shall apply to property placed in service after De7 cember 31, 2004, in taxable years ending after such date.

8 SEC. 828. ENERGY CREDIT FOR COMBINED HEAT AND

9 POWER SYSTEM PROPERTY.

10 (a) IN GENERAL.—Section 48(a)(3)(A) (defining en11 ergy property), as amended by this Act, is amended by

12 striking ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at

13 the end of clause (iii), and by inserting after clause (iii)

14 the following new clause:

15 ‘‘(iv) combined heat and power system

16 property,’’.

17 (b) COMBINED HEAT AND POWER SYSTEM PROP18 ERTY.—Section 48 (relating to energy credit; reforestation

19 credit), as amended by this Act, is amended by adding at

20 the end the following new subsection:

21 ‘‘(d) COMBINED HEAT AND POWER SYSTEM PROP22 ERTY.—For purposes of subsection (a)(3)(A)(iv)—

23 ‘‘(1) COMBINED HEAT AND POWER SYSTEM PROP24 ERTY.—The term ‘combined heat and power system

25 property’ means property comprising a system—
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1 ‘‘(A) which uses the same energy source for

2 the simultaneous or sequential generation of elec3 trical power, mechanical shaft power, or both, in

4 combination with the generation of steam or

5 other forms of useful thermal energy (including

6 heating and cooling applications),

7 ‘‘(B) which has an electrical capacity of not

8 more than 15 megawatts or a mechanical energy

9 capacity of not more than 2,000 horsepower or

10 an equivalent combination of electrical and me11 chanical energy capacities,

12 ‘‘(C) which produces—

13 ‘‘(i) at least 20 percent of its total use14 ful energy in the form of thermal energy

15 which is not used to produce electrical or

16 mechanical power (or combination thereof),

17 and

18 ‘‘(ii) at least 20 percent of its total

19 useful energy in the form of electrical or me20 chanical power (or combination thereof),

21 ‘‘(D) the energy efficiency percentage of

22 which exceeds 60 percent, and

23 ‘‘(E) which is placed in service before Janu24 ary 1, 2007.

25 ‘‘(2) SPECIAL RULES.—
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1 ‘‘(A) ENERGY EFFICIENCY PERCENTAGE.—

2 For purposes of this subsection, the energy effi3 ciency percentage of a system is the fraction—

4 ‘‘(i) the numerator of which is the total

5 useful electrical, thermal, and mechanical

6 power produced by the system at normal

7 operating rates, and expected to be con8 sumed in its normal application, and

9 ‘‘(ii) the denominator of which is the

10 lower heating value of the fuel sources for

11 the system.

12 ‘‘(B) DETERMINATIONS MADE ON BTU

13 BASIS.—The energy efficiency percentage and the

14 percentages under paragraph (1)(C) shall be de15 termined on a Btu basis.

16 ‘‘(C) INPUT AND OUTPUT PROPERTY NOT IN17 CLUDED.—The term ‘combined heat and power

18 system property’ does not include property used

19 to transport the energy source to the facility or

20 to distribute energy produced by the facility.

21 ‘‘(D) PUBLIC UTILITY PROPERTY.—

22 ‘‘(i) ACCOUNTING RULE FOR PUBLIC

23 UTILITY PROPERTY.—If the combined heat

24 and power system property is public utility

25 property (as defined in section 168(i)(10)),
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1 the taxpayer may only claim the credit

2 under subsection (a) if, with respect to such

3 property, the taxpayer uses a normalization

4 method of accounting.

5 ‘‘(ii) CERTAIN EXCEPTION NOT TO

6 APPLY.—The matter in subsection (a)(3)

7 which follows subparagraph (D) thereof

8 shall not apply to combined heat and power

9 system property.

10 ‘‘(3) SYSTEMS USING BAGASSE.—If a system is

11 designed to use bagasse for at least 90 percent of the

12 energy source—

13 ‘‘(A) paragraph (1)(D) shall not apply, but

14 ‘‘(B) the amount of credit determined under

15 subsection (a) with respect to such system shall

16 not exceed the amount which bears the same

17 ratio to such amount of credit (determined with18 out regard to this paragraph) as the energy effi19 ciency percentage of such system bears to 60 per20 cent.’’.

21 (c) EFFECTIVE DATE.—The amendments made by this

22 subsection shall apply to periods after December 31, 2004,

23 in taxable years ending after such date, under rules similar

24 to the rules of section 48(m) of the Internal Revenue Code
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1 of 1986 (as in effect on the day before the date of the enact2 ment of the Revenue Reconciliation Act of 1990).

3 SEC. 829. CREDIT FOR ENERGY EFFICIENCY IMPROVE4 MENTS TO EXISTING HOMES.

5 (a) IN GENERAL.—Subpart A of part IV of subchapter

6 A of chapter 1 (relating to nonrefundable personal credits),

7 as amended by this Act, is amended by inserting after sec8 tion 25C the following new section:

9 ‘‘SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST10 ING HOMES.

11 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi12 vidual, there shall be allowed as a credit against the tax

13 imposed by this chapter for the taxable year an amount

14 equal to 10 percent of the amount paid or incurred by the

15 taxpayer for qualified energy efficiency improvements in16 stalled during such taxable year.

17 ‘‘(b) LIMITATION.—The credit allowed by this section

18 with respect to a dwelling for any taxable year shall not

19 exceed $300, reduced (but not below zero) by the sum of

20 the credits allowed under subsection (a) to the taxpayer

21 with respect to the dwelling for all preceding taxable years.

22 ‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the

23 credit allowable under subsection (a) exceeds the limitation

24 imposed by section 26(a) for such taxable year reduced by

25 the sum of the credits allowable under this subpart (other
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1 than this section) for such taxable year, such excess shall

2 be carried to the succeeding taxable year and added to the

3 credit allowable under subsection (a) for such succeeding

4 taxable year.

5 ‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE6 MENTS.—For purposes of this section, the term ‘qualified

7 energy efficiency improvements’ means any energy efficient

8 building envelope component which is certified to meet or

9 exceed the latest prescriptive criteria for such component

10 in the International Energy Conservation Code approved

11 by the Department of Energy before the installation of such

12 component, or any combination of energy efficiency meas13 ures which are certified as achieving at least a 30 percent

14 reduction in heating and cooling energy usage for the dwell15 ing (as measured in terms of energy cost to the taxpayer),

16 if—

17 ‘‘(1) such component or combination of measures

18 is installed in or on a dwelling which—

19 ‘‘(A) is located in the United States,

20 ‘‘(B) has not been treated as a qualifying

21 new home for purposes of any credit allowed

22 under section 45K, and

23 ‘‘(C) is owned and used by the taxpayer as

24 the taxpayer’s principal residence (within the

25 meaning of section 121),
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1 ‘‘(2) the original use of such component or com2 bination of measures commences with the taxpayer,

3 and

4 ‘‘(3) such component or combination of measures

5 reasonably can be expected to remain in use for at

6 least 5 years.

7 ‘‘(e) CERTIFICATION.—

8 ‘‘(1) METHODS OF CERTIFICATION.—

9 ‘‘(A) COMPONENT-BASED METHOD.—The

10 certification described in subsection (d) for any

11 component described in such subsection shall be

12 determined on the basis of applicable energy effi13 ciency ratings (including product labeling re14 quirements) for affected building envelope compo15 nents.

16 ‘‘(B) PERFORMANCE-BASED METHOD.—

17 ‘‘(i) IN GENERAL.—The certification

18 described in subsection (d) for any combina19 tion of measures described in such sub20 section shall be—

21 ‘‘(I) determined by comparing the

22 projected heating and cooling energy

23 usage for the dwelling to such usage for

24 such dwelling in its original condition,

25 and
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1 ‘‘(II) accompanied by a written

2 analysis documenting the proper ap3 plication of a permissible energy per4 formance calculation method to the

5 specific circumstances of such dwelling.

6 ‘‘(ii) COMPUTER SOFTWARE.—Com7 puter software shall be used in support of a

8 performance-based method certification

9 under clause (i). Such software shall meet

10 procedures and methods for calculating en11 ergy and cost savings in regulations pro12 mulgated by the Secretary of Energy.

13 ‘‘(2) PROVIDER.—A certification described in

14 subsection (d) shall be provided by—

15 ‘‘(A) in the case of the method described in

16 paragraph (1)(A), a third party, such as a local

17 building regulatory authority, a utility, a manu18 factured home primary inspection agency, or a

19 home energy rating organization, or

20 ‘‘(B) in the case of the method described in

21 paragraph (1)(B), an individual recognized by

22 an organization designated by the Secretary for

23 such purposes.

24 ‘‘(3) FORM.—A certification described in sub25 section (d) shall be made in writing on forms which
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1 specify in readily inspectable fashion the energy effi2 cient components and other measures and their re3 spective efficiency ratings, and which include a per4 manent label affixed to the electrical distribution

5 panel of the dwelling.

6 ‘‘(4) REGULATIONS.—

7 ‘‘(A) IN GENERAL.—In prescribing regula8 tions under this subsection for certification meth9 ods described in paragraph (1)(B), the Secretary,

10 after examining the requirements for energy con11 sultants and home energy ratings providers spec12 ified by the Mortgage Industry National Home

13 Energy Rating Standards, shall prescribe proce14 dures for calculating annual energy usage and

15 cost reductions for heating and cooling and for

16 the reporting of the results. Such regulations

17 shall—

18 ‘‘(i) provide that any calculation pro19 cedures be fuel neutral such that the same

20 energy efficiency measures allow a dwelling

21 to be eligible for the credit under this sec22 tion regardless of whether such dwelling uses

23 a gas or oil furnace or boiler or an electric

24 heat pump, and
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1 ‘‘(ii) require that any computer soft2 ware allow for the printing of the Federal

3 tax forms necessary for the credit under this

4 section and for the printing of forms for

5 disclosure to the owner of the dwelling.

6 ‘‘(B) PROVIDERS.—For purposes of para7 graph (2)(B), the Secretary shall establish re8 quirements for the designation of individuals

9 based on the requirements for energy consultants

10 and home energy raters specified by the Mort11 gage Industry National Home Energy Rating

12 Standards.

13 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section—

15 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCU16 PANCY.—In the case of any dwelling unit which is

17 jointly occupied and used during any calendar year

18 as a residence by 2 or more individuals the following

19 rules shall apply:

20 ‘‘(A) The amount of the credit allowable

21 under subsection (a) by reason of expenditures

22 for the qualified energy efficiency improvements

23 made during such calendar year by any of such

24 individuals with respect to such dwelling unit

25 shall be determined by treating all of such indi-
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1 viduals as 1 taxpayer whose taxable year is such

2 calendar year.

3 ‘‘(B) There shall be allowable, with respect

4 to such expenditures to each of such individuals,

5 a credit under subsection (a) for the taxable year

6 in which such calendar year ends in an amount

7 which bears the same ratio to the amount deter8 mined under subparagraph (A) as the amount of

9 such expenditures made by such individual dur10 ing such calendar year bears to the aggregate of

11 such expenditures made by all of such individ12 uals during such calendar year.

13 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

14 HOUSING CORPORATION.—In the case of an indi15 vidual who is a tenant-stockholder (as defined in sec16 tion 216) in a cooperative housing corporation (as de17 fined in such section), such individual shall be treated

18 as having paid his tenant-stockholder’s proportionate

19 share (as defined in section 216(b)(3)) of the cost of

20 qualified energy efficiency improvements made by

21 such corporation.

22 ‘‘(3) CONDOMINIUMS.—

23 ‘‘(A) IN GENERAL.—In the case of an indi24 vidual who is a member of a condominium man25 agement association with respect to a condo-
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1 minium which the individual owns, such indi2 vidual shall be treated as having paid the indi3 vidual’s proportionate share of the cost of quali4 fied energy efficiency improvements made by

5 such association.

6 ‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA7 TION.—For purposes of this paragraph, the term

8 ‘condominium management association’ means

9 an organization which meets the requirements of

10 paragraph (1) of section 528(c) (other than sub11 paragraph (E) thereof) with respect to a condo12 minium project substantially all of the units of

13 which are used as residences.

14 ‘‘(4) BUILDING ENVELOPE COMPONENT.—The

15 term ‘building envelope component’ means—

16 ‘‘(A) any insulation material or system

17 which is specifically and primarily designed to

18 reduce the heat loss or gain or a dwelling when

19 installed in or on such dwelling,

20 ‘‘(B) exterior windows (including skylights),

21 and

22 ‘‘(C) exterior doors.

23 ‘‘(5) MANUFACTURED HOMES INCLUDED.—For

24 purposes of this section, the term ‘dwelling’ includes

25 a manufactured home which conforms to Federal
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1 Manufactured Home Construction and Safety Stand2 ards (24 C.F.R. 3280).

3 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub4 title, if a credit is allowed under this section for any ex5 penditure with respect to any property, the increase in the

6 basis of such property which would (but for this subsection)

7 result from such expenditure shall be reduced by the amount

8 of the credit so allowed.

9 ‘‘(h) TERMINATION.—Subsection (a) shall not apply to

10 qualified energy efficiency improvements installed after De11 cember 31, 2006.’’.

12 (b) CREDIT ALLOWED AGAINST REGULAR TAX AND

13 ALTERNATIVE MINIMUM TAX.—

14 (1) IN GENERAL.—Section 25D(b), as added by

15 subsection (a), is amended—

16 (A) by striking ‘‘The credit’’ and inserting

17 the following:

18 ‘‘(1) DOLLAR AMOUNT.—The credit’’, and

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

20 paragraph:

21 ‘‘(2) LIMITATION BASED ON AMOUNT OF TAX.—

22 The credit allowed under subsection (a) for the tax23 able year shall not exceed the excess of—
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1 ‘‘(A) the sum of the regular tax liability (as

2 defined in section 26(b)) plus the tax imposed by

3 section 55, over

4 ‘‘(B) the sum of the credits allowable under

5 this subpart (other than this section) and section

6 27 for the taxable year.’’.

7 (2) CONFORMING AMENDMENTS.—

8 (A) Section 25D(c), as added by subsection

9 (a), is amended by striking ‘‘section 26(a) for

10 such taxable year reduced by the sum of the cred11 its allowable under this subpart (other than this

12 section)’’ and inserting ‘‘subsection (b)(2)’’.

13 (B) Section 23(b)(4)(B), as amended by this

14 Act, is amended by striking ‘‘section 25C’’ and

15 inserting ‘‘sections 25C and 25D’’.

16 (C) Section 24(b)(3)(B), as amended by this

17 Act, is amended by striking ‘‘and 25C’’ and in18 serting ‘‘25C, and 25D’’.

19 (D) Section 25(e)(1)(C), as amended by this

20 Act, is amended by inserting ‘‘25D,’’ after

21 ‘‘25C,’’.

22 (E) Section 25B(g)(2), as amended by this

23 Act, is amended by striking ‘‘23 and 25C’’ and

24 inserting ‘‘23, 25C, and 25D’’.
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1 (F) Section 26(a)(1), as amended by this

2 Act, is amended by striking ‘‘and 25C’’ and in3 serting ‘‘25C, and 25D’’.

4 (G) Section 904(i), as redesignated and

5 amended by this Act, is amended by striking

6 ‘‘and 25C’’ and inserting ‘‘25C, and 25D’’.

7 (H) Section 1400C(d), as amended by this

8 Act, is amended by striking ‘‘and 25C’’ and in9 serting ‘‘25C, and 25D’’.

10 (c) ADDITIONAL CONFORMING AMENDMENTS.—

11 (1) Section 1016(a), as amended by this Act, is

12 amended by striking ‘‘and’’ at the end of paragraph

13 (35), by striking the period at the end of paragraph

14 (36) and inserting ‘‘; and’’, and by adding at the end

15 the following new paragraph:

16 ‘‘(37) to the extent provided in section 25D(g), in

17 the case of amounts with respect to which a credit has

18 been allowed under section 25D.’’.

19 (2) The table of sections for subpart A of part IV

20 of subchapter A of chapter 1, as amended by this Act,

21 is amended by inserting after the item relating to sec22 tion 25C the following new item:

‘‘Sec. 25D. Energy efficiency improvements to existing homes.’’.

23 (d) EFFECTIVE DATES.—

24 (1) IN GENERAL.—Except as provided by para25 graph (2), the amendments made by this section shall
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1 apply to property installed after December 31, 2004,

2 in taxable years ending after such date.

3 (2) SUBSECTION (b).—The amendments made by

4 subsection (b) shall apply to taxable years beginning

5 after December 31, 2004.

6 Subtitle D—Clean Coal Incentives

7 PART I—CREDIT FOR EMISSION REDUCTIONS

8 AND EFFICIENCY IMPROVEMENTS IN EXIST9 ING COAL-BASED ELECTRICITY GENERATION

10 FACILITIES

11 SEC. 831. CREDIT FOR PRODUCTION FROM A QUALIFYING

12 CLEAN COAL TECHNOLOGY UNIT.

13 (a) CREDIT FOR PRODUCTION FROM A QUALIFYING

14 CLEAN COAL TECHNOLOGY UNIT.—Subpart D of part IV

15 of subchapter A of chapter 1 (relating to business related

16 credits), as amended by this Act, is amended by adding at

17 the end the following new section:

18 ‘‘SEC. 45M. CREDIT FOR PRODUCTION FROM A QUALIFYING

19 CLEAN COAL TECHNOLOGY UNIT.

20 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

21 qualifying clean coal technology production credit of any

22 taxpayer for any taxable year is equal to—

23 ‘‘(1) the applicable amount of clean coal tech24 nology production credit, multiplied by

25 ‘‘(2) the applicable percentage of the sum of—
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1 ‘‘(A) the kilowatt hours of electricity, plus

2 ‘‘(B) each 3,413 Btu of fuels or chemicals,

3 produced by the taxpayer during such taxable year at

4 a qualifying clean coal technology unit, but only if

5 such production occurs during the 10-year period be6 ginning on the date the unit was returned to service

7 after becoming a qualifying clean coal technology

8 unit.

9 ‘‘(b) APPLICABLE AMOUNT.—

10 ‘‘(1) IN GENERAL.—For purposes of this section,

11 the applicable amount of clean coal technology pro12 duction credit is equal to $0.0034.

13 ‘‘(2) INFLATION ADJUSTMENT.—For calendar

14 years after 2005, the applicable amount of clean coal

15 technology production credit shall be adjusted by mul16 tiplying such amount by the inflation adjustment fac17 tor for the calendar year in which the amount is ap18 plied. If any amount as increased under the pre19 ceding sentence is not a multiple of 0.01 cent, such

20 amount shall be rounded to the nearest multiple of

21 0.01 cent.

22 ‘‘(c) APPLICABLE PERCENTAGE.—For purposes of this

23 section, with respect to any qualifying clean coal technology

24 unit, the applicable percentage is the percentage equal to

25 the ratio which the portion of the national megawatt capac-
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HR 4520 EAS

1 ity limitation allocated to the taxpayer with respect to such

2 unit under subsection (e) bears to the total megawatt capac3 ity of such unit.

4 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur5 poses of this section—

6 ‘‘(1) QUALIFYING CLEAN COAL TECHNOLOGY

7 UNIT.—The term ‘qualifying clean coal technology

8 unit’ means a clean coal technology unit of the tax9 payer which—

10 ‘‘(A) on January 1, 2005—

11 ‘‘(i) was a coal-based electricity gener12 ating steam generator-turbine unit which

13 was not a clean coal technology unit, and

14 ‘‘(ii) had a nameplate capacity rating

15 of not more than 300 megawatts,

16 ‘‘(B) becomes a clean coal technology unit

17 as the result of the retrofitting, repowering, or

18 replacement of the unit with clean coal tech19 nology during the 10-year period beginning on

20 January 1, 2005,

21 ‘‘(C) is not receiving nor is scheduled to re22 ceive funding under the Clean Coal Technology

23 Program, the Power Plant Improvement Initia24 tive, or the Clean Coal Power Initiative admin25 istered by the Secretary of Energy, and
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1 ‘‘(D) receives an allocation of a portion of

2 the national megawatt capacity limitation under

3 subsection (e).

4 ‘‘(2) CLEAN COAL TECHNOLOGY UNIT.—The term

5 ‘clean coal technology unit’ means a unit which—

6 ‘‘(A) uses clean coal technology, including

7 advanced pulverized coal or atmospheric fluid8 ized bed combustion, pressurized fluidized bed

9 combustion, integrated gasification combined

10 cycle, or any other technology, for the production

11 of electricity,

12 ‘‘(B) uses an input of at least 75 percent

13 coal to produce at least 50 percent of its thermal

14 output as electricity,

15 ‘‘(C) has a design net heat rate of at least

16 500 less than that of such unit as described in

17 paragraph (1)(A),

18 ‘‘(D) has a maximum design net heat rate

19 of not more than 9,500, and

20 ‘‘(E) meets the pollution control require21 ments of paragraph (3).

22 ‘‘(3) POLLUTION CONTROL REQUIREMENTS.—

23 ‘‘(A) IN GENERAL.—A unit meets the re24 quirements of this paragraph if—
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1 ‘‘(i) its emissions of sulfur dioxide, ni2 trogen oxide, or particulates meet the lower

3 of the emission levels for each such emission

4 specified in—

5 ‘‘(I) subparagraph (B), or

6 ‘‘(II) the new source performance

7 standards of the Clean Air Act (42

8 U.S.C. 7411) which are in effect for the

9 category of source at the time of the

10 retrofitting, repowering, or replacement

11 of the unit, and

12 ‘‘(ii) its emissions do not exceed any

13 relevant emission level specified by regula14 tion pursuant to the hazardous air pollut15 ant requirements of the Clean Air Act (42

16 U.S.C. 7412) in effect at the time of the ret17 rofitting, repowering, or replacement.

18 ‘‘(B) SPECIFIC LEVELS.—The levels speci19 fied in this subparagraph are—

20 ‘‘(i) in the case of sulfur dioxide emis21 sions, 50 percent of the sulfur dioxide emis22 sion levels specified in the new source per23 formance standards of the Clean Air Act

24 (42 U.S.C. 7411) in effect on the date of the
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1 enactment of this section for the category of

2 source,

3 ‘‘(ii) in the case of nitrogen oxide

4 emissions—

5 ‘‘(I) 0.1 pound per million Btu of

6 heat input if the unit is not a cyclone7 fired boiler, and

8 ‘‘(II) if the unit is a cyclone-fired

9 boiler, 15 percent of the uncontrolled

10 nitrogen oxide emissions from such

11 boilers, and

12 ‘‘(iii) in the case of particulate emis13 sions, 0.02 pound per million Btu of heat

14 input.

15 ‘‘(4) DESIGN NET HEAT RATE.—The design net

16 heat rate with respect to any unit, measured in Btu

17 per kilowatt hour (HHV)—

18 ‘‘(A) shall be based on the design annual

19 heat input to and the design annual net elec20 trical power, fuels, and chemicals output from

21 such unit (determined without regard to such

22 unit’s co-generation of steam),

23 ‘‘(B) shall be adjusted for the heat content

24 of the design coal to be used by the unit if it is
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1 less than 12,000 Btu per pound according to the

2 following formula:

3 Design net heat rate = Unit net heat rate × [l¥

4 {((12,000-design coal heat content, Btu per pound)/

5 1,000) × 0.013}],

6 ‘‘(C) shall be corrected for the site reference

7 conditions of—

8 ‘‘(i) elevation above sea level of 500

9 feet,

10 ‘‘(ii) air pressure of 14.4 pounds per

11 square inch absolute (psia),

12 ‘‘(iii) temperature, dry bulb of 63°F,

13 ‘‘(iv) temperature, wet bulb of 54°F,

14 and

15 ‘‘(v) relative humidity of 55 percent,

16 and

17 ‘‘(D) if carbon capture controls have been

18 installed with respect to any qualifying unit and

19 such controls remove at least 50 percent of the

20 unit’s carbon dioxide emissions, shall be adjusted

21 up to the design heat rate level which would have

22 resulted without the installation of such controls.

23 ‘‘(5) HHV.—The term ‘HHV’ means higher

24 heating value.
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1 ‘‘(6) APPLICATION OF CERTAIN RULES.—The

2 rules of paragraphs (3), (4), and (5) of section 45(e)

3 shall apply.

4 ‘‘(7) INFLATION ADJUSTMENT FACTOR.—

5 ‘‘(A) IN GENERAL.—The term ‘inflation ad6 justment factor’ means, with respect to a cal7 endar year, a fraction the numerator of which is

8 the GDP implicit price deflator for the preceding

9 calendar year and the denominator of which is

10 the GDP implicit price deflator for the calendar

11 year 2003.

12 ‘‘(B) GDP IMPLICIT PRICE DEFLATOR.—

13 The term ‘GDP implicit price deflator’ means,

14 for any calendar year, the most recent revision

15 of the implicit price deflator for the gross domes16 tic product as of June 30 of such calendar year

17 as computed by the Department of Commerce be18 fore October 1 of such calendar year.

19 ‘‘(8) NONCOMPLIANCE WITH POLLUTION LAWS.—

20 For purposes of this section, a unit which is not in

21 compliance with the applicable State and Federal pol22 lution prevention, control, and permit requirements

23 for any period of time shall not be considered to be

24 a qualifying clean coal technology unit during such

25 period.
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1 ‘‘(e) NATIONAL LIMITATION ON THE AGGREGATE CA2 PACITY OF QUALIFYING CLEAN COAL TECHNOLOGY

3 UNITS.—

4 ‘‘(1) IN GENERAL.—For purposes of this section,

5 the national megawatt capacity limitation for quali6 fying clean coal technology units is 4,000 megawatts.

7 ‘‘(2) ALLOCATION OF LIMITATION.—The Sec8 retary shall allocate the national megawatt capacity

9 limitation for qualifying clean coal technology units

10 in such manner as the Secretary may prescribe under

11 the regulations under paragraph (3).

12 ‘‘(3) REGULATIONS.—Not later than 6 months

13 after the date of the enactment of this section, the Sec14 retary shall prescribe such regulations as may be nec15 essary or appropriate—

16 ‘‘(A) to carry out the purposes of this sub17 section,

18 ‘‘(B) to limit the capacity of any qualifying

19 clean coal technology unit to which this section

20 applies so that the megawatt capacity allocated

21 to any unit under this subsection does not exceed

22 300 megawatts and the combined megawatt ca23 pacity allocated to all such units when all such

24 units are placed in service during the 10-year
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1 period described in subsection (d)(1)(B), does not

2 exceed 4,000 megawatts,

3 ‘‘(C) to provide a certification process under

4 which the Secretary, in consultation with the

5 Secretary of Energy, shall approve and allocate

6 the national megawatt capacity limitation—

7 ‘‘(i) to encourage that units with the

8 highest thermal efficiencies, when adjusted

9 for the heat content of the design coal and

10 site reference conditions described in sub11 section (d)(4)(C), and environmental per12 formance, be placed in service as soon as

13 possible, and

14 ‘‘(ii) to allocate capacity to taxpayers

15 which have a definite and credible plan for

16 placing into commercial operation a quali17 fying clean coal technology unit,

18 including—

19 ‘‘(I) a site,

20 ‘‘(II) contractual commitments for

21 procurement and construction or, in

22 the case of regulated utilities, the

23 agreement of the State utility commis24 sion,
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1 ‘‘(III) filings for all necessary

2 preconstruction approvals,

3 ‘‘(IV) a demonstrated record of

4 having successfully completed com5 parable projects on a timely basis, and

6 ‘‘(V) such other factors that the

7 Secretary determines are appropriate,

8 ‘‘(D) to allocate the national megawatt ca9 pacity limitation to a portion of the capacity of

10 a qualifying clean coal technology unit if the

11 Secretary determines that such an allocation

12 would maximize the amount of efficient produc13 tion encouraged with the available tax credits,

14 ‘‘(E) to set progress requirements and con15 ditional approvals so that capacity allocations

16 for clean coal technology units which become un17 likely to meet the necessary conditions for quali18 fying can be reallocated by the Secretary to other

19 clean coal technology units, and

20 ‘‘(F) to provide taxpayers with opportuni21 ties to correct administrative errors and omis22 sions with respect to allocations and record keep23 ing within a reasonable period after discovery,

24 taking into account the availability of regula-
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1 tions and other administrative guidance from

2 the Secretary.’’.

3 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section

4 38(b) (relating to current year business credit), as amended

5 by this Act, is amended by striking ‘‘plus’’ at the end of

6 paragraph (23), by striking the period at the end of para7 graph (24) and inserting ‘‘, plus’’, and by adding at the

8 end the following new paragraph:

9 ‘‘(25) the qualifying clean coal technology pro10 duction credit determined under section 45M(a).’’.

11 (c) CLERICAL AMENDMENT.—The table of sections for

12 subpart D of part IV of subchapter A of chapter 1, as

13 amended by this Act, is amended by adding at the end the

14 following new item:

‘‘Sec. 45M. Credit for production from a qualifying clean coal technology unit.’’.

15 (d) EFFECTIVE DATE.—The amendments made by this

16 section shall apply to production after December 31, 2004,

17 in taxable years ending after such date.

18 PART II—INCENTIVES FOR EARLY COMMERCIAL

19 APPLICATIONS OF ADVANCED CLEAN COAL

20 TECHNOLOGIES

21 SEC. 832. CREDIT FOR INVESTMENT IN QUALIFYING AD22 VANCED CLEAN COAL TECHNOLOGY.

23 (a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN

24 COAL TECHNOLOGY UNIT CREDIT.—Section 46 (relating to

25 amount of credit), as amended by this Act, is amended by
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1 striking ‘‘and’’ at the end of paragraph (1), by striking the

2 period at the end of paragraph (2) and inserting ‘‘, and’’,

3 and by adding at the end the following new paragraph:

4 ‘‘(3) the qualifying advanced clean coal tech5 nology unit credit.’’.

6 (b) AMOUNT OF QUALIFYING ADVANCED CLEAN COAL

7 TECHNOLOGY UNIT CREDIT.—Subpart E of part IV of sub8 chapter A of chapter 1 (relating to rules for computing in9 vestment credit) is amended by inserting after section 48

10 the following new section:

11 ‘‘SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECH12 NOLOGY UNIT CREDIT.

13 ‘‘(a) IN GENERAL.—For purposes of section 46, the

14 qualifying advanced clean coal technology unit credit for

15 any taxable year is an amount equal to 10 percent of the

16 applicable percentage of the qualified investment in a quali17 fying advanced clean coal technology unit for such taxable

18 year.

19 ‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH20 NOLOGY UNIT.—

21 ‘‘(1) IN GENERAL.—For purposes of subsection

22 (a), the term ‘qualifying advanced clean coal tech23 nology unit’ means an advanced clean coal technology

24 unit of the taxpayer—
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1 ‘‘(A)(i) in the case of a unit first placed in

2 service after December 31, 2004, the original use

3 of which commences with the taxpayer, or

4 ‘‘(ii) in the case of the retrofitting or

5 repowering of a unit first placed in service before

6 January 1, 2005, the retrofitting or repowering

7 of which is completed by the taxpayer after such

8 date, or

9 ‘‘(B) which is depreciable under section 167,

10 ‘‘(C) which has a useful life of not less than

11 4 years,

12 ‘‘(D) which is located in the United States,

13 ‘‘(E) which is not receiving nor is scheduled

14 to receive funding under the Clean Coal Tech15 nology Program, the Power Plant Improvement

16 Initiative, or the Clean Coal Power Initiative

17 administered by the Secretary of Energy,

18 ‘‘(F) which is not a qualifying clean coal

19 technology unit, and

20 ‘‘(G) which receives an allocation of a por21 tion of the national megawatt capacity limita22 tion under subsection (f).

23 ‘‘(2) SPECIAL RULE FOR SALE-LEASEBACKS.—

24 For purposes of subparagraph (A) of paragraph (1),

25 in the case of a unit which—
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1 ‘‘(A) is originally placed in service by a

2 person, and

3 ‘‘(B) is sold and leased back by such person,

4 or is leased to such person, within 3 months after

5 the date such unit was originally placed in serv6 ice, for a period of not less than 12 years,

7 such unit shall be treated as originally placed in serv8 ice not earlier than the date on which such unit is

9 used under the leaseback (or lease) referred to in sub10 paragraph (B). The preceding sentence shall not

11 apply to any property if the lessee and lessor of such

12 property make an election under this sentence. Such

13 an election, once made, may be revoked only with the

14 consent of the Secretary.

15 ‘‘(3) NONCOMPLIANCE WITH POLLUTION LAWS.—

16 For purposes of this subsection, a unit which is not

17 in compliance with the applicable State and Federal

18 pollution prevention, control, and permit require19 ments for any period of time shall not be considered

20 to be a qualifying advanced clean coal technology

21 unit during such period.

22 ‘‘(c) APPLICABLE PERCENTAGE.—For purposes of this

23 section, with respect to any qualifying advanced clean coal

24 technology unit, the applicable percentage is the percentage

25 equal to the ratio which the portion of the national mega-
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1 watt capacity limitation allocated to the taxpayer with re2 spect to such unit under subsection (f) bears to the total

3 megawatt capacity of such unit.

4 ‘‘(d) ADVANCED CLEAN COAL TECHNOLOGY UNIT.—

5 For purposes of this section—

6 ‘‘(1) IN GENERAL.—The term ‘advanced clean

7 coal technology unit’ means a new, retrofit, or

8 repowering unit of the taxpayer which—

9 ‘‘(A) is—

10 ‘‘(i) an eligible advanced pulverized

11 coal or atmospheric fluidized bed combus12 tion technology unit,

13 ‘‘(ii) an eligible pressurized fluidized

14 bed combustion technology unit,

15 ‘‘(iii) an eligible integrated gasifi16 cation combined cycle technology unit, or

17 ‘‘(iv) an eligible other technology unit,

18 and

19 ‘‘(B) meets the carbon emission rate require20 ments of paragraph (6).

21 ‘‘(2) ELIGIBLE ADVANCED PULVERIZED COAL OR

22 ATMOSPHERIC FLUIDIZED BED COMBUSTION TECH23 NOLOGY UNIT.—The term ‘eligible advanced pulver24 ized coal or atmospheric fluidized bed combustion

25 technology unit’ means a clean coal technology unit
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1 using advanced pulverized coal or atmospheric fluid2 ized bed combustion technology which—

3 ‘‘(A) is placed in service after December 31,

4 2004, and before January 1, 2013, and

5 ‘‘(B) has a design net heat rate of not more

6 than 8,500 (8,900 in the case of units placed in

7 service before 2009).

8 ‘‘(3) ELIGIBLE PRESSURIZED FLUIDIZED BED

9 COMBUSTION TECHNOLOGY UNIT.—The term ‘eligible

10 pressurized fluidized bed combustion technology unit’

11 means a clean coal technology unit using pressurized

12 fluidized bed combustion technology which—

13 ‘‘(A) is placed in service after December 31,

14 2004, and before January 1, 2017, and

15 ‘‘(B) has a design net heat rate of not more

16 than 7,720 (8,900 in the case of units placed in

17 service before 2009, and 8,500 in the case of

18 units placed in service after 2008 and before

19 2013).

20 ‘‘(4) ELIGIBLE INTEGRATED GASIFICATION COM21 BINED CYCLE TECHNOLOGY UNIT.—The term ‘eligible

22 integrated gasification combined cycle technology

23 unit’ means a clean coal technology unit using inte24 grated gasification combined cycle technology, with or

25 without fuel or chemical co-production, which—
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1 ‘‘(A) is placed in service after December 31,

2 2004, and before January 1, 2017,

3 ‘‘(B) has a design net heat rate of not more

4 than 7,720 (8,900 in the case of units placed in

5 service before 2009, and 8,500 in the case of

6 units placed in service after 2008 and before

7 2013), and

8 ‘‘(C) has a net thermal efficiency (HHV)

9 using coal with fuel or chemical co-production of

10 not less than 44.2 percent (38.4 percent in the

11 case of units placed in service before 2009, and

12 40.2 percent in the case of units placed in service

13 after 2008 and before 2013).

14 ‘‘(5) ELIGIBLE OTHER TECHNOLOGY UNIT.—The

15 term ‘eligible other technology unit’ means a clean

16 coal technology unit using any other technology for

17 the production of electricity which is placed in service

18 after December 31, 2004, and before January 1, 2017.

19 ‘‘(6) CARBON EMISSION RATE REQUIREMENTS.—

20 ‘‘(A) IN GENERAL.—Except as provided in

21 subparagraph (B), a unit meets the requirements

22 of this paragraph if—

23 ‘‘(i) in the case of a unit using design

24 coal with a heat content of not more than

25 9,000 Btu per pound, the carbon emission
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1 rate is less than 0.60 pound of carbon per

2 kilowatt hour, and

3 ‘‘(ii) in the case of a unit using design

4 coal with a heat content of more than 9,000

5 Btu per pound, the carbon emission rate is

6 less than 0.54 pound of carbon per kilowatt

7 hour.

8 ‘‘(B) ELIGIBLE OTHER TECHNOLOGY

9 UNIT.—In the case of an eligible other technology

10 unit, subparagraph (A) shall be applied by sub11 stituting ‘0.51’ and ‘0.459’ for ‘0.60’ and ‘0.54’,

12 respectively.

13 ‘‘(e) GENERAL DEFINITIONS.—Any term used in this

14 section which is also used in section 45M shall have the

15 meaning given such term in section 45M.

16 ‘‘(f) NATIONAL LIMITATION ON THE AGGREGATE CA17 PACITY OF ADVANCED CLEAN COAL TECHNOLOGY UNITS.—

18 ‘‘(1) IN GENERAL.—For purposes of subsection

19 (b)(1)(G), the national megawatt capacity limitation

20 is—

21 ‘‘(A) for qualifying advanced clean coal

22 technology units using advanced pulverized coal

23 or atmospheric fluidized bed combustion tech24 nology, not more than 1,000 megawatts (not
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1 more than 500 megawatts in the case of units

2 placed in service before 2009),

3 ‘‘(B) for such units using pressurized fluid4 ized bed combustion technology, not more than

5 500 megawatts (not more than 250 megawatts in

6 the case of units placed in service before 2009),

7 ‘‘(C) for such units using integrated gasifi8 cation combined cycle technology, with or with9 out fuel or chemical co-production, not more

10 than 2,000 megawatts (not more than 1,000

11 megawatts in the case of units placed in service

12 before 2009), and

13 ‘‘(D) for such units using other technology

14 for the production of electricity, not more than

15 500 megawatts (not more than 250 megawatts in

16 the case of units placed in service before 2009).

17 ‘‘(2) ALLOCATION OF LIMITATION.—The Sec18 retary shall allocate the national megawatt capacity

19 limitation for qualifying advanced clean coal tech20 nology units in such manner as the Secretary may

21 prescribe under the regulations under paragraph (3).

22 ‘‘(3) REGULATIONS.—Not later than 6 months

23 after the date of the enactment of this section, the Sec24 retary shall prescribe such regulations as may be nec25 essary or appropriate—
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1 ‘‘(A) to carry out the purposes of this sub2 section and section 45N,

3 ‘‘(B) to limit the capacity of any qualifying

4 advanced clean coal technology unit to which

5 this section applies so that the combined mega6 watt capacity of all such units to which this sec7 tion applies does not exceed 4,000 megawatts,

8 ‘‘(C) to provide a certification process de9 scribed in section 45M(e)(3)(C),

10 ‘‘(D) to carry out the purposes described in

11 subparagraphs (D), (E), and (F) of section

12 45M(e)(3), and

13 ‘‘(E) to reallocate capacity which is not al14 located to any technology described in subpara15 graphs (A) through (D) of paragraph (1) because

16 an insufficient number of qualifying units re17 quest an allocation for such technology, to an18 other technology described in such subparagraphs

19 in order to maximize the amount of energy effi20 cient production encouraged with the available

21 tax credits.

22 ‘‘(4) SELECTION CRITERIA.—For purposes of this

23 subsection, the selection criteria for allocating the na24 tional megawatt capacity limitation to qualifying ad25 vanced clean coal technology units—
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1 ‘‘(A) shall be established by the Secretary of

2 Energy as part of a competitive solicitation,

3 ‘‘(B) shall include primary criteria of min4 imum design net heat rate, maximum design

5 thermal efficiency, environmental performance,

6 and lowest cost to the Government, and

7 ‘‘(C) shall include supplemental criteria as

8 determined appropriate by the Secretary of En9 ergy.

10 ‘‘(g) QUALIFIED INVESTMENT.—For purposes of sub11 section (a), the term ‘qualified investment’ means, with re12 spect to any taxable year, the basis of a qualifying advanced

13 clean coal technology unit placed in service by the taxpayer

14 during such taxable year (in the case of a unit described

15 in subsection (b)(1)(A)(ii), only that portion of the basis

16 of such unit which is properly attributable to the retro17 fitting or repowering of such unit).

18 ‘‘(h) QUALIFIED PROGRESS EXPENDITURES.—

19 ‘‘(1) INCREASE IN QUALIFIED INVESTMENT.—In

20 the case of a taxpayer who has made an election

21 under paragraph (5), the amount of the qualified in22 vestment of such taxpayer for the taxable year (deter23 mined under subsection (g) without regard to this

24 subsection) shall be increased by an amount equal to

25 the aggregate of each qualified progress expenditure
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1 for the taxable year with respect to progress expendi2 ture property.

3 ‘‘(2) PROGRESS EXPENDITURE PROPERTY DE4 FINED.—For purposes of this subsection, the term

5 ‘progress expenditure property’ means any property

6 being constructed by or for the taxpayer and which it

7 is reasonable to believe will qualify as a qualifying

8 advanced clean coal technology unit which is being

9 constructed by or for the taxpayer when it is placed

10 in service.

11 ‘‘(3) QUALIFIED PROGRESS EXPENDITURES DE12 FINED.—For purposes of this subsection—

13 ‘‘(A) SELF-CONSTRUCTED PROPERTY.—In

14 the case of any self-constructed property, the

15 term ‘qualified progress expenditures’ means the

16 amount which, for purposes of this subpart, is

17 properly chargeable (during such taxable year)

18 to capital account with respect to such property.

19 ‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—

20 In the case of nonself-constructed property, the

21 term ‘qualified progress expenditures’ means the

22 amount paid during the taxable year to another

23 person for the construction of such property.

24 ‘‘(4) OTHER DEFINITIONS.—For purposes of this

25 subsection—
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1 ‘‘(A) SELF-CONSTRUCTED PROPERTY.—The

2 term ‘self-constructed property’ means property

3 for which it is reasonable to believe that more

4 than half of the construction expenditures will be

5 made directly by the taxpayer.

6 ‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—

7 The term ‘nonself-constructed property’ means

8 property which is not self-constructed property.

9 ‘‘(C) CONSTRUCTION, ETC.—The term ‘con10 struction’ includes reconstruction and erection,

11 and the term ‘constructed’ includes reconstructed

12 and erected.

13 ‘‘(D) ONLY CONSTRUCTION OF QUALIFYING

14 ADVANCED CLEAN COAL TECHNOLOGY UNIT TO

15 BE TAKEN INTO ACCOUNT.—Construction shall be

16 taken into account only if, for purposes of this

17 subpart, expenditures therefor are properly

18 chargeable to capital account with respect to the

19 property.

20 ‘‘(5) ELECTION.—An election under this sub21 section may be made at such time and in such man22 ner as the Secretary may by regulations prescribe.

23 Such an election shall apply to the taxable year for

24 which made and to all subsequent taxable years. Such
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1 an election, once made, may not be revoked except

2 with the consent of the Secretary.

3 ‘‘(i) COORDINATION WITH OTHER CREDITS.—This

4 section shall not apply to any property with respect to

5 which the rehabilitation credit under section 47 or the en6 ergy credit under section 48 is allowed unless the taxpayer

7 elects to waive the application of such credit to such prop8 erty.’’.

9 (c) RECAPTURE.—Section 50(a) (relating to other spe10 cial rules) is amended by adding at the end the following

11 new paragraph:

12 ‘‘(6) SPECIAL RULES RELATING TO QUALIFYING

13 ADVANCED CLEAN COAL TECHNOLOGY UNIT.—For

14 purposes of applying this subsection in the case of

15 any credit allowable by reason of section 48A, the fol16 lowing rules shall apply:

17 ‘‘(A) GENERAL RULE.—In lieu of the

18 amount of the increase in tax under paragraph

19 (1), the increase in tax shall be an amount equal

20 to the investment tax credit allowed under sec21 tion 38 for all prior taxable years with respect

22 to a qualifying advanced clean coal technology

23 unit (as defined by section 48A(b)(1)) multiplied

24 by a fraction the numerator of which is the num25 ber of years remaining to fully depreciate under
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1 this title the qualifying advanced clean coal tech2 nology unit disposed of, and the denominator of

3 which is the total number of years over which

4 such unit would otherwise have been subject to

5 depreciation. For purposes of the preceding sen6 tence, the year of disposition of the qualifying

7 advanced clean coal technology unit shall be

8 treated as a year of remaining depreciation.

9 ‘‘(B) PROPERTY CEASES TO QUALIFY FOR

10 PROGRESS EXPENDITURES.—Rules similar to the

11 rules of paragraph (2) shall apply in the case of

12 qualified progress expenditures for a qualifying

13 advanced clean coal technology unit under sec14 tion 48A, except that the amount of the increase

15 in tax under subparagraph (A) of this para16 graph shall be substituted for the amount de17 scribed in such paragraph (2).

18 ‘‘(C) APPLICATION OF PARAGRAPH.—This

19 paragraph shall be applied separately with re20 spect to the credit allowed under section 38 re21 garding a qualifying advanced clean coal tech22 nology unit.’’.

23 (d) TECHNICAL AMENDMENTS.—

24 (1) Section 49(a)(1)(C) is amended by striking

25 ‘‘and’’ at the end of clause (ii), by striking the period
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1 at the end of clause (iii) and inserting ‘‘, and’’, and

2 by adding at the end the following new clause:

3 ‘‘(iv) the portion of the basis of any

4 qualifying advanced clean coal technology

5 unit attributable to any qualified invest6 ment (as defined by section 48A(g)).’’.

7 (2) Section 50(a)(4) is amended by striking

8 ‘‘and (2)’’ and inserting ‘‘, (2), and (6)’’.

9 (3) Section 50(c) is amended by adding at the

10 end the following new paragraph:

11 ‘‘(6) NONAPPLICATION.—Paragraphs (1) and (2)

12 shall not apply to any qualifying advanced clean coal

13 technology unit credit under section 48A.’’.

14 (4) The table of sections for subpart E of part IV

15 of subchapter A of chapter 1 is amended by inserting

16 after the item relating to section 48 the following new

17 item:

‘‘Sec. 48A. Qualifying advanced clean coal technology unit credit.’’.

18 (e) EFFECTIVE DATE.—The amendments made by this

19 section shall apply to periods after December 31, 2004,

20 under rules similar to the rules of section 48(m) of the In21 ternal Revenue Code of 1986 (as in effect on the day before

22 the date of the enactment of the Revenue Reconciliation Act

23 of 1990).
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1 SEC. 833. CREDIT FOR PRODUCTION FROM A QUALIFYING

2 ADVANCED CLEAN COAL TECHNOLOGY UNIT.

3 (a) IN GENERAL.—Subpart D of part IV of subchapter

4 A of chapter 1 (relating to business related credits), as

5 amended by this Act, is amended by adding at the end the

6 following new section:

7 ‘‘SEC. 45N. CREDIT FOR PRODUCTION FROM A QUALIFYING

8 ADVANCED CLEAN COAL TECHNOLOGY UNIT.

9 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

10 qualifying advanced clean coal technology production credit

11 of any taxpayer for any taxable year is equal to—

12 ‘‘(1) the applicable amount of advanced clean

13 coal technology production credit, multiplied by

14 ‘‘(2) the applicable percentage (as determined

15 under section 48A(c)) of the sum of—

16 ‘‘(A) the kilowatt hours of electricity, plus

17 ‘‘(B) each 3,413 Btu of fuels or chemicals,

18 produced by the taxpayer during such taxable year at

19 a qualifying advanced clean coal technology unit, but

20 only if such production occurs during the 10-year pe21 riod beginning on the date the unit was originally

22 placed in service (or returned to service after becom23 ing a qualifying advanced clean coal technology

24 unit).

25 ‘‘(b) APPLICABLE AMOUNT.—For purposes of this

26 section—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), the applicable amount of advanced clean

3 coal technology production credit with respect to pro4 duction from a qualifying advanced clean coal tech5 nology unit shall be determined as follows:

6 ‘‘(A) If the qualifying advanced clean coal

7 technology unit is producing electricity only:

8 ‘‘(i) In the case of a unit originally

9 placed in service before 2009, if—

‘‘The design net heat rate is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not more than 8,500 ................................................................................. $.0060 $.0038

More than 8,500 but not more than 8,750 .............................................. $.0025 $.0010

More than 8,750 but less than 8,900 ....................................................... $.0010 $.0010.

10 ‘‘(ii) In the case of a unit originally

11 placed in service after 2008 and before

12 2013, if—

‘‘The design net heat rate is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not more than 7,770 ................................................................................. $.0105 $.0090

More than 7,770 but not more than 8,125 .............................................. $.0085 $.0068

More than 8,125 but less than 8,500 ....................................................... $.0075 $.0055.

13 ‘‘(iii) In the case of a unit originally

14 placed in service after 2012 and before

15 2017, if—

‘‘The design net heat rate is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not more than 7,380 ................................................................................. $.0140 $.0115

More than 7,380 but not more than 7,720 .............................................. $.0120 $.0090.
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1 ‘‘(B) If the qualifying advanced clean coal

2 technology unit is producing fuel or chemicals:

3 ‘‘(i) In the case of a unit originally

4 placed in service before 2009, if—

‘‘The unit design net thermal efficiency (HHV) is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not less than 40.2 percent ........................................................................ $.0060 $.0038

Less than 40.2 but not less than 39 percent ........................................... $.0025 $.0010

Less than 39 but not less than 38.4 percent ........................................... $.0010 $.0010.

5 ‘‘(ii) In the case of a unit originally

6 placed in service after 2008 and before

7 2013, if—

‘‘The unit design net thermal efficiency (HHV) is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not less than 43.9 percent ........................................................................ $.0105 $.0090

Less than 43.9 but not less than 42 percent ........................................... $.0085 $.0068

Less than 42 but not less than 40.2 percent ........................................... $.0075 $.0055.

8 ‘‘(iii) In the case of a unit originally

9 placed in service after 2012 and before

10 2017, if—

‘‘The unit design net thermal efficiency (HHV) is:

The applicable amount is:

For 1st 5

years of such

service

For 2d 5

years of such

service

Not less than 46.3 percent ........................................................................ $.0140 $.0115

Less than 46.3 but not less than 44.2 percent ........................................ $.0120 $.0090.

11 ‘‘(2) SPECIAL RULE FOR UNITS QUALIFYING FOR

12 GREATER APPLICABLE AMOUNT WHEN PLACED IN

13 SERVICE.—If, at the time a qualifying advanced clean

14 coal technology unit is placed in service, production
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1 from the unit would be entitled to a greater applica2 ble amount if such unit had been placed in service at

3 a later date, the applicable amount for such unit shall

4 be such greater amount.

5 ‘‘(c) INFLATION ADJUSTMENT.—For calendar years

6 after 2005, each dollar amount in subsection (b)(1) shall

7 be adjusted by multiplying such amount by the inflation

8 adjustment factor for the calendar year in which the

9 amount is applied. If any amount as increased under the

10 preceding sentence is not a multiple of 0.01 cent, such

11 amount shall be rounded to the nearest multiple of 0.01

12 cent.

13 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur14 poses of this section—

15 ‘‘(1) IN GENERAL.—Any term used in this sec16 tion which is also used in section 45M or 48A shall

17 have the meaning given such term in such section.

18 ‘‘(2) APPLICABLE RULES.—The rules of para19 graphs (3), (4), and (5) of section 45(e) shall apply.’’.

20 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section

21 38(b) (relating to current year business credit), as amended

22 by this Act, is amended by striking ‘‘plus’’ at the end of

23 paragraph (24), by striking the period at the end of para24 graph (25) and inserting ‘‘, plus’’, and by adding at the

25 end the following new paragraph:
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1 ‘‘(26) the qualifying advanced clean coal tech2 nology production credit determined under section

3 45N(a).’’.

4 (c) DENIAL OF DOUBLE BENEFIT.—Section 29(d) (re5 lating to other definitions and special rules) is amended

6 by adding at the end the following new paragraph:

7 ‘‘(9) DENIAL OF DOUBLE BENEFIT.—This section

8 shall not apply with respect to any qualified fuel the

9 production of which may be taken into account for

10 purposes of determining the credit under section

11 45N.’’.

12 (d) CLERICAL AMENDMENT.—The table of sections for

13 subpart D of part IV of subchapter A of chapter 1, as

14 amended by this Act, is amended by adding at the end the

15 following new item:

‘‘Sec. 45N. Credit for production from a qualifying advanced clean coal technology

unit.’’.

16 (e) EFFECTIVE DATE.—The amendments made by this

17 section shall apply to production after December 31, 2004,

18 in taxable years ending after such date.
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1 PART III—TREATMENT OF PERSONS NOT ABLE

2 TO USE ENTIRE CREDIT

3 SEC. 834. TREATMENT OF PERSONS NOT ABLE TO USE EN4 TIRE CREDIT.

5 (a) IN GENERAL.—Section 45M, as added by this Act,

6 is amended by adding at the end the following new sub7 section:

8 ‘‘(f) TREATMENT OF PERSON NOT ABLE TO USE EN9 TIRE CREDIT.—

10 ‘‘(1) ALLOWANCE OF CREDITS.—

11 ‘‘(A) IN GENERAL.—Any credit allowable

12 under this section, section 45N, or section 48A

13 with respect to a facility owned by a person de14 scribed in subparagraph (B) may be transferred

15 or used as provided in this subsection, and the

16 determination as to whether the credit is allow17 able shall be made without regard to the tax-ex18 empt status of the person.

19 ‘‘(B) PERSONS DESCRIBED.—A person is

20 described in this subparagraph if the person is—

21 ‘‘(i) an organization described in sec22 tion 501(c)(12)(C) and exempt from tax

23 under section 501(a),

24 ‘‘(ii) an organization described in sec25 tion 1381(a)(2)(C),
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1 ‘‘(iii) a public utility (as defined in

2 section 136(c)(2)(B)),

3 ‘‘(iv) any State or political subdivision

4 thereof, the District of Columbia, or any

5 agency or instrumentality of any of the

6 foregoing,

7 ‘‘(v) any Indian tribal government

8 (within the meaning of section 7871) or any

9 agency or instrumentality thereof, or

10 ‘‘(vi) the Tennessee Valley Authority.

11 ‘‘(2) TRANSFER OF CREDIT.—

12 ‘‘(A) IN GENERAL.—A person described in

13 clause (i), (ii), (iii), (iv), or (v) of paragraph

14 (1)(B) may transfer any credit to which para15 graph (1)(A) applies through an assignment to

16 any other person not described in paragraph

17 (1)(B). Such transfer may be revoked only with

18 the consent of the Secretary.

19 ‘‘(B) REGULATIONS.—The Secretary shall

20 prescribe such regulations as necessary to ensure

21 that any credit described in subparagraph (A) is

22 claimed once and not reassigned by such other

23 person.

24 ‘‘(C) TRANSFER PROCEEDS TREATED AS

25 ARISING FROM ESSENTIAL GOVERNMENT FUNC-
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1 TION.—Any proceeds derived by a person de2 scribed in clause (iii), (iv), or (v) of paragraph

3 (1)(B) from the transfer of any credit under sub4 paragraph (A) shall be treated as arising from

5 the exercise of an essential government function.

6 ‘‘(3) USE OF CREDIT AS AN OFFSET.—Notwith7 standing any other provision of law, in the case of a

8 person described in clause (i), (ii), or (v) of para9 graph (1)(B), any credit to which paragraph (1)(A)

10 applies may be applied by such person, to the extent

11 provided by the Secretary of Agriculture, as a pre12 payment of any loan, debt, or other obligation the en13 tity has incurred under subchapter I of chapter 31 of

14 title 7 of the Rural Electrification Act of 1936 (7

15 U.S.C. 901 et seq.), as in effect on the date of the en16 actment of this section.

17 ‘‘(4) USE BY TVA.—

18 ‘‘(A) IN GENERAL.—Notwithstanding any

19 other provision of law, in the case of a person de20 scribed in paragraph (1)(B)(vi), any credit to

21 which paragraph (1)(A) applies may be applied

22 as a credit against the payments required to be

23 made in any fiscal year under section 15d(e) of

24 the Tennessee Valley Authority Act of 1933 (16

25 U.S.C. 831n–4(e)) as an annual return on the
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1 appropriations investment and an annual re2 payment sum.

3 ‘‘(B) TREATMENT OF CREDITS.—The aggre4 gate amount of credits described in paragraph

5 (1)(A) with respect to such person shall be treat6 ed in the same manner and to the same extent

7 as if such credits were a payment in cash and

8 shall be applied first against the annual return

9 on the appropriations investment.

10 ‘‘(C) CREDIT CARRYOVER.—With respect to

11 any fiscal year, if the aggregate amount of cred12 its described paragraph (1)(A) with respect to

13 such person exceeds the aggregate amount of pay14 ment obligations described in subparagraph (A),

15 the excess amount shall remain available for ap16 plication as credits against the amounts of such

17 payment obligations in succeeding fiscal years in

18 the same manner as described in this paragraph.

19 ‘‘(5) CREDIT NOT INCOME.—Any transfer under

20 paragraph (2) or use under paragraph (3) of any

21 credit to which paragraph (1)(A) applies shall not be

22 treated as income for purposes of section 501(c)(12).

23 ‘‘(6) TREATMENT OF UNRELATED PERSONS.—

24 For purposes of this subsection, transfers among and

25 between persons described in clauses (i), (ii), (iii),
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1 (iv), and (v) of paragraph (1)(B) shall be treated as

2 transfers between unrelated parties.’’.

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

4 section shall apply to production after December 31, 2004,

5 in taxable years ending after such date.

6 Subtitle E—Oil and Gas Provisions

7 SEC. 841. OIL AND GAS FROM MARGINAL WELLS.

8 (a) IN GENERAL.—Subpart D of part IV of subchapter

9 A of chapter 1 (relating to business credits), as amended

10 by this Act, is amended by adding at the end the following

11 new section:

12 ‘‘SEC. 45O. CREDIT FOR PRODUCING OIL AND GAS FROM

13 MARGINAL WELLS.

14 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

15 marginal well production credit for any taxable year is an

16 amount equal to the product of—

17 ‘‘(1) the credit amount, and

18 ‘‘(2) the qualified crude oil production and the

19 qualified natural gas production which is attributable

20 to the taxpayer.

21 ‘‘(b) CREDIT AMOUNT.—For purposes of this section—

22 ‘‘(1) IN GENERAL.—The credit amount is—

23 ‘‘(A) $3 per barrel of qualified crude oil

24 production, and
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1 ‘‘(B) 50 cents per 1,000 cubic feet of quali2 fied natural gas production.

3 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN4 CREASE.—

5 ‘‘(A) IN GENERAL.—The $3 and 50 cents

6 amounts under paragraph (1) shall each be re7 duced (but not below zero) by an amount which

8 bears the same ratio to such amount (determined

9 without regard to this paragraph) as—

10 ‘‘(i) the excess (if any) of the applica11 ble reference price over $15 ($1.67 for quali12 fied natural gas production), bears to

13 ‘‘(ii) $3 ($0.33 for qualified natural

14 gas production).

15 The applicable reference price for a taxable year

16 is the reference price of the calendar year pre17 ceding the calendar year in which the taxable

18 year begins.

19 ‘‘(B) INFLATION ADJUSTMENT.—

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

21 taxable year beginning in a calendar year

22 after 2005, each of the dollar amounts con23 tained in subparagraph (A) shall be in24 creased to an amount equal to such dollar
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1 amount multiplied by the inflation adjust2 ment factor for such calendar year.

3 ‘‘(ii) INFLATION ADJUSTMENT FAC4 TOR.—For purposes of clause (i)—

5 ‘‘(I) IN GENERAL.—The term ‘in6 flation adjustment factor’ means, with

7 respect to a calendar year, a fraction

8 the numerator of which is the GDP im9 plicit price deflator for the preceding

10 calendar year and the denominator of

11 which is the GDP implicit price

12 deflator for the calendar year 2004.

13 ‘‘(II) GDP IMPLICIT PRICE

14 DEFLATOR.—The term ‘GDP implicit

15 price deflator’ means, for any calendar

16 year, the most recent revision of the

17 implicit price deflator for the gross do18 mestic product as of June 30 of such

19 calendar year as computed by the De20 partment of Commerce before October 1

21 of such calendar year.

22 ‘‘(C) REFERENCE PRICE.—For purposes of

23 this paragraph, the term ‘reference price’ means,

24 with respect to any calendar year—
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1 ‘‘(i) in the case of qualified crude oil

2 production, the reference price determined

3 under section 29(d)(2)(C), and

4 ‘‘(ii) in the case of qualified natural

5 gas production, the Secretary’s estimate of

6 the annual average wellhead price per 1,000

7 cubic feet for all domestic natural gas.

8 ‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRO9 DUCTION.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The terms ‘qualified crude

11 oil production’ and ‘qualified natural gas production’

12 mean domestic crude oil or domestic natural gas

13 which is produced from a qualified marginal well.

14 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

15 WHICH MAY QUALIFY.—

16 ‘‘(A) IN GENERAL.—Crude oil or natural

17 gas produced during any taxable year from any

18 well shall not be treated as qualified crude oil

19 production or qualified natural gas production

20 to the extent production from the well during the

21 taxable year exceeds 1,095 barrels or barrel

22 equivalents.

23 ‘‘(B) PROPORTIONATE REDUCTIONS.—

24 ‘‘(i) SHORT TAXABLE YEARS.—In the

25 case of a short taxable year, the limitations
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1 under this paragraph shall be proportion2 ately reduced to reflect the ratio which the

3 number of days in such taxable year bears

4 to 365.

5 ‘‘(ii) WELLS NOT IN PRODUCTION EN6 TIRE YEAR.—In the case of a well which is

7 not capable of production during each day

8 of a taxable year, the limitations under this

9 paragraph applicable to the well shall be

10 proportionately reduced to reflect the ratio

11 which the number of days of production

12 bears to the total number of days in the tax13 able year.

14 ‘‘(3) NONCOMPLIANCE WITH POLLUTION LAWS.—

15 Production from any well during any period in

16 which such well is not in compliance with applicable

17 Federal pollution prevention, control, and permit re18 quirements shall not be treated as qualified crude oil

19 production or qualified natural gas production.

20 ‘‘(4) DEFINITIONS.—

21 ‘‘(A) QUALIFIED MARGINAL WELL.—The

22 term ‘qualified marginal well’ means a domestic

23 well—
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1 ‘‘(i) the production from which during

2 the taxable year is treated as marginal pro3 duction under section 613A(c)(6), or

4 ‘‘(ii) which, during the taxable year—

5 ‘‘(I) has average daily production

6 of not more than 25 barrel equivalents,

7 and

8 ‘‘(II) produces water at a rate not

9 less than 95 percent of total well efflu10 ent.

11 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude

12 oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have

13 the meanings given such terms by section

14 613A(e).

15 ‘‘(C) BARREL EQUIVALENT.—The term ‘bar16 rel equivalent’ means, with respect to natural

17 gas, a conversation ratio of 6,000 cubic feet of

18 natural gas to 1 barrel of crude oil.

19 ‘‘(D) DOMESTIC NATURAL GAS.—The term

20 ‘domestic natural gas’ does not include Alaska

21 natural gas (as defined in section 45Q(c)(1)).

22 ‘‘(d) OTHER RULES.—

23 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX24 PAYER.—In the case of a qualified marginal well in

25 which there is more than 1 owner of operating inter-
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1 ests in the well and the crude oil or natural gas pro2 duction exceeds the limitation under subsection (c)(2),

3 qualifying crude oil production or qualifying natural

4 gas production attributable to the taxpayer shall be

5 determined on the basis of the ratio which taxpayer’s

6 revenue interest in the production bears to the aggre7 gate of the revenue interests of all operating interest

8 owners in the production.

9 ‘‘(2) OPERATING INTEREST REQUIRED.—Any

10 credit under this section may be claimed only on pro11 duction which is attributable to the holder of an oper12 ating interest.

13 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

14 SOURCES EXCLUDED.—In the case of production from

15 a qualified marginal well which is eligible for the

16 credit allowed under section 29 for the taxable year,

17 no credit shall be allowable under this section unless

18 the taxpayer elects not to claim the credit under sec19 tion 29 with respect to the well.’’.

20 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section

21 38(b) (relating to current year business credit), as amended

22 by this Act, is amended by striking ‘‘plus’’ at the end of

23 paragraph (25), by striking the period at the end of para24 graph (26) and inserting ‘‘, plus’’, and by adding at the

25 end the following new paragraph:
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1 ‘‘(27) the marginal oil and gas well production

2 credit determined under section 45O(a).’’.

3 (c) COORDINATION WITH SECTION 29.—Section 29(a)

4 (relating to allowance of credit) is amended by striking

5 ‘‘There’’ and inserting ‘‘At the election of the taxpayer,

6 there’’.

7 (d) CLERICAL AMENDMENT.—The table of sections for

8 subpart D of part IV of subchapter A of chapter 1, as

9 amended by this Act, is amended by adding at the end the

10 following new item:

‘‘Sec. 45O. Credit for producing oil and gas from marginal wells.’’.

11 (e) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to production in taxable years beginning

13 after December 31, 2004.

14 SEC. 842. NATURAL GAS GATHERING LINES TREATED AS 7-

15 YEAR PROPERTY.

16 (a) IN GENERAL.—Section 168(e)(3)(C) (defining 7-

17 year property), as amended by this Act, is amended by

18 striking ‘‘and’’ at the end of clause (ii), by redesignating

19 clause (iii) as clause (iv), and by inserting after clause (ii)

20 the following new clause:

21 ‘‘(iii) any natural gas gathering line,

22 and’’.

23 (b) NATURAL GAS GATHERING LINE.—Section 168(i)

24 (relating to definitions and special rules), as amended by
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1 this Act, is amended by adding at the end the following

2 new paragraph:

3 ‘‘(18) NATURAL GAS GATHERING LINE.—The

4 term ‘natural gas gathering line’ means—

5 ‘‘(A) the pipe, equipment, and appur6 tenances used to deliver natural gas from the

7 wellhead or a commonpoint to the point at which

8 such gas first reaches—

9 ‘‘(i) a gas processing plant,

10 ‘‘(ii) an interconnection with a trans11 mission pipeline certificated by the Federal

12 Energy Regulatory Commission as an

13 interstate transmission pipeline,

14 ‘‘(iii) an interconnection with an

15 intrastate transmission pipeline, or

16 ‘‘(iv) a direct interconnection with a

17 local distribution company, a gas storage

18 facility, or an industrial consumer, or

19 ‘‘(B) any other pipe, equipment, or appur20 tenances determined to be a gathering line by the

21 Federal Energy Regulatory Commission.

22 (c) ALTERNATIVE SYSTEM.—The table contained in

23 section 168(g)(3)(B) (relating to special rule for certain

24 property assigned to classes) is amended by inserting after
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1 the item relating to subparagraph (C)(i) the following new

2 item:

‘‘(C)(iii) ............................................................................................................. 14’’.

3 (d) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to property placed in service after De5 cember 31, 2004, in taxable years ending after such date.

6 SEC. 843. EXPENSING OF CAPITAL COSTS INCURRED IN

7 COMPLYING WITH ENVIRONMENTAL PROTEC8 TION AGENCY SULFUR REGULATIONS.

9 (a) IN GENERAL.—Part VI of subchapter B of chapter

10 1 (relating to itemized deductions for individuals and cor11 porations), as amended by this Act, is amended by inserting

12 after section 179B the following new section:

13 ‘‘SEC. 179C. DEDUCTION FOR CAPITAL COSTS INCURRED IN

14 COMPLYING WITH ENVIRONMENTAL PROTEC15 TION AGENCY SULFUR REGULATIONS.

16 ‘‘(a) TREATMENT AS EXPENSES.—A small business re17 finer (as defined in section 45I(c)(1)) may elect to treat

18 75 percent of qualified capital costs (as defined in section

19 45I(c)(2)) which are paid or incurred by the taxpayer dur20 ing the taxable year as expenses which are not chargeable

21 to capital account. Any cost so treated shall be allowed as

22 a deduction for the taxable year in which paid or incurred.

23 ‘‘(b) REDUCED PERCENTAGE.—In the case of a small

24 business refiner with average daily domestic refinery runs

25 for the 1-year period ending on December 31, 2002, in ex-
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1 cess of 155,000 barrels, the number of percentage points de2 scribed in subsection (a) shall be reduced (not below zero)

3 by the product of such number (before the application of

4 this subsection) and the ratio of such excess to 50,000 bar5 rels. For purposes of calculating such average daily domes6 tic refinery runs, only refineries of the refiner or a related

7 person (within the meaning of section 613A(d)(3)) on April

8 1, 2003, shall be taken into account.

9 ‘‘(c) BASIS REDUCTION.—

10 ‘‘(1) IN GENERAL.—For purposes of this title, the

11 basis of any property shall be reduced by the portion

12 of the cost of such property taken into account under

13 subsection (a).

14 ‘‘(2) ORDINARY INCOME RECAPTURE.—For pur15 poses of section 1245, the amount of the deduction al16 lowable under subsection (a) with respect to any

17 property which is of a character subject to the allow18 ance for depreciation shall be treated as a deduction

19 allowed for depreciation under section 167.

20 ‘‘(d) COORDINATION WITH OTHER PROVISIONS.—Sec21 tion 280B shall not apply to amounts which are treated

22 as expenses under this section.’’.

23 (b) CONFORMING AMENDMENTS.—

24 (1) Section 263(a)(1), as amended by this Act, is

25 amended by striking ‘‘or’’ at the end of subparagraph
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1 (I), by striking the period at the end of subparagraph

2 (J) and inserting ‘‘; or’’, and by adding at the end

3 the following new subparagraph:

4 ‘‘(K) expenditures for which a deduction is

5 allowed under section 179C.’’.

6 (2) Section 263A(c)(3) is amended by inserting

7 ‘‘179C,’’ after ‘‘section’’.

8 (3) Section 312(k)(3)(B), as amended by this

9 Act, is amended by striking ‘‘or 179B’’ each place it

10 appears in the heading and text and inserting ‘‘179B,

11 or 179C’’.

12 (4) Section 1016(a), as amended by this Act, is

13 amended by striking ‘‘and’’ at the end of paragraph

14 (36), by striking the period at the end of paragraph

15 (37) and inserting ‘‘, and’’, and by adding at the end

16 the following new paragraph:

17 ‘‘(38) to the extent provided in section 179C(c).’’

18 (5) Paragraphs (2)(C) and (3)(C) of section

19 1245(a), as amended by this Act, are each amended

20 by inserting ‘‘179C,’’ after ‘‘179B,’’.

21 (6) The table of sections for part VI of sub22 chapter B of chapter 1, as amended by this Act, is

23 amended by inserting after the item relating to sec24 tion 179B the following new item:

‘‘Sec. 179C. Deduction for capital costs incurred in complying

with Environmental Protection Agency sulfur regulations.’’.
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1 (c) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to expenses paid or incurred after De3 cember 31, 2002, in taxable years ending after such date.

4 SEC. 844. CREDIT FOR PRODUCTION OF LOW SULFUR DIE5 SEL FUEL.

6 (a) IN GENERAL.—Subpart D of part IV of subchapter

7 A of chapter 1 (relating to business-related credits), as

8 amended by this Act, is amended by adding at the end the

9 following new section:

10 ‘‘SEC. 45P. CREDIT FOR PRODUCTION OF LOW SULFUR DIE11 SEL FUEL.

12 ‘‘(a) IN GENERAL.—For purposes of section 38, the

13 amount of the low sulfur diesel fuel production credit deter14 mined under this section with respect to any facility of a

15 small business refiner is an amount equal to 5 cents for

16 each gallon of low sulfur diesel fuel produced during the

17 taxable year by such small business refiner at such facility.

18 ‘‘(b) MAXIMUM CREDIT.—

19 ‘‘(1) IN GENERAL.—The aggregate credit deter20 mined under subsection (a) for any taxable year with

21 respect to any facility shall not exceed—

22 ‘‘(A) 25 percent of the qualified capital costs

23 incurred by the small business refiner with re24 spect to such facility, reduced by
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1 ‘‘(B) the aggregate credits determined under

2 this section for all prior taxable years with re3 spect to such facility.

4 ‘‘(2) REDUCED PERCENTAGE.—In the case of a

5 small business refiner with average daily domestic re6 finery runs for the 1-year period ending on December

7 31, 2002, in excess of 155,000 barrels, the number of

8 percentage points described in paragraph (1) shall be

9 reduced (not below zero) by the product of such num10 ber (before the application of this paragraph) and the

11 ratio of such excess to 50,000 barrels. For purposes of

12 calculating such average daily domestic refinery runs,

13 only refineries of the refiner or a related person

14 (within the meaning of section 613A(d)(3)) on April

15 1, 2003, shall be taken into account.

16 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For purposes

17 of this section—

18 ‘‘(1) SMALL BUSINESS REFINER.—The term

19 ‘small business refiner’ means, with respect to any

20 taxable year, a refiner of crude oil—

21 ‘‘(A) with respect to which not more than

22 1,500 individuals are engaged in the refinery op23 erations of the business on any day during such

24 taxable year, and
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1 ‘‘(B) the average daily domestic refinery

2 run or average retained production of which for

3 all facilities of the taxpayer for the 1-year period

4 ending on December 31, 2002, did not exceed

5 205,000 barrels.

6 For purposes of calculating such average daily domes7 tic refinery run or retained production, only refin8 eries of the refiner or a related person (within the

9 meaning of section 613A(d)(3)) on April 1, 2003,

10 shall be taken into account.

11 ‘‘(2) QUALIFIED CAPITAL COSTS.—The term

12 ‘qualified capital costs’ means, with respect to any fa13 cility, those costs paid or incurred during the appli14 cable period for compliance with the applicable EPA

15 regulations with respect to such facility, including ex16 penditures for the construction of new process oper17 ation units or the dismantling and reconstruction of

18 existing process units to be used in the production of

19 low sulfur diesel fuel, associated adjacent or offsite

20 equipment (including tankage, catalyst, and power

21 supply), engineering, construction period interest,

22 and sitework.

23 ‘‘(3) APPLICABLE EPA REGULATIONS.—The term

24 ‘applicable EPA regulations’ means the Highway
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1 Diesel Fuel Sulfur Control Requirements of the Envi2 ronmental Protection Agency.

3 ‘‘(4) APPLICABLE PERIOD.—The term ‘applicable

4 period’ means, with respect to any facility, the period

5 beginning on January 1, 2003, and ending on the

6 earlier of the date which is 1 year after the date on

7 which the taxpayer must comply with the applicable

8 EPA regulations with respect to such facility or De9 cember 31, 2009.

10 ‘‘(5) LOW SULFUR DIESEL FUEL.—The term ‘low

11 sulfur diesel fuel’ means diesel fuel with a sulfur con12 tent of 15 parts per million or less.

13 ‘‘(6) SPECIAL RULE FOR DETERMINATION OF RE14 FINERY RUNS.—Refinery runs shall be determined

15 under rules similar to the rules under section

16 613A(d)(4).

17 ‘‘(d) REDUCTION IN BASIS.—For purposes of this sub18 title, if a credit is determined under this section for any

19 expenditure with respect to any property, the increase in

20 basis of such property which would (but for this subsection)

21 result from such expenditure shall be reduced by the amount

22 of the credit so determined.

23 ‘‘(e) CERTIFICATION.—

24 ‘‘(1) REQUIRED.—No credit shall be allowed un25 less, not later than the date which is 30 months after
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1 the first day of the first taxable year in which the low

2 sulfur diesel fuel production credit is allowed with re3 spect to a facility, the small business refiner obtains

4 certification from the Secretary, after consultation

5 with the Administrator of the Environmental Protec6 tion Agency, that the taxpayer’s qualified capital

7 costs with respect to such facility will result in com8 pliance with the applicable EPA regulations.

9 ‘‘(2) CONTENTS OF APPLICATION.—An applica10 tion for certification shall include relevant informa11 tion regarding unit capacities and operating charac12 teristics sufficient for the Secretary, after consultation

13 with the Administrator of the Environmental Protec14 tion Agency, to determine that such qualified capital

15 costs are necessary for compliance with the applicable

16 EPA regulations.

17 ‘‘(3) REVIEW PERIOD.—Any application shall be

18 reviewed and notice of certification, if applicable,

19 shall be made within 60 days of receipt of such appli20 cation. In the event the Secretary does not notify the

21 taxpayer of the results of such certification within

22 such period, the taxpayer may presume the certifi23 cation to be issued until so notified.

24 ‘‘(4) STATUTE OF LIMITATIONS.—With respect to

25 the credit allowed under this section—
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1 ‘‘(A) the statutory period for the assessment

2 of any deficiency attributable to such credit shall

3 not expire before the end of the 3-year period

4 ending on the date that the review period de5 scribed in paragraph (3) ends with respect to the

6 taxpayer, and

7 ‘‘(B) such deficiency may be assessed before

8 the expiration of such 3-year period notwith9 standing the provisions of any other law or rule

10 of law which would otherwise prevent such as11 sessment.

12 ‘‘(f) COOPERATIVE ORGANIZATIONS.—

13 ‘‘(1) APPORTIONMENT OF CREDIT.—

14 ‘‘(A) IN GENERAL.—In the case of a cooper15 ative organization described in section 1381(a),

16 any portion of the credit determined under sub17 section (a) for the taxable year may, at the elec18 tion of the organization, be apportioned among

19 patrons eligible to share in patronage dividends

20 on the basis of the quantity or value of business

21 done with or for such patrons for the taxable

22 year.

23 ‘‘(B) FORM AND EFFECT OF ELECTION.—An

24 election under subparagraph (A) for any taxable

25 year shall be made on a timely filed return for
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1 such year. Such election, once made, shall be ir2 revocable for such taxable year.

3 ‘‘(2) TREATMENT OF ORGANIZATIONS AND PA4 TRONS.—

5 ‘‘(A) ORGANIZATIONS.—The amount of the

6 credit not apportioned to patrons pursuant to

7 paragraph (1) shall be included in the amount

8 determined under subsection (a) for the taxable

9 year of the organization.

10 ‘‘(B) PATRONS.—The amount of the credit

11 apportioned to patrons pursuant to paragraph

12 (1) shall be included in the amount determined

13 under subsection (a) for the first taxable year of

14 each patron ending on or after the last day of

15 the payment period (as defined in section

16 1382(d)) for the taxable year of the organization

17 or, if earlier, for the taxable year of each patron

18 ending on or after the date on which the patron

19 receives notice from the cooperative of the appor20 tionment.

21 ‘‘(3) SPECIAL RULE.—If for any reason the tax

22 imposed with respect to any patron of a cooperative

23 organization would, but for this paragraph, be in24 creased by any amount by reason of a credit appor25 tioned to such patron under this subsection—
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1 ‘‘(A) the amount of such increase in tax

2 shall not be imposed on such patron, and

3 ‘‘(B) the tax imposed by this chapter on

4 such organization shall be increased by such

5 amount.

6 The increase under subparagraph (B) shall not be

7 treated as tax imposed by this chapter for purposes

8 of determining the amount of any credit under this

9 chapter or for purposes of section 55.’’.

10 (b) CREDIT MADE PART OF GENERAL BUSINESS

11 CREDIT.—Subsection (b) of section 38 (relating to general

12 business credit), as amended by this Act, is amended by

13 striking ‘‘plus’’ at the end of paragraph (26), by striking

14 the period at the end of paragraph (27) and inserting ‘‘,

15 plus’’, and by adding at the end the following new para16 graph:

17 ‘‘(28) in the case of a small business refiner, the

18 low sulfur diesel fuel production credit determined

19 under section 45P(a).’’.

20 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re21 lating to certain expenses for which credits are allowable)

22 is amended by adding after subsection (d) the following new

23 subsection:

24 ‘‘(e) LOW SULFUR DIESEL FUEL PRODUCTION CRED25 IT.—No deduction shall be allowed for that portion of the
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1 expenses otherwise allowable as a deduction for the taxable

2 year which is equal to the amount of the credit determined

3 for the taxable year under section 45P(a).’’.

4 (d) BASIS ADJUSTMENT.—Section 1016(a) (relating to

5 adjustments to basis), as amended by this Act, is amended

6 by striking ‘‘and’’ at the end of paragraph (37), by striking

7 the period at the end of paragraph (38) and inserting ‘‘,

8 and’’, and by adding at the end the following new para9 graph:

10 ‘‘(39) in the case of a facility with respect to

11 which a credit was allowed under section 45P, to the

12 extent provided in section 45P(d).’’.

13 (e) CLERICAL AMENDMENT.—The table of sections for

14 subpart D of part IV of subchapter A of chapter 1, as

15 amended by this Act, is amended by adding at the end the

16 following new item:

‘‘Sec. 45P. Credit for production of low sulfur diesel fuel.’’.

17 (f) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to expenses paid or incurred after De19 cember 31, 2002, in taxable years ending after such date.

20 SEC. 845. DETERMINATION OF SMALL REFINER EXCEPTION

21 TO OIL DEPLETION DEDUCTION.

22 (a) IN GENERAL.—Paragraph (4) of section 613A(d)

23 (relating to limitations on application of subsection (c)) is

24 amended to read as follows:
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1 ‘‘(4) CERTAIN REFINERS EXCLUDED.—If the tax2 payer or 1 or more related persons engages in the re3 fining of crude oil, subsection (c) shall not apply to

4 the taxpayer for a taxable year if the average daily

5 refinery runs of the taxpayer and such persons for the

6 taxable year exceed 60,000 barrels. For purposes of

7 this paragraph, the average daily refinery runs for

8 any taxable year shall be determined by dividing the

9 aggregate refinery runs for the taxable year by the

10 number of days in the taxable year.’’.

11 (b) EFFECTIVE DATE.—The amendment made by this

12 section shall apply to taxable years ending after December

13 31, 2004.

14 SEC. 846. MARGINAL PRODUCTION INCOME LIMIT EXTEN15 SION.

16 Section 613A(c)(6)(H) (relating to temporary suspen17 sion of taxable income limit with respect to marginal pro18 duction), as amended by this Act, is amended by striking

19 ‘‘2005’’ and inserting ‘‘2007’’.

20 SEC. 847. AMORTIZATION OF DELAY RENTAL PAYMENTS.

21 (a) IN GENERAL.—Section 167 (relating to deprecia22 tion) is amended by redesignating subsection (h) as sub23 section (i) and by inserting after subsection (g) the fol24 lowing new subsection:
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1 ‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS

2 FOR DOMESTIC OIL AND GAS WELLS.—

3 ‘‘(1) IN GENERAL.—Any delay rental payment

4 paid or incurred in connection with the development

5 of oil or gas wells within the United States (as de6 fined in section 638) shall be allowed as a deduction

7 ratably over the 24-month period beginning on the

8 date that such payment was paid or incurred.

9 ‘‘(2) HALF-YEAR CONVENTION.—For purposes of

10 paragraph (1), any payment paid or incurred during

11 the taxable year shall be treated as paid or incurred

12 on the mid-point of such taxable year.

13 ‘‘(3) EXCLUSIVE METHOD.—Except as provided

14 in this subsection, no depreciation or amortization

15 deduction shall be allowed with respect to such pay16 ments.

17 ‘‘(4) TREATMENT UPON ABANDONMENT.—If any

18 property to which a delay rental payment relates is

19 retired or abandoned during the 24-month period de20 scribed in paragraph (1), no deduction shall be al21 lowed on account of such retirement or abandonment

22 and the amortization deduction under this subsection

23 shall continue with respect to such payment.

24 ‘‘(5) DELAY RENTAL PAYMENTS.—For purposes

25 of this subsection, the term ‘delay rental payment’
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1 means an amount paid for the privilege of deferring

2 development of an oil or gas well under an oil or gas

3 lease.’’.

4 (b) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to amounts paid or incurred in taxable

6 years beginning after December 31, 2004.

7 SEC. 848. AMORTIZATION OF GEOLOGICAL AND GEO8 PHYSICAL EXPENDITURES.

9 (a) IN GENERAL.—Section 167 (relating to deprecia10 tion), as amended by this Act, is amended by redesignating

11 subsection (i) as subsection (j) and by inserting after sub12 section (h) the following new subsection:

13 ‘‘(i) AMORTIZATION OF GEOLOGICAL AND GEO14 PHYSICAL EXPENDITURES.—

15 ‘‘(1) IN GENERAL.—Any geological and geo16 physical expenses paid or incurred in connection with

17 the exploration for, or development of, oil or gas with18 in the United States (as defined in section 638) shall

19 be allowed as a deduction ratably over the 24-month

20 period beginning on the date that such expense was

21 paid or incurred.

22 ‘‘(2) SPECIAL RULES.—For purposes of this sub23 section, rules similar to the rules of paragraphs (2),

24 (3), and (4) of subsection (h) shall apply.’’.
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1 (b) CONFORMING AMENDMENT.—Section 263A(c)(3) is

2 amended by inserting ‘‘167(h), 167(i),’’ after ‘‘under sec3 tion’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to costs paid or incurred in taxable

6 years beginning after December 31, 2004.

7 SEC. 849. EXTENSION AND MODIFICATION OF CREDIT FOR

8 PRODUCING FUEL FROM A NONCONVEN9 TIONAL SOURCE.

10 (a) IN GENERAL.—Section 29 (relating to credit for

11 producing fuel from a nonconventional source) is amended

12 by adding at the end the following new subsection:

13 ‘‘(h) EXTENSION FOR OTHER FACILITIES.—

14 ‘‘(1) OIL AND GAS.—In the case of a well or fa15 cility for producing qualified fuels described in sub16 paragraph (A) or (B) of subsection (c)(1) which was

17 drilled or placed in service after December 31, 2004,

18 and before January 1, 2007, notwithstanding sub19 section (f), this section shall apply with respect to

20 such fuels produced at such well or facility before the

21 close of the 3-year period beginning on the date that

22 such well is drilled or such facility is placed in serv23 ice.

24 ‘‘(2) FACILITIES PRODUCING FUELS FROM AGRI25 CULTURAL AND ANIMAL WASTE.—
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1 ‘‘(A) IN GENERAL.—In the case of a facility

2 for producing liquid, gaseous, or solid fuels from

3 qualified agricultural and animal wastes, in4 cluding such fuels when used as feedstocks, which

5 was placed in service after December 31, 2004,

6 and before January 1, 2007, this section shall

7 apply with respect to fuel produced at such facil8 ity before the close of the 3-year period beginning

9 on the date such facility is placed in service.

10 ‘‘(B) QUALIFIED AGRICULTURAL AND ANI11 MAL WASTE.—For purposes of this paragraph,

12 the term ‘qualified agricultural and animal

13 waste’ means agriculture and animal waste, in14 cluding by-products, packaging, and any mate15 rials associated with the processing, feeding, sell16 ing, transporting, or disposal of agricultural or

17 animal products or wastes.

18 ‘‘(3) WELLS PRODUCING VISCOUS OIL.—

19 ‘‘(A) IN GENERAL.—In the case of a well for

20 producing viscous oil which was placed in serv21 ice after December 31, 2004, and before January

22 1, 2007, this section shall apply with respect to

23 fuel produced at such well before the close of the

24 3-year period beginning on the date such well is

25 placed in service.
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1 ‘‘(B) VISCOUS OIL.—The term ‘viscous oil’

2 means heavy oil, as defined in section

3 613A(c)(6), except that—

4 ‘‘(i) ‘22 degrees’ shall be substituted for

5 ‘20 degrees’ in applying subparagraph (F)

6 thereof, and

7 ‘‘(ii) in all cases, the oil gravity shall

8 be measured from the initial well-head sam9 ples, drill cuttings, or down hole samples.

10 ‘‘(C) WAIVER OF UNRELATED PERSON RE11 QUIREMENT.—In the case of viscous oil, the re12 quirement under subsection (a)(2)(A) of a sale to

13 an unrelated person shall not apply to any sale

14 to the extent that the viscous oil is not consumed

15 in the immediate vicinity of the wellhead.

16 ‘‘(4) FACILITIES PRODUCING REFINED COAL.—

17 ‘‘(A) IN GENERAL.—In the case of a facility

18 described in subparagraph (C) for producing re19 fined coal which was placed in service after De20 cember 31, 2004, and before January 1, 2007,

21 this section shall apply with respect to fuel pro22 duced at such facility before the close of the 5-

23 year period beginning on the date such facility

24 is placed in service.
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1 ‘‘(B) REFINED COAL.—For purposes of this

2 paragraph, the term ‘refined coal’ means a fuel

3 which is a liquid, gaseous, or solid synthetic fuel

4 produced from coal (including lignite) or high

5 carbon fly ash, including such fuel used as a

6 feedstock.

7 ‘‘(C) COVERED FACILITIES.—

8 ‘‘(i) IN GENERAL.—A facility is de9 scribed in this subparagraph if such facility

10 produces refined coal using a technology

11 which results in—

12 ‘‘(I) a qualified emission reduc13 tion, and

14 ‘‘(II) a qualified enhanced value.

15 ‘‘(ii) QUALIFIED EMISSION REDUC16 TION.—For purposes of this subparagraph,

17 the term ‘qualified emission reduction’

18 means a reduction of at least 20 percent of

19 the emissions of nitrogen oxide and either

20 sulfur dioxide or mercury released when

21 burning the refined coal (excluding any di22 lution caused by materials combined or

23 added during the production process), as

24 compared to the emissions released when

25 burning the feedstock coal or comparable
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1 coal predominantly available in the market2 place as of January 1, 2004.

3 ‘‘(iii) QUALIFIED ENHANCED VALUE.—

4 For purposes of this subparagraph, the term

5 ‘qualified enhanced value’ means an in6 crease of at least 50 percent in the market

7 value of the refined coal (excluding any in8 crease caused by materials combined or

9 added during the production process), as

10 compared to the value of the feedstock coal.

11 ‘‘(iv) QUALIFYING ADVANCED CLEAN

12 COAL TECHNOLOGY UNITS EXCLUDED.—A

13 facility described in this subparagraph shall

14 not include a qualifying advanced clean

15 coal technology unit (as defined in section

16 48A(b)).

17 ‘‘(5) COALMINE GAS.—

18 ‘‘(A) IN GENERAL.—This section shall apply

19 to coalmine gas—

20 ‘‘(i) captured or extracted by the tax21 payer during the period beginning after De22 cember 31, 2004, and ending before Janu23 ary 1, 2007, and
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1 ‘‘(ii) utilized as a fuel source or sold by

2 or on behalf of the taxpayer to an unrelated

3 person during such period.

4 ‘‘(B) COALMINE GAS.—For purposes of this

5 paragraph, the term ‘coalmine gas’ means any

6 methane gas which is—

7 ‘‘(i) liberated during or as a result of

8 coal mining operations, or

9 ‘‘(ii) extracted up to 10 years in ad10 vance of coal mining operations as part of

11 a specific plan to mine a coal deposit.

12 ‘‘(C) SPECIAL RULE FOR ADVANCED EX13 TRACTION.—In the case of coalmine gas which is

14 captured in advance of coal mining operations,

15 the credit under subsection (a) shall be allowed

16 only after the date the coal extraction occurs in

17 the immediate area where the coalmine gas was

18 removed.

19 ‘‘(D) NONCOMPLIANCE WITH POLLUTION

20 LAWS.—This paragraph shall not apply to the

21 capture or extraction of coalmine gas from coal

22 mining operations with respect to any period in

23 which such coal mining operations are not in

24 compliance with applicable State and Federal
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1 pollution prevention, control, and permit re2 quirements.

3 ‘‘(6) SPECIAL RULES.—In determining the

4 amount of credit allowable under this section solely

5 by reason of this subsection—

6 ‘‘(A) FUELS TREATED AS QUALIFIED

7 FUELS.—Any fuel described in paragraph (2),

8 (3), (4), or (5) shall be treated as a qualified fuel

9 for purposes of this section.

10 ‘‘(B) DAILY LIMIT.—The amount of quali11 fied fuels described in subparagraph (A) or

12 (B)(i) of subsection (c)(1) sold during any tax13 able year which may be taken into account by

14 reason of this subsection with respect to any

15 project shall not exceed an average barrel-of-oil

16 equivalent of 200,000 cubic feet of natural gas

17 per day. Days before the date the project is

18 placed in service shall not be taken into account

19 in determining such average.

20 ‘‘(C) EXTENSION PERIOD TO COMMENCE

21 WITH UNADJUSTED CREDIT AMOUNT AND NEW

22 PHASEOUT ADJUSTMENT.—For purposes of ap23 plying subsection (b)(2), in the case of fuels sold

24 after 2003—
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1 ‘‘(i) paragraphs (1)(A) and (2) of sub2 section (b) shall be applied by subtituting

3 ‘$35.00’ for ‘$23.50’, and

4 ‘‘(ii) subparagraph (B) of subsection

5 (d)(2) shall be applied by substituting

6 ‘2002’ for ‘1979’ in determining such dollar

7 amounts.’’.

8 (b) EXTENSION FOR CERTAIN FUEL PRODUCED AT EX9 ISTING FACILITIES.—

10 (1) EXTENSION.—Section 29(f)(2) (relating to

11 application of section) is amended by inserting

12 ‘‘(January 1, 2006, in the case of any coke, coke gas,

13 or natural gas and byproducts produced by coal gas14 ification from lignite in a facility described in para15 graph (1)(B))’’ after ‘‘January 1, 2003’’.

16 (2) USE OF CREDIT AS AN OFFSET.—Section 29,

17 as amended by subsection (a), is amended by adding

18 the end the following new subsection:

19 ‘‘(i) USE OF CREDIT AS AN OFFSET.—

20 ‘‘(1) IN GENERAL.—Any credit allowable under

21 subsection (a) with respect to any natural gas and

22 byproducts produced by coal gasification from lignite

23 in a facility described in paragraph (1)(B) of sub24 section (f) owned by a person described in section
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1 1381(a)(2)(C) or subsidiaries of such person may be

2 used as provided in paragraph (2).

3 ‘‘(2) USE OF CREDIT AS AN OFFSET.—Notwith4 standing any other provision of law, in the case of a

5 person described in paragraph (1), any credit to

6 which paragraph (1) applies may be applied by such

7 person—

8 ‘‘(A) to the extent provided by the Secretary

9 of Agriculture, as a prepayment of any loan,

10 debt, or other obligation the entity has incurred

11 under subchapter I of chapter 31 of title 7 of the

12 Rural Electrification Act of 1936 (7 U.S.C. 901

13 et seq.), as in effect on the date of the enactment

14 of the Energy Tax Incentives Act of 2003, and

15 ‘‘(B) to the extent provided by the Secretary

16 of Energy, as a prepayment not to exceed 50 per17 cent of any obligation the person has incurred

18 pursuant to an asset purchase agreement entered

19 into with the Secretary and dated October 7,

20 1988.

21 ‘‘(3) CREDIT NOT INCOME.—Any use under

22 paragraph (2) of any credit to which paragraph (1)

23 applies shall not be treated as income for purposes of

24 this title.
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1 ‘‘(4) TREATMENT OF UNRELATED PERSONS.—

2 For purposes of subsection (a)(2)(A), sales of qualified

3 fuels among and between persons described in para4 graph (1) shall be treated as sales between unrelated

5 parties.’’.

6 (c) TREATMENT AS BUSINESS CREDIT.—

7 (1) CREDIT MOVED TO SUBPART RELATING TO

8 BUSINESS RELATED CREDITS.—The Internal Revenue

9 Code of 1986, as amended by this Act, is amended by

10 redesignating section 29, as amended by this Act, as

11 section 45R and by moving section 45R (as so redes12 ignated) from subpart B of part IV of subchapter A

13 of chapter 1 to the end of subpart D of part IV of sub14 chapter A of chapter 1.

15 (2) CREDIT TREATED AS BUSINESS CREDIT.—

16 Section 38(b), as amended by this Act, is amended by

17 striking ‘‘plus’’ at the end of paragraph (29), by

18 striking the period at the end of paragraph (30) and

19 inserting ‘‘, plus’’, and by adding at the end the fol20 lowing:

21 ‘‘(31) the nonconventional source production

22 credit determined under section 45R(a).’’.

23 (3) CONFORMING AMENDMENTS.—
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1 (A) Section 30(b)(2)(A), as redesignated by

2 this Act, is amended by striking ‘‘sections 27 and

3 29’’ and inserting ‘‘section 27’’.

4 (B) Sections 43(b)(2) and 613A(c)(6)(C) are

5 each amended by striking ‘‘section 29(d)(2)(C)’’

6 and inserting ‘‘section 45R(d)(2)(C)’’.

7 (C) Section 45R(a), as redesignated by

8 paragraph (1), is amended by striking ‘‘At the

9 election of the taxpayer, there shall be allowed as

10 a credit against the tax imposed by this chapter

11 for the taxable year’’ and inserting ‘‘For pur12 poses of section 38, if the taxpayer elects to have

13 this section apply, the nonconventional source

14 production credit determined under this section

15 for the taxable year is’’.

16 (D) Section 45R(b), as so redesignated, is

17 amended by striking paragraph (6).

18 (E) Section 53(d)(1)(B)(iii) is amended by

19 striking ‘‘under section 29’’ and all that follows

20 through ‘‘or not allowed’’.

21 (F) Section 55(c)(2) is amended by striking

22 ‘‘29(b)(6),’’.

23 (G) Subsection (a) of section 772, as

24 amended by this Act, is amended by striking

25 paragraph (10) and by redesignating para-
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1 graphs (11) and (12) as paragraphs (10) and

2 (11), respectively.

3 (H) Paragraph (5) of section 772(d) is

4 amended by striking ‘‘the foreign tax credit, and

5 the credit allowable under section 29’’ and in6 serting ‘‘and the foreign tax credit’’.

7 (I) The table of sections for subpart B of

8 part IV of subchapter A of chapter 1 is amended

9 by striking the item relating to section 29.

10 (J) The table of sections for subpart D of

11 part IV of subchapter A of chapter 1, as amend12 ed by this Act, is amended by inserting after the

13 item relating to section 45Q the following new

14 item:

‘‘Sec. 45R. Credit for producing fuel from a nonconventional

source.’’.

15 (d) STUDY OF COALBED METHANE.—

16 (1) IN GENERAL.—The Secretary of the Treasury

17 shall conduct a study regarding the effect of section

18 45R of the Internal Revenue Code of 1986 on the pro19 duction of coalbed methane.

20 (2) CONTENTS OF STUDY.—The study under

21 paragraph (1) shall estimate the total amount of cred22 its under section 45R of the Internal Revenue Code of

23 1986 claimed annually and in the aggregate which

24 are related to the production of coalbed methane since
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1 the date of the enactment of such section 45R. Such

2 study shall report the annual value of such credits al3 lowable for coalbed methane compared to the average

4 annual wellhead price of natural gas (per thousand

5 cubic feet of natural gas). Such study shall also esti6 mate the incremental increase in production of coal7 bed methane which has resulted from the enactment of

8 such section 45R, and the cost to the Federal Govern9 ment, in terms of the net tax benefits claimed, per

10 thousand cubic feet of incremental coalbed methane

11 produced annually and in the aggregate since such

12 enactment.

13 (e) EFFECTIVE DATES.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section shall

16 apply to fuel sold after December 31, 2004, in taxable

17 years ending after such date.

18 (2) EXISTING FACILITIES.—The amendments

19 made by subsection (b) shall apply to fuel sold after

20 December 31, 2002, in taxable years ending after such

21 date.

22 (3) TREATMENT AS BUSINESS CREDIT.—The

23 amendments made by subsection (c) shall apply to

24 taxable years ending after December 31, 2003.
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1 SEC. 850. NATURAL GAS DISTRIBUTION LINES TREATED AS

2 15-YEAR PROPERTY.

3 (a) IN GENERAL.—Section 168(e)(3)(E) (defining 15-

4 year property), as amended by this Act, is amended by

5 striking ‘‘and’’ at the end of clause (iii), by striking the

6 period at the end of clause (iv) and by inserting ‘‘, and’’,

7 and by adding at the end the following new clause:

8 ‘‘(v) any natural gas distribution

9 line.’’.

10 (b) ALTERNATIVE SYSTEM.—The table contained in

11 section 168(g)(3)(B) (relating to special rule for certain

12 property assigned to classes), as amended by this Act, is

13 amended by adding after the item relating to subparagraph

14 (E)(iii) the following new item:

‘‘(E)(v) ............................................................................................................... 35’’.

15 (c) EFFECTIVE DATE.—The amendments made by this

16 section shall apply to property placed in service after De17 cember 31, 2004, in taxable years ending after such date.

18 SEC. 851. CREDIT FOR ALASKA NATURAL GAS.

19 (a) IN GENERAL.—Subpart D of part IV of subchapter

20 A of chapter 1 (relating to business related credits), as

21 amended by this Act, is amended by adding at the end the

22 following new section:
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1 ‘‘SEC. 45Q. ALASKA NATURAL GAS.

2 ‘‘(a) IN GENERAL.—For purposes of section 38, the

3 Alaska natural gas credit for any taxable year is an

4 amount equal to the product of—

5 ‘‘(1) the credit amount, and

6 ‘‘(2) Alaska natural gas the production of which

7 is attributable to the taxpayer.

8 ‘‘(b) CREDIT AMOUNT.—For purposes of this section—

9 ‘‘(1) IN GENERAL.—The credit amount is $0.52

10 per 1,000,000 Btu of Alaska natural gas.

11 ‘‘(2) REDUCTION AS GAS PRICES INCREASE.—

12 ‘‘(A) IN GENERAL.—The dollar amount

13 under paragraph (1) shall be reduced (but not

14 below zero) by an amount which bears the same

15 ratio to such amount (determined without regard

16 to this paragraph) as—

17 ‘‘(i) the excess (if any) of the applica18 ble reference price over $0.83, bears to

19 ‘‘(ii) $0.52.

20 ‘‘(B) APPLICABLE REFERENCE PRICE.—For

21 purposes of this paragraph—

22 ‘‘(i) IN GENERAL.—The applicable ref23 erence price for any calendar month in a

24 taxable year is the reference price for the

25 calendar month in which production occurs.
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1 ‘‘(ii) REFERENCE PRICE.—The term

2 ‘reference price’ means, with respect to any

3 calendar month, a published market price

4 for natural gas in United States dollars per

5 1,000,000 Btu (reduced by any gas trans6 portation costs and gas processing costs as

7 determined by the appropriate national reg8 ulatory body for natural gas transpor9 tation) as determined under regulations by

10 the Secretary.

11 ‘‘(C) INFLATION ADJUSTMENT.—

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

13 taxable year beginning in a calendar year

14 after 2005, each of the dollar amounts con15 tained in paragraph (1) and subparagraph

16 (A) of this paragraph shall be increased to

17 an amount equal to such dollar amount

18 multiplied by the inflation adjustment fac19 tor for such calendar year.

20 ‘‘(ii) INFLATION ADJUSTMENT FAC21 TOR.—For purposes of clause (i)—

22 ‘‘(I) IN GENERAL.—The term ‘in23 flation adjustment factor’ means, with

24 respect to a calendar year, a fraction

25 the numerator of which is the GDP im-
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1 plicit price deflator for the preceding

2 calendar year and the denominator of

3 which is the GDP implicit price

4 deflator for the calendar year 2004.

5 ‘‘(II) GDP IMPLICIT PRICE

6 DEFLATOR.—The term ‘GDP implicit

7 price deflator’ means, for any calendar

8 year, the most recent revision of the

9 implicit price deflator for the gross do10 mestic product as of June 30 of such

11 calendar year as computed by the De12 partment of Commerce before October 1

13 of such calendar year.

14 ‘‘(c) ALASKA NATURAL GAS.—For purposes of this

15 section—

16 ‘‘(1) IN GENERAL.—The term ‘Alaska natural

17 gas’ means natural gas entering the Alaska natural

18 gas pipeline (as defined in section 168(i)(19) (deter19 mined without regard to subparagraph (B) thereof))

20 which is produced from a well—

21 ‘‘(A) located in the area of the State of

22 Alaska lying north of 64 degrees North latitude,

23 determined by excluding the area of the Alaska

24 National Wildlife Refuge (including the conti-
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1 nental shelf thereof within the meaning of section

2 638(1)), and

3 ‘‘(B) pursuant to the applicable State and

4 Federal pollution prevention, control, and permit

5 requirements from such area (including the con6 tinental shelf thereof within the meaning of sec7 tion 638(1)).

8 ‘‘(2) NATURAL GAS.—The term ‘natural gas’ has

9 the meaning given such term by section 613A(e)(2).

10 ‘‘(d) SPECIAL RULES.—For purposes of this section—

11 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX12 PAYER.—

13 ‘‘(A) IN GENERAL.—In the case of a well in

14 which there is more than 1 person or entity—

15 ‘‘(i) entitled to production of Alaska

16 natural gas, or

17 ‘‘(ii) at the election of such person or

18 entity, entitled to the value of production as

19 either an operating interest owner or a roy20 alty interest owner,

21 the portion of such production attributable to

22 such person or entity shall be determined on the

23 basis of the ratio which the person’s or entity’s

24 interest in the production or the value of produc25 tion bears to the aggregate of the interests of all
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1 such persons or entities. Production otherwise at2 tributable to a United States tax-exempt person

3 or entity by reason of a royalty interest shall be

4 attributable to such person or entity with respect

5 to whom royalty-in-value production remains or

6 to whom royalty-in-kind production is sold.

7 ‘‘(B) PARTNERSHIP PROPERTIES.—In the

8 case of a partnership, for purposes of applying

9 subparagraph (A), production shall be attrib10 utable to its partners based on each partner’s

11 distributive share of Alaska natural gas which is

12 produced from partnership properties and attrib13 utable to the partnership or its partners under

14 subparagraph (A).

15 ‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND

16 TRUSTS.—Under regulations prescribed by the Sec17 retary, rules similar to the rules of subsection (d) of

18 section 52 shall apply.

19 ‘‘(e) APPLICATION OF SECTION.—This section shall

20 apply to Alaska natural gas during the period—

21 ‘‘(1) beginning with the later of—

22 ‘‘(A) January 1, 2010, or

23 ‘‘(B) the initial date for the interstate

24 transportation of such Alaska natural gas, and
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1 ‘‘(2) ending with the date which is 25 years after

2 the date described in paragraph (1).’’.

3 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section

4 38(b) (relating to current year business credit), as amended

5 by this Act, is amended by striking ‘‘plus’’ at the end of

6 paragraph (27), by striking the period at the end of para7 graph (28) and inserting ‘‘, plus’’, and by adding at the

8 end the following new paragraph:

9 ‘‘(29) The Alaska natural gas credit determined

10 under section 45Q(a).’’.

11 (c) ALLOWING CREDIT AGAINST ENTIRE REGULAR

12 TAX AND MINIMUM TAX.—

13 (1) IN GENERAL.—Section 38(c) (relating to lim14 itation based on amount of tax), as amended by this

15 Act, is amended by redesignating paragraph (5) as

16 paragraph (6) and by inserting after paragraph (4)

17 the following new paragraph:

18 ‘‘(5) SPECIAL RULES FOR ALASKA NATURAL GAS

19 CREDIT.—

20 ‘‘(A) IN GENERAL.—In the case of the Alas21 ka natural gas credit—

22 ‘‘(i) this section and section 39 shall be

23 applied separately with respect to the cred24 it, and
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1 ‘‘(ii) in applying paragraph (1) to the

2 credit—

3 ‘‘(I) the amounts in subpara4 graphs (A) and (B) thereof shall be

5 treated as being zero, and

6 ‘‘(II) the limitation under para7 graph (1) (as modified by subclause

8 (I)) shall be reduced by the credit al9 lowed under subsection (a) for the tax10 able year (other than the Alaska nat11 ural gas credit).

12 ‘‘(B) ALASKA NATURAL GAS CREDIT.—For

13 purposes of this subsection, the term ‘Alaska nat14 ural gas credit’ means the credit allowable under

15 subsection (a) by reason of section 45Q(a).’’.

16 (2) CONFORMING AMENDMENTS.—Subclause (II)

17 of section 38(c)(2)(A)(ii), as amended by this Act,

18 subclause (II) of section 38(c)(3)(A)(ii), as amended

19 by this Act, and subclause (II) of section

20 38(c)(4)(A)(ii), as added by this Act, are each amend21 ed by inserting ‘‘or the Alaska natural gas credit’’

22 after ‘‘specified credits’’.

23 (d) CLERICAL AMENDMENT.—The table of sections for

24 subpart D of part IV of subchapter A of chapter 1, as
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1 amended by this Act, is amended by adding at the end the

2 following new item:

‘‘Sec. 45Q. Alaska natural gas.’’.

3 SEC. 852. CERTAIN ALASKA NATURAL GAS PIPELINE PROP4 ERTY TREATED AS 7-YEAR PROPERTY.

5 (a) IN GENERAL.—Section 168(e)(3)(C) (defining 7-

6 year property), as amended by this Act, is amended by

7 striking ‘‘and’’ at the end of clause (iii), by redesignating

8 clause (iv) as clause (v), and by inserting after clause (iii)

9 the following new clause:

10 ‘‘(iv) any Alaska natural gas pipeline,

11 and’’.

12 (b) ALASKA NATURAL GAS PIPELINE.—Section 168(i)

13 (relating to definitions and special rules), as amended by

14 this Act, is amended by adding at the end the following

15 new paragraph:

16 ‘‘(19) ALASKA NATURAL GAS PIPELINE.—The

17 term ‘Alaska natural gas pipeline’ means the natural

18 gas pipeline system located in the State of Alaska

19 which—

20 ‘‘(A) has a capacity of more than

21 500,000,000,000 Btu of natural gas per day, and

22 ‘‘(B) is—

23 ‘‘(i) placed in service after December

24 31, 2012, or
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1 ‘‘(ii) treated as placed in service on

2 January 1, 2013, if the taxpayer who places

3 such system in service before January 1,

4 2013, elects such treatment.

5 Such term includes the pipe, trunk lines, related

6 equipment, and appurtenances used to carry natural

7 gas, but does not include any gas processing plant.’’.

8 (c) ALTERNATIVE SYSTEM.—The table contained in

9 section 168(g)(3)(B) (relating to special rule for certain

10 property assigned to classes), as amended by this Act, is

11 amended by inserting after the item relating to subpara12 graph (C)(iii) the following new item:

‘‘(C)(iv) .............................................................................................................. 22’’.

13 (d) EFFECTIVE DATE.—The amendments made by this

14 section shall apply to property placed in service after De15 cember 31, 2004.

16 SEC. 853. EXTENSION OF ENHANCED OIL RECOVERY CRED17 IT TO CERTAIN ALASKA FACILITIES.

18 (a) IN GENERAL.—Section 43(c)(1) (defining qualified

19 enhanced oil recovery costs) is amended by adding at the

20 end the following new subparagraph:

21 ‘‘(D) Any amount which is paid or in22 curred during the taxable year to construct a gas

23 treatment plant which—

24 ‘‘(i) is located in the area of the United

25 States (within the meaning of section
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1 638(1)) lying north of 64 degrees North lati2 tude,

3 ‘‘(ii) prepares Alaska natural gas (as

4 defined in section 45Q(c)(1)) for transpor5 tation through a pipeline with a capacity of

6 at least 2,000,000,000,000 Btu of natural

7 gas per day, and

8 ‘‘(iii) produces carbon dioxide which is

9 injected into hydrocarbon-bearing geological

10 formations.’’.

11 (b) EFFECTIVE DATE.—The amendment made by this

12 section shall apply to costs paid or incurred in taxable

13 years beginning after December 31, 2004.

14 SEC. 854. ARBITRAGE RULES NOT TO APPLY TO PREPAY15 MENTS FOR NATURAL GAS.

16 (a) IN GENERAL.—Section 148(b) (relating to higher

17 yielding investments) is amended by adding at the end the

18 following new paragraph:

19 ‘‘(4) SAFE HARBOR FOR PREPAID NATURAL

20 GAS.—

21 ‘‘(A) IN GENERAL.—The term ‘investment22 type property’ does not include a prepayment

23 under a qualified natural gas supply contract.

24 ‘‘(B) QUALIFIED NATURAL GAS SUPPLY

25 CONTRACT.—For purposes of this paragraph, the
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1 term ‘qualified natural gas supply contract’

2 means any contract to acquire natural gas for

3 resale by or for a utility owned by a govern4 mental unit if the amount of gas permitted to be

5 acquired under the contract for the utility dur6 ing any year does not exceed the sum of—

7 ‘‘(i) the annual average amount during

8 the testing period of natural gas purchased

9 (other than for resale) by customers of such

10 utility who are located within the service

11 area of such utility, and

12 ‘‘(ii) the amount of natural gas to be

13 used to transport the prepaid natural gas to

14 the utility during such year.

15 ‘‘(C) NATURAL GAS USED TO GENERATE

16 ELECTRICITY.—Natural gas used to generate

17 electricity shall be taken into account in deter18 mining the average under subparagraph

19 (B)(i)—

20 ‘‘(i) only if the electricity is generated

21 by a utility owned by a governmental unit,

22 and

23 ‘‘(ii) only to the extent that the elec24 tricity is sold (other than for resale) to cus-
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1 tomers of such utility who are located with2 in the service area of such utility.

3 ‘‘(D) ADJUSTMENTS FOR CHANGES IN CUS4 TOMER BASE.—

5 ‘‘(i) NEW BUSINESS CUSTOMERS.—If—

6 ‘‘(I) after the close of the testing

7 period and before the date of issuance

8 of the issue, the utility owned by a gov9 ernmental unit enters into a contract

10 to supply natural gas (other than for

11 resale) for use by a business at a prop12 erty within the service area of such

13 utility, and

14 ‘‘(II) the utility did not supply

15 natural gas to such property during

16 the testing period or the ratable

17 amount of natural gas to be supplied

18 under the contract is significantly

19 greater than the ratable amount of gas

20 supplied to such property during the

21 testing period,

22 then a contract shall not fail to be treated

23 as a qualified natural gas supply contract

24 by reason of supplying the additional nat-
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1 ural gas under the contract referred to in

2 subclause (I).

3 ‘‘(ii) OVERALL LIMITATION.—The aver4 age under subparagraph (B)(i) shall not ex5 ceed the annual amount of natural gas rea6 sonably expected to be purchased (other

7 than for resale) by persons who are located

8 within the service area of such utility and

9 who, as of the date of issuance of the issue,

10 are customers of such utility.

11 ‘‘(E) RULING REQUESTS.—The Secretary

12 may increase the average under subparagraph

13 (B)(i) for any period if the utility owned by the

14 governmental unit establishes to the satisfaction

15 of the Secretary that, based on objective evidence

16 of growth in natural gas consumption or popu17 lation, such average would otherwise be insuffi18 cient for such period.

19 ‘‘(F) ADJUSTMENT FOR NATURAL GAS OTH20 ERWISE ON HAND.—

21 ‘‘(i) IN GENERAL.—The amount other22 wise permitted to be acquired under the

23 contract for any period shall be reduced

24 by—
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1 ‘‘(I) the applicable share of nat2 ural gas held by the utility on the date

3 of issuance of the issue, and

4 ‘‘(II) the natural gas (not taken

5 into account under subclause (I))

6 which the utility has a right to acquire

7 during such period (determined as of

8 the date of issuance of the issue).

9 ‘‘(ii) APPLICABLE SHARE.—For pur10 poses of clause (i), the term ‘applicable

11 share’ means, with respect to any period,

12 the natural gas allocable to such period if

13 the gas were allocated ratably over the pe14 riod to which the prepayment relates.

15 ‘‘(G) INTENTIONAL ACTS.—Subparagraph

16 (A) shall cease to apply to any issue if the util17 ity owned by the governmental unit engages in

18 any intentional act to render the volume of nat19 ural gas acquired by such prepayment to be in

20 excess of the sum of—

21 ‘‘(i) the amount of natural gas needed

22 (other than for resale) by customers of such

23 utility who are located within the service

24 area of such utility, and
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1 ‘‘(ii) the amount of natural gas used to

2 transport such natural gas to the utility.

3 ‘‘(H) TESTING PERIOD.—For purposes of

4 this paragraph, the term ‘testing period’ means,

5 with respect to an issue, the most recent 5 cal6 endar years ending before the date of issuance of

7 the issue.

8 ‘‘(I) SERVICE AREA.—For purposes of this

9 paragraph, the service area of a utility owned by

10 a governmental unit shall be comprised of—

11 ‘‘(i) any area throughout which such

12 utility provided at all times during the test13 ing period—

14 ‘‘(I) in the case of a natural gas

15 utility, natural gas transmission or

16 distribution services, and

17 ‘‘(II) in the case of an electric

18 utility, electricity distribution services,

19 ‘‘(ii) any area within a county contig20 uous to the area described in clause (i) in

21 which retail customers of such utility are lo22 cated if such area is not also served by an23 other utility providing natural gas or elec24 tricity services, as the case may be, and
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1 ‘‘(iii) any area recognized as the serv2 ice area of such utility under State or Fed3 eral law.’’.

4 (b) PRIVATE LOAN FINANCING TEST NOT TO APPLY

5 TO PREPAYMENTS FOR NATURAL GAS.—Section 141(c)(2)

6 (providing exceptions to the private loan financing test) is

7 amended by striking ‘‘or’’ at the end of subparagraph (A),

8 by striking the period at the end of subparagraph (B) and

9 inserting ‘‘, or’’, and by adding at the end the following

10 new subparagraph:

11 ‘‘(C) is a qualified natural gas supply con12 tract (as defined in section 148(b)(4)).’’.

13 (c) CONFORMING AMENDMENT.—Section 141(d) is

14 amended by adding at the end the following new paragraph:

15 ‘‘(7) EXCEPTION FOR QUALIFIED ELECTRIC AND

16 NATURAL GAS SUPPLY CONTRACTS.—The term ‘non17 governmental output property’ shall not include any

18 contract for the prepayment of electricity or natural

19 gas which is not investment property under section

20 148(b)(2).’’.

21 (d) EFFECTIVE DATE.—The amendment made by this

22 section shall apply to obligations issued after December 31,

23 2004.
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1 Subtitle F—Electric Utility

2 Restructuring Provisions

3 SEC. 855. MODIFICATIONS TO SPECIAL RULES FOR NU4 CLEAR DECOMMISSIONING COSTS.

5 (a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND

6 BASED ON COST OF SERVICE; CONTRIBUTIONS AFTER

7 FUNDING PERIOD.—Subsection (b) of section 468A (relat8 ing to special rules for nuclear decommissioning costs) is

9 amended to read as follows:

10 ‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The

11 amount which a taxpayer may pay into the Fund for any

12 taxable year shall not exceed the ruling amount applicable

13 to such taxable year.’’.

14 (b) CLARIFICATION OF TREATMENT OF FUND TRANS15 FERS.—Section 468A(e) (relating to Nuclear Decommis16 sioning Reserve Fund) is amended by adding at the end

17 the following new paragraph:

18 ‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in

19 connection with the transfer of the taxpayer’s interest

20 in a nuclear power plant, the taxpayer transfers the

21 Fund with respect to such power plant to the trans22 feree of such interest and the transferee elects to con23 tinue the application of this section to such Fund—
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1 ‘‘(A) the transfer of such Fund shall not

2 cause such Fund to be disqualified from the ap3 plication of this section, and

4 ‘‘(B) no amount shall be treated as distrib5 uted from such Fund, or be includable in gross

6 income, by reason of such transfer.’’.

7 (c) TREATMENT OF CERTAIN DECOMMISSIONING

8 COSTS.—

9 (1) IN GENERAL.—Section 468A is amended by

10 redesignating subsections (f) and (g) as subsections

11 (g) and (h), respectively, and by inserting after sub12 section (e) the following new subsection:

13 ‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—

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

15 (b), any taxpayer maintaining a Fund to which this

16 section applies with respect to a nuclear power plant

17 may transfer into such Fund not more than an

18 amount equal to the present value of the excess of the

19 total nuclear decommissioning costs with respect to

20 such nuclear power plant over the portion of such

21 costs taken into account in determining the ruling

22 amount in effect immediately before the transfer.

23 ‘‘(2) DEDUCTION FOR AMOUNTS TRANS24 FERRED.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (C), the deduction allowed by sub3 section (a) for any transfer permitted by this

4 subsection shall be allowed ratably over the re5 maining estimated useful life (within the mean6 ing of subsection (d)(2)(A)) of the nuclear power

7 plant beginning with the taxable year during

8 which the transfer is made.

9 ‘‘(B) DENIAL OF DEDUCTION FOR PRE10 VIOUSLY DEDUCTED AMOUNTS.—No deduction

11 shall be allowed for any transfer under this sub12 section of an amount for which a deduction was

13 previously allowed or a corresponding amount

14 was not included in gross income. For purposes

15 of the preceding sentence, a ratable portion of

16 each transfer shall be treated as being from pre17 viously deducted or excluded amounts to the ex18 tent thereof.

19 ‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—

20 If—

21 ‘‘(i) any transfer permitted by this

22 subsection is made to any Fund to which

23 this section applies, and

24 ‘‘(ii) such Fund is transferred there25 after,
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1 any deduction under this subsection for taxable

2 years ending after the date that such Fund is

3 transferred shall be allowed to the transferee and

4 not the transferor. The preceding sentence shall

5 not apply if the transferor is an entity exempt

6 from tax under this chapter.

7 ‘‘(D) SPECIAL RULES.—

8 ‘‘(i) GAIN OR LOSS NOT RECOG9 NIZED.—No gain or loss shall be recognized

10 on any transfer permitted by this sub11 section.

12 ‘‘(ii) TRANSFERS OF APPRECIATED

13 PROPERTY.—If appreciated property is

14 transferred in a transfer permitted by this

15 subsection, the amount of the deduction

16 shall not exceed the adjusted basis of such

17 property.

18 ‘‘(3) NEW RULING AMOUNT REQUIRED.—Para19 graph (1) shall not apply to any transfer unless the

20 taxpayer requests from the Secretary a new schedule

21 of ruling amounts in connection with such transfer.

22 ‘‘(4) NO BASIS IN QUALIFIED FUNDS.—Notwith23 standing any other provision of law, the taxpayer’s

24 basis in any Fund to which this section applies shall
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1 not be increased by reason of any transfer permitted

2 by this subsection.’’.

3 (2) NEW RULING AMOUNT TO TAKE INTO AC4 COUNT TOTAL COSTS.—Subparagraph (A) of section

5 468A(d)(2) (defining ruling amount) is amended to

6 read as follows:

7 ‘‘(A) fund the total nuclear decommis8 sioning costs with respect to such power plant

9 over the estimated useful life of such power plant,

10 and’’.

11 (d) TECHNICAL AMENDMENT.—Section 468A(e)(2) (re12 lating to taxation of Fund) is amended—

13 (1) by striking ‘‘rate set forth in subparagraph

14 (B)’’ in subparagraph (A) and inserting ‘‘rate of 20

15 percent’’,

16 (2) by striking subparagraph (B), and

17 (3) by redesignating subparagraphs (C) and (D)

18 as subparagraphs (B) and (C), respectively.

19 (e) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to taxable years beginning after Decem21 ber 31, 2004.

22 SEC. 856. TREATMENT OF CERTAIN INCOME OF COOPERA23 TIVES.

24 (a) INCOME FROM OPEN ACCESS AND NUCLEAR DE25 COMMISSIONING TRANSACTIONS.—
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1 (1) IN GENERAL.—Section 501(c)(12)(C) (relat2 ing to list of exempt organizations) is amended by

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

4 clause (ii), and by adding at the end the following

5 new clauses:

6 ‘‘(ii) from any open access transaction

7 (other than income received or accrued di8 rectly or indirectly from a member),

9 ‘‘(iii) from any nuclear decommis10 sioning transaction,

11 ‘‘(iv) from any asset exchange or con12 version transaction, or

13 ‘‘(v) from the prepayment of any loan,

14 debt, or obligation made, insured, or guar15 anteed under the Rural Electrification Act

16 of 1936.’’.

17 (2) DEFINITIONS AND SPECIAL RULES.—Section

18 501(c)(12) is amended by adding at the end the fol19 lowing new subparagraphs:

20 ‘‘(E) For purposes of subparagraph

21 (C)(ii)—

22 ‘‘(i) The term ‘open access transaction’

23 means any transaction meeting the open ac24 cess requirements of any of the following
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HR 4520 EAS

1 subclauses with respect to a mutual or coop2 erative electric company:

3 ‘‘(I) The provision or sale of elec4 tric transmission service or ancillary

5 services meets the open access require6 ments of this subclause only if such

7 services are provided on a nondiscrim8 inatory open access basis pursuant to

9 an open access transmission tariff filed

10 with and approved by FERC, includ11 ing an acceptable reciprocity tariff, or

12 under a regional transmission organi13 zation agreement approved by FERC.

14 ‘‘(II) The provision or sale of elec15 tric energy distribution services or an16 cillary services meets the open access

17 requirements of this subclause only if

18 such services are provided on a non19 discriminatory open access basis to

20 end-users served by distribution facili21 ties owned by the mutual or coopera22 tive electric company (or its members).

23 ‘‘(III) The delivery or sale of elec24 tric energy generated by a generation

25 facility meets the open access require-
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HR 4520 EAS

1 ments of this subclause only if such fa2 cility is directly connected to distribu3 tion facilities owned by the mutual or

4 cooperative electric company (or its

5 members) which owns the generation

6 facility, and such distribution facilities

7 meet the open access requirements of

8 subclause (II).

9 ‘‘(ii) Clause (i)(I) shall apply in the

10 case of a voluntarily filed tariff only if the

11 mutual or cooperative electric company files

12 a report with FERC within 90 days after

13 the date of the enactment of this subpara14 graph relating to whether or not such com15 pany will join a regional transmission or16 ganization.

17 ‘‘(iii) A mutual or cooperative electric

18 company shall be treated as meeting the

19 open access requirements of clause (i)(I) if

20 a regional transmission organization con21 trols the transmission facilities.

22 ‘‘(iv) References to FERC in this sub23 paragraph shall be treated as including ref24 erences to the Public Utility Commission of

25 Texas with respect to any ERCOT utility
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1 (as defined in section 212(k)(2)(B) of the

2 Federal Power Act (16 U.S.C.

3 824k(k)(2)(B))) or references to the Rural

4 Utilities Service with respect to any other

5 facility not subject to FERC jurisdiction.

6 ‘‘(v) For purposes of this

7 subparagraph—

8 ‘‘(I) The term ‘transmission facil9 ity’ means an electric output facility

10 (other than a generation facility)

11 which operates at an electric voltage of

12 69 kilovolts or greater. To the extent

13 provided in regulations, such term in14 cludes any output facility which

15 FERC determines is a transmission fa16 cility under standards applied by

17 FERC under the Federal Power Act

18 (as in effect on the date of the enact19 ment of the Energy Tax Incentives

20 Act).

21 ‘‘(II) The term ‘regional trans22 mission organization’ includes an

23 independent system operator.
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1 ‘‘(III) The term ‘FERC’ means

2 the Federal Energy Regulatory Com3 mission.

4 ‘‘(F) The term ‘nuclear decommissioning

5 transaction’ means—

6 ‘‘(i) any transfer into a trust, fund, or

7 instrument established to pay any nuclear

8 decommissioning costs if the transfer is in

9 connection with the transfer of the mutual

10 or cooperative electric company’s interest in

11 a nuclear power plant or nuclear power

12 plant unit,

13 ‘‘(ii) any distribution from any trust,

14 fund, or instrument established to pay any

15 nuclear decommissioning costs, or

16 ‘‘(iii) any earnings from any trust,

17 fund, or instrument established to pay any

18 nuclear decommissioning costs.

19 ‘‘(G) The term ‘asset exchange or conversion

20 transaction’ means any voluntary exchange or

21 involuntary conversion of any property related

22 to generating, transmitting, distributing, or sell23 ing electric energy by a mutual or cooperative

24 electric company, the gain from which qualifies

25 for deferred recognition under section 1031 or
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1 1033, but only if the replacement property ac2 quired by such company pursuant to such sec3 tion constitutes property which is used, or to be

4 used, for—

5 ‘‘(i) generating, transmitting, distrib6 uting, or selling electric energy, or

7 ‘‘(ii) producing, transmitting, distrib8 uting, or selling natural gas.’’.

9 (b) TREATMENT OF INCOME FROM LOAD LOSS TRANS10 ACTIONS.—Section 501(c)(12), as amended by subsection

11 (a)(2), is amended by adding after subparagraph (G) the

12 following new subparagraph:

13 ‘‘(H)(i) In the case of a mutual or coopera14 tive electric company described in this para15 graph or an organization described in section

16 1381(a)(2)(C), income received or accrued from a

17 load loss transaction shall be treated as an

18 amount collected from members for the sole pur19 pose of meeting losses and expenses.

20 ‘‘(ii) For purposes of clause (i), the term

21 ‘load loss transaction’ means any wholesale or

22 retail sale of electric energy (other than to mem23 bers) to the extent that the aggregate sales during

24 the recovery period do not exceed the load loss

25 mitigation sales limit for such period.
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1 ‘‘(iii) For purposes of clause (ii), the load

2 loss mitigation sales limit for the recovery period

3 is the sum of the annual load losses for each year

4 of such period.

5 ‘‘(iv) For purposes of clause (iii), a mutual

6 or cooperative electric company’s annual load

7 loss for each year of the recovery period is the

8 amount (if any) by which—

9 ‘‘(I) the megawatt hours of electric en10 ergy sold during such year to members of

11 such electric company are less than

12 ‘‘(II) the megawatt hours of electric en13 ergy sold during the base year to such mem14 bers.

15 ‘‘(v) For purposes of clause (iv)(II), the

16 term ‘base year’ means—

17 ‘‘(I) the calendar year preceding the

18 start-up year, or

19 ‘‘(II) at the election of the electric com20 pany, the second or third calendar years

21 preceding the start-up year.

22 ‘‘(vi) For purposes of this subparagraph, the

23 recovery period is the 7-year period beginning

24 with the start-up year.
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1 ‘‘(vii) For purposes of this subparagraph,

2 the start-up year is the calendar year which in3 cludes January 1, 2005, or, if later, at the elec4 tion of the mutual or cooperative electric

5 company—

6 ‘‘(I) the first year that such electric

7 company offers nondiscriminatory open ac8 cess, or

9 ‘‘(II) the first year in which at least 10

10 percent of such electric company’s sales are

11 not to members of such electric company.

12 ‘‘(viii) A company shall not fail to be treat13 ed as a mutual or cooperative company for pur14 poses of this paragraph or as a corporation oper15 ating on a cooperative basis for purposes of sec16 tion 1381(a)(2)(C) by reason of the treatment

17 under clause (i).

18 ‘‘(ix) In the case of a mutual or cooperative

19 electric company, income from any open access

20 transaction received, or accrued, indirectly from

21 a member shall be treated as an amount collected

22 from members for the sole purpose of meeting

23 losses and expenses.’’.

24 (c) EXCEPTION FROM UNRELATED BUSINESS TAX25 ABLE INCOME.—Section 512(b) (relating to modifications),
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HR 4520 EAS

1 as amended by this Act, is amended by adding at the end

2 the following new paragraph:

3 ‘‘(20) TREATMENT OF MUTUAL OR COOPERATIVE

4 ELECTRIC COMPANIES.—In the case of a mutual or

5 cooperative electric company described in section

6 501(c)(12), there shall be excluded income which is

7 treated as member income under subparagraph (H)

8 thereof.’’.

9 (d) CROSS REFERENCE.—Section 1381 is amended by

10 adding at the end the following new subsection:

11 ‘‘(c) CROSS REFERENCE.—

‘‘For treatment of income from load loss transactions of organizations described in subsection

(a)(2)(C), see section 501(c)(12)(H).’’.

12 (e) EFFECTIVE DATE.—The amendments made by this

13 section shall apply to taxable years beginning after Decem14 ber 31, 2004.

15 SEC. 857. SALES OR DISPOSITIONS TO IMPLEMENT FED16 ERAL ENERGY REGULATORY COMMISSION OR

17 STATE ELECTRIC RESTRUCTURING POLICY.

18 (a) IN GENERAL.—Section 451 (relating to general

19 rule for taxable year of inclusion) is amended by adding

20 at the end the following new subsection:

21 ‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO

22 IMPLEMENT FEDERAL ENERGY REGULATORY COMMISSION

23 OR STATE ELECTRIC RESTRUCTURING POLICY.—
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1 ‘‘(1) IN GENERAL.—For purposes of this subtitle,

2 if a taxpayer elects the application of this subsection

3 to a qualifying electric transmission transaction in

4 any taxable year—

5 ‘‘(A) any ordinary income derived from

6 such transaction which would be required to be

7 recognized under section 1245 or 1250 for such

8 taxable year (determined without regard to this

9 subsection), and

10 ‘‘(B) any income derived from such trans11 action in excess of such ordinary income which

12 is required to be included in gross income for

13 such taxable year (determined without regard to

14 this subsection),

15 shall be so recognized and included ratably over the

16 8-taxable year period beginning with such taxable

17 year.

18 ‘‘(2) QUALIFYING ELECTRIC TRANSMISSION

19 TRANSACTION.—For purposes of this subsection, the

20 term ‘qualifying electric transmission transaction’

21 means any sale or other disposition before January 1,

22 2008, of—

23 ‘‘(A) property used by the taxpayer in the

24 trade or business of providing electric trans25 mission services, or
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HR 4520 EAS

1 ‘‘(B) any stock or partnership interest in a

2 corporation or partnership, as the case may be,

3 whose principal trade or business consists of pro4 viding electric transmission services,

5 but only if such sale or disposition is to an inde6 pendent transmission company.

7 ‘‘(3) INDEPENDENT TRANSMISSION COMPANY.—

8 For purposes of this subsection, the term ‘independent

9 transmission company’ means—

10 ‘‘(A) a regional transmission organization

11 approved by the Federal Energy Regulatory

12 Commission,

13 ‘‘(B) a person—

14 ‘‘(i) who the Federal Energy Regu15 latory Commission determines in its au16 thorization of the transaction under section

17 203 of the Federal Power Act (16 U.S.C.

18 824b) is not a market participant within

19 the meaning of such Commission’s rules ap20 plicable to regional transmission organiza21 tions, and

22 ‘‘(ii) whose transmission facilities to

23 which the election under this subsection ap24 plies are under the operational control of a

25 Federal Energy Regulatory Commission-ap-
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HR 4520 EAS

1 proved regional transmission organization

2 before the close of the period specified in

3 such authorization, but not later than Jan4 uary 1, 2008, or

5 ‘‘(C) in the case of facilities subject to the

6 exclusive jurisdiction of the Public Utility Com7 mission of Texas, a person which is approved by

8 that Commission as consistent with Texas State

9 law regarding an independent transmission or10 ganization.

11 ‘‘(4) ELECTION.—An election under paragraph

12 (1), once made, shall be irrevocable.

13 ‘‘(5) NONAPPLICATION OF INSTALLMENT SALES

14 TREATMENT.—Section 453 shall not apply to any

15 qualifying electric transmission transaction with re16 spect to which an election to apply this subsection is

17 made.’’.

18 (b) EFFECTIVE DATE.—The amendment made by this

19 section shall apply to transactions occurring after December

20 31, 2004.

21 Subtitle G—Volumetric Ethanol

22 Excise Tax Credit

23 SEC. 860. SHORT TITLE.

24 This subtitle may be cited as the ‘‘Volumetric Ethanol

25 Excise Tax Credit (VEETC) Act of 2004’’.
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1 SEC. 861. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT

2 AND EXTENSION OF ALCOHOL FUELS INCOME

3 TAX CREDIT.

4 (a) IN GENERAL.—Subchapter B of chapter 65 (relat5 ing to rules of special application) is amended by inserting

6 after section 6425 the following new section:

7 ‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL

8 MIXTURES.

9 ‘‘(a) ALLOWANCE OF CREDITS.—There shall be allowed

10 as a credit against the tax imposed by section 4081 an

11 amount equal to the sum of—

12 ‘‘(1) the alcohol fuel mixture credit, plus

13 ‘‘(2) the biodiesel mixture credit.

14 ‘‘(b) ALCOHOL FUEL MIXTURE CREDIT.—

15 ‘‘(1) IN GENERAL.—For purposes of this section,

16 the alcohol fuel mixture credit is the product of the

17 applicable amount and the number of gallons of alco18 hol used by the taxpayer in producing any alcohol

19 fuel mixture for sale or use in a trade or business of

20 the taxpayer.

21 ‘‘(2) APPLICABLE AMOUNT.—For purposes of this

22 subsection—

23 ‘‘(A) IN GENERAL.—Except as provided in

24 subparagraph (B), the applicable amount is 52

25 cents (51 cents in the case of any sale or use

26 after 2004).
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HR 4520 EAS

1 ‘‘(B) MIXTURES NOT CONTAINING ETH2 ANOL.—In the case of an alcohol fuel mixture in

3 which none of the alcohol consists of ethanol, the

4 applicable amount is 60 cents.

5 ‘‘(3) ALCOHOL FUEL MIXTURE.—For purposes of

6 this subsection, the term ‘alcohol fuel mixture’ means

7 a mixture of alcohol and a taxable fuel which—

8 ‘‘(A) is sold by the taxpayer producing such

9 mixture to any person for use as a fuel,

10 ‘‘(B) is used as a fuel by the taxpayer pro11 ducing such mixture, or

12 ‘‘(C) is removed from the refinery by a per13 son producing such mixture.

14 ‘‘(4) OTHER DEFINITIONS.—For purposes of this

15 subsection—

16 ‘‘(A) ALCOHOL.—The term ‘alcohol’ includes

17 methanol and ethanol but does not include—

18 ‘‘(i) alcohol produced from petroleum,

19 natural gas, or coal (including peat), or

20 ‘‘(ii) alcohol with a proof of less than

21 190 (determined without regard to any

22 added denaturants).

23 Such term also includes an alcohol gallon equiv24 alent of ethyl tertiary butyl ether or other ethers

25 produced from such alcohol.
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1 ‘‘(B) TAXABLE FUEL.—The term ‘taxable

2 fuel’ has the meaning given such term by section

3 4083(a)(1).

4 ‘‘(5) TERMINATION.—This subsection shall not

5 apply to any sale, use, or removal for any period

6 after December 31, 2010.

7 ‘‘(c) BIODIESEL MIXTURE CREDIT.—

8 ‘‘(1) IN GENERAL.—For purposes of this section,

9 the biodiesel mixture credit is the product of the ap10 plicable amount and the number of gallons of bio11 diesel used by the taxpayer in producing any bio12 diesel mixture for sale or use in a trade or business

13 of the taxpayer.

14 ‘‘(2) APPLICABLE AMOUNT.—For purposes of this

15 subsection—

16 ‘‘(A) IN GENERAL.—Except as provided in

17 subparagraph (B), the applicable amount is 50

18 cents.

19 ‘‘(B) AMOUNT FOR AGRI-BIODIESEL.—In

20 the case of any biodiesel which is agri-biodiesel,

21 the applicable amount is $1.00.

22 ‘‘(3) BIODIESEL MIXTURE.—For purposes of this

23 section, the term ‘biodiesel mixture’ means a mixture

24 of biodiesel and diesel fuel (as defined in section
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1 4083(a)(3)), determined without regard to any use of

2 kerosene, which—

3 ‘‘(A) is sold by the taxpayer producing such

4 mixture to any person for use as a fuel,

5 ‘‘(B) is used as a fuel by the taxpayer pro6 ducing such mixture, or

7 ‘‘(C) is removed from the refinery by a per8 son producing such mixture.

9 ‘‘(4) CERTIFICATION FOR BIODIESEL.—No credit

10 shall be allowed under this section unless the taxpayer

11 obtains a certification (in such form and manner as

12 prescribed by the Secretary) from the producer of the

13 biodiesel which identifies the product produced and

14 the percentage of biodiesel and agri-biodiesel in the

15 product.

16 ‘‘(5) OTHER DEFINITIONS.—Any term used in

17 this subsection which is also used in section 40A shall

18 have the meaning given such term by section 40A.

19 ‘‘(6) TERMINATION.—This subsection shall not

20 apply to any sale, use, or removal for any period

21 after December 31, 2006.

22 ‘‘(d) MIXTURE NOT USED AS A FUEL, ETC.—

23 ‘‘(1) IMPOSITION OF TAX.—If—

24 ‘‘(A) any credit was determined under this

25 section with respect to alcohol or biodiesel used
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1 in the production of any alcohol fuel mixture or

2 biodiesel mixture, respectively, and

3 ‘‘(B) any person—

4 ‘‘(i) separates the alcohol or biodiesel

5 from the mixture, or

6 ‘‘(ii) without separation, uses the mix7 ture other than as a fuel,

8 then there is hereby imposed on such person a

9 tax equal to the product of the applicable

10 amount and the number of gallons of such alco11 hol or biodiesel.

12 ‘‘(2) APPLICABLE LAWS.—All provisions of law,

13 including penalties, shall, insofar as applicable and

14 not inconsistent with this section, apply in respect of

15 any tax imposed under paragraph (1) as if such tax

16 were imposed by section 4081 and not by this section.

17 ‘‘(e) COORDINATION WITH EXEMPTION FROM EXCISE

18 TAX.—Rules similar to the rules under section 40(c) shall

19 apply for purposes of this section.’’.

20 (b) REGISTRATION REQUIREMENT.—Section

21 4101(a)(1) (relating to registration), as amended by sec22 tions 871 and 880 of this Act, is amended by inserting ‘‘and

23 every person producing or importing biodiesel (as defined

24 in section 40A(d)(1)) or alcohol (as defined in section

25 6426(b)(4)(A))’’ after ‘‘4081’’.
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1 (c) ADDITIONAL AMENDMENTS.—

2 (1) Section 40(c) is amended by striking ‘‘sub3 section (b)(2), (k), or (m) of section 4041, section

4 4081(c), or section 4091(c)’’ and inserting ‘‘section

5 4041(b)(2), section 6426, or section 6427(e)’’.

6 (2) Paragraph (4) of section 40(d) is amended to

7 read as follows:

8 ‘‘(4) VOLUME OF ALCOHOL.—For purposes of de9 termining under subsection (a) the number of gallons

10 of alcohol with respect to which a credit is allowable

11 under subsection (a), the volume of alcohol shall in12 clude the volume of any denaturant (including gaso13 line) which is added under any formulas approved by

14 the Secretary to the extent that such denaturants do

15 not exceed 5 percent of the volume of such alcohol (in16 cluding denaturants).’’.

17 (3) Section 40(e)(1) is amended—

18 (A) by striking ‘‘2007’’ in subparagraph

19 (A) and inserting ‘‘2010’’, and

20 (B) by striking ‘‘2008’’ in subparagraph

21 (B) and inserting ‘‘2011’’.

22 (4) Section 40(h) is amended—

23 (A) by striking ‘‘2007’’ in paragraph (1)

24 and inserting ‘‘2010’’, and
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HR 4520 EAS

1 (B) by striking ‘‘, 2006, or 2007’’ in the

2 table contained in paragraph (2) and inserting

3 ‘‘through 2010’’.

4 (5) Section 4041(b)(2)(B) is amended by striking

5 ‘‘a substance other than petroleum or natural gas’’

6 and inserting ‘‘coal (including peat)’’.

7 (6) Section 4041 is amended by striking sub8 section (k).

9 (7) Section 4081 is amended by striking sub10 section (c).

11 (8) Paragraph (2) of section 4083(a) is amended

12 to read as follows:

13 ‘‘(2) GASOLINE.—The term ‘gasoline’—

14 ‘‘(A) includes any gasoline blend, other than

15 qualified methanol or ethanol fuel (as defined in

16 section 4041(b)(2)(B)), partially exempt meth17 anol or ethanol fuel (as defined in section

18 4041(m)(2)), or a denatured alcohol, and

19 ‘‘(B) includes, to the extent prescribed in

20 regulations—

21 ‘‘(i) any gasoline blend stock, and

22 ‘‘(ii) any product commonly used as

23 an additive in gasoline (other than alcohol).
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1 For purposes of subparagraph (B)(i), the term ‘gaso2 line blend stock’ means any petroleum product compo3 nent of gasoline.’’.

4 (9) Section 6427 is amended by inserting after

5 subsection (d) the following new subsection:

6 ‘‘(e) ALCOHOL OR BIODIESEL USED TO PRODUCE AL7 COHOL FUEL AND BIODIESEL MIXTURES OR USED AS

8 FUELS.—Except as provided in subsection (k)—

9 ‘‘(1) USED TO PRODUCE A MIXTURE.—If any

10 person produces a mixture described in section 6426

11 in such person’s trade or business, the Secretary shall

12 pay (without interest) to such person an amount

13 equal to the alcohol fuel mixture credit or the biodiesel

14 mixture credit with respect to such mixture.

15 ‘‘(2) USED AS FUEL.—If alcohol (as defined in

16 section 40(d)(1)) or biodiesel (as defined in section

17 40A(d)(1)) or agri-biodiesel (as defined in section

18 40A(d)(2)) which is not in a mixture described in sec19 tion 6426—

20 ‘‘(A) is used by any person as a fuel in a

21 trade or business, or

22 ‘‘(B) is sold by any person at retail to an23 other person and placed in the fuel tank of such

24 person’s vehicle,
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1 the Secretary shall pay (without interest) to such per2 son an amount equal to the alcohol credit (as deter3 mined under section 40(b)(2)) or the biodiesel credit

4 (as determined under section 40A(b)(2)) with respect

5 to such fuel.

6 ‘‘(3) COORDINATION WITH OTHER REPAYMENT

7 PROVISIONS.—No amount shall be payable under

8 paragraph (1) with respect to any mixture with re9 spect to which an amount is allowed as a credit

10 under section 6426.

11 ‘‘(4) TERMINATION.—This subsection shall not

12 apply with respect to—

13 ‘‘(A) any alcohol fuel mixture (as defined in

14 section 6426(b)(3)) or alcohol (as so defined) sold

15 or used after December 31, 2010, and

16 ‘‘(B) any biodiesel mixture (as defined in

17 section 6426(c)(3)) or biodiesel (as so defined) or

18 agri-biodiesel (as so defined) sold or used after

19 December 31, 2006.’’.

20 (10) Section 6427(i)(3) is amended—

21 (A) by striking ‘‘subsection (f)’’ both places

22 it appears in subparagraph (A) and inserting

23 ‘‘subsection (e)(1)’’,

24 (B) by striking ‘‘gasoline, diesel fuel, or ker25 osene used to produce a qualified alcohol mixture
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1 (as defined in section 4081(c)(3))’’ in subpara2 graph (A) and inserting ‘‘a mixture described in

3 section 6426’’,

4 (C) by adding at the end of subparagraph

5 (A) the following new flush sentence:

6 ‘‘In the case of an electronic claim, this subpara7 graph shall be applied without regard to clause

8 (i).’’,

9 (D) by striking ‘‘subsection (f)(1)’’ in sub10 paragraph (B) and inserting ‘‘subsection (e)(1)’’,

11 (E) by striking ‘‘20 days of the date of the

12 filing of such claim’’ in subparagraph (B) and

13 inserting ‘‘45 days of the date of the filing of

14 such claim (20 days in the case of an electronic

15 claim)’’, and

16 (F) by striking ‘‘ALCOHOL MIXTURE’’ in the

17 heading and inserting ‘‘ALCOHOL FUEL AND BIO18 DIESEL MIXTURE’’.

19 (11) Section 9503(b)(1) is amended by adding at

20 the end the following new flush sentence:

21 ‘‘For purposes of this paragraph, taxes received under

22 sections 4041 and 4081 shall be determined without

23 reduction for credits under section 6426.’’.

24 (12) Section 9503(b)(4) is amended—
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1 (A) by adding ‘‘or’’ at the end of subpara2 graph (C),

3 (B) by striking the comma at the end of

4 subparagraph (D)(iii) and inserting a period,

5 and

6 (C) by striking subparagraphs (E) and (F).

7 (13) The table of sections for subchapter B of

8 chapter 65 is amended by inserting after the item re9 lating to section 6425 the following new item:

‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’.

10 (14) TARIFF SCHEDULE.—Headings 9901.00.50

11 and 9901.00.52 of the Harmonized Tariff Schedule of

12 the United States (19 U.S.C. 3007) are each amended

13 in the effective period column by striking ‘‘10/1/2007’’

14 each place it appears and inserting ‘‘1/1/2011’’.

15 (d) EFFECTIVE DATES.—

16 (1) IN GENERAL.—Except as otherwise provided

17 in this subsection, the amendments made by this sec18 tion shall apply to fuel sold or used after September

19 30, 2004.

20 (2) REGISTRATION REQUIREMENT.—The amend21 ment made by subsection (b) shall take effect on April

22 1, 2005.

23 (3) EXTENSION OF ALCOHOL FUELS CREDIT.—

24 The amendments made by paragraphs (3), (4), and
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1 (14) of subsection (c) shall take effect on the date of

2 the enactment of this Act.

3 (4) REPEAL OF GENERAL FUND RETENTION OF

4 CERTAIN ALCOHOL FUELS TAXES.—The amendments

5 made by subsection (c)(12) shall apply to fuel sold or

6 used after September 30, 2003.

7 (e) FORMAT FOR FILING.—The Secretary of the Treas8 ury shall describe the electronic format for filing claims de9 scribed in section 6427(i)(3)(B) of the Internal Revenue

10 Code of 1986 (as amended by subsection (c)(10)(C)) not

11 later than September 30, 2004.

12 SEC. 862. BIODIESEL INCOME TAX CREDIT.

13 (a) IN GENERAL.—Subpart D of part IV of subchapter

14 A of chapter 1 (relating to business related credits), as

15 amended by this Act, is amended by inserting after section

16 40A the following new section:

17 ‘‘SEC. 40B. BIODIESEL USED AS FUEL.

18 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

19 biodiesel fuels credit determined under this section for the

20 taxable year is an amount equal to the sum of—

21 ‘‘(1) the biodiesel mixture credit, plus

22 ‘‘(2) the biodiesel credit.

23 ‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT

24 AND BIODIESEL CREDIT.—For purposes of this section—

25 ‘‘(1) BIODIESEL MIXTURE CREDIT.—
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1 ‘‘(A) IN GENERAL.—The biodiesel mixture

2 credit of any taxpayer for any taxable year is 50

3 cents for each gallon of biodiesel used by the tax4 payer in the production of a qualified biodiesel

5 mixture.

6 ‘‘(B) QUALIFIED BIODIESEL MIXTURE.—The

7 term ‘qualified biodiesel mixture’ means a mix8 ture of biodiesel and diesel fuel (as defined in

9 section 4083(a)(3)), determined without regard

10 to any use of kerosene, which—

11 ‘‘(i) is sold by the taxpayer producing

12 such mixture to any person for use as a

13 fuel, or

14 ‘‘(ii) is used as a fuel by the taxpayer

15 producing such mixture.

16 ‘‘(C) SALE OR USE MUST BE IN TRADE OR

17 BUSINESS, ETC.—Biodiesel used in the produc18 tion of a qualified biodiesel mixture shall be

19 taken into account—

20 ‘‘(i) only if the sale or use described in

21 subparagraph (B) is in a trade or business

22 of the taxpayer, and

23 ‘‘(ii) for the taxable year in which such

24 sale or use occurs.
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1 ‘‘(D) CASUAL OFF-FARM PRODUCTION NOT

2 ELIGIBLE.—No credit shall be allowed under this

3 section with respect to any casual off-farm pro4 duction of a qualified biodiesel mixture.

5 ‘‘(2) BIODIESEL CREDIT.—

6 ‘‘(A) IN GENERAL.—The biodiesel credit of

7 any taxpayer for any taxable year is 50 cents for

8 each gallon of biodiesel which is not in a mixture

9 with diesel fuel and which during the taxable

10 year—

11 ‘‘(i) is used by the taxpayer as a fuel

12 in a trade or business, or

13 ‘‘(ii) is sold by the taxpayer at retail

14 to a person and placed in the fuel tank of

15 such person’s vehicle.

16 ‘‘(B) USER CREDIT NOT TO APPLY TO BIO17 DIESEL SOLD AT RETAIL.—No credit shall be al18 lowed under subparagraph (A)(i) with respect to

19 any biodiesel which was sold in a retail sale de20 scribed in subparagraph (A)(ii).

21 ‘‘(3) CREDIT FOR AGRI-BIODIESEL.—In the case

22 of any biodiesel which is agri-biodiesel, paragraphs

23 (1)(A) and (2)(A) shall be applied by substituting

24 ‘$1.00’ for ‘50 cents’.
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1 ‘‘(4) CERTIFICATION FOR BIODIESEL.—No credit

2 shall be allowed under this section unless the taxpayer

3 obtains a certification (in such form and manner as

4 prescribed by the Secretary) from the producer or im5 porter of the biodiesel which identifies the product

6 produced and the percentage of biodiesel and agri-bio7 diesel in the product.

8 ‘‘(c) COORDINATION WITH CREDIT AGAINST EXCISE

9 TAX.—The amount of the credit determined under this sec10 tion with respect to any biodiesel shall be properly reduced

11 to take into account any benefit provided with respect to

12 such biodiesel solely by reason of the application of section

13 6426 or 6427(e).

14 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur15 poses of this section—

16 ‘‘(1) BIODIESEL.—The term ‘biodiesel’ means the

17 monoalkyl esters of long chain fatty acids derived

18 from plant or animal matter which meet—

19 ‘‘(A) the registration requirements for fuels

20 and fuel additives established by the Environ21 mental Protection Agency under section 211 of

22 the Clean Air Act (42 U.S.C. 7545), and

23 ‘‘(B) the requirements of the American Soci24 ety of Testing and Materials D6751.
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1 ‘‘(2) AGRI-BIODIESEL.—The term ‘agri-biodiesel’

2 means biodiesel derived solely from virgin oils, in3 cluding esters derived from virgin vegetable oils from

4 corn, soybeans, sunflower seeds, cottonseeds, canola,

5 crambe, rapeseeds, safflowers, flaxseeds, rice bran, and

6 mustard seeds, and from animal fats.

7 ‘‘(3) MIXTURE OR BIODIESEL NOT USED AS A

8 FUEL, ETC.—

9 ‘‘(A) MIXTURES.—If—

10 ‘‘(i) any credit was determined under

11 this section with respect to biodiesel used in

12 the production of any qualified biodiesel

13 mixture, and

14 ‘‘(ii) any person—

15 ‘‘(I) separates the biodiesel from

16 the mixture, or

17 ‘‘(II) without separation, uses the

18 mixture other than as a fuel,

19 then there is hereby imposed on such person a

20 tax equal to the product of the rate applicable

21 under subsection (b)(1)(A) and the number of

22 gallons of such biodiesel in such mixture.

23 ‘‘(B) BIODIESEL.—If—
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1 ‘‘(i) any credit was determined under

2 this section with respect to the retail sale of

3 any biodiesel, and

4 ‘‘(ii) any person mixes such biodiesel

5 or uses such biodiesel other than as a fuel,

6 then there is hereby imposed on such person a

7 tax equal to the product of the rate applicable

8 under subsection (b)(2)(A) and the number of

9 gallons of such biodiesel.

10 ‘‘(C) APPLICABLE LAWS.—All provisions of

11 law, including penalties, shall, insofar as appli12 cable and not inconsistent with this section,

13 apply in respect of any tax imposed under sub14 paragraph (A) or (B) as if such tax were im15 posed by section 4081 and not by this chapter.

16 ‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND

17 TRUSTS.—Under regulations prescribed by the Sec18 retary, rules similar to the rules of subsection (d) of

19 section 52 shall apply.

20 ‘‘(e) TERMINATION.—This section shall not apply to

21 any sale or use after December 31, 2006.’’.

22 (b) CREDIT TREATED AS PART OF GENERAL BUSI23 NESS CREDIT.—Section 38(b) (relating to current year

24 business credit), as amended by this Act, is amended by

25 striking ‘‘plus’’ at the end of paragraph (28), by striking
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1 the period at the end of paragraph (29) and inserting ‘‘,

2 plus’’, and by adding at the end the following new para3 graph:

4 ‘‘(30) the biodiesel fuels credit determined under

5 section 40B(a).’’.

6 (c) CONFORMING AMENDMENTS.—

7 (1)(A) Section 87, as amended by this Act, is

8 amended—

9 (i) by striking ‘‘and’’ at the end of para10 graph (1),

11 (ii) by striking the period at the end of

12 paragraph (2) and inserting ‘‘, and’’,

13 (iii) by adding at the end the following new

14 paragraph:

15 ‘‘(3) the biodiesel fuels credit determined with re16 spect to the taxpayer for the taxable year under sec17 tion 40B(a).’’, and

18 (iv) by striking ‘‘FUEL CREDIT’’ in the heading

19 and inserting ‘‘AND BIODIESEL FUELS CREDITS’’.

20 (B) The item relating to section 87 in the table

21 of sections for part II of subchapter B of chapter 1

22 is amended by striking ‘‘fuel credit’’ and inserting

23 ‘‘and biodiesel fuels credits’’.

24 (2) Section 196(c), as amended by this Act, is

25 amended by striking ‘‘and’’ at the end of paragraph
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1 (11), by striking the period at the end of paragraph

2 (12) and inserting ‘‘, and’’, and by adding at the end

3 the following new paragraph:

4 ‘‘(13) the biodiesel fuels credit determined under

5 section 40B(a).’’.

6 (3) The table of sections for subpart D of part

7 IV of subchapter A of chapter 1 is amended by adding

8 after the item relating to section 40 the following new

9 item:

‘‘Sec. 40B. Biodiesel used as fuel.’’.

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

11 section shall apply to fuel produced, and sold or used, after

12 September 30, 2004, in taxable years ending after such date.

13 Subtitle H—Fuel Fraud Prevention

14 SEC. 870. SHORT TITLE.

15 This subtitle may be cited as the ‘‘Fuel Fraud Preven16 tion Act of 2004’’.

17 PART I—AVIATION JET FUEL

18 SEC. 871. TAXATION OF AVIATION-GRADE KEROSENE.

19 (a) RATE OF TAX.—

20 (1) IN GENERAL.—Subparagraph (A) of section

21 4081(a)(2) is amended by striking ‘‘and’’ at the end

22 of clause (ii), by striking the period at the end of

23 clause (iii) and inserting ‘‘, and’’, and by adding at

24 the end the following new clause:
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1 ‘‘(iv) in the case of aviation-grade ker2 osene, 21.8 cents per gallon.’’.

3 (2) COMMERCIAL AVIATION.—Paragraph (2) of

4 section 4081(a) is amended by adding at the end the

5 following new subparagraph:

6 ‘‘(C) TAXES IMPOSED ON FUEL USED IN

7 COMMERCIAL AVIATION.—In the case of aviation8 grade kerosene which is removed from any refin9 ery or terminal directly into the fuel tank of an

10 aircraft for use in commercial aviation, the rate

11 of tax under subparagraph (A)(iv) shall be 4.3

12 cents per gallon.’’.

13 (3) NONTAXABLE USES.—

14 (A) IN GENERAL.—Section 4082 is amended

15 by redesignating subsections (e) and (f) as sub16 sections (f) and (g), respectively, and by insert17 ing after subsection (d) the following new sub18 section:

19 ‘‘(e) AVIATION-GRADE KEROSENE.—In the case of

20 aviation-grade kerosene which is exempt from the tax im21 posed by section 4041(c) (other than by reason of a prior

22 imposition of tax) and which is removed from any refinery

23 or terminal directly into the fuel tank of an aircraft, the

24 rate of tax under section 4081(a)(2)(A)(iv) shall be zero.’’.

25 (B) CONFORMING AMENDMENTS.—
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1 (i) Subsection (b) of section 4082 is

2 amended by adding at the end the following

3 new flush sentence: ‘‘The term ‘nontaxable

4 use’ does not include the use of aviation5 grade kerosene in an aircraft.’’.

6 (ii) Section 4082(d) is amended by

7 striking paragraph (1) and by redesig8 nating paragraphs (2) and (3) as para9 graphs (1) and (2), respectively.

10 (4) NONAIRCRAFT USE OF AVIATION-GRADE KER11 OSENE.—

12 (A) IN GENERAL.—Subparagraph (B) of

13 section 4041(a)(1) is amended by adding at the

14 end the following new sentence: ‘‘This subpara15 graph shall not apply to aviation-grade ker16 osene.’’.

17 (B) CONFORMING AMENDMENT.—The head18 ing for paragraph (1) of section 4041(a) is

19 amended by inserting ‘‘AND KEROSENE’’ after

20 ‘‘DIESEL FUEL’’.

21 (b) COMMERCIAL AVIATION.—Section 4083 is amended

22 redesignating subsections (b) and (c) as subsections (c) and

23 (d), respectively, and by inserting after subsection (a) the

24 following new subsection:
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1 ‘‘(b) COMMERCIAL AVIATION.—For purposes of this

2 subpart, the term ‘commercial aviation’ means any use of

3 an aircraft in a business of transporting persons or prop4 erty for compensation or hire by air, unless properly allo5 cable to any transportation exempt from the taxes imposed

6 by section 4261 and 4271 by reason of section 4281 or 4282

7 or by reason of section 4261(h).’’.

8 (c) REFUNDS.—

9 (1) IN GENERAL.—Paragraph (4) of section

10 6427(l) is amended to read as follows:

11 ‘‘(4) REFUNDS FOR AVIATION-GRADE KER12 OSENE.—

13 ‘‘(A) NO REFUND OF CERTAIN TAXES ON

14 FUEL USED IN COMMERCIAL AVIATION.—In the

15 case of aviation-grade kerosene used in commer16 cial aviation (as defined in section 4083(b))

17 (other than supplies for vessels or aircraft within

18 the meaning of section 4221(d)(3)), paragraph

19 (1) shall not apply to so much of the tax imposed

20 by section 4081 as is attributable to—

21 ‘‘(i) the Leaking Underground Storage

22 Tank Trust Fund financing rate imposed

23 by such section, and
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1 ‘‘(ii) so much of the rate of tax speci2 fied in section 4081(a)(2)(A)(iv) as does not

3 exceed 4.3 cents per gallon.

4 ‘‘(B) PAYMENT TO ULTIMATE, REGISTERED

5 VENDOR.—With respect to aviation-grade ker6 osene, if the ultimate purchaser of such kerosene

7 waives (at such time and in such form and man8 ner as the Secretary shall prescribe) the right to

9 payment under paragraph (1) and assigns such

10 right to the ultimate vendor, then the Secretary

11 shall pay the amount which would be paid under

12 paragraph (1) to such ultimate vendor, but only

13 if such ultimate vendor—

14 ‘‘(i) is registered under section 4101,

15 and

16 ‘‘(ii) meets the requirements of sub17 paragraph (A), (B), or (D) of section

18 6416(a)(1).’’.

19 (2) TIME FOR FILING CLAIMS.—Subparagraph

20 (A) of section 6427(i)(4) is amended—

21 (A) by striking ‘‘subsection (l)(5)’’ both

22 places it appears and inserting ‘‘paragraph

23 (4)(B) or (5) of subsection (l)’’, and

24 (B) by striking ‘‘the preceding sentence’’

25 and inserting ‘‘subsection (l)(5)’’.
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1 (3) CONFORMING AMENDMENT.—Subparagraph

2 (B) of section 6427(l)(2) is amended to read as fol3 lows:

4 ‘‘(B) in the case of aviation-grade

5 kerosene—

6 ‘‘(i) any use which is exempt from the

7 tax imposed by section 4041(c) other than

8 by reason of a prior imposition of tax, or

9 ‘‘(ii) any use in commercial aviation

10 (within the meaning of section 4083(b)).’’.

11 (d) REPEAL OF PRIOR TAXATION OF AVIATION

12 FUEL.—

13 (1) IN GENERAL.—Part III of subchapter A of

14 chapter 32 is amended by striking subpart B and by

15 redesignating subpart C as subpart B.

16 (2) CONFORMING AMENDMENTS.—

17 (A) Section 4041(c) is amended to read as

18 follows:

19 ‘‘(c) AVIATION-GRADE KEROSENE.—

20 ‘‘(1) IN GENERAL.—There is hereby imposed a

21 tax upon aviation-grade kerosene—

22 ‘‘(A) sold by any person to an owner, lessee,

23 or other operator of an aircraft for use in such

24 aircraft, or
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1 ‘‘(B) used by any person in an aircraft un2 less there was a taxable sale of such fuel under

3 subparagraph (A).

4 ‘‘(2) EXEMPTION FOR PREVIOUSLY TAXED

5 FUEL.—No tax shall be imposed by this subsection on

6 the sale or use of any aviation-grade kerosene if tax

7 was imposed on such liquid under section 4081 and

8 the tax thereon was not credited or refunded.

9 ‘‘(3) RATE OF TAX.—The rate of tax imposed by

10 this subsection shall be the rate of tax specified in sec11 tion 4081(a)(2)(A)(iv) which is in effect at the time

12 of such sale or use.’’.

13 (B) Section 4041(d)(2) is amended by strik14 ing ‘‘section 4091’’ and inserting ‘‘section 4081’’.

15 (C) Section 4041 is amended by striking

16 subsection (e).

17 (D) Section 4041 is amended by striking

18 subsection (i).

19 (E) Section 4041(m)(1) is amended to read

20 as follows:

21 ‘‘(1) IN GENERAL.—In the case of the sale or use

22 of any partially exempt methanol or ethanol fuel, the

23 rate of the tax imposed by subsection (a)(2) shall be—

24 ‘‘(A) after September 30, 1997, and before

25 September 30, 2009—
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1 ‘‘(i) in the case of fuel none of the alco2 hol in which consists of ethanol, 9.15 cents

3 per gallon, and

4 ‘‘(ii) in any other case, 11.3 cents per

5 gallon, and

6 ‘‘(B) after September 30, 2009—

7 ‘‘(i) in the case of fuel none of the alco8 hol in which consists of ethanol, 2.15 cents

9 per gallon, and

10 ‘‘(ii) in any other case, 4.3 cents per

11 gallon.’’.

12 (F) Sections 4101(a), 4103, 4221(a), and

13 6206 are each amended by striking ‘‘, 4081, or

14 4091’’ and inserting ‘‘or 4081’’.

15 (G) Section 6416(b)(2) is amended by strik16 ing ‘‘4091 or’’.

17 (H) Section 6416(b)(3) is amended by strik18 ing ‘‘or 4091’’ each place it appears.

19 (I) Section 6416(d) is amended by striking

20 ‘‘or to the tax imposed by section 4091 in the

21 case of refunds described in section 4091(d)’’.

22 (J) Section 6427 is amended by striking

23 subsection (f).
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1 (K) Section 6427(j)(1) is amended by strik2 ing ‘‘, 4081, and 4091’’ and inserting ‘‘and

3 4081’’.

4 (L)(i) Section 6427(l)(1) is amended to

5 read as follows:

6 ‘‘(1) IN GENERAL.—Except as otherwise provided

7 in this subsection and in subsection (k), if any diesel

8 fuel or kerosene on which tax has been imposed by

9 section 4041 or 4081 is used by any person in a non10 taxable use, the Secretary shall pay (without interest)

11 to the ultimate purchaser of such fuel an amount

12 equal to the aggregate amount of tax imposed on such

13 fuel under section 4041 or 4081, as the case may be,

14 reduced by any refund paid to the ultimate vendor

15 under paragraph (4)(B).’’.

16 (ii) Paragraph (5)(B) of section 6427(l) is

17 amended by striking ‘‘Paragraph (1)(A) shall

18 not apply to kerosene’’ and inserting ‘‘Para19 graph (1) shall not apply to kerosene (other than

20 aviation-grade kerosene)’’.

21 (M) Subparagraph (B) of section

22 6724(d)(1), as amended by this Act, is amended

23 by striking clause (xvi) and by redesignating

24 clauses (xvii), (xviii), and (xix) as clauses (xvi),

25 (xvii), and (xviii), respectively.
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1 (N) Paragraph (2) of section 6724(d), as

2 amended by this Act, is amended by striking

3 subparagraph (X) and by redesignating subpara4 graphs (Y), (Z), (AA), (BB), and (CC) as sub5 paragraphs (X), (Y), (Z), (AA), and (BB), re6 spectively.

7 (O) Paragraph (1) of section 9502(b) is

8 amended by adding ‘‘and’’ at the end of subpara9 graph (B) and by striking subparagraphs (C)

10 and (D) and inserting the following new sub11 paragraph:

12 ‘‘(C) section 4081 with respect to aviation

13 gasoline and aviation-grade kerosene, and’’.

14 (P) The last sentence of section 9502(b) is

15 amended to read as follows:

16 ‘‘There shall not be taken into account under paragraph

17 (1) so much of the taxes imposed by section 4081 as are

18 determined at the rate specified in section 4081(a)(2)(B).’’.

19 (Q) Subsection (b) of section 9508 is

20 amended by striking paragraph (3) and by re21 designating paragraphs (4) and (5) as para22 graphs (3) and (4), respectively.

23 (R) Section 9508(c)(2)(A) is amended by

24 striking ‘‘sections 4081 and 4091’’ and inserting

25 ‘‘section 4081’’.
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1 (S) The table of subparts for part III of

2 subchapter A of chapter 32 is amended to read

3 as follows:

‘‘Subpart A. Motor and aviation fuels.

‘‘Subpart B. Special provisions applicable to fuels tax.’’.

4 (T) The heading for subpart A of part III

5 of subchapter A of chapter 32 is amended to read

6 as follows:

7 ‘‘Subpart A—Motor and Aviation Fuels’’.

8 (U) The heading for subpart B of part III

9 of subchapter A of chapter 32 is amended to read

10 as follows:

11 ‘‘Subpart B—Special Provisions Applicable to Fuels

12 Tax’’.

13 (e) EFFECTIVE DATE.—The amendments made by this

14 section shall apply to aviation-grade kerosene removed, en15 tered, or sold after September 30, 2004.

16 (f) FLOOR STOCKS TAX.—

17 (1) IN GENERAL.—There is hereby imposed on

18 aviation-grade kerosene held on October 1, 2004, by

19 any person a tax equal to—

20 (A) the tax which would have been imposed

21 before such date on such kerosene had the amend22 ments made by this section been in effect at all

23 times before such date, reduced by
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1 (B) the tax imposed before such date under

2 section 4091 of the Internal Revenue Code of

3 1986, as in effect on the day before the date of

4 the enactment of this Act.

5 (2) LIABILITY FOR TAX AND METHOD OF PAY6 MENT.—

7 (A) LIABILITY FOR TAX.—The person hold8 ing the kerosene on October 1, 2004, to which the

9 tax imposed by paragraph (1) applies shall be

10 liable for such tax.

11 (B) METHOD AND TIME FOR PAYMENT.—

12 The tax imposed by paragraph (1) shall be paid

13 at such time and in such manner as the Sec14 retary of the Treasury shall prescribe, including

15 the nonapplication of such tax on de minimis

16 amounts of kerosene.

17 (3) TRANSFER OF FLOOR STOCK TAX REVENUES

18 TO TRUST FUNDS.—For purposes of determining the

19 amount transferred to any trust fund, the tax im20 posed by this subsection shall be treated as imposed

21 by section 4081 of the Internal Revenue Code of

22 1986—

23 (A) at the Leaking Underground Storage

24 Tank Trust Fund financing rate under such sec25 tion to the extent of 0.1 cents per gallon, and
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1 (B) at the rate under section

2 4081(a)(2)(A)(iv) to the extent of the remainder.

3 (4) HELD BY A PERSON.—For purposes of this

4 section, kerosene shall be considered as held by a per5 son if title thereto has passed to such person (whether

6 or not delivery to the person has been made).

7 (5) OTHER LAWS APPLICABLE.—All provisions of

8 law, including penalties, applicable with respect to

9 the tax imposed by section 4081 of such Code shall,

10 insofar as applicable and not inconsistent with the

11 provisions of this subsection, apply with respect to the

12 floor stock tax imposed by paragraph (1) to the same

13 extent as if such tax were imposed by such section.

14 SEC. 872. TRANSFER OF CERTAIN AMOUNTS FROM THE AIR15 PORT AND AIRWAY TRUST FUND TO THE

16 HIGHWAY TRUST FUND TO REFLECT HIGH17 WAY USE OF JET FUEL.

18 (a) IN GENERAL.—Section 9502(d) is amended by

19 adding at the end the following new paragraph:

20 ‘‘(7) TRANSFERS FROM THE TRUST FUND TO

21 THE HIGHWAY TRUST FUND.—

22 ‘‘(A) IN GENERAL.—The Secretary shall pay

23 annually from the Airport and Airway Trust

24 Fund into the Highway Trust Fund an amount

25 (as determined by him) equivalent to amounts
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1 received in the Airport and Airway Trust Fund

2 which are attributable to fuel that is used pri3 marily for highway transportation purposes.

4 ‘‘(B) AMOUNTS TRANSFERRED TO MASS

5 TRANSIT ACCOUNT.—The Secretary shall transfer

6 11 percent of the amounts paid into the High7 way Trust Fund under subparagraph (A) to the

8 Mass Transit Account established under section

9 9503(e).’’.

10 (b) CONFORMING AMENDMENTS.—

11 (1) Subsection (a) of section 9503 is amended—

12 (A) by striking ‘‘appropriated or credited’’

13 and inserting ‘‘paid, appropriated, or credited’’,

14 and

15 (B) by striking ‘‘or section 9602(b)’’ and in16 serting ‘‘, section 9502(d)(7), or section 9602(b)’’.

17 (2) Subsection (e)(1) of section 9503 is amended

18 by striking ‘‘or section 9602(b)’’ and inserting ‘‘, sec19 tion 9502(d)(7), or section 9602(b)’’.

20 (c) EFFECTIVE DATE.—The amendments made by this

21 section shall take effect on October 1, 2004.
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1 PART II—DYED FUEL

2 SEC. 873. DYE INJECTION EQUIPMENT.

3 (a) IN GENERAL.—Section 4082(a)(2) (relating to ex4 emptions for diesel fuel and kerosene) is amended by insert5 ing ‘‘by mechanical injection’’ after ‘‘indelibly dyed’’.

6 (b) DYE INJECTOR SECURITY.—Not later than June

7 30, 2004, the Secretary of the Treasury shall issue regula8 tions regarding mechanical dye injection systems described

9 in the amendment made by subsection (a), and such regula10 tions shall include standards for making such systems tam11 per resistant.

12 (c) PENALTY FOR TAMPERING WITH OR FAILING TO

13 MAINTAIN SECURITY REQUIREMENTS FOR MECHANICAL

14 DYE INJECTION SYSTEMS.—

15 (1) IN GENERAL.—Part I of subchapter B of

16 chapter 68 (relating to assessable penalties) is amend17 ed by adding after section 6715 the following new sec18 tion:

19 ‘‘SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN

20 SECURITY REQUIREMENTS FOR MECHANICAL

21 DYE INJECTION SYSTEMS.

22 ‘‘(a) IMPOSITION OF PENALTY.—

23 ‘‘(1) TAMPERING.—If any person tampers with a

24 mechanical dye injection system used to indelibly dye

25 fuel for purposes of section 4082, then such person

26 shall pay a penalty in addition to the tax (if any).
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1 ‘‘(2) FAILURE TO MAINTAIN SECURITY REQUIRE2 MENTS.—If any operator of a mechanical dye injec3 tion system used to indelibly dye fuel for purposes of

4 section 4082 fails to maintain the security standards

5 for such system as established by the Secretary, then

6 such operator shall pay a penalty.

7 ‘‘(b) AMOUNT OF PENALTY.—The amount of the pen8 alty under subsection (a) shall be—

9 ‘‘(1) for each violation described in paragraph

10 (1), the greater of—

11 ‘‘(A) $25,000, or

12 ‘‘(B) $10 for each gallon of fuel involved,

13 and

14 ‘‘(2) for each—

15 ‘‘(A) failure to maintain security standards

16 described in paragraph (2), $1,000, and

17 ‘‘(B) failure to correct a violation described

18 in paragraph (2), $1,000 per day for each day

19 after which such violation was discovered or such

20 person should have reasonably known of such

21 violation.

22 ‘‘(c) JOINT AND SEVERAL LIABILITY.—

23 ‘‘(1) IN GENERAL.—If a penalty is imposed

24 under this section on any business entity, each officer,

25 employee, or agent of such entity or other contracting
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1 party who willfully participated in any act giving

2 rise to such penalty shall be jointly and severally lia3 ble with such entity for such penalty.

4 ‘‘(2) AFFILIATED GROUPS.—If a business entity

5 described in paragraph (1) is part of an affiliated

6 group (as defined in section 1504(a)), the parent cor7 poration of such entity shall be jointly and severally

8 liable with such entity for the penalty imposed under

9 this section.’’.

10 (2) CLERICAL AMENDMENT.—The table of sec11 tions for part I of subchapter B of chapter 68 is

12 amended by adding after the item related to section

13 6715 the following new item:

‘‘Sec. 6715A. Tampering with or failing to maintain security requirements for mechanical dye injection systems.’’.

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

15 subsections (a) and (c) shall take effect 180 days after the

16 date on which the Secretary issues the regulations described

17 in subsection (b).

18 SEC. 874. ELIMINATION OF ADMINISTRATIVE REVIEW FOR

19 TAXABLE USE OF DYED FUEL.

20 (a) IN GENERAL.—Section 6715 is amended by insert21 ing at the end the following new subsection:

22 ‘‘(e) NO ADMINISTRATIVE APPEAL FOR THIRD AND

23 SUBSEQUENT VIOLATIONS.—In the case of any person who

24 is found to be subject to the penalty under this section after
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1 a chemical analysis of such fuel and who has been penalized

2 under this section at least twice after the date of the enact3 ment of this subsection, no administrative appeal or review

4 shall be allowed with respect to such finding except in the

5 case of a claim regarding—

6 ‘‘(1) fraud or mistake in the chemical analysis,

7 or

8 ‘‘(2) mathematical calculation of the amount of

9 the penalty.’’.

10 (b) EFFECTIVE DATE.—The amendment made by this

11 section shall apply to penalties assessed after the date of

12 the enactment of this Act.

13 SEC. 875. PENALTY ON UNTAXED CHEMICALLY ALTERED

14 DYED FUEL MIXTURES.

15 (a) IN GENERAL.—Section 6715(a) (relating to dyed

16 fuel sold for use or used in taxable use, etc.) is amended

17 by striking ‘‘or’’ in paragraph (2), by inserting ‘‘or’’ at the

18 end of paragraph (3), and by inserting after paragraph (3)

19 the following new paragraph:

20 ‘‘(4) any person who has knowledge that a dyed

21 fuel which has been altered as described in paragraph

22 (3) sells or holds for sale such fuel for any use which

23 the person knows or has reason to know is not a non24 taxable use of such fuel,’’.
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1 (b) CONFORMING AMENDMENT.—Section 6715(a)(3) is

2 amended by striking ‘‘alters, or attempts to alter,’’ and in3 serting ‘‘alters, chemically or otherwise, or attempts to so

4 alter,’’.

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

6 section shall take effect on the date of the enactment of this

7 Act.

8 SEC. 876. TERMINATION OF DYED DIESEL USE BY INTER9 CITY BUSES.

10 (a) IN GENERAL.—Paragraph (3) of section 4082(b)

11 (relating to nontaxable use) is amended to read as follows:

12 ‘‘(3) any use described in section

13 4041(a)(1)(C)(iii)(II).’’.

14 (b) ULTIMATE VENDOR REFUND.—Subsection (b) of

15 section 6427 is amended by adding at the end the following

16 new paragraph:

17 ‘‘(4) REFUNDS FOR USE OF DIESEL FUEL IN

18 CERTAIN INTERCITY BUSES.—

19 ‘‘(A) IN GENERAL.—With respect to any

20 fuel to which paragraph (2)(A) applies, if the ul21 timate purchaser of such fuel waives (at such

22 time and in such form and manner as the Sec23 retary shall prescribe) the right to payment

24 under paragraph (1) and assigns such right to

25 the ultimate vendor, then the Secretary shall pay
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1 the amount which would be paid under para2 graph (1) to such ultimate vendor, but only if

3 such ultimate vendor—

4 ‘‘(i) is registered under section 4101,

5 and

6 ‘‘(ii) meets the requirements of sub7 paragraph (A), (B), or (D) of section

8 6416(a)(1).

9 ‘‘(B) CREDIT CARDS.—For purposes of this

10 paragraph, if the sale of such fuel is made by

11 means of a credit card, the person extending

12 credit to the ultimate purchaser shall be deemed

13 to be the ultimate vendor.’’.

14 (c) PAYMENT OF REFUNDS.—Subparagraph (A) of sec15 tion 6427(i)(4), as amended by this Act, is amended by in16 serting ‘‘subsections (b)(4) and’’ after ‘‘filed under’’.

17 (d) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to fuel sold after September 30, 2004.

19 PART III—MODIFICATION OF INSPECTION OF

20 RECORDS PROVISIONS

21 SEC. 877. AUTHORITY TO INSPECT ON-SITE RECORDS.

22 (a) IN GENERAL.—Section 4083(d)(1)(A) (relating to

23 administrative authority), as amended by this Act, is

24 amended by striking ‘‘and’’ at the end of clause (i) and

25 by inserting after clause (ii) the following new clause:
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1 ‘‘(iii) inspecting any books and records

2 and any shipping papers pertaining to such

3 fuel, and’’.

4 (b) EFFECTIVE DATE.—The amendments made by this

5 section shall take effect on the date of the enactment of this

6 Act.

7 SEC. 878. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.

8 (a) IN GENERAL.—Part I of subchapter B of chapter

9 68 (relating to assessable penalties), as amended by this

10 Act, is amended by adding at the end the following new

11 section:

12 ‘‘SEC. 6717. REFUSAL OF ENTRY.

13 ‘‘(a) IN GENERAL.—In addition to any other penalty

14 provided by law, any person who refuses to admit entry

15 or refuses to permit any other action by the Secretary au16 thorized by section 4083(d)(1) shall pay a penalty of $1,000

17 for such refusal.

18 ‘‘(b) JOINT AND SEVERAL LIABILITY.—

19 ‘‘(1) IN GENERAL.—If a penalty is imposed

20 under this section on any business entity, each officer,

21 employee, or agent of such entity or other contracting

22 party who willfully participated in any act giving

23 rise to such penalty shall be jointly and severally lia24 ble with such entity for such penalty.
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1 ‘‘(2) AFFILIATED GROUPS.—If a business entity

2 described in paragraph (1) is part of an affiliated

3 group (as defined in section 1504(a)), the parent cor4 poration of such entity shall be jointly and severally

5 liable with such entity for the penalty imposed under

6 this section.

7 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

8 shall be imposed under this section with respect to any fail9 ure if it is shown that such failure is due to reasonable

10 cause.’’.

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 4083(d)(3), as amended by this Act,

13 is amended—

14 (A) by striking ‘‘ENTRY.—The penalty’’ and

15 inserting: ‘‘ENTRY.—

16 ‘‘(A) FORFEITURE.—The penalty’’, and

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

18 subparagraph:

19 ‘‘(B) ASSESSABLE PENALTY.—For addi20 tional assessable penalty for the refusal to admit

21 entry or other refusal to permit an action by the

22 Secretary authorized by paragraph (1), see sec23 tion 6717.’’.
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1 (2) The table of sections for part I of subchapter

2 B of chapter 68, as amended by this Act, is amended

3 by adding at the end the following new item:

‘‘Sec. 6717. Refusal of entry.’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall take effect on October 1, 2004.

6 PART IV—REGISTRATION AND REPORTING

7 REQUIREMENTS

8 SEC. 879. REGISTRATION OF PIPELINE OR VESSEL OPERA9 TORS REQUIRED FOR EXEMPTION OF BULK

10 TRANSFERS TO REGISTERED TERMINALS OR

11 REFINERIES.

12 (a) IN GENERAL.—Section 4081(a)(1)(B) (relating to

13 exemption for bulk transfers to registered terminals or refin14 eries) is amended—

15 (1) by inserting ‘‘by pipeline or vessel’’ after

16 ‘‘transferred in bulk’’, and

17 (2) by inserting ‘‘, the operator of such pipeline

18 or vessel,’’ after ‘‘the taxable fuel’’.

19 (b) CIVIL PENALTY FOR CARRYING TAXABLE FUELS

20 BY NONREGISTERED PIPELINES OR VESSELS.—

21 (1) IN GENERAL.—Part I of subchapter B of

22 chapter 68 (relating to assessable penalties), as

23 amended by this Act, is amended by adding at the

24 end the following new section:
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1 ‘‘SEC. 6718. CARRYING TAXABLE FUELS BY NONREGISTERED

2 PIPELINES OR VESSELS.

3 ‘‘(a) IMPOSITION OF PENALTY.—If any person know4 ingly transfers any taxable fuel (as defined in section

5 4083(a)(1)) in bulk pursuant to section 4081(a)(1)(B) to

6 an unregistered, such person shall pay a penalty in addi7 tion to the tax (if any).

8 ‘‘(b) AMOUNT OF PENALTY.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), the amount of the penalty under subsection

11 (a) on each act shall be an amount equal to the great12 er of—

13 ‘‘(A) $10,000, or

14 ‘‘(B) $1 per gallon.

15 ‘‘(2) MULTIPLE VIOLATIONS.—In determining

16 the penalty under subsection (a) on any person, para17 graph (1) shall be applied by increasing the amount

18 in paragraph (1) by the product of such amount and

19 the number of prior penalties (if any) imposed by this

20 section on such person (or a related person or any

21 predecessor of such person or related person).

22 ‘‘(c) JOINT AND SEVERAL LIABILITY.—

23 ‘‘(1) IN GENERAL.—If a penalty is imposed

24 under this section on any business entity, each officer,

25 employee, or agent of such entity or other contracting

26 party who willfully participated in any act giving
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1 rise to such penalty shall be jointly and severally lia2 ble with such entity for such penalty.

3 ‘‘(2) AFFILIATED GROUPS.—If a business entity

4 described in paragraph (1) is part of an affiliated

5 group (as defined in section 1504(a)), the parent cor6 poration of such entity shall be jointly and severally

7 liable with such entity for the penalty imposed under

8 this section.

9 ‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty

10 shall be imposed under this section with respect to any fail11 ure if it is shown that such failure is due to reasonable

12 cause.’’.

13 (2) CLERICAL AMENDMENT.—The table of sec14 tions for part I of subchapter B of chapter 68, as

15 amended by this Act, is amended by adding at the

16 end the following new item:

‘‘Sec. 6718. Carrying taxable fuels by nonregistered pipelines or

vessels.’’.

17 (c) PUBLICATION OF REGISTERED PERSONS.—Not

18 later than June 30, 2004, the Secretary of the Treasury

19 shall publish a list of persons required to be registered under

20 section 4101 of the Internal Revenue Code of 1986.

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

22 subsections (a) and (b) shall take effect on October 1, 2004.
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1 SEC. 880. DISPLAY OF REGISTRATION.

2 (a) IN GENERAL.—Subsection (a) of section 4101 (re3 lating to registration) is amended—

4 (1) by striking ‘‘Every’’ and inserting the fol5 lowing:

6 ‘‘(1) IN GENERAL.—Every’’, and

7 (2) by adding at the end the following new para8 graph:

9 ‘‘(2) DISPLAY OF REGISTRATION.—Every oper10 ator of a vessel required by the Secretary to register

11 under this section shall display proof of registration

12 through an electronic identification device prescribed

13 by the Secretary on each vessel used by such operator

14 to transport any taxable fuel.’’.

15 (b) CIVIL PENALTY FOR FAILURE TO DISPLAY REG16 ISTRATION.—

17 (1) IN GENERAL.—Part I of subchapter B of

18 chapter 68 (relating to assessable penalties), as

19 amended by this Act, is amended by adding at the

20 end the following new section:

21 ‘‘SEC. 6719. FAILURE TO DISPLAY REGISTRATION OF VES22 SEL.

23 ‘‘(a) FAILURE TO DISPLAY REGISTRATION.—Every

24 operator of a vessel who fails to display proof of registration

25 pursuant to section 4101(a)(2) shall pay a penalty of $500

26 for each such failure. With respect to any vessel, only one
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1 penalty shall be imposed by this section during any cal2 endar month.

3 ‘‘(b) MULTIPLE VIOLATIONS.—In determining the pen4 alty under subsection (a) on any person, subsection (a) shall

5 be applied by increasing the amount in subsection (a) by

6 the product of such amount and the number of prior pen7 alties (if any) imposed by this section on such person (or

8 a related person or any predecessor of such person or related

9 person).

10 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

11 shall be imposed under this section with respect to any fail12 ure if it is shown that such failure is due to reasonable

13 cause.’’.

14 (2) CLERICAL AMENDMENT.—The table of sec15 tions for part I of subchapter B of chapter 68, as

16 amended by this Act, is amended by adding at the

17 end the following new item:

‘‘Sec. 6719. Failure to display registration of vessel.’’.

18 (c) EFFECTIVE DATE.—The amendments made by this

19 section shall take effect on October 1, 2004.

20 SEC. 881. REGISTRATION OF PERSONS WITHIN FOREIGN

21 TRADE ZONES, ETC.

22 (a) IN GENERAL.—Section 4101(a), as amended by

23 this Act, is amended by redesignating paragraph (2) as

24 paragraph (3), and by inserting after paragraph (1) the

25 following new paragraph:
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1 ‘‘(2) REGISTRATION OF PERSONS WITHIN FOR2 EIGN TRADE ZONES, ETC.—The Secretary shall re3 quire registration by any person which—

4 ‘‘(A) operates a terminal or refinery within

5 a foreign trade zone or within a customs bonded

6 storage facility, or

7 ‘‘(B) holds an inventory position with re8 spect to a taxable fuel in such a terminal.’’.

9 (b) EFFECTIVE DATE.—The amendments made by this

10 section shall take effect on October 1, 2004.

11 SEC. 882. PENALTIES FOR FAILURE TO REGISTER AND FAIL12 URE TO REPORT.

13 (a) INCREASED PENALTY.—Subsection (a) of section

14 7272 (relating to penalty for failure to register) is amended

15 by inserting ‘‘($10,000 in the case of a failure to register

16 under section 4101)’’ after ‘‘$50’’.

17 (b) INCREASED CRIMINAL PENALTY.—Section 7232

18 (relating to failure to register under section 4101, false rep19 resentations of registration status, etc.) is amended by strik20 ing ‘‘$5,000’’ and inserting ‘‘$10,000’’.

21 (c) ASSESSABLE PENALTY FOR FAILURE TO REG22 ISTER.—

23 (1) IN GENERAL.—Part I of subchapter B of

24 chapter 68 (relating to assessable penalties), as
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1 amended by this Act, is amended by adding at the

2 end the following new section:

3 ‘‘SEC. 6720. FAILURE TO REGISTER.

4 ‘‘(a) FAILURE TO REGISTER.—Every person who is re5 quired to register under section 4101 and fails to do so shall

6 pay a penalty in addition to the tax (if any).

7 ‘‘(b) AMOUNT OF PENALTY.—The amount of the pen8 alty under subsection (a) shall be—

9 ‘‘(1) $10,000 for each initial failure to register,

10 and

11 ‘‘(2) $1,000 for each day thereafter such person

12 fails to register.

13 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

14 shall be imposed under this section with respect to any fail15 ure if it is shown that such failure is due to reasonable

16 cause.’’.

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions for part I of subchapter B of chapter 68, as

19 amended by this Act, is amended by adding at the

20 end the following new item:

‘‘Sec. 6720. Failure to register.’’.

21 (d) ASSESSABLE PENALTY FOR FAILURE TO RE22 PORT.—

23 (1) IN GENERAL.—Part II of subchapter B of

24 chapter 68 (relating to assessable penalties) is amend25 ed by adding at the end the following new section:
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1 ‘‘SEC. 6725. FAILURE TO REPORT INFORMATION UNDER

2 SECTION 4101.

3 ‘‘(a) IN GENERAL.—In the case of each failure de4 scribed in subsection (b) by any person with respect to a

5 vessel or facility, such person shall pay a penalty of $10,000

6 in addition to the tax (if any).

7 ‘‘(b) FAILURES SUBJECT TO PENALTY.—For purposes

8 of subsection (a), the failures described in this subsection

9 are—

10 ‘‘(1) any failure to make a report under section

11 4101(d) on or before the date prescribed therefor, and

12 ‘‘(2) any failure to include all of the information

13 required to be shown on such report or the inclusion

14 of incorrect information.

15 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

16 shall be imposed under this section with respect to any fail17 ure if it is shown that such failure is due to reasonable

18 cause.’’.

19 (2) CLERICAL AMENDMENT.—The table of sec20 tions for part II of subchapter B of chapter 68 is

21 amended by adding at the end the following new item:

‘‘Sec. 6725. Failure to report information under section 4101.’’.

22 (e) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to failures pending or occurring after

24 September 30, 2004.
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1 SEC. 883. INFORMATION REPORTING FOR PERSONS CLAIM2 ING CERTAIN TAX BENEFITS.

3 (a) IN GENERAL.—Subpart C of part III of subchapter

4 A of chapter 32 is amended by adding at the end the fol5 lowing new section:

6 ‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS

7 CLAIMING CERTAIN TAX BENEFITS.

8 ‘‘(a) IN GENERAL.—The Secretary shall require any

9 person claiming tax benefits—

10 ‘‘(1) under the provisions of section 34, 40, and

11 40B to file a return at the time such person claims

12 such benefits (in such manner as the Secretary may

13 prescribe), and

14 ‘‘(2) under the provisions of section 4041(b)(2),

15 6426, or 6427(e) to file a monthly return (in such

16 manner as the Secretary may prescribe).

17 ‘‘(b) CONTENTS OF RETURN.—Any return filed under

18 this section shall provide such information relating to such

19 benefits and the coordination of such benefits as the Sec20 retary may require to ensure the proper administration and

21 use of such benefits.

22 ‘‘(c) ENFORCEMENT.—With respect to any person de23 scribed in subsection (a) and subject to registration require24 ments under this title, rules similar to rules of section

25 4222(c) shall apply with respect to any requirement under

26 this section.’’.
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1 (b) CONFORMING AMENDMENT.—The table of sections

2 for subpart C of part III of subchapter A of chapter 32

3 is amended by adding at the end the following new item:

‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall take effect on October 1, 2004.

6 PART V—IMPORTS

7 SEC. 884. TAX AT POINT OF ENTRY WHERE IMPORTER NOT

8 REGISTERED.

9 (a) TAX AT POINT OF ENTRY WHERE IMPORTER NOT

10 REGISTERED.—

11 (1) IN GENERAL.—Subpart C of part III of sub12 chapter A of chapter 31, as amended by this Act, is

13 amended by adding at the end the following new sec14 tion:

15 ‘‘SEC. 4105. TAX AT ENTRY WHERE IMPORTER NOT REG16 ISTERED.

17 ‘‘(a) IN GENERAL.—Any tax imposed under this part

18 on any person not registered under section 4101 for the

19 entry of a fuel into the United States shall be imposed at

20 the time and point of entry.

21 ‘‘(b) ENFORCEMENT OF ASSESSMENT.—If any person

22 liable for any tax described under subsection (a) has not

23 paid the tax or posted a bond, the Secretary may—

24 ‘‘(1) seize the fuel on which the tax is due, or

25 ‘‘(2) detain any vehicle transporting such fuel,
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1 until such tax is paid or such bond is filed.

2 ‘‘(c) LEVY OF FUEL.—If no tax has been paid or no

3 bond has been filed within 5 days from the date the Sec4 retary seized fuel pursuant to subsection (b), the Secretary

5 may sell such fuel as provided under section 6336.’’.

6 (2) CONFORMING AMENDMENT.—The table of sec7 tions for subpart C of part III of subchapter A of

8 chapter 31 of the Internal Revenue Code of 1986, as

9 amended by section 5245 of this Act, is amended by

10 adding after the last item the following new item:

‘‘Sec. 4105. Tax at entry where importer not registered.’’.

11 (b) DENIAL OF ENTRY WHERE TAX NOT PAID.—The

12 Secretary of Homeland Security is authorized to deny entry

13 into the United States of any shipment of a fuel which is

14 taxable under section 4081 of the Internal Revenue Code

15 of 1986 if the person entering such shipment fails to pay

16 the tax imposed under such section or post a bond in ac17 cordance with the provisions of section 4105 of such Code.

18 (c) EFFECTIVE DATE.—The amendments made by this

19 section shall take effect on the date of the enactment of this

20 Act.

21 SEC. 885. RECONCILIATION OF ON-LOADED CARGO TO EN22 TERED CARGO.

23 (a) IN GENERAL.—Subsection (a) of section 343 of the

24 Trade Act of 2002 is amended by inserting at the end the

25 following new paragraph:
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1 ‘‘(4) IN GENERAL.—Subject to paragraphs (2)

2 and (3), not later than 1 year after the enactment of

3 this paragraph, the Secretary of Homeland Security,

4 together with the Secretary of the Treasury, shall pro5 mulgate regulations providing for the transmission to

6 the Internal Revenue Service, through an electronic

7 data interchange system, of information pertaining to

8 cargo of taxable fuels (as defined in section 4083 of

9 the Internal Revenue Code of 1986) destined for im10 portation into the United States prior to such impor11 tation.’’.

12 (b) EFFECTIVE DATE.—The amendment made by this

13 section shall take effect on the date of the enactment of this

14 Act.

15 PART VI—MISCELLANEOUS PROVISIONS

16 SEC. 886. TAX ON SALE OF DIESEL FUEL WHETHER SUIT17 ABLE FOR USE OR NOT IN A DIESEL-POW18 ERED VEHICLE OR TRAIN.

19 (a) IN GENERAL.—Section 4083(a)(3) is amended—

20 (1) by striking ‘‘The term’’ and inserting the fol21 lowing:

22 ‘‘(A) IN GENERAL.—The term’’, and

23 (2) by inserting at the end the following new

24 subparagraph:
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1 ‘‘(B) LIQUID SOLD AS DIESEL FUEL.—The

2 term ‘diesel fuel’ includes any liquid which is

3 sold as or offered for sale as a fuel in a diesel4 powered highway vehicle or a diesel-powered

5 train.’’.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 40B(b)(1)(B), as added by this Act,

8 is amended by striking ‘‘4083(a)(3)’’ and inserting

9 ‘‘4083(a)(3)(A)’’.

10 (2) Section 6426(c)(3), as added by this Act, is

11 amended by striking ‘‘4083(a)(3)’’ and inserting

12 ‘‘4083(a)(3)(A)’’.

13 (c) EFFECTIVE DATE.—The amendments made by this

14 section shall take effect on the date of the enactment of this

15 Act.

16 SEC. 887. MODIFICATION OF ULTIMATE VENDOR REFUND

17 CLAIMS WITH RESPECT TO FARMING.

18 (a) IN GENERAL.—

19 (1) REFUNDS.—Section 6427(l) is amended by

20 adding at the end the following new paragraph:

21 ‘‘(6) REGISTERED VENDORS PERMITTED TO AD22 MINISTER CERTAIN CLAIMS FOR REFUND OF DIESEL

23 FUEL AND KEROSENE SOLD TO FARMERS.—

24 ‘‘(A) IN GENERAL.—In the case of diesel fuel

25 or kerosene used on a farm for farming purposes
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1 (within the meaning of section 6420(c)), para2 graph (1) shall not apply to the aggregate

3 amount of such diesel fuel or kerosene if such

4 amount does not exceed 500 gallons (as deter5 mined under subsection (i)(5)(A)(iii)).

6 ‘‘(B) PAYMENT TO ULTIMATE VENDOR.—The

7 amount which would (but for subparagraph (A))

8 have been paid under paragraph (1) with respect

9 to any fuel shall be paid to the ultimate vendor

10 of such fuel, if such vendor—

11 ‘‘(i) is registered under section 4101,

12 and

13 ‘‘(ii) meets the requirements of sub14 paragraph (A), (B), or (D) of section

15 6416(a)(1).’’.

16 (2) FILING OF CLAIMS.—Section 6427(i) is

17 amended by inserting at the end the following new

18 paragraph:

19 ‘‘(5) SPECIAL RULE FOR VENDOR REFUNDS WITH

20 RESPECT TO FARMERS.—

21 ‘‘(A) IN GENERAL.—A claim may be filed

22 under subsection (l)(6) by any person with re23 spect to fuel sold by such person for any

24 period—
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1 ‘‘(i) for which $200 or more ($100 or

2 more in the case of kerosene) is payable

3 under subsection (l)(6),

4 ‘‘(ii) which is not less than 1 week,

5 and

6 ‘‘(iii) which is for not more than 500

7 gallons for each farmer for which there is a

8 claim.

9 Notwithstanding subsection (l)(1), paragraph

10 (3)(B) shall apply to claims filed under the pre11 ceding sentence.

12 ‘‘(B) TIME FOR FILING CLAIM.—No claim

13 filed under this paragraph shall be allowed un14 less filed on or before the last day of the first

15 quarter following the earliest quarter included in

16 the claim.’’.

17 (3) CONFORMING AMENDMENTS.—

18 (A) Section 6427(l)(5)(A) is amended to

19 read as follows:

20 ‘‘(A) IN GENERAL.—Paragraph (1) shall

21 not apply to diesel fuel or kerosene used by a

22 State or local government.’’.

23 (B) The heading for section 6427(l)(5) is

24 amended by striking ‘‘FARMERS AND’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to fuels sold for nontaxable use after the

3 date of the enactment of this Act.

4 SEC. 888. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE

5 VENDORS.

6 (a) IN GENERAL.—Paragraph (4) of section 6416(a)

7 (relating to abatements, credits, and refunds) is amended

8 to read as follows:

9 ‘‘(4) REGISTERED ULTIMATE VENDOR TO ADMIN10 ISTER CREDITS AND REFUNDS OF GASOLINE TAX.—

11 ‘‘(A) IN GENERAL.—For purposes of this

12 subsection, if an ultimate vendor purchases any

13 gasoline on which tax imposed by section 4081

14 has been paid and sells such gasoline to an ulti15 mate purchaser described in subparagraph (C)

16 or (D) of subsection (b)(2) (and such gasoline is

17 for a use described in such subparagraph), such

18 ultimate vendor shall be treated as the person

19 (and the only person) who paid such tax, but

20 only if such ultimate vendor is registered under

21 section 4101. For purposes of this subparagraph,

22 if the sale of gasoline is made by means of a

23 credit card, the person extending the credit to the

24 ultimate purchaser shall be deemed to be the ulti25 mate vendor.
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1 ‘‘(B) TIMING OF CLAIMS.—The procedure

2 and timing of any claim under subparagraph

3 (A) shall be the same as for claims under section

4 6427(i)(4), except that the rules of section

5 6427(i)(3)(B) regarding electronic claims shall

6 not apply unless the ultimate vendor has cer7 tified to the Secretary for the most recent quarter

8 of the taxable year that all ultimate purchasers

9 of the vendor are certified and entitled to a re10 fund under subparagraph (C) or (D) of sub11 section (b)(2).’’.

12 (b) CREDIT CARD PURCHASES OF DIESEL FUEL OR

13 KEROSENE BY STATE AND LOCAL GOVERNMENTS.—Section

14 6427(l)(5)(C) (relating to nontaxable uses of diesel fuel, ker15 osene, and aviation fuel), as amended by this Act, is amend16 ed by adding at the end the following new sentence: ‘‘For

17 purposes of this subparagraph, if the sale of diesel fuel or

18 kerosene is made by means of a credit card, the person ex19 tending the credit to the ultimate purchaser shall be deemed

20 to be the ultimate vendor.’’.

21 (c) EFFECTIVE DATE.—The amendments made by this

22 section shall take effect on October 1, 2004.
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1 SEC. 889. TWO-PARTY EXCHANGES.

2 (a) IN GENERAL.—Subpart C of part III of subchapter

3 A of chapter 32, as amended by this Act, is amended by

4 adding at the end the following new section:

5 ‘‘SEC. 4106. TWO-PARTY EXCHANGES.

6 ‘‘(a) IN GENERAL.—In a two-party exchange, the de7 livering person shall not be liable for the tax imposed under

8 of section 4081(a)(1)(A)(ii).

9 ‘‘(b) TWO-PARTY EXCHANGE.—The term ‘two-party

10 exchange’ means a transaction, other than a sale, in which

11 taxable fuel is transferred from a delivering person reg12 istered under section 4101 as a taxable fuel registrant to

13 a receiving person who is so registered where all of the fol14 lowing occur:

15 ‘‘(1) The transaction includes a transfer from the

16 delivering person, who holds the inventory position

17 for taxable fuel in the terminal as reflected in the

18 records of the terminal operator.

19 ‘‘(2) The exchange transaction occurs before or

20 contemporaneous with completion of removal across

21 the rack from the terminal by the receiving person.

22 ‘‘(3) The terminal operator in its books and

23 records treats the receiving person as the person that

24 removes the product across the terminal rack for pur25 poses of reporting the transaction to the Secretary.
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1 ‘‘(4) The transaction is the subject of a written

2 contract.’’.

3 (b) CONFORMING AMENDMENT.—The table of sections

4 for subpart C of part III of subchapter A of chapter 32,

5 as amended by of this Act, is amended by adding after the

6 last item the following new item:

‘‘Sec. 4106. Two-party exchanges.’’.

7 (c) EFFECTIVE DATE.—The amendment made by this

8 section shall take effect on the date of the enactment of this

9 Act.

10 SEC. 890. MODIFICATIONS OF TAX ON USE OF CERTAIN VE11 HICLES.

12 (a) NO PRORATION OF TAX UNLESS VEHICLE IS DE13 STROYED OR STOLEN.—

14 (1) IN GENERAL.—Section 4481(c) (relating to

15 proration of tax) is amended to read as follows:

16 ‘‘(c) PRORATION OF TAX WHERE VEHICLE SOLD, DE17 STROYED, OR STOLEN.—

18 ‘‘(1) IN GENERAL.—If in any taxable period a

19 highway motor vehicle is sold, destroyed, or stolen be20 fore the first day of the last month in such period and

21 not subsequently used during such taxable period, the

22 tax shall be reckoned proportionately from the first

23 day of the month in such period in which the first use

24 of such highway motor vehicle occurs to and including
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1 the last day of the month in which such highway

2 motor vehicle was sold, destroyed, or stolen.

3 ‘‘(2) DESTROYED.—For purposes of paragraph

4 (1), a highway motor vehicle is destroyed if such vehi5 cle is damaged by reason of an accident or other cas6 ualty to such an extent that it is not economic to re7 build.’’.

8 (2) CONFORMING AMENDMENTS.—

9 (A) Section 6156 (relating to installment

10 payment of tax on use of highway motor vehi11 cles) is repealed.

12 (B) The table of sections for subchapter A of

13 chapter 62 is amended by striking the item relat14 ing to section 6156.

15 (b) DISPLAY OF TAX CERTIFICATE.—Paragraph (2) of

16 section 4481(d) (relating to one tax liability for period) is

17 amended to read as follows:

18 ‘‘(2) DISPLAY OF TAX CERTIFICATE.—Under reg19 ulations by the Secretary, every taxpayer which pays

20 the tax imposed under this section with respect to a

21 highway motor vehicle shall, not later than 1 month

22 after the due date of the return of tax with respect to

23 each taxable period, receive and display on such vehi24 cle an electronic identification device prescribed by

25 the Secretary.’’.
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1 (c) ELECTRONIC FILING.—Section 4481, is amended

2 by redesignating subsection (e) as subsection (f) and by in3 serting after subsection (d) the following new subsection:

4 ‘‘(e) ELECTRONIC FILING.—Any taxpayer who files a

5 return under this section with respect to 25 or more vehicles

6 for any taxable period shall file such return electronically.’’.

7 (d) REPEAL OF REDUCTION IN TAX FOR CERTAIN

8 TRUCKS.—Section 4483 of the Internal Revenue Code of

9 1986 is amended by striking subsection (f).

10 (e) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall

13 apply to taxable periods beginning after the date of

14 the enactment of this Act.

15 (2) REGULATIONS REGARDING DISPLAY OF TAX

16 CERTIFICATE.—The Secretary of the Treasury shall

17 issue regulations required under section 4481(d)(2) of

18 the Internal Revenue Code of 1986 (as added by sub19 section (b)) not later than October 1, 2005.

20 SEC. 891. DEDICATION OF REVENUES FROM CERTAIN PEN21 ALTIES TO THE HIGHWAY TRUST FUND.

22 (a) IN GENERAL.—Subsection (b) of section 9503 (re23 lating to transfer to Highway Trust Fund of amounts

24 equivalent to certain taxes), is amended by redesignating
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1 paragraph (5) as paragraph (6) and inserting after para2 graph (4) the following new paragraph:

3 ‘‘(5) CERTAIN PENALTIES.—There are hereby ap4 propriated to the Highway Trust Fund amounts

5 equivalent to the penalties assessed under sections

6 6715, 6715A, 6717, 6718, 6719, 6720, 6725, 7232,

7 and 7272 (but only with regard to penalties under

8 such section related to failure to register under section

9 4101).’’.

10 (b) CONFORMING AMENDMENTS.—

11 (1) The heading of subsection (b) of section 9503

12 is amended by inserting ‘‘AND PENALTIES’’ after

13 ‘‘TAXES’’.

14 (2) The heading of paragraph (1) of section

15 9503(b) is amended by striking ‘‘IN GENERAL’’ and

16 inserting ‘‘CERTAIN TAXES’’.

17 (c) EFFECTIVE DATE.—The amendments made by this

18 section shall apply to penalties assessed after October 1,

19 2004.

20 SEC. 892. NONAPPLICATION OF EXPORT EXEMPTION TO DE21 LIVERY OF FUEL TO MOTOR VEHICLES RE22 MOVED FROM UNITED STATES.

23 (a) IN GENERAL.—Section 4221(d)(2) (defining ex24 port) is amended by adding at the end the following new

25 sentence: ‘‘Such term does not include the delivery of a tax-
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1 able fuel (as defined in section 4083(a)(1)) into a fuel tank

2 of a motor vehicle which is shipped or driven out of the

3 United States.’’.

4 (b) CONFORMING AMENDMENTS.—

5 (1) Section 4041(g) (relating to other exemp6 tions) is amended by adding at the end the following

7 new sentence: ‘‘Paragraph (3) shall not apply to the

8 sale for delivery of a liquid into a fuel tank of a

9 motor vehicle which is shipped or driven out of the

10 United States.’’.

11 (2) Clause (iv) of section 4081(a)(1)(A) (relating

12 to tax on removal, entry, or sale) is amended by in13 serting ‘‘or at a duty-free sales enterprise (as defined

14 in section 555(b)(8) of the Tariff Act of 1930)’’ after

15 ‘‘section 4101’’.

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

17 section shall apply to sales or deliveries made after the date

18 of the enactment of this Act.

19 PART VII—TOTAL ACCOUNTABILITY

20 SEC. 893. TOTAL ACCOUNTABILITY.

21 (a) TAXATION OF REPORTABLE LIQUIDS.—

22 (1) IN GENERAL.—Section 4081(a), as amended

23 by this Act, is amended—

24 (A) by inserting ‘‘or reportable liquid’’ after

25 ‘‘taxable fuel’’ each place it appears, and
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1 (B) by inserting ‘‘such liquid’’ after ‘‘such

2 fuel’’ in paragraph (1)(A)(iv).

3 (2) RATE OF TAX.—Subparagraph (A) of section

4 4081(a)(2), as amended by this Act, is amended by

5 striking ‘‘and’’ at the end of clause (iii), by striking

6 the period at the end of clause (iv) and inserting ‘‘,

7 and’’, and by adding at the end the following new

8 clause:

9 ‘‘(v) in the case of reportable liquids,

10 the rate determined under section

11 4083(c)(2).’’.

12 (3) EXEMPTION.—Section 4081(a)(1) is amended

13 by adding at the end the following new subparagraph:

14 ‘‘(C) EXEMPTION FOR REGISTERED TRANS15 FERS OF REPORTABLE LIQUIDS.—The tax im16 posed by this paragraph shall not apply to any

17 removal, entry, or sale of a reportable liquid if—

18 ‘‘(i) such removal, entry, or sale is to

19 a registered person who certifies that such

20 liquid will not be used as a fuel or in the

21 production of a fuel, or

22 ‘‘(ii) the sale is to the ultimate pur23 chaser of such liquid.’’.

24 (4) REPORTABLE LIQUIDS.—Section 4083, as

25 amended by this Act, is amended by redesignating
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1 subsections (c) and (d) (as redesignated by this Act)

2 as subsections (d) and (e), respectively, and by insert3 ing after subsection (b) the following new section:

4 ‘‘(c) REPORTABLE LIQUID.—For purposes of this

5 subpart—

6 ‘‘(1) IN GENERAL.—The term ‘reportable liquid’

7 means any petroleum-based liquid other than a tax8 able fuel.

9 ‘‘(2) TAXATION.—

10 ‘‘(A) GASOLINE BLEND STOCKS AND ADDI11 TIVES.—Gasoline blend stocks and additives

12 which are reportable liquids (as defined in para13 graph (1)) shall be subject to the rate of tax

14 under clause (i) of section 4081(a)(2)(A).

15 ‘‘(B) OTHER REPORTABLE LIQUIDS.—Any

16 reportable liquid (as defined in paragraph (1))

17 not described in subparagraph (A) shall be sub18 ject to the rate of tax under clause (iii) of section

19 4081(a)(2)(A).’’.

20 (5) CONFORMING AMENDMENTS.—

21 (A) Section 4081(e) is amended by inserting

22 ‘‘or reportable liquid’’ after ‘‘taxable fuel’’.

23 (B) Section 4083(d) (relating to certain use

24 defined as removal), as redesignated by para-
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1 graph (4), is amended by inserting ‘‘or report2 able liquid’’ after ‘‘taxable fuel’’.

3 (C) Section 4083(e)(1) (relating to adminis4 trative authority), as redesignated by paragraph

5 (4), is amended—

6 (i) in subparagraph (A)—

7 (I) by inserting ‘‘or reportable liq8 uid’’ after ‘‘taxable fuel’’, and

9 (II) by inserting ‘‘or such liquid’’

10 after ‘‘such fuel’’ each place it appears,

11 and

12 (ii) in subparagraph (B), by inserting

13 ‘‘or any reportable liquid’’ after ‘‘any tax14 able fuel’’.

15 (D) Section 4101(a)(2), as added by this

16 Act, is amended by inserting ‘‘or a reportable

17 liquid’’ after ‘‘taxable fuel’’.

18 (E) Section 4101(a)(3), as added and redes19 ignated by this Act, is amended by inserting ‘‘or

20 any reportable liquid’’ before the period at the

21 end.

22 (F) Section 4102 is amended by inserting

23 ‘‘or any reportable liquid’’ before the period at

24 the end.
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1 (G)(i) Section 6718, as added by this Act,

2 is amended—

3 (I) in subsection (a), by inserting ‘‘or

4 any reportable liquid (as defined in section

5 4083(c)(1))’’ after ‘‘section 4083(a)(1))’’,

6 and

7 (II) in the heading, by inserting ‘‘OR

8 REPORTABLE LIQUIDS’’ after ‘‘TAXABLE

9 FUEL’’.

10 (ii) The item relating to section 6718 in

11 table of sections for part I of subchapter B of

12 chapter 68, as added by this Act, is amended by

13 inserting ‘‘or reportable liquids’’ after ‘‘taxable

14 fuels’’.

15 (H) Section 6427(h) is amended to read as

16 follows:

17 ‘‘(h) GASOLINE BLEND STOCKS OR ADDITIVES AND

18 REPORTABLE LIQUIDS.—Except as provided in subsection

19 (k)—

20 ‘‘(1) if any gasoline blend stock or additive

21 (within the meaning of section 4083(a)(2)) is not

22 used by any person to produce gasoline and such per23 son establishes that the ultimate use of such gasoline

24 blend stock or additive is not to produce gasoline, or
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1 ‘‘(2) if any reportable liquid (within the mean2 ing of section 4083(c)(1)) is not used by any person

3 to produce a taxable fuel and such person establishes

4 that the ultimate use of such reportable liquid is not

5 to produce a taxable fuel,

6 then the Secretary shall pay (without interest) to such per7 son an amount equal to the aggregate amount of the tax

8 imposed on such person with respect to such gasoline blend

9 stock or additive or such reportable liquid.’’.

10 (I) Section 7232, as amended by this Act,

11 is amended by inserting ‘‘or reportable liquid

12 (within the meaning of section 4083(c)(1))’’ after

13 ‘‘section 4083)’’.

14 (J) Section 343 of the Trade Act of 2002, as

15 amended by this Act, is amended by inserting

16 ‘‘and reportable liquids (as defined in section

17 4083(c)(1) of such Code)’’ after ‘‘Internal Rev18 enue Code of 1986)’’.

19 (b) DYED DIESEL.—Section 4082(a) is amended by

20 striking ‘‘and’’ at the end of paragraph (2), by striking the

21 period at the end of paragraph (3) and inserting ‘‘and’’,

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

23 paragraph:

24 ‘‘(4) which is removed, entered, or sold by a per25 son registered under section 4101.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to reportable liquids (as defined in sec3 tion 4083(c) of the Internal Revenue Code) and fuel sold

4 or used after September 30, 2004.

5 SEC. 894. EXCISE TAX REPORTING.

6 (a) IN GENERAL.—Part II of subchapter A of chapter

7 61 is amended by adding at the end the following new sub8 part:

9 ‘‘SUBPART E—EXCISE TAX REPORTING

10 ‘‘SEC. 6025. RETURNS RELATING TO FUEL TAXES.

11 ‘‘(a) IN GENERAL.—The Secretary shall require any

12 person liable for the tax imposed under Part III of sub13 chapter A of chapter 32 to file a return of such tax on a

14 monthly basis. Not earlier than January 1, 2005, such fil15 ings shall be in electronic form as prescribed by the Sec16 retary.

17 ‘‘(b) INFORMATION INCLUDED WITH RETURN.—The

18 Secretary shall require any person filing a return under

19 subsection (a) to provide information regarding any refined

20 product (whether or not such product is taxable under this

21 title) removed from a terminal during the period for which

22 such return applies.’’.

23 (b) CONFORMING AMENDMENT.—The table of parts for

24 subchapter A of chapter 61 is amended by adding at the

25 end the following new item:

‘‘Subpart E—Excise Tax Reporting’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to fuel sold or used after September 30,

3 2004.

4 SEC. 895. INFORMATION REPORTING.

5 (a) IN GENERAL.—Section 4101(d) is amended by

6 adding at the end the following new flush sentence:

7 ‘‘The Secretary shall require reporting under the previous

8 sentence with respect to taxable fuels removed, entered, or

9 transferred from any refinery, pipeline, or vessel which is

10 registered under this section. Any person who is required

11 to report under this subsection and who has 25 or more

12 reportable transactions in a month shall file such report

13 in electronic format.’’.

14 (b) EFFECTIVE DATE.—The amendment made by this

15 section shall apply on October 1, 2004.

16 Subtitle I—Mobile Machinery

17 SEC. 896. TREATMENT OF MOBILE MACHINERY.

18 (a) TREATMENT OF MOBILE MACHINERY AS HIGHWAY

19 VEHICLE.—

20 (1) IN GENERAL.—Section 7701(a) (relating to

21 definitions) is amended by adding at the end the fol22 lowing new paragraph:

23 ‘‘(48) TREATMENT OF MOBILE MACHINERY AS

24 HIGHWAY VEHICLE.—
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1 ‘‘(A) IN GENERAL.—A vehicle described in

2 subparagraph (B) shall be treated as a highway

3 vehicle.

4 ‘‘(B) MOBILE MACHINERY.—A vehicle is de5 scribed in this subparagraph if such vehicle con6 sists of a chassis—

7 ‘‘(i) to which there has been perma8 nently mounted (by welding, bolting, riv9 eting, or other means) machinery or equip10 ment to perform a construction, manufac11 turing, processing, farming, mining, drill12 ing, timbering, or similar operation if the

13 operation of the machinery or equipment is

14 unrelated to transportation on or off the

15 public highways,

16 ‘‘(ii) which has been specially designed

17 to serve only as a mobile carriage and

18 mount (and a power source, where applica19 ble) for the particular machinery or equip20 ment involved, whether or not such machin21 ery or equipment is in operation, and

22 ‘‘(iii) which, by reason of such special

23 design, could not, without substantial struc24 tural modification, be used as a component

25 of a vehicle designed to perform a function
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1 of transporting any load other than that

2 particular machinery or equipment or simi3 lar machinery or equipment requiring such

4 a specially designed chassis.’’.

5 (2) EFFECTIVE DATE.—The amendment made by

6 this subsection shall take effect on the day after the

7 date of the enactment of this Act.

8 (b) ELIGIBILITY FOR REFUND IN CASE OF LIMITED

9 USE OF VEHICLE ON HIGHWAYS.—

10 (1) RETAIL SALES AND TIRE TAXES.—

11 (A) IN GENERAL.—Section 6416(b) (relat12 ing to special cases in which tax payments con13 sidered overpayments) is amended by adding at

14 the end the following new paragraph:

15 ‘‘(7) MOBILE MACHINERY.—

16 ‘‘(A) IN GENERAL.—If the tax imposed by

17 section 4051 or 4071 has been paid with respect

18 to any vehicle described in section

19 7701(a)(48)(B) which meets the use-based test for

20 each of the first 2 12-month periods after such

21 payment, 50 percent of such tax shall be consid22 ered an overpayment for each such period.

23 ‘‘(B) USE-BASED TEST.—For purposes of

24 subparagraph (A), the use-based test is met if the
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1 use of the vehicle on public highways was less

2 than 5,000 miles during any 12-month period.

3 ‘‘(C) SPECIAL RULE FOR USE BY CERTAIN

4 TAX-EXEMPT ORGANIZATIONS.—For purposes of

5 subparagraph (A), the use-based test shall be de6 termined without regard to any use in a vehicle

7 by an organization which is described in section

8 501(c) and exempt from tax under section

9 501(a).’’.

10 (B) EFFECTIVE DATE.—The amendment

11 made by this paragraph shall take effect on the

12 day after the date of the enactment of this Act.

13 (2) FUEL TAXES.—

14 (A) IN GENERAL.—Section 6421(e)(2) (de15 fining off-highway business use) is amended by

16 adding at the end the following new subpara17 graph:

18 ‘‘(C) USES IN MOBILE MACHINERY.—

19 ‘‘(i) IN GENERAL.—The term ‘off-high20 way business use’ shall include any use in

21 a vehicle described in section

22 7701(a)(48)(B) which meets the use-based

23 test.

24 ‘‘(ii) USE-BASED TEST.—For purposes

25 of clause (i), the use-based test is met if the
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1 use of the vehicle on public highways was

2 less than 5,000 miles during the taxpayer’s

3 taxable year.

4 ‘‘(iii) SPECIAL RULE FOR USE BY CER5 TAIN TAX-EXEMPT ORGANIZATIONS.—For

6 purposes of clause (i), the use-based test

7 shall be determined without regard to any

8 use in a vehicle by an organization which

9 is described in section 501(c) and exempt

10 from tax under section 501(a).’’.

11 (B) ANNUAL REFUND OF TAX PAID.—Sec12 tion 6427(i)(2) (relating to exceptions) is amend13 ed by adding at the end the following new sub14 paragraph:

15 ‘‘(C) NONAPPLICATION OF PARAGRAPH.—

16 This paragraph shall not apply to any fuel used

17 in any off-highway business use described in sec18 tion 6421(e)(2)(C).’’.

19 (C) EFFECTIVE DATE.—The amendments

20 made by this paragraph shall apply to taxable

21 years beginning after the date of the enactment

22 of this Act.

23 (3) CONFORMING AMENDMENT FOR TAX-EXEMPT

24 USERS WITH RESPECT TO USE TAX.—
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1 (A) IN GENERAL.—Section 4483(d)(1) (re2 lating to suspension of tax) is amended by add3 ing at the end the following new subparagraph:

4 ‘‘(C) SPECIAL RULE FOR USE BY CERTAIN

5 TAX-EXEMPT ORGANIZATIONS.—Subparagraph

6 (A) shall be determined without regard to any

7 use in a vehicle by an organization which is de8 scribed in section 501(c) and exempt from tax

9 under section 501(a).’’.

10 (B) EFFECTIVE DATE.—The amendment

11 made by this paragraph shall take effect on the

12 day after the date of the enactment of this Act.

13 Subtitle J—Additional Provisions

14 SEC. 897. STUDY OF EFFECTIVENESS OF CERTAIN PROVI15 SIONS BY GAO.

16 (a) STUDY.—The Comptroller General of the United

17 States shall undertake an ongoing analysis of—

18 (1) the effectiveness of the alternative motor vehi19 cles and fuel incentives provisions under subtitle B

20 and the conservation and energy efficiency provisions

21 under subtitle C, and

22 (2) the recipients of the tax benefits contained in

23 such provisions, including an identification of such

24 recipients by income and other appropriate measure25 ments.
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1 Such analysis shall quantify the effectiveness of such provi2 sions by examining and comparing the Federal Govern3 ment’s forgone revenue to the aggregate amount of energy

4 actually conserved and tangible environmental benefits

5 gained as a result of such provisions.

6 (b) REPORTS.—The Comptroller General of the United

7 States shall report the analysis required under subsection

8 (a) to Congress not later than December 31, 2004, and an9 nually thereafter.

10 SEC. 898. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES

11 ON RAILROADS AND INLAND WATERWAY

12 TRANSPORTATION WHICH REMAIN IN GEN13 ERAL FUND.

14 (a) TAXES ON TRAINS.—

15 (1) IN GENERAL.—Subparagraph (A) of section

16 4041(a)(1) is amended by striking ‘‘or a diesel-pow17 ered train’’ each place it appears and by striking ‘‘or

18 train’’.

19 (2) CONFORMING AMENDMENTS.—

20 (A) Subparagraph (C) of section 4041(a)(1)

21 is amended by striking clause (ii) and by redes22 ignating clause (iii) as clause (ii).

23 (B) Subparagraph (C) of section 4041(b)(1)

24 is amended by striking all that follows ‘‘section

25 6421(e)(2)’’ and inserting a period.
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1 (C) Subsection (d) of section 4041 is

2 amended by redesignating paragraph (3) as

3 paragraph (4) and by inserting after paragraph

4 (2) the following new paragraph:

5 ‘‘(3) DIESEL FUEL USED IN TRAINS.—There is

6 hereby imposed a tax of 0.1 cent per gallon on any

7 liquid other than gasoline (as defined in section

8 4083)—

9 ‘‘(A) sold by any person to an owner, lessee,

10 or other operator of a diesel-powered train for

11 use as a fuel in such train, or

12 ‘‘(B) used by any person as a fuel in a die13 sel-powered train unless there was a taxable sale

14 of such fuel under subparagraph (A).

15 No tax shall be imposed by this paragraph on the sale

16 or use of any liquid if tax was imposed on such liq17 uid under section 4081.’’

18 (D) Subsection (f) of section 4082 is amend19 ed by striking ‘‘section 4041(a)(1)’’ and inserting

20 ‘‘subsections (d)(3) and (a)(1) of section 4041,

21 respectively’’.

22 (E) Paragraph (3) of section 4083(a) is

23 amended by striking ‘‘or a diesel-powered train’’.

24 (F) Paragraph (3) of section 6421(f) is

25 amended to read as follows:
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1 ‘‘(3) GASOLINE USED IN TRAINS.—In the case of

2 gasoline used as a fuel in a train, this section shall

3 not apply with respect to the Leaking Underground

4 Storage Tank Trust Fund financing rate under sec5 tion 4081.’’

6 (G) Paragraph (3) of section 6427(l) is

7 amended to read as follows:

8 ‘‘(3) REFUND OF CERTAIN TAXES ON FUEL USED

9 IN DIESEL-POWERED TRAINS.—For purposes of this

10 subsection, the term ‘nontaxable use’ includes fuel

11 used in a diesel-powered train. The preceding sentence

12 shall not apply to the tax imposed by section 4041(d)

13 and the Leaking Underground Storage Tank Trust

14 Fund financing rate under section 4081 except with

15 respect to fuel sold for exclusive use by a State or any

16 political subdivision thereof.’’

17 (b) FUEL USED ON INLAND WATERWAYS.—

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

19 4042(b) is amended by adding ‘‘and’’ at the end of

20 subparagraph (A), by striking ‘‘, and’’ at the end of

21 subparagraph (B) and inserting a period, and by

22 striking subparagraph (C).

23 (2) CONFORMING AMENDMENT.—Paragraph (2)

24 of section 4042(b) is amended by striking subpara25 graph (C).
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall take effect on October 1, 2004.

3 SEC. 899. DISTRIBUTIONS FROM PUBLICLY TRADED PART4 NERSHIPS TREATED AS QUALIFYING INCOME

5 OF REGULATED INVESTMENT COMPANIES.

6 (a) IN GENERAL.—Paragraph (2) of section 851(b)

7 (defining regulated investment company) is amended to

8 read as follows:

9 ‘‘(2) at least 90 percent of its gross income is de10 rived from—

11 ‘‘(A) dividends, interest, payments with re12 spect to securities loans (as defined in section

13 512(a)(5)), and gains from the sale or other dis14 position of stock or securities (as defined in sec15 tion 2(a)(36) of the Investment Company Act of

16 1940, as amended) or foreign currencies, or other

17 income (including but not limited to gains from

18 options, futures or forward contracts) derived

19 with respect to its business of investing in such

20 stock, securities, or currencies, and

21 ‘‘(B) distributions or other income derived

22 from an interest in a qualified publicly traded

23 partnership (as defined in subsection (h)); and’’

24 (b) SOURCE FLOW-THROUGH RULE NOT TO APPLY.—

25 The last sentence of section 851(b) is amended by inserting
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1 ‘‘(other than a qualified publicly traded partnership as de2 fined in subsection (h))’’ after ‘‘derived from a partner3 ship’’.

4 (c) LIMITATION ON OWNERSHIP.—Subsection (c) of

5 section 851 is amended by redesignating paragraph (5) as

6 paragraph (6) and inserting after paragraph (4) the fol7 lowing new paragraph:

8 ‘‘(5) The term ‘outstanding voting securities of

9 such issuer’ shall include the equity securities of a

10 qualified publicly traded partnership (as defined in

11 subsection (h)).’’.

12 (d) DEFINITION OF QUALIFIED PUBLICLY TRADED

13 PARTNERSHIP.—Section 851 is amended by adding at the

14 end the following new subsection:

15 ‘‘(h) QUALIFIED PUBLICLY TRADED PARTNERSHIP.—

16 For purposes of this section, the term ‘qualified publicly

17 traded partnership’ means a publicly traded partnership

18 described in section 7704(b) other than a partnership which

19 would satisfy the gross income requirements of section

20 7704(c)(2) if qualifying income included only income de21 scribed in subsection (b)(2)(A).’’.

22 (e) DEFINITION OF QUALIFYING INCOME.—Section

23 7704(d)(4) is amended by striking ‘‘section 851(b)(2)’’ and

24 inserting ‘‘section 851(b)(2)(A)’’.
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1 (f) LIMITATION ON COMPOSITION OF ASSETS.—Sub2 paragraph (B) of section 851(b)(3) is amended to read as

3 follows:

4 ‘‘(B) not more than 25 percent of the value

5 of its total assets is invested in—

6 ‘‘(i) the securities (other than Govern7 ment securities or the securities of other reg8 ulated investment companies) of any one

9 issuer,

10 ‘‘(ii) the securities (other than the secu11 rities of other regulated investment compa12 nies) of two or more issuers which the tax13 payer controls and which are determined,

14 under regulations prescribed by the Sec15 retary, to be engaged in the same or similar

16 trades or businesses or related trades or

17 businesses, or

18 ‘‘(iii) the securities of one or more

19 qualified publicly traded partnerships (as

20 defined in subsection (h)).’’.

21 (g) APPLICATION OF SPECIAL PASSIVE ACTIVITY RULE

22 TO REGULATED INVESTMENT COMPANIES.—Subsection (k)

23 of section 469 (relating to separate application of section

24 in case of publicly traded partnerships) is amended by add25 ing at the end the following new paragraph:
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1 ‘‘(4) APPLICATION TO REGULATED INVESTMENT

2 COMPANIES.—For purposes of this section, a regulated

3 investment company (as defined in section 851) hold4 ing an interest in a qualified publicly traded partner5 ship (as defined in section 851(h)) shall be treated as

6 a taxpayer described in subsection (a)(2) with respect

7 to items attributable to such interest.’’.

8 (h) EFFECTIVE DATE.—The amendments made by this

9 section shall apply to taxable years beginning after the date

10 of the enactment of this Act.

11 SEC. 899A. CERTAIN BUSINESS RELATED CREDITS AL12 LOWED AGAINST REGULAR AND MINIMUM

13 TAX.

14 (a) IN GENERAL.—Subsection (c) of section 38 (relat15 ing to limitation based on amount of tax) is amended by

16 redesignating paragraph (4) as paragraph (5) and by in17 serting after paragraph (3) the following new paragraph:

18 ‘‘(4) SPECIAL RULES FOR SPECIFIED CREDITS.—

19 ‘‘(A) IN GENERAL.—In the case of specified

20 credits—

21 ‘‘(i) this section and section 39 shall be

22 applied separately with respect to such

23 credits, and

24 ‘‘(ii) in applying paragraph (1) to

25 such credits—
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1 ‘‘(I) the tentative minimum tax

2 shall be treated as being zero, and

3 ‘‘(II) the limitation under para4 graph (1) (as modified by subclause

5 (I)) shall be reduced by the credit al6 lowed under subsection (a) for the tax7 able year (other than the specified

8 credits).

9 ‘‘(B) SPECIFIED CREDITS.—For purposes of

10 this subsection, the term ‘specified credits’

11 includes—

12 ‘‘(i) for taxable years beginning after

13 December 31, 2004, the credit determined

14 under section 40, and

15 ‘‘(ii) the credit determined under sec16 tion 45 to the extent that such credit is at17 tributable to electricity produced—

18 ‘‘(I) at a facility which is origi19 nally placed in service after the date of

20 the enactment of this paragraph, and

21 ‘‘(II) during the 4-year period be22 ginning on the date that such facility

23 was originally placed in service.’’.

24 (b) CONFORMING AMENDMENTS.—Paragraph

25 (2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) are each
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1 amended by inserting ‘‘or the specified credits’’ after ‘‘em2 ployee credit’’.

3 (c) EFFECTIVE DATE.—Except as otherwise provided,

4 the amendments made by this section shall apply to taxable

5 years ending after the date of the enactment of this Act.

6 SEC. 899B. CREDIT FOR QUALIFYING POLLUTION CONTROL

7 EQUIPMENT.

8 (a) ALLOWANCE OF QUALIFYING POLLUTION CONTROL

9 EQUIPMENT CREDIT.—Section 46 (relating to amount of

10 credit), as amended by this Act, is amended by striking

11 ‘‘and’’ at the end of paragraph (2), by striking the period

12 at the end of paragraph (3) and inserting ‘‘, and’’, and

13 by adding at the end the following new paragraph:

14 ‘‘(4) the qualifying pollution control equipment

15 credit.’’.

16 (b) AMOUNT OF QUALIFYING POLLUTION CONTROL

17 EQUIPMENT CREDIT.—Subpart E of part IV of subchapter

18 A of chapter 1 (relating to rules for computing investment

19 credit), as amended by this Act, is amended by inserting

20 after section 48A the following new section:

21 ‘‘SEC. 48B. QUALIFYING POLLUTION CONTROL EQUIPMENT

22 CREDIT.

23 ‘‘(a) IN GENERAL.—For purposes of section 46, the

24 qualifying pollution control equipment credit for any tax25 able year is an amount equal to 15 percent of the basis
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1 of the qualifying pollution control equipment placed in

2 service at a qualifying facility during such taxable year.

3 ‘‘(b) QUALIFYING POLLUTION CONTROL EQUIP4 MENT.—For purposes of this section, the term ‘qualifying

5 pollution control equipment’ means any technology in6 stalled in or on a qualifying facility to reduce air emissions

7 of any pollutant regulated by the Environmental Protection

8 Agency under the Clean Air Act, including thermal

9 oxidizers, regenerative thermal oxidizers, scrubber systems,

10 evaporative control systems, vapor recovery systems, flair

11 systems, bag houses, cyclones, continuous emissions moni12 toring systems, and low nitric oxide burners.

13 ‘‘(c) QUALIFYING FACILITY.—For purposes of this sec14 tion, the term ‘qualifying facility’ means any facility which

15 produces not less than 1,000,000 gallons of ethanol during

16 the taxable year.

17 ‘‘(d) SPECIAL RULE FOR CERTAIN SUBSIDIZED PROP18 ERTY.—Rules similar to section 48(a)(4) shall apply for

19 purposes of this section.

20 ‘‘(e) CERTAIN QUALIFIED PROGRESS EXPENDITURES

21 RULES MADE APPLICABLE.—Rules similar to the rules of

22 subsections (c)(4) and (d) of section 46 (as in effect on the

23 day before the enactment of the Revenue Reconciliation Act

24 of 1990) shall apply for purposes of this subsection.’’.
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1 (c) RECAPTURE OF CREDIT WHERE EMISSIONS RE2 DUCTION OFFSET IS SOLD.—Paragraph (1) of section 50(a)

3 is amended by redesignating subparagraph (B) as subpara4 graph (C) and by inserting after subparagraph (A) the fol5 lowing new subparagraph:

6 ‘‘(B) SPECIAL RULE FOR QUALIFYING POL7 LUTION CONTROL EQUIPMENT.—For purposes of

8 subparagraph (A), any investment property

9 which is qualifying pollution control equipment

10 (as defined in section 48B(b)) shall cease to be

11 investment credit property with respect to a tax12 payer if such taxpayer receives a payment in ex13 change for a credit for emission reductions at14 tributable to such qualifying pollution control

15 equipment for purposes of an offset requirement

16 under part D of title I of the Clean Air Act.’’.

17 (d) SPECIAL RULE FOR BASIS REDUCTION; RECAP18 TURE OF CREDIT.—Paragraph (3) of section 50(c) (relating

19 to basis adjustment to investment credit property), as

20 amended by this Act, is amended by inserting ‘‘or quali21 fying pollution control equipment credit’’ after ‘‘energy

22 credit’’.

23 (e) EFFECTIVE DATE.—The amendments made by this

24 section shall apply to property placed in service after De25 cember 31, 2003, in taxable years ending after such date,
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1 under rules similar to the rules of section 48(m) of the In2 ternal Revenue Code of 1986 (as in effect on the day before

3 the date of the enactment of the Revenue Reconciliation Act

4 of 1990).

5 SEC. 899C. ELECTRIC TRANSMISSION PROPERTY TREATED

6 AS 15-YEAR PROPERTY.

7 (a) IN GENERAL.—Subparagraph (E) of section

8 168(e)(3) (relating to classification of certain property), as

9 amended by this Act, is amended by striking ‘‘and’’ at the

10 end of clause (iii), by striking the period at the end of clause

11 (iv) and by inserting ‘‘, and’’, and by adding at the end

12 the following new clause:

13 ‘‘(v) any section 1245 property (as de14 fined in section 1245(a)(3)) used in the

15 transmission at 69 or more kilovolts of elec16 tricity for sale the original use of which

17 commences with the taxpayer after the date

18 of the enactment of this clause.’’.

19 (b) ALTERNATIVE SYSTEM.—The table contained in

20 section 168(g)(3)(B) is amended by inserting after the item

21 relating to subparagraph (E)(iv) the following:

‘‘(E)(v) ............................................................................................................... 30’’.

22 (c) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to property placed in service after the

24 date of the enactment of this Act, and prior to July 1, 2006.
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1 TITLE IX—HOMESTEAD

2 PRESERVATION ACT

3 SEC. 901. SHORT TITLE.

4 This title may be cited as the ‘‘Homestead Preservation

5 Act’’.

6 SEC. 902. MORTGAGE PAYMENT ASSISTANCE.

7 (a) ESTABLISHMENT OF PROGRAM.—The Secretary of

8 Housing and Urban Development (referred to in this section

9 as the ‘‘Secretary’’) shall establish a program under which

10 the Secretary shall award low-interest loans to eligible indi11 viduals to enable such individuals to continue to make

12 mortgage payments with respect to the primary residences

13 of such individuals.

14 (b) ELIGIBILITY.—To be eligible to receive a loan

15 under the program established under subsection (a), an in16 dividual shall be—

17 (1) an individual that is a worker adversely af18 fected by international economic activity, as deter19 mined by the Secretary;

20 (2) a borrower under a loan which requires the

21 individual to make monthly mortgage payments with

22 respect to the primary place of residence of the indi23 vidual; and

24 (3) enrolled in a training or assistance program.

25 (c) LOAN REQUIREMENTS.—
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1 (1) IN GENERAL.—A loan provided to an eligible

2 individual under this section shall—

3 (A) be for a period of not to exceed 12

4 months;

5 (B) be for an amount that does not exceed

6 the sum of—

7 (i) the amount of the monthly mort8 gage payment owed by the individual; and

9 (ii) the number of months for which

10 the loan is provided;

11 (C) have an applicable rate of interest that

12 equals 4 percent;

13 (D) require repayment as provided for in

14 subsection (d); and

15 (E) be subject to such other terms and con16 ditions as the Secretary determines appropriate.

17 (2) ACCOUNT.—A loan awarded to an individual

18 under this section shall be deposited into an account

19 from which a monthly mortgage payment will be

20 made in accordance with the terms and conditions of

21 such loan.

22 (d) REPAYMENT.—

23 (1) IN GENERAL.—An individual to which a

24 loan has been awarded under this section shall be re-
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1 quired to begin making repayments on the loan on the

2 earlier of—

3 (A) the date on which the individual has

4 been employed on a full-time basis for 6 consecu5 tive months; or

6 (B) the date that is 1 year after the date on

7 which the loan has been approved under this sec8 tion.

9 (2) REPAYMENT PERIOD AND AMOUNT.—

10 (A) REPAYMENT PERIOD.—A loan awarded

11 under this section shall be repaid on a monthly

12 basis over the 5-year period beginning on the

13 date determined under paragraph (1).

14 (B) AMOUNT.—The amount of the monthly

15 payment described in subparagraph (A) shall be

16 determined by dividing the total amount pro17 vided under the loan (plus interest) by 60.

18 (C) RULE OF CONSTRUCTION.—Nothing in

19 this paragraph shall be construed to prohibit an

20 individual from—

21 (i) paying off a loan awarded under

22 this section in less than 5 years; or

23 (ii) from paying a monthly amount

24 under such loan in excess of the monthly
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1 amount determined under subparagraph

2 (B) with respect to the loan.

3 (e) REGULATIONS.—Not later than 6 weeks after the

4 date of enactment of this section, the Secretary shall pro5 mulgate regulations necessary to carry out this section, in6 cluding regulations that permit an individual to certify

7 that the individual is an eligible individual under sub8 section (b).

9 (f) AUTHORIZATION OF APPROPRIATIONS.—There is

10 authorized to be appropriated to carry out this section,

11 $10,000,000 for each of fiscal years 2005 through 2009.

12 TITLE X—OFFICE OF FEDERAL

13 PROCUREMENT POLICY ACT

14 IMPROVEMENTS

15 SEC. 1001. REPORT ON ACQUISITIONS OF GOODS FROM

16 FOREIGN SOURCES.

17 (a) REPORT.—The Office of Federal Procurement Pol18 icy Act (41 U.S.C. 403 et seq.), as amended by this Act,

19 is further amended by adding at the end the following new

20 section:

21 ‘‘SEC. 43. REPORT ON ACQUISITIONS OF GOODS FROM FOR22 EIGN SOURCES.

23 ‘‘(a) Not later than 60 days after the end of each fiscal

24 year, the head of each executive agency shall submit to Con25 gress a report on the acquisitions that were made of articles,
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1 materials, or supplies by such executive agency in that fis2 cal year from entities that manufacture the articles, mate3 rials, or supplies outside the United States.

4 ‘‘(b) The report for a fiscal year under subsection (a)

5 shall separately indicate the following information:

6 ‘‘(1) The dollar value of any articles, materials,

7 or supplies that were manufactured outside the

8 United States.

9 ‘‘(2) An itemized list of all waivers granted with

10 respect to such articles, materials, or supplies under

11 the Buy American Act (41 U.S.C. 10a et seq.).

12 ‘‘(3) A summary of—

13 ‘‘(A) the total procurement funds expended

14 on articles, materials, and supplies manufac15 tured inside the United States; and

16 ‘‘(B) the total procurement funds expended

17 on articles, materials, and supplies manufac18 tured outside the United States.

19 ‘‘(c) The head of each executive agency submitting a

20 report under subsection (a) shall make the report publicly

21 available by posting on an Internet website.

22 ‘‘(d) Subsection (a) shall not apply to any procure23 ment for national security purposes entered into by—

24 ‘‘(1) the Department of Defense or any agency or

25 entity thereof;
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1 ‘‘(2) the Department of the Army, the Depart2 ment of the Navy, the Department of the Air Force,

3 or any agency or entity of any of the military depart4 ments;

5 ‘‘(3) the Department of Homeland Security;

6 ‘‘(4) the Department of Energy or any agency or

7 entity thereof, with respect to the national security

8 programs of that Department; or

9 ‘‘(5) any element of the intelligence commu10 nity.’’.

11 (b) CLERICAL AMENDMENT.—The table of contents in

12 section 1(b) of the Office of Federal Procurement Policy Act

13 is amended by adding at the end the following new item:

‘‘Sec. 43. Report on acquisitions of goods from foreign sources.’’.

14 (c) COMMERCE DEPARTMENT REPORT.—Not later

15 than 60 days after the end of each fiscal year ending after

16 the date of the enactment of this Act, the Secretary of Com17 merce shall submit to Congress and make publicly available

18 by posting on an Internet website a report on the acquisi19 tions by foreign governments of articles, materials, or sup20 plies that were manufactured or extracted in the United

21 States in that fiscal year. Such report shall indicate the

22 dollar value of such articles, materials, or supplies.
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1 TITLE XI—PROVISIONS

2 RELATING TO TOBACCO

3 Subtitle A—Family Smoking

4 Prevention and Tobacco Control

5 SEC. 1101. SHORT TITLE.

6 This subtitle may be cited as the ‘‘Family Smoking

7 Prevention and Tobacco Control Act’’.

8 SEC. 1102. FINDINGS.

9 The Congress finds the following:

10 (1) The use of tobacco products by the Nation’s

11 children is a pediatric disease of considerable propor12 tions that results in new generations of tobacco-de13 pendent children and adults.

14 (2) A consensus exists within the scientific and

15 medical communities that tobacco products are inher16 ently dangerous and cause cancer, heart disease, and

17 other serious adverse health effects.

18 (3) Nicotine is an addictive drug.

19 (4) Virtually all new users of tobacco products

20 are under the minimum legal age to purchase such

21 products.

22 (5) Tobacco advertising and marketing con23 tribute significantly to the use of nicotine-containing

24 tobacco products by adolescents.
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1 (6) Because past efforts to restrict advertising

2 and marketing of tobacco products have failed ade3 quately to curb tobacco use by adolescents, comprehen4 sive restrictions on the sale, promotion, and distribu5 tion of such products are needed.

6 (7) Federal and State governments have lacked

7 the legal and regulatory authority and resources they

8 need to address comprehensively the public health and

9 societal problems caused by the use of tobacco prod10 ucts.

11 (8) Federal and State public health officials, the

12 public health community, and the public at large rec13 ognize that the tobacco industry should be subject to

14 ongoing oversight.

15 (9) Under article I, section 8 of the Constitution,

16 the Congress is vested with the responsibility for regu17 lating interstate commerce and commerce with Indian

18 tribes.

19 (10) The sale, distribution, marketing, adver20 tising, and use of tobacco products are activities in

21 and substantially affecting interstate commerce be22 cause they are sold, marketed, advertised, and distrib23 uted in interstate commerce on a nationwide basis,

24 and have a substantial effect on the Nation’s economy.
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1 (11) The sale, distribution, marketing, adver2 tising, and use of such products substantially affect

3 interstate commerce through the health care and other

4 costs attributable to the use of tobacco products.

5 (12) It is in the public interest for Congress to

6 enact legislation that provides the Food and Drug Ad7 ministration with the authority to regulate tobacco

8 products and the advertising and promotion of such

9 products. The benefits to the American people from

10 enacting such legislation would be significant in

11 human and economic terms.

12 (13) Tobacco use is the foremost preventable

13 cause of premature death in America. It causes over

14 400,000 deaths in the United States each year and

15 approximately 8,600,000 Americans have chronic ill16 nesses related to smoking.

17 (14) Reducing the use of tobacco by minors by

18 50 percent would prevent well over 6,500,000 of to19 day’s children from becoming regular, daily smokers,

20 saving over 2,000,000 of them from premature death

21 due to tobacco induced disease. Such a reduction in

22 youth smoking would also result in approximately

23 $75,000,000,000 in savings attributable to reduced

24 health care costs.
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1 (15) Advertising, marketing, and promotion of

2 tobacco products have been especially directed to at3 tract young persons to use tobacco products and these

4 efforts have resulted in increased use of such products

5 by youth. Past efforts to oversee these activities have

6 not been successful in adequately preventing such in7 creased use.

8 (16) In 2001, the tobacco industry spent more

9 than $11,000,000,000 to attract new users, retain cur10 rent users, increase current consumption, and gen11 erate favorable long-term attitudes toward smoking

12 and tobacco use.

13 (17) Tobacco product advertising often

14 misleadingly portrays the use of tobacco as socially

15 acceptable and healthful to minors.

16 (18) Tobacco product advertising is regularly

17 seen by persons under the age of 18, and persons

18 under the age of 18 are regularly exposed to tobacco

19 product promotional efforts.

20 (19) Through advertisements during and spon21 sorship of sporting events, tobacco has become strongly

22 associated with sports and has become portrayed as

23 an integral part of sports and the healthy lifestyle as24 sociated with rigorous sporting activity.
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1 (20) Children are exposed to substantial and un2 avoidable tobacco advertising that leads to favorable

3 beliefs about tobacco use, plays a role in leading

4 young people to overestimate the prevalence of tobacco

5 use, and increases the number of young people who

6 begin to use tobacco.

7 (21) The use of tobacco products in motion pic8 tures and other mass media glamorizes its use for

9 young people and encourages them to use tobacco

10 products.

11 (22) Tobacco advertising expands the size of the

12 tobacco market by increasing consumption of tobacco

13 products including tobacco use by young people.

14 (23) Children are more influenced by tobacco ad15 vertising than adults, they smoke the most advertised

16 brands.

17 (24) Tobacco company documents indicate that

18 young people are an important and often crucial seg19 ment of the tobacco market. Children, who tend to be

20 more price-sensitive than adults, are influenced by

21 advertising and promotion practices that result in

22 drastically reduced cigarette prices.

23 (25) Comprehensive advertising restrictions will

24 have a positive effect on the smoking rates of young

25 people.
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1 (26) Restrictions on advertising are necessary to

2 prevent unrestricted tobacco advertising from under3 mining legislation prohibiting access to young people

4 and providing for education about tobacco use.

5 (27) International experience shows that adver6 tising regulations that are stringent and comprehen7 sive have a greater impact on overall tobacco use and

8 young people’s use than weaker or less comprehensive

9 ones.

10 (28) Text only requirements, although not as

11 stringent as a ban, will help reduce underage use of

12 tobacco products while preserving the informational

13 function of advertising.

14 (29) It is in the public interest for Congress to

15 adopt legislation to address the public health crisis

16 created by actions of the tobacco industry.

17 (30) The final regulations promulgated by the

18 Secretary of Health and Human Services in the Au19 gust 28, 1996, issue of the Federal Register (61 Fed.

20 Reg. 44615–44618) for inclusion as part 897 of title

21 21, Code of Federal Regulations, are consistent with

22 the First Amendment to the United States Constitu23 tion and with the standards set forth in the amend24 ments made by this subtitle for the regulation of to25 bacco products by the Food and Drug Administration
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1 and the restriction on the sale and distribution, in2 cluding access to and the advertising and promotion

3 of, tobacco products contained in such regulations are

4 substantially related to accomplishing the public

5 health goals of this subtitle.

6 (31) The regulations described in paragraph (30)

7 will directly and materially advance the Federal Gov8 ernment’s substantial interest in reducing the number

9 of children and adolescents who use cigarettes and

10 smokeless tobacco and in preventing the life-threat11 ening health consequences associated with tobacco use.

12 An overwhelming majority of Americans who use to13 bacco products begin using such products while they

14 are minors and become addicted to the nicotine in

15 those products before reaching the age of 18. Tobacco

16 advertising and promotion plays a crucial role in the

17 decision of these minors to begin using tobacco prod18 ucts. Less restrictive and less comprehensive ap19 proaches have not and will not be effective in reduc20 ing the problems addressed by such regulations. The

21 reasonable restrictions on the advertising and pro22 motion of tobacco products contained in such regula23 tions will lead to a significant decrease in the number

24 of minors using and becoming addicted to those prod25 ucts.
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1 (32) The regulations described in paragraph (30)

2 impose no more extensive restrictions on communica3 tion by tobacco manufacturers and sellers than are

4 necessary to reduce the number of children and ado5 lescents who use cigarettes and smokeless tobacco and

6 to prevent the life-threatening health consequences as7 sociated with tobacco use. Such regulations are nar8 rowly tailored to restrict those advertising and pro9 motional practices which are most likely to be seen or

10 heard by youth and most likely to entice them into

11 tobacco use, while affording tobacco manufacturers

12 and sellers ample opportunity to convey information

13 about their products to adult consumers.

14 (33) Tobacco dependence is a chronic disease, one

15 that typically requires repeated interventions to

16 achieve long-term or permanent abstinence.

17 (34) Because the only known safe alternative to

18 smoking is cessation, interventions should target all

19 smokers to help them quit completely.

20 (35) Tobacco products have been used to facili21 tate and finance criminal activities both domestically

22 and internationally. Illicit trade of tobacco products

23 has been linked to organized crime and terrorist

24 groups.
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1 (36) It is essential that the Food and Drug Ad2 ministration review products sold or distributed for

3 use to reduce risks or exposures associated with to4 bacco products and that it be empowered to review

5 any advertising and labeling for such products. It is

6 also essential that manufacturers, prior to marketing

7 such products, be required to demonstrate that such

8 products will meet a series of rigorous criteria, and

9 will benefit the health of the population as a whole,

10 taking into account both users of tobacco products

11 and persons who do not currently use tobacco prod12 ucts.

13 (37) Unless tobacco products that purport to re14 duce the risks to the public of tobacco use actually re15 duce such risks, those products can cause substantial

16 harm to the public health to the extent that the indi17 viduals, who would otherwise not consume tobacco

18 products or would consume such products less, use to19 bacco products purporting to reduce risk. Those who

20 use products sold or distributed as modified risk prod21 ucts that do not in fact reduce risk, rather than quit22 ting or reducing their use of tobacco products, have

23 a substantially increased likelihood of suffering dis24 ability and premature death. The costs to society of

25 the widespread use of products sold or distributed as
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1 modified risk products that do not in fact reduce risk

2 or that increase risk include thousands of unnecessary

3 deaths and injuries and huge costs to our health care

4 system.

5 (38) As the National Cancer Institute has found,

6 many smokers mistakenly believe that ‘‘low tar’’ and

7 ‘‘light’’ cigarettes cause fewer health problems than

8 other cigarettes. As the National Cancer Institute has

9 also found, mistaken beliefs about the health con10 sequences of smoking ‘‘low tar’’ and ‘‘light’’ cigarettes

11 can reduce the motivation to quit smoking entirely

12 and thereby lead to disease and death.

13 (39) Recent studies have demonstrated that there

14 has been no reduction in risk on a population-wide

15 basis from ‘‘low tar’’ and ‘‘light’’ cigarettes and such

16 products may actually increase the risk of tobacco

17 use.

18 (40) The dangers of products sold or distributed

19 as modified risk tobacco products that do not in fact

20 reduce risk are so high that there is a compelling gov21 ernmental interest in insuring that statements about

22 modified risk tobacco products are complete, accurate,

23 and relate to the overall disease risk of the product.

24 (41) As the Federal Trade Commission has

25 found, consumers have misinterpreted advertisements
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1 in which one product is claimed to be less harmful

2 than a comparable product, even in the presence of

3 disclosures and advisories intended to provide clari4 fication.

5 (42) Permitting manufacturers to make unsub6 stantiated statements concerning modified risk to7 bacco products, whether express or implied, even if ac8 companied by disclaimers would be detrimental to the

9 public health.

10 (43) The only way to effectively protect the pub11 lic health from the dangers of unsubstantiated modi12 fied risk tobacco products is to empower the Food and

13 Drug Administration to require that products that to14 bacco manufacturers sold or distributed for risk re15 duction be approved in advance of marketing, and to

16 require that the evidence relied on to support ap17 proval of these products is rigorous.

18 SEC. 1103. PURPOSE.

19 The purposes of this subtitle are—

20 (1) to provide authority to the Food and Drug

21 Administration to regulate tobacco products under the

22 Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301

23 et seq.), by recognizing it as the primary Federal reg24 ulatory authority with respect to the manufacture,

25 marketing, and distribution of tobacco products;
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1 (2) to ensure that the Food and Drug Adminis2 tration has the authority to address issues of par3 ticular concern to public health officials, especially

4 the use of tobacco by young people and dependence on

5 tobacco;

6 (3) to authorize the Food and Drug Administra7 tion to set national standards controlling the manu8 facture of tobacco products and the identity, public

9 disclosure, and amount of ingredients used in such

10 products;

11 (4) to provide new and flexible enforcement au12 thority to ensure that there is effective oversight of the

13 tobacco industry’s efforts to develop, introduce, and

14 promote less harmful tobacco products;

15 (5) to vest the Food and Drug Administration

16 with the authority to regulate the levels of tar, nico17 tine, and other harmful components of tobacco prod18 ucts;

19 (6) in order to ensure that consumers are better

20 informed, to require tobacco product manufacturers to

21 disclose research which has not previously been made

22 available, as well as research generated in the future,

23 relating to the health and dependency effects or safety

24 of tobacco products;
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1 (7) to continue to permit the sale of tobacco

2 products to adults in conjunction with measures to

3 ensure that they are not sold or accessible to underage

4 purchasers;

5 (8) to impose appropriate regulatory controls on

6 the tobacco industry;

7 (9) to promote cessation to reduce disease risk

8 and the social costs associated with tobacco related

9 diseases; and

10 (10) to strengthen legislation against illicit trade

11 in tobacco products.

12 SEC. 1104. SCOPE AND EFFECT.

13 (a) INTENDED EFFECT.—Nothing in this subtitle (or

14 an amendment made by this subtitle) shall be construed

15 to—

16 (1) establish a precedent with regard to any

17 other industry, situation, circumstance, or legal ac18 tion; or

19 (2) affect any action pending in Federal, State,

20 or Tribal court, or any agreement, consent decree, or

21 contract of any kind.

22 (b) AGRICULTURAL ACTIVITIES.—The provisions of

23 this subtitle (or an amendment made by this subtitle) which

24 authorize the Secretary to take certain actions with regard

25 to tobacco and tobacco products shall not be construed to
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1 affect any authority of the Secretary of Agriculture under

2 existing law regarding the growing, cultivation, or curing

3 of raw tobacco.

4 SEC. 1105. SEVERABILITY.

5 If any provision of this subtitle, the amendments made

6 by this subtitle, or the application of any provision of this

7 subtitle to any person or circumstance is held to be invalid,

8 the remainder of this subtitle, the amendments made by this

9 subtitle, and the application of the provisions of this subtitle

10 to any other person or circumstance shall not be affected

11 and shall continue to be enforced to the fullest extent pos12 sible.

13 CHAPTER 1—AUTHORITY OF THE FOOD

14 AND DRUG ADMINISTRATION

15 SEC. 1111. AMENDMENT OF FEDERAL FOOD, DRUG, AND

16 COSMETIC ACT.

17 (a) DEFINITION OF TOBACCO PRODUCTS.—Section

18 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.

19 321) is amended by adding at the end the following:

20 ‘‘(nn)(1) The term ‘tobacco product’ means any prod21 uct made or derived from tobacco that is intended for

22 human consumption, including any component, part, or ac23 cessory of a tobacco product (except for raw materials other

24 than tobacco used in manufacturing a component, part, or

25 accessory of a tobacco product).
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1 ‘‘(2) The term ‘tobacco product’ does not mean—

2 ‘‘(A) a product in the form of conventional food

3 (including water and chewing gum), a product rep4 resented for use as or for use in a conventional food,

5 or a product that is intended for ingestion in capsule,

6 tablet, softgel, or liquid form; or

7 ‘‘(B) an article that is approved or is regulated

8 as a drug by the Food and Drug Administration.

9 ‘‘(3) The products described in paragraph (2)(A) shall

10 be subject to chapter IV or chapter V of this Act and the

11 articles described in paragraph (2)(B) shall be subject to

12 chapter V of this Act.

13 ‘‘(4) A tobacco product may not be marketed in com14 bination with any other article or product regulated under

15 this Act (including a drug, biologic, food, cosmetics, medical

16 device, or a dietary supplement).’’.

17 (b) FDA AUTHORITY OVER TOBACCO PRODUCTS.—

18 The Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301

19 et seq.) is amended—

20 (1) by redesignating chapter IX as chapter X;

21 (2) by redesignating sections 901 through 907 as

22 sections 1001 through 1007; and

23 (3) by inserting after section 803 the following:
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1 ‘‘CHAPTER IX—TOBACCO

2 PRODUCTS

3 ‘‘SEC. 900. DEFINITIONS.

4 ‘‘In this chapter:

5 ‘‘(1) ADDITIVE.—The term ‘additive’ means any

6 substance the intended use of which results or may

7 reasonably be expected to result, directly or indirectly,

8 in its becoming a component or otherwise affecting

9 the characteristic of any tobacco product (including

10 any substances intended for use as a flavoring, color11 ing or in producing, manufacturing, packing, proc12 essing, preparing, treating, packaging, transporting,

13 or holding), except that such term does not include to14 bacco or a pesticide chemical residue in or on raw to15 bacco or a pesticide chemical.

16 ‘‘(2) BRAND.—The term ‘brand’ means a variety

17 of tobacco product distinguished by the tobacco used,

18 tar content, nicotine content, flavoring used, size, fil19 tration, or packaging, logo, registered trademark or

20 brand name, identifiable pattern of colors, or any

21 combination of such attributes.

22 ‘‘(3) CIGARETTE.—The term ‘cigarette’ has the

23 meaning given that term by section 3(1) of the Fed24 eral Cigarette Labeling and Advertising Act (15

25 U.S.C. 1332(1)), but also includes tobacco, in any
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1 form, that is functional in the product, which, because

2 of its appearance, the type of tobacco used in the

3 filler, or its packaging and labeling, is likely to be of4 fered to, or purchased by, consumers as a cigarette or

5 as roll-your-own tobacco.

6 ‘‘(4) CIGARETTE TOBACCO.—The term ‘cigarette

7 tobacco’ means any product that consists of loose to8 bacco that is intended for use by consumers in a ciga9 rette. Unless otherwise stated, the requirements for

10 cigarettes shall also apply to cigarette tobacco.

11 ‘‘(5) COMMERCE.—The term ‘commerce’ has the

12 meaning given that term by section 3(2) of the Fed13 eral Cigarette Labeling and Advertising Act (15

14 U.S.C. 1332(2)).

15 ‘‘(6) COUNTERFEIT TOBACCO PRODUCT.—The

16 term ‘counterfeit tobacco product’ means a tobacco

17 product (or the container or labeling of such a prod18 uct) that, without authorization, bears the trademark,

19 trade name, or other identifying mark, imprint or de20 vice, or any likeness thereof, of a tobacco product list21 ed in a registration under section 905(i)(1).

22 ‘‘(7) DISTRIBUTOR.—The term ‘distributor’ as

23 regards a tobacco product means any person who fur24 thers the distribution of a tobacco product, whether

25 domestic or imported, at any point from the original
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1 place of manufacture to the person who sells or dis2 tributes the product to individuals for personal con3 sumption. Common carriers are not considered dis4 tributors for purposes of this chapter.

5 ‘‘(8) ILLICIT TRADE.—The term ‘illicit trade’

6 means any practice or conduct prohibited by law

7 which relates to production, shipment, receipt, posses8 sion, distribution, sale, or purchase of tobacco prod9 ucts including any practice or conduct intended to fa10 cilitate such activity.

11 ‘‘(9) INDIAN TRIBE.—The term ‘Indian tribe’ has

12 the meaning given such term in section 4(e) of the In13 dian Self Determination and Education Assistance

14 Act (25 U.S.C. 450b(e)).

15 ‘‘(10) LITTLE CIGAR.—The term ‘little cigar’ has

16 the meaning given that term by section 3(7) of the

17 Federal Cigarette Labeling and Advertising Act (15

18 U.S.C. 1332(7)).

19 ‘‘(11) NICOTINE.—The term ‘nicotine’ means the

20 chemical substance named 3-(1-Methyl-2-pyrrolidinyl)

21 pyridine or C[10]H[14]N[2], including any salt or

22 complex of nicotine.

23 ‘‘(12) PACKAGE.—The term ‘package’ means a

24 pack, box, carton, or container of any kind or, if no

25 other container, any wrapping (including cellophane),
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1 in which a tobacco product is offered for sale, sold, or

2 otherwise distributed to consumers.

3 ‘‘(13) RETAILER.—The term ‘retailer’ means any

4 person who sells tobacco products to individuals for

5 personal consumption, or who operates a facility

6 where self-service displays of tobacco products are per7 mitted.

8 ‘‘(14) ROLL-YOUR-OWN TOBACCO.—The term

9 ‘roll-your-own tobacco’ means any tobacco which, be10 cause of its appearance, type, packaging, or labeling,

11 is suitable for use and likely to be offered to, or pur12 chased by, consumers as tobacco for making cigarettes.

13 ‘‘(15) SMOKE CONSTITUENT.—The term ‘smoke

14 constituent’ means any chemical or chemical com15 pound in mainstream or sidestream tobacco smoke

16 that either transfers from any component of the ciga17 rette to the smoke or that is formed by the combustion

18 or heating of tobacco, additives, or other component of

19 the tobacco product.

20 ‘‘(16) SMOKELESS TOBACCO.—The term ‘smoke21 less tobacco’ means any tobacco product that consists

22 of cut, ground, powdered, or leaf tobacco and that is

23 intended to be placed in the oral or nasal cavity.

24 ‘‘(17) STATE.—The term ‘State’ means any

25 State of the United States and, for purposes of this
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1 chapter, includes the District of Columbia, the Com2 monwealth of Puerto Rico, Guam, the Virgin Islands,

3 American Samoa, Wake Island, Midway Islands,

4 Kingman Reef, Johnston Atoll, the Northern Mariana

5 Islands, and any other trust territory or possession of

6 the United States.

7 ‘‘(18) TOBACCO PRODUCT MANUFACTURER.—

8 Term ‘tobacco product manufacturer’ means any per9 son, including any repacker or relabeler, who—

10 ‘‘(A) manufactures, fabricates, assembles,

11 processes, or labels a tobacco product; or

12 ‘‘(B) imports a finished cigarette or smoke13 less tobacco product for sale or distribution in

14 the United States.

15 ‘‘(19) UNITED STATES.—The term ‘United

16 States’ means the 50 States of the United States of

17 America and the District of Columbia, the Common18 wealth of Puerto Rico, Guam, the Virgin Islands,

19 American Samoa, Wake Island, Midway Islands,

20 Kingman Reef, Johnston Atoll, the Northern Mariana

21 Islands, and any other trust territory or possession of

22 the United States.
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1 ‘‘SEC. 901. FDA AUTHORITY OVER TOBACCO PRODUCTS.

2 ‘‘(a) IN GENERAL.—Tobacco products shall be regu3 lated by the Secretary under this chapter and shall not be

4 subject to the provisions of chapter V, unless—

5 ‘‘(1) such products are intended for use in the di6 agnosis, cure, mitigation, treatment, or prevention of

7 disease (within the meaning of section 201(g)(1)(B)

8 or section 201(h)(2)); or

9 ‘‘(2) a claim is made for such products under

10 section 201(g)(1)(C) or 201(h)(3);

11 other than modified risk tobacco products approved in

12 accordance with section 911.

13 ‘‘(b) APPLICABILITY.—This chapter shall apply to all

14 tobacco products subject to the regulations referred to in sec15 tion 1112 of the Family Smoking Prevention and Tobacco

16 Control Act, and to any other tobacco products that the Sec17 retary by regulation deems to be subject to this chapter.

18 ‘‘(c) SCOPE.—

19 ‘‘(1) IN GENERAL.—Nothing in this chapter, or

20 any policy issued or regulation promulgated there21 under, or the Family Smoking Prevention and To22 bacco Control Act, shall be construed to affect the Sec23 retary’s authority over, or the regulation of, products

24 under this Act that are not tobacco products under

25 chapter V or any other chapter.

26 ‘‘(2) LIMITATION OF AUTHORITY.—
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1 ‘‘(A) IN GENERAL.—The provisions of this

2 chapter shall not apply to tobacco leaf that is not

3 in the possession of a manufacturer of tobacco

4 products, or to the producers of tobacco leaf, in5 cluding tobacco growers, tobacco warehouses, and

6 tobacco grower cooperatives, nor shall any em7 ployee of the Food and Drug Administration

8 have any authority to enter onto a farm owned

9 by a producer of tobacco leaf without the written

10 consent of such producer.

11 ‘‘(B) EXCEPTION.—Notwithstanding any

12 other provision of this subparagraph, if a pro13 ducer of tobacco leaf is also a tobacco product

14 manufacturer or controlled by a tobacco product

15 manufacturer, the producer shall be subject to

16 this chapter in the producer’s capacity as a

17 manufacturer.

18 ‘‘(C) RULE OF CONSTRUCTION.—Nothing in

19 this chapter shall be construed to grant the Sec20 retary authority to promulgate regulations on

21 any matter that involves the production of to22 bacco leaf or a producer thereof, other than ac23 tivities by a manufacturer affecting production.
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1 ‘‘SEC. 902. ADULTERATED TOBACCO PRODUCTS.

2 ‘‘A tobacco product shall be deemed to be adulterated

3 if—

4 ‘‘(1) it consists in whole or in part of any filthy,

5 putrid, or decomposed substance, or is otherwise con6 taminated by any added poisonous or added delete7 rious substance that may render the product injurious

8 to health;

9 ‘‘(2) it has been prepared, packed, or held under

10 insanitary conditions whereby it may have been con11 taminated with filth, or whereby it may have been

12 rendered injurious to health;

13 ‘‘(3) its package is composed, in whole or in

14 part, of any poisonous or deleterious substance which

15 may render the contents injurious to health;

16 ‘‘(4) it is, or purports to be or is represented as,

17 a tobacco product which is subject to a tobacco prod18 uct standard established under section 907 unless such

19 tobacco product is in all respects in conformity with

20 such standard;

21 ‘‘(5)(A) it is required by section 910(a) to have

22 premarket approval and does not have an approved

23 application in effect;

24 ‘‘(B) it is in violation of the order approving

25 such an application; or
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1 ‘‘(6) the methods used in, or the facilities or con2 trols used for, its manufacture, packing or storage are

3 not in conformity with applicable requirements under

4 section 906(e)(1) or an applicable condition pre5 scribed by an order under section 906(e)(2); or

6 ‘‘(7) it is in violation of section 911.

7 ‘‘SEC. 903. MISBRANDED TOBACCO PRODUCTS.

8 ‘‘(a) IN GENERAL.—A tobacco product shall be deemed

9 to be misbranded—

10 ‘‘(1) if its labeling is false or misleading in any

11 particular;

12 ‘‘(2) if in package form unless it bears a label

13 containing—

14 ‘‘(A) the name and place of business of the

15 tobacco product manufacturer, packer, or dis16 tributor;

17 ‘‘(B) an accurate statement of the quantity

18 of the contents in terms of weight, measure, or

19 numerical count;

20 ‘‘(C) an accurate statement of the percent21 age of the tobacco used in the product that is do22 mestically grown tobacco and the percentage that

23 is foreign grown tobacco; and

24 ‘‘(D) the statement required under section

25 921(a),
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1 except that under subparagraph (B) reasonable vari2 ations shall be permitted, and exemptions as to small

3 packages shall be established, by regulations pre4 scribed by the Secretary;

5 ‘‘(3) if any word, statement, or other informa6 tion required by or under authority of this chapter to

7 appear on the label or labeling is not prominently

8 placed thereon with such conspicuousness (as com9 pared with other words, statements or designs in the

10 labeling) and in such terms as to render it likely to

11 be read and understood by the ordinary individual

12 under customary conditions of purchase and use;

13 ‘‘(4) if it has an established name, unless its

14 label bears, to the exclusion of any other nonpropri15 etary name, its established name prominently printed

16 in type as required by the Secretary by regulation;

17 ‘‘(5) if the Secretary has issued regulations re18 quiring that its labeling bear adequate directions for

19 use, or adequate warnings against use by children,

20 that are necessary for the protection of users unless its

21 labeling conforms in all respects to such regulations;

22 ‘‘(6) if it was manufactured, prepared, propa23 gated, compounded, or processed in any State in an

24 establishment not duly registered under section

25 905(b), 905(c), 905(d), or 905(h), if it was not in-
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1 cluded in a list required by section 905(i), if a notice

2 or other information respecting it was not provided

3 as required by such section or section 905(j), or if it

4 does not bear such symbols from the uniform system

5 for identification of tobacco products prescribed under

6 section 905(e) as the Secretary by regulation requires;

7 ‘‘(7) if, in the case of any tobacco product dis8 tributed or offered for sale in any State—

9 ‘‘(A) its advertising is false or misleading

10 in any particular; or

11 ‘‘(B) it is sold or distributed in violation of

12 regulations prescribed under section 906(d);

13 ‘‘(8) unless, in the case of any tobacco product

14 distributed or offered for sale in any State, the manu15 facturer, packer, or distributor thereof includes in all

16 advertisements and other descriptive printed matter

17 issued or caused to be issued by the manufacturer,

18 packer, or distributor with respect to that tobacco

19 product—

20 ‘‘(A) a true statement of the tobacco prod21 uct’s established name as described in paragraph

22 (4), printed prominently; and

23 ‘‘(B) a brief statement of—
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1 ‘‘(i) the uses of the tobacco product and

2 relevant warnings, precautions, side effects,

3 and contraindications; and

4 ‘‘(ii) in the case of specific tobacco

5 products made subject to a finding by the

6 Secretary after notice and opportunity for

7 comment that such action is appropriate to

8 protect the public health, a full description

9 of the components of such tobacco product or

10 the formula showing quantitatively each in11 gredient of such tobacco product to the ex12 tent required in regulations which shall be

13 issued by the Secretary after an oppor14 tunity for a hearing;

15 ‘‘(9) if it is a tobacco product subject to a to16 bacco product standard established under section 907,

17 unless it bears such labeling as may be prescribed in

18 such tobacco product standard; or

19 ‘‘(10) if there was a failure or refusal—

20 ‘‘(A) to comply with any requirement pre21 scribed under section 904 or 908; or

22 ‘‘(B) to furnish any material or informa23 tion required under section 909.

24 ‘‘(b) PRIOR APPROVAL OF LABEL STATEMENTS.—The

25 Secretary may, by regulation, require prior approval of
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1 statements made on the label of a tobacco product. No regu2 lation issued under this subsection may require prior ap3 proval by the Secretary of the content of any advertisement,

4 except for modified risk tobacco products as provided in sec5 tion 911. No advertisement of a tobacco product published

6 after the date of enactment of the Family Smoking Preven7 tion and Tobacco Control Act shall, with respect to the lan8 guage of label statements as prescribed under section 4 of

9 the Cigarette Labeling and Advertising Act and section 3

10 of the Comprehensive Smokeless Tobacco Health Education

11 Act of 1986 or the regulations issued under such sections,

12 be subject to the provisions of sections 12 through 15 of the

13 Federal Trade Commission Act (15 U.S.C. 52 through 55).

14 ‘‘SEC. 904. SUBMISSION OF HEALTH INFORMATION TO THE

15 SECRETARY.

16 ‘‘(a) REQUIREMENT.—Not later than 6 months after

17 the date of enactment of the Family Smoking Prevention

18 and Tobacco Control Act, each tobacco product manufac19 turer or importer, or agents thereof, shall submit to the Sec20 retary the following information:

21 ‘‘(1) A listing of all ingredients, including to22 bacco, substances, compounds, and additives that are,

23 as of such date, added by the manufacturer to the to24 bacco, paper, filter, or other part of each tobacco
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1 product by brand and by quantity in each brand and

2 subbrand.

3 ‘‘(2) A description of the content, delivery, and

4 form of nicotine in each tobacco product measured in

5 milligrams of nicotine in accordance with regulations

6 promulgated by the Secretary in accordance with sec7 tion 4(a)(4) of the Federal Cigarette Labeling and

8 Advertising Act.

9 ‘‘(3) A listing of all constituents, including

10 smoke constituents as applicable, identified by the

11 Secretary as harmful or potentially harmful to health

12 in each tobacco product, and as applicable in the

13 smoke of each tobacco product, by brand and by

14 quantity in each brand and subbrand. Effective be15 ginning 2 years after the date of enactment of this

16 chapter, the manufacturer, importer, or agent shall

17 comply with regulations promulgated under section

18 915 in reporting information under this paragraph,

19 where applicable.

20 ‘‘(4) All documents developed after the date of

21 enactment of the Family Smoking Prevention and To22 bacco Control Act that relate to health, toxicological,

23 behavioral, or physiologic effects of current or future

24 tobacco products, their constituents (including smoke

25 constituents), ingredients, components, and additives.
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1 ‘‘(b) DATA SUBMISSION.—At the request of the Sec2 retary, each tobacco product manufacturer or importer of

3 tobacco products, or agents thereof, shall submit the fol4 lowing:

5 ‘‘(1) Any or all documents (including underlying

6 scientific information) relating to research activities,

7 and research findings, conducted, supported, or pos8 sessed by the manufacturer (or agents thereof) on the

9 health, toxicological, behavioral, or physiologic effects

10 of tobacco products and their constituents (including

11 smoke constituents), ingredients, components, and ad12 ditives.

13 ‘‘(2) Any or all documents (including underlying

14 scientific information) relating to research activities,

15 and research findings, conducted, supported, or pos16 sessed by the manufacturer (or agents thereof) that re17 late to the issue of whether a reduction in risk to

18 health from tobacco products can occur upon the em19 ployment of technology available or known to the

20 manufacturer.

21 ‘‘(3) Any or all documents (including underlying

22 scientific or financial information) relating to mar23 keting research involving the use of tobacco products

24 or marketing practices and the effectiveness of such
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1 practices used by tobacco manufacturers and distribu2 tors.

3 An importer of a tobacco product not manufactured in the

4 United States shall supply the information required of a

5 tobacco product manufacturer under this subsection.

6 ‘‘(c) TIME FOR SUBMISSION.—

7 ‘‘(1) IN GENERAL.—At least 90 days prior to the

8 delivery for introduction into interstate commerce of

9 a tobacco product not on the market on the date of

10 enactment of the Family Smoking Prevention and To11 bacco Control Act, the manufacturer of such product

12 shall provide the information required under sub13 section (a).

14 ‘‘(2) DISCLOSURE OF ADDITIVE.—If at any time

15 a tobacco product manufacturer adds to its tobacco

16 products a new tobacco additive or increases the

17 quantity of an existing tobacco additive, the manufac18 turer shall, except as provided in paragraph (3), at

19 least 90 days prior to such action so advise the Sec20 retary in writing.

21 ‘‘(3) DISCLOSURE OF OTHER ACTIONS.—If at

22 any time a tobacco product manufacturer eliminates

23 or decreases an existing additive, or adds or increases

24 an additive that has by regulation been designated by

25 the Secretary as an additive that is not a human or
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1 animal carcinogen, or otherwise harmful to health

2 under intended conditions of use, the manufacturer

3 shall within 60 days of such action so advise the Sec4 retary in writing.

5 ‘‘(d) DATA LIST.—

6 ‘‘(1) IN GENERAL.—Not later than 3 years after

7 the date of enactment of the Family Smoking Preven8 tion and Tobacco Control Act, and annually there9 after, the Secretary shall publish in a format that is

10 understandable and not misleading to a lay person,

11 and place on public display (in a manner determined

12 by the Secretary) the list established under subsection

13 (e).

14 ‘‘(2) CONSUMER RESEARCH.—The Secretary

15 shall conduct periodic consumer research to ensure

16 that the list published under paragraph (1) is not

17 misleading to lay persons. Not later than 5 years

18 after the date of enactment of the Family Smoking

19 Prevention and Tobacco Control Act, the Secretary

20 shall submit to the appropriate committees of Con21 gress a report on the results of such research, together

22 with recommendations on whether such publication

23 should be continued or modified.

24 ‘‘(e) DATA COLLECTION.—Not later than 12 months

25 after the date of enactment of the Family Smoking Preven-
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1 tion and Tobacco Control Act, the Secretary shall establish

2 a list of harmful and potentially harmful constituents, in3 cluding smoke constituents, to health in each tobacco prod4 uct by brand and by quantity in each brand and subbrand.

5 The Secretary shall publish a public notice requesting the

6 submission by interested persons of scientific and other in7 formation concerning the harmful and potentially harmful

8 constituents in tobacco products and tobacco smoke.

9 ‘‘SEC. 905. ANNUAL REGISTRATION.

10 ‘‘(a) DEFINITIONS.—In this section:

11 ‘‘(1) MANUFACTURE, PREPARATION,

12 COMPOUNDING, OR PROCESSING.—The term ‘manufac13 ture, preparation, compounding, or processing’ shall

14 include repackaging or otherwise changing the con15 tainer, wrapper, or labeling of any tobacco product

16 package in furtherance of the distribution of the to17 bacco product from the original place of manufacture

18 to the person who makes final delivery or sale to the

19 ultimate consumer or user.

20 ‘‘(2) NAME.—The term ‘name’ shall include in

21 the case of a partnership the name of each partner

22 and, in the case of a corporation, the name of each

23 corporate officer and director, and the State of incor24 poration.
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1 ‘‘(b) REGISTRATION BY OWNERS AND OPERATORS.—

2 On or before December 31 of each year every person who

3 owns or operates any establishment in any State engaged

4 in the manufacture, preparation, compounding, or proc5 essing of a tobacco product or tobacco products shall register

6 with the Secretary the name, places of business, and all such

7 establishments of that person.

8 ‘‘(c) REGISTRATION OF NEW OWNERS AND OPERA9 TORS.—Every person upon first engaging in the manufac10 ture, preparation, compounding, or processing of a tobacco

11 product or tobacco products in any establishment owned or

12 operated in any State by that person shall immediately reg13 ister with the Secretary that person’s name, place of busi14 ness, and such establishment.

15 ‘‘(d) REGISTRATION OF ADDED ESTABLISHMENTS.—

16 Every person required to register under subsection (b) or

17 (c) shall immediately register with the Secretary any addi18 tional establishment which that person owns or operates in

19 any State and in which that person begins the manufacture,

20 preparation, compounding, or processing of a tobacco prod21 uct or tobacco products.

22 ‘‘(e) UNIFORM PRODUCT IDENTIFICATION SYSTEM.—

23 The Secretary may by regulation prescribe a uniform sys24 tem for the identification of tobacco products and may re25 quire that persons who are required to list such tobacco
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1 products under subsection (i) shall list such tobacco prod2 ucts in accordance with such system.

3 ‘‘(f) PUBLIC ACCESS TO REGISTRATION INFORMA4 TION.—The Secretary shall make available for inspection,

5 to any person so requesting, any registration filed under

6 this section.

7 ‘‘(g) BIENNIAL INSPECTION OF REGISTERED ESTAB8 LISHMENTS.—Every establishment in any State registered

9 with the Secretary under this section shall be subject to in10 spection under section 704, and every such establishment

11 engaged in the manufacture, compounding, or processing

12 of a tobacco product or tobacco products shall be so in13 spected by 1 or more officers or employees duly designated

14 by the Secretary at least once in the 2-year period begin15 ning with the date of registration of such establishment

16 under this section and at least once in every successive 2-

17 year period thereafter.

18 ‘‘(h) FOREIGN ESTABLISHMENTS SHALL REGISTER.—

19 Any establishment within any foreign country engaged in

20 the manufacture, preparation, compounding, or processing

21 of a tobacco product or tobacco products, shall register

22 under this section under regulations promulgated by the

23 Secretary. Such regulations shall require such establishment

24 to provide the information required by subsection (i) of this

25 section and shall include provisions for registration of any
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1 such establishment upon condition that adequate and effec2 tive means are available, by arrangement with the govern3 ment of such foreign country or otherwise, to enable the Sec4 retary to determine from time to time whether tobacco prod5 ucts manufactured, prepared, compounded, or processed in

6 such establishment, if imported or offered for import into

7 the United States, shall be refused admission on any of the

8 grounds set forth in section 801(a).

9 ‘‘(i) REGISTRATION INFORMATION.—

10 ‘‘(1) PRODUCT LIST.—Every person who reg11 isters with the Secretary under subsection (b), (c), (d),

12 or (h) shall, at the time of registration under any

13 such subsection, file with the Secretary a list of all to14 bacco products which are being manufactured, pre15 pared, compounded, or processed by that person for

16 commercial distribution and which has not been in17 cluded in any list of tobacco products filed by that

18 person with the Secretary under this paragraph or

19 paragraph (2) before such time of registration. Such

20 list shall be prepared in such form and manner as the

21 Secretary may prescribe and shall be accompanied

22 by—

23 ‘‘(A) in the case of a tobacco product con24 tained in the applicable list with respect to

25 which a tobacco product standard has been estab-
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1 lished under section 907 or which is subject to

2 section 910, a reference to the authority for the

3 marketing of such tobacco product and a copy of

4 all labeling for such tobacco product;

5 ‘‘(B) in the case of any other tobacco prod6 uct contained in an applicable list, a copy of all

7 consumer information and other labeling for

8 such tobacco product, a representative sampling

9 of advertisements for such tobacco product, and,

10 upon request made by the Secretary for good

11 cause, a copy of all advertisements for a par12 ticular tobacco product; and

13 ‘‘(C) if the registrant filing a list has deter14 mined that a tobacco product contained in such

15 list is not subject to a tobacco product standard

16 established under section 907, a brief statement

17 of the basis upon which the registrant made such

18 determination if the Secretary requests such a

19 statement with respect to that particular tobacco

20 product.

21 ‘‘(2) BIANNUAL REPORT OF ANY CHANGE IN

22 PRODUCT LIST.—Each person who registers with the

23 Secretary under this section shall report to the Sec24 retary once during the month of June of each year
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1 and once during the month of December of each year

2 the following:

3 ‘‘(A) A list of each tobacco product intro4 duced by the registrant for commercial distribu5 tion which has not been included in any list pre6 viously filed by that person with the Secretary

7 under this subparagraph or paragraph (1). A

8 list under this subparagraph shall list a tobacco

9 product by its established name and shall be ac10 companied by the other information required by

11 paragraph (1).

12 ‘‘(B) If since the date the registrant last

13 made a report under this paragraph that person

14 has discontinued the manufacture, preparation,

15 compounding, or processing for commercial dis16 tribution of a tobacco product included in a list

17 filed under subparagraph (A) or paragraph (1),

18 notice of such discontinuance, the date of such

19 discontinuance, and the identity of its estab20 lished name.

21 ‘‘(C) If since the date the registrant reported

22 under subparagraph (B) a notice of discontinu23 ance that person has resumed the manufacture,

24 preparation, compounding, or processing for

25 commercial distribution of the tobacco product
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1 with respect to which such notice of discontinu2 ance was reported, notice of such resumption, the

3 date of such resumption, the identity of such to4 bacco product by established name, and other in5 formation required by paragraph (1), unless the

6 registrant has previously reported such resump7 tion to the Secretary under this subparagraph.

8 ‘‘(D) Any material change in any informa9 tion previously submitted under this paragraph

10 or paragraph (1).

11 ‘‘(j) REPORT PRECEDING INTRODUCTION OF CERTAIN

12 SUBSTANTIALLY-EQUIVALENT PRODUCTS INTO INTER13 STATE COMMERCE.—

14 ‘‘(1) IN GENERAL.—Each person who is required

15 to register under this section and who proposes to

16 begin the introduction or delivery for introduction

17 into interstate commerce for commercial distribution

18 of a tobacco product intended for human use that was

19 not commercially marketed (other than for test mar20 keting) in the United States as of June 1, 2003, shall,

21 at least 90 days prior to making such introduction or

22 delivery, report to the Secretary (in such form and

23 manner as the Secretary shall prescribe)—

24 ‘‘(A) the basis for such person’s determina25 tion that the tobacco product is substantially
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1 equivalent, within the meaning of section 910, to

2 a tobacco product commercially marketed (other

3 than for test marketing) in the United States as

4 of June 1, 2003, that is in compliance with the

5 requirements of this Act; and

6 ‘‘(B) action taken by such person to comply

7 with the requirements under section 907 that are

8 applicable to the tobacco product.

9 ‘‘(2) APPLICATION TO CERTAIN POST JUNE 1, 2003

10 PRODUCTS.—A report under this subsection for a to11 bacco product that was first introduced or delivered

12 for introduction into interstate commerce for commer13 cial distribution in the United States after June 1,

14 2003, and prior to the date that is 15 months after

15 the date of enactment of the Family Smoking Preven16 tion and Tobacco Control Act shall be submitted to

17 the Secretary not later than 15 months after such

18 date of enactment.

19 ‘‘(3) EXEMPTIONS.—

20 ‘‘(A) IN GENERAL.—The Secretary may by

21 regulation, exempt from the requirements of this

22 subsection tobacco products that are modified by

23 adding or deleting a tobacco additive, or increas24 ing or decreasing the quantity of an existing to-
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1 bacco additive, if the Secretary determines

2 that—

3 ‘‘(i) such modification would be a

4 minor modification of a tobacco product au5 thorized for sale under this Act;

6 ‘‘(ii) a report under this subsection is

7 not necessary to ensure that permitting the

8 tobacco product to be marketed would be ap9 propriate for protection of the public health;

10 and

11 ‘‘(iii) an exemption is otherwise appro12 priate.

13 ‘‘(B) REGULATIONS.—Not later than 9

14 months after the date of enactment of the Family

15 Smoking Prevention and Tobacco Control Act,

16 the Secretary shall issue regulations to imple17 ment this paragraph.

18 ‘‘SEC. 906. GENERAL PROVISIONS RESPECTING CONTROL

19 OF TOBACCO PRODUCTS.

20 ‘‘(a) IN GENERAL.—Any requirement established by or

21 under section 902, 903, 905, or 909 applicable to a tobacco

22 product shall apply to such tobacco product until the appli23 cability of the requirement to the tobacco product has been

24 changed by action taken under section 907, section 910, sec25 tion 911, or subsection (d) of this section, and any require-
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1 ment established by or under section 902, 903, 905, or 909

2 which is inconsistent with a requirement imposed on such

3 tobacco product under section 907, section 910, section 911,

4 or subsection (d) of this section shall not apply to such to5 bacco product.

6 ‘‘(b) INFORMATION ON PUBLIC ACCESS AND COM7 MENT.—Each notice of proposed rulemaking under section

8 907, 908, 909, 910, or 911 or under this section, any other

9 notice which is published in the Federal Register with re10 spect to any other action taken under any such section and

11 which states the reasons for such action, and each publica12 tion of findings required to be made in connection with

13 rulemaking under any such section shall set forth—

14 ‘‘(1) the manner in which interested persons may

15 examine data and other information on which the no16 tice or findings is based; and

17 ‘‘(2) the period within which interested persons

18 may present their comments on the notice or findings

19 (including the need therefore) orally or in writing,

20 which period shall be at least 60 days but may not

21 exceed 90 days unless the time is extended by the Sec22 retary by a notice published in the Federal Register

23 stating good cause therefore.

24 ‘‘(c) LIMITED CONFIDENTIALITY OF INFORMATION.—

25 Any information reported to or otherwise obtained by the
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1 Secretary or the Secretary’s representative under section

2 903, 904, 907, 908, 909, 910, 911, or 704, or under sub3 section (e) or (f) of this section, which is exempt from disclo4 sure under subsection (a) of section 552 of title 5, United

5 States Code, by reason of subsection (b)(4) of that section

6 shall be considered confidential and shall not be disclosed,

7 except that the information may be disclosed to other offi8 cers or employees concerned with carrying out this chapter,

9 or when relevant in any proceeding under this chapter.

10 ‘‘(d) RESTRICTIONS.—

11 ‘‘(1) IN GENERAL.—The Secretary may by regu12 lation require restrictions on the sale and distribution

13 of a tobacco product, including restrictions on the ac14 cess to, and the advertising and promotion of, the to15 bacco product, if the Secretary determines that such

16 regulation would be appropriate for the protection of

17 the public health. The Secretary may by regulation

18 impose restrictions on the advertising and promotion

19 of a tobacco product consistent with and to full extent

20 permitted by the first amendment to the Constitution.

21 The finding as to whether such regulation would be

22 appropriate for the protection of the public health

23 shall be determined with respect to the risks and bene24 fits to the population as a whole, including users and
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1 non-users of the tobacco product, and taking into

2 account—

3 ‘‘(A) the increased or decreased likelihood

4 that existing users of tobacco products will stop

5 using such products; and

6 ‘‘(B) the increased or decreased likelihood

7 that those who do not use tobacco products will

8 start using such products.

9 No such regulation may require that the sale or dis10 tribution of a tobacco product be limited to the writ11 ten or oral authorization of a practitioner licensed by

12 law to prescribe medical products.

13 ‘‘(2) LABEL STATEMENTS.—The label of a to14 bacco product shall bear such appropriate statements

15 of the restrictions required by a regulation under sub16 section (a) as the Secretary may in such regulation

17 prescribe.

18 ‘‘(3) LIMITATIONS.—

19 ‘‘(A) IN GENERAL.—No restrictions under

20 paragraph (1) may—

21 ‘‘(i) prohibit the sale of any tobacco

22 product in face-to-face transactions by a

23 specific category of retail outlets; or
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1 ‘‘(ii) establish a minimum age of sale

2 of tobacco products to any person older than

3 18 years of age.

4 ‘‘(B) MATCHBOOKS.—For purposes of any

5 regulations issued by the Secretary, matchbooks

6 of conventional size containing not more than 20

7 paper matches, and which are customarily given

8 away for free with the purchase of tobacco prod9 ucts shall be considered as adult written publica10 tions which shall be permitted to contain adver11 tising. Notwithstanding the preceding sentence, if

12 the Secretary finds that such treatment of match13 books is not appropriate for the protection of the

14 public health, the Secretary may determine by

15 regulation that matchbooks shall not be consid16 ered adult written publications.

17 ‘‘(e) GOOD MANUFACTURING PRACTICE REQUIRE18 MENTS.—

19 ‘‘(1) METHODS, FACILITIES, AND CONTROLS TO

20 CONFORM.—

21 ‘‘(A) IN GENERAL.—The Secretary may, in

22 accordance with subparagraph (B), prescribe

23 regulations (which may differ based on the type

24 of tobacco product involved) requiring that the

25 methods used in, and the facilities and controls
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1 used for, the manufacture, pre-production design

2 validation (including a process to assess the per3 formance of a tobacco product), packing and

4 storage of a tobacco product, conform to current

5 good manufacturing practice, as prescribed in

6 such regulations, to assure that the public health

7 is protected and that the tobacco product is in

8 compliance with this chapter. Good manufac9 turing practices may include the testing of raw

10 tobacco for pesticide chemical residues regardless

11 of whether a tolerance for such chemical residues

12 has been established.

13 ‘‘(B) REQUIREMENTS.—The Secretary

14 shall—

15 ‘‘(i) before promulgating any regula16 tion under subparagraph (A), afford the To17 bacco Products Scientific Advisory Com18 mittee an opportunity to submit rec19 ommendations with respect to the regulation

20 proposed to be promulgated;

21 ‘‘(ii) before promulgating any regula22 tion under subparagraph (A), afford oppor23 tunity for an oral hearing;

24 ‘‘(iii) provide the advisory committee a

25 reasonable time to make its recommendation
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1 with respect to proposed regulations under

2 subparagraph (A); and

3 ‘‘(iv) in establishing the effective date

4 of a regulation promulgated under this sub5 section, take into account the differences in

6 the manner in which the different types of

7 tobacco products have historically been pro8 duced, the financial resources of the dif9 ferent tobacco product manufacturers, and

10 the state of their existing manufacturing fa11 cilities, and shall provide for a reasonable

12 period of time for such manufacturers to

13 conform to good manufacturing practices.

14 ‘‘(2) EXEMPTIONS; VARIANCES.—

15 ‘‘(A) PETITION.—Any person subject to any

16 requirement prescribed under paragraph (1)

17 may petition the Secretary for a permanent or

18 temporary exemption or variance from such re19 quirement. Such a petition shall be submitted to

20 the Secretary in such form and manner as the

21 Secretary shall prescribe and shall—

22 ‘‘(i) in the case of a petition for an ex23 emption from a requirement, set forth the

24 basis for the petitioner’s determination that

25 compliance with the requirement is not re-
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1 quired to assure that the tobacco product

2 will be in compliance with this chapter;

3 ‘‘(ii) in the case of a petition for a

4 variance from a requirement, set forth the

5 methods proposed to be used in, and the fa6 cilities and controls proposed to be used for,

7 the manufacture, packing, and storage of

8 the tobacco product in lieu of the methods,

9 facilities, and controls prescribed by the re10 quirement; and

11 ‘‘(iii) contain such other information

12 as the Secretary shall prescribe.

13 ‘‘(B) REFERRAL TO THE TOBACCO PROD14 UCTS SCIENTIFIC ADVISORY COMMITTEE.—The

15 Secretary may refer to the Tobacco Products Sci16 entific Advisory Committee any petition sub17 mitted under subparagraph (A). The Tobacco

18 Products Scientific Advisory Committee shall re19 port its recommendations to the Secretary with

20 respect to a petition referred to it within 60 days

21 after the date of the petition’s referral. Within 60

22 days after—

23 ‘‘(i) the date the petition was sub24 mitted to the Secretary under subparagraph

25 (A); or
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1 ‘‘(ii) the day after the petition was re2 ferred to the Tobacco Products Scientific

3 Advisory Committee,

4 whichever occurs later, the Secretary shall by

5 order either deny the petition or approve it.

6 ‘‘(C) APPROVAL.—The Secretary may

7 approve—

8 ‘‘(i) a petition for an exemption for a

9 tobacco product from a requirement if the

10 Secretary determines that compliance with

11 such requirement is not required to assure

12 that the tobacco product will be in compli13 ance with this chapter; and

14 ‘‘(ii) a petition for a variance for a to15 bacco product from a requirement if the

16 Secretary determines that the methods to be

17 used in, and the facilities and controls to be

18 used for, the manufacture, packing, and

19 storage of the tobacco product in lieu of the

20 methods, controls, and facilities prescribed

21 by the requirement are sufficient to assure

22 that the tobacco product will be in compli23 ance with this chapter.

24 ‘‘(D) CONDITIONS.—An order of the Sec25 retary approving a petition for a variance shall
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1 prescribe such conditions respecting the methods

2 used in, and the facilities and controls used for,

3 the manufacture, packing, and storage of the to4 bacco product to be granted the variance under

5 the petition as may be necessary to assure that

6 the tobacco product will be in compliance with

7 this chapter.

8 ‘‘(E) HEARING.—After the issuance of an

9 order under subparagraph (B) respecting a peti10 tion, the petitioner shall have an opportunity for

11 an informal hearing on such order.

12 ‘‘(3) COMPLIANCE.—Compliance with require13 ments under this subsection shall not be required be14 fore the period ending 3 years after the date of enact15 ment of the Family Smoking Prevention and Tobacco

16 Control Act.

17 ‘‘(f) RESEARCH AND DEVELOPMENT.—The Secretary

18 may enter into contracts for research, testing, and dem19 onstrations respecting tobacco products and may obtain to20 bacco products for research, testing, and demonstration pur21 poses without regard to section 3324(a) and (b) of title 31,

22 United States Code, and section 5 of title 41, United States

23 Code.

24 ‘‘SEC. 907. TOBACCO PRODUCT STANDARDS.

25 ‘‘(a) IN GENERAL.—
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1 ‘‘(1) SPECIAL RULE FOR CIGARETTES.—A ciga2 rette or any of its component parts (including the to3 bacco, filter, or paper) shall not contain, as a con4 stituent (including a smoke constituent) or additive,

5 an artificial or natural flavor (other than tobacco or

6 menthol) or an herb or spice, including strawberry,

7 grape, orange, clove, cinnamon, pineapple, vanilla,

8 coconut, licorice, cocoa, chocolate, cherry, or coffee,

9 that is a characterizing flavor of the tobacco product

10 or tobacco smoke. Nothing in this subparagraph shall

11 be construed to limit the Secretary’s authority to take

12 action under this section or other sections of this Act

13 applicable to menthol or any artificial or natural fla14 vor, herb, or spice not specified in this paragraph.

15 ‘‘(2) REVISION OF TOBACCO PRODUCT STAND16 ARDS.—The Secretary may revise the tobacco product

17 standards in paragraph (1) in accordance with sub18 section (b).

19 ‘‘(3) TOBACCO PRODUCT STANDARDS.—The Sec20 retary may adopt tobacco product standards in addi21 tion to those in paragraph (1) if the Secretary finds

22 that a tobacco product standard is appropriate for the

23 protection of the public health. This finding shall be

24 determined with respect to the risks and benefits to

25 the population as a whole, including users and non-
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1 users of the tobacco product, and taking into

2 account—

3 ‘‘(A) the increased or decreased likelihood

4 that existing users of tobacco products will stop

5 using such products; and

6 ‘‘(B) the increased or decreased likelihood

7 that those who do not use tobacco products will

8 start using such products.

9 ‘‘(4) CONTENT OF TOBACCO PRODUCT STAND10 ARDS.—A tobacco product standard established under

11 this section for a tobacco product—

12 ‘‘(A) shall include provisions that are ap13 propriate for the protection of the public health,

14 including provisions, where appropriate—

15 ‘‘(i) for the reduction of nicotine yields

16 of the product;

17 ‘‘(ii) for the reduction or elimination

18 of other constituents, including smoke con19 stituents, or harmful components of the

20 product; or

21 ‘‘(iii) relating to any other require22 ment under (B);

23 ‘‘(B) shall, where appropriate for the protec24 tion of the public health, include—
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1 ‘‘(i) provisions respecting the construc2 tion, components, ingredients, additives,

3 constituents, including smoke constituents,

4 and properties of the tobacco product;

5 ‘‘(ii) provisions for the testing (on a

6 sample basis or, if necessary, on an indi7 vidual basis) of the tobacco product;

8 ‘‘(iii) provisions for the measurement

9 of the tobacco product characteristics of the

10 tobacco product;

11 ‘‘(iv) provisions requiring that the re12 sults of each or of certain of the tests of the

13 tobacco product required to be made under

14 clause (ii) show that the tobacco product is

15 in conformity with the portions of the

16 standard for which the test or tests were re17 quired; and

18 ‘‘(v) a provision requiring that the sale

19 and distribution of the tobacco product be

20 restricted but only to the extent that the sale

21 and distribution of a tobacco product may

22 be restricted under a regulation under sec23 tion 906(d); and
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1 ‘‘(C) shall, where appropriate, require the

2 use and prescribe the form and content of label3 ing for the proper use of the tobacco product.

4 ‘‘(5) PERIODIC RE-EVALUATION OF TOBACCO

5 PRODUCT STANDARDS.—The Secretary shall provide

6 for periodic evaluation of tobacco product standards

7 established under this section to determine whether

8 such standards should be changed to reflect new med9 ical, scientific, or other technological data. The Sec10 retary may provide for testing under paragraph

11 (4)(B) by any person.

12 ‘‘(6) INVOLVEMENT OF OTHER AGENCIES; IN13 FORMED PERSONS.—In carrying out duties under this

14 section, the Secretary shall endeavor to—

15 ‘‘(A) use personnel, facilities, and other

16 technical support available in other Federal

17 agencies;

18 ‘‘(B) consult with other Federal agencies

19 concerned with standard-setting and other na20 tionally or internationally recognized standard21 setting entities; and

22 ‘‘(C) invite appropriate participation,

23 through joint or other conferences, workshops, or

24 other means, by informed persons representative

25 of scientific, professional, industry, agricultural,
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1 or consumer organizations who in the Secretary’s

2 judgment can make a significant contribution.

3 ‘‘(b) ESTABLISHMENT OF STANDARDS.—

4 ‘‘(1) NOTICE.—

5 ‘‘(A) IN GENERAL.—The Secretary shall

6 publish in the Federal Register a notice of pro7 posed rulemaking for the establishment, amend8 ment, or revocation of any tobacco product

9 standard.

10 ‘‘(B) REQUIREMENTS OF NOTICE.—A notice

11 of proposed rulemaking for the establishment or

12 amendment of a tobacco product standard for a

13 tobacco product shall—

14 ‘‘(i) set forth a finding with supporting

15 justification that the tobacco product stand16 ard is appropriate for the protection of the

17 public health;

18 ‘‘(ii) set forth proposed findings with

19 respect to the risk of illness or injury that

20 the tobacco product standard is intended to

21 reduce or eliminate; and

22 ‘‘(iii) invite interested persons to sub23 mit an existing tobacco product standard

24 for the tobacco product, including a draft or
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1 proposed tobacco product standard, for con2 sideration by the Secretary.

3 ‘‘(C) STANDARD.—Upon a determination by

4 the Secretary that an additive, constituent (in5 cluding smoke constituent), or other component

6 of the product that is the subject of the proposed

7 tobacco product standard is harmful, it shall be

8 the burden of any party challenging the proposed

9 standard to prove that the proposed standard

10 will not reduce or eliminate the risk of illness or

11 injury.

12 ‘‘(D) FINDING.—A notice of proposed rule13 making for the revocation of a tobacco product

14 standard shall set forth a finding with sup15 porting justification that the tobacco product

16 standard is no longer appropriate for the protec17 tion of the public health.

18 ‘‘(E) CONSIDERATION BY SECRETARY.—The

19 Secretary shall consider all information sub20 mitted in connection with a proposed standard,

21 including information concerning the counter22 vailing effects of the tobacco product standard on

23 the health of adolescent tobacco users, adult to24 bacco users, or non-tobacco users, such as the cre25 ation of a significant demand for contraband or
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1 other tobacco products that do not meet the re2 quirements of this chapter and the significance of

3 such demand, and shall issue the standard if the

4 Secretary determines that the standard would be

5 appropriate for the protection of the public

6 health.

7 ‘‘(F) COMMENT.—The Secretary shall pro8 vide for a comment period of not less than 60

9 days.

10 ‘‘(2) PROMULGATION.—

11 ‘‘(A) IN GENERAL.—After the expiration of

12 the period for comment on a notice of proposed

13 rulemaking published under paragraph (1) re14 specting a tobacco product standard and after

15 consideration of such comments and any report

16 from the Tobacco Products Scientific Advisory

17 Committee, the Secretary shall—

18 ‘‘(i) promulgate a regulation estab19 lishing a tobacco product standard and

20 publish in the Federal Register findings on

21 the matters referred to in paragraph (1); or

22 ‘‘(ii) publish a notice terminating the

23 proceeding for the development of the stand24 ard together with the reasons for such ter25 mination.
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1 ‘‘(B) EFFECTIVE DATE.—A regulation es2 tablishing a tobacco product standard shall set

3 forth the date or dates upon which the standard

4 shall take effect, but no such regulation may take

5 effect before 1 year after the date of its publica6 tion unless the Secretary determines that an ear7 lier effective date is necessary for the protection

8 of the public health. Such date or dates shall be

9 established so as to minimize, consistent with the

10 public health, economic loss to, and disruption or

11 dislocation of, domestic and international trade.

12 ‘‘(3) POWER RESERVED TO CONGRESS.—Because

13 of the importance of a decision of the Secretary to

14 issue a regulation establishing a tobacco product

15 standard—

16 ‘‘(A) banning all cigarettes, all smokeless to17 bacco products, all little cigars, all cigars other

18 than little cigars, all pipe tobacco, or all roll

19 your own tobacco products; or

20 ‘‘(B) requiring the reduction of nicotine

21 yields of a tobacco product to zero,

22 Congress expressly reserves to itself such power.

23 ‘‘(4) AMENDMENT; REVOCATION.—

24 ‘‘(A) AUTHORITY.—The Secretary, upon the

25 Secretary’s own initiative or upon petition of an
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1 interested person may by a regulation, promul2 gated in accordance with the requirements of

3 paragraphs (1) and (2)(B), amend or revoke a

4 tobacco product standard.

5 ‘‘(B) EFFECTIVE DATE.—The Secretary

6 may declare a proposed amendment of a tobacco

7 product standard to be effective on and after its

8 publication in the Federal Register and until the

9 effective date of any final action taken on such

10 amendment if the Secretary determines that

11 making it so effective is in the public interest.

12 ‘‘(5) REFERENCE TO ADVISORY COMMITTEE.—

13 The Secretary may—

14 ‘‘(A) on the Secretary’s own initiative, refer

15 a proposed regulation for the establishment,

16 amendment, or revocation of a tobacco product

17 standard; or

18 ‘‘(B) upon the request of an interested per19 son which demonstrates good cause for referral

20 and which is made before the expiration of the

21 period for submission of comments on such pro22 posed regulation,

23 refer such proposed regulation to the Tobacco Products Sci24 entific Advisory Committee, for a report and recommenda25 tion with respect to any matter involved in the proposed
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1 regulation which requires the exercise of scientific judgment.

2 If a proposed regulation is referred under this paragraph

3 to the Tobacco Products Scientific Advisory Committee, the

4 Secretary shall provide the advisory committee with the

5 data and information on which such proposed regulation

6 is based. The Tobacco Products Scientific Advisory Com7 mittee shall, within 60 days after the referral of a proposed

8 regulation and after independent study of the data and in9 formation furnished to it by the Secretary and other data

10 and information before it, submit to the Secretary a report

11 and recommendation respecting such regulation, together

12 with all underlying data and information and a statement

13 of the reason or basis for the recommendation. A copy of

14 such report and recommendation shall be made public by

15 the Secretary.

16 ‘‘SEC. 908. NOTIFICATION AND OTHER REMEDIES.

17 ‘‘(a) NOTIFICATION.—If the Secretary determines

18 that—

19 ‘‘(1) a tobacco product which is introduced or de20 livered for introduction into interstate commerce for

21 commercial distribution presents an unreasonable risk

22 of substantial harm to the public health; and

23 ‘‘(2) notification under this subsection is nec24 essary to eliminate the unreasonable risk of such

25 harm and no more practicable means is available
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1 under the provisions of this chapter (other than this

2 section) to eliminate such risk,

3 the Secretary may issue such order as may be necessary

4 to assure that adequate notification is provided in an ap5 propriate form, by the persons and means best suited under

6 the circumstances involved, to all persons who should prop7 erly receive such notification in order to eliminate such

8 risk. The Secretary may order notification by any appro9 priate means, including public service announcements. Be10 fore issuing an order under this subsection, the Secretary

11 shall consult with the persons who are to give notice under

12 the order.

13 ‘‘(b) NO EXEMPTION FROM OTHER LIABILITY.—Com14 pliance with an order issued under this section shall not

15 relieve any person from liability under Federal or State

16 law. In awarding damages for economic loss in an action

17 brought for the enforcement of any such liability, the value

18 to the plaintiff in such action of any remedy provided under

19 such order shall be taken into account.

20 ‘‘(c) RECALL AUTHORITY.—

21 ‘‘(1) IN GENERAL.—If the Secretary finds that

22 there is a reasonable probability that a tobacco prod23 uct contains a manufacturing or other defect not ordi24 narily contained in tobacco products on the market

25 that would cause serious, adverse health consequences
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1 or death, the Secretary shall issue an order requiring

2 the appropriate person (including the manufacturers,

3 importers, distributors, or retailers of the tobacco

4 product) to immediately cease distribution of such to5 bacco product. The order shall provide the person sub6 ject to the order with an opportunity for an informal

7 hearing, to be held not later than 10 days after the

8 date of the issuance of the order, on the actions re9 quired by the order and on whether the order should

10 be amended to require a recall of such tobacco prod11 uct. If, after providing an opportunity for such a

12 hearing, the Secretary determines that inadequate

13 grounds exist to support the actions required by the

14 order, the Secretary shall vacate the order.

15 ‘‘(2) AMENDMENT OF ORDER TO REQUIRE RE16 CALL.—

17 ‘‘(A) IN GENERAL.—If, after providing an

18 opportunity for an informal hearing under

19 paragraph (1), the Secretary determines that the

20 order should be amended to include a recall of

21 the tobacco product with respect to which the

22 order was issued, the Secretary shall, except as

23 provided in subparagraph (B), amend the order

24 to require a recall. The Secretary shall specify a

25 timetable in which the tobacco product recall will
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1 occur and shall require periodic reports to the

2 Secretary describing the progress of the recall.

3 ‘‘(B) NOTICE.—An amended order under

4 subparagraph (A)—

5 ‘‘(i) shall not include recall of a to6 bacco product from individuals; and

7 ‘‘(ii) shall provide for notice to persons

8 subject to the risks associated with the use

9 of such tobacco product.

10 In providing the notice required by clause (ii),

11 the Secretary may use the assistance of retailers

12 and other persons who distributed such tobacco

13 product. If a significant number of such persons

14 cannot be identified, the Secretary shall notify

15 such persons under section 705(b).

16 ‘‘(3) REMEDY NOT EXCLUSIVE.—The remedy pro17 vided by this subsection shall be in addition to rem18 edies provided by subsection (a) of this section.

19 ‘‘SEC. 909. RECORDS AND REPORTS ON TOBACCO PROD20 UCTS.

21 ‘‘(a) IN GENERAL.—Every person who is a tobacco

22 product manufacturer or importer of a tobacco product

23 shall establish and maintain such records, make such re24 ports, and provide such information, as the Secretary may

25 by regulation reasonably require to assure that such tobacco
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1 product is not adulterated or misbranded and to otherwise

2 protect public health. Regulations prescribed under the pre3 ceding sentence—

4 ‘‘(1) may require a tobacco product manufac5 turer or importer to report to the Secretary whenever

6 the manufacturer or importer receives or otherwise be7 comes aware of information that reasonably suggests

8 that one of its marketed tobacco products may have

9 caused or contributed to a serious unexpected adverse

10 experience associated with the use of the product or

11 any significant increase in the frequency of a serious,

12 expected adverse product experience;

13 ‘‘(2) shall require reporting of other significant

14 adverse tobacco product experiences as determined by

15 the Secretary to be necessary to be reported;

16 ‘‘(3) shall not impose requirements unduly bur17 densome to a tobacco product manufacturer or im18 porter, taking into account the cost of complying with

19 such requirements and the need for the protection of

20 the public health and the implementation of this

21 chapter;

22 ‘‘(4) when prescribing the procedure for making

23 requests for reports or information, shall require that

24 each request made under such regulations for submis25 sion of a report or information to the Secretary state
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1 the reason or purpose for such request and identify to

2 the fullest extent practicable such report or informa3 tion;

4 ‘‘(5) when requiring submission of a report or

5 information to the Secretary, shall state the reason or

6 purpose for the submission of such report or informa7 tion and identify to the fullest extent practicable such

8 report or information; and

9 ‘‘(6) may not require that the identity of any

10 patient or user be disclosed in records, reports, or in11 formation required under this subsection unless re12 quired for the medical welfare of an individual, to de13 termine risks to public health of a tobacco product, or

14 to verify a record, report, or information submitted

15 under this chapter.

16 In prescribing regulations under this subsection, the Sec17 retary shall have due regard for the professional ethics of

18 the medical profession and the interests of patients. The

19 prohibitions of paragraph (6) continue to apply to records,

20 reports, and information concerning any individual who

21 has been a patient, irrespective of whether or when he ceases

22 to be a patient.

23 ‘‘(b) REPORTS OF REMOVALS AND CORRECTIONS.—

24 ‘‘(1) IN GENERAL.—Except as provided in para25 graph (2), the Secretary shall by regulation require a
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1 tobacco product manufacturer or importer of a to2 bacco product to report promptly to the Secretary any

3 corrective action taken or removal from the market of

4 a tobacco product undertaken by such manufacturer

5 or importer if the removal or correction was

6 undertaken—

7 ‘‘(A) to reduce a risk to health posed by the

8 tobacco product; or

9 ‘‘(B) to remedy a violation of this chapter

10 caused by the tobacco product which may present

11 a risk to health.

12 A tobacco product manufacturer or importer of a to13 bacco product who undertakes a corrective action or

14 removal from the market of a tobacco product which

15 is not required to be reported under this subsection

16 shall keep a record of such correction or removal.

17 ‘‘(2) EXCEPTION.—No report of the corrective ac18 tion or removal of a tobacco product may be required

19 under paragraph (1) if a report of the corrective ac20 tion or removal is required and has been submitted

21 under subsection (a).

22 ‘‘SEC. 910. APPLICATION FOR REVIEW OF CERTAIN TO23 BACCO PRODUCTS.

24 ‘‘(a) IN GENERAL.—
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1 ‘‘(1) NEW TOBACCO PRODUCT DEFINED.—For

2 purposes of this section the term ‘new tobacco product’

3 means—

4 ‘‘(A) any tobacco product (including those

5 products in test markets) that was not commer6 cially marketed in the United States as of June

7 1, 2003; or

8 ‘‘(B) any modification (including a change

9 in design, any component, any part, or any con10 stituent, including a smoke constituent, or in the

11 content, delivery or form of nicotine, or any

12 other additive or ingredient) of a tobacco product

13 where the modified product was commercially

14 marketed in the United States after June 1,

15 2003.

16 ‘‘(2) PREMARKET APPROVAL REQUIRED.—

17 ‘‘(A) NEW PRODUCTS.—Approval under this

18 section of an application for premarket approval

19 for any new tobacco product is required unless—

20 ‘‘(i) the manufacturer has submitted a

21 report under section 905(j); and

22 ‘‘(ii) the Secretary has issued an order

23 that the tobacco product—

24 ‘‘(I) is substantially equivalent to

25 a tobacco product commercially mar-
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1 keted (other than for test marketing) in

2 the United States as of June 1, 2003;

3 and

4 ‘‘(II)(aa) is in compliance with

5 the requirements of this Act; or

6 ‘‘(bb) is exempt from the require7 ments of section 905(j) pursuant to a

8 regulation issued under section

9 905(j)(3).

10 ‘‘(B) APPLICATION TO CERTAIN POST JUNE

11 1, 2003 PRODUCTS.—Subparagraph (A) shall not

12 apply to a tobacco product—

13 ‘‘(i) that was first introduced or deliv14 ered for introduction into interstate com15 merce for commercial distribution in the

16 United States after June 1, 2003, and prior

17 to the date that is 15 months after the date

18 of enactment of the Family Smoking Pre19 vention and Tobacco Control Act; and

20 ‘‘(ii) for which a report was submitted

21 under section 905(j) within such 15-month

22 period, until the Secretary issues an order

23 that the tobacco product is not substantially

24 equivalent.

25 ‘‘(3) SUBSTANTIALLY EQUIVALENT DEFINED.—
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1 ‘‘(A) IN GENERAL.—In this section and sec2 tion 905(j), the terms ‘substantially equivalent’

3 or ‘substantial equivalence’ mean, with respect to

4 the tobacco product being compared to the predi5 cate tobacco product, that the Secretary by order

6 has found that the tobacco product—

7 ‘‘(i) has the same characteristics as the

8 predicate tobacco product; or

9 ‘‘(ii) has different characteristics and

10 the information submitted contains infor11 mation, including clinical data if deemed

12 necessary by the Secretary, that dem13 onstrates that it is not appropriate to regu14 late the product under this section because

15 the product does not raise different ques16 tions of public health.

17 ‘‘(B) CHARACTERISTICS.—In subparagraph

18 (A), the term ‘characteristics’ means the mate19 rials, ingredients, design, composition, heating

20 source, or other features of a tobacco product.

21 ‘‘(C) LIMITATION.—A tobacco product may

22 not be found to be substantially equivalent to a

23 predicate tobacco product that has been removed

24 from the market at the initiative of the Secretary
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1 or that has been determined by a judicial order

2 to be misbranded or adulterated.

3 ‘‘(4) HEALTH INFORMATION.—

4 ‘‘(A) SUMMARY.—As part of a submission

5 under section 905(j) respecting a tobacco prod6 uct, the person required to file a premarket noti7 fication under such section shall provide an ade8 quate summary of any health information re9 lated to the tobacco product or state that such in10 formation will be made available upon request

11 by any person.

12 ‘‘(B) REQUIRED INFORMATION.—Any sum13 mary under subparagraph (A) respecting a to14 bacco product shall contain detailed information

15 regarding data concerning adverse health effects

16 and shall be made available to the public by the

17 Secretary within 30 days of the issuance of a de18 termination that such tobacco product is sub19 stantially equivalent to another tobacco product.

20 ‘‘(b) APPLICATION.—

21 ‘‘(1) CONTENTS.—An application for premarket

22 approval shall contain—

23 ‘‘(A) full reports of all information, pub24 lished or known to, or which should reasonably

25 be known to, the applicant, concerning investiga-
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1 tions which have been made to show the health

2 risks of such tobacco product and whether such

3 tobacco product presents less risk than other to4 bacco products;

5 ‘‘(B) a full statement of the components, in6 gredients, additives, and properties, and of the

7 principle or principles of operation, of such to8 bacco product;

9 ‘‘(C) a full description of the methods used

10 in, and the facilities and controls used for, the

11 manufacture, processing, and, when relevant,

12 packing and installation of, such tobacco prod13 uct;

14 ‘‘(D) an identifying reference to any tobacco

15 product standard under section 907 which would

16 be applicable to any aspect of such tobacco prod17 uct, and either adequate information to show

18 that such aspect of such tobacco product fully

19 meets such tobacco product standard or adequate

20 information to justify any deviation from such

21 standard;

22 ‘‘(E) such samples of such tobacco product

23 and of components thereof as the Secretary may

24 reasonably require;
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1 ‘‘(F) specimens of the labeling proposed to

2 be used for such tobacco product; and

3 ‘‘(G) such other information relevant to the

4 subject matter of the application as the Secretary

5 may require.

6 ‘‘(2) REFERENCE TO TOBACCO PRODUCTS SCI7 ENTIFIC ADVISORY COMMITTEE.—Upon receipt of an

8 application meeting the requirements set forth in

9 paragraph (1), the Secretary—

10 ‘‘(A) may, on the Secretary’s own initiative;

11 or

12 ‘‘(B) may, upon the request of an applicant,

13 refer such application to the Tobacco Products Sci14 entific Advisory Committee for reference and for sub15 mission (within such period as the Secretary may es16 tablish) of a report and recommendation respecting

17 approval of the application, together with all under18 lying data and the reasons or basis for the rec19 ommendation.

20 ‘‘(c) ACTION ON APPLICATION.—

21 ‘‘(1) DEADLINE.—

22 ‘‘(A) IN GENERAL.—As promptly as pos23 sible, but in no event later than 180 days after

24 the receipt of an application under subsection

25 (b), the Secretary, after considering the report
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1 and recommendation submitted under paragraph

2 (2) of such subsection, shall—

3 ‘‘(i) issue an order approving the ap4 plication if the Secretary finds that none of

5 the grounds for denying approval specified

6 in paragraph (2) of this subsection applies;

7 or

8 ‘‘(ii) deny approval of the application

9 if the Secretary finds (and sets forth the

10 basis for such finding as part of or accom11 panying such denial) that 1 or more

12 grounds for denial specified in paragraph

13 (2) of this subsection apply.

14 ‘‘(B) RESTRICTIONS ON SALE AND DIS15 TRIBUTION.—An order approving an application

16 for a tobacco product may require as a condition

17 to such approval that the sale and distribution

18 of the tobacco product be restricted but only to

19 the extent that the sale and distribution of a to20 bacco product may be restricted under a regula21 tion under section 906(d).

22 ‘‘(2) DENIAL OF APPROVAL.—The Secretary shall

23 deny approval of an application for a tobacco product

24 if, upon the basis of the information submitted to the

25 Secretary as part of the application and any other
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1 information before the Secretary with respect to such

2 tobacco product, the Secretary finds that—

3 ‘‘(A) there is a lack of a showing that per4 mitting such tobacco product to be marketed

5 would be appropriate for the protection of the

6 public health;

7 ‘‘(B) the methods used in, or the facilities or

8 controls used for, the manufacture, processing, or

9 packing of such tobacco product do not conform

10 to the requirements of section 906(e);

11 ‘‘(C) based on a fair evaluation of all mate12 rial facts, the proposed labeling is false or mis13 leading in any particular; or

14 ‘‘(D) such tobacco product is not shown to

15 conform in all respects to a tobacco product

16 standard in effect under section 907, compliance

17 with which is a condition to approval of the ap18 plication, and there is a lack of adequate infor19 mation to justify the deviation from such stand20 ard.

21 ‘‘(3) DENIAL INFORMATION.—Any denial of an

22 application shall, insofar as the Secretary determines

23 to be practicable, be accompanied by a statement in24 forming the applicant of the measures required to

25 place such application in approvable form (which
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1 measures may include further research by the appli2 cant in accordance with 1 or more protocols pre3 scribed by the Secretary).

4 ‘‘(4) BASIS FOR FINDING.—For purposes of this

5 section, the finding as to whether approval of a to6 bacco product is appropriate for the protection of the

7 public health shall be determined with respect to the

8 risks and benefits to the population as a whole, in9 cluding users and nonusers of the tobacco product,

10 and taking into account—

11 ‘‘(A) the increased or decreased likelihood

12 that existing users of tobacco products will stop

13 using such products; and

14 ‘‘(B) the increased or decreased likelihood

15 that those who do not use tobacco products will

16 start using such products.

17 ‘‘(5) BASIS FOR ACTION.—

18 ‘‘(A) INVESTIGATIONS.—For purposes of

19 paragraph (2)(A), whether permitting a tobacco

20 product to be marketed would be appropriate for

21 the protection of the public health shall, when

22 appropriate, be determined on the basis of well23 controlled investigations, which may include 1 or

24 more clinical investigations by experts qualified
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1 by training and experience to evaluate the to2 bacco product.

3 ‘‘(B) OTHER EVIDENCE.—If the Secretary

4 determines that there exists valid scientific evi5 dence (other than evidence derived from inves6 tigations described in subparagraph (A)) which

7 is sufficient to evaluate the tobacco product the

8 Secretary may authorize that the determination

9 for purposes of paragraph (2)(A) be made on the

10 basis of such evidence.

11 ‘‘(d) WITHDRAWAL AND TEMPORARY SUSPENSION.—

12 ‘‘(1) IN GENERAL.—The Secretary shall, upon

13 obtaining, where appropriate, advice on scientific

14 matters from an advisory committee, and after due

15 notice and opportunity for informal hearing to the

16 holder of an approved application for a tobacco prod17 uct, issue an order withdrawing approval of the ap18 plication if the Secretary finds—

19 ‘‘(A) that the continued marketing of such

20 tobacco product no longer is appropriate for the

21 protection of the public health;

22 ‘‘(B) that the application contained or was

23 accompanied by an untrue statement of a mate24 rial fact;

25 ‘‘(C) that the applicant—
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1 ‘‘(i) has failed to establish a system for

2 maintaining records, or has repeatedly or

3 deliberately failed to maintain records or to

4 make reports, required by an applicable reg5 ulation under section 909;

6 ‘‘(ii) has refused to permit access to, or

7 copying or verification of, such records as

8 required by section 704; or

9 ‘‘(iii) has not complied with the re10 quirements of section 905;

11 ‘‘(D) on the basis of new information before

12 the Secretary with respect to such tobacco prod13 uct, evaluated together with the evidence before

14 the Secretary when the application was ap15 proved, that the methods used in, or the facilities

16 and controls used for, the manufacture, proc17 essing, packing, or installation of such tobacco

18 product do not conform with the requirements of

19 section 906(e) and were not brought into con20 formity with such requirements within a reason21 able time after receipt of written notice from the

22 Secretary of nonconformity;

23 ‘‘(E) on the basis of new information before

24 the Secretary, evaluated together with the evi25 dence before the Secretary when the application
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1 was approved, that the labeling of such tobacco

2 product, based on a fair evaluation of all mate3 rial facts, is false or misleading in any par4 ticular and was not corrected within a reason5 able time after receipt of written notice from the

6 Secretary of such fact; or

7 ‘‘(F) on the basis of new information before

8 the Secretary, evaluated together with the evi9 dence before the Secretary when the application

10 was approved, that such tobacco product is not

11 shown to conform in all respects to a tobacco

12 product standard which is in effect under section

13 907, compliance with which was a condition to

14 approval of the application, and that there is a

15 lack of adequate information to justify the devi16 ation from such standard.

17 ‘‘(2) APPEAL.—The holder of an application sub18 ject to an order issued under paragraph (1) with19 drawing approval of the application may, by petition

20 filed on or before the 30th day after the date upon

21 which such holder receives notice of such withdrawal,

22 obtain review thereof in accordance with subsection

23 (e).

24 ‘‘(3) TEMPORARY SUSPENSION.—If, after pro25 viding an opportunity for an informal hearing, the
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1 Secretary determines there is reasonable probability

2 that the continuation of distribution of a tobacco

3 product under an approved application would cause

4 serious, adverse health consequences or death, that is

5 greater than ordinarily caused by tobacco products on

6 the market, the Secretary shall by order temporarily

7 suspend the approval of the application approved

8 under this section. If the Secretary issues such an

9 order, the Secretary shall proceed expeditiously under

10 paragraph (1) to withdraw such application.

11 ‘‘(e) SERVICE OF ORDER.—An order issued by the Sec12 retary under this section shall be served—

13 ‘‘(1) in person by any officer or employee of the

14 department designated by the Secretary; or

15 ‘‘(2) by mailing the order by registered mail or

16 certified mail addressed to the applicant at the appli17 cant’s last known address in the records of the Sec18 retary.

19 ‘‘(f) RECORDS.—

20 ‘‘(1) ADDITIONAL INFORMATION.—In the case of

21 any tobacco product for which an approval of an ap22 plication filed under subsection (b) is in effect, the

23 applicant shall establish and maintain such records,

24 and make such reports to the Secretary, as the Sec25 retary may by regulation, or by order with respect to
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1 such application, prescribe on the basis of a finding

2 that such records and reports are necessary in order

3 to enable the Secretary to determine, or facilitate a

4 determination of, whether there is or may be grounds

5 for withdrawing or temporarily suspending such ap6 proval.

7 ‘‘(2) ACCESS TO RECORDS.—Each person re8 quired under this section to maintain records, and

9 each person in charge or custody thereof, shall, upon

10 request of an officer or employee designated by the

11 Secretary, permit such officer or employee at all rea12 sonable times to have access to and copy and verify

13 such records.

14 ‘‘(g) INVESTIGATIONAL TOBACCO PRODUCT EXEMP15 TION FOR INVESTIGATIONAL USE.—The Secretary may ex16 empt tobacco products intended for investigational use from

17 the provisions of this chapter under such conditions as the

18 Secretary may by regulation prescribe.

19 ‘‘SEC. 911. MODIFIED RISK TOBACCO PRODUCTS.

20 ‘‘(a) IN GENERAL.—No person may introduce or de21 liver for introduction into interstate commerce any modi22 fied risk tobacco product unless approval of an application

23 filed pursuant to subsection (d) is effective with respect to

24 such product.

25 ‘‘(b) DEFINITIONS.—In this section:
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1 ‘‘(1) MODIFIED RISK TOBACCO PRODUCT.—The

2 term ‘modified risk tobacco product’ means any to3 bacco product that is sold or distributed for use to re4 duce harm or the risk of tobacco-related disease asso5 ciated with commercially marketed tobacco products.

6 ‘‘(2) SOLD OR DISTRIBUTED.—

7 ‘‘(A) IN GENERAL.—With respect to a to8 bacco product, the term ‘sold or distributed for

9 use to reduce harm or the risk of tobacco-related

10 disease associated with commercially marketed

11 tobacco products’ means a tobacco product—

12 ‘‘(A) the label, labeling, or advertising

13 of which represents explicitly or implicitly

14 that—

15 ‘‘(I) the tobacco product presents

16 a lower risk of tobacco-related disease

17 or is less harmful than one or more

18 other commercially marketed tobacco

19 products;

20 ‘‘(II) the tobacco product or its

21 smoke contains a reduced level of a

22 substance or presents a reduced expo23 sure to a substance; or
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1 ‘‘(III) the tobacco product or its

2 smoke does not contain or is free of a

3 substance;

4 ‘‘(ii) the label, labeling, or advertising

5 of which uses the descriptors ‘light’, ‘mild’,

6 or ‘low’ or similar descriptors; or

7 ‘‘(iii) the tobacco product manufac8 turer of which has taken any action directed

9 to consumers through the media or other10 wise, other than by means of the tobacco

11 product’s label, labeling or advertising, after

12 the date of enactment of the Family Smok13 ing Prevention and Tobacco Control Act, re14 specting the product that would be reason15 ably expected to result in consumers believ16 ing that the tobacco product or its smoke

17 may present a lower risk of disease or is

18 less harmful than one or more commercially

19 marketed tobacco products, or presents a re20 duced exposure to, or does not contain or is

21 free of, a substance or substances.

22 ‘‘(B) LIMITATION.—No tobacco product

23 shall be considered to be ‘sold or distributed for

24 use to reduce harm or the risk of tobacco-related

25 disease associated with commercially marketed
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1 tobacco products’, except as described in sub2 paragraph (A).

3 ‘‘(c) TOBACCO DEPENDENCE PRODUCTS.—A product

4 that is intended to be used for the treatment of tobacco de5 pendence, including smoking cessation, is not a modified

6 risk tobacco product under this section and is subject to the

7 requirements of chapter V.

8 ‘‘(d) FILING.—Any person may file with the Secretary

9 an application for a modified risk tobacco product. Such

10 application shall include—

11 ‘‘(1) a description of the proposed product and

12 any proposed advertising and labeling;

13 ‘‘(2) the conditions for using the product;

14 ‘‘(3) the formulation of the product;

15 ‘‘(4) sample product labels and labeling;

16 ‘‘(5) all documents (including underlying sci17 entific information) relating to research findings con18 ducted, supported, or possessed by the tobacco product

19 manufacturer relating to the effect of the product on

20 tobacco related diseases and health-related conditions,

21 including information both favorable and unfavorable

22 to the ability of the product to reduce risk or exposure

23 and relating to human health;

24 ‘‘(6) data and information on how consumers ac25 tually use the tobacco product; and
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1 ‘‘(7) such other information as the Secretary

2 may require.

3 ‘‘(e) PUBLIC AVAILABILITY.—The Secretary shall make

4 the application described in subsection (d) publicly avail5 able (except matters in the application which are trade se6 crets or otherwise confidential, commercial information)

7 and shall request comments by interested persons on the in8 formation contained in the application and on the label,

9 labeling, and advertising accompanying such application.

10 ‘‘(f) ADVISORY COMMITTEE.—

11 ‘‘(1) IN GENERAL.—The Secretary shall refer to

12 an advisory committee any application submitted

13 under this subsection.

14 ‘‘(2) RECOMMENDATIONS.—Not later than 60

15 days after the date an application is referred to an

16 advisory committee under paragraph (1), the advi17 sory committee shall report its recommendations on

18 the application to the Secretary.

19 ‘‘(g) APPROVAL.—

20 ‘‘(1) MODIFIED RISK PRODUCTS.—Except as pro21 vided in paragraph (2), the Secretary shall approve

22 an application for a modified risk tobacco product

23 filed under this section only if the Secretary deter24 mines that the applicant has demonstrated that such

25 product, as it is actually used by consumers, will—
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1 ‘‘(A) significantly reduce harm and the risk

2 of tobacco-related disease to individual tobacco

3 users; and

4 ‘‘(B) benefit the health of the population as

5 a whole taking into account both users of tobacco

6 products and persons who do not currently use

7 tobacco products.

8 ‘‘(2) SPECIAL RULE FOR CERTAIN PRODUCTS.—

9 ‘‘(A) IN GENERAL.—The Secretary may ap10 prove an application for a tobacco product that

11 has not been approved as a modified risk tobacco

12 product pursuant to paragraph (1) if the Sec13 retary makes the findings required under this

14 paragraph and determines that the applicant

15 has demonstrated that—

16 ‘‘(i) the approval of the application

17 would be appropriate to promote the public

18 health;

19 ‘‘(ii) any aspect of the label, labeling,

20 and advertising for such product that would

21 cause the tobacco product to be a modified

22 risk tobacco product under subsection (b)(2)

23 is limited to an explicit or implicit rep24 resentation that such tobacco product or its

25 smoke contains or is free of a substance or
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1 contains a reduced level of a substance, or

2 presents a reduced exposure to a substance

3 in tobacco smoke.

4 ‘‘(iii) scientific evidence is not avail5 able and, using the best available scientific

6 methods, cannot be made available without

7 conducting long-term epidemiological stud8 ies for an application to meet the standards

9 set forth in paragraph (1); and

10 ‘‘(iv) the scientific evidence that is

11 available without conducting long-term epi12 demiological studies demonstrates that a

13 measurable and substantial reduction in

14 morbidity or mortality among individual

15 tobacco users is anticipated in subsequent

16 studies.

17 ‘‘(B) ADDITIONAL FINDINGS REQUIRED.—In

18 order to approve an application under subpara19 graph (A) the Secretary must also find that the

20 applicant has demonstrated that—

21 ‘‘(i) the magnitude of the overall reduc22 tions in exposure to the substance or sub23 stances which are the subject of the applica24 tion is substantial, such substance or sub25 stances are harmful, and the product as ac-
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1 tually used exposes consumers to the speci2 fied reduced level of the substance or sub3 stances;

4 ‘‘(ii) the product as actually used by

5 consumers will not expose them to higher

6 levels of other harmful substances compared

7 to the similar types of tobacco products then

8 on the market unless such increases are

9 minimal and the anticipated overall impact

10 of use of the product remains a substantial

11 and measurable reduction in overall mor12 bidity and mortality among individual to13 bacco users;

14 ‘‘(iii) testing of actual consumer per15 ception shows that, as the applicant pro16 poses to label and market the product, con17 sumers will not be misled into believing that

18 the product—

19 ‘‘(I) is or has been demonstrated

20 to be less harmful; or

21 ‘‘(II) presents or has been dem22 onstrated to present less of a risk of

23 disease than 1 or more other commer24 cially marketed tobacco products; and
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1 ‘‘(iv) approval of the application is ex2 pected to benefit the health of the population

3 as a whole taking into account both users of

4 tobacco products and persons who do not

5 currently use tobacco products.

6 ‘‘(C) CONDITIONS OF APPROVAL.—

7 ‘‘(i) IN GENERAL.—Applications ap8 proved under this paragraph shall be lim9 ited to a term of not more than 5 years, but

10 may be renewed upon a finding by the Sec11 retary that the requirements of this para12 graph continue to be satisfied based on the

13 filing of a new application.

14 ‘‘(ii) AGREEMENTS BY APPLICANT.—

15 Applications approved under this para16 graph shall be conditioned on the appli17 cant’s agreement to conduct post-market

18 surveillance and studies and to submit to

19 the Secretary the results of such surveillance

20 and studies to determine the impact of the

21 application approval on consumer percep22 tion, behavior, and health and to enable the

23 Secretary to review the accuracy of the de24 terminations upon which the approval was
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1 based in accordance with a protocol ap2 proved by the Secretary.

3 ‘‘(iii) ANNUAL SUBMISSION.—The re4 sults of such post-market surveillance and

5 studies described in clause (ii) shall be sub6 mitted annually.

7 ‘‘(3) BASIS.—The determinations under para8 graphs (1) and (2) shall be based on—

9 ‘‘(A) the scientific evidence submitted by the

10 applicant; and

11 ‘‘(B) scientific evidence and other informa12 tion that is available to the Secretary.

13 ‘‘(4) BENEFIT TO HEALTH OF INDIVIDUALS AND

14 OF POPULATION AS A WHOLE.—In making the deter15 minations under paragraphs (1) and (2), the Sec16 retary shall take into account—

17 ‘‘(A) the relative health risks to individuals

18 of the tobacco product that is the subject of the

19 application;

20 ‘‘(B) the increased or decreased likelihood

21 that existing users of tobacco products who would

22 otherwise stop using such products will switch to

23 the tobacco product that is the subject of the ap24 plication;
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1 ‘‘(C) the increased or decreased likelihood

2 that persons who do not use tobacco products

3 will start using the tobacco product that is the

4 subject of the application;

5 ‘‘(D) the risks and benefits to persons from

6 the use of the tobacco product that is the subject

7 of the application as compared to the use of

8 products for smoking cessation approved under

9 chapter V to treat nicotine dependence; and

10 ‘‘(E) comments, data, and information sub11 mitted by interested persons.

12 ‘‘(h) ADDITIONAL CONDITIONS FOR APPROVAL.—

13 ‘‘(1) MODIFIED RISK PRODUCTS.—The Secretary

14 shall require for the approval of an application under

15 this section that any advertising or labeling con16 cerning modified risk products enable the public to

17 comprehend the information concerning modified risk

18 and to understand the relative significance of such in19 formation in the context of total health and in rela20 tion to all of the diseases and health-related condi21 tions associated with the use of tobacco products.

22 ‘‘(2) COMPARATIVE CLAIMS.—

23 ‘‘(A) IN GENERAL.—The Secretary may re24 quire for the approval of an application under

25 this subsection that a claim comparing a tobacco
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1 product to 1 or more other commercially mar2 keted tobacco products shall compare the tobacco

3 product to a commercially marketed tobacco

4 product that is representative of that type of to5 bacco product on the market (for example the av6 erage value of the top 3 brands of an established

7 regular tobacco product).

8 ‘‘(B) QUANTITATIVE COMPARISONS.—The

9 Secretary may also require, for purposes of sub10 paragraph (A), that the percent (or fraction) of

11 change and identity of the reference tobacco

12 product and a quantitative comparison of the

13 amount of the substance claimed to be reduced

14 shall be stated in immediate proximity to the

15 most prominent claim.

16 ‘‘(3) LABEL DISCLOSURE.—

17 ‘‘(A) IN GENERAL.—The Secretary may re18 quire the disclosure on the label of other sub19 stances in the tobacco product, or substances that

20 may be produced by the consumption of that to21 bacco product, that may affect a disease or

22 health-related condition or may increase the risk

23 of other diseases or health-related conditions as24 sociated with the use of tobacco products.
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1 ‘‘(B) CONDITIONS OF USE.—If the condi2 tions of use of the tobacco product may affect the

3 risk of the product to human health, the Sec4 retary may require the labeling of conditions of

5 use.

6 ‘‘(4) TIME.—The Secretary shall limit an ap7 proval under subsection (g)(1) for a specified period

8 of time.

9 ‘‘(5) ADVERTISING.—The Secretary may require

10 that an applicant, whose application has been ap11 proved under this subsection, comply with require12 ments relating to advertising and promotion of the to13 bacco product.

14 ‘‘(i) POSTMARKET SURVEILLANCE AND STUDIES.—

15 ‘‘(1) IN GENERAL.—The Secretary shall require

16 that an applicant under subsection (g)(1) conduct

17 post market surveillance and studies for a tobacco

18 product for which an application has been approved

19 to determine the impact of the application approval

20 on consumer perception, behavior, and health, to en21 able the Secretary to review the accuracy of the deter22 minations upon which the approval was based, and

23 to provide information that the Secretary determines

24 is otherwise necessary regarding the use or health

25 risks involving the tobacco product. The results of
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1 post-market surveillance and studies shall be sub2 mitted to the Secretary on an annual basis.

3 ‘‘(2) SURVEILLANCE PROTOCOL.—Each appli4 cant required to conduct a surveillance of a tobacco

5 product under paragraph (1) shall, within 30 days

6 after receiving notice that the applicant is required to

7 conduct such surveillance, submit, for the approval of

8 the Secretary, a protocol for the required surveillance.

9 The Secretary, within 60 days of the receipt of such

10 protocol, shall determine if the principal investigator

11 proposed to be used in the surveillance has sufficient

12 qualifications and experience to conduct such surveil13 lance and if such protocol will result in collection of

14 the data or other information designated by the Sec15 retary as necessary to protect the public health.

16 ‘‘(j) WITHDRAWAL OF APPROVAL.—The Secretary,

17 after an opportunity for an informal hearing, shall with18 draw the approval of an application under this section if

19 the Secretary determines that—

20 ‘‘(1) the applicant, based on new information,

21 can no longer make the demonstrations required

22 under subsection (g), or the Secretary can no longer

23 make the determinations required under subsection

24 (g);
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1 ‘‘(2) the application failed to include material

2 information or included any untrue statement of ma3 terial fact;

4 ‘‘(3) any explicit or implicit representation that

5 the product reduces risk or exposure is no longer

6 valid, including if—

7 ‘‘(A) a tobacco product standard is estab8 lished pursuant to section 907;

9 ‘‘(B) an action is taken that affects the risks

10 presented by other commercially marketed to11 bacco products that were compared to the prod12 uct that is the subject of the application; or

13 ‘‘(C) any postmarket surveillance or studies

14 reveal that the approval of the application is no

15 longer consistent with the protection of the public

16 health;

17 ‘‘(4) the applicant failed to conduct or submit

18 the postmarket surveillance and studies required

19 under subsection (g)(2)(C)(ii) or (i); or

20 ‘‘(5) the applicant failed to meet a condition im21 posed under subsection (h).

22 ‘‘(k) CHAPTER IV OR V.—A product approved in ac23 cordance with this section shall not be subject to chapter

24 IV or V.

25 ‘‘(l) IMPLEMENTING REGULATIONS OR GUIDANCE.—
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1 ‘‘(1) SCIENTIFIC EVIDENCE.—Not later than 2

2 years after the date of enactment of the Family Smok3 ing Prevention and Tobacco Control Act, the Sec4 retary shall issue regulations or guidance (or any

5 combination thereof) on the scientific evidence re6 quired for assessment and ongoing review of modified

7 risk tobacco products. Such regulations or guidance

8 shall—

9 ‘‘(A) establish minimum standards for sci10 entific studies needed prior to approval to show

11 that a substantial reduction in morbidity or

12 mortality among individual tobacco users is like13 ly;

14 ‘‘(B) include validated biomarkers, inter15 mediate clinical endpoints, and other feasible

16 outcome measures, as appropriate;

17 ‘‘(C) establish minimum standards for post

18 market studies, that shall include regular and

19 long-term assessments of health outcomes and

20 mortality, intermediate clinical endpoints, con21 sumer perception of harm reduction, and the im22 pact on quitting behavior and new use of tobacco

23 products, as appropriate;
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1 ‘‘(D) establish minimum standards for re2 quired postmarket surveillance, including ongo3 ing assessments of consumer perception; and

4 ‘‘(E) require that data from the required

5 studies and surveillance be made available to the

6 Secretary prior to the decision on renewal of a

7 modified risk tobacco product.

8 ‘‘(2) CONSULTATION.—The regulations or guid9 ance issued under paragraph (1) shall be developed in

10 consultation with the Institute of Medicine, and with

11 the input of other appropriate scientific and medical

12 experts, on the design and conduct of such studies and

13 surveillance.

14 ‘‘(3) REVISION.—The regulations or guidance

15 under paragraph (1) shall be revised on a regular

16 basis as new scientific information becomes available.

17 ‘‘(4) NEW TOBACCO PRODUCTS.—Not later than

18 2 years after the date of enactment of the Family

19 Smoking Prevention and Tobacco Control Act, the

20 Secretary shall issue a regulation or guidance that

21 permits the filing of a single application for any to22 bacco product that is a new tobacco product under

23 section 910 and for which the applicant seeks ap24 proval as a modified risk tobacco product under this

25 section.
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1 ‘‘(m) DISTRIBUTORS.—No distributor may take any

2 action, after the date of enactment of the Family Smoking

3 Prevention and Tobacco Control Act, with respect to a to4 bacco product that would reasonably be expected to result

5 in consumers believing that the tobacco product or its smoke

6 may present a lower risk of disease or is less harmful than

7 one or more commercially marketed tobacco products, or

8 presents a reduced exposure to, or does not contain or is

9 free of, a substance or substances.

10 ‘‘SEC. 912. JUDICIAL REVIEW.

11 ‘‘(a) RIGHT TO REVIEW.—

12 ‘‘(1) IN GENERAL.—Not later than 30 days

13 after—

14 ‘‘(A) the promulgation of a regulation

15 under section 907 establishing, amending, or re16 voking a tobacco product standard; or

17 ‘‘(B) a denial of an application for ap18 proval under section 910(c),

19 any person adversely affected by such regulation or

20 denial may file a petition for judicial review of such

21 regulation or denial with the United States Court of

22 Appeals for the District of Columbia or for the circuit

23 in which such person resides or has their principal

24 place of business.

25 ‘‘(2) REQUIREMENTS.—
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1 ‘‘(A) COPY OF PETITION.—A copy of the pe2 tition filed under paragraph (1) shall be trans3 mitted by the clerk of the court involved to the

4 Secretary.

5 ‘‘(B) RECORD OF PROCEEDINGS.—On re6 ceipt of a petition under subparagraph (A), the

7 Secretary shall file in the court in which such

8 petition was filed—

9 ‘‘(i) the record of the proceedings on

10 which the regulation or order was based;

11 and

12 ‘‘(ii) a statement of the reasons for the

13 issuance of such a regulation or order.

14 ‘‘(C) DEFINITION OF RECORD.—In this sec15 tion, the term ‘record’ means—

16 ‘‘(i) all notices and other matter pub17 lished in the Federal Register with respect

18 to the regulation or order reviewed;

19 ‘‘(ii) all information submitted to the

20 Secretary with respect to such regulation or

21 order;

22 ‘‘(iii) proceedings of any panel or ad23 visory committee with respect to such regu24 lation or order;
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1 ‘‘(iv) any hearing held with respect to

2 such regulation or order; and

3 ‘‘(v) any other information identified

4 by the Secretary, in the administrative pro5 ceeding held with respect to such regulation

6 or order, as being relevant to such regula7 tion or order.

8 ‘‘(b) STANDARD OF REVIEW.—Upon the filing of the

9 petition under subsection (a) for judicial review of a regula10 tion or order, the court shall have jurisdiction to review

11 the regulation or order in accordance with chapter 7 of title

12 5, United States Code, and to grant appropriate relief, in13 cluding interim relief, as provided for in such chapter. A

14 regulation or denial described in subsection (a) shall be re15 viewed in accordance with section 706(2)(A) of title 5,

16 United States Code.

17 ‘‘(c) FINALITY OF JUDGMENT.—The judgment of the

18 court affirming or setting aside, in whole or in part, any

19 regulation or order shall be final, subject to review by the

20 Supreme Court of the United States upon certiorari or cer21 tification, as provided in section 1254 of title 28, United

22 States Code.

23 ‘‘(d) OTHER REMEDIES.—The remedies provided for

24 in this section shall be in addition to, and not in lieu of,

25 any other remedies provided by law.
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1 ‘‘(e) REGULATIONS AND ORDERS MUST RECITE BASIS

2 IN RECORD.—To facilitate judicial review, a regulation or

3 order issued under section 906, 907, 908, 909, 910, or 916

4 shall contain a statement of the reasons for the issuance

5 of such regulation or order in the record of the proceedings

6 held in connection with its issuance.

7 ‘‘SEC. 913. EQUAL TREATMENT OF RETAIL OUTLETS.

8 ‘‘The Secretary shall issue regulations to require that

9 retail establishments for which the predominant business is

10 the sale of tobacco products comply with any advertising

11 restrictions applicable to retail establishments accessible to

12 individuals under the age of 18.

13 ‘‘SEC. 914. JURISDICTION OF AND COORDINATION WITH

14 THE FEDERAL TRADE COMMISSION.

15 ‘‘(a) JURISDICTION.—

16 ‘‘(1) IN GENERAL.—Except where expressly pro17 vided in this chapter, nothing in this chapter shall be

18 construed as limiting or diminishing the authority of

19 the Federal Trade Commission to enforce the laws

20 under its jurisdiction with respect to the advertising,

21 sale, or distribution of tobacco products.

22 ‘‘(2) ENFORCEMENT.—Any advertising that vio23 lates this chapter or a provision of the regulations re24 ferred to in section 1112 of the Family Smoking Pre25 vention and Tobacco Control Act, is an unfair or de-
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1 ceptive act or practice under section 5(a) of the Fed2 eral Trade Commission Act (15 U.S.C. 45(a)) and

3 shall be considered a violation of a rule promulgated

4 under section 18 of that Act (15 U.S.C. 57a).

5 ‘‘(b) COORDINATION.—With respect to the requirements

6 of section 4 of the Federal Cigarette Labeling and Adver7 tising Act (15 U.S.C. 1333) and section 3 of the Comprehen8 sive Smokeless Tobacco Health Education Act of 1986 (15

9 U.S.C. 4402)—

10 ‘‘(1) the Chairman of the Federal Trade Com11 mission shall coordinate with the Secretary con12 cerning the enforcement of such Act as such enforce13 ment relates to unfair or deceptive acts or practices

14 in the advertising of cigarettes or smokeless tobacco;

15 and

16 ‘‘(2) the Secretary shall consult with the Chair17 man of such Commission in revising the label state18 ments and requirements under such sections.

19 ‘‘SEC. 915. CONGRESSIONAL REVIEW PROVISIONS.

20 ‘‘In accordance with section 801 of title 5, United

21 States Code, Congress shall review, and may disapprove,

22 any rule under this chapter that is subject to section 801.

23 This section and section 801 do not apply to the regulations

24 referred to in section 1112 of the Family Smoking Preven25 tion and Tobacco Control Act.
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1 ‘‘SEC. 916. REGULATION REQUIREMENT.

2 ‘‘(a) TESTING, REPORTING, AND DISCLOSURE.—Not

3 later than 24 months after the date of enactment of the

4 Family Smoking Prevention and Tobacco Control Act, the

5 Secretary, acting through the Commissioner of the Food and

6 Drug Administration, shall promulgate regulations under

7 this Act that meet the requirements of subsection (b).

8 ‘‘(b) CONTENTS OF RULES.—The regulations promul9 gated under subsection (a) shall require testing and report10 ing of tobacco product constituents, ingredients, and addi11 tives, including smoke constituents, by brand and sub-brand

12 that the Secretary determines should be tested to protect the

13 public health. The regulations may require that tobacco

14 product manufacturers, packagers, or importers make dis15 closures relating to the results of the testing of tar and nico16 tine through labels or advertising or other appropriate

17 means, and make disclosures regarding the results of the

18 testing of other constituents, including smoke constituents,

19 ingredients, or additives, that the Secretary determines

20 should be disclosed to the public to protect the public health

21 and will not mislead consumers about the risk of tobacco

22 related disease.

23 ‘‘(c) AUTHORITY.—The Food and Drug Administra24 tion shall have the authority under this chapter to conduct

25 or to require the testing, reporting, or disclosure of tobacco

26 product constituents, including smoke constituents.
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1 ‘‘SEC. 917. PRESERVATION OF STATE AND LOCAL AUTHOR2 ITY.

3 ‘‘(a) IN GENERAL.—

4 ‘‘(1) PRESERVATION.—Nothing in this chapter,

5 or rules promulgated under this chapter, shall be con6 strued to limit the authority of a Federal agency (in7 cluding the Armed Forces), a State or political sub8 division of a State, or the government of an Indian

9 tribe to enact, adopt, promulgate, and enforce any

10 law, rule, regulation, or other measure with respect to

11 tobacco products that is in addition to, or more strin12 gent than, requirements established under this chap13 ter, including a law, rule, regulation, or other meas14 ure relating to or prohibiting the sale, distribution,

15 possession, exposure to, access to, advertising and pro16 motion of, or use of tobacco products by individuals

17 of any age, information reporting to the State, or

18 measures relating to fire safety standards for tobacco

19 products. No provision of this chapter shall limit or

20 otherwise affect any State, Tribal, or local taxation of

21 tobacco products.

22 ‘‘(2) PREEMPTION OF CERTAIN STATE AND LOCAL

23 REQUIREMENTS.—

24 ‘‘(A) IN GENERAL.—Except as provided in

25 paragraph (1) and subparagraph (B), no State

26 or political subdivision of a State may establish
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1 or continue in effect with respect to a tobacco

2 product any requirement which is different from,

3 or in addition to, any requirement under the

4 provisions of this chapter relating to tobacco

5 product standards, premarket approval, adulter6 ation, misbranding, labeling, registration, good

7 manufacturing standards, or reduced risk prod8 ucts.

9 ‘‘(B) EXCEPTION.—Subparagraph (A) does

10 not apply to requirements relating to the sale,

11 distribution, possession, information reporting to

12 the State, exposure to, access to, the advertising

13 and promotion of, or use of, tobacco products by

14 individuals of any age, or relating to fire safety

15 standards for tobacco products. Information dis16 closed to a State under subparagraph (A) that is

17 exempt from disclosure under section 554(b)(4)

18 of title 5, United States Code, shall be treated as

19 trade secret and confidential information by the

20 State.

21 ‘‘(b) RULE OF CONSTRUCTION REGARDING PRODUCT

22 LIABILITY.—No provision of this chapter relating to a to23 bacco product shall be construed to modify or otherwise af24 fect any action or the liability of any person under the

25 product liability law of any State.
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1 ‘‘SEC. 918. TOBACCO PRODUCTS SCIENTIFIC ADVISORY

2 COMMITTEE.

3 ‘‘(a) ESTABLISHMENT.—Not later than 1 year after the

4 date of enactment of the Family Smoking Prevention and

5 Tobacco Control Act, the Secretary shall establish a 11-

6 member advisory committee, to be known as the ‘Tobacco

7 Products Scientific Advisory Committee’.

8 ‘‘(b) MEMBERSHIP.—

9 ‘‘(1) IN GENERAL.—

10 ‘‘(A) MEMBERS.—The Secretary shall ap11 point as members of the Tobacco Products Sci12 entific Advisory Committee individuals who are

13 technically qualified by training and experience

14 in the medicine, medical ethics, science, or tech15 nology involving the manufacture, evaluation, or

16 use of tobacco products, who are of appropriately

17 diversified professional backgrounds. The com18 mittee shall be composed of—

19 ‘‘(i) 7 individuals who are physicians,

20 dentists, scientists, or health care profes21 sionals practicing in the area of oncology,

22 pulmonology, cardiology, toxicology, phar23 macology, addiction, or any other relevant

24 specialty;
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1 ‘‘(ii) 1 individual who is an officer or

2 employee of a State or local government or

3 of the Federal Government;

4 ‘‘(iii) 1 individual as a representative

5 of the general public;

6 ‘‘(iv) 1 individual as a representative

7 of the interests in the tobacco manufac8 turing industry; and

9 ‘‘(v) 1 individual as a representative of

10 the interests of the tobacco growers.

11 ‘‘(B) NONVOTING MEMBERS.—The members

12 of the committee appointed under clauses (iv)

13 and (v) of subparagraph (A) shall serve as con14 sultants to those described in clauses (i) through

15 (iii) of subparagraph (A) and shall be nonvoting

16 representatives.

17 ‘‘(2) LIMITATION.—The Secretary may not ap18 point to the Advisory Committee any individual who

19 is in the regular full-time employ of the Food and

20 Drug Administration or any agency responsible for

21 the enforcement of this Act. The Secretary may ap22 point Federal officials as ex officio members.

23 ‘‘(3) CHAIRPERSON.—The Secretary shall des24 ignate 1 of the members of the Advisory Committee to

25 serve as chairperson.
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1 ‘‘(c) DUTIES.—The Tobacco Products Scientific Advi2 sory Committee shall provide advice, information, and rec3 ommendations to the Secretary—

4 ‘‘(1) as provided in this chapter;

5 ‘‘(2) on the effects of the alteration of the nicotine

6 yields from tobacco products;

7 ‘‘(3) on whether there is a threshold level below

8 which nicotine yields do not produce dependence on

9 the tobacco product involved; and

10 ‘‘(4) on its review of other safety, dependence, or

11 health issues relating to tobacco products as requested

12 by the Secretary.

13 ‘‘(d) COMPENSATION; SUPPORT; FACA.—

14 ‘‘(1) COMPENSATION AND TRAVEL.—Members of

15 the Advisory Committee who are not officers or em16 ployees of the United States, while attending con17 ferences or meetings of the committee or otherwise en18 gaged in its business, shall be entitled to receive com19 pensation at rates to be fixed by the Secretary, which

20 may not exceed the daily equivalent of the rate in ef21 fect for level 4 of the Senior Executive Schedule under

22 section 5382 of title 5, United States Code, for each

23 day (including travel time) they are so engaged; and

24 while so serving away from their homes or regular

25 places of business each member may be allowed travel
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1 expenses, including per diem in lieu of subsistence, as

2 authorized by section 5703 of title 5, United States

3 Code, for persons in the Government service employed

4 intermittently.

5 ‘‘(2) ADMINISTRATIVE SUPPORT.—The Secretary

6 shall furnish the Advisory Committee clerical and

7 other assistance.

8 ‘‘(3) NONAPPLICATION OF FACA.—Section 14 of

9 the Federal Advisory Committee Act (5 U.S.C.

10 App.) does not apply to the Advisory Committee.

11 ‘‘(e) PROCEEDINGS OF ADVISORY PANELS AND COM12 MITTEES.—The Advisory Committee shall make and main13 tain a transcript of any proceeding of the panel or com14 mittee. Each such panel and committee shall delete from

15 any transcript made under this subsection information

16 which is exempt from disclosure under section 552(b) of title

17 5, United States Code.

18 ‘‘SEC. 919. DRUG PRODUCTS USED TO TREAT TOBACCO DE19 PENDENCE.

20 The Secretary shall consider—

21 ‘‘(1) at the request of the applicant, designating

22 nicotine replacement products as fast track research

23 and approval products within the meaning of section

24 506;
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1 ‘‘(2) direct the Commissioner to consider approv2 ing the extended use of nicotine replacement products

3 (such as nicotine patches, nicotine gum, and nicotine

4 lozenges) for the treatment of tobacco dependence;

5 ‘‘(3) review and consider the evidence for addi6 tional indications for nicotine replacement products,

7 such as for craving relief or relapse prevention; and

8 ‘‘(4) consider—

9 ‘‘(A) relieving companies of premarket bur10 dens under section 505 if the requirement is re11 dundant considering other nicotine replacement

12 therapies already on the market; and

13 ‘‘(B) time and extent applications for nico14 tine replacement therapies that have been ap15 proved by a regulatory body in a foreign country

16 and have marketing experience in such country.

17 ‘‘SEC. 920. USER FEE.

18 ‘‘(a) ESTABLISHMENT OF QUARTERLY USER FEE.—

19 The Secretary shall assess a quarterly user fee with respect

20 to every quarter of each fiscal year commencing fiscal year

21 2004, calculated in accordance with this section, upon each

22 manufacturer and importer of tobacco products subject to

23 this chapter.

24 ‘‘(b) FUNDING OF FDA REGULATION OF TOBACCO

25 PRODUCTS.—The Secretary shall make user fees collected
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1 pursuant to this section available to pay, in each fiscal

2 year, for the costs of the activities of the Food and Drug

3 Administration related to the regulation of tobacco products

4 under this chapter.

5 ‘‘(c) ASSESSMENT OF USER FEE.—

6 ‘‘(1) AMOUNT OF ASSESSMENT.—Except as pro7 vided in paragraph (4), the total user fees assessed

8 each year pursuant to this section shall be sufficient,

9 and shall not exceed what is necessary, to pay for the

10 costs of the activities described in subsection (b) for

11 each fiscal year.

12 ‘‘(2) ALLOCATION OF ASSESSMENT BY CLASS OF

13 TOBACCO PRODUCTS.—

14 ‘‘(A) IN GENERAL.—Subject to paragraph

15 (3), the total user fees assessed each fiscal year

16 with respect to each class of importers and man17 ufacturers shall be equal to an amount that is

18 the applicable percentage of the total costs of ac19 tivities of the Food and Drug Administration de20 scribed in subsection (b).

21 ‘‘(B) APPLICABLE PERCENTAGE.—For pur22 poses of subparagraph (A) the applicable per23 centage for a fiscal year shall be the following:

24 ‘‘(i) 92.07 percent shall be assessed on

25 manufacturers and importers of cigarettes;
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1 ‘‘(ii) 0.05 percent shall be assessed on

2 manufacturers and importers of little ci3 gars;

4 ‘‘(iii) 7.15 percent shall be assessed on

5 manufacturers and importers of cigars other

6 than little cigars;

7 ‘‘(iv) 0.43 percent shall be assessed on

8 manufacturers and importers of snuff;

9 ‘‘(v) 0.10 percent shall be assessed on

10 manufacturers and importers of chewing to11 bacco;

12 ‘‘(vi) 0.06 percent shall be assessed on

13 manufacturers and importers of pipe to14 bacco; and

15 ‘‘(vii) 0.14 percent shall be assessed on

16 manufacturers and importers of roll-your17 own tobacco.

18 ‘‘(3) DISTRIBUTION OF FEE SHARES OF MANU19 FACTURERS AND IMPORTERS EXEMPT FROM USER

20 FEE.—Where a class of tobacco products is not subject

21 to a user fee under this section, the portion of the user

22 fee assigned to such class under subsection (d)(2) shall

23 be allocated by the Secretary on a pro rata basis

24 among the classes of tobacco products that are subject

25 to a user fee under this section. Such pro rata alloca-
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1 tion for each class of tobacco products that are subject

2 to a user fee under this section shall be the quotient

3 of—

4 ‘‘(A) the sum of the percentages assigned to

5 all classes of tobacco products subject to this sec6 tion; divided by

7 ‘‘(B) the percentage assigned to such class

8 under paragraph (2).

9 ‘‘(4) ANNUAL LIMIT ON ASSESSMENT.—The total

10 assessment under this section—

11 ‘‘(A) for fiscal year 2004 shall be

12 $85,000,000;

13 ‘‘(B) for fiscal year 2005 shall be

14 $175,000,000;

15 ‘‘(C) for fiscal year 2006 shall be

16 $300,000,000; and

17 ‘‘(D) for each subsequent fiscal year, shall

18 not exceed the limit on the assessment imposed

19 during the previous fiscal year, as adjusted by

20 the Secretary (after notice, published in the Fed21 eral Register) to reflect the greater of—

22 ‘‘(i) the total percentage change that

23 occurred in the Consumer Price Index for

24 all urban consumers (all items; United

25 States city average) for the 12-month period
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1 ending on June 30 of the preceding fiscal

2 year for which fees are being established; or

3 ‘‘(ii) the total percentage change for the

4 previous fiscal year in basic pay under the

5 General Schedule in accordance with section

6 5332 of title 5, United States Code, as ad7 justed by any locality-based comparability

8 payment pursuant to section 5304 of such

9 title for Federal employees stationed in the

10 District of Columbia.

11 ‘‘(5) TIMING OF USER FEE ASSESSMENT.—The

12 Secretary shall notify each manufacturer and im13 porter of tobacco products subject to this section of the

14 amount of the quarterly assessment imposed on such

15 manufacturer or importer under subsection (f) during

16 each quarter of each fiscal year. Such notifications

17 shall occur not earlier than 3 months prior to the end

18 of the quarter for which such assessment is made, and

19 payments of all assessments shall be made not later

20 than 60 days after each such notification.

21 ‘‘(d) DETERMINATION OF USER FEE BY COMPANY

22 MARKET SHARE.—

23 ‘‘(1) IN GENERAL.—The user fee to be paid by

24 each manufacturer or importer of a given class of to-
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1 bacco products shall be determined in each quarter by

2 multiplying—

3 ‘‘(A) such manufacturer’s or importer’s

4 market share of such class of tobacco products; by

5 ‘‘(B) the portion of the user fee amount for

6 the current quarter to be assessed on manufac7 turers and importers of such class of tobacco

8 products as determined under subsection (e).

9 ‘‘(2) NO FEE IN EXCESS OF MARKET SHARE.—

10 No manufacturer or importer of tobacco products

11 shall be required to pay a user fee in excess of the

12 market share of such manufacturer or importer.

13 ‘‘(e) DETERMINATION OF VOLUME OF DOMESTIC

14 SALES.—

15 ‘‘(1) IN GENERAL.—The calculation of gross do16 mestic volume of a class of tobacco product by a man17 ufacturer or importer, and by all manufacturers and

18 importers as a group, shall be made by the Secretary

19 using information provided by manufacturers and

20 importers pursuant to subsection (f), as well as any

21 other relevant information provided to or obtained by

22 the Secretary.

23 ‘‘(2) MEASUREMENT.—For purposes of the cal24 culations under this subsection and the information
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1 provided under subsection (f) by the Secretary, gross

2 domestic volume shall be measured by—

3 ‘‘(A) in the case of cigarettes, the number of

4 cigarettes sold;

5 ‘‘(B) in the case of little cigars, the number

6 of little cigars sold;

7 ‘‘(C) in the case of large cigars, the number

8 of cigars weighing more than 3 pounds per thou9 sand sold; and

10 ‘‘(D) in the case of other classes of tobacco

11 products, in terms of number of pounds, or frac12 tion thereof, of these products sold.

13 ‘‘(f) MEASUREMENT OF GROSS DOMESTIC VOLUME.—

14 ‘‘(1) IN GENERAL.—Each manufacturer and im15 porter of tobacco products shall submit to the Sec16 retary a certified copy of each of the returns or forms

17 described by this paragraph that are required to be

18 filed with a Government agency on the same date that

19 those returns or forms are filed, or required to be

20 filed, with such agency. The returns and forms de21 scribed by this paragraph are those returns and forms

22 related to the release of tobacco products into domestic

23 commerce, as defined by section 5702(k) of the Inter24 nal Revenue Code of 1986, and the repayment of the

25 taxes imposed under chapter 52 of such Code (ATF
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1 Form 500.24 and United States Customs Form 7501

2 under currently applicable regulations).

3 ‘‘(2) PENALTIES.—Any person that knowingly

4 fails to provide information required under this sub5 section or that provides false information under this

6 subsection shall be subject to the penalties described in

7 section 1003 of title 18, United States Code. In addi8 tion, such person may be subject to a civil penalty in

9 an amount not to exceed 2 percent of the value of the

10 kind of tobacco products manufactured or imported

11 by such person during the applicable quarter, as de12 termined by the Secretary.

13 ‘‘(h) EFFECTIVE DATE.—The user fees prescribed by

14 this section shall be assessed in fiscal year 2004, based on

15 domestic sales of tobacco products during fiscal year 2003

16 and shall be assessed in each fiscal year thereafter.’’.

17 SEC. 1112. INTERIM FINAL RULE.

18 (a) CIGARETTES AND SMOKELESS TOBACCO.—

19 (1) IN GENERAL.—Not later than 30 days after

20 the date of enactment of this Act, the Secretary of

21 Health and Human Services shall publish in the Fed22 eral Register an interim final rule regarding ciga23 rettes and smokeless tobacco, which is hereby deemed

24 to be in compliance with the Administrative Proce25 dures Act and other applicable law.
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1 (2) CONTENTS OF RULE.—Except as provided in

2 this subsection, the interim final rule published under

3 paragraph (1), shall be identical in its provisions to

4 part 897 of the regulations promulgated by the Sec5 retary of Health and Human Services in the August

6 28, 1996, issue of the Federal Register (61 Fed. Reg.,

7 44615–44618). Such rule shall—

8 (A) provide for the designation of jurisdic9 tional authority that is in accordance with this

10 subsection;

11 (B) strike Subpart C—Labeling and section

12 897.32(c); and

13 (C) become effective not later than 1 year

14 after the date of enactment of this Act.

15 (3) AMENDMENTS TO RULE.—Prior to making

16 amendments to the rule published under paragraph

17 (1), the Secretary shall promulgate a proposed rule in

18 accordance with the Administrative Procedures Act.

19 (4) RULE OF CONSTRUCTION.—Except as pro20 vided in paragraph (3), nothing in this section shall

21 be construed to limit the authority of the Secretary to

22 amend, in accordance with the Administrative Proce23 dures Act, the regulation promulgated pursuant to

24 this section.
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1 (b) LIMITATION ON ADVISORY OPINIONS.—As of the

2 date of enactment of this Act, the following documents

3 issued by the Food and Drug Administration shall not con4 stitute advisory opinions under section 10.85(d)(1) of title

5 21, Code of Federal Regulations, except as they apply to

6 tobacco products, and shall not be cited by the Secretary

7 of Health and Human Services or the Food and Drug Ad8 ministration as binding precedent:

9 (1) The preamble to the proposed rule in the doc10 ument entitled ‘‘Regulations Restricting the Sale and

11 Distribution of Cigarettes and Smokeless Tobacco

12 Products to Protect Children and Adolescents’’ (60

13 Fed. Reg. 41314–41372 (August 11, 1995)).

14 (2) The document entitled ‘‘Nicotine in Ciga15 rettes and Smokeless Tobacco Products is a Drug and

16 These Products Are Nicotine Delivery Devices Under

17 the Federal Food, Drug, and Cosmetic Act’’ (60 Fed.

18 Reg. 41453–41787 (August 11, 1995)).

19 (3) The preamble to the final rule in the docu20 ment entitled ‘‘Regulations Restricting the Sale and

21 Distribution of Cigarettes and Smokeless Tobacco to

22 Protect Children and Adolescents’’ (61 Fed. Reg.

23 44396–44615 (August 28, 1996)).

24 (4) The document entitled ‘‘Nicotine in Ciga25 rettes and Smokeless Tobacco is a Drug and These
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1 Products are Nicotine Delivery Devices Under the

2 Federal Food, Drug, and Cosmetic Act; Jurisdictional

3 Determination’’ (61 Fed. Reg. 44619–45318 (August

4 28, 1996)).

5 SEC. 1113. CONFORMING AND OTHER AMENDMENTS TO

6 GENERAL PROVISIONS.

7 (a) AMENDMENT OF FEDERAL FOOD, DRUG, AND COS8 METIC ACT.—Except as otherwise expressly provided, when9 ever in this section an amendment is expressed in terms

10 of an amendment to, or repeal of, a section or other provi11 sion, the reference is to a section or other provision of the

12 Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et

13 seq.).

14 (b) SECTION 301.—Section 301 (21 U.S.C. 331) is

15 amended—

16 (1) in subsection (a), by inserting ‘‘tobacco prod17 uct,’’ after ‘‘device,’’;

18 (2) in subsection (b), by inserting ‘‘tobacco prod19 uct,’’ after ‘‘device,’’;

20 (3) in subsection (c), by inserting ‘‘tobacco prod21 uct,’’ after ‘‘device,’’;

22 (4) in subsection (e), by striking ‘‘515(f), or 519’’

23 and inserting ‘‘515(f), 519, or 909’’;

24 (5) in subsection (g), by inserting ‘‘tobacco prod25 uct,’’ after ‘‘device,’’;
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1 (6) in subsection (h), by inserting ‘‘tobacco prod2 uct,’’ after ‘‘device,’’;

3 (7) in subsection (j), by striking ‘‘708, or 721’’

4 and inserting ‘‘708, 721, 904, 905, 906, 907, 908,

5 909, or section 921(b)’’;

6 (8) in subsection (k), by inserting ‘‘tobacco prod7 uct,’’ after ‘‘device,’’;

8 (9) by striking subsection (p) and inserting the

9 following:

10 ‘‘(p) The failure to register in accordance with section

11 510 or 905, the failure to provide any information required

12 by section 510(j), 510(k), 905(i), or 905(j), or the failure

13 to provide a notice required by section 510(j)(2) or

14 905(i)(2).’’;

15 (10) by striking subsection (q)(1) and inserting

16 the following:

17 ‘‘(q)(1) The failure or refusal—

18 ‘‘(A) to comply with any requirement prescribed

19 under section 518, 520(g), 903(b)(8), or 908, or condi20 tion prescribed under section 903(b)(6)(B)(ii)(II);

21 ‘‘(B) to furnish any notification or other mate22 rial or information required by or under section 519,

23 520(g), 904, 909, or section 921; or

24 ‘‘(C) to comply with a requirement under section

25 522 or 913.’’;
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1 (11) in subsection (q)(2), by striking ‘‘device,’’

2 and inserting ‘‘device or tobacco product,’’;

3 (12) in subsection (r), by inserting ‘‘or tobacco

4 product’’ after ‘‘device’’ each time that it appears;

5 and

6 (13) by adding at the end the following:

7 ‘‘(aa) The sale of tobacco products in violation of

8 a no-tobacco-sale order issued under section 303(f).

9 ‘‘(bb) The introduction or delivery for introduc10 tion into interstate commerce of a tobacco product in

11 violation of section 911.

12 ‘‘(cc)(1) Forging, counterfeiting, simulating, or

13 falsely representing, or without proper authority

14 using any mark, stamp (including tax stamp), tag,

15 label, or other identification device upon any tobacco

16 product or container or labeling thereof so as to

17 render such tobacco product a counterfeit tobacco

18 product.

19 ‘‘(2) Making, selling, disposing of, or keeping in

20 possession, control, or custody, or concealing any

21 punch, die, plate, stone, or other item that is designed

22 to print, imprint, or reproduce the trademark, trade

23 name, or other identifying mark, imprint, or device

24 of another or any likeness of any of the foregoing

25 upon any tobacco product or container or labeling
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1 thereof so as to render such tobacco product a counter2 feit tobacco product.

3 ‘‘(3) The doing of any act that causes a tobacco

4 product to be a counterfeit tobacco product, or the sale

5 or dispensing, or the holding for sale or dispensing,

6 of a counterfeit tobacco product.

7 ‘‘(dd) The charitable distribution of tobacco

8 products.

9 ‘‘(ee) The failure of a manufacturer or dis10 tributor to notify the Attorney General of their knowl11 edge of tobacco products used in illicit trade.’’.

12 (c) SECTION 303.—Section 303 (21 U.S.C. 333(f)) is

13 amended in subsection (f)—

14 (1) by striking the subsection heading and in15 serting the following:

16 ‘‘(f) CIVIL PENALTIES; NO-TOBACCO-SALE ORDERS.—

17 ’’;

18 (2) in paragraph (1)(A), by inserting ‘‘or to19 bacco products’’ after ‘‘devices’’;

20 (3) by redesignating paragraphs (3), (4), and (5)

21 as paragraphs (4), (5), and (6), and inserting after

22 paragraph (2) the following:

23 ‘‘(3) If the Secretary finds that a person has

24 committed repeated violations of restrictions promul25 gated under section 906(d) at a particular retail out-
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1 let then the Secretary may impose a no-tobacco-sale

2 order on that person prohibiting the sale of tobacco

3 products in that outlet. A no-tobacco-sale order may

4 be imposed with a civil penalty under paragraph

5 (1).’’;

6 (4) in paragraph (4) as so redesignated—

7 (A) in subparagraph (A)—

8 (i) by striking ‘‘assessed’’ the first time

9 it appears and inserting ‘‘assessed, or a no10 tobacco-sale order may be imposed,’’; and

11 (ii) by striking ‘‘penalty’’ and insert12 ing ‘‘penalty, or upon whom a no-tobacco13 order is to be imposed,’’;

14 (B) in subparagraph (B)—

15 (i) by inserting after ‘‘penalty,’’ the

16 following: ‘‘or the period to be covered by a

17 no-tobacco-sale order,’’; and

18 (ii) by adding at the end the following:

19 ‘‘A no-tobacco-sale order permanently pro20 hibiting an individual retail outlet from

21 selling tobacco products shall include provi22 sions that allow the outlet, after a specified

23 period of time, to request that the Secretary

24 compromise, modify, or terminate the

25 order.’’; and
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1 (C) by adding at the end, the following:

2 ‘‘(D) The Secretary may compromise, mod3 ify, or terminate, with or without conditions,

4 any no-tobacco-sale order.’’;

5 (5) in paragraph (5) as so redesignated—

6 (A) by striking ‘‘(3)(A)’’ as redesignated,

7 and inserting ‘‘(4)(A)’’;

8 (B) by inserting ‘‘or the imposition of a no9 tobacco-sale order’’ after ‘‘penalty’’ the first 2

10 places it appears; and

11 (C) by striking ‘‘issued.’’ and inserting

12 ‘‘issued, or on which the no-tobacco-sale order

13 was imposed, as the case may be.’’; and

14 (6) in paragraph (6), as so redesignated, by

15 striking ‘‘paragraph (4)’’ each place it appears and

16 inserting ‘‘paragraph (5)’’.

17 (d) SECTION 304.—Section 304 (21 U.S.C. 334) is

18 amended—

19 (1) in subsection (a)(2)—

20 (A) by striking ‘‘and’’ before ‘‘(D)’’; and

21 (B) by striking ‘‘device.’’ and inserting the

22 following: ‘‘, (E) Any adulterated or misbranded

23 tobacco product.’’;

24 (2) in subsection (d)(1), by inserting ‘‘tobacco

25 product,’’ after ‘‘device,’’;
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1 (3) in subsection (g)(1), by inserting ‘‘or tobacco

2 product’’ after ‘‘device’’ each place it appears; and

3 (4) in subsection (g)(2)(A), by inserting ‘‘or to4 bacco product’’ after ‘‘device’’ each place it appears.

5 (e) SECTION 702.—Section 702(a) (21 U.S.C. 372(a))

6 is amended—

7 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

8 (2) by adding at the end thereof the following:

9 ‘‘(2) For a tobacco product, to the extent feasible, the

10 Secretary shall contract with the States in accordance with

11 paragraph (1) to carry out inspections of retailers in con12 nection with the enforcement of this Act.’’.

13 (f) SECTION 703.—Section 703 (21 U.S.C. 373) is

14 amended—

15 (1) by inserting ‘‘tobacco product,’’ after ‘‘de16 vice,’’ each place it appears; and

17 (2) by inserting ‘‘tobacco products,’’ after ‘‘de18 vices,’’ each place it appears.

19 (g) SECTION 704.—Section 704 (21 U.S.C. 374) is

20 amended—

21 (1) in subsection (a)(1)(A), by inserting ‘‘tobacco

22 products,’’ after ‘‘devices,’’ each place it appears;

23 (2) in subsection (a)(1)(B), by inserting ‘‘or to24 bacco product’’ after ‘‘restricted devices’’ each place it

25 appears; and
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1 (3) in subsection (b), by inserting ‘‘tobacco prod2 uct,’’ after ‘‘device,’’.

3 (h) SECTION 705.—Section 705(b) (21 U.S.C. 375(b))

4 is amended by inserting ‘‘tobacco products,’’ after ‘‘de5 vices,’’.

6 (i) SECTION 709.—Section 709 (21 U.S.C. 379) is

7 amended by inserting ‘‘or tobacco product’’ after ‘‘device’’.

8 (j) SECTION 801.—Section 801 (21 U.S.C. 381) is

9 amended—

10 (1) in subsection (a)—

11 (A) by inserting ‘‘tobacco products,’’ after

12 ‘‘devices,’’ the first time it appears;

13 (B) by inserting ‘‘or section 905(j)’’ after

14 ‘‘section 510’’; and

15 (C) by striking ‘‘drugs or devices’’ each time

16 it appears and inserting ‘‘drugs, devices, or to17 bacco products’’;

18 (2) in subsection (e)(1), by inserting ‘‘tobacco

19 product,’’ after ‘‘device,’’; and

20 (3) by adding at the end the following:

21 ‘‘(p)(1) Not later than 2 years after the date of enact22 ment of the Family Smoking Prevention and Tobacco Con23 trol Act, and annually thereafter, the Secretary shall submit

24 to the Committee on Health, Education, Labor, and Pen-
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1 sions of the Senate and the Committee on Energy and Com2 merce of the House of Representatives, a report regarding—

3 ‘‘(A) the nature, extent, and destination of

4 United States tobacco product exports that do not

5 conform to tobacco product standards established pur6 suant to this Act;

7 ‘‘(B) the public health implications of such ex8 ports, including any evidence of a negative public

9 health impact; and

10 ‘‘(C) recommendations or assessments of policy

11 alternatives available to Congress and the Executive

12 Branch to reduce any negative public health impact

13 caused by such exports.

14 ‘‘(2) The Secretary is authorized to establish appro15 priate information disclosure requirements to carry out this

16 subsection.’’.

17 (k) SECTION 1003.—Section 1003(d)(2)(C) (as redesig18 nated by section 101(a)) is amended—

19 (1) by striking ‘‘and’’ after ‘‘cosmetics,’’; and

20 (2) inserting a comma and ‘‘and tobacco prod21 ucts’’ after ‘‘devices’’.

22 (l) EFFECTIVE DATE FOR NO-TOBACCO-SALE ORDER

23 AMENDMENTS.—The amendments made by subsection (c),

24 other than the amendment made by paragraph (2) of such
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1 subsection, shall take effect upon the issuance of guidance

2 by the Secretary of Health and Human Services—

3 (1) defining the term ‘‘repeated violation’’, as

4 used in section 303(f) of the Federal Food, Drug, and

5 Cosmetic Act (21 U.S.C. 333(f)) as amended by sub6 section (c), by identifying the number of violations of

7 particular requirements over a specified period of

8 time at a particular retail outlet that constitute a re9 peated violation;

10 (2) providing for timely and effective notice to

11 the retailer of each alleged violation at a particular

12 retail outlet and an expedited procedure for the ad13 ministrative appeal of an alleged violation;

14 (3) providing that a person may not be charged

15 with a violation at a particular retail outlet unless

16 the Secretary has provided notice to the retailer of all

17 previous violations at that outlet;

18 (4) establishing a period of time during which,

19 if there are no violations by a particular retail outlet,

20 that outlet will not be considered to have been the site

21 of repeated violations when the next violation occurs;

22 and

23 (5) providing that good faith reliance on the

24 presentation of a false government issued photo25 graphic identification that contains the bearer’s date
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1 of birth does not constitute a violation of any min2 imum age requirement for the sale of tobacco products

3 if the retailer has taken effective steps to prevent such

4 violations, including—

5 (A) adopting and enforcing a written policy

6 against sales to minors;

7 (B) informing its employees of all applica8 ble laws;

9 (C) establishing disciplinary sanctions for

10 employee noncompliance; and

11 (D) requiring its employees to verify age by

12 way of photographic identification or electronic

13 scanning device.

14 CHAPTER 2—TOBACCO PRODUCT WARN15 INGS; CONSTITUENT AND SMOKE CON16 STITUENT DISCLOSURE

17 SEC. 1121. CIGARETTE LABEL AND ADVERTISING WARN18 INGS.

19 Section 4 of the Federal Cigarette Labeling and Adver20 tising Act (15 U.S.C. 1333) is amended to read as follows:

21 ‘‘SEC. 4. LABELING.

22 ‘‘(a) LABEL REQUIREMENTS.—

23 ‘‘(1) IN GENERAL.—It shall be unlawful for any

24 person to manufacture, package, sell, offer to sell, dis25 tribute, or import for sale or distribution within the
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1 United States any cigarettes the package of which

2 fails to bear, in accordance with the requirements of

3 this section, one of the following labels:

4 ‘WARNING: Cigarettes are addictive’.

5 ‘WARNING: Tobacco smoke can harm your children’.

6 ‘WARNING: Cigarettes cause fatal lung disease’.

7 ‘WARNING: Cigarettes cause cancer’.

8 ‘WARNING: Cigarettes cause strokes and heart dis9 ease’.

10 ‘WARNING: Smoking during pregnancy can harm

11 your baby’.

12 ‘WARNING: Smoking can kill you’.

13 ‘WARNING: Tobacco smoke causes fatal lung disease

14 in non-smokers’.

15 ‘WARNING: Quitting smoking now greatly reduces

16 serious risks to your health’.

17 ‘‘(2) PLACEMENT; TYPOGRAPHY; ETC.—

18 ‘‘(A) IN GENERAL.—Each label statement

19 required by paragraph (1) shall be located in the

20 upper portion of the front and rear panels of the

21 package, directly on the package underneath the

22 cellophane or other clear wrapping. Except as

23 provided in subparagraph (B), each label state24 ment shall comprise at least the top 30 percent

25 of the front and rear panels of the package. The
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1 word ‘WARNING’ shall appear in capital letters

2 and all text shall be in conspicuous and legible

3 17-point type, unless the text of the label state4 ment would occupy more than 70 percent of such

5 area, in which case the text may be in a smaller

6 conspicuous and legible type size, provided that

7 at least 60 percent of such area is occupied by

8 required text. The text shall be black on a white

9 background, or white on a black background, in

10 a manner that contrasts, by typography, layout,

11 or color, with all other printed material on the

12 package, in an alternating fashion under the

13 plan submitted under subsection (b)(4).

14 ‘‘(B) FLIP-TOP BOXES.—For any cigarette

15 brand package manufactured or distributed be16 fore January 1, 2000, which employs a flip-top

17 style (if such packaging was used for that brand

18 in commerce prior to June 21, 1997), the label

19 statement required by paragraph (1) shall be lo20 cated on the flip-top area of the package, even if

21 such area is less than 25 percent of the area of

22 the front panel. Except as provided in this para23 graph, the provisions of this subsection shall

24 apply to such packages.
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1 ‘‘(3) DOES NOT APPLY TO FOREIGN DISTRIBU2 TION.—The provisions of this subsection do not apply

3 to a tobacco product manufacturer or distributor of

4 cigarettes which does not manufacture, package, or

5 import cigarettes for sale or distribution within the

6 United States.

7 ‘‘(4) APPLICABILITY TO RETAILERS.—A retailer

8 of cigarettes shall not be in violation of this subsection

9 for packaging that is supplied to the retailer by a to10 bacco product manufacturer, importer, or distributor

11 and is not altered by the retailer in a way that is

12 material to the requirements of this subsection except

13 that this paragraph shall not relieve a retailer of li14 ability if the retailer sells or distributes tobacco prod15 ucts that are not labeled in accordance with this sub16 section.

17 ‘‘(b) ADVERTISING REQUIREMENTS.—

18 ‘‘(1) IN GENERAL.—It shall be unlawful for any

19 tobacco product manufacturer, importer, distributor,

20 or retailer of cigarettes to advertise or cause to be ad21 vertised within the United States any cigarette unless

22 its advertising bears, in accordance with the require23 ments of this section, one of the labels specified in

24 subsection (a) of this section.
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1 ‘‘(2) TYPOGRAPHY, ETC.—Each label statement

2 required by subsection (a) of this section in cigarette

3 advertising shall comply with the standards set forth

4 in this paragraph. For press and poster advertise5 ments, each such statement and (where applicable)

6 any required statement relating to tar, nicotine, or

7 other constituent (including a smoke constituent)

8 yield shall comprise at least 20 percent of the area of

9 the advertisement and shall appear in a conspicuous

10 and prominent format and location at the top of each

11 advertisement within the trim area. The Secretary

12 may revise the required type sizes in such area in

13 such manner as the Secretary determines appropriate.

14 The word ‘WARNING’ shall appear in capital letters,

15 and each label statement shall appear in conspicuous

16 and legible type. The text of the label statement shall

17 be black if the background is white and white if the

18 background is black, under the plan submitted under

19 paragraph (4) of this subsection. The label statements

20 shall be enclosed by a rectangular border that is the

21 same color as the letters of the statements and that is

22 the width of the first downstroke of the capital ‘W’ of

23 the word ‘WARNING’ in the label statements. The

24 text of such label statements shall be in a typeface pro

25 rata to the following requirements: 45-point type for
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1 a whole-page broadsheet newspaper advertisement; 39-

2 point type for a half-page broadsheet newspaper ad3 vertisement; 39-point type for a whole-page tabloid

4 newspaper advertisement; 27-point type for a half5 page tabloid newspaper advertisement; 31.5-point

6 type for a double page spread magazine or whole-page

7 magazine advertisement; 22.5-point type for a 28 cen8 timeter by 3 column advertisement; and 15-point type

9 for a 20 centimeter by 2 column advertisement. The

10 label statements shall be in English, except that in the

11 case of—

12 ‘‘(A) an advertisement that appears in a

13 newspaper, magazine, periodical, or other publi14 cation that is not in English, the statements

15 shall appear in the predominant language of the

16 publication; and

17 ‘‘(B) in the case of any other advertisement

18 that is not in English, the statements shall ap19 pear in the same language as that principally

20 used in the advertisement.

21 ‘‘(3) MATCHBOOKS.—Notwithstanding para22 graph (2), for matchbooks (defined as containing not

23 more than 20 matches) customarily given away with

24 the purchase of tobacco products, each label statement
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1 required by subsection (a) may be printed on the in2 side cover of the matchbook.

3 ‘‘(4) ADJUSTMENT BY SECRETARY.—The Sec4 retary may, through a rulemaking under section 553

5 of title 5, United States Code, adjust the format and

6 type sizes for the label statements required by this sec7 tion or the text, format, and type sizes of any re8 quired tar, nicotine yield, or other constituent (in9 cluding smoke constituent) disclosures, or to establish

10 the text, format, and type sizes for any other disclo11 sures required under the Federal Food, Drug, and

12 Cosmetic Act (21 U.S.C. 301 et. seq.). The text of any

13 such label statements or disclosures shall be required

14 to appear only within the 20 percent area of cigarette

15 advertisements provided by paragraph (2) of this sub16 section. The Secretary shall promulgate regulations

17 which provide for adjustments in the format and type

18 sizes of any text required to appear in such area to

19 ensure that the total text required to appear by law

20 will fit within such area.

21 ‘‘(5) MARKETING REQUIREMENTS.—

22 ‘‘(A) The label statements specified in sub23 section (a)(1) shall be randomly displayed in

24 each 12-month period, in as equal a number of

25 times as is possible on each brand of the product
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1 and be randomly distributed in all areas of the

2 United States in which the product is marketed

3 in accordance with a plan submitted by the to4 bacco product manufacturer, importer, dis5 tributor, or retailer and approved by the Sec6 retary.

7 ‘‘(B) The label statements specified in sub8 section (a)(1) shall be rotated quarterly in alter9 nating sequence in advertisements for each brand

10 of cigarettes in accordance with a plan sub11 mitted by the tobacco product manufacturer, im12 porter, distributor, or retailer to, and approved

13 by, the Secretary.

14 ‘‘(C) The Secretary shall review each plan

15 submitted under subparagraph (B) and approve

16 it if the plan—

17 ‘‘(i) will provide for the equal distribu18 tion and display on packaging and the ro19 tation required in advertising under this

20 subsection; and

21 ‘‘(ii) assures that all of the labels re22 quired under this section will be displayed

23 by the tobacco product manufacturer, im24 porter, distributor, or retailer at the same

25 time.
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1 ‘‘(6) APPLICABILITY TO RETAILERS.—This sub2 section applies to a retailer only if that retailer is re3 sponsible for or directs the label statements required

4 under this section except that this paragraph shall

5 not relieve a retailer of liability if the retailer dis6 plays, in a location open to the public, an advertise7 ment that is not labeled in accordance with the re8 quirements of this subsection.’’.

9 SEC. 1122. AUTHORITY TO REVISE CIGARETTE WARNING

10 LABEL STATEMENTS.

11 Section 4 of the Federal Cigarette Labeling and Adver12 tising Act (15 U.S.C. 1333), as amended by section 1121,

13 is further amended by adding at the end the following:

14 ‘‘(c) CHANGE IN REQUIRED STATEMENTS.—The Sec15 retary may, by a rulemaking conducted under section 553

16 of title 5, United States Code, adjust the format, type size,

17 and text of any of the label requirements, require color

18 graphics to accompany the text, increase the required label

19 area from 30 percent up to 50 percent of the front and rear

20 panels of the package, or establish the format, type size, and

21 text of any other disclosures required under the Federal

22 Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.), if

23 the Secretary finds that such a change would promote great24 er public understanding of the risks associated with the use

25 of tobacco products.’’.
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1 SEC. 1123. STATE REGULATION OF CIGARETTE ADVER2 TISING AND PROMOTION.

3 Section 5 of the Federal Cigarette Labeling and Adver4 tising Act (15 U.S.C. 1334) is amended by adding at the

5 end the following:

6 ‘‘(c) EXCEPTION.—Notwithstanding subsection (b), a

7 State or locality may enact statutes and promulgate regula8 tions, based on smoking and health, that take effect after

9 the effective date of the Family Smoking Prevention and

10 Tobacco Control Act, imposing specific bans or restrictions

11 on the time, place, and manner, but not content, of the ad12 vertising or promotion of any cigarettes.’’.

13 SEC. 1124. SMOKELESS TOBACCO LABELS AND ADVER14 TISING WARNINGS.

15 Section 3 of the Comprehensive Smokeless Tobacco

16 Health Education Act of 1986 (15 U.S.C. 4402) is amended

17 to read as follows:

18 ‘‘SEC. 3. SMOKELESS TOBACCO WARNING.

19 ‘‘(a) GENERAL RULE.—

20 ‘‘(1) It shall be unlawful for any person to man21 ufacture, package, sell, offer to sell, distribute, or im22 port for sale or distribution within the United States

23 any smokeless tobacco product unless the product

24 package bears, in accordance with the requirements of

25 this Act, one of the following labels:

26 ‘WARNING: This product can cause mouth cancer’.
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1 ‘WARNING: This product can cause gum disease and

2 tooth loss’.

3 ‘WARNING: This product is not a safe alternative to

4 cigarettes’.

5 ‘WARNING: Smokeless tobacco is addictive’.

6 ‘‘(2) Each label statement required by paragraph

7 (1) shall be—

8 ‘‘(A) located on the 2 principal display

9 panels of the package, and each label statement

10 shall comprise at least 30 percent of each such

11 display panel; and

12 ‘‘(B) in 17-point conspicuous and legible

13 type and in black text on a white background, or

14 white text on a black background, in a manner

15 that contrasts by typography, layout, or color,

16 with all other printed material on the package,

17 in an alternating fashion under the plan sub18 mitted under subsection (b)(3), except that if the

19 text of a label statement would occupy more than

20 70 percent of the area specified by subparagraph

21 (A), such text may appear in a smaller type size,

22 so long as at least 60 percent of such warning

23 area is occupied by the label statement.

24 ‘‘(3) The label statements required by paragraph

25 (1) shall be introduced by each tobacco product manu-
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1 facturer, packager, importer, distributor, or retailer of

2 smokeless tobacco products concurrently into the dis3 tribution chain of such products.

4 ‘‘(4) The provisions of this subsection do not

5 apply to a tobacco product manufacturer or dis6 tributor of any smokeless tobacco product that does

7 not manufacture, package, or import smokeless to8 bacco products for sale or distribution within the

9 United States.

10 ‘‘(5) A retailer of smokeless tobacco products

11 shall not be in violation of this subsection for pack12 aging that is supplied to the retailer by a tobacco

13 products manufacturer, importer, or distributor and

14 that is not altered by the retailer unless the retailer

15 offers for sale, sells, or distributes a smokeless tobacco

16 product that is not labeled in accordance with this

17 subsection.

18 ‘‘(b) REQUIRED LABELS.—

19 ‘‘(1) It shall be unlawful for any tobacco product

20 manufacturer, packager, importer, distributor, or re21 tailer of smokeless tobacco products to advertise or

22 cause to be advertised within the United States any

23 smokeless tobacco product unless its advertising bears,

24 in accordance with the requirements of this section,

25 one of the labels specified in subsection (a).
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1 ‘‘(2) Each label statement required by subsection

2 (a) in smokeless tobacco advertising shall comply with

3 the standards set forth in this paragraph. For press

4 and poster advertisements, each such statement and

5 (where applicable) any required statement relating to

6 tar, nicotine, or other constituent yield shall—

7 ‘‘(A) comprise at least 20 percent of the

8 area of the advertisement, and the warning area

9 shall be delineated by a dividing line of con10 trasting color from the advertisement; and

11 ‘‘(B) the word ‘WARNING’ shall appear in

12 capital letters and each label statement shall ap13 pear in conspicuous and legible type. The text of

14 the label statement shall be black on a white

15 background, or white on a black background, in

16 an alternating fashion under the plan submitted

17 under paragraph (3).

18 ‘‘(3)(A) The label statements specified in sub19 section (a)(1) shall be randomly displayed in each 12-

20 month period, in as equal a number of times as is

21 possible on each brand of the product and be ran22 domly distributed in all areas of the United States in

23 which the product is marketed in accordance with a

24 plan submitted by the tobacco product manufacturer,
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1 importer, distributor, or retailer and approved by the

2 Secretary.

3 ‘‘(B) The label statements specified in subsection

4 (a)(1) shall be rotated quarterly in alternating se5 quence in advertisements for each brand of smokeless

6 tobacco product in accordance with a plan submitted

7 by the tobacco product manufacturer, importer, dis8 tributor, or retailer to, and approved by, the Sec9 retary.

10 ‘‘(C) The Secretary shall review each plan sub11 mitted under subparagraph (B) and approve it if the

12 plan—

13 ‘‘(i) will provide for the equal distribution

14 and display on packaging and the rotation re15 quired in advertising under this subsection; and

16 ‘‘(ii) assures that all of the labels required

17 under this section will be displayed by the to18 bacco product manufacturer, importer, dis19 tributor, or retailer at the same time.

20 ‘‘(D) This paragraph applies to a retailer only

21 if that retailer is responsible for or directs the label

22 statements under this section, unless the retailer dis23 plays in a location open to the public, an advertise24 ment that is not labeled in accordance with the re25 quirements of this subsection.
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1 ‘‘(c) TELEVISION AND RADIO ADVERTISING.—It is un2 lawful to advertise smokeless tobacco on any medium of elec3 tronic communications subject to the jurisdiction of the

4 Federal Communications Commission.’’.

5 SEC. 1125. AUTHORITY TO REVISE SMOKELESS TOBACCO

6 PRODUCT WARNING LABEL STATEMENTS.

7 Section 3 of the Comprehensive Smokeless Tobacco

8 Health Education Act of 1986 (15 U.S.C. 4402), as amend9 ed by section 1123, is further amended by adding at the

10 end the following:

11 ‘‘(d) AUTHORITY TO REVISE WARNING LABEL STATE12 MENTS.—The Secretary may, by a rulemaking conducted

13 under section 553 of title 5, United States Code, adjust the

14 format, type size, and text of any of the label requirements,

15 require color graphics to accompany the text, increase the

16 required label area from 30 percent up to 50 percent of the

17 front and rear panels of the package, or establish the format,

18 type size, and text of any other disclosures required under

19 the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301

20 et seq.), if the Secretary finds that such a change would

21 promote greater public understanding of the risks associated

22 with the use of smokeless tobacco products.’’.
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1 SEC. 1126. TAR, NICOTINE, AND OTHER SMOKE CON2 STITUENT DISCLOSURE TO THE PUBLIC.

3 Section 4(a) of the Federal Cigarette Labeling and Ad4 vertising Act (15 U.S.C. 1333 (a)), as amended by section

5 1121, is further amended by adding at the end the fol6 lowing:

7 ‘‘(4)(A) The Secretary shall, by a rulemaking

8 conducted under section 553 of title 5, United States

9 Code, determine (in the Secretary’s sole discretion)

10 whether cigarette and other tobacco product manufac11 turers shall be required to include in the area of each

12 cigarette advertisement specified by subsection (b) of

13 this section, or on the package label, or both, the tar

14 and nicotine yields of the advertised or packaged

15 brand. Any such disclosure shall be in accordance

16 with the methodology established under such regula17 tions, shall conform to the type size requirements of

18 subsection (b) of this section, and shall appear within

19 the area specified in subsection (b) of this section.

20 ‘‘(B) Any differences between the requirements

21 established by the Secretary under subparagraph (A)

22 and tar and nicotine yield reporting requirements es23 tablished by the Federal Trade Commission shall be

24 resolved by a memorandum of understanding between

25 the Secretary and the Federal Trade Commission.
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1 ‘‘(C) In addition to the disclosures required by

2 subparagraph (A) of this paragraph, the Secretary

3 may, under a rulemaking conducted under section

4 553 of title 5, United States Code, prescribe disclosure

5 requirements regarding the level of any cigarette or

6 other tobacco product constituent including any

7 smoke constituent. Any such disclosure may be re8 quired if the Secretary determines that disclosure

9 would be of benefit to the public health, or otherwise

10 would increase consumer awareness of the health con11 sequences of the use of tobacco products, except that

12 no such prescribed disclosure shall be required on the

13 face of any cigarette package or advertisement. Noth14 ing in this section shall prohibit the Secretary from

15 requiring such prescribed disclosure through a ciga16 rette or other tobacco product package or advertise17 ment insert, or by any other means under the Federal

18 Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.).

19 ‘‘(D) This paragraph applies to a retailer only

20 if that retailer is responsible for or directs the label

21 statements required under this section, except that

22 this paragraph shall not relieve a retailer of liability

23 if the retailer sells or distributes tobacco products that

24 are not labeled in accordance with the requirements

25 of this subsection.’’.
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1 CHAPTER 3—PREVENTION OF ILLICIT

2 TRADE IN TOBACCO PRODUCTS

3 SEC. 1131. LABELING, RECORDKEEPING, RECORDS INSPEC4 TION.

5 Chapter IX of the Federal Food, Drug, and Cosmetic

6 Act, as added by section 1111, is further amended by adding

7 at the end the following:

8 ‘‘SEC. 921. LABELING, RECORDKEEPING, RECORDS INSPEC9 TION.

10 ‘‘(a) ORIGIN LABELING.—The label, packaging, and

11 shipping containers of tobacco products for introduction or

12 delivery for introduction into interstate commerce shall

13 bear the statement ‘sale only allowed in the United States.’

14 ‘‘(b) REGULATIONS CONCERNING RECORDKEEPING

15 FOR TRACKING AND TRACING.—

16 ‘‘(1) IN GENERAL.—Not later than 9 months

17 after the date of enactment of the Family Smoking

18 Prevention and Tobacco Control Act, the Secretary

19 shall promulgate regulations regarding the establish20 ment and maintenance of records by any person who

21 manufactures, processes, transports, distributes, re22 ceives, packages, holds, exports, or imports tobacco

23 products.

24 ‘‘(2) INSPECTION.—In promulgating the regula25 tions described in paragraph (1), the Secretary shall
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1 consider which records are needed for inspection to

2 monitor the movement of tobacco products from the

3 point of manufacture through distribution to retail

4 outlets to assist in investigating potential illicit

5 trade, smuggling or counterfeiting of tobacco products.

6 ‘‘(3) CODES.—The Secretary may require codes

7 on the labels of tobacco products or other designs or

8 devices for the purpose of tracking or tracing the to9 bacco product through the distribution system.

10 ‘‘(4) SIZE OF BUSINESS.—The Secretary shall

11 take into account the size of a business in promul12 gating regulations under this section.

13 ‘‘(5) RECORDKEEPING BY RETAILERS.—The Sec14 retary shall not require any retailer to maintain

15 records relating to individual purchasers of tobacco

16 products for personal consumption.

17 ‘‘(c) RECORDS INSPECTION.—If the Secretary has a

18 reasonable belief that a tobacco product is part of an illicit

19 trade or smuggling or is a counterfeit product, each person

20 who manufactures, processes, transports, distributes, re21 ceives, holds, packages, exports, or imports tobacco products

22 shall, at the request of an officer or employee duly des23 ignated by the Secretary, permit such officer or employee,

24 at reasonable times and within reasonable limits and in

25 a reasonable manner, upon the presentation of appropriate
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1 credentials and a written notice to such person, to have ac2 cess to and copy all records (including financial records)

3 relating to such article that are needed to assist the Sec4 retary in investigating potential illicit trade, smuggling or

5 counterfeiting of tobacco products.

6 ‘‘(d) KNOWLEDGE OF ILLEGAL TRANSACTION.—If the

7 manufacturer or distributor of a tobacco product has knowl8 edge which reasonably supports the conclusion that a to9 bacco product manufactured or distributed by such manu10 facturer or distributor that has left the control of such per11 son may be or has been—

12 ‘‘(A) imported, exported, distributed or of13 fered for sale in interstate commerce by a person

14 without paying duties or taxes required by law;

15 or

16 ‘‘(B) imported, exported, distributed or di17 verted for possible illicit marketing,

18 the manufacturer or distributor shall promptly notify the

19 Attorney General of such knowledge.

20 ‘‘(2) KNOWLEDGE DEFINED.—For purposes of

21 this subsection, the term ‘knowledge’ as applied to a

22 manufacturer or distributor means—

23 ‘‘(A) the actual knowledge that the manu24 facturer or distributor had; or
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1 ‘‘(B) the knowledge which a reasonable per2 son would have had under like circumstances or

3 which would have been obtained upon the exer4 cise of due care.

5 SEC. 1132. STUDY AND REPORT.

6 (a) STUDY.—The Comptroller General of the United

7 States shall conduct a study of cross-border trade in tobacco

8 products to—

9 (1) collect data on cross-border trade in tobacco

10 products, including illicit trade and trade of counter11 feit tobacco products and make recommendations on

12 the monitoring of such trade;

13 (2) collect data on cross-border advertising (any

14 advertising intended to be broadcast, transmitted, or

15 distributed from the United States to another coun16 try) of tobacco products and make recommendations

17 on how to prevent or eliminate, and what technologies

18 could help facilitate the elimination of, cross-border

19 advertising.

20 (b) REPORT.—Not later than 18 months after the date

21 of enactment of this Act, the Comptroller General of the

22 United States shall submit to the Committee on Health,

23 Education, Labor, and Pensions of the Senate and the Com24 mittee on Energy and Commerce of the House of Represent25 atives a report on the study described in subsection (a).
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1 Subtitle B—Tobacco Market

2 Transition

3 SEC. 1140. SHORT TITLE OF SUBTITLE.

4 This subtitle may be cited as the ‘‘Tobacco Market

5 Transition Act of 2004’’.

6 CHAPTER 1—TERMINATION OF CURRENT

7 TOBACCO PROGRAMS

8 SEC. 1141. TERMINATION OF TOBACCO PRODUCTION AD9 JUSTMENT PROGRAMS.

10 (a) TOBACCO STATISTICS.—The Act of January 14,

11 1929 (45 Stat. 1079; 7 U.S.C. 501 et seq.) is repealed.

12 (b) TOBACCO STANDARDS.—The Tobacco Inspection

13 Act (7 U.S.C. 511 et seq.) is repealed.

14 (c) TOBACCO INSPECTIONS.—Section 213 of the To15 bacco Adjustment Act of 1983 (7 U.S.C. 511r) is repealed.

16 (d) TOBACCO CONTROL.—The Act of April 25, 1936

17 (commonly known as the Tobacco Control Act; 7 U.S.C. 515

18 et seq.), is repealed.

19 (e) COMMODITY HANDLING ORDERS.—Section

20 8c(2)(A) of the Agricultural Adjustment Act (7 U.S.C.

21 608c(2)(A)), reenacted with amendments by the Agricul22 tural Marketing Agreement Act of 1937, is amended by

23 striking ‘‘tobacco,’’.

24 (f) PROCESSING TAX.—Section 9(b) of the Agricultural

25 Adjustment Act (7 U.S.C. 609(b)), reenacted with amend-
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1 ments by the Agricultural Marketing Agreement Act of

2 1937, is amended—

3 (1) in paragraph (2), by striking ‘‘tobacco,’’; and

4 (2) in paragraph (6)B)(i), by striking ‘‘, or, in

5 the case of tobacco, is less than the fair exchange value

6 by not more than 10 per centum,’’.

7 (g) BURLEY TOBACCO IMPORT REVIEW.—Section 3 of

8 Public Law 98–59 (7 U.S.C. 625) is repealed.

9 (h) DECLARATION OF POLICY.—Section 2 of the Agri10 cultural Adjustment Act of 1938 (7 U.S.C. 1282) is amend11 ed by striking ‘‘tobacco,’’.

12 (i) DEFINITIONS.—Section 301(b) of the Agricultural

13 Adjustment Act of 1938 (7 U.S.C. 1301(b)) is amended—

14 (1) in paragraph (3)—

15 (A) by striking subparagraph (C); and

16 (B) by redesignating subparagraph (D) as

17 subparagraph (C);

18 (2) in paragraph (6)(A), by striking ‘‘tobacco,’’;

19 (3) in paragraph (10)—

20 (A) by striking subparagraph (B); and

21 (B) by redesignating subparagraph (C) as

22 subparagraph (B);

23 (4) in paragraph (11)(B), by striking ‘‘and to24 bacco’’;

25 (5) in paragraph (12), by striking ‘‘tobacco,’’;
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1 (6) in paragraph (14)—

2 (A) in subparagraph (A), by striking ‘‘(A)’’;

3 and

4 (B) by striking subparagraphs (B), (C), and

5 (D);

6 (7) by striking paragraph (15);

7 (8) in paragraph (16)—

8 (A) by striking subparagraph (B); and

9 (B) by redesignating subparagraph (C) as

10 subparagraph (B);

11 (9) by striking paragraph (17); and

12 (10) by redesignating paragraph (16) as para13 graph (15).

14 (j) PARITY PAYMENTS.—Section 303 of the Agricul15 tural Adjustment Act of 1938 (7 U.S.C. 1303) is amended

16 in the first sentence by striking ‘‘rice, or tobacco,’’ and in17 serting ‘‘or rice,’’.

18 (k) MARKETING QUOTAS.—Part I of subtitle B of title

19 III of the Agricultural Adjustment Act of 1938 (7 U.S.C.

20 1311 et seq.) is repealed.

21 (l) ADMINISTRATIVE PROVISIONS.—Section 361 of the

22 Agricultural Adjustment Act of 1938 (7 U.S.C. 1361) is

23 amended by striking ‘‘tobacco,’’.
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1 (m) ADJUSTMENT OF QUOTAS.—Section 371 of the Ag2 ricultural Adjustment Act of 1938 (7 U.S.C. 1371) is

3 amended—

4 (1) in the first sentence of subsection (a), by

5 striking ‘‘rice, or tobacco’’ and inserting ‘‘or rice’’;

6 and

7 (2) in the first sentence of subsection (b), by

8 striking ‘‘rice, or tobacco’’ and inserting ‘‘or rice’’.

9 (n) REPORTS AND RECORDS.—Section 373 of the Agri10 cultural Adjustment Act of 1938 (7 U.S.C. 1373) is

11 amended—

12 (1) by striking ‘‘rice, or tobacco’’ each place it

13 appears in subsections (a) and (b) and inserting ‘‘or

14 rice’’; and

15 (2) in subsection (a)—

16 (A) in the first sentence, by striking ‘‘all

17 persons engaged in the business of redrying,

18 prizing, or stemming tobacco for producers,’’;

19 and

20 (B) in the last sentence, by striking ‘‘$500;’’

21 and all that follows through the period at the end

22 of the sentence and inserting ‘‘$500.’’.

23 (o) REGULATIONS.—Section 375 of the Agricultural

24 Adjustment Act of 1938 (7 U.S.C. 1375) is amended—
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1 (1) in subsection (a), by striking ‘‘peanuts, or to2 bacco’’ and inserting ‘‘or peanuts’’; and

3 (2) by striking subsection (c).

4 (p) EMINENT DOMAIN.—Section 378 of the Agricul5 tural Adjustment Act of 1938 (7 U.S.C. 1378) is amended—

6 (1) in the first sentence of subsection (c), by

7 striking ‘‘cotton, and tobacco’’ and inserting ‘‘and

8 cotton’’; and

9 (2) by striking subsections (d), (e), and (f).

10 (q) BURLEY TOBACCO FARM RECONSTITUTION.—Sec11 tion 379 of the Agricultural Adjustment Act of 1938 (7

12 U.S.C. 1379) is amended—

13 (1) in subsection (a)—

14 (A) by striking ‘‘(a)’’; and

15 (B) in paragraph (6), by striking ‘‘, but

16 this clause (6) shall not be applicable in the case

17 of burley tobacco’’; and

18 (2) by striking subsections (b) and (c).

19 (r) ACREAGE-POUNDAGE QUOTAS.—Section 4 of the

20 Act of April 16, 1955 (Public Law 89–12; 7 U.S.C. 1314c

21 note), is repealed.

22 (s) BURLEY TOBACCO ACREAGE ALLOTMENTS.—The

23 Act of July 12, 1952 (7 U.S.C. 1315), is repealed.
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1 (t) TRANSFER OF ALLOTMENTS.—Section 703 of the

2 Food and Agriculture Act of 1965 (7 U.S.C. 1316) is re3 pealed.

4 (u) ADVANCE RECOURSE LOANS.—Section 13(a)(2)(B)

5 of the Food Security Improvements Act of 1986 (7 U.S.C.

6 1433c–1(a)(2)(B)) is amended by striking ‘‘tobacco and’’.

7 (v) TOBACCO FIELD MEASUREMENT.—Section 1112 of

8 the Omnibus Budget Reconciliation Act of 1987 (Public

9 Law 100–203) is amended by striking subsection (c).

10 SEC. 1142. TERMINATION OF TOBACCO PRICE SUPPORT

11 PROGRAM.

12 (a) PARITY PRICE SUPPORT.—Section 101 of the Agri13 cultural Act of 1949 (7 U.S.C. 1441) is amended—

14 (1) in the first sentence of subsection (a), by

15 striking ‘‘tobacco (except as otherwise provided here16 in), corn,’’ and inserting ‘‘corn’’;

17 (2) by striking subsections (c), (g), (h), and (i);

18 (3) in subsection (d)(3)—

19 (A) by striking ‘‘, except tobacco,’’; and

20 (B) by striking ‘‘and no price support shall

21 be made available for any crop of tobacco for

22 which marketing quotas have been disapproved

23 by producers;’’; and

24 (4) by redesignating subsections (d) and (e) as

25 subsections (c) and (d), respectively.
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1 (b) TERMINATION OF TOBACCO PRICE SUPPORT AND

2 NO NET COST PROVISIONS.—Sections 106, 106A, and 106B

3 of the Agricultural Act of 1949 (7 U.S.C. 1445, 1445–1,

4 1445–2) are repealed.

5 (c) DEFINITION OF BASIC AGRICULTURAL COM6 MODITY.—Section 408(c) of the Agricultural Act of 1949 (7

7 U.S.C. 1428(c)) is amended by striking ‘‘tobacco,’’.

8 (d) REVIEW OF BURLEY TOBACCO IMPORTS.—Section

9 3 of Public Law 98–59 (7 U.S.C. 625) is repealed.

10 (e) POWERS OF COMMODITY CREDIT CORPORATION.—

11 Section 5 of the Commodity Credit Corporation Charter Act

12 (15 U.S.C. 714c) is amended by inserting ‘‘(other than to13 bacco)’’ after ‘‘agricultural commodities’’ each place it ap14 pears.

15 SEC. 1143. LIABILITY.

16 This title and the amendments made by this title shall

17 not affect the liability of any person under any provision

18 of law with respect to any crop of tobacco planted before

19 the effective date prescribed in section 1162.

20 CHAPTER 2—TOBACCO ASSISTANCE

21 SEC. 1151. TOBACCO ASSISTANCE.

22 Title III of the Agricultural Adjustment Act of 1938

23 is amended by inserting after subtitle D (7 U.S.C. 1379a

24 et seq.) the following:
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1 ‘‘Subtitle E—Tobacco Assistance

2 ‘‘SEC. 380A. DEFINITIONS.

3 ‘‘In this subtitle:

4 ‘‘(1) ACTIVE PRODUCER OF TOBACCO.—The term

5 ‘active producer of tobacco’ means a person that—

6 ‘‘(A) is actively engaged in the production

7 of tobacco marketed or considered planted; and

8 ‘‘(B) shares in the risk of producing the to9 bacco.

10 ‘‘(2) APPLICABLE FISCAL YEAR.—The term ‘ap11 plicable fiscal year’ means each of fiscal years 2004

12 through 2013.

13 ‘‘(3) BASE PERIOD.—The term ‘base period’

14 means the 1-year period ending the June 30 pre15 ceding each applicable fiscal year.

16 ‘‘(4) CONSIDERED PLANTED.—The term ‘consid17 ered planted’ means tobacco planted but failed to be

18 produced as a result of a natural disaster, as deter19 mined by the Secretary.

20 ‘‘(5) DEPARTMENT.—The term ‘Department’

21 means the Department of Agriculture.

22 ‘‘(6) ELIGIBLE STATE.—The term ‘eligible State’

23 means—
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1 ‘‘(A) in the case of section 380O, each of the

2 States of Maryland, Pennsylvania, South Caro3 lina, and North Carolina; and

4 ‘‘(B) in the case of section 380Q, each of the

5 States of Alabama, Arkansas, Florida, Georgia,

6 Indiana, Kansas, Kentucky, Minnesota, Mis7 souri, North Carolina, Ohio, Oklahoma, South

8 Carolina, Tennessee, Virginia, West Virginia,

9 and Wisconsin.

10 ‘‘(7) IMPACTED COMMUNITY.—The term ‘im11 pacted community’ means a community in an eligible

12 State that is adversely affected by a reduction in

13 gross receipts from the sale of tobacco.

14 ‘‘(8) MARKET SHARE.—The term ‘market share’

15 means the share of each manufacturer or importer of

16 a class of tobacco product (expressed as a decimal to

17 the fourth place) of the total volume of domestic sales

18 of the class of tobacco product during the base period

19 for the applicable fiscal year for an assessment under

20 section 380T.

21 ‘‘(9) PRODUCTION BOARD.—The term ‘Produc22 tion Board’ means a Production Board established for

23 a kind of tobacco under section 380H.

24 ‘‘(10) QUOTA TOBACCO.—The term ‘quota to25 bacco’ means a kind of tobacco that is subject to a
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1 farm marketing quota or farm acreage allotment for

2 the 2002 tobacco marketing years under a marketing

3 quota or allotment program established under part I

4 of subtitle B (as in effect before the effective date of

5 this subtitle).

6 ‘‘(11) TOBACCO.—The term ‘tobacco’ means each

7 of the following kinds of tobacco:

8 ‘‘(A) Flue-cured tobacco, comprising types

9 11, 12, 13, and 14.

10 ‘‘(B) Fire-cured tobacco, comprising types

11 22 and 23.

12 ‘‘(C) Dark air-cured tobacco, comprising

13 types 35 and 36.

14 ‘‘(D) Virginia sun-cured tobacco, com15 prising type 37.

16 ‘‘(E) Virginia fire-cured tobacco, com17 prising type 21.

18 ‘‘(F) Burley tobacco, comprising type 31.

19 ‘‘(G) Cigar-filler and cigar-binder tobacco,

20 comprising types 42, 43, 44, 53, 54, and 55.

21 ‘‘(12) TOBACCO QUALITY BOARD.—The term ‘To22 bacco Quality Board’ means the Tobacco Quality

23 Board established under section 380G.
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1 ‘‘(13) TOBACCO QUOTA HOLDER.—The term ‘to2 bacco quota holder’ means a person that is considered

3 an tobacco quota holder under section 380B(b).

4 ‘‘(14) TOBACCO TRUST FUND.—The term ‘To5 bacco Trust Fund’ means the Tobacco Trust Fund es6 tablished under section 380S.

7 ‘‘(15) TRADITIONAL PRODUCER OF TOBACCO.—

8 The term ‘traditional producer of tobacco’ means a

9 person that, for at least 1 of the 2000, 2001, or 2002

10 tobacco marketing years—

11 ‘‘(A) was actively engaged in the production

12 of tobacco marketed, or considered planted, under

13 a marketing quota established under part I of

14 subtitle B (as in effect before the effective date of

15 this subtitle); and

16 ‘‘(B) shared in the risk of producing the to17 bacco.

18 ‘‘(16) TRADITIONAL TOBACCO COUNTY.—

19 ‘‘(A) IN GENERAL.—The term ‘traditional

20 tobacco county’ means a county in the United

21 States that had 1 or more farms operated by tra22 ditional producers of tobacco under a marketing

23 quota for at least 1 of the marketing years de24 scribed in paragraph (15).
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1 ‘‘(B) INCLUSION.—For the purpose of deter2 mining the crop acreage base of an active pro3 ducer of tobacco for a kind of tobacco produced

4 in the State of Georgia under section 380I(c)(3),

5 the term ‘traditional tobacco county’ includes a

6 county that is contiguous to a county described

7 in subparagraph (A).

8 ‘‘CHAPTER 1—PAYMENTS TO TOBACCO

9 QUOTA HOLDERS AND TRADITIONAL

10 PRODUCERS

11 ‘‘SEC. 380B. TRANSITION PAYMENTS TO TOBACCO QUOTA

12 HOLDERS.

13 ‘‘(a) IN GENERAL.—The Secretary shall make transi14 tion payments to each tobacco quota holder.

15 ‘‘(b) TOBACCO QUOTA HOLDER.—

16 ‘‘(1) IN GENERAL.—Except as otherwise provided

17 in this subsection, the Secretary shall consider a per18 son to be a tobacco quota holder under this section if

19 the person held, as of July 1, 2002, a basic quota or

20 farm acreage allotment (as applicable) for quota to21 bacco established for the 2002 tobacco marketing year

22 under a marketing quota program established under

23 part I of subtitle B (as in effect before the effective

24 date of this subtitle).
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1 ‘‘(2) EFFECT OF PURCHASE CONTRACT.—If there

2 was an agreement for the purchase of all or part of

3 a farm described in paragraph (1) as of July 1, 2002,

4 and the parties to the sale are unable to agree to the

5 disposition of eligibility for payments under this sec6 tion, the Secretary, taking into account any transfer

7 of quota that has been agreed to, shall provide for the

8 equitable division of the payments among the parties

9 by adjusting the determination of who is the tobacco

10 quota holder with respect to particular pounds of the

11 quota.

12 ‘‘(3) EFFECT OF AGREEMENT FOR PERMANENT

13 QUOTA TRANSFER.—If the Secretary determines that

14 there was in existence, as of July 1, 2002, an agree15 ment for the permanent transfer of quota, but that the

16 transfer was not completed by that date, the Secretary

17 shall consider the tobacco quota holder to be the party

18 to the agreement that, as of that date, was the owner

19 of the farm to which the quota was to be transferred.

20 ‘‘(4) PROTECTED BASES.—A person that owns a

21 farm with a tobacco poundage quota that is protected

22 under a conservation reserve program contract en23 tered into under section 1231 of the Food Security

24 Act of 1985 (16 U.S.C. 3831) shall be considered to
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1 be a tobacco quota holder with respect to the protected

2 poundage.

3 ‘‘(5) QUANTITY OF QUOTA HELD.—

4 ‘‘(A) IN GENERAL.—A person shall be con5 sidered a tobacco quota holder for purposes of

6 this section only with respect to that quantity of

7 quota that qualifies the person as a tobacco

8 quota holder.

9 ‘‘(B) INCLUDED QUOTA.—The determina10 tion of the tobacco poundage amount for which

11 the person qualifies shall—

12 ‘‘(i) be based on the quantity of quota

13 held by person on January 1, 2004;

14 ‘‘(ii) subject to clause (iii), not be

15 greater than the quantity of quota held by

16 the person for the 2002 crop; and

17 ‘‘(iii) take into account—

18 ‘‘(I) sales of quota that occurred

19 during the period beginning July 1,

20 2002, and ending December 31, 2004;

21 and

22 ‘‘(II) any transfers of quota that

23 took place after July 1, 2002.

24 ‘‘(c) APPLICATION.—
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1 ‘‘(1) IN GENERAL.—To be eligible to receive a

2 payment under this section, a person shall submit to

3 the Secretary an application containing such infor4 mation as the Secretary may require to demonstrate

5 to the satisfaction of the Secretary that the person is

6 a tobacco quota holder.

7 ‘‘(2) ADMINISTRATION.—The application shall be

8 submitted within such time, in such form, and in

9 such manner as the Secretary may require.

10 ‘‘(d) BASE QUOTA LEVEL.—

11 ‘‘(1) IN GENERAL.—The Secretary shall establish

12 a base quota level applicable to each tobacco quota

13 holder, as determined under this subsection.

14 ‘‘(2) LEVEL.—The base quota level for each to15 bacco quota holder shall be equal to the quantity of

16 quota that qualifies a person as the tobacco quota

17 holder under subsection (b)(5).

18 ‘‘(e) PAYMENT.—The Secretary shall make payments

19 to each tobacco quota holder under subsection (b) in an

20 amount obtained by multiplying—

21 ‘‘(1) 80 cents per pound for each of fiscal years

22 2004 through 2013; by

23 ‘‘(2) the base quota level established for the quota

24 holder under subsection (d).
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1 ‘‘(f) TIME FOR PAYMENT.—Subject to section 380D(c),

2 the payments to tobacco quota holders required under this

3 section shall be made by, to the maximum extent prac4 ticable, the date that is 180 days after the date of enactment

5 of this subtitle and each November 1 thereafter.

6 ‘‘SEC. 380C. DIRECT PAYMENTS TO TRADITIONAL PRO7 DUCERS OF TOBACCO.

8 ‘‘(a) IN GENERAL.—The Secretary shall make direct

9 payments under this section to traditional producers of to10 bacco.

11 ‘‘(b) ELIGIBILITY.—

12 ‘‘(1) IN GENERAL.—To be eligible to receive a

13 payment under this section, a person shall submit to

14 the Secretary an application containing such infor15 mation as the Secretary may require to demonstrate

16 to the satisfaction of the Secretary that the person is

17 a traditional producer of tobacco.

18 ‘‘(2) ADMINISTRATION.—The application shall be

19 submitted within such time, in such form, and in

20 such manner as the Secretary may require.

21 ‘‘(c) BASE QUOTA LEVEL.—

22 ‘‘(1) IN GENERAL.—The Secretary shall establish

23 a base quota level applicable to each traditional pro24 ducer of tobacco, as determined under this subsection.
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1 ‘‘(2) FLUE-CURED AND BURLEY TOBACCO.—In

2 the case of Flue-cured tobacco (types 11, 12, 13, and

3 14) and Burley tobacco (type 31), the base quota level

4 for each tobacco quota holder shall be equal to the ef5 fective tobacco marketing quota (irrespective of dis6 aster lease and transfers) under part I of subtitle B

7 (as in effect before the effective date of this subtitle)

8 for the 2002 marketing year for quota tobacco pro9 duced on the farm.

10 ‘‘(3) OTHER KINDS OF TOBACCO.—In the case of

11 each kind of tobacco other than Flue-cured tobacco

12 (types 11, 12, 13, and 14) and Burley tobacco (type

13 31), for the purpose of calculating a payment to a

14 traditional producer of tobacco, the base quota level

15 for the traditional producer of tobacco shall be the

16 quantity obtained by multiplying—

17 ‘‘(A) the basic tobacco farm acreage allot18 ment for the 2002 marketing year established by

19 the Secretary for quota tobacco produced on the

20 farm; by

21 ‘‘(B) the actual yield of the crop of quota to22 bacco produced on the farm.

23 ‘‘(d) PAYMENT.—

24 ‘‘(1) IN GENERAL.—Subject to paragraph (2), the

25 Secretary shall make payments to each traditional
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1 producer of tobacco, as determined under subsection

2 (b), in an amount obtained by multiplying—

3 ‘‘(A) 40 cents per pound for each of fiscal

4 years 2004 through 2013; by

5 ‘‘(B) the base quota level established for the

6 traditional producer of tobacco under subsection

7 (c).

8 ‘‘(2) PAYMENT RATE.—The rate for payments to

9 a traditional producer of quota tobacco under para10 graph (1)(A) shall be equal to—

11 ‘‘(A) in the case of a person that produced

12 quota tobacco marketed, or considered planted,

13 under a marketing quota for all 3 of the 2000,

14 2001, and 2002 tobacco marketing years, the rate

15 prescribed under paragraph (1)(A) for the appli16 cable fiscal year;

17 ‘‘(B) in the case of a person that produced

18 quota tobacco marketed, or considered planted,

19 under a marketing quota for not more than 2 of

20 the 2000, 2001, and 2002 tobacco marketing

years, 2 21 ⁄3 of the rate prescribed under paragraph

22 (1)(A) for the applicable fiscal year; and

23 ‘‘(C) in the case of a person that produced

24 quota tobacco marketed, or considered planted,

25 under a marketing quota for not more than 1 of
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1 the 2000, 2001, and 2002 tobacco marketing

years, 1 2 ⁄3 of the rate prescribed under paragraph

3 (1)(A) for the applicable fiscal year.

4 ‘‘(e) TIME FOR PAYMENT.—Subject to section 380D(c),

5 the payments to traditional producers of tobacco required

6 under this section shall be made by, to the maximum extent

7 practicable, the date that is 180 days after the date of enact8 ment of this subtitle and each November 1 thereafter.

9 ‘‘SEC. 380D. ADMINISTRATION.

10 ‘‘(a) RESOLUTION OF DISPUTES.—

11 ‘‘(1) IN GENERAL.—Any dispute regarding the

12 eligibility of a person to receive a payment under this

13 subtitle, or the amount of the payment, may be ap14 pealed to the county committee established under sec15 tion 8 of the Soil Conservation and Domestic Allot16 ment Act (16 U.S.C. 590h) for the county or other

17 area in which the farming operation of the person is

18 located.

19 ‘‘(2) NATIONAL APPEALS DIVISION.—Any adverse

20 determination of a county committee under subsection

21 (a) may be appealed to the National Appeals Division

22 established under subtitle H of the Department of Ag23 riculture Reorganization Act of 1994 (7 U.S.C. 6991

24 et seq.).
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1 ‘‘(b) USE OF QUALIFIED FINANCIAL INSTITUTIONS.—

2 The Secretary may use qualified financial institutions to

3 manage assets, make payments, and otherwise carry out

4 this subtitle.

5 ‘‘(c) ADVANCED PAYMENTS.—

6 ‘‘(1) IN GENERAL.—The Secretary shall permit a

7 tobacco quota holder and a traditional producer of to8 bacco to elect to receive advanced payments for 2 or

9 more fiscal years under this chapter by selecting 1 of

10 4 advance payment options established by the Sec11 retary, including a lump sum payment option.

12 ‘‘(2) RISK.—A tobacco quota holder or tradi13 tional producer of tobacco that elects to receive accel14 erated payments shall bear the expense of the discount

15 in value for acceleration of the payments.

16 ‘‘(3) QUALIFIED FINANCIAL INSTITUTIONS.—

17 ‘‘(A) IN GENERAL.—The Secretary shall

18 provide advanced payments under this sub19 section through 1 or more qualified financial in20 stitutions designated by the Secretary.

21 ‘‘(B) ADMINISTRATION.—In providing ad22 vanced payments under this subsection, a quali23 fied financial institution shall (in accordance

24 with guidance issued by the Secretary)—
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1 ‘‘(i) offer the advanced payments re2 gardless of the location or size of the pay3 ments;

4 ‘‘(ii) apply updated discount rates that

5 vary only by payment term; and

6 ‘‘(iii) distribute the advanced pay7 ments in accordance with the option elected

8 by the tobacco quota holder or traditional

9 producer of tobacco.

10 ‘‘(4) COUNTY OFFICES.—A county office of the

11 Department may receive applications and other docu12 mentation necessary to receive advanced payments

13 under this subsection, on behalf of the Secretary and

14 qualified financial institutions.

15 ‘‘(d) TREATMENT OF PAYMENTS.—Payments received

16 by a tobacco quota holder or traditional producer of tobacco

17 under this chapter shall be considered received not earlier

18 than the date the tobacco quota holder or traditional pro19 ducer of tobacco first receives the payments.

20 ‘‘CHAPTER 2—TOBACCO QUALITY AND

21 QUANTITY

22 ‘‘SEC. 380G. TOBACCO QUALITY BOARD.

23 ‘‘(a) IN GENERAL.—The Secretary shall establish a

24 permanent advisory board within the Department, to be

25 known as the ‘Tobacco Quality Board’.
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1 ‘‘(b) MEMBERSHIP.—

2 ‘‘(1) IN GENERAL.—The Tobacco Quality Board

3 shall consist of 13 members, of which—

4 ‘‘(A) 5 members shall be appointed by the

5 Secretary from nominations submitted by rep6 resentatives of tobacco producers in the United

7 States, including at least—

8 ‘‘(i) 1 representative of Flue-cured to9 bacco producers;

10 ‘‘(ii) 1 representative of Burley tobacco

11 producers; and

12 ‘‘(iii) 1 representative of dark fire13 cured tobacco producers;

14 ‘‘(B) 5 members shall be appointed by the

15 Secretary from nominations submitted by rep16 resentatives of tobacco product manufacturers in

17 the United States, including at least—

18 ‘‘(i) 1 representative of smokeless to19 bacco product manufacturers; and

20 ‘‘(ii) 1 representative of export dealers

21 of tobacco; and

22 ‘‘(C) 3 at-large members shall be appointed

23 by the Secretary, including at least 1 officer or

24 employee of the Department.
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1 ‘‘(2) CHAIRPERSON.—The Secretary shall ap2 point the chairperson of the Tobacco Quality Board,

3 with a different member serving as chairperson of the

4 Tobacco Quality Board each term.

5 ‘‘(3) TERMS.—Each member of the Tobacco

6 Quality Board shall serve for 2-year terms, except

7 that the terms of the members first appointed to the

8 Tobacco Quality Board shall be staggered so as to es9 tablish a rotating membership of the Tobacco Quality

10 Board, as determined by the Secretary.

11 ‘‘(c) DUTIES.—The Tobacco Quality Board shall—

12 ‘‘(1) determine and describe the physical charac13 teristics of tobacco produced in the United States and

14 unmanufactured tobacco imported into the United

15 States;

16 ‘‘(2) assemble and evaluate, in a systematic

17 manner, concerns and problems with the quality of

18 tobacco produced in the United States, expressed by

19 domestic and foreign buyers and manufacturers of to20 bacco products;

21 ‘‘(3) review data collected by Federal agencies on

22 the physical and chemical integrity of tobacco pro23 duced in the United States and unmanufactured to24 bacco imported into the United States, to ensure that

25 tobacco being used in domestically-manufactured to-
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1 bacco products is of the highest quality and is free

2 from prohibited physical and chemical agents;

3 ‘‘(4) investigate and communicate to the

4 Secretary—

5 ‘‘(A) conditions with respect to the produc6 tion of tobacco that discourage improvements in

7 the quality of tobacco produced in the United

8 States; and

9 ‘‘(B) recommendations for regulatory

10 changes that would address tobacco quality

11 issues;

12 ‘‘(5) conduct oversight regarding tobacco mar13 keting issues (such as opening sales dates and mar14 keting regulations) applicable to auction markets;

15 ‘‘(6) provide assistance to Federal agencies on

16 actions taken by the Federal agencies that affect the

17 quality or quantity of tobacco produced in the United

18 States;

19 ‘‘(7) not later than a date determined by the Sec20 retary, make recommendations to the Secretary, and

21 the applicable Production Board established for the

22 kind of tobacco, on the range of base years for the

23 maximum crop acreage base under section

24 380I(c)(3)(B), and for the maximum crop poundage

25 base under section 380I(d)(3)(B), for each crop of
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1 each kind of tobacco, except that the range of base

2 years shall be the crop years for the 1998 through

3 2002 crops unless otherwise determined by the To4 bacco Quality Board; and

5 ‘‘(8) carry out such other related activities as are

6 assigned to the Tobacco Quality Board by the Sec7 retary.

8 ‘‘(d) ADMINISTRATION.—The Secretary shall provide

9 the Tobacco Quality Board with (as determined by the Sec10 retary)—

11 ‘‘(1) a staff that is—

12 ‘‘(A) experienced in the sampling and anal13 ysis of unmanufactured tobacco; and

14 ‘‘(B) capable of collecting data and moni15 toring tobacco production information; and

16 ‘‘(2) other resources and information necessary

17 for the Tobacco Quality Board to perform the duties

18 of the Tobacco Quality Board under this subtitle,

19 including—

20 ‘‘(A) information concerning acreage de21 voted to the production of each kind of tobacco;

22 and

23 ‘‘(B) international information from the

24 Foreign Agricultural Service.
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1 ‘‘(e) APPLICABILITY OF FEDERAL ADVISORY COM2 MITTEE ACT.—The Federal Advisory Committee Act (5

3 U.S.C. App.) shall not apply to the Tobacco Quality Board.

4 ‘‘SEC. 380H. PRODUCTION BOARDS.

5 ‘‘(a) IN GENERAL.—The Secretary shall establish a

6 permanent advisory board for each kind of tobacco, to be

7 known as a ‘Production Board’.

8 ‘‘(b) MEMBERSHIP.—

9 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a

10 Production Board for a kind of tobacco shall consist

11 of—

12 ‘‘(A) not more than 10 members appointed

13 by the Secretary from nominations submitted by

14 representatives of producers of that kind of to15 bacco in the United States; and

16 ‘‘(B) 1 officer or employee of the Depart17 ment appointed by the Secretary.

18 ‘‘(2) ALLOCATION OF MEMBERSHIP.—In ap19 pointing members to a Production Board established

20 for a kind of tobacco, the number of members ap21 pointed by the Secretary to represent each State shall,

22 to the maximum extent practicable, bear the same

23 ratio to the total number of members of the Produc24 tion Board as—
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1 ‘‘(A) the total volume of domestic sales of

2 the kind of tobacco produced in the State during

3 the most recent period for which data is avail4 able; bears to

5 ‘‘(B) the total volume of domestic sales of

6 the kind of tobacco produced in all States during

7 the most recent period for which data is avail8 able.

9 ‘‘(3) CHAIRPERSON.—The Secretary shall ap10 point the chairperson of a Production Board, with a

11 different member serving as chairperson of the Pro12 duction Board each term.

13 ‘‘(4) TERMS.—Each member of a Production

14 Board shall serve for 2-year terms, except that the

15 terms of the members first appointed to the Produc16 tion Board shall be staggered so as to establish a ro17 tating membership of the Production Board, as deter18 mined by the Secretary.

19 ‘‘(c) DUTIES.—A Production Board established for a

20 kind of tobacco shall—

21 ‘‘(1) not later than a date determined by the Sec22 retary, make recommendations to the Secretary on the

23 base year, within the range of base years rec24 ommended by the Tobacco Quality Board under sec25 tion 380G(c)(7), for the maximum crop acreage base
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1 under section 380I(c)(3)(B) for each crop of each kind

2 of tobacco; and

3 ‘‘(2) carry out such other related activities as are

4 assigned to the Production Board by the Secretary.

5 ‘‘(d) ADMINISTRATION.—The Secretary shall provide

6 each Production Board established for a kind of tobacco

7 with (as determined by the Secretary)—

8 ‘‘(1) a staff that is knowledgeable about produc9 tion and marketing of that kind of tobacco; and

10 ‘‘(2) other resources and information necessary

11 for the Production Board to perform the duties of the

12 Production Board under this subtitle, including infor13 mation concerning acreage devoted to the production

14 of each kind of tobacco.

15 ‘‘(e) APPLICABILITY OF FEDERAL ADVISORY COM16 MITTEE ACT.—The Federal Advisory Committee Act (5

17 U.S.C. App.) shall not apply to a Production Board.

18 ‘‘SEC. 380I. TOBACCO PRODUCTION LIMITATION PRO19 GRAMS.

20 ‘‘(a) DEFINITIONS.—In this section:

21 ‘‘(1) CROP ACREAGE BASE.—The term ‘crop

22 acreage base’ means the crop acreage base for a kind

23 of tobacco for a crop for an active producer of tobacco,

24 as determined by the Secretary.
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1 ‘‘(2) CROP POUNDAGE BASE.—The term ‘crop

2 poundage base’ means the crop poundage base for a

3 kind of tobacco for a crop for an active producer of

4 tobacco, as determined by the Secretary.

5 ‘‘(3) PERMITTED ACREAGE.—The term ‘per6 mitted acreage’ means the number of acres that may

7 be devoted to the production of a kind of tobacco by

8 an active producer of tobacco, consistent with the an9 nual acreage limitation program, as determined by

10 the Secretary.

11 ‘‘(4) PERMITTED POUNDAGE.—The term ‘per12 mitted poundage’ means the number of pounds of a

13 kind of tobacco for a crop may be produced by an ac14 tive tobacco producer, consistent with the annual

15 poundage limitation program, as determined by the

16 Secretary.

17 ‘‘(b) ESTABLISHMENT.—

18 ‘‘(1) IN GENERAL.—The Secretary shall establish

19 for each crop of each kind of tobacco—

20 ‘‘(A) an acreage limitation program in ac21 cordance with subsection (c); or

22 ‘‘(B) a poundage limitation in accordance

23 with subsection (d).

24 ‘‘(2) CONSULTATION.—The Secretary shall carry

25 out the acreage limitation program and the poundage
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1 limitation program for a kind of tobacco in consulta2 tion with the Tobacco Advisory Board and the appli3 cable Production Board established for that kind of

4 tobacco.

5 ‘‘(3) SUPPLY.—In carrying out an acreage limi6 tation program or a poundage limitation program for

7 a crop of a kind of tobacco, the Secretary shall deter8 mine whether the total supply of that kind of tobacco,

9 in the absence of the respective production limitation

10 program, will be excessive, taking into account the

11 need for an adequate carryover to maintain reason12 able and stable supplies and prices.

13 ‘‘(4) ANNOUNCEMENT.—

14 ‘‘(A) IN GENERAL.—Except as provided in

15 subparagraph (B), the Secretary shall announce

16 an acreage limitation program or poundage lim17 itation program for each kind of tobacco not

18 later than December 15 of the calendar year pre19 ceding the year in which the crop is harvested.

20 ‘‘(B) SPECIAL RULE FOR 2004 CROP.—In the

21 case of the 2004 crop for a kind of tobacco, the

22 Secretary shall announce an acreage limitation

23 program or poundage limitation for each kind of

24 tobacco as soon as practicable after the date of
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1 the enactment of the Tobacco Market Transition

2 Act of 2004.

3 ‘‘(c) ACREAGE LIMITATION PROGRAM.—

4 ‘‘(1) IN GENERAL.—Under an acreage limitation

5 program for a crop of a kind of tobacco announced

6 under subsection (b), the limitation shall be achieved

7 by applying a uniform percentage reduction to the

8 crop acreage base for the kind of tobacco for the crop

9 for active producers of that kind of tobacco in each

10 traditional tobacco county, as determined by the Sec11 retary.

12 ‘‘(2) CROP ACREAGE BASES.—

13 ‘‘(A) IN GENERAL.—The crop acreage base

14 for an active producer of tobacco for a crop of

15 each kind of tobacco shall equal the number of

16 acres that is equal to—

17 ‘‘(i) in the case of the 2004 crop year,

18 the average of the acreage planted and con19 sidered planted by the active producer of to20 bacco to the kind of tobacco for harvest in

21 a traditional tobacco county in each of the

22 5 crop years preceding the crop year, as de23 termined and adjusted by the Secretary (in

24 consultation with the Tobacco Quality
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1 Board and the applicable Production

2 Board); and

3 ‘‘(ii) in the case of each subsequent

4 crop year, the number of acres planted and

5 considered planted by the active producer of

6 tobacco to the kind of tobacco for harvest in

7 a traditional tobacco county in the pre8 ceding crop year, as determined and ad9 justed by the Secretary (in consultation

10 with the Tobacco Quality Board and the

11 applicable Production Board).

12 ‘‘(B) MAXIMUM CROP ACREAGE BASES.—

13 ‘‘(i) IN GENERAL.—The total quantity

14 of acreage devoted to a kind of tobacco by

15 active producers of tobacco during a crop

16 year shall not exceed the total quantity of

17 acreage devoted to the kind of tobacco by ac18 tive producers during a crop year deter19 mined by the Secretary.

20 ‘‘(ii) ADJUSTMENT.—If the active pro21 ducers of a kind of tobacco demonstrate to

22 the Secretary that the application of clause

23 (i) to a crop of a kind of tobacco will result

24 in unbalanced supply and demand condi25 tions, the Secretary may adjust the total
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1 quantity of acreage that may be devoted to

2 the kind of tobacco by active producers dur3 ing the crop year.

4 ‘‘(C) SALE, LEASE, OR TRANSFER OF CROP

5 ACREAGE BASES.—An active producer of tobacco

6 shall not sell, lease, or transfer to another person

7 a crop acreage base established for the active pro8 ducer of tobacco under this paragraph.

9 ‘‘(D) REALLOCATION OF UNUSED CROP

10 ACREAGE BASES.—

11 ‘‘(i) COUNTY POOL.—If an active pro12 ducer of tobacco with a crop acreage base

13 for a kind of tobacco elects not to use all or

14 part of the crop acreage base to continue to

15 produce that kind of tobacco, the unused

16 crop acreage base shall be placed in a pool

17 established for the traditional tobacco coun18 ty for reallocation by the Secretary to other

19 producers of that kind of tobacco in the tra20 ditional tobacco county that request the

21 crop acreage base.

22 ‘‘(ii) STATE POOL.—If any crop acre23 age base for a kind of tobacco remains after

24 the crop acreage base is made available to

25 producers of that kind of tobacco in the tra-
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1 ditional tobacco county in a State, the un2 used crop acreage base shall be placed in a

3 pool established for the State for realloca4 tion by the Secretary to other producers of

5 that kind of tobacco in a traditional tobacco

6 county.

7 ‘‘(iii) NEW PRODUCERS.—In reallo8 cating unused crop acreage bases for a kind

9 of tobacco in a traditional tobacco county

10 made available under each of clauses (i)

11 and (ii), the Secretary shall make available

12 to any new producers of that kind of to13 bacco in the traditional tobacco county up

14 to 10 percent of the crop acreage bases

15 available for reallocation for the kind of to16 bacco in the traditional tobacco county.

17 ‘‘(d) POUNDAGE LIMITATION PROGRAM.—

18 ‘‘(1) IN GENERAL.—Under a poundage limita19 tion program for a crop of a kind of tobacco, the Sec20 retary shall achieve the limitation by applying a uni21 form percentage adjustment to the crop poundage base

22 of an active producer of tobacco for the kind of to23 bacco in each traditional tobacco county, as deter24 mined by the Secretary.
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1 ‘‘(2) DETERMINATION OF CROP POUNDAGE

2 BASES.—

3 ‘‘(A) 2004 CROP YEAR.—The crop poundage

4 base for an active tobacco producer for the 2004

5 crop of a kind of tobacco shall equal the average

6 of the number of pounds of that kind of tobacco

7 harvested by the active tobacco producer in a

8 traditional tobacco county and marketed in each

9 of the 5 crop years preceding the crop year, as

10 determined by the Secretary.

11 ‘‘(B) SUBSEQUENT CROP YEARS.—In the

12 case of the 2005 and subsequent crops of each

13 kind of tobacco, the crop poundage base for an

14 active tobacco producer of a kind of tobacco shall

15 equal the number of pounds of that kind of to16 bacco harvested by the active tobacco producer in

17 a traditional tobacco county and marketed in the

18 preceding crop year, as determined and adjusted

19 by the Secretary.

20 ‘‘(3) MAXIMUM CROP POUNDAGE BASES.—

21 ‘‘(A) IN GENERAL.—The total number of

22 pounds devoted to a kind of tobacco by active to23 bacco producers during a crop year shall not ex24 ceed the total number of pounds devoted to the
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1 kind of tobacco by active tobacco producers dur2 ing a crop year determined by the Secretary.

3 ‘‘(B) ADJUSTMENT.—If the active tobacco

4 producers of a kind of tobacco demonstrate to the

5 Secretary that the application of paragraph (1)

6 to a crop of a kind of tobacco will result in un7 balanced supply and demand conditions, the

8 Secretary may adjust the total number of pounds

9 that may be devoted to the kind of tobacco by ac10 tive tobacco producers during the crop year.

11 ‘‘(4) SALE, LEASE, OR TRANSFER OF CROP

12 POUNDAGE BASES.—

13 ‘‘(A) PROHIBITION.—An active producer of

14 tobacco shall not directly or indirectly sell, lease,

15 or transfer to another person or other legal entity

16 a crop poundage base established for an active

17 tobacco producer under this subsection.

18 ‘‘(B) EXCEPTION.—If the crop poundage

19 base of an active producer of tobacco for a type

20 of tobacco covers tobacco that was produced by

21 the producer in more than 1 traditional tobacco

22 county, the producer may elect to consolidate the

23 base in a single traditional tobacco county in

24 which the producer bore or shared in the risk of
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1 producing a crop of that kind of tobacco for the

2 2002 crop year.

3 ‘‘(5) REALLOCATION OF UNUSED CROP POUND4 AGE BASES.—

5 ‘‘(A) COUNTY POOL.—If an active producer

6 of tobacco with a crop poundage base for a kind

7 of tobacco elects not to use all or part of the crop

8 poundage base, the unused crop poundage base

9 shall be placed in a pool established for the tra10 ditional tobacco county where the unused crop

11 poundage base was originally located for re12 allocation by the Secretary to other active pro13 ducers of tobacco of that kind of tobacco in the

14 traditional tobacco county, in a manner deter15 mined by the Secretary.

16 ‘‘(B) STATE POOL.—If any crop poundage

17 base for a kind of tobacco remains after the crop

18 poundage base is made available to producers of

19 that kind of tobacco in the traditional tobacco

20 county in a State under subparagraph (A), the

21 unused crop poundage base shall be placed in a

22 pool established for the State for reallocation by

23 the Secretary to other producers of that kind of

24 tobacco in traditional tobacco counties, in a

25 manner determined by the Secretary.
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1 ‘‘(C) TRADITIONAL GROWING AREA POOL.—

2 If any crop poundage base for a kind of tobacco

3 remains after the crop poundage base is made

4 available to producers of that kind of tobacco

5 under subparagraphs (A) and (B), the unused

6 crop poundage base shall be placed in a pool es7 tablished for reallocation by the Secretary to

8 other producers of that kind of tobacco in a tra9 ditional tobacco county for that kind of tobacco.

10 ‘‘(D) NEW PRODUCERS.—In reallocating

11 unused crop poundage bases for a kind of tobacco

12 in a traditional tobacco county made available

13 under any of subparagraphs (A) through (C), the

14 Secretary shall make available to any new pro15 ducers of that kind of tobacco in the traditional

16 tobacco county up to 10 percent of the crop

17 poundage bases available for reallocation for the

18 kind of tobacco in the traditional tobacco county.

19 ‘‘(e) COMPLIANCE.—

20 ‘‘(1) LOANS, PURCHASES, OR PAYMENTS.—An

21 active producer of tobacco that knowingly produces a

22 kind of tobacco in excess of the permitted acreage or

23 permitted poundage, as applicable, for the kind of to24 bacco, or violates any lease or transfer requirements

25 of this section, shall be ineligible for any loans, pur-
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1 chases, or payments for that crop of the kind of to2 bacco.

3 ‘‘(2) NO CARRYOVER.—An active producer of to4 bacco may not carry over permitted poundage or per5 mitted acreage, as applicable, for a crop of a kind of

6 tobacco, that is not produced by the producer, for pro7 duction in a subsequent crop year.

8 ‘‘(3) PENALTIES.—

9 ‘‘(A) CRIMINAL PENALTY.—An active pro10 ducer of tobacco that violates paragraph (1) shall

11 be fined not more than $100,000 or imprisoned

12 not more than 2 years, or both.

13 ‘‘(B) CIVIL PENALTY.—An active producer

14 of tobacco that violates paragraph (2) shall be

15 subject to a civil penalty in an amount not to

16 exceed 2 percent of the value of the kind of to17 bacco produced by the producer during the appli18 cable crop year, as determined by the Secretary.

19 ‘‘(C) ADDITIONAL PENALTIES.—A civil pen20 alty under subparagraph (B) for a violation

21 shall be in addition to any criminal penalty

22 under subparagraph (A) for the violation.

23 ‘‘(D) JURISDICTION TO PREVENT AND RE24 STRAIN VIOLATIONS.—A United States district

25 court shall have jurisdiction to prevent and re-
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1 strain an active producer of tobacco from pro2 ducing a kind of tobacco in excess of the per3 mitted acreage for the kind of tobacco.

4 ‘‘(4) COMPLIANCE WITH CONSERVATION AND AG5 RICULTURAL REQUIREMENTS.—As a condition of the

6 establishment of a crop acreage base or crop poundage

7 base, as applicable, for active producers of tobacco for

8 a crop of a kind of tobacco, the active producers of

9 tobacco shall agree, during the crop year for which the

10 crop acreage base or crop poundage base is

11 established—

12 ‘‘(A) to comply with applicable conservation

13 requirements under subtitle B of title XII of the

14 Food Security Act of 1985 (16 U.S.C. 3811 et

15 seq.);

16 ‘‘(B) to comply with applicable wetland

17 protection requirements under subtitle C of title

18 XII of the Act (16 U.S.C. 3821 et seq.);

19 ‘‘(C) to use the land of the active producer

20 of tobacco, in a quantity equal to the crop acre21 age base for an agricultural or conserving use,

22 and not for a nonagricultural commercial or in23 dustrial use, as determined by the Secretary; and

24 ‘‘(D) to effectively control noxious weeds

25 and otherwise maintain the land in accordance
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1 with sound agricultural practices, as determined

2 by the Secretary, if the agricultural or con3 serving use involves the noncultivation of any

4 portion of the land referred to in subparagraph

5 (C).

6 ‘‘CHAPTER 3—TOBACCO COMMUNITY

7 ECONOMIC DEVELOPMENT GRANTS

8 ‘‘SEC. 380O. TOBACCO COMMUNITY ECONOMIC DEVELOP9 MENT GRANTS.

10 ‘‘(a) IN GENERAL.—The Secretary shall make grants

11 to eligible States in accordance with this section to pay the

12 cost of carrying out economic development initiatives in im13 pacted communities.

14 ‘‘(b) APPLICATION.—To be eligible to receive payments

15 under this section, an eligible State shall prepare and sub16 mit to the Secretary an application at such time, in such

17 manner, and containing such information as the Secretary

18 may require, including—

19 ‘‘(1) a description of the activities that the eligi20 ble State will carry out using amounts received under

21 the grant; and

22 ‘‘(2) a description of the State department of ag23 riculture that will administer amounts received under

24 the grant.
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1 ‘‘(c) AMOUNT OF GRANT.—From the amounts avail2 able to carry out this section, the Secretary shall allot—

3 ‘‘(1) $20,000,000 to the State of Maryland;

4 ‘‘(2) $14,000,000 to the State of Pennsylvania;

5 ‘‘(3) $50,000,000 to the State of South Carolina;

6 and

7 ‘‘(4) $50,000,000 to the State of North Carolina.

8 ‘‘(d) PAYMENTS.—An eligible State that has an appli9 cation approved by the Secretary under subsection (b) shall

10 be entitled to a payment under this section, in 5 equal in11 stallments, in an amount that is equal to its allotment

12 under subsection (c).

13 ‘‘(e) USE OF FUNDS.—Amounts received by an eligible

14 State under this section shall be used to carry out economic

15 development activities in impacted communities of the eligi16 ble State, as determined by the eligible State.

17 ‘‘(f) TERMINATION DATE.—The authority provided by

18 this section terminates on September 30, 2008.

19 ‘‘CHAPTER 4—COMPETITIVE GRANTS FOR

20 TOBACCO RESEARCH

21 ‘‘SEC. 380Q. COMPETITIVE GRANTS FOR TOBACCO RE22 SEARCH.

23 ‘‘(a) IN GENERAL.—Notwithstanding any other provi24 sion of law, the Secretary shall make competitive grants

25 under section 406 of the Agricultural Research, Extension,
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1 and Education Reform Act of 1998 (7 U.S.C. 7626) to col2 leges and universities located in eligible States to conduct

3 research—

4 ‘‘(1) to assist tobacco producers to diversify crops

5 or implement other means to reduce or eliminate the

6 reliance of the producers on the production of tobacco

7 or to promote alternative uses of tobacco or enhance

8 the quality of tobacco produced in the United States;

9 and

10 ‘‘(2) to foster and facilitate development, evalua11 tion, and implementation of economically viable new

12 agricultural technologies and enterprises for rural

13 communities.

14 ‘‘(b) GRANT DISTRIBUTION.—In making grants under

15 this section, the Secretary shall provide for an equitable dis16 tribution of the grants based on the volume of each kind

17 of tobacco that is produced in each eligible State, as deter18 mined by the Secretary

19 ‘‘(c) TERMINATION DATE.—The authority provided by

20 this section terminates on September 30, 2008.

21 ‘‘CHAPTER 5—FUNDING

22 ‘‘SEC. 380S. TOBACCO TRUST FUND.

23 ‘‘(a) ESTABLISHMENT.—There is established in the

24 Commodity Credit Corporation a revolving trust fund to
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1 be used in carrying out this subtitle (referred to in this sec2 tion as the ‘Fund’), consisting of—

3 ‘‘(1) such amounts as are deposited in the Fund

4 under subsection (b);

5 ‘‘(2) such amounts as are necessary from the

6 Commodity Credit Corporation; and

7 ‘‘(3) any interest earned on investment of

8 amounts in the Fund under subsection (d).

9 ‘‘(b) DEPOSITS.—Revenues from assessments collected

10 under section 380T shall be deposited in the Fund.

11 ‘‘(c) EXPENDITURES.—

12 ‘‘(1) IN GENERAL.—Subject to paragraphs (2)

13 and (3) and notwithstanding any other provision of

14 law, in addition to any other funds that may be

15 available, the Secretary may use from the Fund such

16 amounts as the Secretary determines are necessary—

17 ‘‘(A) to make payments to tobacco quota

18 holders and traditional producers under chapter

19 1;

20 ‘‘(B) to pay necessary expenses of the To21 bacco Quality Board and Production Boards

22 and to carry out the acreage limitation program

23 under chapter 2;

24 ‘‘(C) to make tobacco community economic

25 development grants under chapter 3, in an
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1 amount equal to $16,800,000 for each of fiscal

2 years 2004 through 2008;

3 ‘‘(D) to make competitive grants for tobacco

4 research under chapter 4, in an amount equal to

5 $12,000,000 for each of fiscal years 2004 through

6 2008;

7 ‘‘(E) to make grants to each association

8 that has entered into a loan agreement with the

9 Commodity Credit Corporation under section

10 106A or 106B of the Agricultural Act of 1949 (7

11 U.S.C. 1445–1, 1445–2) (as in effect before the

12 effective date of this subtitle) to assist the asso13 ciation to transition to alternative methods of

14 marketing tobacco in accordance with a plan ap15 proved by the Secretary, with the grants allo16 cated on the basis of the proportion of tobacco

17 marketed by each association, in an amount not

18 to exceed $1,000,000 for each association for each

19 kind of tobacco for each of fiscal years 2004

20 through 2008;

21 ‘‘(F) to make payments to appropriate to22 bacco warehouse associations, as determined by

23 the Secretary, in an amount not to exceed

24 $500,000 for each of fiscal years 2004 through

25 2008;
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1 ‘‘(G) to pay administrative costs incurred

2 by the Secretary in carrying out this subtitle;

3 and

4 ‘‘(H) to reimburse the Commodity Credit

5 Corporation for costs incurred by the Commodity

6 Credit Corporation under paragraph (2).

7 ‘‘(2) EXPENDITURES BY COMMODITY CREDIT

8 CORPORATION.—

9 ‘‘(A) IN GENERAL.—Subject to subpara10 graph (B) and notwithstanding any other provi11 sion of law, the Secretary shall use funds of the

12 Commodity Credit Corporation to make pay13 ments under paragraph (1).

14 ‘‘(B) REIMBURSEMENT TO COMMODITY

15 CREDIT CORPORATION.—Not later than January

16 1, 2013, the Commodity Credit Corporation shall

17 be reimbursed in full, with interest, for all funds

18 of the Commodity Credit Corporation expended

19 under subparagraph (A).

20 ‘‘(3) ADMINISTRATIVE EXPENSES.—

21 ‘‘(A) IN GENERAL.—An amount not to ex22 ceed $20,000,000 for each fiscal year of the

23 amounts in the Fund shall be available to pay

24 the administrative expenses necessary to carry

25 out this subtitle.
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1 ‘‘(B) TERMINATION DATE.—The authority

2 provided by this paragraph terminates on Sep3 tember 30, 2013.

4 ‘‘(d) INVESTMENT OF AMOUNTS.—

5 ‘‘(1) IN GENERAL.—The Commodity Credit Cor6 poration shall invest such portion of the Fund as is

7 not, in the judgment of the Commodity Credit Cor8 poration, required to meet current withdrawals.

9 ‘‘(2) INTEREST-BEARING OBLIGATIONS.—Invest10 ments may be made only in interest-bearing obliga11 tions of the United States.

12 ‘‘(3) ACQUISITION OF OBLIGATIONS.—For the

13 purpose of investments under paragraph (1), obliga14 tions may be acquired—

15 ‘‘(A) on original issue at the issue price; or

16 ‘‘(B) by purchase of outstanding obligations

17 at the market price.

18 ‘‘(4) SALE OF OBLIGATIONS.—Any obligation ac19 quired by the Fund may be sold by the Commodity

20 Credit Corporation at the market price.

21 ‘‘(5) CREDITS TO FUND.—The interest on, and

22 the proceeds from the sale or redemption of, any obli23 gations held in the Fund shall be credited to and form

24 a part of the Fund.
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1 ‘‘(e) ADMINISTRATION.—In administering the Fund,

2 the Secretary shall make payments, reimburse agencies of

3 the Department, and accept deposits without regard to limi4 tations on total amounts of allotments and fund transfers

5 under section 11 of the Commodity Credit Corporation

6 Charter Act (15 U.S.C. 714i).

7 ‘‘SEC. 380T. ASSESSMENTS.

8 ‘‘(a) DEFINITION OF GROSS DOMESTIC VOLUME.—In

9 this section, the term ‘gross domestic volume’ means the vol10 ume of tobacco products—

11 ‘‘(1) removed (as defined by section 5702 of the

12 Internal Revenue Code of 1986); and

13 ‘‘(2) not exempt from tax under chapter 52 of the

14 Internal Revenue Code of 1986 at the time of their re15 moval under that chapter or the Harmonized Tariff

16 Schedule of the United States (19 U.S.C. 1202).

17 ‘‘(b) ASSESSMENTS.—The Secretary, acting through

18 the Commodity Credit Corporation, shall impose quarterly

19 assessments, calculated in accordance with this section, on

20 each tobacco product manufacturer and tobacco product im21 porter that sells tobacco products in domestic commerce in

22 the United States.

23 ‘‘(c) TOBACCO TRUST FUND.—Assessments collected

24 under this section shall be deposited in the Tobacco Trust

25 Fund.
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1 ‘‘(d) ASSESSMENT FOR EACH CLASS OF TOBACCO

2 PRODUCT.—

3 ‘‘(1) ALLOCATION BY CLASS OF TOBACCO PROD4 UCTS.—The percentage of the total amount to be as5 sessed against, and paid by, the manufacturers and

6 importers of each class of tobacco product in each ap7 plicable fiscal year shall be—

8 ‘‘(A) for cigarette manufacturers and im9 porters, 99.409 percent;

10 ‘‘(B) for snuff manufacturers and import11 ers, 0.428 percent;

12 ‘‘(C) for chewing tobacco manufacturers and

13 importers, 0.098 percent;

14 ‘‘(D) for pipe tobacco manufacturers and

15 importers, 0.021 percent; and

16 ‘‘(E) for roll-your-own tobacco manufactur17 ers and importers, 0.044 percent.

18 ‘‘(2) ADJUSTMENT.—The Secretary shall adjust

19 the percentage of the total amount to be assessed

20 against, as determined under paragraph (1), and

21 paid by, the manufacturers and importers of each

22 class of tobacco product in each applicable fiscal year

23 by multiplying the percentage of the total amount to

24 be assessed, as determined under paragraph (1), by a

25 fraction—
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1 ‘‘(A) the numerator of which is the total vol2 ume of domestic sales of that class of tobacco

3 product during the preceding applicable fiscal

4 year; and

5 ‘‘(B) the denominator of which is the total

6 volume of domestic sales of that class of tobacco

7 product during fiscal year 2003.

8 ‘‘(3) TOTAL ASSESSMENT.—

9 ‘‘(A) IN GENERAL.—The total amount to be

10 assessed against all manufacturers and import11 ers of all classes of tobacco product in each ap12 plicable fiscal year shall be equal to the amount

13 required to carry out this subtitle during the ap14 plicable fiscal year, as determined by the Sec15 retary.

16 ‘‘(B) ADDITIONAL AMOUNT.—

17 ‘‘(i) IN GENERAL.—If the amount to be

18 assessed after the application of paragraphs

19 (1) and (2) is insufficient to carry out this

20 subtitle during the applicable fiscal year,

21 the Secretary may assess such additional

22 amount as the Secretary determines to be

23 necessary to carry out this subtitle during

24 the applicable fiscal year.
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1 ‘‘(ii) ALLOCATION.—The additional

2 amount shall be allocated to the manufac3 turers and importers of each class of tobacco

4 product in the same manner and based on

5 the same percentages applied in deter6 mining the total amount to be assessed

7 under paragraph (1), as adjusted under

8 paragraph (2) during the applicable fiscal

9 year.

10 ‘‘(4) NOTIFICATION OF ASSESSMENTS.—

11 ‘‘(A) IN GENERAL.—The Secretary shall no12 tify all manufacturers and importers of tobacco

13 products of the amount of the assessment for each

14 quarterly payment period.

15 ‘‘(B) CONTENTS.—The notice for a quar16 terly payment period shall describe gross domes17 tic sales and market shares for the quarterly

18 payment period and conform with the require19 ments of subsection (i).

20 ‘‘(5) TIMING OF ASSESSMENT PAYMENTS.—

21 ‘‘(A) IN GENERAL.—Assessments shall be

22 collected at the end of each calendar year quar23 ter.

24 ‘‘(B) BASE PERIOD QUARTER.—The assess25 ment for a calendar year quarter shall cor-
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1 respond to the base period quarter that ended at

2 the end of the preceding calendar year quarter.

3 ‘‘(C) AMOUNTS.—Subject to subparagraph

4 (D), beginning with the calendar quarter ending

5 on December 31 of each applicable fiscal year,

6 the payments over 4 calendar quarters shall be

7 sufficient to cover—

8 ‘‘(i) the payments required under

9 chapter 1 on November 1 of that same ap10 plicable fiscal year; and

11 ‘‘(ii) other expenditures from the To12 bacco Trust Fund required under section

13 380S during the base quarter periods cor14 responding to those 4 calendar quarters.

15 ‘‘(D) SPECIAL RULE.—In the case of pay16 ments required under chapter 1 that are due on

17 September 30, 2004, the assessments shall be

18 paid on that same date and correspond to the

19 first base period of 6 months.

20 ‘‘(e) ALLOCATION OF ASSESSMENT WITHIN EACH

21 CLASS OF TOBACCO PRODUCT.—

22 ‘‘(1) IN GENERAL.—The assessment for each class

23 of tobacco product shall be allocated on a pro rata

24 basis among manufacturers and importers based on
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1 each manufacturer’s or importer’s share of gross do2 mestic volume.

3 ‘‘(2) LIMITATION.—No manufacturer or importer

4 shall be required to pay an assessment that is based

5 on a share that is in excess of the manufacturer’s or

6 importer’s share of domestic volume.

7 ‘‘(f) ALLOCATION OF TOTAL ASSESSMENTS BY MARKET

8 SHARE.—The amount of the assessment for each class of

9 tobacco product to be paid by each manufacturer or im10 porter of the class of tobacco product under subsection (b)

11 shall be determined for each quarterly payment period by

12 multiplying—

13 ‘‘(1) the market share of the manufacturer or im14 porter, as calculated with respect to that payment pe15 riod, of the class of tobacco product; by

16 ‘‘(2) the total amount of the assessment for that

17 quarterly payment period under subsection (d), for

18 the class of tobacco product.

19 ‘‘(g) DETERMINATION OF VOLUME OF DOMESTIC

20 SALES.—

21 ‘‘(1) IN GENERAL.—The calculation of the vol22 ume of domestic sales of a class of tobacco product by

23 a manufacturer or importer, and by all manufactur24 ers and importers as a group, shall be made by the

25 Secretary based on information provided by the man-
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1 ufacturers and importers pursuant to subsection (h),

2 as well as any other relevant information provided to

3 or obtained by the Secretary.

4 ‘‘(2) GROSS DOMESTIC VOLUME.—The volume of

5 domestic sales shall be calculated based on gross do6 mestic volume.

7 ‘‘(3) MEASUREMENT.—For purposes of the cal8 culations under this subsection and the certifications

9 under subsection (h) by the Secretary, the volumes of

10 domestic sales shall be measured by—

11 ‘‘(A) in the case of cigarettes, the numbers

12 of cigarettes; and

13 ‘‘(B) in the case of other classes of tobacco

14 products, in terms of number of pounds, or frac15 tion thereof, of those products.

16 ‘‘(h) MEASUREMENT OF VOLUME OF DOMESTIC

17 SALES.—

18 ‘‘(1) IN GENERAL.—Each manufacturer and im19 porter of tobacco products shall submit to the Sec20 retary a certified copy of each of the returns or forms

21 described by paragraph (2) that are required to be

22 filed with a Federal Government agency on the same

23 date that those returns or forms are filed, or required

24 to be filed, with the agency.
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1 ‘‘(2) RETURNS AND FORMS.—The returns and

2 forms described by this paragraph are those returns

3 and forms that relate to—

4 ‘‘(A) the removal of tobacco products into

5 domestic commerce (as defined by section 5702 of

6 the Internal Revenue Code of 1986); and

7 ‘‘(B) the payment of the taxes imposed

8 under charter 52 of the Internal Revenue Code of

9 1986, including AFT Form 5000.24 and United

10 States Customs Form 7501 under currently ap11 plicable regulations.

12 ‘‘(3) PENALTIES.—

13 ‘‘(A) IN GENERAL.—Any person that know14 ingly fails to provide information required under

15 this subsection or that provides false information

16 under this subsection shall be subject to the pen17 alties described in section 1003 of title 18,

18 United States Code.

19 ‘‘(B) ADDITIONAL CIVIL PENALTY.—In ad20 dition, the Secretary may assess against the per21 son a civil penalty in an amount not to exceed

22 2 percent of the value of the kind of tobacco

23 products manufactured or imported by the per24 son during the applicable fiscal year, as deter25 mined by the Secretary.
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1 ‘‘(i) ASSESSMENT NOTIFICATION; CONTENT.—

2 ‘‘(1) IN GENERAL.—The Secretary shall provide

3 each manufacturer or importer subject to an assess4 ment under subsection (b) with written notice setting

5 forth the amount to be assessed against the manufac6 turer or importer for the applicable quarterly period.

7 ‘‘(2) DEADLINE.—The notice for a quarterly pe8 riod shall be provided not later than 30 days before

9 the date payment is due under subsection (d)(5).

10 ‘‘(3) CONTENTS.—The notice shall include the

11 following information with respect to the quarterly

12 period used by the Secretary in calculating the

13 amount:

14 ‘‘(A) The total combined assessment for all

15 manufacturers and importers of tobacco prod16 ucts.

17 ‘‘(B) The total assessment with respect to

18 the class of tobacco products manufactured or

19 imported by the manufacturer or importer.

20 ‘‘(C) Any adjustments to the percentage al21 locations among the classes of tobacco products

22 made pursuant to subsection (d)(2).

23 ‘‘(D) The volume of gross sales of the appli24 cable class of tobacco product treated as made by

25 the manufacturer or importer for purposes of
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1 calculating the manufacturer’s or importer’s

2 market share under subsection (f).

3 ‘‘(E) The total volume of gross sales of the

4 applicable class of tobacco product that the Sec5 retary treated as made by all manufacturers and

6 importers for purposes of calculating the manu7 facturer’s or importer’s market share under sub8 section (f).

9 ‘‘(F) The manufacturer’s or importer’s mar10 ket share of the applicable class of tobacco prod11 uct as determined by the Secretary under sub12 section (f).

13 ‘‘(G) The market share, as determined by

14 the Secretary under subsection (f), of each other

15 manufacturer and importer, for each applicable

16 class of tobacco product.

17 ‘‘(j) CHALLENGE TO ASSESSMENT.—

18 ‘‘(1) APPEAL TO SECRETARY.—A manufacturer

19 or importer subject to this section may contest an as20 sessment imposed on the person under this section by

21 notifying the Secretary not later than 10 business

22 days after receiving the assessment notification re23 quired by subsection (i).

24 ‘‘(2) ESCROW.—The manufacturer and importer

25 may place into escrow, in accordance with rules pro-
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1 mulgated by the Secretary, only the portion of the as2 sessment being challenged in good faith pending final

3 determination of the assessment under this subsection.

4 ‘‘(3) INFORMATION.—The Secretary shall by reg5 ulation establish a procedure under which a person

6 contesting an assessment under this subsection may

7 present information to the Secretary to demonstrate

8 that the assessment is incorrect, including informa9 tion to demonstrate the following:

10 ‘‘(A) The total combined assessment imposed

11 by the Secretary on all manufacturers and im12 porters is excessive.

13 ‘‘(B) The Secretary’s allocation of the total

14 assessment among the classes of tobacco products

15 is incorrect.

16 ‘‘(C) The total volume of gross domestic

17 sales of all manufacturers and importers of the

18 relevant class of tobacco product calculated by

19 the Secretary under subsection (f) is incorrect.

20 ‘‘(D) The level of gross domestic sales attrib21 uted to the person by the Secretary for purposes

22 of calculating the person’s market share under

23 subsection (f) exceeds the person’s actual domes24 tic sales of that class of tobacco product.
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1 ‘‘(E) The amount of the assessment attrib2 uted to the person by the Secretary exceeds the

3 person’s pro rata share based on the person’s

4 share of gross domestic sales.

5 ‘‘(4) CHALLENGE.—

6 ‘‘(A) IN GENERAL.—In challenging an as7 sessment under this subsection, the manufacturer

8 or importer may use any information that is

9 available, including third party data on indus10 try or individual company sales volumes.

11 ‘‘(B) INCORRECT DETERMINATION.—The in12 formation may constitute evidence sufficient to

13 establish that the Secretary’s initial determina14 tion was incorrect, in which event the assessment

15 shall be revised so that the manufacturer or im16 porter is required only to pay the amount cor17 rectly determined.

18 ‘‘(5) TIME FOR REVIEW.—Not later than 30 days

19 after receiving notice from a manufacturer or im20 porter under paragraph (2), the Secretary shall—

21 ‘‘(A) decide whether the information pro22 vided to the Secretary pursuant to that para23 graph, and any other information that the Sec24 retary determines, is appropriate is sufficient to
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1 establish that the original assessment was incor2 rect; and

3 ‘‘(B) make any revisions necessary to ensure

4 that each manufacturer and importer pays only

5 its correct pro rata share of total gross domestic

6 volume from all sources.

7 ‘‘(6) IMMEDIATE PAYMENT OF UNDISPUTED

8 AMOUNTS.—The regulations promulgated by the Sec9 retary under paragraph (2) shall provide for the im10 mediate payment by a manufacturer or importer

11 challenging an assessment of that portion of the as12 sessment that is not in dispute.

13 ‘‘(7) JUDICIAL REVIEW.—

14 ‘‘(A) IN GENERAL.—Any manufacturer or

15 importer aggrieved by a determination of the

16 Secretary with respect to the amount of any as17 sessment may seek review of the determination in

18 the United States District Court for the District

19 of Columbia or for the district in which the man20 ufacturer or importer resides or has its principal

21 place of business at any time following exhaus22 tion of the administrative remedies under this

23 subsection.

24 ‘‘(B) TIME LIMITS.—Administrative rem25 edies shall be deemed exhausted if no decision by
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1 the Secretary is made within the time limits es2 tablished under paragraph (5).

3 ‘‘(C) EXCESSIVE ASSESSMENTS.—The court

4 shall restrain collection of the excessive portion of

5 any assessment or order a refund of excessive as6 sessments already paid, along with interest cal7 culated at the rate prescribed in section 3717 of

8 title 31, United States Code, if it finds that the

9 Secretary’s determination is not supported by a

10 preponderance of the information available to the

11 Secretary.

12 ‘‘(8) REGULATIONS.—Not later than 180 days

13 after the date of enactment of this subtitle, the Sec14 retary shall promulgate regulations to implement this

15 subsection (in accordance with section 301 of the To16 bacco Market Transition Act of 2004).

17 ‘‘(k) USE OF QUALIFIED FINANCIAL INSTITUTIONS.—

18 The Secretary may use qualified financial institutions to

19 manage assets, make payments, and otherwise carry out

20 this subtitle.

21 ‘‘(l) TERMINATION DATE.—The authority provided by

22 this section terminates on September 30, 2013.
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1 ‘‘SEC. 380U. COMMODITY CREDIT CORPORATION.

2 The Secretary shall use the funds, facilities, and au3 thorities of the Commodity Credit Corporation to carry out

4 this subtitle, to remain available until expended.

5 ‘‘SEC. 380V. TRANSITION PROVISIONS.

6 ‘‘(a) TOBACCO STOCKS.—

7 ‘‘(1) IN GENERAL.—To provide for the orderly

8 disposition of quota tobacco held by an association

9 that has entered into a loan agreement with the Com10 modity Credit Corporation under section 106A or

11 106B of the Agricultural Act of 1949 (7 U.S.C. 1445–

12 1, 1445–2) (referred to in this section as an ‘associa13 tion’), loan pool stocks for each kind of tobacco held

14 by the association shall be disposed of in accordance

15 with this subsection.

16 ‘‘(2) ASSOCIATIONS.—For each kind of tobacco

17 held by an association, the proportion of loan pool

18 stocks for each kind of tobacco held by the association

19 that shall be transferred to the association shall be

20 equal to—

21 ‘‘(A) the amount of funds held by the asso22 ciation in the No Net Cost Tobacco Fund and the

23 No Net Cost Tobacco Account established under

24 sections 106A and 106B of the Agricultural Act

25 of 1949 (7 U.S.C. 1445–1, 1445–2), respectively,

26 for the kind of tobacco; divided by
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1 ‘‘(B) the average list price per pound for the

2 kind of tobacco, as determined by the Secretary.

3 ‘‘(3) COMMODITY CREDIT CORPORATION.—Any

4 loan pool stocks of a kind of tobacco of an association

5 that are not disposed of in accordance with para6 graph (2) shall be—

7 ‘‘(A) transferred by the association to the

8 Commodity Credit Corporation; and

9 ‘‘(B) disposed of in a manner determined

10 by the Secretary.

11 ‘‘(b) NO NET COST FUNDS.—

12 ‘‘(1) IN GENERAL.—Any funds in the No Net

13 Cost Tobacco Fund or the No Net Cost Tobacco Ac14 count of an association established under sections

15 106A and 106B of the Agricultural Act of 1949 (7

16 U.S.C. 1445–1, 1445–2), respectively, that remain

17 after the application of subsection (a) and sections

18 106A and 106B of the Agricultural Act of 1949 (7

19 U.S.C. 1445, 1445–1) (as in effect before the effective

20 date of this subtitle) shall be transferred to the asso21 ciation for distribution to traditional producers of to22 bacco in accordance with a plan approved by the Sec23 retary.

24 ‘‘(2) ASSOCIATIONS WITH NO LOAN POOL

25 STOCKS.—In the case of an association that does not
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1 hold any loan pool stocks that are covered by sub2 section (a)(2), any funds in the No Net Cost Tobacco

3 Fund or the No Net Cost Tobacco Account of the asso4 ciation established under sections 106A and 106B of

5 the Agricultural Act of 1949 (7 U.S.C. 1445–1, 1445–

6 2), respectively, shall be transferred to the association

7 for distribution to traditional producers of tobacco in

8 accordance with a plan approved by the Secretary.

9 ‘‘(c) REIMBURSEMENT TO COMMODITY CREDIT COR10 PORATION.—There shall be transferred from the Tobacco

11 Trust Fund to each No Net Cost Tobacco Fund or the No

12 Net Cost Tobacco Account of an association established

13 under sections 106A and 106B of the Agricultural Act of

14 1949 (7 U.S.C. 1445–1, 1445–2), respectively, such amounts

15 as the Secretary determines will be adequate to reimburse

16 the Commodity Credit Corporation for any net losses that

17 the Corporation may sustain under its loan agreements

18 with the association.’’.

19 SEC. 1152. TOBACCO INSURANCE RESEARCH AND DEVELOP20 MENT.

21 (a) IN GENERAL.—Section 522(b)(1) of the Federal

22 Crop Insurance Act (7 U.S.C. 1522(b)(1)) is amended—

23 (1) by redesignating subparagraphs (A) and (B)

24 as clauses (i) and (ii), respectively, and indenting ap25 propriately;
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1 (2) by striking ‘‘The Corporation’’ and inserting

2 the following—

3 ‘‘(A) IN GENERAL.—The’’; and

4 (3) by adding at the end the following:

5 ‘‘(B) TOBACCO RESEARCH AND DEVELOP6 MENT.—Subject to the availability of funds

7 under subsection (e)(5), the Corporation shall

8 provide a payment to reimburse an applicant for

9 research and development costs directly related to

10 a policy that is—

11 ‘‘(i) submitted to the Board and ap12 proved by the Board under section 508(h)

13 for reinsurance;

14 ‘‘(ii) if applicable, offered for sale to

15 producers; and

16 ‘‘(iii) addresses risk in the production

17 of tobacco.’’.

18 (b) ASSESSMENTS.—Section 522(e) of the Federal

19 Crop Insurance Act (7 U.S.C. 1522(e)) is amended by add20 ing at the end the following:

21 ‘‘(5) TOBACCO ASSESSMENT.—

22 ‘‘(A) IN GENERAL.—Effective for each mar23 keting year for a kind of tobacco for which a

24 commodity-specific plan of insurance is offered

25 under this Act, subject to subparagraphs (B)
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1 through (D), each producer and purchaser of

2 that kind of tobacco shall remit to the Insurance

3 Fund established under section 516(c) a non4 refundable marketing assessment in an amount

5 determined by the Secretary pursuant to sub6 paragraphs (B) and (C).

7 ‘‘(B) TOTAL AMOUNT.—The total amount of

8 producer and purchaser assessments for a kind of

9 tobacco collected under this paragraph shall be

10 equal to the amount that is necessary to carry

11 out subsection (b)(1)(B).

12 ‘‘(C) ADMINISTRATION.—Producer and pur13 chaser assessments for a kind of tobacco under

14 this paragraph—

15 ‘‘(ii) shall be determined in such a

16 manner that producers and purchasers

17 share equally, to the maximum extent prac18 ticable, in paying assessments required

19 under this paragraph; and

20 ‘‘(ii) shall not exceed 5 cents per

21 pound.

22 ‘‘(D) TERMINATION.—Effective beginning

23 with the 2010 crop of each kind of tobacco, the

24 Secretary may terminate the collection of assess25 ments for that kind of tobacco if the Secretary
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1 determines that further research and development

2 under subsection (b)(1)(B) would not be produc3 tive.’’.

4 (c) INSURANCE FUND.—Section 516(c)(1) of the Fed5 eral Crop Insurance Act (7 U.S.C. 1516(c)(1)) is amended

6 by inserting ‘‘assessments for tobacco research made avail7 able under section 522(e)(5),’’ after ‘‘under subsection

8 (a)(2),’’.

9 SEC. 1153. CONFORMING AMENDMENTS.

10 Section 320B(c)(1) of the Agricultural Adjustment Act

11 of 1938 (7 U.S.C. 1314h(c)(1)) is amended—

12 (1) by inserting ‘‘(A)’’ after ‘‘(1)’’;

13 (2) by striking ‘‘by’’ at the end and inserting

14 ‘‘or’’; and

15 (3) by adding at the end the following:

16 ‘‘(B) in the case of the 2003 marketing year, the

17 price support rate for the kind of tobacco involved in

18 effect under section 106 of the Agricultural Act of

19 1949 (7 U.S.C. 1445) at the time of the violation;

20 by’’.

21 CHAPTER 3—IMPLEMENTATION

22 SEC. 1161. REGULATIONS.

23 (a) IN GENERAL.—The Secretary of Agriculture may

24 promulgate such regulations as are necessary to implement

25 this subtitle and the amendments made by this subtitle.
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1 (b) PROCEDURE.—The promulgation of the regulations

2 and administration of this subtitle and the amendments

3 made by this subtitle shall be made without regard to—

4 (1) the notice and comment provisions of section

5 553 of title 5, United States Code;

6 (2) the Statement of Policy of the Secretary of

7 Agriculture effective July 24, 1971 (36 Fed. Reg.

8 13804), relating to notices of proposed rulemaking

9 and public participation in rulemaking; and

10 (3) chapter 35 of title 44, United States Code

11 (commonly known as the ‘‘Paperwork Reduction

12 Act’’).

13 (c) CONGRESSIONAL REVIEW OF AGENCY RULE14 MAKING.—In carrying out this section, the Secretary shall

15 use the authority provided under section 808 of title 5,

16 United States Code.

17 SEC. 1162. EFFECTIVE DATE.

18 This subtitle and the amendments made by this sub19 title shall apply to the 2004 and subsequent crops of each

20 kind of tobacco.

Attest:

Secretary.
108TH CONGRESS

2D SESSION H. R. 4520

AMENDMENT