II 

111TH CONGRESS 

2D SESSION S. 3018 

To amend the Internal Revenue Code of 1986 to make the Federal income 

tax system simpler, fairer, and more fiscally responsible, and for other 

purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 23, 2010 

Mr. WYDEN (for himself and Mr. GREGG) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to make 

the Federal income tax system simpler, fairer, and more 

fiscally responsible, and for other purposes. 

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

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

4 TABLE OF CONTENTS. 

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

6 ‘‘Bipartisan Tax Fairness and Simplification Act of 

7 2010’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amendVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 ment or repeal is expressed in terms of an amendment 

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

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986. 

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

6 this Act is as follows: 

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

Sec. 2. Purpose. 

TITLE I—INDIVIDUAL INCOME TAX REFORMS 

Sec. 101. 3 progressive individual income tax rates. 

Sec. 102. Increase in basic standard deduction. 

Sec. 103. Permanent extension of expansion of earned income credit. 

Sec. 104. Permanent extension of expansion of dependent care credit. 

Sec. 105. Permanent extension of child tax credit. 

Sec. 106. Permanent repeal of limitations on personal exemptions and itemized 

deductions. 

Sec. 107. Elimination of individual miscellaneous itemized deductions. 

Sec. 108. Treatment of capital gains. 

Sec. 109. Partial exclusion of dividends received by individuals. 

Sec. 110. Nonrefundable personal credit for interest on State and local bonds. 

Sec. 111. Retirement savings accounts. 

Sec. 112. Lifetime Savings Accounts. 

Sec. 113. Consolidation of tax credits and deductions for education expenses. 

Sec. 114. Termination of various exclusions, exemptions, deductions, and credits. 

Sec. 115. Simplified tax return preparation. 

TITLE II—CORPORATE AND BUSINESS INCOME TAX REFORMS 

Sec. 201. Corporate flat tax. 

Sec. 202. Treatment of travel on corporate aircraft. 

Sec. 203. Unlimited expensing of depreciable assets and inventories for certain 

small businesses. 

Sec. 204. Termination of various preferential treatments. 

Sec. 205. Pass-through business entity transparency. 

Sec. 206. Modification of effective date of leasing provisions of the American 

Jobs Creation Act of 2004. 

Sec. 207. Revaluation of LIFO inventories of large integrated oil companies. 

Sec. 208. Modifications of foreign tax credit rules applicable to large integrated 

oil companies which are dual capacity taxpayers. 

Sec. 209. Repeal of lower of cost or market value of inventory rule. 

Sec. 210. Reinstitution of per country foreign tax credit. 

Sec. 211. Application of rules treating inverted corporations as domestic corporations to certain transactions occurring after March 20, 

2002. 

Sec. 212. Indexing corporate interest deduction for inflation. 

Sec. 213. Prohibition of advance refunding of bonds. 


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Sec. 214. CBO study on government spending on businesses. 

TITLE III—REPEAL OF ALTERNATIVE MINIMUM TAX 

Sec. 301. Repeal of alternative minimum tax. 

TITLE IV—OTHER PROVISIONS 

Subtitle A—Improvements in Tax Compliance 

Sec. 401. Information reporting on payments to corporations. 

Sec. 402. Additional reporting requirements by regulation. 

Sec. 403. Increase in information return penalties. 

Sec. 404. E-filing requirement for certain large organizations. 

Sec. 405. Implementation of standards clarifying when employee leasing companies can be held liable for their clients’ Federal employment 

taxes. 

Sec. 406. Expansion of IRS access to information in National Directory of New 

Hires for tax administration purposes. 

Sec. 407. Modification of criminal penalties for willful failures involving tax 

payments and filing requirements. 

Sec. 408. Penalties for failure to file certain returns electronically. 

Sec. 409. Reporting on identification of beneficial owners of certain foreign financial accounts. 

Subtitle B—Requiring Economic Substance 

Sec. 411. Clarification of economic substance doctrine. 

Sec. 412. Penalty for understatements attributable to transactions lacking economic substance, etc. 

Sec. 413. Denial of deduction for interest on underpayments attributable to 

noneconomic substance transactions. 

Subtitle C—Internet Gambling Taxation and Regulation 

Sec. 421. Tax on Internet gambling; licensee information reporting. 

Sec. 422. Withholding from certain gambling winnings. 

Sec. 423. Withholding of tax on nonresident aliens. 

Sec. 424. Territorial extent. 

Sec. 425. Federal licensing requirement for Internet gambling operators. 

Sec. 426. Report required. 

Sec. 427. Effective date. 

Subtitle D—Miscellaneous 

Sec. 431. Denial of deduction for punitive damages. 

Sec. 432. Application of medicare payroll tax to all State and local government 

employees. 

Sec. 433. Corrections for CPI overstatement in cost-of-living indexation. 

TITLE V—TECHNICAL AND CONFORMING AMENDMENTS 

Sec. 501. Technical and conforming amendments. 


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1 SEC. 2. PURPOSE. 

2 The purpose of this Act is to amend the Internal Rev3 enue Code of 1986— 

4 (1) to make the Federal individual income tax 

5 system simpler, fairer, and more transparent by, 

6 among other reforms— 

7 (A) repealing the individual alternative 

8 minimum tax, 

9 (B) increasing the basic standard deduc10 tion and maintaining itemized deductions for 

11 mortgage interest and charitable contributions, 

12 and 

13 (C) reducing the number of exclusions, ex14 emptions, deductions, and credits, 

15 (2) to make the Federal corporate income tax 

16 rate a flat 24 percent, repeal the corporate alter17 native minimum tax, and eliminate special tax pref18 erences that favor particular types of businesses or 

19 activities, and 

20 (3) to partially offset the Federal budget deficit 

21 through the increased fiscal responsibility resulting 

22 from these reforms. 


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1 TITLE I—INDIVIDUAL INCOME 

2 TAX REFORMS 

3 SEC. 101. 3 PROGRESSIVE INDIVIDUAL INCOME TAX RATES. 

4 (a) MARRIED INDIVIDUALS FILING JOINT RETURNS

5 AND SURVIVING SPOUSES.—The table contained in sec6 tion 1(a) is amended to read as follows: 

‘‘If taxable income is: The tax is: 

Not over $75,000 .......................... 15% of taxable income. 

Over $75,000 but not over 

$140,000.

$11,250, plus 25% of the excess over 

$75,000. 

Over $140,000 ............................... $27,500, plus 35% of the excess over 

$140,000’’. 

7 (b) HEADS OF HOUSEHOLDS.—The table contained 

8 in section 1(b) is amended to read as follows: 

‘‘If taxable income is: The tax is: 

Not over $56,250 .......................... 15% of taxable income. 

Over $56,250 but not over 

$105,000.

$8,437.50, plus 25% of the excess 

over $56,250. 

Over $105,000 ............................... $20,625, plus 35% of the excess over 

$105,000’’. 

9 (c) UNMARRIED INDIVIDUALS (OTHER THAN SUR10 VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—The 

11 table contained in section 1(c) is amended to read as fol12 lows: 

‘‘If taxable income is: The tax is: 

Not over $37,500 .......................... 15% of taxable income. 

Over $37,500 but not over 

$70,000.

$5,625, plus 25% of the excess over 

$37,500. 

Over $70,000 ................................. $13,750, plus 35% of the excess over 

$70,000’’. 

13 (d) MARRIED INDIVIDUALS FILING SEPARATE RE14 TURNS.—The table contained in section 1(d) is amended 

15 to read as follows: 

‘‘If taxable income is: The tax is: 

Not over $37,500 .......................... 15% of taxable income. 


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‘‘If taxable income is: The tax is: 

Over $37,500 but not over 

$70,000.

$5,625, plus 25% of the excess over 

$37,500. 

Over $70,000 ................................. $13,750, plus 35% of the excess over 

$70,000’’. 

1 (e) CONFORMING AMENDMENTS TO INFLATION AD2 JUSTMENT.—Section 1(f) is amended— 

3 (1) by striking ‘‘1993’’ in paragraph (1) and in4 serting ‘‘2011’’, 

5 (2) by striking ‘‘except as provided in para6 graph (8)’’ in paragraph (2)(A), 

7 (3) by striking ‘‘1992’’ in paragraph (3)(B) and 

8 inserting ‘‘2010’’, 

9 (4) by striking paragraphs (7) and (8), and 

10 (5) by striking ‘‘PHASEOUT OF MARRIAGE PEN11 ALTY IN 15-PERCENT BRACKET;’’ in the heading 

12 thereof. 

13 (f) ADDITIONAL CONFORMING AMENDMENTS.— 

14 (1) Section 1 is amended by striking subsection 

15 (i). 

16 (2) The Internal Revenue Code of 1986 is 

17 amended by striking ‘‘calendar year 1992’’ each 

18 place it appears and inserting ‘‘calendar year 2010’’. 

19 (g) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2010. 


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1 SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION. 

2 (a) IN GENERAL.—Paragraph (2) of section 63(c) 

3 (defining standard deduction) is amended to read as fol4 lows: 

5 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur6 poses of paragraph (1), the basic standard deduction 

7 is— 

8 ‘‘(A) 200 percent of the dollar amount in 

9 effect under subparagraph (C) for the taxable 

10 year in the case of— 

11 ‘‘(i) a joint return, or 

12 ‘‘(ii) a surviving spouse (as defined in 

13 section 2(a)), 

14 ‘‘(B) $22,500 in the case of a head of 

15 household (as defined in section 2(b)), or 

16 ‘‘(C) $15,000 in any other case, reduced 

17 by any deduction allowed under section 

18 62(a)(22) for such taxable year.’’. 

19 (b) CONFORMING AMENDMENT TO INFLATION AD20 JUSTMENT.—Section 63(c)(4)(B)(i) is amended by strik21 ing ‘‘(2)(B), (2)(C), or’’. 

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

23 this section shall apply to taxable years beginning after 

24 December 31, 2010. 


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1 SEC. 103. PERMANENT EXTENSION OF EXPANSION OF 

2 EARNED INCOME CREDIT. 

3 (a) REPEAL OF EGTRRA SUNSET.—Title IX of the 

4 Economic Growth and Tax Relief Reconciliation Act of 

5 2001 (relating to sunset of provisions of such Act) shall 

6 not apply to section 303 of such Act (relating to earned 

7 income tax credit). 

8 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

9 taxable years beginning after December 31, 2010. 

10 SEC. 104. PERMANENT EXTENSION OF EXPANSION OF DE11 PENDENT CARE CREDIT. 

12 (a) REPEAL OF EGTRRA SUNSET.—Title IX of the 

13 Economic Growth and Tax Relief Reconciliation Act of 

14 2001 (relating to sunset of provisions of such Act) shall 

15 not apply to section 204 of such Act (relating to dependent 

16 care credit). 

17 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

18 taxable years beginning after December 31, 2010. 

19 SEC. 105. PERMANENT EXTENSION OF CHILD TAX CREDIT. 

20 (a) REPEAL OF EGTRRA SUNSET.—Title IX of the 

21 Economic Growth and Tax Relief Reconciliation Act of 

22 2001 (relating to sunset of provisions of such Act) shall 

23 not apply to section 201 (relating to modifications to child 

24 tax credit) and 203 (relating to refunds disregarded in the 

25 administration of federal programs and federally assisted 

26 programs) of such Act. 


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1 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

2 taxable years beginning after December 31, 2010. 

3 SEC. 106. PERMANENT REPEAL OF LIMITATIONS ON PER4 SONAL EXEMPTIONS AND ITEMIZED DEDUC5 TIONS. 

6 (a) REPEAL OF EGTRRA SUNSET.—Title IX of the 

7 Economic Growth and Tax Relief Reconciliation Act of 

8 2001 (relating to sunset of provisions of such Act) shall 

9 not apply to section 102 (relating to repeal of phaseout 

10 of personal exemptions) and 103 (relating to phaseout of 

11 overall limitation on itemized deductions) of such Act. 

12 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

13 taxable years beginning after December 31, 2010. 

14 SEC. 107. ELIMINATION OF INDIVIDUAL MISCELLANEOUS 

15 ITEMIZED DEDUCTIONS. 

16 (a) IN GENERAL.—Subsection (a) of section 67 is 

17 amended to read as follows: 

18 ‘‘(a) GENERAL RULE.—In the case of an individual, 

19 miscellaneous deductions shall not be allowed for any tax20 able year beginning after December 31, 2010.’’. 

21 (b) CONFORMING AMENDMENTS.— 

22 (1) The heading for section 67 is amended by 

23 striking ‘‘2-PERCENT FLOOR ON’’ and inserting 

24 ‘‘TREATMENT OF’’. 


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1 (2) The item relating to section 67 in the table 

2 of sections for part I of subchapter B of chapter 1 

3 is amended by striking ‘‘2-percent floor on’’ and in4 serting ‘‘Treatment of’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2010. 

8 SEC. 108. TREATMENT OF CAPITAL GAINS. 

9 (a) PARTIAL EXCLUSION.—Part III of subchapter B 

10 of chapter 1 (relating to items specifically excluded from 

11 gross income) is amended by inserting after section 139B 

12 the following new section: 

13 ‘‘SEC. 139C. CAPITAL GAINS PARTIAL EXCLUSION. 

14 ‘‘For any taxable year, gross income shall not in15 clude— 

16 ‘‘(1) 35 percent of so much of any gain from 

17 the sale or exchange during such taxable year of 

18 capital assets held for more than 6 months but not 

19 more than 1 year as does not exceed $500,000, plus 

20 ‘‘(2) 35 percent of any long-term capital gain 

21 for such taxable year (determined after the applica22 tion of section 1202).’’. 

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

24 for part III of subchapter B of chapter 1 is amended by 


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1 inserting after the item relating to section 139B the fol2 lowing new item: 

‘‘Sec. 139C. Capital gains partial exclusion.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2010. 

6 SEC. 109. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED 

7 BY INDIVIDUALS. 

8 (a) GENERAL RULE.—Part III of subchapter B of 

9 chapter 1 is amended by inserting after section 115 the 

10 following new section: 

11 ‘‘SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED 

12 BY INDIVIDUALS. 

13 ‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in14 come does not include 35 percent of the qualified dividend 

15 income received during the taxable year by an individual. 

16 ‘‘(b) QUALIFIED DIVIDEND INCOME.—For purposes 

17 of this subsection— 

18 ‘‘(1) IN GENERAL.—The term ‘qualified divi19 dend income’ means dividends received with respect 

20 to any share of stock of— 

21 ‘‘(A) any domestic corporation, or 

22 ‘‘(B) any foreign corporation but only if 

23 such share of stock is readily tradable on an es24 tablished securities market. 


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1 ‘‘(2) CERTAIN DIVIDENDS EXCLUDED.—Such 

2 term shall not include— 

3 ‘‘(A) any dividend from a corporation 

4 which for the taxable year of the corporation in 

5 which the distribution is made, or the preceding 

6 taxable year, is a corporation exempt from tax 

7 under section 501 or 521, 

8 ‘‘(B) any amount allowed as a deduction 

9 under section 591 (relating to deduction for 

10 dividends paid by mutual savings banks, etc.), 

11 and 

12 ‘‘(C) any dividend described in section 

13 404(k). 

14 ‘‘(3) EXCLUSION OF DIVIDENDS OF CERTAIN

15 FOREIGN CORPORATIONS.—Such term shall not in16 clude any dividend from a foreign corporation which 

17 for the taxable year of the corporation in which the 

18 distribution was made, or the preceding taxable 

19 year, is a foreign personal holding company (as de20 fined in section 552), a foreign investment company 

21 (as defined in section 1246(b)), or a passive foreign 

22 investment company (as defined in section 1297). 

23 ‘‘(4) COORDINATION WITH SECTION 246(c).— 

24 Such term shall not include any dividend on any 

25 share of stock— 


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1 ‘‘(A) with respect to which the holding pe2 riod requirements of section 246(c) are not met, 

3 or 

4 ‘‘(B) to the extent that the taxpayer is 

5 under an obligation (whether pursuant to a 

6 short sale or otherwise) to make related pay7 ments with respect to positions in substantially 

8 similar or related property. 

9 ‘‘(c) SPECIAL RULES.— 

10 ‘‘(1) AMOUNTS TAKEN INTO ACCOUNT AS IN11 VESTMENT INCOME.—Qualified dividend income 

12 shall not include any amount which the taxpayer 

13 takes into account as investment income under sec14 tion 163(d)(4)(B). 

15 ‘‘(2) COORDINATION WITH FOREIGN TAX CRED16 IT AND DEDUCTION.—No credit shall be allowed 

17 under section 901, and no deduction shall be allowed 

18 under this chapter, for any taxes paid or accrued 

19 with respect to any income excludable under this 

20 section. 

21 ‘‘(3) EXTRAORDINARY DIVIDENDS.—If an indi22 vidual receives, with respect to any share of stock, 

23 qualified dividend income from 1 or more dividends 

24 which are extraordinary dividends (within the mean25 ing of section 1059(c)), any loss on the sale or exVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 change of such share shall, to the extent of such 

2 dividends, be treated as long-term capital loss. 

3 ‘‘(4) CERTAIN NONRESIDENT ALIENS INELI4 GIBLE FOR EXCLUSION.—In the case of a non5 resident alien individual, subsection (a) shall apply 

6 only in determining the tax imposed for the taxable 

7 year by sections 871(b)(1) and 877(b). 

8 ‘‘(5) EXCLUSION DISREGARDED IN DETER9 MINING INCOME FOR CERTAIN PURPOSES.—Sub10 section (a) shall not apply for purposes of deter11 mining amounts of income under sections 32(i), 

12 86(b), 135(b), 137(b), 219(g), 221(b), 222(b), 

13 408A(c)(3), 469(i), and 530(c), or subpart A of part 

14 IV of subchapter A. 

15 ‘‘(6) TREATMENT OF DIVIDENDS FROM REGU16 LATED INVESTMENT COMPANIES AND REAL ESTATE

17 INVESTMENT TRUSTS.—A dividend from a regulated 

18 investment company or real estate investment trust 

19 shall be subject to the limitations prescribed in sec20 tions 854 and 857.’’. 

21 (b) EXCLUSION OF DIVIDENDS FROM INVESTMENT

22 INCOME.—Subparagraph (B) of section 163(d)(4) (defin23 ing net investment income) is amended by adding at the 

24 end the following flush sentence: 


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1 ‘‘Such term shall include qualified dividend income 

2 (as defined in section 116(b)) only to the extent the tax3 payer elects to treat such income as investment income 

4 for purposes of this subsection.’’. 

5 (c) TREATMENT OF DIVIDENDS FROM REGULATED

6 INVESTMENT COMPANIES.— 

7 (1) Subsection (a) of section 854 (relating to 

8 dividends received from regulated investment compa9 nies) is amended by inserting ‘‘section 116 (relating 

10 to partial exclusion of dividends received by individ11 uals) and’’ after ‘‘For purposes of’’. 

12 (2) Paragraph (1) of section 854(b) (relating to 

13 other dividends) is amended by redesignating sub14 paragraph (B) as subparagraph (C) and by inserting 

15 after subparagraph (A) the following new subpara16 graph: 

17 ‘‘(B) EXCLUSION UNDER SECTION 116.— 

18 ‘‘(i) IN GENERAL.—If the aggregate 

19 dividends received by a regulated invest20 ment company during any taxable year are 

21 less than 95 percent of its gross income, 

22 then, in computing the exclusion under 

23 section 116, rules similar to the rules of 

24 subparagraph (A) shall apply. 


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1 ‘‘(ii) GROSS INCOME.—For purposes 

2 of clause (i), in the case of 1 or more sales 

3 or other dispositions of stock or securities, 

4 the term ‘gross income’ includes only the 

5 excess of— 

6 ‘‘(I) the net short-term capital 

7 gain from such sales or dispositions, 

8 over 

9 ‘‘(II) the net long-term capital 

10 loss from such sales or dispositions.’’. 

11 (3) Subparagraph (C) of section 854(b)(1), as 

12 redesignated by paragraph (2), is amended by strik13 ing ‘‘subparagraph (A)’’ and inserting ‘‘subpara14 graph (A) or (B)’’. 

15 (4) Paragraph (2) of section 854(b) is amended 

16 by inserting ‘‘the exclusion under section 116 and’’ 

17 after ‘‘for purposes of’’. 

18 (5) Subsection (b) of section 854 is amended by 

19 adding at the end the following new paragraph: 

20 ‘‘(5) COORDINATION WITH SECTION 116.—For 

21 purposes of paragraph (1)(B), an amount shall be 

22 treated as a dividend only if the amount is qualified 

23 dividend income (within the meaning of section 

24 116(b)).’’. 


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1 (d) TREATMENT OF DIVIDENDS RECEIVED FROM

2 REAL ESTATE INVESTMENT TRUSTS.—Section 857(c) 

3 (relating to restrictions applicable to dividends received 

4 from real estate investment trusts) is amended to read as 

5 follows: 

6 ‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE7 CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.— 

8 ‘‘(1) SECTION 243.—For purposes of section 

9 243 (relating to deductions for dividends received by 

10 corporations), a dividend received from a real estate 

11 investment trust which meets the requirements of 

12 this part shall not be considered a dividend. 

13 ‘‘(2) SECTION 116.—For purposes of section 

14 116 (relating to exclusion of dividends), rules similar 

15 to the rules of section 854(b)(1)(B) shall apply to 

16 dividends received from a real estate trust which 

17 meets the requirements of this part.’’. 

18 (e) CONFORMING AMENDMENTS.— 

19 (1) Subsection (f) of section 301 is amended 

20 adding at the end the following new paragraph: 

21 ‘‘(4) For partial exclusion from gross income of 

22 dividends received by individuals, see section 116.’’. 

23 (2) Paragraph (1) of section 306(a) is amended 

24 by adding at the end the following new subpara25 graph: 


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1 ‘‘(D) TREATMENT AS DIVIDEND.—For 

2 purposes of section 116, any amount treated as 

3 ordinary income under this paragraph shall be 

4 treated as a dividend received from the corpora5 tion.’’. 

6 (3)(A) Subpart C of part II of subchapter C of 

7 chapter 1 (relating to collapsible corporations) is re8 pealed. 

9 (B)(i) Section 338(h) is amended by striking 

10 paragraph (14). 

11 (ii) Sections 467(c)(5)(C), 1255(b)(2), and 

12 1257(d) are each amended by striking ‘‘, 

13 341(e)(12),’’. 

14 (iii) The table of subparts for part II of sub15 chapter C of chapter 1 is amended by striking the 

16 item related to subpart C. 

17 (4) Section 531(a) is amended by inserting ‘‘90 

18 percent (80 percent in the case of taxable years be19 ginning after 2007) of’’ after ‘‘equal to’’. 

20 (5) Section 541(a) is amended by inserting ‘‘90 

21 percent (80 percent in the case of taxable years be22 ginning after 2007) of’’ after ‘‘equal to’’. 

23 (6) Section 584(c) is amended by adding at the 

24 end the following new flush sentence: 


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1 ‘‘The proportionate share of each participant in the 

2 amount of dividends received by the common trust fund 

3 and to which section 116 applies shall be considered for 

4 purposes of such paragraph as having been received by 

5 such participant.’’. 

6 (7) Section 643(a) is amended by redesignating 

7 paragraph (7) as paragraph (8) and by inserting 

8 after paragraph (6) the following new paragraph: 

9 ‘‘(7) EXCLUDED DIVIDENDS.—There shall be 

10 included the amount of any dividends excluded from 

11 gross income under section 116 (relating to partial 

12 exclusion of dividends).’’. 

13 (8) Paragraph (5) of section 702(a) is amended 

14 to read as follows: 

15 ‘‘(5) dividends with respect to which section 

16 116 or part VII of subchapter B applies,’’. 

17 (f) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2010. 

20 SEC. 110. NONREFUNDABLE PERSONAL CREDIT FOR INTER21 EST ON STATE AND LOCAL BONDS. 

22 (a) IN GENERAL.—Subpart A of part IV of sub23 chapter A of chapter 1 is amended by adding at the end 

24 the following new section: 


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1 ‘‘SEC. 25E. INTEREST ON STATE AND LOCAL BONDS. 

2 ‘‘(a) IN GENERAL.—If a taxpayer other than a cor3 poration holds a State or local bond on one or more inter4 est payment dates of the bond during any taxable year, 

5 there shall be allowed as a credit against the tax imposed 

6 by this chapter for the taxable year an amount equal to 

7 the sum of the credits determined under subsection (b) 

8 with respect to such dates. 

9 ‘‘(b) AMOUNT OF CREDIT.—The amount of the credit 

10 determined under this subsection with respect to any in11 terest payment date for a State or local bond is 25 percent 

12 of the amount of interest payable by the issuer with re13 spect to such date. 

14 ‘‘(c) STATE OR LOCAL BOND.— 

15 ‘‘(1) IN GENERAL.—For purposes of this sec16 tion, the term ‘State or local bond’ means any bond 

17 issued as part of an issue if the interest on such 

18 bond would (but for this section) be excludable from 

19 gross income under section 103. 

20 ‘‘(2) APPLICABLE RULES.—For purposes of ap21 plying paragraph (1)— 

22 ‘‘(A) for purposes of section 149(b), a 

23 State or local bond shall not be treated as fed24 erally guaranteed by reason of the credit al25 lowed under subsection (a), and 


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1 ‘‘(B) for purposes of section 148, the yield 

2 on a State or local bond shall be determined 

3 without regard to the credit allowed under sub4 section (a). 

5 ‘‘(d) INTEREST PAYMENT DATE.—For purposes of 

6 this section, the term ‘interest payment date’ means any 

7 date on which the holder of record of the State or local 

8 bond is entitled to a payment of interest under such bond. 

9 ‘‘(e) SPECIAL RULES.— 

10 ‘‘(1) INTEREST ON STATE OR LOCAL BONDS IN11 CLUDIBLE IN GROSS INCOME FOR FEDERAL INCOME

12 TAX PURPOSES.—For purposes of this title, interest 

13 on any State or local bond shall be includible in 

14 gross income. 

15 ‘‘(2) APPLICATION OF CERTAIN RULES.—Rules 

16 similar to the rules of subsections (f), (g), (h), and 

17 (i) of section 54A shall apply for purposes of the 

18 credit allowed under subsection (a). 

19 ‘‘(f) REGULATIONS.—The Secretary may prescribe 

20 such regulations and other guidance as may be necessary 

21 or appropriate to carry out this section.’’. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) Section 103(b) is amended by adding at the 

24 end the following new paragraph: 


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1 ‘‘(4) INTEREST FOR WHICH CREDIT IS ALLOW2 ABLE.—The interest on any State or local bond for 

3 which a credit under seciton 25E is allowable.’’. 

4 (2) The table of sections for subpart A of part 

5 IV of subchapter A of chapter 1 is amended by add6 ing at the end the following new item: 

‘‘Sec. 25E. Interest on State and local bonds.’’. 

7 (c) TRANSITIONAL COORDINATION WITH STATE

8 LAW.—Except as otherwise provided by a State after the 

9 date of the enactment of this Act, the interest on any 

10 State or local bond (as defined in section 25E of the Inter11 nal Revenue Code of 1986, as added by this section) and 

12 the amount of any credit determined under such section 

13 with respect to such bond shall be treated for purposes 

14 of the income tax laws of such State as being exempt from 

15 Federal income tax. 

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

17 this section shall apply to obligations issued after Decem18 ber 31, 2010. 

19 SEC. 111. RETIREMENT SAVINGS ACCOUNTS. 

20 (a) IN GENERAL.—Section 408A (relating to Roth 

21 IRAs) is amended to read as follows: 

22 ‘‘SEC. 408A. RETIREMENT SAVINGS ACCOUNTS. 

23 ‘‘(a) IN GENERAL.—Except as provided in this sec24 tion, a retirement savings account shall be treated for purVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00022 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 poses of this title in the same manner as an individual 

2 retirement plan. 

3 ‘‘(b) RETIREMENT SAVINGS ACCOUNT.—For pur4 poses of this title, the term ‘retirement savings account’ 

5 means an individual retirement plan (as defined in section 

6 7701(a)(37)) which— 

7 ‘‘(1) is designated (in such manner as the Sec8 retary may prescribe) at the time of establishment 

9 of the plan as a retirement savings account, and 

10 ‘‘(2) does not accept any contribution (other 

11 than a qualified rollover contribution) which is not 

12 in cash. 

13 ‘‘(c) TREATMENT OF CONTRIBUTIONS.— 

14 ‘‘(1) CONTRIBUTION LIMIT.—Notwithstanding 

15 subsections (a)(1) and (b)(2)(A) of section 408, the 

16 aggregate amount of contributions for any taxable 

17 year to all retirement savings accounts maintained 

18 for the benefit of an individual shall not exceed the 

19 lesser of— 

20 ‘‘(A) $5,000, or 

21 ‘‘(B) the amount of compensation includ22 ible in the individual’s gross income for such 

23 taxable year. 

24 ‘‘(2) SPECIAL RULE FOR CERTAIN MARRIED IN25 DIVIDUALS.—In the case of any individual who files 


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•S 3018 IS

1 a joint return for the taxable year, the amount taken 

2 into account under paragraph (1)(B) shall be in3 creased by the excess (if any) of— 

4 ‘‘(A) the compensation includible in the 

5 gross income of such individual’s spouse for the 

6 taxable year, over 

7 ‘‘(B) the aggregate amount of contribu8 tions for the taxable year to all retirement sav9 ings accounts maintained for the benefit of such 

10 spouse. 

11 ‘‘(3) CONTRIBUTIONS PERMITTED AFTER AGE

701 12 ⁄2.—Contributions to a retirement savings ac13 count may be made even after the individual for 

14 whom the account is maintained has attained age 

701 15 ⁄2. 

16 ‘‘(4) MANDATORY DISTRIBUTION RULES NOT

17 TO APPLY BEFORE DEATH.—Notwithstanding sub18 sections (a)(6) and (b)(3) of section 408 (relating to 

19 required distributions), the following provisions shall 

20 not apply to any retirement savings account: 

21 ‘‘(A) Section 401(a)(9)(A). 

22 ‘‘(B) The incidental death benefit require23 ments of section 401(a). 

24 ‘‘(5) ROLLOVER CONTRIBUTIONS.— 


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1 ‘‘(A) IN GENERAL.—No rollover contribu2 tion may be made to a retirement savings ac3 count unless it is a qualified rollover contribu4 tion. 

5 ‘‘(B) COORDINATION WITH LIMIT.—A 

6 qualified rollover contribution shall not be taken 

7 into account for purposes of paragraph (1). 

8 ‘‘(6) ROLLOVERS FROM PLANS WITH TAXABLE

9 DISTRIBUTIONS.— 

10 ‘‘(A) IN GENERAL.—Notwithstanding sec11 tions 402(c), 403(a)(4), 403(b)(8), 408(d)(3), 

12 and 457(e)(16), in the case of any contribution 

13 to which this paragraph applies— 

14 ‘‘(i) there shall be included in gross 

15 income any amount which would be includ16 ible were it not part of a qualified rollover 

17 contribution, 

18 ‘‘(ii) section 72(t) shall not apply, and 

19 ‘‘(iii) unless the taxpayer elects not to 

20 have this clause apply for any taxable year, 

21 any amount required to be included in 

22 gross income for such taxable year by rea23 son of this paragraph for any contribution 

24 before January 1, 2011, shall be so inVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00025 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 cluded ratably over the 4-taxable year pe2 riod beginning with such taxable year. 

3 Any election under clause (iii) for any contribu4 tions during a taxable year may not be changed 

5 after the due date (including extensions of 

6 time) for filing the taxpayer’s return for such 

7 taxable year. 

8 ‘‘(B) CONTRIBUTIONS TO WHICH PARA9 GRAPH APPLIES.—This paragraph shall apply 

10 to any qualified rollover contribution to a retire11 ment savings account (other than a rollover 

12 contribution from another such account). 

13 ‘‘(C) CONVERSIONS OF IRAS.—The conver14 sion of an individual retirement plan (other 

15 than a retirement savings account) to a retire16 ment savings account shall be treated for pur17 poses of this paragraph as a contribution to 

18 which this paragraph applies. 

19 ‘‘(D) ADDITIONAL REPORTING REQUIRE20 MENTS.—Trustees and plan administrators of 

21 eligible retirement plans (as defined in section 

22 402(c)(8)(B)) and retirement savings accounts 

23 shall report such information as the Secretary 

24 may require to ensure that amounts required to 

25 be included in gross income under subparaVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00026 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 graph (A) are so included. Such reports shall be 

2 made at such time and in such form and man3 ner as the Secretary may require. The Sec4 retary may provide that such information be in5 cluded as additional information in reports re6 quired under section 408(i) or 6047. 

7 ‘‘(E) SPECIAL RULES FOR CONTRIBUTIONS

8 TO WHICH A 4-YEAR AVERAGING APPLIES.—In 

9 the case of a qualified rollover contribution to 

10 which subparagraph (A)(iii) applied, the fol11 lowing rules shall apply: 

12 ‘‘(i) ACCELERATION OF INCLUSION.— 

13 ‘‘(I) IN GENERAL.—The amount 

14 required to be included in gross in15 come for each of the first 3 taxable 

16 years in the 4-year period under sub17 paragraph (A)(iii) shall be increased 

18 by the aggregate distributions from 

19 retirement savings accounts for such 

20 taxable year which are allocable under 

21 subsection (d)(3) to the portion of 

22 such qualified rollover contribution re23 quired to be included in gross income 

24 under subparagraph (A)(i). 


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1 ‘‘(II) LIMITATION ON AGGRE2 GATE AMOUNT INCLUDED.—The 

3 amount required to be included in 

4 gross income for any taxable year 

5 under subparagraph (A)(iii) shall not 

6 exceed the aggregate amount required 

7 to be included in gross income under 

8 subparagraph (A)(iii) for all taxable 

9 years in the 4-year period (without re10 gard to subclause (I)) reduced by 

11 amounts included for all preceding 

12 taxable years. 

13 ‘‘(ii) DEATH OF DISTRIBUTEE.— 

14 ‘‘(I) IN GENERAL.—If the indi15 vidual required to include amounts in 

16 gross income under such subpara17 graph dies before all of such amounts 

18 are included, all remaining amounts 

19 shall be included in gross income for 

20 the taxable year which includes the 

21 date of death. 

22 ‘‘(II) SPECIAL RULE FOR SUR23 VIVING SPOUSE.—If the spouse of the 

24 individual described in subclause (I) 

25 acquires the individual’s entire interVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 est in any retirement savings account 

2 to which such qualified rollover con3 tribution is properly allocable, the 

4 spouse may elect to treat the remain5 ing amounts described in subclause 

6 (I) as includible in the spouse’s gross 

7 income in the taxable years of the 

8 spouse ending with or within the tax9 able years of such individual in which 

10 such amounts would otherwise have 

11 been includible. Any such election may 

12 not be made or changed after the due 

13 date (including extensions of time) for 

14 filing the spouse’s return for the tax15 able year which includes the date of 

16 death. 

17 ‘‘(F) 5-YEAR HOLDING PERIOD RULES.— 

18 If— 

19 ‘‘(i) any portion of a distribution from 

20 a retirement savings account is properly al21 locable to a qualified rollover contribution 

22 with respect to which an amount is includ23 ible in gross income under subparagraph 

24 (A)(i), 


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•S 3018 IS

1 ‘‘(ii) such distribution is made during 

2 the 5-taxable year period beginning with 

3 the taxable year for which such contribu4 tion was made, and 

5 ‘‘(iii) such distribution is not de6 scribed in clause (i), (ii), or (iii) of sub7 section (d)(2)(A), 

8 then section 72(t) shall be applied as if such 

9 portion were includible in gross income. 

10 ‘‘(7) TIME WHEN CONTRIBUTIONS MADE.—For 

11 purposes of this section, a taxpayer shall be deemed 

12 to have made a contribution to a retirement savings 

13 account on the last day of the preceding taxable year 

14 if the contribution is made on account of such tax15 able year and is made not later than the time pre16 scribed by law for filing the return for such taxable 

17 year (not including extensions thereof). 

18 ‘‘(8) COST-OF-LIVING ADJUSTMENT.— 

19 ‘‘(A) IN GENERAL.—In the case of any 

20 taxable year beginning in a calendar year after 

21 2011, the $5,000 amount under paragraph 

22 (1)(A) shall be increased by an amount equal 

23 to— 

24 ‘‘(i) such dollar amount, multiplied by 


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1 ‘‘(ii) the cost-of-living adjustment de2 termined under section 1(f)(3) for the cal3 endar year in which the taxable year be4 gins, determined by substituting ‘calendar 

5 year 2010’ for ‘calendar year 1992’ in sub6 paragraph (B) thereof. 

7 ‘‘(B) ROUNDING RULES.—If any amount 

8 after adjustment under subparagraph (A) is not 

9 a multiple of $500, such amount shall be 

10 rounded to the next lower multiple of $500. 

11 ‘‘(d) DISTRIBUTION RULES.—For purposes of this 

12 title— 

13 ‘‘(1) EXCLUSION.—Any qualified distribution 

14 from a retirement savings account shall not be in15 cludible in gross income. 

16 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes 

17 of this subsection— 

18 ‘‘(A) IN GENERAL.—The term ‘qualified 

19 distribution’ means any payment or distribu20 tion— 

21 ‘‘(i) made on or after the date on 

22 which the individual attains age 58, 

23 ‘‘(ii) made to a beneficiary (or to the 

24 estate of the individual) on or after the 

25 death of the individual, 


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1 ‘‘(iii) attributable to the individual’s 

2 being disabled (within the meaning of sec3 tion 72(m)(7)), or 

4 ‘‘(iv) to which section 72(t)(2)(F) ap5 plies (if such payment or distribution is 

6 made before January 1, 2014). 

7 ‘‘(B) DISTRIBUTIONS OF EXCESS CON8 TRIBUTIONS AND EARNINGS.—The term ‘quali9 fied distribution’ shall not include any distribu10 tion of any contribution described in section 

11 408(d)(4) and any net income allocable to the 

12 contribution. 

13 ‘‘(3) ORDERING RULES.—For purposes of ap14 plying this section and section 72 to any distribution 

15 from a retirement savings account, such distribution 

16 shall be treated as made— 

17 ‘‘(A) from contributions to the extent that 

18 the amount of such distribution, when added to 

19 all previous distributions from the retirement 

20 savings account, does not exceed the aggregate 

21 contributions to the retirement savings account, 

22 and 

23 ‘‘(B) from such contributions in the fol24 lowing order: 


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1 ‘‘(i) Contributions other than qualified 

2 rollover contributions with respect to which 

3 an amount is includible in gross income 

4 under subsection (c)(6)(A)(i). 

5 ‘‘(ii) Qualified rollover contributions 

6 with respect to which an amount is includ7 ible in gross income under subsection 

8 (c)(6)(A)(i) on a first-in, first-out basis. 

9 Any distribution allocated to a qualified rollover con10 tribution under subparagraph (B)(ii) shall be allo11 cated first to the portion of such contribution re12 quired to be included in gross income. 

13 ‘‘(4) AGGREGATION RULES.—Section 408(d)(2) 

14 shall be applied separately with respect to retirement 

15 savings accounts and other individual retirement 

16 plans. 

17 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.— 

18 ‘‘(1) IN GENERAL.—For purposes of this sec19 tion, the term ‘qualified rollover contribution’ 

20 means— 

21 ‘‘(A) a rollover contribution to a retirement 

22 savings account of an individual from another 

23 such account of such individual or such individ24 ual’s spouse, or from an individual retirement 

25 plan of such individual, but only if such rollover 


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•S 3018 IS

1 contribution meets the requirements of section 

2 408(d)(3), and 

3 ‘‘(B) a rollover contribution described in 

4 section 402(c), 402A(c)(3)(A), 403(a)(4), 

5 403(b)(8), or 457(e)(16). 

6 ‘‘(2) COORDINATION WITH LIMITATION ON IRA

7 ROLLOVERS.—For purposes of section 408(d)(3)(B), 

8 there shall be disregarded any qualified rollover con9 tribution from an individual retirement plan (other 

10 than a retirement savings account) to a retirement 

11 savings account. 

12 ‘‘(f) INDIVIDUAL RETIREMENT PLAN.—For purposes 

13 of this section— 

14 ‘‘(1) a simplified employee pension or a simple 

15 retirement account may not be designated as a re16 tirement savings account, and 

17 ‘‘(2) contributions to any such pension or ac18 count shall not be taken into account for purposes 

19 of subsection (c)(1). 

20 ‘‘(g) COMPENSATION.—For purposes of this section, 

21 the term ‘compensation’ includes earned income (as de22 fined in section 401(c)(2)). Such term does not include 

23 any amount received as a pension or annuity and does not 

24 include any amount received as deferred compensation. 

25 Such term shall include any amount includible in the indiVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00034 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 vidual’s gross income under section 71 with respect to a 

2 divorce or separation instrument described in section 

3 71(b)(2)(A). For purposes of this subsection, section 

4 401(c)(2) shall be applied as if the term trade or business 

5 for purposes of section 1402 included service described in 

6 section 1402(c)(6).’’. 

7 (b) ROTH IRAS TREATED AS RETIREMENT SAVINGS

8 ACCOUNTS.—In the case of any taxable year beginning 

9 after December 31, 2010, any Roth IRA (as defined in 

10 section 408A(b) of the Internal Revenue Code of 1986, 

11 as in effect on the day before the date of the enactment 

12 of this Act) shall be treated for purposes of such Code 

13 as having been designated at the time of the establishment 

14 of the plan as a retirement savings account under section 

15 408A(b) of such Code (as amended by this section). 

16 (c) CONTRIBUTIONS TO OTHER INDIVIDUAL RETIRE17 MENT PLANS PROHIBITED.— 

18 (1) INDIVIDUAL RETIREMENT ACCOUNTS.— 

19 Paragraph (1) of section 408(a) is amended to read 

20 as follows: 

21 ‘‘(1) Except in the case of a simplified employee 

22 pension, a simple retirement account, or a rollover 

23 contribution described in subsection (d)(3) or in sec24 tion 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no 

25 contribution will be accepted on behalf of any indiVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00035 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 vidual for any taxable year beginning after Decem2 ber 31, 2010. In the case of any simplified employee 

3 pension or simple retirement account, no contribu4 tion will be accepted unless it is in cash and con5 tributions will not be accepted for the taxable year 

6 on behalf of any individual in excess of— 

7 ‘‘(A) in the case of a simplified employee 

8 pension, the amount of the limitation in effect 

9 under section 415(c)(1)(A), and 

10 ‘‘(B) in the case of a simple retirement ac11 count, the sum of the dollar amount in effect 

12 under subsection (p)(2)(A)(ii) and the employer 

13 contribution required under subparagraph 

14 (A)(iii) or (B)(i) of subsection (p)(2).’’. 

15 (2) INDIVIDUAL RETIREMENT ANNUITIES.— 

16 Paragraph (2) of section 408(b) is amended— 

17 (A) by redesignating subparagraphs (A), 

18 (B), and (C) as subparagraphs (B), (C), and 

19 (D), respectively, and by inserting before sub20 paragraph (B), as so redesignated, the following 

21 new subparagraph: 

22 ‘‘(A) except in the case of a simplified em23 ployee pension, a simple retirement account, or 

24 a rollover contribution described in subsection 

25 (d)(3) or in section 402(c), 403(a)(4), 


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•S 3018 IS

1 403(b)(8), or 457(e)(16), a premium shall not 

2 be accepted on behalf of any individual for any 

3 taxable year beginning after December 31, 

4 2010,’’, and 

5 (B) by amending subparagraph (C), as re6 designated by subparagraph (A), to read as fol7 lows: 

8 ‘‘(C) the annual premium on behalf of any 

9 individual will not exceed— 

10 ‘‘(i) in the case of a simplified em11 ployee pension, the amount of the limita12 tion in effect under section 415(c)(1)(A), 

13 and 

14 ‘‘(ii) in the case of a simple retire15 ment account, the sum of the dollar 

16 amount in effect under subsection 

17 (p)(2)(A)(ii) and the employer contribution 

18 required under subparagraph (A)(iii) or 

19 (B)(i) of subsection (p)(2), and’’. 

20 (d) CONFORMING AMENDMENTS.— 

21 (1)(A) Section 219 is amended to read as fol22 lows: 


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•S 3018 IS

1 ‘‘SEC. 219. CONTRIBUTIONS TO CERTAIN RETIREMENT 

2 PLANS ALLOWING ONLY EMPLOYEE CON3 TRIBUTIONS. 

4 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an 

5 individual, there shall be allowed as a deduction the 

6 amount contributed on behalf of such individual to a plan 

7 described in section 501(c)(18). 

8 ‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The 

9 amount allowable as a deduction under subsection (a) to 

10 any individual for any taxable year shall not exceed the 

11 lesser of— 

12 ‘‘(1) $7,000, or 

13 ‘‘(2) an amount equal to 25 percent of the com14 pensation (as defined in section 415(c)(3)) includible 

15 in the individual’s gross income for such taxable 

16 year. 

‘‘(c) BENEFICIARY MUST BE UNDER AGE 701 17 ⁄2.— 

18 No deduction shall be allowed under this section with re19 spect to any contribution on behalf of an individual if such 

individual has attained age 701 20 ⁄2 before the close of such 

21 individual’s taxable year for which the contribution was 

22 made. 

23 ‘‘(d) SPECIAL RULES.— 

24 ‘‘(1) MARRIED INDIVIDUALS.—The maximum 

25 deduction under subsection (b) shall be computed 

26 separately for each individual, and this section shall 


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•S 3018 IS

1 be applied without regard to any community prop2 erty laws. 

3 ‘‘(2) REPORTS.—The Secretary shall prescribe 

4 regulations which prescribe the time and the manner 

5 in which reports to the Secretary and plan partici6 pants shall be made by the plan administrator of a 

7 qualified employer or government plan receiving 

8 qualified voluntary employee contributions. 

9 ‘‘(e) CROSS REFERENCE.—For failure to provide re10 quired reports, see section 6652(g).’’. 

11 (B) Section 25B(d) is amended— 

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

13 defined in section 219(e))’’, and 

14 (ii) by adding at the end the following new 

15 paragraph: 

16 ‘‘(3) QUALIFIED RETIREMENT CONTRIBU17 TION.—The term ‘qualified retirement contribution’ 

18 means— 

19 ‘‘(A) any amount paid in cash for the tax20 able year by or on behalf of an individual to an 

21 individual retirement plan for such individual’s 

22 benefit, and 

23 ‘‘(B) any amount contributed on behalf of 

24 any individual to a plan described in section 

25 501(c)(18).’’. 


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1 (C) Section 86(f)(3) is amended by striking 

2 ‘‘section 219(f)(1)’’ and inserting ‘‘section 408A(g)’’. 

3 (D) Section 132(m)(3) is amended by inserting 

4 ‘‘(as in effect on the day before the date of the en5 actment of the Retirement Savings Account Act)’’ 

6 after ‘‘section 219(g)(5)’’. 

7 (E) Subparagraphs (A), (B), and (C) of section 

8 220(d)(4) are each amended by inserting ‘‘, as in ef9 fect on the day before the date of the enactment of 

10 the Retirement Savings Account Act’’ at the end. 

11 (F) Section 408(b) is amended in the last sen12 tence by striking ‘‘section 219(b)(1)(A)’’ and insert13 ing ‘‘paragraph (2)(C)’’. 

14 (G) Section 408(p)(2)(D)(ii) is amended by in15 serting ‘‘(as in effect on the day before the date of 

16 the enactment of the Retirement Savings Account 

17 Act)’’ after ‘‘section 219(g)(5)’’. 

18 (H) Section 409A(d)(2) is amended by insert19 ing ‘‘(as in effect on the day before the date of the 

20 enactment of the Retirement Savings Account Act)’’ 

21 after ‘‘subparagraph (A)(iii))’’. 

22 (I) Section 501(c)(18)(D)(i) is amended by 

23 striking ‘‘section 219(b)(3)’’ and inserting ‘‘section 

24 219(b)’’. 


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1 (J) Section 6652(g) is amended by striking 

2 ‘‘section 219(f)(4)’’ and inserting ‘‘section 

3 219(d)(2)’’. 

4 (K) The table of sections for part VII of sub5 chapter B of chapter 1 is amended by striking the 

6 item relating to section 219 and inserting the fol7 lowing new item: 

‘‘Sec. 219. Contributions to certain retirement plans allowing only employee 

contributions.’’. 

8 (2)(A) Section 408(d)(4)(B) is amended to read 

9 as follows: 

10 ‘‘(B) no amount is excludable from gross 

11 income under subsection (h) or (k) of section 

12 402 with respect to such contribution, and’’. 

13 (B) Section 408(d)(5)(A) is amended to read as 

14 follows: 

15 ‘‘(A) IN GENERAL.—In the case of any in16 dividual, if the aggregate contributions (other 

17 than rollover contributions) paid for any taxable 

18 year to an individual retirement account or for 

19 an individual retirement annuity do not exceed 

20 the dollar amount in effect under subsection 

21 (a)(1) or (b)(2)(C), as the case may be, para22 graph (1) shall not apply to the distribution of 

23 any such contribution to the extent that such 

24 contribution exceeds the amount which is exVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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•S 3018 IS

1 cludable from gross income under subsection 

2 (h) or (k) of section 402, as the case may be, 

3 for the taxable year for which the contribution 

4 was paid— 

5 ‘‘(i) if such distribution is received 

6 after the date described in paragraph (4), 

7 ‘‘(ii) but only to the extent that such 

8 excess contribution has not been excluded 

9 from gross income under subsection (h) or 

10 (k) of section 402.’’. 

11 (C) Section 408(d)(5) is amended by striking 

12 the last sentence. 

13 (D) Section 408(d)(7) is amended to read as 

14 follows: 

15 ‘‘(7) CERTAIN TRANSFERS FROM SIMPLIFIED

16 EMPLOYEE PENSIONS PROHIBITED UNTIL DEFERRAL

17 TEST MET.—Notwithstanding any other provision of 

18 this subsection or section 72(t), paragraph (1) and 

19 section 72(t)(1) shall apply to the transfer or dis20 tribution from a simplified employee pension of any 

21 contribution under a salary reduction arrangement 

22 described in subsection (k)(6) (or any income allo23 cable thereto) before a determination as to whether 

24 the requirements of subsection (k)(6)(A)(iii) are met 

25 with respect to such contribution.’’. 


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1 (E) Section 408 is amended by striking sub2 section (j). 

3 (F)(i) Section 408 is amended by striking sub4 section (o). 

5 (ii) Section 6693 is amended by striking sub6 section (b) and by redesignating subsections (c) and 

7 (d) as subsections (b) and (c), respectively. 

8 (G) Section 408(p) is amended by striking 

9 paragraph (8) and by redesignating paragraphs (9) 

10 and (10) as paragraphs (8) and (9), respectively. 

11 (3)(A) Section 4973(a)(1) is amended to read 

12 as follows: 

13 ‘‘(1) an individual retirement plan,’’. 

14 (B) Section 4973(b) is amended to read as fol15 lows: 

16 ‘‘(b) EXCESS CONTRIBUTIONS TO SIMPLIFIED EM17 PLOYEE PENSIONS AND SIMPLE RETIREMENT AC18 COUNTS.—For purposes of this section, in the case of sim19 plified employee pensions or simple retirement accounts, 

20 the term ‘excess contributions’ means the sum of— 

21 ‘‘(1) the excess (if any) of— 

22 ‘‘(A) the amount contributed for the tax23 able year to the pension or account, over 


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•S 3018 IS

1 ‘‘(B) the amount applicable to the pension 

2 or account under subsection (a)(1) or (b)(2) of 

3 section 408, and 

4 ‘‘(2) the amount determined under this sub5 section for the preceding taxable year, reduced by 

6 the sum of— 

7 ‘‘(A) the distributions out of the account 

8 for the taxable year which were included in the 

9 gross income of the payee under section 

10 408(d)(1), 

11 ‘‘(B) the distributions out of the account 

12 for the taxable year to which section 408(d)(5) 

13 applies, and 

14 ‘‘(C) the excess (if any) of the maximum 

15 amount excludable from gross income for the 

16 taxable year under subsection (h) or (k) of sec17 tion 402 over the amount contributed to the 

18 pension or account for the taxable year. 

19 For purposes of this subsection, any contribution which 

20 is distributed from a simplified employee pension or simple 

21 retirement account in a distribution to which section 

22 408(d)(4) applies shall be treated as an amount not con23 tributed.’’. 

24 (C) Section 4973 is amended by adding at the 

25 end the following new subsection: 


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1 ‘‘(h) EXCESS CONTRIBUTIONS TO CERTAIN INDI2 VIDUAL RETIREMENT PLANS.—For purposes of this sec3 tion, in the case of individual retirement plans (other than 

4 retirement savings accounts, simplified employee pensions, 

5 and simple retirement accounts), the term ‘excess con6 tribution’ means the sum of— 

7 ‘‘(1) the aggregate amount contributed for the 

8 taxable year to the individual retirement plans, and 

9 ‘‘(2) the amount determined under this sub10 section for the preceding taxable year, reduced by 

11 the sum of— 

12 ‘‘(A) the distributions out of the plans 

13 which were included in gross income under sec14 tion 408(d)(1), and 

15 ‘‘(B) the distributions out of the plans for 

16 the taxable year to which section 408(d)(5) ap17 plies. 

18 For purposes of this subsection, any contribution which 

19 is distributed from the plan in a distribution to which sec20 tion 408(d)(4) applies shall be treated as an amount not 

21 contributed.’’. 

22 (4)(A) Sections 402(c)(8)(B), 

23 402A(c)(3)(A)(ii), 1361(c)(2)(A), 3405(e)(1)(B), 

24 and 4973(f) are each amended by striking ‘‘Roth 


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1 IRA’’ each place it appears and inserting ‘‘retire2 ment savings account’’. 

3 (B) Section 4973(f)(1)(A) is amended by strik4 ing ‘‘Roth IRAs’’ and inserting ‘‘retirement savings 

5 accounts’’. 

6 (C) Paragraphs (1)(B) and (2)(B) of section 

7 4973(f) are each amended by striking ‘‘sections 

8 408A(c)(2) and (c)(3)’’ and inserting ‘‘section 

9 408A(c)(1)’’. 

10 (D) Subsection (f) of section 4973 is amended 

11 in the heading by striking ‘‘ROTH IRAS’’ and insert12 ing ‘‘RETIREMENT SAVINGS ACCOUNTS’’. 

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

14 this section shall apply to taxable years beginning after 

15 December 31, 2010. 

16 SEC. 112. LIFETIME SAVINGS ACCOUNTS. 

17 (a) IN GENERAL.—Subchapter F of Chapter 1 (relat18 ing to exempt organizations) is amended by adding at the 

19 end the following new part: 

20 ‘‘PART IX—LIFETIME SAVINGS ACCOUNTS 

21 ‘‘SEC. 530A. LIFETIME SAVINGS ACCOUNTS. 

22 ‘‘(a) GENERAL RULE.—A Lifetime Savings Account 

23 shall be exempt from taxation under this subtitle. Not24 withstanding the preceding sentence, such account shall 

25 be subject to the taxes imposed by section 511 (relating 


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1 to imposition of tax on unrelated business income of chari2 table organizations). 

3 ‘‘(b) LIFETIME SAVINGS ACCOUNT.—For purposes of 

4 this section, the term ‘Lifetime Savings Account’ means 

5 a trust created or organized in the United States for the 

6 exclusive benefit of an individual or his beneficiaries and 

7 which is designated (in such manner as the Secretary shall 

8 prescribe) at the time of the establishment of the trust 

9 as a Lifetime Savings Account, but only if the written gov10 erning instrument creating the trust meets the following 

11 requirements: 

12 ‘‘(1) Except in the case of a qualified rollover 

13 contribution described in subsection (d)— 

14 ‘‘(A) no contribution will be accepted un15 less it is in cash, and 

16 ‘‘(B) contributions will not be accepted for 

17 the calendar year in excess of the contribution 

18 limit specified in subsection (c)(1). 

19 ‘‘(2) The trustee is a bank (as defined in sec20 tion 408(n)) or another person who demonstrates to 

21 the satisfaction of the Secretary that the manner in 

22 which that person will administer the trust will be 

23 consistent with the requirements of this section or 

24 who has so demonstrated with respect to any indi25 vidual retirement plan. 


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1 ‘‘(3) No part of the trust assets will be invested 

2 in life insurance contracts. 

3 ‘‘(4) The interest of an individual in the bal4 ance of his account is nonforfeitable. 

5 ‘‘(5) The assets of the trust shall not be com6 mingled with other property except in a common 

7 trust fund or common investment fund. 

8 ‘‘(c) TREATMENT OF CONTRIBUTIONS AND DIS9 TRIBUTIONS.— 

10 ‘‘(1) CONTRIBUTION LIMIT.— 

11 ‘‘(A) IN GENERAL.—The aggregate 

12 amount of contributions (other than qualified 

13 rollover contributions described in subsection 

14 (d)) for any calendar year to all Lifetime Sav15 ings Accounts maintained for the benefit of an 

16 individual shall not exceed $2,000. 

17 ‘‘(B) COST-OF-LIVING ADJUSTMENT.— 

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

19 calendar year after 2011, the $2,000 

20 amount under subparagraph (A) shall be 

21 increased by an amount equal to— 

22 ‘‘(I) such dollar amount, multi23 plied by 

24 ‘‘(II) the cost-of-living adjust25 ment determined under section 1(f)(3) 


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1 for the calendar year, determined by 

2 substituting ‘calendar year 2010’ for 

3 ‘calendar year 1992’ in subparagraph 

4 (B) thereof. 

5 ‘‘(ii) ROUNDING RULES.—If any 

6 amount after adjustment under clause (i) 

7 is not a multiple of $500, such amount 

8 shall be rounded to the next lower multiple 

9 of $500. 

10 ‘‘(2) DISTRIBUTIONS.—Any distribution from a 

11 Lifetime Savings Account shall not be includible in 

12 gross income. 

13 ‘‘(d) QUALIFIED ROLLOVER CONTRIBUTION.—For 

14 purposes of this section, the term ‘qualified rollover con15 tribution’ means a contribution to a Lifetime Savings Ac16 count— 

17 ‘‘(1) from another such account of the same 

18 beneficiary, but only if such amount is contributed 

19 not later than the 60th day after the distribution 

20 from such other account, 

21 ‘‘(2) from a Lifetime Savings Account of a 

22 spouse of the beneficiary of the account to which the 

23 contribution is made, but only if such amount is 

24 contributed not later than the 60th day after the 

25 distribution from such other account, and 


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1 ‘‘(3) before January 1, 2011, from— 

2 ‘‘(A) a qualified tuition program pursuant 

3 to section 529(c)(3)(E), or 

4 ‘‘(B) a Coverdell education savings account 

5 pursuant to section 530(d)(9). 

6 ‘‘(e) LOSS OF TAXATION EXEMPTION OF ACCOUNT

7 WHERE BENEFICIARY ENGAGES IN PROHIBITED TRANS8 ACTION.—Rules similar to the rules of paragraph (2) of 

9 section 408(e) shall apply to any Lifetime Savings Ac10 count. 

11 ‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this 

12 section, a custodial account or an annuity contract issued 

13 by an insurance company qualified to do business in a 

14 State shall be treated as a trust under this section if— 

15 ‘‘(1) the custodial account or annuity contract 

16 would, except for the fact that it is not a trust, con17 stitute a trust which meets the requirements of sub18 section (b), and 

19 ‘‘(2) in the case of a custodial account, the as20 sets of such account are held by a bank (as defined 

21 in section 408(n)) or another person who dem22 onstrates, to the satisfaction of the Secretary, that 

23 the manner in which he will administer the account 

24 will be consistent with the requirements of this sec25 tion. 


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1 For purposes of this title, in the case of a custodial ac2 count or annuity contract treated as a trust by reason of 

3 the preceding sentence, the person holding the assets of 

4 such account or holding such annuity contract shall be 

5 treated as the trustee thereof. 

6 ‘‘(g) REPORTS.—The trustee of a Lifetime Savings 

7 Account shall make such reports regarding such account 

8 to the Secretary and to the beneficiary of the account with 

9 respect to contributions, distributions, and such other 

10 matters as the Secretary may require. The reports re11 quired by this subsection shall be filed at such time and 

12 in such manner and furnished to such individuals at such 

13 time and in such manner as may be required.’’. 

14 (b) TAX ON EXCESS CONTRIBUTIONS.— 

15 (1) IN GENERAL.—Subsection (a) of section 

16 4973 (relating to tax on excess contributions to cer17 tain tax-favored accounts and annuities) is amended 

18 by striking ‘‘or’’ at the end of paragraph (4), by in19 serting ‘‘or’’ at the end of paragraph (5), and by in20 serting after paragraph (5) the following new para21 graph: 

22 ‘‘(6) a Lifetime Savings Account (as defined in 

23 section 530A),’’. 


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1 (2) EXCESS CONTRIBUTION.—Section 4973 is 

2 amended by adding at the end the following new 

3 subsection: 

4 ‘‘(h) EXCESS CONTRIBUTIONS TO LIFETIME SAVINGS

5 ACCOUNTS.—For purposes of this section— 

6 ‘‘(1) IN GENERAL.—In the case of Lifetime 

7 Savings Accounts (within the meaning of section 

8 530A), the term ‘excess contributions’ means the 

9 sum of— 

10 ‘‘(A) the amount by which the amount con11 tributed for the calendar year to such accounts 

12 (other than qualified rollover contributions (as 

13 defined in section 530A(d))) exceeds the con14 tribution limit under section 530A(c)(1), and 

15 ‘‘(B) the amount determined under this 

16 subsection for the preceding calendar year, re17 duced by the excess (if any) of the maximum 

18 amount allowable as a contribution under sec19 tion 530A(c)(1) for the calendar year over the 

20 amount contributed to the accounts for the cal21 endar year. 

22 ‘‘(2) SPECIAL RULE.—A contribution shall not 

23 be taken into account under paragraph (1) if such 

24 contribution (together with the amount of net in25 come attributable to such contribution) is returned 


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•S 3018 IS

1 to the beneficiary before July 1 of the year following 

2 the year in which the contribution is made.’’. 

3 (c) FAILURE TO PROVIDE REPORTS ON LIFETIME

4 SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 

5 (relating to failure to provide reports on individual retire6 ment accounts or annuities) is amended by striking ‘‘and’’ 

7 at the end of subparagraph (D), by striking the period 

8 at the end of subparagraph (E) and inserting ‘‘, and’’, 

9 and by adding at the end the following new subparagraph: 

10 ‘‘(F) section 530A(g) (relating to Lifetime 

11 Savings Accounts).’’. 

12 (d) ROLLOVERS FROM CERTAIN OTHER TAX-FREE

13 ACCOUNTS.— 

14 (1) QUALIFIED STATE TUITION PLANS.—Para15 graph (3) of section 529(c) (relating to distribu16 tions) is amended by adding at the end the following 

17 new subparagraph: 

18 ‘‘(E) ROLLOVERS TO LIFETIME SAVINGS

19 ACCOUNTS.— 

20 ‘‘(i) IN GENERAL.—Subparagraph (A) 

21 shall not apply to the qualified portion of 

22 any distribution which, before January 1, 

23 2012, and within 60 days of such distribu24 tion, is transferred to a Lifetime Savings 

25 Account (within the meaning of section 


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1 530A) of the designated beneficiary. This 

2 subparagraph shall only apply to distribu3 tions in accordance with the previous sen4 tence from an account which was in exist5 ence with respect to such designated bene6 ficiary on December 31, 2009. 

7 ‘‘(ii) QUALIFIED PORTION.—For pur8 poses of this subparagraph, the term 

9 ‘qualified portion’ means the amount equal 

10 to the sum of— 

11 ‘‘(I) the lesser of $50,000 or the 

12 amount which is in the account of the 

13 designated beneficiary on December 

14 31, 2009, 

15 ‘‘(II) any contributions to such 

16 account for the taxable year beginning 

17 after December 31, 2009, and before 

18 January 1, 2011, and 

19 ‘‘(III) any earnings of such ac20 count for such year. 

21 ‘‘(iii) LIMITATION.—The sum of the 

22 amounts taken into account under clause 

23 (ii)(II) with respect to all accounts of the 

24 designated beneficiary plus any amounts 

25 with respect to such designated beneficiary 


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1 taken into account under section 

2 530(d)(9)(B)(ii) shall not exceed the sum 

3 of $2,000 plus the earnings attributable to 

4 such amounts.’’. 

5 (2) COVERDELL EDUCATION SAVINGS AC6 COUNTS.—Subsection (d) of section 530 (relating to 

7 tax treatment of distributions) is amended by insert8 ing at the end the following new paragraph: 

9 ‘‘(9) ROLLOVERS TO LIFETIME SAVINGS AC10 COUNTS.— 

11 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

12 not apply to the qualified portion of any 

13 amount paid or distributed from a Coverdell 

14 education savings account to the extent that the 

15 amount received is paid, before January 1, 

16 2012, and not later than the 60th day after the 

17 date of such payment or distribution, into a 

18 Lifetime Savings Account (within the meaning 

19 of section 530A) for the benefit of the same 

20 beneficiary. This paragraph shall only apply to 

21 amounts paid or distributed in accordance with 

22 the preceding sentence from an account which 

23 was in existence with respect to such bene24 ficiary on December 31, 2009. 


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1 ‘‘(B) QUALIFIED PORTION.—For purposes 

2 of this paragraph, the term ‘qualified portion’ 

3 means the amount equal to the sum of— 

4 ‘‘(i) the amount which is in the ac5 count of the beneficiary on December 31, 

6 2009, 

7 ‘‘(ii) any contributions to such ac8 count for the taxable year beginning after 

9 December 31, 2009, and before January 1, 

10 2011, and 

11 ‘‘(iii) any earnings of such account for 

12 such year. 

13 ‘‘(C) LIMITATION.—The sum of the 

14 amounts taken into account under subpara15 graph (B)(ii) with respect to all accounts of the 

16 beneficiary plus any amounts with respect to 

17 such beneficiary taken into account under sec18 tion 529(c)(3)(E)(ii)(II) shall not exceed the 

19 sum of $2,000 plus the earnings attributable to 

20 such amounts.’’. 

21 (e) CONFORMING AMENDMENT.—The table of parts 

22 for subchapter F of chapter 1 is amended by adding at 

23 the end the following new item: 

‘‘PART IX. LIFETIME SAVINGS ACCOUNTS’’. 


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

2 this section shall apply to taxable years beginning after 

3 December 31, 2010. 

4 SEC. 113. CONSOLIDATION OF TAX CREDITS AND DEDUC5 TIONS FOR EDUCATION EXPENSES. 

6 (a) IN GENERAL.—Section 25A of the Internal Rev7 enue Code of 1986 (relating to Hope and Lifetime Learn8 ing Credits) is amended to read as follows: 

9 ‘‘SEC. 25A. QUALIFIED TUITION AND RELATED EXPENSES 

10 CREDIT. 

11 ‘‘(a) ALLOWANCE OF CREDIT.— 

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

13 individual for whom an election is in effect under 

14 this section, there shall be allowed as a credit 

15 against the tax imposed by this chapter for the tax16 able year an amount equal to the applicable percent17 age of so much of the qualified tuition and related 

18 expenses paid by the taxpayer during the taxable 

19 year (for education furnished to the eligible indi20 vidual during any academic period beginning in such 

21 taxable year) as does not exceed $10,000. 

22 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

23 of subsection (a), the applicable percentage is— 


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1 ‘‘(A) for the first 2 taxable years such an 

2 election is in effect with respect to an eligible 

3 individual, 20 percent, 

4 ‘‘(B) for the next 2 such taxable years, 15 

5 percent, and 

6 ‘‘(C) notwithstanding subparagraph (A), 

7 for any taxable year such eligible individual at8 tends or is enrolled in only one academic period, 

9 15 percent. 

10 ‘‘(b) LIMITATIONS.— 

11 ‘‘(1) MODIFIED ADJUSTED GROSS INCOME LIMI12 TATION.— 

13 ‘‘(A) IN GENERAL.—The amount which 

14 would (but for this paragraph) be taken into ac15 count under subsection (a) for the taxable year 

16 shall be reduced (but not below zero) by the 

17 amount determined under paragraph (2). 

18 ‘‘(B) AMOUNT OF REDUCTION.—The 

19 amount determined under this paragraph is the 

20 amount which bears the same ratio to the 

21 amount which would be so taken into account 

22 as— 

23 ‘‘(i) the excess of— 


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1 ‘‘(I) the taxpayer’s modified ad2 justed gross income for such taxable 

3 year, over 

4 ‘‘(II) $50,000 (twice such 

5 amount in the case of a joint return), 

6 bears to 

7 ‘‘(ii) $40,000 (twice such amount in 

8 the case of a joint return). 

9 ‘‘(C) MODIFIED ADJUSTED GROSS IN10 COME.—The term ‘modified adjusted gross in11 come’ means the adjusted gross income of the 

12 taxpayer for the taxable year increased by any 

13 amount excluded from gross income under sec14 tion 911, 931, or 933. 

15 ‘‘(2) CREDIT ALLOWED FOR ONLY 4 TAXABLE

16 YEARS.—An election to have this section apply with 

17 respect to any eligible individual may not be made 

18 for any taxable year if such an election (by the tax19 payer or any other individual) is in effect with re20 spect to such individual for any 4 prior taxable 

21 years. 

22 ‘‘(c) DEFINITIONS.—For purposes of this section— 

23 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible 

24 individual’ means any individual described in para25 graph (2). 


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1 ‘‘(2) QUALIFIED TUITION AND RELATED EX2 PENSES.— 

3 ‘‘(A) IN GENERAL.—The term ‘qualified 

4 tuition and related expenses’ means tuition and 

5 fees required for the enrollment or attendance 

6 of— 

7 ‘‘(i) taxpayer, 

8 ‘‘(ii) the taxpayer’s spouse, or 

9 ‘‘(iii) any dependent of the taxpayer 

10 with respect to whom the taxpayer is al11 lowed a deduction under section 151, 

12 at an eligible educational institution for courses 

13 of instruction of such individual at such institu14 tion. 

15 ‘‘(B) STUDENT LOAN INTEREST.— 

16 ‘‘(i) IN GENERAL.—Such term shall 

17 include so much of the interest paid on any 

18 qualified education loan of such individual 

19 as does not exceed $2,500, reduced by any 

20 amount taken into account under this sec21 tion for any preceding taxable year. 

22 ‘‘(ii) QUALIFIED EDUCATION LOAN.— 

23 For purposes of clause (i), the term ‘quali24 fied education loan’ means any indebtedVerDate Nov 24 2008 03:28 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00060 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 ness incurred by the taxpayer solely to pay 

2 qualified tuition and related expenses— 

3 ‘‘(I) which are incurred on behalf 

4 of an eligible individual as of the time 

5 the indebtedness was incurred, 

6 ‘‘(II) which are paid or incurred 

7 within a reasonable period of time be8 fore or after the indebtedness is in9 curred, and 

10 ‘‘(III) which are attributable to 

11 education furnished during a period 

12 during which the recipient was an eli13 gible individual. 

14 Such term includes indebtedness used to 

15 refinance indebtedness which qualifies as a 

16 qualified education loan. Such term shall 

17 not include any indebtedness owed to a 

18 person who is related (within the meaning 

19 of section 267(b) or 707(b)(1)) to the eligi20 ble individual or to any person by reason 

21 of a loan under any qualified employer 

22 plan (as defined in section 72(p)(4)) or 

23 under any contract referred to in section 

24 72(p)(5). 


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1 ‘‘(C) BOOKS.—Such term shall include 

2 books required for such individual’s academic 

3 courses of instruction at the eligible educational 

4 institution. 

5 ‘‘(D) EXCEPTION FOR EDUCATION INVOLV6 ING SPORTS, ETC.—Such term does not include 

7 expenses with respect to any course or other 

8 education involving sports, games, or hobbies, 

9 unless such course or other education is part of 

10 the individual’s degree program. 

11 ‘‘(E) EXCEPTION FOR NONACADEMIC

12 FEES.—Such term does not include student ac13 tivity fees, athletic fees, insurance expenses, or 

14 other expenses unrelated to an individual’s aca15 demic course of instruction. 

16 ‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.— 

17 The term ‘eligible educational institution’ means an 

18 institution— 

19 ‘‘(A) which is described in section 481 of 

20 the Higher Education Act of 1965, as in effect 

21 on the date of the enactment of the Taxpayer 

22 Relief Act of 1997, and 

23 ‘‘(B) which is eligible to participate in a 

24 program under title IV of the Higher Education 

25 Act of 1965. 


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1 ‘‘(d) SPECIAL RULES.— 

2 ‘‘(1) IDENTIFICATION REQUIREMENT.—No 

3 credit shall be allowed under subsection (a) to a tax4 payer with respect to an eligible student unless the 

5 taxpayer includes the name and taxpayer identifica6 tion number of such student on the return of tax for 

7 the taxable year. 

8 ‘‘(2) ADJUSTMENT FOR CERTAIN SCHOLAR9 SHIPS.—The amount of qualified tuition and related 

10 expenses otherwise taken into account under sub11 section (a) with respect to an individual for an aca12 demic period shall be reduced (before the application 

13 of subsections (a) and (b)) by the sum of any 

14 amounts paid for the benefit of such individual 

15 which are allocable to such period as— 

16 ‘‘(A) a qualified scholarship which is ex17 cludable from gross income under section 117, 

18 ‘‘(B) an educational assistance allowance 

19 under chapter 30, 31, 32, 34, or 35 of title 38, 

20 United States Code, or under chapter 1606 of 

21 title 10, United States Code, and 

22 ‘‘(C) a payment (other than a gift, be23 quest, devise, or inheritance within the meaning 

24 of section 102(a)) for such student’s edu25 cational expenses, or attributable to such indiVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00063 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 vidual’s enrollment at an eligible educational in2 stitution, which is excludable from gross income 

3 under any law of the United States. 

4 ‘‘(3) TREATMENT OF EXPENSES PAID BY DE5 PENDENT.—If a deduction under section 151 with 

6 respect to an individual is allowed to another tax7 payer for a taxable year beginning in the calendar 

8 year in which such individual’s taxable year begins— 

9 ‘‘(A) no credit shall be allowed under sub10 section (a) to such individual for such individ11 ual’s taxable year, and 

12 ‘‘(B) qualified tuition and related expenses 

13 paid by such individual during such individual’s 

14 taxable year shall be treated for purposes of 

15 this section as paid by such other taxpayer. 

16 ‘‘(4) TREATMENT OF CERTAIN PREPAY17 MENTS.—If qualified tuition and related expenses 

18 are paid by the taxpayer during a taxable year for 

19 an academic period which begins during the first 3 

20 months following such taxable year, such academic 

21 period shall be treated for purposes of this section 

22 as beginning during such taxable year. 

23 ‘‘(5) DENIAL OF DOUBLE BENEFIT.—No credit 

24 shall be allowed under this section for any expense 


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•S 3018 IS

1 for which deduction is allowed under any other pro2 vision of this chapter. 

3 ‘‘(6) NO CREDIT FOR MARRIED INDIVIDUALS

4 FILING SEPARATE RETURNS.—If the taxpayer is a 

5 married individual (within the meaning of section 

6 7703), this section shall apply only if the taxpayer 

7 and the taxpayer’s spouse file a joint return for the 

8 taxable year. 

9 ‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is 

10 a nonresident alien individual for any portion of the 

11 taxable year, this section shall apply only if such in12 dividual is treated as a resident alien of the United 

13 States for purposes of this chapter by reason of an 

14 election under subsection (g) or (h) of section 6013. 

15 ‘‘(e) INFLATION ADJUSTMENT.— 

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

17 year beginning after 2011, the $50,000 amount in 

18 subsection (b)(1)(B)(i)(II) shall be increased by an 

19 amount equal to— 

20 ‘‘(A) such dollar amount, multiplied by 

21 ‘‘(B) the cost-of-living adjustment deter22 mined under section 1(f)(3) for the calendar 

23 year in which the taxable year begins, deter24 mined by substituting ‘calendar year 2010’ for 


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•S 3018 IS

1 ‘calendar year 1992’ in subparagraph (B) 

2 thereof. 

3 ‘‘(2) ROUNDING.—If any amount as adjusted 

4 under paragraph (1) is not a multiple of $1,000, 

5 such amount shall be rounded to the next lowest 

6 multiple of $1,000. 

7 ‘‘(f) REGULATIONS.—The Secretary may prescribe 

8 such regulations as may be necessary or appropriate to 

9 carry out this section, including regulations providing for 

10 a recapture of the credit allowed under this section in 

11 cases where there is a refund in a subsequent taxable year 

12 of any expense which was taken into account in deter13 mining the amount of such credit.’’. 

14 (b) REPEAL OF DEDUCTION FOR INTEREST ON EDU15 CATION LOANS.—Part VII of subchapter B of chapter 1 

16 (relating to additional itemized deductions for individuals) 

17 is amended by striking section 221. 

18 (c) CONFORMING AMENDMENTS.— 

19 (1) Section 62(a) is amended by striking para20 graph (17). 

21 (2) Subparagraph (A) of section 86(b)(2) is 

22 amended by striking ‘‘, 221’’. 

23 (3) Subparagraph (B) of section 72(t)(7) is 

24 amended by striking ‘‘section 25A(g)(2)’’ and insert25 ing ‘‘section 25A(d)(2)’’. 


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1 (4) Subparagraph (A) of section 135(c)(4) is 

2 amended by striking ‘‘, 221’’. 

3 (5) Subparagraph (A) of section 137(b)(3) is 

4 amended by striking ‘‘, 221’’. 

5 (6) Paragraph (2) of section 163(h) is amended 

6 by adding ‘‘and’’ at the end of subparagraph (D), by 

7 striking ‘‘, and’’ at the end of subparagraph (E) and 

8 inserting a period, and by striking subparagraph 

9 (F). 

10 (7) Subparagraph (A) of section 199(d)(2) is 

11 amended by striking ‘‘, 221’’. 

12 (8) Clause (ii) of section 219(g)(3)(A) is 

13 amended by striking ‘‘, 221’’. 

14 (9) Clause (iii) of section 469(i)(3)(F) is 

15 amended by striking ‘‘, 221’’. 

16 (10) Subclause (I) of section 529(c)(3)(B)(v) is 

17 amended by striking ‘‘section 25A(g)(2)’’ and insert18 ing ‘‘section 25A(d)(2)’’. 

19 (11) Paragraph (3) of section 529(e) is amend20 ed— 

21 (A) by striking ‘‘(as defined in section 

22 25A(b)(3))’’ in subparagraph (A), and 

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

24 subparagraph: 


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1 ‘‘(C) ELIGIBLE STUDENT.—For purposes 

2 of this paragraph, the term ‘eligible student’ 

3 means, with respect to any academic period, a 

4 student who— 

5 ‘‘(i) meets the requirements of section 

6 484(a)(1) of the Higher Education Act of 

7 1965 (20 U.S.C. 1091(a)(1)), as in effect 

8 on the date of the enactment of the Tax9 payer Relief Act of 1997, and 

‘‘(ii) is carrying at least 1 10 ⁄2 the normal 

11 full-time workload for the course of study 

12 the student is pursuing.’’. 

13 (12) Subclause (I) of section 530(d)(2)(C)(i) is 

14 amended by striking ‘‘section 25A(g)(2)’’ and insert15 ing ‘‘section 25A(d)(2)’’. 

16 (13) Clause (iii) of section 530(d)(4)(B) is 

17 amended by striking ‘‘section 25A(g)(2)’’ and insert18 ing ‘‘section 25A(d)(2)’’. 

19 (14) Section 1400O is amended by adding at 

20 the end the following flush sentence: 

21 ‘‘For purposes of this section, any reference to section 25A 

22 shall be treated as a reference to such section as in effect 

23 on the day before the date of the enactment of this sen24 tence.’’. 


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1 (15) Subparagraph (J) of section 6213(g)(2) is 

2 amended by striking ‘‘section 25A(g)(1)’’ and insert3 ing ‘‘section 25A(d)(1)’’. 

4 (d) CLERICAL AMENDMENTS.— 

5 (1) The table of sections for subpart A of part 

6 IV of subchapter A of chapter 1 is amended by 

7 striking the item relating to section 25A and insert8 ing the following: 

‘‘25A. Qualified tuition and related expenses credit.’’. 

9 (2) The table of sections for part VII of sub10 chapter B of chapter 1 is amended by striking the 

11 item relating to section 221. 

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

13 this section shall apply to expenses paid after December 

14 31, 2010, for education furnished in academic periods be15 ginning after such date. 

16 SEC. 114. TERMINATION OF VARIOUS EXCLUSIONS, EXEMP17 TIONS, DEDUCTIONS, AND CREDITS. 

18 (a) IN GENERAL.—Subchapter C of chapter 90 (re19 lating to provisions affecting more than one subtitle) is 

20 amended by adding at the end the following new section: 

21 ‘‘SEC. 7875. TERMINATION OF CERTAIN PROVISIONS. 

22 ‘‘The following provisions shall not apply to taxable 

23 years beginning after December 31, 2010: 

24 ‘‘(1) Section 74(c) (relating to exclusion of cer25 tain employee achievement awards). 


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1 ‘‘(2) Section 79 (relating to exclusion of group2 term life insurance purchased for employees). 

3 ‘‘(3) Section 119 (relating to exclusion of meals 

4 or lodging furnished for the convenience of the em5 ployer). 

6 ‘‘(4) Section 125 (relating to exclusion of cafe7 teria plan benefits). 

8 ‘‘(5) Section 132 (relating to certain fringe ben9 efits), except with respect to subsection (a)(5) there10 of (relating to exclusion of qualified transportation 

11 fringe). 

12 ‘‘(6) Section 217 (relating to deduction for 

13 moving expenses). 

14 ‘‘(7) Section 454 (relating to deferral of tax on 

15 obligations issued at discount). 

16 ‘‘(8) Section 501(c)(9) (relating to tax-exempt 

17 status of voluntary employees’ beneficiary associa18 tions). 

19 ‘‘(9) Section 911 (relating to exclusion of 

20 earned income of citizens or residents of the United 

21 States living abroad). 

22 ‘‘(10) Section 912 (relating to exemption for 

23 certain allowances).’’. 


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1 (b) CONFORMING AMENDMENT.—The table of sec2 tions for subchapter C of chapter 90 is amended by adding 

3 at the end the following new item: 

‘‘Sec. 7875. Termination of certain provisions.’’. 

4 SEC. 115. SIMPLIFIED TAX RETURN PREPARATION. 

5 Beginning on January 1, 2011, the Internal Revenue 

6 Service shall provide to any taxpayer who requests it a 

7 simplified ‘‘Easyfile’’ pre-prepared income tax return, on 

8 paper, compact disc, or through the Internet, based on 

9 data the Internal Revenue Service receives with respect 

10 to such taxpayer (including wages, self-employment in11 come, and dividend, capital gains, and interest income). 

12 The Internal Revenue Service shall provide with every 

13 ‘‘Easyfile’’ a one-page summary of how the most recently 

14 available fiscal year’s tax revenue was spent, including 

15 spending on Social Security, Medicare, Medicaid, defense, 

16 and interest on the Federal debt. 

17 TITLE II—CORPORATE AND 

18 BUSINESS INCOME TAX RE19 FORMS 

20 SEC. 201. CORPORATE FLAT TAX. 

21 (a) IN GENERAL.—Subsection (b) of section 11 (re22 lating to tax imposed) is amended to read as follows: 

23 ‘‘(b) AMOUNT OF TAX.—The amount of tax imposed 

24 by subsection (a) shall be equal to 24 percent of the tax25 able income.’’. 


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1 (b) CONFORMING AMENDMENTS.— 

2 (1) Section 280C(c)(3)(B)(ii)(II) is amended by 

3 striking ‘‘maximum rate of tax under section 

4 11(b)(1)’’ and inserting ‘‘rate of tax under section 

5 11(b)’’. 

6 (2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 

7 860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 

8 1446(b)(2)(B), and 7874(e)(1)(B) are each amended 

9 by striking ‘‘highest rate of tax specified in section 

10 11(b)(1)’’ and inserting ‘‘rate of tax specified in sec11 tion 11(b)’’. 

12 (3) Section 904(b)(3)(D)(ii) is amended by 

13 striking ‘‘(determined without regard to the last sen14 tence of section 11(b)(1))’’. 

15 (4) Section 962 is amended by striking sub16 section (c) and by redesignating subsection (d) as 

17 subsection (c). 

18 (5) Section 1201(a) is amended by striking 

19 ‘‘(determined without regard to the last 2 sentences 

20 of section 11(b)(1))’’. 

21 (6) Section 1561(a) is amended— 

22 (A) by striking paragraph (1) and by re23 designating paragraphs (2), (3), and (4) as 

24 paragraphs (1), (2), and (3), respectively, 


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1 (B) by striking ‘‘The amounts specified in 

2 paragraph (1), the’’ and inserting ‘‘The’’, 

3 (C) by striking ‘‘paragraph (2)’’ and in4 serting ‘‘paragraph (1)’’, 

5 (D) by striking ‘‘paragraph (3)’’ both 

6 places it appears and inserting ‘‘paragraph 

7 (2)’’, 

8 (E) by striking ‘‘paragraph (4)’’ and in9 serting ‘‘paragraph (3)’’, and 

10 (F) by striking the fourth sentence. 

11 (7) Subsection (b) of section 1561 is amended 

12 to read as follows: 

13 ‘‘(b) CERTAIN SHORT TAXABLE YEARS.—If a cor14 poration has a short taxable year which does not include 

15 a December 31 and is a component member of a controlled 

16 group of corporations with respect to such taxable year, 

17 then for purposes of this subtitle, the amount to be used 

18 in computing the accumulated earnings credit under sec19 tion 535(c) (2) and (3) of such corporation for such tax20 able year shall be the amount specified in subsection 

21 (a)(1) divided by the number of corporations which are 

22 component members of such group on the last day of such 

23 taxable year. For purposes of the preceding sentence, sec24 tion 1563(b) shall be applied as if such last day were sub25 stituted for December 31.’’. 


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

2 this section shall apply to taxable years beginning after 

3 December 31, 2010. 

4 SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIR5 CRAFT. 

6 (a) IN GENERAL.—Section 162 (relating to trade or 

7 business expenses) is amended by redesignating subsection 

8 (q) as subsection (r) and by inserting after subsection (p) 

9 the following new subsection: 

10 ‘‘(q) TREATMENT OF TRAVEL ON CORPORATE AIR11 CRAFT.—The rate at which an amount allowable as a de12 duction under this chapter for the use of an aircraft owned 

13 by the taxpayer is determined shall not exceed the rate 

14 at which an amount paid or included in income by an em15 ployee of such taxpayer for the personal use of such air16 craft is determined.’’. 

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

18 this section shall apply to taxable years beginning after 

19 December 31, 2010. 

20 SEC. 203. UNLIMITED EXPENSING OF DEPRECIABLE ASSETS 

21 AND INVENTORIES FOR CERTAIN SMALL 

22 BUSINESSES. 

23 (a) UNLIMITED EXPENSING.—Section 179 (relating 

24 to election to expense certain depreciable business assets) 


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1 is amended by adding at the end the following new sub2 section: 

3 ‘‘(f) UNLIMITED EXPENSING FOR CERTAIN SMALL

4 BUSINESS TAXPAYERS.— 

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

6 taxpayer, this section shall be applied with respect to 

7 any taxable year without regard to subsection (b). 

8 ‘‘(2) ELIGIBLE TAXPAYER.—For purposes of 

9 this subsection, a taxpayer is an eligible taxpayer 

10 with respect to any taxable year if for all prior tax11 able years beginning after December 31, 2010, the 

12 taxpayer (or any predecessor) met the gross receipts 

13 test of section 448(c) (determined by substituting 

14 ‘$1,000,000’ for ‘$5,000,000’ each place it ap15 pears).’’. 

16 (b) CLARIFICATION OF INVENTORY RULES FOR

17 SMALL BUSINESS.—Section 471 (relating to general rule 

18 for inventories) is amended by redesignating subsection (c) 

19 as subsection (d) and by inserting after subsection (b) the 

20 following new subsection: 

21 ‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED

22 TO USE INVENTORIES.— 

23 ‘‘(1) IN GENERAL.—An eligible taxpayer (as de24 termined under section 179(f)(2)) shall not be reVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00075 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 quired to use inventories under this section for a 

2 taxable year. 

3 ‘‘(2) TREATMENT OF TAXPAYERS NOT USING

4 INVENTORIES.—If an eligible taxpayer does not use 

5 inventories with respect to any property for any tax6 able year beginning after December 31, 2010, such 

7 property shall be treated as a material or supply 

8 which is not incidental.’’. 

9 (c) EFFECTIVE DATE AND SPECIAL RULES.— 

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

11 this section shall apply to taxable years beginning 

12 after December 31, 2010. 

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

14 the case of any taxpayer changing the taxpayer’s 

15 method of accounting for any taxable year under the 

16 amendments made by this section— 

17 (A) such change shall be treated as initi18 ated by the taxpayer, 

19 (B) such change shall be treated as made 

20 with the consent of the Secretary of the Treas21 ury, and 

22 (C) the net amount of the adjustments re23 quired to be taken into account by the taxpayer 

24 under section 481 of the Internal Revenue Code 

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1 riod (not greater than 4 taxable years) begin2 ning with such taxable year. 

3 SEC. 204. TERMINATION OF VARIOUS PREFERENTIAL 

4 TREATMENTS. 

5 (a) IN GENERAL.—Section 7875, as added by this 

6 Act, is amended— 

7 (1) by inserting ‘‘(or transactions in the case of 

8 sections referred to in paragraphs (14), (15), (16), 

9 (17), and (20))’’ after ‘‘taxable years beginning’’, 

10 and 

11 (2) by adding at the end the following new 

12 paragraphs: 

13 ‘‘(11) Section 43 (relating to enhanced oil re14 covery credit). 

15 ‘‘(12) Section 199 (relating to income attrib16 utable to domestic production activities). 

17 ‘‘(13) Section 263(c) (relating to intangible 

18 drilling and development costs in the case of oil and 

19 gas wells and geothermal wells). 

20 ‘‘(14) Section 382(l)(5) (relating to exception 

21 from net operating loss limitations for corporations 

22 in bankruptcy proceeding). 

23 ‘‘(15) Section 451(i) (relating to special rules 

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1 ergy Regulatory Commission or State electric re2 structuring policy). 

3 ‘‘(16) Section 453A (relating to special rules for 

4 nondealers), but only with respect to the dollar limi5 tation under subsection (b)(1) thereof and sub6 section (b)(3) thereof (relating to exception for per7 sonal use and farm property). 

8 ‘‘(17) Section 460(e)(1) (relating to special 

9 rules for long-term home construction contracts or 

10 other short-term construction contracts). 

11 ‘‘(18) Section 613A (relating to percentage de12 pletion in case of oil and gas wells). 

13 ‘‘(19) Section 616 (relating to development 

14 costs). 

15 ‘‘(20) Sections 861(a)(6), 862(a)(6), 863(b)(2), 

16 863(b)(3), and 865(b) (relating to inventory prop17 erty sales source rule exception).’’. 

18 (b) FULL TAX RATE ON NUCLEAR DECOMMIS19 SIONING RESERVE FUND.—Subparagraph (B) of section 

20 468A(e)(2) is amended to read as follows: 

21 ‘‘(B) RATE OF TAX.—For purposes of sub22 paragraph (A), the rate set forth in this sub23 paragraph is 25 percent.’’. 

24 (c) DEFERRAL OF ACTIVE INCOME OF CONTROLLED

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1 part F income defined) is amended by adding at the end 

2 the following new subsection: 

3 ‘‘(e) SPECIAL APPLICATION OF SUBPART.— 

4 ‘‘(1) IN GENERAL.—For taxable years begin5 ning after December 31, 2010, notwithstanding any 

6 other provision of this subpart, the term ‘subpart F 

7 income’ means, in the case of any controlled foreign 

8 corporation, the income of such corporation derived 

9 from any foreign country. 

10 ‘‘(2) APPLICABLE RULES.—Rules similar to the 

11 rules under the last sentence of subsection (a) and 

12 subsection (d) shall apply to this subsection.’’. 

13 (d) DEPRECIATION ON EQUIPMENT IN EXCESS OF

14 ALTERNATIVE DEPRECIATION SYSTEM.—Section 

15 168(g)(1) (relating to alternative depreciation system) is 

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

17 (D), by adding ‘‘and’’ at the end of subparagraph (E), 

18 and by inserting after subparagraph (E) the following new 

19 subparagraph: 

20 ‘‘(F) notwithstanding subsection (a), any 

21 tangible property placed in service after Decem22 ber 31, 2010,’’. 

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

24 subsections (b) and (c) shall apply to taxable years begin25 ning after December 31, 2010. 


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1 SEC. 205. PASS-THROUGH BUSINESS ENTITY TRANS2 PARENCY. 

3 Not later than 90 days after the date of the enact4 ment of this Act, the Secretary of the Treasury shall re5 port to the Committee on Finance of the Senate and the 

6 Committee on Ways and Means of the House of Rep7 resentatives regarding the implementation of additional 

8 reporting requirements with respect to any pass-through 

9 entity with the goal of the reduction of tax avoidance 

10 through the use of such entities. In addition, the Secretary 

11 shall develop procedures to share such report data with 

12 State revenue agencies under the disclosure requirements 

13 of section 6103(d) of the Internal Revenue Code of 1986. 

14 SEC. 206. MODIFICATION OF EFFECTIVE DATE OF LEASING 

15 PROVISIONS OF THE AMERICAN JOBS CRE16 ATION ACT OF 2004. 

17 (a) LEASES TO FOREIGN ENTITIES.—Section 849(b) 

18 of the American Jobs Creation Act of 2004 is amended 

19 by adding at the end the following new paragraph: 

20 ‘‘(5) LEASES TO FOREIGN ENTITIES.—In the 

21 case of tax-exempt use property leased to a tax-ex22 empt entity which is a foreign person or entity, the 

23 amendments made by this part shall apply to taxable 

24 years beginning after December 31, 2010, with re25 spect to leases entered into on or before March 12, 

26 2004.’’. 


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

2 this section shall take effect as if included in the enact3 ment of the American Jobs Creation Act of 2004. 

4 SEC. 207. REVALUATION OF LIFO INVENTORIES OF LARGE 

5 INTEGRATED OIL COMPANIES. 

6 (a) GENERAL RULE.—Notwithstanding any other 

7 provision of law, if a taxpayer is an applicable integrated 

8 oil company for its last taxable year ending in calendar 

9 year 2010, the taxpayer shall— 

10 (1) increase, effective as of the close of such 

11 taxable year, the value of each historic LIFO layer 

12 of inventories of crude oil, natural gas, or any other 

13 petroleum product (within the meaning of section 

14 4611) by the layer adjustment amount, and 

15 (2) decrease its cost of goods sold for such tax16 able year by the aggregate amount of the increases 

17 under paragraph (1). 

18 If the aggregate amount of the increases under paragraph 

19 (1) exceed the taxpayer’s cost of goods sold for such tax20 able year, the taxpayer’s gross income for such taxable 

21 year shall be increased by the amount of such excess. 

22 (b) LAYER ADJUSTMENT AMOUNT.—For purposes of 

23 this section— 


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1 (1) IN GENERAL.—The term ‘‘layer adjustment 

2 amount’’ means, with respect to any historic LIFO 

3 layer, the product of— 

4 (A) $18.75, and 

5 (B) the number of barrels of crude oil (or 

6 in the case of natural gas or other petroleum 

7 products, the number of barrel-of-oil equiva8 lents) represented by the layer. 

9 (2) BARREL-OF-OIL EQUIVALENT.—The term 

10 ‘‘barrel-of-oil equivalent’’ has the meaning given 

11 such term by section 29(d)(5) (as in effect before its 

12 redesignation by the Energy Tax Incentives Act of 

13 2005). 

14 (c) APPLICATION OF REQUIREMENT.— 

15 (1) NO CHANGE IN METHOD OF ACCOUNTING.— 

16 Any adjustment required by this section shall not be 

17 treated as a change in method of accounting. 

18 (2) UNDERPAYMENTS OF ESTIMATED TAX.—No 

19 addition to the tax shall be made under section 6655 

20 of the Internal Revenue Code of 1986 (relating to 

21 failure by corporation to pay estimated tax) with re22 spect to any underpayment of an installment re23 quired to be paid with respect to the taxable year 

24 described in subsection (a) to the extent such under25 payment was created or increased by this section. 


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1 (d) APPLICABLE INTEGRATED OIL COMPANY.—For 

2 purposes of this section, the term ‘‘applicable integrated 

3 oil company’’ means an integrated oil company (as defined 

4 in section 291(b)(4) of the Internal Revenue Code of 

5 1986) which has an average daily worldwide production 

6 of crude oil of at least 500,000 barrels for the taxable 

7 year and which had gross receipts in excess of 

8 $1,000,000,000 for its last taxable year ending during cal9 endar year 2008. For purposes of this subsection all per10 sons treated as a single employer under subsections (a) 

11 and (b) of section 52 of the Internal Revenue Code of 

12 1986 shall be treated as 1 person and, in the case of a 

13 short taxable year, the rule under section 448(c)(3)(B) 

14 shall apply. 

15 SEC. 208. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

16 APPLICABLE TO LARGE INTEGRATED OIL 

17 COMPANIES WHICH ARE DUAL CAPACITY 

18 TAXPAYERS. 

19 (a) IN GENERAL.—Section 901 (relating to credit for 

20 taxes of foreign countries and of possessions of the United 

21 States) is amended by redesignating subsection (m) as 

22 subsection (n) and by inserting after subsection (l) the fol23 lowing new subsection: 


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1 ‘‘(m) SPECIAL RULES RELATING TO LARGE INTE2 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

3 TAXPAYERS.— 

4 ‘‘(1) GENERAL RULE.—Notwithstanding any 

5 other provision of this chapter, any amount paid or 

6 accrued by a dual capacity taxpayer which is a large 

7 integrated oil company to a foreign country or pos8 session of the United States for any period shall not 

9 be considered a tax— 

10 ‘‘(A) if, for such period, the foreign coun11 try or possession does not impose a generally 

12 applicable income tax, or 

13 ‘‘(B) to the extent such amount exceeds 

14 the amount (determined in accordance with reg15 ulations) which— 

16 ‘‘(i) is paid by such dual capacity tax17 payer pursuant to the generally applicable 

18 income tax imposed by the country or pos19 session, or 

20 ‘‘(ii) would be paid if the generally ap21 plicable income tax imposed by the country 

22 or possession were applicable to such dual 

23 capacity taxpayer. 

24 Nothing in this paragraph shall be construed to 

25 imply the proper treatment of any such amount 


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1 not in excess of the amount determined under 

2 subparagraph (B). 

3 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur4 poses of this subsection, the term ‘dual capacity tax5 payer’ means, with respect to any foreign country or 

6 possession of the United States, a person who— 

7 ‘‘(A) is subject to a levy of such country or 

8 possession, and 

9 ‘‘(B) receives (or will receive) directly or 

10 indirectly a specific economic benefit (as deter11 mined in accordance with regulations) from 

12 such country or possession. 

13 ‘‘(3) GENERALLY APPLICABLE INCOME TAX.— 

14 For purposes of this subsection— 

15 ‘‘(A) IN GENERAL.—The term ‘generally 

16 applicable income tax’ means an income tax (or 

17 a series of income taxes) which is generally im18 posed under the laws of a foreign country or 

19 possession on income derived from the conduct 

20 of a trade or business within such country or 

21 possession. 

22 ‘‘(B) EXCEPTIONS.—Such term shall not 

23 include a tax unless it has substantial applica24 tion, by its terms and in practice, to— 


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1 ‘‘(i) persons who are not dual capacity 

2 taxpayers, and 

3 ‘‘(ii) persons who are citizens or resi4 dents of the foreign country or possession. 

5 ‘‘(4) LARGE INTEGRATED OIL COMPANY.—For 

6 purposes of this subsection, the term ‘large inte7 grated oil company’ means, with respect to any tax8 able year, an integrated oil company (as defined in 

9 section 291(b)(4)) which— 

10 ‘‘(A) had gross receipts in excess of 

11 $1,000,000,000 for such taxable year, and 

12 ‘‘(B) has an average daily worldwide pro13 duction of crude oil of at least 500,000 barrels 

14 for such taxable year.’’ 

15 (b) EFFECTIVE DATE.— 

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

17 this section shall apply to taxes paid or accrued in 

18 taxable years beginning after the date of the enact19 ment of this Act. 

20 (2) CONTRARY TREATY OBLIGATIONS

21 UPHELD.—The amendments made by this section 

22 shall not apply to the extent contrary to any treaty 

23 obligation of the United States. 


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1 SEC. 209. REPEAL OF LOWER OF COST OR MARKET VALUE 

2 OF INVENTORY RULE. 

3 (a) IN GENERAL.—Subsection (a) of section 471 (re4 lating to general rules for inventories) is amended to read 

5 as follows: 

6 ‘‘(a) GENERAL RULE.—Whenever in the opinion of 

7 the Secretary the use of inventories is necessary in order 

8 clearly to determine the income of the taxpayer, inven9 tories shall be valued at cost.’’. 

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

11 this section shall apply to taxable years beginning after 

12 the date of the enactment of this Act. 

13 SEC. 210. REINSTITUTION OF PER COUNTRY FOREIGN TAX 

14 CREDIT. 

15 (a) IN GENERAL.—Subsection (a) of section 904 (re16 lating to limitation on credit) is amended to read as fol17 lows: 

18 ‘‘(a) LIMITATION.—The amount of the credit in re19 spect of the tax paid or accrued to any foreign country 

20 or possession of the United States shall not exceed the 

21 same proportion of the tax against which such credit is 

22 taken which the taxpayer’s taxable income from sources 

23 within such country or possession (but not in excess of 

24 the taxpayer’s entire taxable income) bears to such tax25 payer’s entire taxable income for the same taxable year.’’. 


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

2 this section shall apply to taxable years beginning after 

3 December 31, 2010. 

4 SEC. 211. APPLICATION OF RULES TREATING INVERTED 

5 CORPORATIONS AS DOMESTIC CORPORA6 TIONS TO CERTAIN TRANSACTIONS OCCUR7 RING AFTER MARCH 20, 2002. 

8 (a) IN GENERAL.—Section 7874(b) (relating to in9 verted corporations treated as domestic corporations) is 

10 amended to read as follows: 

11 ‘‘(b) INVERTED CORPORATIONS TREATED AS DO12 MESTIC CORPORATIONS.— 

13 ‘‘(1) IN GENERAL.—Notwithstanding section 

14 7701(a)(4), a foreign corporation shall be treated for 

15 purposes of this title as a domestic corporation if 

16 such corporation would be a surrogate foreign cor17 poration if subsection (a)(2) were applied by sub18 stituting ‘80 percent’ for ‘60 percent’. 

19 ‘‘(2) SPECIAL RULE FOR CERTAIN TRANS20 ACTIONS OCCURRING AFTER MARCH 20, 2002.— 

21 ‘‘(A) IN GENERAL.—If— 

22 ‘‘(i) paragraph (1) does not apply to 

23 a foreign corporation, but 

24 ‘‘(ii) paragraph (1) would apply to 

25 such corporation if, in addition to the subVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00088 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 stitution under paragraph (1), subsection 

2 (a)(2) were applied by substituting ‘March 

3 20, 2002’ for ‘March 4, 2003’ each place 

4 it appears, 

5 then paragraph (1) shall apply to such corpora6 tion but only with respect to taxable years of 

7 such corporation beginning after December 31, 

8 2010. 

9 ‘‘(B) SPECIAL RULES.—Subject to such 

10 rules as the Secretary may prescribe, in the 

11 case of a corporation to which paragraph (1) 

12 applies by reason of this paragraph— 

13 ‘‘(i) the corporation shall be treated, 

14 as of the close of its last taxable year be15 ginning before January 1, 2011, as having 

16 transferred all of its assets, liabilities, and 

17 earnings and profits to a domestic corpora18 tion in a transaction with respect to which 

19 no tax is imposed under this title, 

20 ‘‘(ii) the bases of the assets trans21 ferred in the transaction to the domestic 

22 corporation shall be the same as the bases 

23 of the assets in the hands of the foreign 

24 corporation, subject to any adjustments 

25 under this title for built-in losses, 


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1 ‘‘(iii) the basis of the stock of any 

2 shareholder in the domestic corporation 

3 shall be the same as the basis of the stock 

4 of the shareholder in the foreign corpora5 tion for which it is treated as exchanged, 

6 and 

7 ‘‘(iv) the transfer of any earnings and 

8 profits by reason of clause (i) shall be dis9 regarded in determining any deemed divi10 dend or foreign tax creditable to the do11 mestic corporation with respect to such 

12 transfer. 

13 ‘‘(C) REGULATIONS.—The Secretary may 

14 prescribe such regulations as may be necessary 

15 or appropriate to carry out this paragraph, in16 cluding regulations to prevent the avoidance of 

17 the purposes of this paragraph.’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2010. 

21 SEC. 212. INDEXING CORPORATE INTEREST DEDUCTION 

22 FOR INFLATION. 

23 (a) IN GENERAL.—Section 163 is amended by redes24 ignating subsection (n) as subsection (o) and by inserting 

25 after subsection (m) the following new subsection: 


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1 ‘‘(n) INDEXING CORPORATE INTEREST DEDUCTION

2 FOR INFLATION.— 

3 ‘‘(1) IN GENERAL.—In the case of a corpora4 tion, the deduction allowed under this chapter for in5 terest paid for any taxable year with respect to any 

6 obligation shall be adjusted by multiplying the 

7 amount otherwise so allowed by 1 minus the frac8 tional exclusion rate for such taxable year. 

9 ‘‘(2) FRACTIONAL EXCLUSION RATE.—For any 

10 taxable year, the Secretary shall determine the frac11 tional exclusion rate using— 

12 ‘‘(A) a fraction— 

13 ‘‘(i) the numerator of which is the 

14 cost-of-living adjustment determined under 

15 section 1(f)(3) for the calendar year in 

16 which the taxable year begins by sub17 stituting ‘the second preceding calendar 

18 year’ for ‘calendar year 1992’ in subpara19 graph (B) thereof, and 

20 ‘‘(ii) the denominator of which is the 

21 nominal interest rate for such obligation, 

22 and 

23 ‘‘(B) a constant real before tax rate of re24 turn of 6 percent.’’. 


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

2 this section shall apply to taxable years beginning after 

3 December 31, 2010. 

4 SEC. 213. PROHIBITION OF ADVANCE REFUNDING OF 

5 BONDS. 

6 (a) IN GENERAL.—Subsection (d) of section 149 is 

7 amended— 

8 (1) by striking paragraphs (1), (2), (3), (4), 

9 and (6), 

10 (2) by redesignating paragraphs (5) and (7) as 

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

12 (3) by inserting before paragraph (2) (as redes13 ignated by paragraph (2) the following new para14 graph: 

15 ‘‘(1) PROHIBITION.—Nothing in section 103(a) 

16 or in any other provision of law shall be construed 

17 to provide an exemption from Federal income tax for 

18 interest on any bond issued as part of an issue to 

19 advance refund a bond.’’. 

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

21 this section shall apply to refunding bonds issued on or 

22 after the date of the enactment of this Act. 


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1 SEC. 214. CBO STUDY ON GOVERNMENT SPENDING ON 

2 BUSINESSES. 

3 (a) STUDY.—The Congressional Budget Office shall 

4 identify the Federal Government’s direct and indirect 

5 spending on businesses, using among other sources, the 

6 corporate welfare lists produced by the Cato Institute and 

7 the Bureau of Economic Analysis of the Department of 

8 Commerce, and, from that pool of spending, identify the 

9 least economically justifiable and suggest options for how 

10 Congress could potentially reduce Federal spending on the 

11 least justifiable programs by at least $230,000,000,000 

12 during a 10-year period. 

13 (b) REPORT.—The Congressional Budget Office shall 

14 report not later than one year after the date of the enact15 ment of this Act on the results of the study required under 

16 subsection (a) and shall submit such report for the pur17 pose of hearing by the Committee on the Budget of the 

18 House of Representatives and the Committee on the 

19 Budget of the Senate. 

20 TITLE III—REPEAL OF 

21 ALTERNATIVE MINIMUM TAX 

22 SEC. 301. REPEAL OF ALTERNATIVE MINIMUM TAX. 

23 (a) IN GENERAL.—Section 55(a) (relating to alter24 native minimum tax imposed) is amended by adding at 

25 the end the following new flush sentence: 


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1 ‘‘For purposes of this title, the tentative minimum tax on 

2 any taxpayer for any taxable year beginning after Decem3 ber 31, 2010, shall be zero.’’. 

4 (b) MODIFICATION OF LIMITATION ON USE OF

5 CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.— 

6 Subsection (c) of section 53 (relating to credit for prior 

7 year minimum tax liability) is amended to read as follows: 

8 ‘‘(c) LIMITATION.— 

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), the credit allowable under subsection (a) 

11 for any taxable year shall not exceed the excess (if 

12 any) of— 

13 ‘‘(A) the regular tax liability of the tax14 payer for such taxable year reduced by the sum 

15 of the credits allowable under subparts A, B, D, 

16 E, and F of this part, over 

17 ‘‘(B) the tentative minimum tax for the 

18 taxable year. 

19 ‘‘(2) TAXABLE YEARS BEGINNING AFTER

20 2010.—In the case of any taxable year beginning 

21 after December 31, 2010, the credit allowable under 

22 subsection (a) to a taxpayer other than a corpora23 tion for any taxable year shall not exceed 90 percent 

24 of the regular tax liability of the taxpayer for such 

25 taxable year reduced by the sum of the credits allowVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00094 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 able under subparts A, B, D, E, and F of this 

2 part.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2010. 

6 TITLE IV—OTHER PROVISIONS 

7 Subtitle A—Improvements in Tax 

8 Compliance 

9 SEC. 401. INFORMATION REPORTING ON PAYMENTS TO 

10 CORPORATIONS. 

11 (a) IN GENERAL.—Section 6041 is amended by add12 ing at the end the following new subsections: 

13 ‘‘(h) APPLICATION TO CORPORATIONS.—Notwith14 standing any regulation prescribed by the Secretary before 

15 the date of the enactment of this subsection, for purposes 

16 of this section the term ‘person’ includes any corporation 

17 that is not an organization exempt from tax under section 

18 501(a). 

19 ‘‘(i) REGULATIONS.—The Secretary may prescribe 

20 such regulations and other guidance as may be appro21 priate or necessary to carry out the purposes of this sec22 tion, including rules to prevent duplicative reporting of 

23 transactions.’’. 


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

2 this section shall apply to payments made after December 

3 31, 2010. 

4 SEC. 402. ADDITIONAL REPORTING REQUIREMENTS BY 

5 REGULATION. 

6 The Secretary of the Treasury is authorized to issue 

7 regulations under which with respect to payments made 

8 after December 31, 2010— 

9 (1) any merchant acquiring bank is required to 

10 annually report to the Secretary the gross reim11 bursement payments made to merchants in a cal12 endar year, unless the benefit of such reporting does 

13 not justify the cost of compliance, as determined by 

14 the Secretary, 

15 (2) any contractor receiving payments of $600 

16 or more in a calendar year from a particular busi17 ness is required to furnish such business the con18 tractor’s certified taxpayer identification number or 

19 be subject to withholding on such payments at a flat 

20 rate percentage selected by the contractor, and 

21 (3) any Federal, State, or local government is 

22 required to report to the Secretary any non-wage 

23 payment to procure property and services, other 

24 than payments of interest, payments for real prop25 erty, payments to tax-exempt entities or foreign govVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00096 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 ernments, intergovernmental payments, and pay2 ments made pursuant to a classified or confidential 

3 contract. 

4 SEC. 403. INCREASE IN INFORMATION RETURN PENALTIES. 

5 (a) FAILURE TO FILE CORRECT INFORMATION RE6 TURNS.— 

7 (1) IN GENERAL.—Section 6721(a)(1) is 

8 amended— 

9 (A) by striking ‘‘$50’’ and inserting 

10 ‘‘$250’’, and 

11 (B) by striking ‘‘$250,000’’ and inserting 

12 ‘‘$3,000,000’’. 

13 (2) REDUCTION WHERE CORRECTION IN SPECI14 FIED PERIOD.— 

15 (A) CORRECTION WITHIN 30 DAYS.—Sec16 tion 6721(b)(1) is amended— 

17 (i) by striking ‘‘$15’’ and inserting 

18 ‘‘$50’’, 

19 (ii) by striking ‘‘$50’’ and inserting 

20 ‘‘$250’’, and 

21 (iii) by striking ‘‘$75,000’’ and insert22 ing ‘‘$500,000’’. 

23 (B) FAILURES CORRECTED ON OR BEFORE

24 AUGUST 1.—Section 6721(b)(2) is amended— 


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1 (i) by striking ‘‘$30’’ and inserting 

2 ‘‘$100’’, 

3 (ii) by striking ‘‘$50’’ and inserting 

4 ‘‘$250’’, and 

5 (iii) by striking ‘‘$150,000’’ and in6 serting ‘‘$1,500,000’’. 

7 (3) LOWER LIMITATION FOR PERSONS WITH

8 GROSS RECEIPTS OF NOT MORE THAN $5,000,000.— 

9 Section 6721(d)(1) is amended— 

10 (A) in subparagraph (A)— 

11 (i) by striking ‘‘$100,000’’ and insert12 ing ‘‘$1,000,000’’, and 

13 (ii) by striking ‘‘$250,000’’ and in14 serting ‘‘$3,000,000’’, 

15 (B) in subparagraph (B)— 

16 (i) by striking ‘‘$25,000’’ and insert17 ing ‘‘$175,000’’, and 

18 (ii) by striking ‘‘$75,000’’ and insert19 ing ‘‘$500,000’’, and 

20 (C) in subparagraph (C)— 

21 (i) by striking ‘‘$50,000’’ and insert22 ing ‘‘$500,000’’, and 

23 (ii) by striking ‘‘$150,000’’ and in24 serting ‘‘$1,500,000’’. 


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1 (4) PENALTY IN CASE OF INTENTIONAL DIS2 REGARD.—Section 6721(e) is amended— 

3 (A) by striking ‘‘$100’’ in paragraph (2) 

4 and inserting ‘‘$500’’, and 

5 (B) by striking ‘‘$250,000’’ in paragraph 

6 (3)(A) and inserting ‘‘$3,000,000’’. 

7 (b) FAILURE TO FURNISH CORRECT PAYEE STATE8 MENTS.— 

9 (1) IN GENERAL.—Section 6722(a) is amend10 ed— 

11 (A) by striking ‘‘$50’’ and inserting 

12 ‘‘$250’’, and 

13 (B) by striking ‘‘$100,000’’ and inserting 

14 ‘‘$1,000,000’’. 

15 (2) PENALTY IN CASE OF INTENTIONAL DIS16 REGARD.—Section 6722(c) is amended— 

17 (A) by striking ‘‘$100’’ in paragraph (1) 

18 and inserting ‘‘$500’’, and 

19 (B) by striking ‘‘$100,000’’ in paragraph 

20 (2)(A) and inserting ‘‘$1,000,000’’. 

21 (c) FAILURE TO COMPLY WITH OTHER INFORMA22 TION REPORTING REQUIREMENTS.—Section 6723 is 

23 amended— 

24 (1) by striking ‘‘$50’’ and inserting ‘‘$250’’, 

25 and 


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1 (2) by striking ‘‘$100,000’’ and inserting 

2 ‘‘$1,000,000’’. 

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

4 this section shall apply with respect to information returns 

5 required to be filed on or after January 1, 2011. 

6 SEC. 404. E-FILING REQUIREMENT FOR CERTAIN LARGE 

7 ORGANIZATIONS. 

8 (a) IN GENERAL.—The first sentence of section 

9 6011(e)(2) is amended to read as follows: ‘‘In prescribing 

10 regulations under paragraph (1), the Secretary shall take 

11 into account (among other relevant factors) the ability of 

12 the taxpayer to comply at reasonable cost with the require13 ments of such regulations.’’. 

14 (b) CONFORMING AMENDMENT.—Section 6724 is 

15 amended by striking subsection (c). 

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

17 this section shall apply to taxable years ending on or after 

18 December 31, 2010. 

19 SEC. 405. IMPLEMENTATION OF STANDARDS CLARIFYING 

20 WHEN EMPLOYEE LEASING COMPANIES CAN 

21 BE HELD LIABLE FOR THEIR CLIENTS’ FED22 ERAL EMPLOYMENT TAXES. 

23 With respect to employment tax returns required to 

24 be filed with respect to wages paid on or after January 


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1 1, 2011, the Secretary of the Treasury shall issue regula2 tions establishing— 

3 (1) standards for holding employee leasing com4 panies jointly and severally liable with their clients 

5 for Federal employment taxes under chapters 21, 

6 22, 23, and 24 of the Internal Revenue Code of 

7 1986, and 

8 (2) standards for holding such companies solely 

9 liable for such taxes. 

10 SEC. 406. EXPANSION OF IRS ACCESS TO INFORMATION IN 

11 NATIONAL DIRECTORY OF NEW HIRES FOR 

12 TAX ADMINISTRATION PURPOSES. 

13 (a) IN GENERAL.—Paragraph (3) of section 453(j) 

14 of the Social Security Act (42 U.S.C. 653(j)) is amended 

15 to read as follows: 

16 ‘‘(3) ADMINISTRATION OF FEDERAL TAX

17 LAWS.—The Secretary of the Treasury shall have 

18 access to the information in the National Directory 

19 of New Hires for purposes of administering the In20 ternal Revenue Code of 1986.’’. 

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

22 this section shall take effect on the date of the enactment 

23 of this Act. 


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1 SEC. 407. MODIFICATION OF CRIMINAL PENALTIES FOR 

2 WILLFUL FAILURES INVOLVING TAX PAY3 MENTS AND FILING REQUIREMENTS. 

4 (a) INCREASE IN PENALTY FOR ATTEMPT TO EVADE

5 OR DEFEAT TAX.—Section 7201 (relating to attempt to 

6 evade or defeat tax) is amended— 

7 (1) by striking ‘‘$100,000’’ and inserting 

8 ‘‘$500,000’’, 

9 (2) by striking ‘‘$500,000’’ and inserting 

10 ‘‘$1,000,000’’, and 

11 (3) by striking ‘‘5 years’’ and inserting ‘‘10 

12 years’’. 

13 (b) MODIFICATION OF PENALTIES FOR WILLFUL

14 FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR

15 PAY TAX.— 

16 (1) IN GENERAL.—Section 7203 (relating to 

17 willful failure to file return, supply information, or 

18 pay tax) is amended— 

19 (A) in the first sentence— 

20 (i) by striking ‘‘Any person’’ and in21 serting the following: 

22 ‘‘(a) IN GENERAL.—Any person’’, and 

23 (ii) by striking ‘‘$25,000’’ and insert24 ing ‘‘$50,000’’, 

25 (B) in the third sentence, by striking ‘‘sec26 tion’’ and inserting ‘‘subsection’’, and 


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1 (C) by adding at the end the following new 

2 subsection: 

3 ‘‘(b) AGGRAVATED FAILURE TO FILE.— 

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

5 described in paragraph (2), the first sentence of sub6 section (a) shall be applied by substituting— 

7 ‘‘(A) ‘felony’ for ‘misdemeanor’, 

8 ‘‘(B) ‘$250,000 ($500,000’ for ‘$50,000 

9 ($100,000’, and 

10 ‘‘(C) ‘5 years’ for ‘1 year’. 

11 ‘‘(2) FAILURE DESCRIBED.—A failure described 

12 in this paragraph is— 

13 ‘‘(A) a failure to make a return described 

14 in subsection (a) for any 3 taxable years occur15 ring during any period of 5 consecutive taxable 

16 years if the aggregate tax liability for such pe17 riod is not less than $50,000, or 

18 ‘‘(B) a failure to make a return if the tax 

19 liability giving rise to the requirement to make 

20 such return is attributable to an activity which 

21 is a felony under any State or Federal law.’’. 

22 (2) PENALTY MAY BE APPLIED IN ADDITION TO

23 OTHER PENALTIES.—Section 7204 (relating to 

24 fraudulent statement or failure to make statement to 

25 employees) is amended by striking ‘‘the penalty proVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00103 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 vided in section 6674’’ and inserting ‘‘the penalties 

2 provided in sections 6674 and 7203(b)’’. 

3 (c) FRAUD AND FALSE STATEMENTS.—Section 7206 

4 (relating to fraud and false statements) is amended— 

5 (1) by striking ‘‘$100,000’’ and inserting 

6 ‘‘$500,000’’, 

7 (2) by striking ‘‘$500,000’’ and inserting 

8 ‘‘$1,000,000’’, and 

9 (3) by striking ‘‘3 years’’ and inserting ‘‘5 

10 years’’. 

11 (d) INCREASE IN MONETARY LIMITATION FOR UN12 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO

13 FRAUD.—Section 7206 (relating to fraud and false state14 ments), as amended by subsection (a)(3), is amended— 

15 (1) by striking ‘‘Any person who—’’ and insert16 ing ‘‘(a) IN GENERAL.—Any person who—’’, and 

17 (2) by adding at the end the following new sub18 section: 

19 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN20 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO

21 FRAUD.—If any portion of any underpayment (as defined 

22 in section 6664(a)) or overpayment (as defined in section 

23 6401(a)) of tax required to be shown on a return is attrib24 utable to fraudulent action described in subsection (a), the 

25 applicable dollar amount under subsection (a) shall in no 


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1 event be less than an amount equal to such portion. A 

2 rule similar to the rule under section 6663(b) shall apply 

3 for purposes of determining the portion so attributable.’’. 

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

5 this section shall apply to actions, and failures to act, oc6 curring after the date of the enactment of this Act. 

7 SEC. 408. PENALTIES FOR FAILURE TO FILE CERTAIN RE8 TURNS ELECTRONICALLY. 

9 (a) IN GENERAL.—Part I of subchapter A of chapter 

10 68 (relating to additions to the tax, additional amounts, 

11 and assessable penalties) is amended by inserting after 

12 section 6652 the following new section: 

13 ‘‘SEC. 6652A. FAILURE TO FILE CERTAIN RETURNS ELEC14 TRONICALLY. 

15 ‘‘(a) IN GENERAL.—If a person fails to file a return 

16 described in section 6651 or 6652(c)(1) in electronic form 

17 as required under section 6011(e)— 

18 ‘‘(1) such failure shall be treated as a failure to 

19 file such return (even if filed in a form other than 

20 electronic form), and 

21 ‘‘(2) the penalty imposed under section 6651 or 

22 6652(c), whichever is appropriate, shall be equal to 

23 the greater of— 


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1 ‘‘(A) the amount of the penalty under such 

2 section, determined without regard to this sec3 tion, or 

4 ‘‘(B) the amount determined under sub5 section (b). 

6 ‘‘(b) AMOUNT OF PENALTY.— 

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graphs (2) and (3), the penalty determined under 

9 this subsection is equal to $40 for each day during 

10 which a failure described under subsection (a) con11 tinues. The maximum penalty under this paragraph 

12 on failures with respect to any 1 return shall not ex13 ceed the lesser of $20,000 or 10 percent of the gross 

14 receipts of the taxpayer for the year. 

15 ‘‘(2) INCREASED PENALTIES FOR TAXPAYERS

16 WITH GROSS RECEIPTS BETWEEN $1,000,000 AND

17 $100,000,000.— 

18 ‘‘(A) TAXPAYERS WITH GROSS RECEIPTS

19 BETWEEN $1,000,000 AND $25,000,000.—In the 

20 case of a taxpayer having gross receipts exceed21 ing $1,000,000 but not exceeding $25,000,000 

22 for any year— 

23 ‘‘(i) the first sentence of paragraph 

24 (1) shall be applied by substituting ‘$200’ 

25 for ‘$40’, and 


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1 ‘‘(ii) in lieu of applying the second 

2 sentence of paragraph (1), the maximum 

3 penalty under paragraph (1) shall not ex4 ceed $100,000. 

5 ‘‘(B) TAXPAYERS WITH GROSS RECEIPTS

6 OVER $25,000,000.—Except as provided in para7 graph (3), in the case of a taxpayer having 

8 gross receipts exceeding $25,000,000 for any 

9 year— 

10 ‘‘(i) the first sentence of paragraph 

11 (1) shall be applied by substituting ‘$500’ 

12 for ‘$40’, and 

13 ‘‘(ii) in lieu of applying the second 

14 sentence of paragraph (1), the maximum 

15 penalty under paragraph (1) shall not ex16 ceed $250,000. 

17 ‘‘(3) INCREASED PENALTIES FOR CERTAIN TAX18 PAYERS WITH GROSS RECEIPTS EXCEEDING

19 $100,000,000.—In the case of a return described in 

20 section 6651— 

21 ‘‘(A) TAXPAYERS WITH GROSS RECEIPTS

22 BETWEEN $100,000,000 AND $250,000,000.—In the 

23 case of a taxpayer having gross receipts exceed24 ing $100,000,000 but not exceeding 

25 $250,000,000 for any year— 


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1 ‘‘(i) the amount of the penalty deter2 mined under this subsection shall equal the 

3 sum of— 

4 ‘‘(I) $50,000, plus 

5 ‘‘(II) $1,000 for each day during 

6 which such failure continues (twice 

7 such amount for each day such failure 

8 continues after the first such 60 

9 days), and 

10 ‘‘(ii) the maximum amount under 

11 clause (i)(II) on failures with respect to 

12 any 1 return shall not exceed $200,000. 

13 ‘‘(B) TAXPAYERS WITH GROSS RECEIPTS

14 OVER $250,000,000.—In the case of a taxpayer 

15 having gross receipts exceeding $250,000,000 

16 for any year— 

17 ‘‘(i) the amount of the penalty deter18 mined under this subsection shall equal the 

19 sum of— 

20 ‘‘(I) $250,000, plus 

21 ‘‘(II) $2,500 for each day during 

22 which such failure continues (twice 

23 such amount for each day such failure 

24 continues after the first such 60 

25 days), and 


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1 ‘‘(ii) the maximum amount under 

2 clause (i)(II) on failures with respect to 

3 any 1 return shall not exceed $250,000. 

4 ‘‘(C) EXCEPTION FOR CERTAIN RE5 TURNS.—Subparagraphs (A) and (B) shall not 

6 apply to any return of tax imposed under sec7 tion 511.’’. 

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

9 for part I of subchapter A of chapter 68 is amended by 

10 inserting after the item relating to section 6652 the fol11 lowing new item: 

‘‘Sec. 6652A. Failure to file certain returns electronically.’’. 

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

13 this section shall apply to returns required to be filed on 

14 or after January 1, 2011. 

15 SEC. 409. REPORTING ON IDENTIFICATION OF BENEFICIAL 

16 OWNERS OF CERTAIN FOREIGN FINANCIAL 

17 ACCOUNTS. 

18 (a) IN GENERAL.—Subchapter A of chapter 3 is 

19 amended by adding at the end the following new section: 

20 ‘‘SEC. 1447. WITHHOLDABLE PAYMENTS TO CERTAIN FOR21 EIGN FINANCIAL ACCOUNTS. 

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

23 payment to a foreign financial account, the withholding 

24 agent with respect to such payment shall deduct and with25 hold from such payment a tax equal to 30 percent of the 


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1 amount of such payment if such agent does not meet the 

2 reporting requirements under subsection (b) with respect 

3 to such payment. 

4 ‘‘(b) REPORTING REQUIREMENTS.—The require5 ments of this subsection are met with respect to any 

6 withholdable payment to a foreign financial account if the 

7 withholding agent with respect to such payment— 

8 ‘‘(1) identifies— 

9 ‘‘(A) the beneficial owner or owners of 

10 such account by name, address, TIN (if any), 

11 and 

12 ‘‘(B) the account number, 

13 ‘‘(2) obtains evidence of the nationality of such 

14 owner or owners, 

15 ‘‘(3) complies with such verification and due 

16 diligence procedures as the Secretary may require 

17 with respect to such identification and obtaining of 

18 such evidence, and 

19 ‘‘(4) reports such identification and evidence to 

20 the Secretary in such manner as the Secretary re21 quires. 

22 ‘‘(c) DEFINITIONS.—For purposes of this section— 

23 ‘‘(1) WITHHOLDABLE PAYMENT.—Except as 

24 otherwise provided by the Secretary, the term 

25 ‘withholdable payment’ means— 


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1 ‘‘(A) any payment of interest (including 

2 any original issue discount), dividends, rents, 

3 and other fixed or determinable annual or peri4 odical gains and profits, if such payment is 

5 from sources within the United States, and 

6 ‘‘(B) any gross proceeds from the sale or 

7 other disposition of any property of a type 

8 which can produce interest or dividends from 

9 sources within the United States. 

10 ‘‘(2) WITHHOLDING AGENT.—The term ‘with11 holding agent’ means all persons, in whatever capac12 ity acting, having the control, receipt, custody, dis13 posal, or payment of any withholdable payment. 

14 ‘‘(3) FOREIGN FINANCIAL ACCOUNT.— 

15 ‘‘(A) IN GENERAL.—The term ‘foreign fi16 nancial account’ means any financial account 

17 maintained by a foreign financial institution. 

18 ‘‘(B) FINANCIAL ACCOUNT.—Except as 

19 otherwise provided by the Secretary, the term 

20 ‘financial account’ means, with respect to any 

21 foreign financial institution— 

22 ‘‘(i) any depository account main23 tained by such financial institution, and 

24 ‘‘(ii) any custodial account maintained 

25 by such financial institution. 


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1 ‘‘(4) FOREIGN FINANCIAL INSTITUTION.— 

2 ‘‘(A) IN GENERAL.—The term ‘foreign fi3 nancial institution’ means any financial institu4 tion which is a foreign entity. Except as other5 wise provided by the Secretary, such term shall 

6 not include a financial institution which is orga7 nized under the laws of any possession of the 

8 United States. 

9 ‘‘(B) FINANCIAL INSTITUTION.—Except as 

10 otherwise provided by the Secretary, the term 

11 ‘financial institution’ means any entity that— 

12 ‘‘(i) accepts deposits in the ordinary 

13 course of a banking or similar business, 

14 ‘‘(ii) is engaged primarily in the busi15 ness of holding financial assets for the ac16 count of others, or 

17 ‘‘(iii) is engaged (or holding itself out 

18 as being engaged) primarily in the business 

19 of investing, reinvesting, or trading in se20 curities (as defined in section 475(c)(2) 

21 without regard to the last sentence there22 of), partnership interests, commodities (as 

23 defined in section 475(e)(2)), or any inter24 est (including a futures or forward conVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00112 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 tract or option) in such securities, partner2 ship interests, or commodities. 

3 ‘‘(C) FOREIGN ENTITY.—The term ‘foreign 

4 entity’ means any entity which is not a United 

5 States person. 

6 ‘‘(d) EXCEPTION FOR CERTAIN PAYMENTS.—Sub7 section (a) shall not apply to any payment to the extent 

8 that the beneficial owner of such payment is— 

9 ‘‘(1) any foreign government, any political sub10 division of a foreign government, or any wholly 

11 owned agency or instrumentality of any one or more 

12 of the foregoing, 

13 ‘‘(2) any international organization or any 

14 wholly owned agency or instrumentality thereof, 

15 ‘‘(3) any foreign central bank of issue, or 

16 ‘‘(4) any other class of persons identified by the 

17 Secretary for purposes of this subsection as posing 

18 a low risk of tax evasion. 

19 ‘‘(e) CONFIDENTIALITY OF INFORMATION.—For pur20 poses of this section, rules similar to the rules of section 

21 3406(f) shall apply. 

22 ‘‘(f) COORDINATION WITH OTHER WITHHOLDING

23 PROVISIONS.—The Secretary shall provide for the coordi24 nation of this section with other withholding provisions 

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1 iting of amounts deducted and withheld under this section 

2 against amounts required to be deducted and withheld 

3 under such other provisions. 

4 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

5 such regulations or other guidance as may be necessary 

6 or appropriate to carry out the purposes of, and prevent 

7 the avoidance of, this section.’’. 

8 (b) CONFORMING AMENDMENT.—The table of sec9 tions for subchapter A of chapter 3 is amended by adding 

10 at the end the following new item: 

‘‘Sec. 1447. Withholdable payments to certain foreign financial accounts.’’. 

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

12 this section shall apply to payments made after December 

13 31, 2010. 

14 Subtitle B—Requiring Economic 

15 Substance 

16 SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOC17 TRINE. 

18 (a) IN GENERAL.—Section 7701 is amended by re19 designating subsection (o) as subsection (p) and by insert20 ing after subsection (n) the following new subsection: 

21 ‘‘(o) CLARIFICATION OF ECONOMIC SUBSTANCE

22 DOCTRINE; ETC.— 

23 ‘‘(1) GENERAL RULES.— 

24 ‘‘(A) IN GENERAL.—In any case in which 

25 a court determines that the economic substance 


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1 doctrine is relevant for purposes of this title to 

2 a transaction (or series of transactions), such 

3 transaction (or series of transactions) shall have 

4 economic substance only if the requirements of 

5 this paragraph are met. 

6 ‘‘(B) DEFINITION OF ECONOMIC SUB7 STANCE.—For purposes of subparagraph (A)— 

8 ‘‘(i) IN GENERAL.—A transaction has 

9 economic substance only if— 

10 ‘‘(I) the transaction changes in a 

11 meaningful way (apart from Federal 

12 tax effects) the taxpayer’s economic 

13 position, and 

14 ‘‘(II) subject to clause (iii), the 

15 taxpayer has a substantial purpose 

16 (other than a Federal tax purpose) for 

17 entering into such transaction. 

18 ‘‘(ii) SPECIAL RULE WHERE TAX19 PAYER RELIES ON PROFIT POTENTIAL.—A 

20 transaction shall not be treated as having 

21 economic substance solely by reason of 

22 having a potential for profit unless the 

23 present value of the reasonably expected 

24 pre-Federal tax profit from the transaction 

25 is substantial in relation to the present 


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1 value of the expected net Federal tax bene2 fits that would be allowed if the trans3 action were respected. In determining pre4 Federal tax profit, there shall be taken 

5 into account fees and other transaction ex6 penses and to the extent provided by the 

7 Secretary, foreign taxes. 

8 ‘‘(iii) SPECIAL RULES FOR DETER9 MINING WHETHER NON-FEDERAL TAX

10 PURPOSE.—For purposes of clause 

11 (i)(II)— 

12 ‘‘(I) a purpose of achieving a fi13 nancial accounting benefit shall not be 

14 taken into account in determining 

15 whether a transaction has a substan16 tial purpose (other than a Federal tax 

17 purpose) if the origin of such financial 

18 accounting benefit is a reduction of 

19 Federal tax, and 

20 ‘‘(II) the taxpayer shall not be 

21 treated as having a substantial pur22 pose (other than a Federal tax pur23 pose) with respect to a transaction if 

24 the only such purpose is the reduction 

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1 action will result in a reduction of 

2 Federal taxes substantially equal to, 

3 or greater than, the reduction in non4 Federal taxes because of similarities 

5 between the laws imposing the taxes. 

6 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For 

7 purposes of this subsection— 

8 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

9 The term ‘economic substance doctrine’ means 

10 the common law doctrine under which tax bene11 fits under subtitle A with respect to a trans12 action are not allowable if the transaction does 

13 not have economic substance or lacks a business 

14 purpose. 

15 ‘‘(B) EXCEPTION FOR PERSONAL TRANS16 ACTIONS OF INDIVIDUALS.—In the case of an 

17 individual, this subsection shall apply only to 

18 transactions entered into in connection with a 

19 trade or business or an activity engaged in for 

20 the production of income. 

21 ‘‘(3) OTHER PROVISIONS NOT AFFECTED.—Ex22 cept as specifically provided in this subsection, the 

23 provisions of this subsection shall not be construed 

24 as altering or supplanting any other rule of law or 

25 provision of this title, and the requirements of this 


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1 subsection shall be construed as being in addition to 

2 any such other rule of law or provision of this title. 

3 ‘‘(4) REGULATIONS.—The Secretary shall pre4 scribe such regulations as may be necessary or ap5 propriate to carry out the purposes of this sub6 section. Such regulations may include exemptions 

7 from the application of this subsection.’’. 

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

9 this section shall apply to transactions entered into after 

10 the date of the enactment of this Act. 

11 SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIB12 UTABLE TO TRANSACTIONS LACKING ECO13 NOMIC SUBSTANCE, ETC. 

14 (a) IN GENERAL.—Subchapter A of chapter 68 is 

15 amended by inserting after section 6662A the following 

16 new section: 

17 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB18 UTABLE TO TRANSACTIONS LACKING ECO19 NOMIC SUBSTANCE, ETC. 

20 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 

21 noneconomic substance transaction understatement for 

22 any taxable year, there shall be added to the tax an 

23 amount equal to 30 percent of the amount of such under24 statement. 


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1 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

2 TRANSACTIONS.—Subsection (a) shall be applied by sub3 stituting ‘20 percent’ for ‘30 percent’ with respect to the 

4 portion of any noneconomic substance transaction under5 statement with respect to which the relevant facts affect6 ing the tax treatment of the item are adequately disclosed 

7 in the return or a statement attached to the return. 

8 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN9 DERSTATEMENT.—For purposes of this section— 

10 ‘‘(1) IN GENERAL.—The term ‘noneconomic 

11 substance transaction understatement’ means any 

12 amount which would be an understatement under 

13 section 6662A(b)(1) if section 6662A were applied 

14 by taking into account items attributable to non15 economic substance transactions rather than items 

16 to which section 6662A would apply without regard 

17 to this paragraph. 

18 ‘‘(2) NONECONOMIC SUBSTANCE TRANS19 ACTION.—The term ‘noneconomic substance trans20 action’ means any transaction if there is a lack of 

21 economic substance (within the meaning of section 

22 7701(o)(1)(B)) for the transaction giving rise to the 

23 claimed benefit. 

24 ‘‘(d) RULES APPLICABLE TO ASSERTION, COM25 PROMISE, AND COLLECTION OF PENALTY.— 


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1 ‘‘(1) IN GENERAL.—Only the Chief Counsel for 

2 the Internal Revenue Service may assert a penalty 

3 imposed under this section or may compromise all or 

4 any portion of such penalty. The Chief Counsel may 

5 delegate the authority under this paragraph only to 

6 an individual holding the position of chief of a 

7 branch within the Office of the Chief Counsel for the 

8 Internal Revenue Service. 

9 ‘‘(2) SPECIFIC REQUIREMENTS.— 

10 ‘‘(A) ASSERTION OF PENALTY.—The Chief 

11 Counsel for the Internal Revenue Service (or 

12 the Chief Counsel’s delegate under paragraph 

13 (1)) shall not assert a penalty imposed under 

14 this section unless, before the assertion of the 

15 penalty, the taxpayer is provided— 

16 ‘‘(i) a notice of intent to assert the 

17 penalty, and 

18 ‘‘(ii) an opportunity to provide to the 

19 Commissioner (or the Chief Counsel’s dele20 gate under paragraph (1)) a written re21 sponse to the proposed penalty within a 

22 reasonable period of time after such notice. 

23 ‘‘(B) COMPROMISE OF PENALTY.—A com24 promise shall not result in a reduction in the 

25 penalty imposed by this section in an amount 


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1 greater than the amount which bears the same 

2 ratio to the amount of the penalty determined 

3 without regard to the compromise as— 

4 ‘‘(i) the reduction under the com5 promise in the noneconomic substance 

6 transaction understatement to which the 

7 penalty relates, bears to 

8 ‘‘(ii) the amount of the noneconomic 

9 substance transaction understatement de10 termined without regard to the com11 promise. 

12 ‘‘(3) RULES RELATING TO RELEVANCY RE13 QUIREMENT.— 

14 ‘‘(A) DETERMINATION OF RELEVANCE BY

15 CHIEF COUNSEL.—The Chief Counsel for the 

16 Internal Revenue Service (or the Chief Coun17 sel’s delegate under paragraph (1)) may assert, 

18 compromise, or collect a penalty imposed by 

19 this section with respect to a noneconomic sub20 stance transaction even if there has not been a 

21 court determination that the economic sub22 stance doctrine was relevant for purposes of 

23 this title to the transaction if the Chief Counsel 

24 (or delegate) determines that either was so rel25 evant. 


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1 ‘‘(B) FINAL ORDER OF COURT.—If there is 

2 a final order of a court that determines that the 

3 economic substance doctrine was not relevant 

4 for purposes of this title to a transaction (or se5 ries of transactions), any penalty imposed under 

6 this section with respect to the transaction (or 

7 series of transactions) shall be rescinded. 

8 ‘‘(4) APPLICABLE RULES.—The rules of para9 graphs (2) and (3) of section 6707A(d) shall apply 

10 to a compromise under paragraph (1). 

11 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex12 cept as otherwise provided in this part, the penalty im13 posed by this section shall be in addition to any other pen14 alty imposed by this title. 

15 ‘‘(f) CROSS REFERENCES.— 

16 ‘‘(1) For coordination of penalty with under17 statements under section 6662 and other special 

18 rules, see section 6662A(e). 

19 ‘‘(2) For reporting of penalty imposed under 

20 this section to the Securities and Exchange Commis21 sion, see section 6707A(e).’’. 

22 (b) COORDINATION WITH OTHER UNDERSTATE23 MENTS AND PENALTIES.— 

24 (1) The second sentence of section 

25 6662(d)(2)(A) is amended by inserting ‘‘and without 


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1 regard to items with respect to which a penalty is 

2 imposed by section 6662B’’ before the period at the 

3 end. 

4 (2) Subsection (e) of section 6662A is amend5 ed— 

6 (A) in paragraph (1), by inserting ‘‘and 

7 noneconomic substance transaction understate8 ments’’ after ‘‘reportable transaction under9 statements’’ both places it appears, 

10 (B) in paragraph (2)(A)— 

11 (i) by inserting ‘‘6662B or’’ before 

12 ‘‘6663’’ in the text, and 

13 (ii) by striking ‘‘PENALTY’’ in the 

14 heading and inserting ‘‘AND ECONOMIC

15 SUBSTANCE PENALTIES’’, 

16 (C) in paragraph (2)(B)— 

17 (i) by inserting ‘‘and section 6662B’’ 

18 after ‘‘This section’’, and 

19 (ii) by striking ‘‘PENALTY’’ in the 

20 heading and inserting ‘‘AND ECONOMIC

21 SUBSTANCE PENALTIES’’, 

22 (D) in paragraph (3), by inserting ‘‘or 

23 noneconomic substance transaction understate24 ment’’ after ‘‘reportable transaction understate25 ment’’, and 


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1 (E) by adding at the end the following new 

2 paragraph: 

3 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

4 UNDERSTATEMENT.—For purposes of this sub5 section, the term ‘noneconomic substance trans6 action understatement’ has the meaning given such 

7 term by section 6662B(c).’’. 

8 (3) Subsection (e) of section 6707A is amend9 ed— 

10 (A) by striking ‘‘or’’ at the end of subpara11 graph (B), and 

12 (B) by striking subparagraph (C) and in13 serting the following new subparagraphs: 

14 ‘‘(C) is required to pay a penalty under 

15 section 6662B with respect to any noneconomic 

16 substance transaction, or 

17 ‘‘(D) is required to pay a penalty under 

18 section 6662(h) with respect to any transaction 

19 and would (but for section 6662A(e)(2)(B)) 

20 have been subject to penalty under section 

21 6662A at a rate prescribed under section 

22 6662A(c) or to penalty under section 6662B,’’. 

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

24 for part II of subchapter A of chapter 68 is amended by 


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1 inserting after the item relating to section 6662A the fol2 lowing new item: 

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking 

economic substance, etc.’’. 

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

4 this section shall apply to transactions entered into after 

5 the date of the enactment of this Act. 

6 SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UN7 DERPAYMENTS ATTRIBUTABLE TO NON8 ECONOMIC SUBSTANCE TRANSACTIONS. 

9 (a) IN GENERAL.—Section 163(m) (relating to inter10 est on unpaid taxes attributable to nondisclosed reportable 

11 transactions) is amended— 

12 (1) by striking ‘‘attributable’’ and all that fol13 lows and inserting the following: ‘‘attributable to— 

14 ‘‘(1) the portion of any reportable transaction 

15 understatement (as defined in section 6662A(b)) 

16 with respect to which the requirement of section 

17 6664(d)(2)(A) is not met, or 

18 ‘‘(2) any noneconomic substance transaction 

19 understatement (as defined in section 6662B(c)).’’, 

20 and 

21 (2) by inserting ‘‘AND NONECONOMIC SUB22 STANCE TRANSACTIONS’’ in the heading thereof 

23 after ‘‘TRANSACTIONS’’. 


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

2 this section shall apply to transactions after the date of 

3 the enactment of this Act in taxable years ending after 

4 such date. 

5 Subtitle C—Internet Gambling 

6 Taxation and Regulation 

7 SEC. 421. TAX ON INTERNET GAMBLING; LICENSEE INFOR8 MATION REPORTING. 

9 (a) IN GENERAL.—Chapter 36 (relating to certain 

10 other excise taxes) is amended by adding at the end the 

11 following new subchapter: 

12 ‘‘Subchapter E—Internet Gambling 

‘‘Sec. 4491. Imposition of Internet gambling license fee. 

‘‘Sec. 4492. Record requirements. 

13 ‘‘SEC. 4491. IMPOSITION OF INTERNET GAMBLING LICENSE 

14 FEE. 

15 ‘‘(a) FEDERAL FEE.—Each licensee within the mean16 ing of section 5382 of title 31, United States Code, shall 

17 be required to pay an Internet gambling license fee by the 

18 end of each calendar month in an amount equal to two 

19 percent of all funds deposited by customers during the 

20 preceding month into an account maintained by that li21 censee or any agent of that licensee that can be used for 

22 the purpose of placing a bet or wager as defined in section 

23 5362(1) of title 31, United States Code. 


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1 ‘‘(b) DEPOSITS.—Deposits made by or on behalf of 

2 a licensee of Internet gambling winnings or returns of 

3 funds by or on behalf of a licensee to the account of a 

4 customer shall not be treated as a deposit for purposes 

5 of this section. 

6 ‘‘(c) PERSONS LIABLE FOR FEE.—The Internet gam7 bling license fee shall be the direct and exclusive obligation 

8 of the Internet gambling operator and may not be de9 ducted from the amounts available as deposits to the per10 son placing a bet. Notwithstanding the foregoing, any per11 son making a deposit for the purpose of placing a bet or 

12 wager with a person who is required but has failed to ob13 tain a license pursuant to subchapter V of chapter 53 of 

14 title 31, United States Code, shall be liable for and pay 

15 the fee under this subchapter on all such deposits, but 

16 such liability shall not excuse any failure to pay the fee 

17 on the part of the person who is required but has failed 

18 to obtain such license. 

19 ‘‘(d) UNAUTHORIZED BETS OR WAGERS.—There is 

20 hereby imposed a fee in an amount equal to 50 percent 

21 of all funds deposited into an account that can be used 

22 for placing a bet or wager within the meaning of Section 

23 5362(1) of title 31, United States Code, with any person 

24 that is not authorized pursuant to section 5382 of that 


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1 title. Such tax is due by the end of each calendar month 

2 with respect to deposits during the preceding month. 

3 ‘‘(e) DISPOSITION.—Amounts paid as Internet gam4 bling license fees or on unauthorized bets or wagers under 

5 this section shall be deposited in the general fund of the 

6 Treasury and treated as revenue. 

7 ‘‘(f) ADMINISTRATIVE PROVISIONS.—Except to the 

8 extent the Secretary shall by regulations prescribe, the 

9 fees imposed by this section shall be subject to the admin10 istrative provisions of this title applicable to excise taxes 

11 imposed by chapter 35. 

12 ‘‘SEC. 4492. RECORD REQUIREMENTS. 

13 ‘‘Each person liable for fees under this subchapter, 

14 except for a person making a deposit who is liable for fees 

15 pursuant to section 4491(e), shall keep a daily record 

16 showing deposits as defined in this subchapter, in addition 

17 to all other records required pursuant to section 

18 6001(a).’’. 

19 (b) INFORMATION RETURNS.—Subpart A of part III 

20 of subchapter A of chapter 61 (relating to information 

21 concerning persons subject to special provisions) is amend22 ed by adding at the end the following new section: 

23 ‘‘SEC. 6050X. RETURNS RELATING TO INTERNET GAMBLING. 

24 ‘‘(a) REQUIREMENT.—Every person who is a licensee 

25 (within the meaning of section 5382(3) of title 31, United 


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1 States Code) or who otherwise is engaged in the business 

2 of accepting any bet or wager within the meaning of sec3 tion 5362(1) of title 31, United States Code, during a tax4 able year shall furnish, at such time and in such manner 

5 as the Secretary shall by regulations prescribe, the infor6 mation described in subsection (b), and such person shall 

7 maintain (in the location, in the manner, and to the extent 

8 prescribed in regulations) such records as may be appro9 priate to the information described in subsection (b). 

10 ‘‘(b) REQUIRED INFORMATION.—For purposes of 

11 subsection (a), the information described is set forth 

12 below, which information may be modified as appropriate 

13 by the Secretary through regulation— 

14 ‘‘(1) the name, address, and TIN of the licensee 

15 or other person engaged in the business of accepting 

16 any bet or wager, 

17 ‘‘(2) the name, address, and TIN of each per18 son placing a bet or wager with the licensee or other 

19 person engaged in the business of accepting any bet 

20 or wager during the calendar year, 

21 ‘‘(3) the gross winnings, gross wagers, and 

22 gross losses for the calendar year of each person 

23 placing a bet or wager with the licensee or other per24 son engaged in the business of accepting any bet or 

25 wager during the year, 


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1 ‘‘(4) the net Internet gambling winnings for 

2 each such person for the calendar year, 

3 ‘‘(5) the amount of tax withheld with respect to 

4 each such person for the calendar year, 

5 ‘‘(6) beginning and end-of-year account bal6 ances for each such person for the calendar year, 

7 and 

8 ‘‘(7) amounts deposited and withdrawn by each 

9 such person during the calendar year. 

10 ‘‘(c) STATEMENT TO BE FURNISHED TO PERSONS

11 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.— 

12 Every person required to make a return under subsection 

13 (a) shall furnish to each person whose name is required 

14 to be set forth in such return by reason of placing a bet 

15 or wager a written statement showing— 

16 ‘‘(1) the name, address, and phone number of 

17 the information contact of the person required to 

18 make such return, and 

19 ‘‘(2) the information required to be shown on 

20 such return with respect to each person whose name 

21 is required to be set forth in such return. 

22 The written statement required under the preceding sen23 tence shall be furnished to the person on or before Janu24 ary 31 of the year following the calendar year for which 

25 the return under subsection (a) was required to be made. 


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1 ‘‘(d) DEFINITIONS.— 

2 ‘‘(1) NET INTERNET GAMBLING WINNINGS.— 

3 The term ‘net Internet gambling winnings’ means 

4 gross winnings from wagers placed over the Internet 

5 with a person required to be licensed under section 

6 5382 of chapter 53 of title 31, United States Code, 

7 less the amounts wagered. 

8 ‘‘(2) INTERNET; WAGER.—The terms ‘Internet’ 

9 and ‘wager’ shall have the respective meanings given 

10 such terms by section 5362 of chapter 53 of title 31, 

11 United States Code.’’. 

12 (c) CLERICAL AMENDMENTS.— 

13 (1) The table of subchapters for chapter 36 is 

14 amended by adding at the end the following new 

15 item: 

‘‘SUBCHAPTER E. INTERNET GAMBLING.’’. 

16 (2) The table of sections for subpart B of part 

17 III of subchapter A of chapter 61 is amended by in18 serting after the item relating to section 6050W the 

19 following new item: 

‘‘Sec. 6050X. Returns relating to Internet gambling.’’. 

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

21 this section shall apply to bets or wagers placed after the 

22 date of the enactment of this Act. 


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1 SEC. 422. WITHHOLDING FROM CERTAIN GAMBLING 

2 WINNINGS. 

3 (a) NET INTERNET GAMBLING WINNINGS.—Para4 graph (3) of section 3406(b) (relating to other reportable 

5 payments for purposes of backup withholding) is amend6 ed— 

7 (1) by striking ‘‘or’’ in subparagraph (E); 

8 (2) by striking ‘‘.’’ and inserting ‘‘, or’’ at the 

9 end of subparagraph (F); and 

10 (3) by adding at the end thereof the following 

11 new subparagraph: 

12 ‘‘(G) section 6050X(b)(4) (relating to net 

13 Internet gambling winnings).’’. 

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

15 this section shall apply to bets or wagers placed after the 

16 date of the enactment of this Act. 

17 SEC. 423. WITHHOLDING OF TAX ON NONRESIDENT ALIENS. 

18 (a) TAX ON NONRESIDENT ALIEN INDIVIDUALS.— 

19 Paragraph (1) of section 871(a) (relating to income not 

20 connected with United States business) is amended— 

21 (1) by striking ‘‘and’’ at the end of subpara22 graph (C), 

23 (2) by inserting ‘‘and’’ at the end of subpara24 graph (D), and 

25 (3) by inserting after subparagraph (D) the fol26 lowing new subparagraph: 


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1 ‘‘(E) the gross amount of winnings from 

2 each wager placed over the Internet with a per3 son required to be licensed under section 5382 

4 of chapter 53 of title 31, United States Code 

5 (as such terms are defined in section 

6 6050X(d)(2)),’’. 

7 (b) EXEMPTION FOR CERTAIN GAMBLING

8 WINNINGS.—Section 871(j) (relating to exemption for cer9 tain gambling winnings) is amended by inserting before 

10 the period at the end the following: ‘‘or to any bets or 

11 wagers placed over the Internet (as such terms are defined 

12 in section 6050X(d)(2))’’. 

13 (c) WITHHOLDING OF TAX ON NONRESIDENT ALIEN

14 INDIVIDUALS.—The first sentence of subsection (b) of sec15 tion 1441 (relating to withholding of tax on nonresident 

16 aliens) is amended by inserting after ‘‘gains subject to tax 

17 under section 871(a)(1)(D),’’ the following: ‘‘the gross 

18 amount of winnings from wagers placed over the Internet 

19 described in section 871(a)(1)(E),’’. 

20 (d) SOURCE OF INTERNET GAMBLING WINNINGS.— 

21 Subsection (a) of section 861 is amending by inserting at 

22 the end thereof the following new paragraph: 

23 ‘‘(9) INTERNET GAMBLING WINNINGS.—Any 

24 Internet gambling winnings received from a licensee 


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1 within the meaning of section 5382(3) of title 31, 

2 United States Code.’’. 

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

4 this section shall apply to bets or wagers placed after the 

5 date of the enactment of this Act. 

6 SEC. 424. TERRITORIAL EXTENT. 

7 Paragraph (2) of section 4404 is amended to read 

8 as follows: 

9 ‘‘(2) placed within the United States or any 

10 Commonwealth, territory, or possession thereof by a 

11 United States citizen or resident.’’. 

12 SEC. 425. FEDERAL LICENSING REQUIREMENT FOR INTER13 NET GAMBLING OPERATORS. 

14 (a) IN GENERAL.—Chapter 53 of title 31, United 

15 States Code, is amended by adding at the end the fol16 lowing new subchapter: 

17 ‘‘SUBCHAPTER V—REGULATION OF LAWFUL 

18 INTERNET GAMBLING 

19 ‘‘§ 5381. Congressional findings 

20 ‘‘The Congress finds the following: 

21 ‘‘(1) Since the development of the Internet, mil22 lions of people have chosen to gamble online, and 

23 today Internet gambling is offered by operators lo24 cated in many different countries under a variety of 

25 licensing and regulatory regimes. 


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1 ‘‘(2) Despite the increasing use of the Internet 

2 for gambling by persons in the United States, there 

3 is no Federal or State regulatory regime in place to 

4 protect United States citizens who choose to engage 

5 in this interstate activity, or to oversee operators to 

6 establish and enforce standards of integrity and fair7 ness. 

8 ‘‘(3) In the United States, gambling activities, 

9 equipment, and operations have been subject to var10 ious forms of Federal and State control, regulation, 

11 and enforcement, with some form of gambling being 

12 permitted in nearly every State and by many Indian 

13 tribes. 

14 ‘‘(4) Internet gambling in the United States 

15 should be controlled by a strict Federal licensing and 

16 regulatory framework to protect underage and other17 wise vulnerable individuals, to ensure the games are 

18 fair, to address the concerns of law enforcement, 

19 and to enforce any limitations on the activity estab20 lished by the States and Indian tribes. 

21 ‘‘(5) An effective Federal licensing system 

22 would ensure that licenses are issued only to Inter23 net gambling operators which meet strict criteria to 

24 protect consumers, and which— 


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1 ‘‘(A) are in good financial and legal stand2 ing, and of good character, honesty, and integ3 rity; 

4 ‘‘(B) utilize appropriate technology to de5 termine the age and location of users; 

6 ‘‘(C) adopt and implement systems to pro7 tect minors and problem gamblers; 

8 ‘‘(D) adopt and implement systems to en9 force any applicable Federal, State, and Indian 

10 tribe limitations on Internet gambling; and 

11 ‘‘(E) have in place risk-based methods to 

12 identify and combat money laundering and 

13 fraud relating to Internet gambling, and to pro14 tect the privacy and security of users. 

15 ‘‘(6) There is a need to extend the regulatory 

16 provisions of this Act to all persons, locations, equip17 ment, practices, and associations related to Internet 

18 gambling, with each State and Indian tribe having 

19 the ability to limit Internet gambling operators from 

20 offering Internet gambling to persons located within 

21 its territory by opting out of the provisions of this 

22 Act. 

23 ‘‘§ 5382. Definitions 

24 ‘‘For purposes of this subchapter, the following defi25 nitions shall apply: 


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1 ‘‘(1) APPLICANT.—The term ‘applicant’ means 

2 any person who has applied for a license pursuant 

3 to this subchapter. 

4 ‘‘(2) BET OR WAGER.—The term ‘bet or wager’ 

5 has the same meaning as in section 5362(1). 

6 ‘‘(3) ENFORCEMENT AGENT.—The term ‘en7 forcement agent’ means any individual authorized by 

8 the Secretary to enforce the provisions of this sub9 chapter and regulations prescribed under this sub10 chapter. 

11 ‘‘(4) INDIAN LANDS AND INDIAN TRIBE.—The 

12 terms ‘Indian lands’ and ‘Indian tribe’ have the 

13 same meanings as in section 4 of the Indian Gaming 

14 Regulatory Act. 

15 ‘‘(5) INTERNET.—The term ‘Internet’ has the 

16 same meaning as in section 5362(5). 

17 ‘‘(6) LICENSEE.—The term ‘licensee’ means an 

18 entity authorized to operate an Internet gambling 

19 facility in accordance with this subchapter. 

20 ‘‘(7) OPERATE AN INTERNET GAMBLING FACIL21 ITY.—The term ‘operate an Internet gambling facil22 ity’ or ‘operation of an Internet gambling facility’ 

23 means the direction, management, supervision, or 

24 control of an Internet site through which bets or wa25 gers are initiated, received, or otherwise made, 


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1 whether by telephone, Internet, satellite, or other 

2 wire or wireless communication. 

3 ‘‘(8) SECRETARY.—The term ‘Secretary’ means 

4 the Secretary of the Treasury, or any person des5 ignated by the Secretary. 

6 ‘‘(9) STATE.—The term ‘State’ means any 

7 State of the United States, the District of Columbia, 

8 or any commonwealth, territory, or other possession 

9 of the United States. 

10 ‘‘(10) SPORTING EVENT.—The term ‘sporting 

11 event’ means any athletic competition, whether pro12 fessional, scholastic, or amateur. 

13 ‘‘§ 5383. Establishment and administration of licens14 ing program 

15 ‘‘(a) TREASURY RESPONSIBILITIES.—The Secretary 

16 shall have responsibility for the following activities: 

17 ‘‘(1) Exercising full regulatory jurisdiction 

18 over— 

19 ‘‘(A) the operation of Internet gambling fa20 cilities by licensees; and 

21 ‘‘(B) the licensure of all applicants. 

22 ‘‘(2) Prescribing such regulations as may be 

23 necessary to administer and enforce the require24 ments of this subchapter. 


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1 ‘‘(3) Employing enforcement agents with suffi2 cient training and experience to administer the re3 quirements of this subchapter and the regulations 

4 prescribed under this subchapter. 

5 ‘‘(4) Enforcing the requirements of this sub6 chapter through all appropriate means provided 

7 under this subchapter and other provisions of law. 

8 ‘‘(b) INTERNET GAMBLING LICENSING PROGRAM.— 

9 ‘‘(1) LICENSING REQUIRED FOR CERTAIN

10 INTERNET GAMBLING.—No person may operate an 

11 Internet gambling facility that knowingly accepts 

12 bets or wagers from persons located in the United 

13 States without a license issued by the Secretary in 

14 accordance with this subchapter. 

15 ‘‘(2) AUTHORITY UNDER VALID LICENSE.—A li16 censee may accept bets or wagers from persons lo17 cated in the United States, subject to the limitations 

18 set forth in this subchapter, so long as its license re19 mains in good standing. 

20 ‘‘(c) APPLICATION FOR LICENSE.— 

21 ‘‘(1) IN GENERAL.—Any person seeking author22 ity to operate an Internet gambling facility offering 

23 services to persons in the United States may apply 

24 for a license issued by the Secretary. 


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1 ‘‘(2) INFORMATION REQUIRED.—Any applica2 tion for a license under this subchapter shall contain 

3 such information as may be required by the Sec4 retary, including the following: 

5 ‘‘(A) The criminal and credit history of the 

6 applicant, any senior executive and director of 

7 the applicant, and any person deemed to be in 

8 control of the applicant. 

9 ‘‘(B) The financial statements of the appli10 cant. 

11 ‘‘(C) Documentation showing the corporate 

12 structure of the applicant and all related busi13 nesses and affiliates. 

14 ‘‘(D) Documentation containing detailed 

15 evidence of the applicant’s plan for complying 

16 with all applicable regulations should a license 

17 be issued, with particular emphasis on the ap18 plicant’s ability to— 

19 ‘‘(i) protect underage and problem 

20 gamblers; 

21 ‘‘(ii) ensure games are being operated 

22 fairly; and 

23 ‘‘(iii) comply with and address the 

24 concerns of law enforcement. 


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1 ‘‘(E) Certification that the applicant 

2 agrees to submit to United States jurisdiction 

3 and all applicable United States laws relating to 

4 acceptance by the applicant of bets or wagers 

5 over the Internet from persons located in the 

6 United States and all associated activities. 

7 ‘‘(d) STANDARDS FOR LICENSE ISSUANCE; SUIT8 ABILITY QUALIFICATIONS AND DISQUALIFICATION

9 STANDARDS.— 

10 ‘‘(1) SUITABILITY FOR LICENSING STAND11 ARDS.— 

12 ‘‘(A) IN GENERAL.—No person shall be eli13 gible to obtain a license unless the Secretary 

14 has determined, upon completion of a back15 ground check and investigation, that the appli16 cant, and any person deemed to be in control 

17 of the applicant, is suitable for licensing. 

18 ‘‘(B) ASSOCIATES OF APPLICANTS.—If the 

19 applicant is a corporation, partnership, or other 

20 business entity, a background check and inves21 tigation shall occur with respect to the presi22 dent or other chief executive of the corporation, 

23 partnership, or other business entity and other 

24 partners or senior executives and directors of 

25 the corporation, partnership, or entity, as deterVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00141 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 mined appropriate by the Secretary, in the Sec2 retary’s sole discretion. 

3 ‘‘(C) BACKGROUND CHECK AND INVES4 TIGATION.—The Secretary shall establish 

5 standards and procedures for conducting back6 ground checks and investigations for purposes 

7 of this subsection. 

8 ‘‘(2) SUITABILITY FOR LICENSING STANDARDS

9 DESCRIBED.—For purposes of this subchapter, an 

10 applicant and any other person associated with the 

11 applicant, as applicable, is suitable for licensing if 

12 the applicant demonstrates to the Secretary by clear 

13 and convincing evidence that the applicant (or indi14 vidual associated with the applicant, as applicable)— 

15 ‘‘(A) is a person of good character, hon16 esty, and integrity; 

17 ‘‘(B) is a person whose prior activities, 

18 reputation, habits, and associations do not— 

19 ‘‘(i) pose a threat to the public inter20 est or to the effective regulation and con21 trol of the licensed activities; or 

22 ‘‘(ii) create or enhance the dangers of 

23 unsuitable, unfair, or illegal practices, 

24 methods, and activities in the conduct of 

25 the licensed activities or the carrying on of 


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1 the business and financial arrangements 

2 incidental to such activities; 

3 ‘‘(C) is capable of and likely to conduct the 

4 activities for which the applicant is licensed in 

5 accordance with the provisions of this sub6 chapter and any regulations prescribed under 

7 this subchapter; 

8 ‘‘(D) has or guarantees acquisition of ade9 quate business competence and experience in 

10 the operation of Internet gambling facilities; 

11 and 

12 ‘‘(E) has or will obtain sufficient financing 

13 for the nature of the proposed operation and 

14 from a suitable source. 

15 ‘‘(3) UNSUITABLE FOR LICENSING.—An appli16 cant or any other person may not be determined to 

17 be suitable for licensing within the meaning of this 

18 subchapter if the applicant or such person— 

19 ‘‘(A) has failed to provide information and 

20 documentation material to a determination of 

21 suitability for licensing under paragraph (1); 

22 ‘‘(B) has supplied information which is un23 true or misleading as to a material fact per24 taining to any such determination; 


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1 ‘‘(C) has been convicted of an offense pun2 ishable by imprisonment of more than 1 year; 

3 or 

4 ‘‘(D) is delinquent in filing any applicable 

5 Federal or State tax returns or in the payment 

6 of any taxes, penalties, additions to tax, or in7 terest owed to a State or the United States. 

8 ‘‘(4) ONGOING REQUIREMENT.—A licensee (and 

9 any other person who is required to be determined 

10 to be suitable for licensing in connection with such 

11 licensee) shall meet the standards necessary to be 

12 suitable for licensing throughout the term of the li13 cense. 

14 ‘‘(5) PROTECTION OF THE PUBLIC TRUST.— 

15 The Secretary may take such action as is necessary 

16 to protect the public trust, including the implemen17 tation of such safeguards as may be necessary to en18 sure the operation of an Internet gambling facility 

19 licensed under this subchapter is controlled only by 

20 persons who are suitable for licensing. 

21 ‘‘(6) ENFORCEMENT ACTIONS.— 

22 ‘‘(A) DETERMINATION OF UNSUITABILITY

23 FOR CONTINUED LICENSURE.—If the Secretary 

24 finds that an individual owner or holder of a se25 curity of a licensee, or of a holding or interVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00144 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 mediary company of a licensee or any person 

2 with an economic interest in a licensee or a di3 rector, partner, or officer of a licensee is not 

4 suitable for licensing, the Secretary may deter5 mine that the licensee is not qualified to con6 tinue as a licensee. 

7 ‘‘(B) ACTION TO PROTECT THE PUBLIC IN8 TEREST, INCLUDING SUSPENSION.—If the Sec9 retary may determine that the licensee is not 

10 qualified to continue as a licensee, the Secretary 

11 shall propose action necessary to protect the 

12 public interest, including, if deemed necessary, 

13 the suspension of the licensee. 

14 ‘‘(C) IMPOSITION OF CONDITIONS INCLUD15 ING REMOVAL OF PARTIES.—Notwithstanding a 

16 determination under subparagraph (A), the 

17 Secretary may allow a licensee to continue en18 gaging in licensed activities by imposing condi19 tions on the licensee under penalty of revocation 

20 or suspension of a license, including— 

21 ‘‘(i) the identification of any person 

22 determined to be unsuitable for licensing; 

23 and 

24 ‘‘(ii) the establishment of appropriate 

25 safeguards to ensure such person is exVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00145 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 cluded from any interest in the licensed ac2 tivities. 

3 ‘‘(e) ASSESSMENTS FOR ADMINISTRATIVE EX4 PENSES.— 

5 ‘‘(1) USER FEES.— 

6 ‘‘(A) IN GENERAL.—The cost of admin7 istering this subchapter with respect to each li8 censee, including the cost of any review or ex9 amination of a licensee to ensure compliance 

10 with the terms of the license and this sub11 chapter, shall be assessed by the Secretary 

12 against the licensee institution by written notice 

13 in an amount appropriate to meet the Sec14 retary’s expenses in carrying out such adminis15 tration, review, or examination. 

16 ‘‘(B) DISPOSITION.—Amounts assessed by 

17 the Secretary as user fees under subparagraph 

18 (A) shall— 

19 ‘‘(i) be maintained by the Secretary 

20 solely for use in accordance with clause 

21 (ii); 

22 ‘‘(ii) be available to the Secretary to 

23 cover all expenses incurred by the Sec24 retary in carrying out this subchapter; and 


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1 ‘‘(iii) not be construed to be Govern2 ment funds or appropriated monies, or 

3 subject to apportionment for the purposes 

4 of chapter 15 or any other authority. 

5 ‘‘(C) HEARING.—Any licensee against 

6 whom an assessment is assessed under this 

7 paragraph shall be afforded an agency hearing 

8 if such person submits a request for such hear9 ing within 20 days after the issuance of the no10 tice of assessment. 

11 ‘‘(D) COLLECTION.— 

12 ‘‘(i) REFERRAL.—If any licensee fails 

13 to pay an assessment under this paragraph 

14 after the assessment has become final, the 

15 Secretary shall recover the amount as16 sessed by action in the appropriate United 

17 States district court. 

18 ‘‘(ii) APPROPRIATENESS OF ASSESS19 MENT NOT REVIEWABLE.—In any civil ac20 tion under clause (i), the validity and ap21 propriateness of the assessment shall not 

22 be subject to review. 

23 ‘‘(2) DIRECT AND EXCLUSIVE OBLIGATION OF

24 LICENSEE.—The user fee shall be the direct and ex25 clusive obligation of the licensee and may not be deVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00147 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 ducted from amounts available as deposits to any 

2 person placing a bet. 

3 ‘‘(f) APPROVAL OF LICENSE.—The Secretary shall 

4 grant licenses under this subchapter if the applicant meets 

5 the criteria set by the Secretary set forth in this sub6 chapter and in any regulations promulgated thereunder. 

7 ‘‘(g) SAFEGUARDS REQUIRED OF LICENSEE.—No 

8 person shall receive or retain a license under this section 

9 unless the person maintains or requires mechanisms so 

10 that the following requirements, and the standards estab11 lished under section 5384, are met with respect to any 

12 Internet bet or wager: 

13 ‘‘(1) LEGAL AGE.—Appropriate safeguards to 

14 ensure that the individual placing a bet or wager is 

15 of legal age as defined by the law of the State or 

16 tribal area in which the individual is located at the 

17 time the bet or wager is placed. 

18 ‘‘(2) PERMISSIBLE LOCATION.—Appropriate 

19 safeguards to ensure that the individual placing a 

20 bet or wager is physically located in a jurisdiction 

21 that permits Internet gambling at the time the bet 

22 or wager is placed. 

23 ‘‘(3) COLLECTION OF CUSTOMER TAXES.—Ap24 propriate mechanisms to ensure that all taxes relat25 ing to Internet gambling from persons engaged in 


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1 Internet gambling are collected at the time of any 

2 payment of any proceeds of Internet gambling. 

3 ‘‘(4) COLLECTION OF TAXES OF LICENSEE.— 

4 Appropriate mechanisms to ensure that all taxes re5 lating to Internet gambling from any licensee are 

6 collected and disbursed as required by law, and that 

7 adequate records to enable later audit or verification 

8 are maintained. 

9 ‘‘(5) SAFEGUARDS AGAINST FINANCIAL

10 CRIME.—Appropriate safeguards to combat fraud, 

11 money laundering, and terrorist finance. 

12 ‘‘(6) SAFEGUARDS AGAINST COMPULSIVE GAM13 BLING.—Appropriate safeguards to combat compul14 sive Internet gambling. 

15 ‘‘(7) PRIVACY SAFEGUARDS.—Appropriate safe16 guards to protect the privacy and security of any 

17 person engaged in Internet gambling. 

18 ‘‘(8) PAYMENT OF ASSESSMENTS.—Appropriate 

19 mechanisms to ensure that any assessment under 

20 subsection (e) is paid to the Secretary. 

21 ‘‘(9) OTHER REQUIREMENTS.—Such other re22 quirements as the Secretary may establish by regula23 tion or order. 

24 ‘‘(h) TERM AND RENEWAL OF LICENSE.— 


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1 ‘‘(1) TERM.—Any license issued under this sec2 tion shall be issued for a 5-year term beginning on 

3 the date of issuance. 

4 ‘‘(2) RENEWAL.—Licenses may be renewed in 

5 accordance with the requirements prescribed by the 

6 Secretary pursuant to this subchapter. 

7 ‘‘(i) REVOCATION OF LICENSE.— 

8 ‘‘(1) IN GENERAL.—Any license granted under 

9 this subchapter may be revoked by the Secretary 

10 if— 

11 ‘‘(A) the licensee fails to comply with any 

12 provision of this subchapter; or 

13 ‘‘(B) the licensee is determined to be un14 suitable for licensing, within the meaning of 

15 this subchapter. 

16 ‘‘(2) FINAL ACTION.—Any revocation of a li17 cense under paragraph (1) shall be treated as a final 

18 action by the Secretary. 

19 ‘‘(j) REGULATIONS.—The regulations prescribed by 

20 the Secretary under this subchapter shall include regula21 tions to fully implement— 

22 ‘‘(1) safeguards required for licensees under 

23 subsection (g); and 


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1 ‘‘(2) the requirements for programs relating to 

2 the Problem Gambling, Responsible Gambling, and 

3 Self-Exclusion Program under section 5384. 

4 ‘‘(k) ADMINISTRATIVE PROVISIONS.— 

5 ‘‘(1) GENERAL POWERS OF SECRETARY.—The 

6 Secretary shall have the authority to engage in the 

7 following: 

8 ‘‘(A) Investigate the suitability of each ap9 plicant to ensure compliance with this sub10 chapter and regulations prescribed under this 

11 subchapter. 

12 ‘‘(B) Require licensees to maintain appro13 priate procedures to ensure compliance with 

14 this subchapter and regulations prescribed 

15 under this subchapter. 

16 ‘‘(C) Examine any licensee and any books, 

17 papers, records, or other data of licensees rel18 evant to any recordkeeping or reporting require19 ments imposed by the Secretary under this sub20 chapter. 

21 ‘‘(D) When determined by the Secretary to 

22 be necessary, summon a licensee or an appli23 cant for a license, an officer or employee of a 

24 licensee or any such applicant (including a 

25 former officer or employee), or any person havVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00151 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 ing possession, custody, or care of the reports 

2 and records required by the Secretary under 

3 this subchapter, to appear before the Secretary 

4 or a designee of the Secretary at a time and 

5 place named in the summons and to produce 

6 such books, papers, records, or other data, and 

7 to give testimony, under oath, as may be rel8 evant or material to any investigation in con9 nection with the enforcement of this subchapter 

10 or any application for a license under this sub11 chapter. 

12 ‘‘(E) Investigate any violation of this sub13 chapter and any regulation under this sub14 chapter and any other violation of law relating 

15 to the operation of an Internet gambling facil16 ity. 

17 ‘‘(F) Conduct continuing reviews of appli18 cants and licensees and the operation of Inter19 net gambling facilities by use of technological 

20 means, onsite observation of facilities, including 

21 servers, or other reasonable means to assure 

22 compliance with this subchapter and any regu23 lations promulgated hereunder. 

24 ‘‘(2) ADMINISTRATIVE ASPECTS OF SUM25 MONS.— 


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1 ‘‘(A) PRODUCTION AT DESIGNATED

2 SITE.—A summons issued pursuant to this sub3 section may require that books, papers, records, 

4 or other data stored or maintained at any place 

5 be produced at any business location of a li6 censee or applicant for a license or any des7 ignated location in any State or in any territory 

8 or other place subject to the jurisdiction of the 

9 United States not more than 500 miles distant 

10 from any place where the licensee or applicant 

11 for a license operates or conducts business in 

12 the United States. 

13 ‘‘(B) NO LIABILITY FOR EXPENSES.—The 

14 United States shall not be liable for any ex15 pense incurred in connection with the produc16 tion of books, papers, records, or other data 

17 under this subsection. 

18 ‘‘(C) SERVICE OF SUMMONS.—Service of a 

19 summons issued under this subsection may be 

20 by registered mail or in such other manner cal21 culated to give actual notice as the Secretary 

22 may prescribe by regulation. 

23 ‘‘(3) CONTUMACY OR REFUSAL.— 

24 ‘‘(A) REFERRAL TO ATTORNEY GEN25 ERAL.—In case of contumacy by a person 


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1 issued a summons under this subsection or a 

2 refusal by such person to obey such summons 

3 or to allow the Secretary to conduct an exam4 ination, the Secretary shall refer the matter to 

5 the Secretary of the Treasury for referral to the 

6 Attorney General. 

7 ‘‘(B) JURISDICTION OF COURT.—The At8 torney General may invoke the aid of any court 

9 of the United States to compel compliance with 

10 the summons within the jurisdiction of which— 

11 ‘‘(i) the investigation which gave rise 

12 to the summons or the examination is 

13 being or has been carried on; 

14 ‘‘(ii) the person summoned is an in15 habitant; or 

16 ‘‘(iii) the person summoned carries on 

17 business or may be found. 

18 ‘‘(C) COURT ORDER.—The court may issue 

19 an order requiring the person summoned to ap20 pear before the Secretary or a delegate of the 

21 Secretary to produce books, papers, records, 

22 and other data, to give testimony as may be 

23 necessary to explain how such material was 

24 compiled and maintained, to allow the Secretary 


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1 to examine the business of a licensee, and to 

2 pay the costs of the proceeding. 

3 ‘‘(D) FAILURE TO COMPLY WITH ORDER.— 

4 Any failure to obey the order of the court may 

5 be punished by the court as a contempt thereof. 

6 ‘‘(E) SERVICE OF PROCESS.—All process 

7 in any case under this subsection may be served 

8 in any judicial district in which such person 

9 may be found. 

10 ‘‘(l) CIVIL MONEY PENALTIES.— 

11 ‘‘(1) IN GENERAL.—The Secretary may assess 

12 upon any licensee or other person subject to the re13 quirements of this subchapter for any willful viola14 tion of this subchapter or any regulation prescribed 

15 or order issued under this subchapter, a civil penalty 

16 of not more than the greater of— 

17 ‘‘(A) the amount (not to exceed $100,000) 

18 involved in the violation, if any; or 

19 ‘‘(B) $25,000. 

20 ‘‘(2) ASSESSMENT.— 

21 ‘‘(A) WRITTEN NOTICE.—Any penalty im22 posed under paragraph (1) may be assessed and 

23 collected by the Secretary by written notice. 

24 ‘‘(B) FINALITY OF ASSESSMENT.—If, with 

25 respect to any assessment under paragraph (1), 


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1 a hearing is not requested pursuant to subpara2 graph (E) within the period of time allowed 

3 under such subparagraph, the assessment shall 

4 constitute a final and unappealable order. 

5 ‘‘(C) AUTHORITY TO MODIFY OR REMIT

6 PENALTY.—The Secretary may compromise, 

7 modify, or remit any penalty which the Sec8 retary may assess or has already assessed 

9 under paragraph (1). 

10 ‘‘(D) MITIGATING FACTORS.—In deter11 mining the amount of any penalty imposed 

12 under paragraph (1), the Secretary shall take 

13 into account the appropriateness of the penalty 

14 with respect to— 

15 ‘‘(i) the size of the financial resources 

16 and the good faith of the person against 

17 whom the penalty is assessed; 

18 ‘‘(ii) the gravity of the violation; 

19 ‘‘(iii) the history of previous viola20 tions; and 

21 ‘‘(iv) such other matters as justice 

22 may require. 

23 ‘‘(E) HEARING.—The person against 

24 whom any penalty is assessed under paragraph 

25 (1) shall be afforded an agency hearing if such 


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1 person submits a request for such hearing with2 in 20 days after the issuance of the notice of 

3 assessment. 

4 ‘‘(F) COLLECTION.— 

5 ‘‘(i) REFERRAL.—If any person fails 

6 to pay an assessment after any penalty as7 sessed under this paragraph has become 

8 final, the Secretary shall recover the 

9 amount assessed by action in the appro10 priate United States district court. 

11 ‘‘(ii) APPROPRIATENESS OF PENALTY

12 NOT REVIEWABLE.—In any civil action 

13 under clause (i), the validity and appro14 priateness of the penalty shall not be sub15 ject to review. 

16 ‘‘(G) DISBURSEMENT.—All penalties col17 lected under authority of this subsection shall 

18 be deposited into the Treasury. 

19 ‘‘(3) CONDITION FOR LICENSURE.—Payment by 

20 a licensee of any civil penalty assessed under this 

21 subsection that has become final shall be a require22 ment for the retention of its license. 

23 ‘‘(m) TREATMENT OF RECORDS.—In light of busi24 ness competition, confidentiality, and privacy concerns, 

25 the Secretary shall protect from disclosure information 


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1 submitted in support of a license application under this 

2 subchapter and information collected in the course of reg3 ulating licensees to the full extent permitted by sections 

4 552 and 552a of title 5, United States Code. 

5 ‘‘(n) SUITABILITY FOR LICENSING REQUIREMENTS

6 FOR CERTAIN SERVICE PROVIDERS.— 

7 ‘‘(1) IN GENERAL.—Any person that knowingly 

8 manages, administers, or controls bets or wagers 

9 that are initiated, received, or otherwise made within 

10 the United States or that otherwise manages or ad11 ministers the games with which such bets or wagers 

12 are associated must meet all of the suitability for li13 censing criteria established under this section in the 

14 same manner and to the same extent as if that per15 son were itself a licensee. 

16 ‘‘(2) SUBJECT TO SAME ENFORCEMENT JURIS17 DICTION.—Any failure on the part of such person to 

18 remain suitable for licensing shall be grounds for 

19 revocation of the license of the licensee for whom 

20 such service is provided, in the same manner and in 

21 accordance with subsection (i). 

22 ‘‘(o) RELIANCE ON STATE AND TRIBAL REGULATORY

23 BODY CERTIFICATIONS OF SUITABILITY FOR APPLI24 CANTS.— 


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1 ‘‘(1) QUALIFICATION OF STATE AND TRIBAL

2 REGULATORY BODIES.— 

3 ‘‘(A) APPLICATION FOR DETERMINA4 TION.—Any State or tribal regulatory body with 

5 expertise in regulating gambling may— 

6 ‘‘(i) notify the Secretary of its willing7 ness to review prospective applicants to 

8 certify whether any such applicant meets 

9 the qualifications established under this 

10 subchapter; and 

11 ‘‘(ii) provide the Secretary with such 

12 documentation as the Secretary determines 

13 necessary for the Secretary to determine 

14 whether such State or tribal regulatory 

15 body is qualified to conduct such review 

16 and may be relied upon by the Secretary to 

17 make any such certification. 

18 ‘‘(B) DETERMINATION AND NOTICE.— 

19 Within 60 days after receiving any notice under 

20 subparagraph(A)(i), the Secretary shall— 

21 ‘‘(i) make the determination as to 

22 whether a State or tribal regulatory body 

23 is qualified to conduct a review of prospec24 tive applicants and may be relied upon to 

25 certify whether any such applicant meets 


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1 the qualifications established under this 

2 subchapter; and 

3 ‘‘(ii) notify the State or tribal regu4 latory body of such determination. 

5 ‘‘(2) ACTIONS BY QUALIFIED AUTHORITIES.— 

6 During the period that any determination of quali7 fication under paragraph (1)(B) is in effect with re8 spect to any such State or tribal regulatory body, 

9 the State or tribal regulatory body— 

10 ‘‘(A) may undertake reviews of any appli11 cant to determine whether the applicant or any 

12 person associated with the applicant meets the 

13 criteria for suitability for licensing established 

14 under this subchapter; 

15 ‘‘(B) may impose on each such applicant 

16 an administrative fee or assessment for con17 ducting such review in an amount the regu18 latory body determines to be necessary to meet 

19 its expenses in the conduct of such review; and 

20 ‘‘(C) shall process and assess each appli21 cant fairly and equally based on objective cri22 teria, regardless of any prior licensing of an ap23 plicant by the State or tribal regulatory body. 

24 ‘‘(3) RELIANCE ON STATE OR TRIBAL CERTIFI25 CATION.—Any applicant may provide a certification 


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1 of suitability for licensing made by any State or trib2 al regulatory body under paragraph (2), together 

3 with all documentation the applicant has submitted 

4 to any such State or tribal regulatory body, to the 

5 Secretary, and any such certification and docu6 mentation shall be relied on by the Secretary as evi7 dence that an applicant has met the suitability for 

8 licensing requirements under this section. 

9 ‘‘(4) AUTHORITY OF SECRETARY TO REVIEW.— 

10 Notwithstanding any certification of suitability for 

11 licensing made by any State or tribal regulatory 

12 body, the Secretary retains the authority to review, 

13 withhold, or revoke any license if the Secretary has 

14 reason to believe that any applicant or licensee does 

15 not meet the suitability requirements for licensing 

16 established under this section, or any other require17 ment of a licensee. 

18 ‘‘(5) RELIANCE ON QUALIFIED REGULATORY

19 BODY FOR OTHER PURPOSES.—At the discretion of 

20 the Secretary, the Secretary may rely on any State 

21 and tribal regulatory body found qualified under this 

22 subsection for such other regulatory and enforce23 ment activities as the Secretary finds to be useful 

24 and appropriate to carry out the purposes of this 

25 subchapter. 


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1 ‘‘(6) REVOCATION OF QUALIFICATION.—The 

2 Secretary may revoke, at any time and for any rea3 son, the qualification of any State or tribal regu4 latory body to certify or to conduct any other regu5 latory or enforcement activity to carry out the pur6 poses of this subchapter. 

7 ‘‘§ 5384. Problem Gambling, Responsible Gambling, 

8 and Self-Exclusion Program 

9 ‘‘(a) REGULATIONS REQUIRED.—The Secretary and 

10 any State or tribal regulatory body that has been qualified 

11 under subsection 5383(o) shall prescribe regulations for 

12 the development of a Problem Gambling, Responsible 

13 Gambling, and Self-Exclusion Program on the basis of 

14 standards that each licensee shall implement as a condi15 tion of licensure. 

16 ‘‘(b) MINIMUM REQUIREMENTS.—Any application for 

17 a license shall include a submission to the Secretary or 

18 qualified State or tribal regulatory body setting forth a 

19 comprehensive program that is intended— 

20 ‘‘(1) to verify the identity and age of each cus21 tomer; 

22 ‘‘(2) to ensure that no customers under the 

23 legal age as defined by State or tribal law, as appli24 cable, may initiate or otherwise make any bets or 

25 wagers; 


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1 ‘‘(3) to verify the State or tribal land in which 

2 the customer is located at the time the customer at3 tempts to initiate a bet or wager; 

4 ‘‘(4) to ensure that no customer who is located 

5 in a State or tribal land that opts out pursuant to 

6 section 5386 can initiate or otherwise make a bet or 

7 wager prohibited by such opt-out; 

8 ‘‘(5) to ensure that responsible gambling mate9 rials are made available to customers upon request; 

10 ‘‘(6) to make available individualized respon11 sible gambling options that any customer may 

12 choose, including any stake limit, loss limit, deposit 

13 limit, and session time limit option, and any other 

14 similar option, that the Secretary or qualified State 

15 or tribal regulatory body may deem appropriate and 

16 require to be made available; 

17 ‘‘(7) to protect the privacy and security of any 

18 customer in connection with any lawful Internet 

19 gambling activity; and 

20 ‘‘(8) to protect against fraud and money laun21 dering relating to Internet gambling activity. 

22 ‘‘(c) LIST OF PERSONS SELF-EXCLUDED FROM GAM23 BLING ACTIVITIES.— 

24 ‘‘(1) ESTABLISHMENT.— 


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1 ‘‘(A) IN GENERAL.—The Secretary shall 

2 provide by regulation for the establishment of a 

3 list of persons self-excluded from gambling ac4 tivities at all licensee sites. 

5 ‘‘(B) PLACEMENT REQUEST.—Any person 

6 may request placement on the list of self-ex7 cluded persons by— 

8 ‘‘(i) acknowledging in a manner to be 

9 established by the Secretary that the per10 son wishes to be denied gambling privi11 leges; and 

12 ‘‘(ii) agreeing that, during any period 

13 of voluntary exclusion, the person may not 

14 collect any winnings or recover any losses 

15 resulting from any gambling activity at 

16 any licensee sites. 

17 ‘‘(2) PLACEMENT AND REMOVAL PROCE18 DURES.—The regulations prescribed by the Sec19 retary under paragraph (1)(A) shall establish proce20 dures for placements on, and removals from, the list 

21 of self-excluded persons. 

22 ‘‘(3) LIMITATION ON LIABILITY.— 

23 ‘‘(A) IN GENERAL.—The United States, 

24 the Secretary, an enforcement agent, or a li25 censee, or any employee or agent of the United 


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1 States, the Secretary, an enforcement agent, or 

2 a licensee, shall not be liable to any self-ex3 cluded person or to any other party in any judi4 cial or administrative proceeding for any harm, 

5 monetary or otherwise, which may arise as a re6 sult of— 

7 ‘‘(i) any failure to withhold gambling 

8 privileges from, or to restore gambling 

9 privileges to, a self-excluded person; or 

10 ‘‘(ii) otherwise permitting a self-ex11 cluded person to engage in gambling activ12 ity while on the list of self-excluded per13 sons. 

14 ‘‘(B) RULE OF CONSTRUCTION.—No provi15 sion of subparagraph (A) shall be construed as 

16 preventing the Director from assessing any reg17 ulatory sanction against a licensee for failing to 

18 comply with the minimum standards prescribed 

19 pursuant to this subsection. 

20 ‘‘(4) DISCLOSURE PROVISIONS.— 

21 ‘‘(A) IN GENERAL.—Notwithstanding any 

22 other provision of Federal or State law, the list 

23 of self-excluded persons shall not be open to 

24 public inspection. 


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1 ‘‘(B) AFFILIATE DISCLOSURE.—Any li2 censees may disclose the identities of persons on 

3 the self-excluded list to any affiliated company 

4 or, where required to comply with this sub5 section, any service provider, to the extent that 

6 the licensee ensures that any affiliated company 

7 or service provider maintains such information 

8 under confidentiality provisions comparable to 

9 those in this subsection. 

10 ‘‘(5) LIMITATION ON LIABILITY FOR DISCLO11 SURE.—A licensee or an employee, agent, or affiliate 

12 of a licensee shall not be liable to any self-excluded 

13 person or to any other party in any judicial pro14 ceeding for any harm, monetary or otherwise, which 

15 may arise as a result of disclosure or publication in 

16 any manner. 

17 ‘‘(d) GAMBLING BY PROHIBITED PERSONS.— 

18 ‘‘(1) PROHIBITION BENEFITTING FROM PRO19 HIBITED GAMBLING ACTIVITY.—A person who is 

20 prohibited from gambling with a licensee by law, or 

21 by order of the Secretary or any court of competent 

22 jurisdiction, including any person on the self-exclu23 sion list as established in accordance with subsection 

24 (c), shall not collect, in any manner or proceeding, 


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1 any winnings or recover any losses arising as a re2 sult of any prohibited gambling activity. 

3 ‘‘(2) FORFEITURE.—In addition to any other 

4 penalty provided by law, any money or thing of value 

5 that has been obtained by, or is owed to, any prohib6 ited person by a licensee as a result of bets or wa7 gers made by a prohibited person shall be subject to 

8 forfeiture by order of the Secretary, following notice 

9 to the prohibited person and opportunity to be 

10 heard. 

11 ‘‘(3) DEPOSIT OF FORFEITED FUNDS.—Any 

12 funds forfeited pursuant to this subsection shall be 

13 deposited into the general fund of the Treasury. 

14 ‘‘(e) PROBLEM OR COMPULSIVE GAMBLERS NOT ON

15 THE LIST OF SELF-EXCLUDED PERSONS.— 

16 ‘‘(1) PUBLIC AWARENESS PROGRAM.— 

17 ‘‘(A) IN GENERAL.—The Secretary and 

18 any State or tribal regulatory body that has 

19 been qualified under subsection 5383(o) shall 

20 provide by regulation for the establishment of a 

21 program to alert the public to the existence, 

22 consequences, and availability of the self-exclu23 sion list, and shall prepare and promulgate 

24 written materials to be used in such a program. 


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1 ‘‘(B) LICENSEE-PROVIDED PUBLICITY.— 

2 Regulations prescribed under subparagraph (A) 

3 may require a licensee to make available lit4 erature or screen displays relating to the exist5 ence of the program. 

6 ‘‘(2) RULE OF CONSTRUCTION.—No provision 

7 of this subsection shall be construed as creating a 

8 legal duty in the Secretary, a qualified State or trib9 al regulatory body, a licensee, or any representative 

10 of a licensee to identify or to exclude problem or 

11 compulsive gamblers not on the list of self-excluded 

12 persons. 

13 ‘‘(3) IMMUNITY.—The United States, the Sec14 retary, a qualified State or tribal regulatory body, a 

15 licensee, and any employee or agent of a licensee, 

16 shall not be liable to any person in any proceeding 

17 for losses or other damages of any kind arising out 

18 of that person’s gambling activities based on a claim 

19 that the person was a compulsive, problem, or patho20 logical gambler. 

21 ‘‘§ 5385. Financial transaction providers 

22 ‘‘(a) IN GENERAL.—No financial transaction pro23 vider shall be held liable for engaging in financial activities 

24 and transactions for or on behalf of a licensee or involving 

25 a licensee, including payments processing activities, if such 


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1 activities are performed in compliance with this sub2 chapter and with applicable Federal and State laws. 

3 ‘‘(b) DEFINITIONS.—For purposes of this section, the 

4 following definitions shall apply: 

5 ‘‘(1) FINANCIAL TRANSACTION PROVIDER.— 

6 The term ‘financial transaction provider’ means a 

7 creditor, credit card issuer, financial institution, op8 erator of a terminal at which an electronic fund 

9 transfer may be initiated, money transmitting busi10 ness, or international, national, regional, or local 

11 payment network utilized to effect a credit trans12 action, electronic fund transfer, stored value product 

13 transaction, or money transmitting service, or a par14 ticipant in such network, or other participant in a 

15 payment system. 

16 ‘‘(2) OTHER TERMS.— 

17 ‘‘(A) CREDIT, CREDITOR, CREDIT CARD, 

18 AND CARD ISSUER.—The terms ‘credit’, ‘cred19 itor’, ‘credit card’, and ‘card issuer’ have the 

20 meanings given the terms in section 103 of the 

21 Truth in Lending Act. 

22 ‘‘(B) ELECTRONIC FUND TRANSFER.—The 

23 term ‘electronic fund transfer’— 

24 ‘‘(i) has the meaning given the term 

25 in section 903 of the Electronic Fund 


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1 Transfer Act, except that the term includes 

2 transfers that would otherwise be excluded 

3 under section 903(6)(E) of such Act; and 

4 ‘‘(ii) includes any fund transfer cov5 ered by Article 4A of the Uniform Com6 mercial Code, as in effect in any State. 

7 ‘‘(C) FINANCIAL INSTITUTION.—The term 

8 ‘financial institution’ has the meaning given the 

9 term in section 903 of the Electronic Fund 

10 Transfer Act, except that such term does not 

11 include a casino, sports book, or other business 

12 at or through which bets or wagers may be 

13 placed or received. 

14 ‘‘(D) INSURED DEPOSITORY INSTITU15 TION.—The term ‘insured depository institu16 tion’— 

17 ‘‘(i) has the meaning given the term 

18 in section 3(c) of the Federal Deposit In19 surance Act; and 

20 ‘‘(ii) includes an insured credit union 

21 (as defined in section 101 of the Federal 

22 Credit Union Act). 

23 ‘‘(E) MONEY TRANSMITTING BUSINESS

24 AND MONEY TRANSMITTING SERVICE.—The 

25 terms ‘money transmitting business’ and 


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1 ‘money transmitting service’ have the meanings 

2 given the terms in section 5330(d) (determined 

3 without regard to any regulations prescribed by 

4 the Secretary under such section). 

5 ‘‘§ 5386. Limitation of licenses in States and Indian 

6 lands 

7 ‘‘(a) STATE OPT-OUT EXERCISE.— 

8 ‘‘(1) LIMITATIONS IMPOSED BY STATES.— 

9 ‘‘(A) IN GENERAL.—No licensee may en10 gage, under any license issued under this sub11 chapter, in the operation of an Internet gam12 bling facility that knowingly accepts bets or wa13 gers initiated by persons who reside in any 

14 State which provides notice that it will limit 

15 such bets or wagers, if the Governor or other 

16 chief executive officer of such State informs the 

17 Director of such limitation, in a manner which 

18 clearly identifies the nature and extent of such 

19 limitation, before the end of the 90-day period 

20 beginning on the date of the enactment of the 

21 Internet Gambling Regulation, Consumer Pro22 tection, and Enforcement Act, or in accordance 

23 with paragraph (2), until such time as any no24 tice of any amendment or repeal of such speVerDate Nov 24 2008 03:28 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00171 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 cific limitation becomes effective under para2 graph (2). 

3 ‘‘(B) COORDINATION BETWEEN STATE AND

4 TRIBAL OPT-OUT EXERCISES.—Any State limi5 tation under subparagraph (A) shall not apply 

6 to the acceptance by a licensee of bets or wa7 gers from persons located within the tribal 

8 lands of an Indian tribe that— 

9 ‘‘(i) has itself opted out pursuant to 

10 subsection (b) (in which case the tribal 

11 opt-out exercise under such subsection 

12 shall apply); or 

13 ‘‘(ii) would be entitled pursuant to 

14 other applicable law to permit such bets or 

15 wagers to be initiated and received within 

16 its territory without use of the Internet. 

17 ‘‘(C) COORDINATION WITH INDIAN GAMING

18 REGULATORY ACT.—No decision by a State 

19 under this subsection shall be considered in 

20 making any determination with regard to the 

21 ability of an Indian tribe to offer any class of 

22 gambling activity pursuant to section 11 of the 

23 Indian Gaming Regulatory Act. 

24 ‘‘(2) CHANGES TO STATE LIMITATIONS.—The 

25 establishment, repeal, or amendment by any State of 


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1 any limitation referred to in paragraph (1) after the 

2 end of the 90-day period beginning on the date of 

3 the enactment of this subchapter shall apply, for 

4 purposes of this subchapter, beginning on the first 

5 January 1 that occurs after the end of the 60-day 

6 period beginning on the later of— 

7 ‘‘(A) the date a notice of such establish8 ment, repeal, or amendment is provided by the 

9 Governor or other chief executive officer of such 

10 State in writing to the Secretary; or 

11 ‘‘(B) the effective date of such establish12 ment, repeal, or amendment. 

13 ‘‘(b) INDIAN TRIBE OPT-OUT EXERCISE.— 

14 ‘‘(1) LIMITATIONS IMPOSED BY INDIAN

15 TRIBES.—No Internet gambling licensee knowingly 

16 may accept a bet or wager from a person located in 

17 the tribal lands of any Indian tribe which limits such 

18 gambling activities or other contests if the principal 

19 chief or other chief executive officer of such Indian 

20 tribe informs the Secretary of such limitation, in a 

21 manner which clearly identifies the nature and ex22 tent of such limitation, before the end of the 90-day 

23 period beginning on the date of the enactment of the 

24 Internet Gambling Regulation, Consumer Protection, 

25 and Enforcement Act, or in accordance with paraVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00173 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 graph (2), until such time as any notice of any 

2 amendment or repeal of such specific limitation be3 comes effective under paragraph (2). 

4 ‘‘(2) CHANGES TO INDIAN TRIBE LIMITA5 TIONS.—The establishment, repeal, or amendment 

6 by any Indian tribe of any limitation referred to in 

7 paragraph (1) after the end of the 90-day period be8 ginning on the date of the enactment of this sub9 chapter shall apply, for purposes of this subchapter, 

10 beginning on the first January 1 that occurs after 

11 the end of the 60-day period beginning on the later 

12 of— 

13 ‘‘(A) the date a notice of such establish14 ment, repeal, or amendment is provided by the 

15 principal chief or other chief executive officer of 

16 such Indian tribe in writing to the Secretary; or 

17 ‘‘(B) the effective date of such establish18 ment, repeal, or amendment. 

19 ‘‘(c) NOTIFICATION AND ENFORCEMENT OF STATE

20 AND INDIAN TRIBE LIMITATIONS.— 

21 ‘‘(1) IN GENERAL.—The Secretary shall notify 

22 all licensees and applicants of all States and Indian 

23 tribes that have provided notice pursuant to para24 graph (1) or (2) of subsection (a) or (b), as the case 

25 may be, promptly upon receipt of such notice and in 


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1 no event fewer than 30 days before the effective date 

2 of such notice. 

3 ‘‘(2) COMPLIANCE.—The Secretary shall take 

4 effective measures to ensure that any licensee under 

5 this subchapter, as a condition of the license, com6 plies with any limitation or prohibition imposed by 

7 any State or Indian tribe to which the licensee is 

8 subject under subsection (a) or (b), as the case may 

9 be. 

10 ‘‘(3) VIOLATIONS.—It shall be a violation of 

11 this subchapter for any licensee knowingly to accept 

12 bets or wagers initiated or otherwise made by per13 sons located within any State or in the tribal lands 

14 of any Indian tribe for which a notice is in effect 

15 under subsection (a) or (b), as the case may be. 

16 ‘‘(4) STATE ATTORNEY GENERAL ENFORCE17 MENT.—In any case in which the attorney general of 

18 a State, or any State or local law enforcement agen19 cy authorized by the State attorney general or by 

20 State statute to prosecute violations of consumer 

21 protection law, has reason to believe that an interest 

22 of the residents of that State has been or is threat23 ened or adversely affected by a violation by a li24 censee pursuant to paragraph (2), the State, or the 

25 State or local law enforcement agency on behalf of 


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1 the residents of the agency’s jurisdiction, may bring 

2 a civil action on behalf of the residents of that State 

3 or jurisdiction in a district court of the United 

4 States located therein, to— 

5 ‘‘(A) enjoin that practice; or 

6 ‘‘(B) enforce compliance with this sub7 chapter. 

8 ‘‘§ 5387. Professional and Amateur Sports Protection 

9 Act prohibitions 

10 ‘‘No provision of this subchapter shall be construed 

11 as authorizing any licensee to operate an Internet gam12 bling facility that knowingly accepts bets or wagers on 

13 sporting events from persons located in the United States 

14 in violation of section 3702 of title 28, United States 

15 Code, except for fantasy or simulation sports games (as 

16 defined in section 5362 of this title). 

17 ‘‘§ 5388. Safe harbors 

18 ‘‘It shall be a complete defense against any prosecu19 tion or enforcement action under any Federal or State law 

20 against any person possessing a valid license under this 

21 subchapter that the activity is authorized under and has 

22 been carried out lawfully under the terms of this sub23 chapter. 


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1 ‘‘§ 5389. Relation to section 1084 of title 18 and the 

2 Unlawful Internet Gambling Enforcement 

3 Act 

4 ‘‘Section 1084 of title 18 and subchapter IV of this 

5 chapter shall not apply to any Internet bet or wager occur6 ring pursuant to a license issued by the Secretary under 

7 this subchapter. 

8 ‘‘§ 5390. Cheating and other fraud 

9 ‘‘(a) ELECTRONIC CHEATING DEVICES PROHIB10 ITED.—No person initiating, receiving, or otherwise mak11 ing a bet or wager with a licensee, or sending, receiving, 

12 or inviting information assisting with a bet or wager with 

13 a licensee, knowingly shall use, or assist another in the 

14 use of, an electronic, electrical, or mechanical device which 

15 is designed, constructed, or programmed specifically for 

16 use in obtaining an advantage in any game authorized 

17 under this subchapter, where such advantage is prohibited 

18 or otherwise violates the rules of play established by the 

19 licensee. 

20 ‘‘(b) ADDITIONAL OFFENSE.—No person initiating, 

21 receiving, or otherwise making a bet or wager with a li22 censee, or sending, receiving, or inviting information as23 sisting with a bet or wager with a licensee, knowingly shall 

24 use or possess any cheating device with intent to cheat 

25 or defraud any licensee or other persons placing bets or 

26 wagers with such licensee. 


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1 ‘‘(c) PERMANENT INJUNCTION.—Upon conviction of 

2 a person for violation of this section, the court may enter 

3 a permanent injunction enjoining such person from initi4 ating, receiving, or otherwise making bets or wagers or 

5 sending, receiving, or inviting information assisting in the 

6 placing of bets or wagers. 

7 ‘‘(d) CRIMINAL PENALTY.—Whoever violates sub8 section (a) or (b) of this section shall be fined under title 

9 18 of the United States Code or imprisoned for not more 

10 than 5 years, or both.’’. 

11 (b) RULES OF CONSTRUCTION.— 

12 (1) TECHNICAL AND CONFORMING AMEND13 MENT.—Section 310(b)(2) of title 31, United States 

14 Code is amended— 

15 (A) by redesignating subparagraphs (J) 

16 and (K) as subparagraphs (K) and (L), respec17 tively; and 

18 (B) by inserting after subparagraph (I) the 

19 following new subparagraph: 

20 ‘‘(J) Administer the requirements of sub21 chapter V of chapter 53.’’. 

22 (c) CLERICAL AMENDMENT.—The table of sub23 chapters and sections for chapter 53 of title 31, United 

24 States Code, is amended by adding at the end the fol25 lowing: 

‘‘SUBCHAPTER V—REGULATION OF LAWFUL INTERNET GAMBLING


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‘‘5381. Congressional findings and purpose. 

‘‘5382. Definitions. 

‘‘5383. Establishment and administration of licensing program. 

‘‘5384. Minimum requirements: Problem Gambling, Responsible Gambling, and 

Self-Exclusion Program. 

‘‘5385. Financial transaction providers. 

‘‘5386. Limitation of licenses in States and Indian lands. 

‘‘5387. Professional and Amateur Sports Protection Act prohibitions. 

‘‘5388. Safe harbors. 

‘‘5389. Relation to section 1084 of title 18 and the Unlawful Internet Gambling 

Enforcement Act. 

‘‘5390. Cheating and other fraud.’’. 

1 SEC. 426. REPORT REQUIRED. 

2 (a) IN GENERAL.—Before the end of the 1-year pe3 riod beginning on the effective date of the regulations pre4 scribed under section 327(a), and annually thereafter, the 

5 Secretary shall submit a report to Congress on the licens6 ing and regulation of Internet gambling operators. 

7 (b) INFORMATION REQUIRED.—Each report sub8 mitted under subsection (a) shall include the following in9 formation: 

10 (1) A comprehensive statement regarding the 

11 prohibitions notified by the States and Indian tribes 

12 pursuant to section 5386 of title 31, United States 

13 Code. 

14 (2) Relevant statistical information on appli15 cants and licenses. 

16 (3) The amount of licensing and user fees col17 lected during the period covered by the report. 

18 (4) Information on regulatory or enforcement 

19 actions undertaken during the period. 


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1 (5) Any other information that may be useful 

2 to Congress in evaluating the effectiveness of the 

3 Act in meeting its purpose, including the provision 

4 of protections against underage gambling, compul5 sive gambling, money laundering, and fraud, and in 

6 combating tax avoidance relating to Internet gam7 bling. 

8 SEC. 427. EFFECTIVE DATE. 

9 (a) REGULATIONS.—The Secretary of the Treasury 

10 shall prescribe such regulations as the Secretary may de11 termine to be appropriate to implement subchapter V of 

12 chapter 53 of title 31, United States Code (as added by 

13 this Act) and shall publish such regulations in final form 

14 in the Federal Register before the end of the 180-day pe15 riod beginning on the date of the enactment of this Act. 

16 (b) SCOPE OF APPLICATION.—The amendment made 

17 by section 325(a) shall apply after the end of the 90-day 

18 period beginning on the date of the publication of the reg19 ulations in final form in accordance with subsection (a). 

20 Subtitle D—Miscellaneous 

21 SEC. 431. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES. 

22 (a) DISALLOWANCE OF DEDUCTION.— 

23 (1) IN GENERAL.—Section 162(g) (relating to 

24 treble damage payments under the antitrust laws) is 

25 amended— 


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1 (A) by redesignating paragraphs (1) and 

2 (2) as subparagraphs (A) and (B), respectively, 

3 (B) by striking ‘‘If’’ and inserting: 

4 ‘‘(1) TREBLE DAMAGES.—If’’, and 

5 (C) by adding at the end the following new 

6 paragraph: 

7 ‘‘(2) PUNITIVE DAMAGES.—No deduction shall 

8 be allowed under this chapter for any amount paid 

9 or incurred for punitive damages in connection with 

10 any judgment in, or settlement of, any action. This 

11 paragraph shall not apply to punitive damages de12 scribed in section 104(c).’’. 

13 (2) CONFORMING AMENDMENT.—The heading 

14 for section 162(g) is amended by inserting ‘‘OR PU15 NITIVE DAMAGES’’ after ‘‘LAWS’’. 

16 (b) INCLUSION IN INCOME OF PUNITIVE DAMAGES

17 PAID BY INSURER OR OTHERWISE.— 

18 (1) IN GENERAL.—Part II of subchapter B of 

19 chapter 1 (relating to items specifically included in 

20 gross income) is amended by adding at the end the 

21 following new section: 

22 ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR23 ANCE OR OTHERWISE. 

24 ‘‘Gross income shall include any amount paid to or 

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1 son of the taxpayer’s liability (or agreement) to pay puni2 tive damages.’’. 

3 (2) REPORTING REQUIREMENTS.—Section 6041 

4 (relating to information at source) is amended by 

5 adding at the end the following new subsection: 

6 ‘‘(h) SECTION TO APPLY TO PUNITIVE DAMAGES

7 COMPENSATION.—This section shall apply to payments by 

8 a person to or on behalf of another person as insurance 

9 or otherwise by reason of the other person’s liability (or 

10 agreement) to pay punitive damages.’’. 

11 (3) CONFORMING AMENDMENT.—The table of 

12 sections for part II of subchapter B of chapter 1 is 

13 amended by adding at the end the following new 

14 item: 

‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’. 

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

16 this section shall apply to damages paid or incurred on 

17 or after the date of the enactment of this Act. 

18 SEC. 432. APPLICATION OF MEDICARE PAYROLL TAX TO 

19 ALL STATE AND LOCAL GOVERNMENT EM20 PLOYEES. 

21 (a) IN GENERAL.—Paragraph (2) of section 3121(u) 

22 is amended— 

23 (1) by striking ‘‘subparagraphs (B) and (C)’’ in 

24 subparagraph (A) and inserting ‘‘subparagraph 

25 (B)’’, and 


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1 (2) by striking subparagraphs (C) and (D). 

2 (b) ENTITLEMENT TO HOSPITAL INSURANCE BENE3 FITS.—Subsection (p) of section 210 of the Social Security 

4 Act is amended— 

5 (1) by striking ‘‘paragraphs (2) and (3)’’ in 

6 paragraph (1)(B) and inserting ‘‘paragraph (2)’’, 

7 and 

8 (2) by striking paragraphs (3) and (4). 

9 (c) CONFORMING AMENDMENT.—Paragraph (2) of 

10 section 218(v) of the Social Security Act is amended to 

11 read as follows: 

12 ‘‘(2) This subsection shall apply only with re13 spect to employees who are not otherwise covered 

14 under the State’s agreement under this section.’’. 

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

16 this section shall apply to services performed after the 

17 date of the enactment of this Act. 

18 SEC. 433. CORRECTIONS FOR CPI OVERSTATEMENT IN 

19 COST-OF-LIVING INDEXATION. 

20 (a) IN GENERAL.—Paragraph (3) of section 1(f) (de21 fining Consumer Price Index), as amended by ths Act, is 

22 amended to read as follows: 

23 ‘‘(3) COST-OF-LIVING ADJUSTMENT.— 


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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (2), the cost-of-living adjustment for any 

3 calendar year is the product of— 

4 ‘‘(i) the CPI fraction for calendar 

5 years before 2013, multiplied by 

6 ‘‘(ii) the Chained CPI fraction for cal7 endar years after 2012, 

8 reduced by 1. 

9 ‘‘(B) CPI FRACTION FOR CALENDAR

10 YEARS BEFORE 2013.—The CPI fraction for cal11 endar years before 2013 is the fraction— 

12 ‘‘(i) the numerator of which is the 

13 CPI for the calendar year 2011, and 

14 ‘‘(ii) the denominator of which is the 

15 CPI for the calendar year 2010. 

16 ‘‘(C) CHAINED CPI FRACTION FOR CAL17 ENDAR YEARS AFTER 2012.—The Chained CPI 

18 fraction for calendar years after 2012 is the 

19 fraction— 

20 ‘‘(i) the numerator of which is the 

21 Chained CPI for the preceding calendar 

22 year, and 

23 ‘‘(ii) the denominator of which is the 

24 Chained CPI for the calendar year 2011.’’. 

25 (b) CONFORMING AMENDMENTS.— 


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1 (1) Paragraph (4) of section 1(f) is amended to 

2 read as follows: 

3 ‘‘(4) CPI AND CHAINED CPI FOR ANY CAL4 ENDAR YEAR.—For purposes of paragraph (3)— 

5 ‘‘(A) CPI.—The CPI for any calendar year 

6 is the average of the Consumer Price Index as 

7 of the close of the 12-month period ending on 

8 August 31 of such calendar year. 

9 ‘‘(B) CHAINED CPI.—The Chained CPI for 

10 any calendar year is the average of the Chained 

11 Consumer Price Index as of the close of the 12- 

12 month period ending on August 31 of such cal13 endar year.’’. 

14 (2) Paragraph (5) of section 1(f) is amended to 

15 read as follows: 

16 ‘‘(5) CONSUMER PRICE INDEX AND CHAINED

17 CONSUMER PRICE INDEX.—For purposes of para18 graph (4)— 

19 ‘‘(A) CONSUMER PRICE INDEX.—The term 

20 ‘Consumer Price Index’ means the last Con21 sumer Price Index for all-urban consumers pub22 lished by the Department of Labor. For pur23 poses of the preceding sentence, the revision of 

24 the Consumer Price Index which is most conVerDate Nov 24 2008 00:49 Feb 24, 2010 Jkt 089200 PO 00000 Frm 00185 Fmt 6652 Sfmt 6201 E:\BILLS\S3018.IS S3018

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1 sistent with the Consumer Price Index for cal2 endar year 1986 shall be used. 

3 ‘‘(B) CHAINED CONSUMER PRICE INDEX.— 

4 The term ‘Chained Consumer Price Index’ 

5 means the initial Chained Consumer Price 

6 Index for all-urban consumers published by the 

7 Department of Labor.’’. 

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2012. 

11 TITLE V—TECHNICAL AND 

12 CONFORMING AMENDMENTS 

13 SEC. 501. TECHNICAL AND CONFORMING AMENDMENTS. 

14 The Secretary of the Treasury or the Secretary’s del15 egate shall not later than 90 days after the date of the 

16 enactment of this Act, submit to the Committee on Ways 

17 and Means of the House of Representatives and the Com18 mittee on Finance of the Senate a draft of any technical 

19 and conforming changes in the Internal Revenue Code of 

20 1986 which are necessary to reflect throughout such Code 

21 the purposes of the provisions of, and amendments made 

22 by, this Act. 

Æ 


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