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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3018 Introduced in Senate (IS)]

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.

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

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

    (a) Short Title.--This Act may be cited as the ``Bipartisan Tax 
Fairness and Simplification Act of 2010''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for 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.
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.

SEC. 2. PURPOSE.

    The purpose of this Act is to amend the Internal Revenue Code of 
1986--
            (1) to make the Federal individual income tax system 
        simpler, fairer, and more transparent by, among other reforms--
                    (A) repealing the individual alternative minimum 
                tax,
                    (B) increasing the basic standard deduction and 
                maintaining itemized deductions for mortgage interest 
                and charitable contributions, and
                    (C) reducing the number of exclusions, exemptions, 
                deductions, and credits,
            (2) to make the Federal corporate income tax rate a flat 24 
        percent, repeal the corporate alternative minimum tax, and 
        eliminate special tax preferences that favor particular types 
        of businesses or activities, and
            (3) to partially offset the Federal budget deficit through 
        the increased fiscal responsibility resulting from these 
        reforms.

                 TITLE I--INDIVIDUAL INCOME TAX REFORMS

SEC. 101. 3 PROGRESSIVE INDIVIDUAL INCOME TAX RATES.

    (a) Married Individuals Filing Joint Returns and Surviving 
Spouses.--The table contained in section 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''.
    (b) Heads of Households.--The table contained 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''.
    (c) Unmarried Individuals (Other Than Surviving Spouses and Heads 
of Households).--The table contained in section 1(c) is amended to read 
as follows:

``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''.
    (d) Married Individuals Filing Separate Returns.--The table 
contained in section 1(d) is amended to read as follows:

``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''.
    (e) Conforming Amendments to Inflation Adjustment.--Section 1(f) is 
amended--
            (1) by striking ``1993'' in paragraph (1) and inserting 
        ``2011'',
            (2) by striking ``except as provided in paragraph (8)'' in 
        paragraph (2)(A),
            (3) by striking ``1992'' in paragraph (3)(B) and inserting 
        ``2010'',
            (4) by striking paragraphs (7) and (8), and
            (5) by striking ``Phaseout of Marriage Penalty in 15-
        Percent Bracket;'' in the heading thereof.
    (f) Additional Conforming Amendments.--
            (1) Section 1 is amended by striking subsection (i).
            (2) The Internal Revenue Code of 1986 is amended by 
        striking ``calendar year 1992'' each place it appears and 
        inserting ``calendar year 2010''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) (defining standard 
deduction) is amended to read as follows:
            ``(2) Basic standard deduction.--For purposes of paragraph 
        (1), the basic standard deduction is--
                    ``(A) 200 percent of the dollar amount in effect 
                under subparagraph (C) for the taxable year in the case 
                of--
                            ``(i) a joint return, or
                            ``(ii) a surviving spouse (as defined in 
                        section 2(a)),
                    ``(B) $22,500 in the case of a head of household 
                (as defined in section 2(b)), or
                    ``(C) $15,000 in any other case, reduced by any 
                deduction allowed under section 62(a)(22) for such 
                taxable year.''.
    (b) Conforming Amendment to Inflation Adjustment.--Section 
63(c)(4)(B)(i) is amended by striking ``(2)(B), (2)(C), or''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 103. PERMANENT EXTENSION OF EXPANSION OF EARNED INCOME CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 303 of such Act (relating to 
earned income tax credit).
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2010.

SEC. 104. PERMANENT EXTENSION OF EXPANSION OF DEPENDENT CARE CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 204 of such Act (relating to 
dependent care credit).
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2010.

SEC. 105. PERMANENT EXTENSION OF CHILD TAX CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 201 (relating to modifications 
to child tax credit) and 203 (relating to refunds disregarded in the 
administration of federal programs and federally assisted programs) of 
such Act.
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2010.

SEC. 106. PERMANENT REPEAL OF LIMITATIONS ON PERSONAL EXEMPTIONS AND 
              ITEMIZED DEDUCTIONS.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 102 (relating to repeal of 
phaseout of personal exemptions) and 103 (relating to phaseout of 
overall limitation on itemized deductions) of such Act.
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 2010.

SEC. 107. ELIMINATION OF INDIVIDUAL MISCELLANEOUS ITEMIZED DEDUCTIONS.

    (a) In General.--Subsection (a) of section 67 is amended to read as 
follows:
    ``(a) General Rule.--In the case of an individual, miscellaneous 
deductions shall not be allowed for any taxable year beginning after 
December 31, 2010.''.
    (b) Conforming Amendments.--
            (1) The heading for section 67 is amended by striking ``2-
        percent floor on'' and inserting ``treatment of''.
            (2) The item relating to section 67 in the table of 
        sections for part I of subchapter B of chapter 1 is amended by 
        striking ``2-percent floor on'' and inserting ``Treatment of''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 108. TREATMENT OF CAPITAL GAINS.

    (a) Partial Exclusion.--Part III of subchapter B of chapter 1 
(relating to items specifically excluded from gross income) is amended 
by inserting after section 139B the following new section:

``SEC. 139C. CAPITAL GAINS PARTIAL EXCLUSION.

    ``For any taxable year, gross income shall not include--
            ``(1) 35 percent of so much of any gain from the sale or 
        exchange during such taxable year of capital assets held for 
        more than 6 months but not more than 1 year as does not exceed 
        $500,000, plus
            ``(2) 35 percent of any long-term capital gain for such 
        taxable year (determined after the application of section 
        1202).''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 139B the following new item:

``Sec. 139C. Capital gains partial exclusion.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 109. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

    (a) General Rule.--Part III of subchapter B of chapter 1 is amended 
by inserting after section 115 the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
35 percent of the qualified dividend income received during the taxable 
year by an individual.
    ``(b) Qualified Dividend Income.--For purposes of this subsection--
            ``(1) In general.--The term `qualified dividend income' 
        means dividends received with respect to any share of stock 
        of--
                    ``(A) any domestic corporation, or
                    ``(B) any foreign corporation but only if such 
                share of stock is readily tradable on an established 
                securities market.
            ``(2) Certain dividends excluded.--Such term shall not 
        include--
                    ``(A) any dividend from a corporation which for the 
                taxable year of the corporation in which the 
                distribution is made, or the preceding taxable year, is 
                a corporation exempt from tax under section 501 or 521,
                    ``(B) any amount allowed as a deduction under 
                section 591 (relating to deduction for dividends paid 
                by mutual savings banks, etc.), and
                    ``(C) any dividend described in section 404(k).
            ``(3) Exclusion of dividends of certain foreign 
        corporations.--Such term shall not include any dividend from a 
        foreign corporation which for the taxable year of the 
        corporation in which the distribution was made, or the 
        preceding taxable year, is a foreign personal holding company 
        (as defined in section 552), a foreign investment company (as 
        defined in section 1246(b)), or a passive foreign investment 
        company (as defined in section 1297).
            ``(4) Coordination with section 246(c).--Such term shall 
        not include any dividend on any share of stock--
                    ``(A) with respect to which the holding period 
                requirements of section 246(c) are not met, or
                    ``(B) to the extent that the taxpayer is under an 
                obligation (whether pursuant to a short sale or 
                otherwise) to make related payments with respect to 
                positions in substantially similar or related property.
    ``(c) Special Rules.--
            ``(1) Amounts taken into account as investment income.--
        Qualified dividend income shall not include any amount which 
        the taxpayer takes into account as investment income under 
        section 163(d)(4)(B).
            ``(2) Coordination with foreign tax credit and deduction.--
        No credit shall be allowed under section 901, and no deduction 
        shall be allowed under this chapter, for any taxes paid or 
        accrued with respect to any income excludable under this 
        section.
            ``(3) Extraordinary dividends.--If an individual receives, 
        with respect to any share of stock, qualified dividend income 
        from 1 or more dividends which are extraordinary dividends 
        (within the meaning of section 1059(c)), any loss on the sale 
        or exchange of such share shall, to the extent of such 
        dividends, be treated as long-term capital loss.
            ``(4) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only in determining the tax imposed 
        for the taxable year by sections 871(b)(1) and 877(b).
            ``(5) Exclusion disregarded in determining income for 
        certain purposes.--Subsection (a) shall not apply for purposes 
        of determining amounts of income under sections 32(i), 86(b), 
        135(b), 137(b), 219(g), 221(b), 222(b), 408A(c)(3), 469(i), and 
        530(c), or subpart A of part IV of subchapter A.
            ``(6) Treatment of dividends from regulated investment 
        companies and real estate investment trusts.--A dividend from a 
        regulated investment company or real estate investment trust 
        shall be subject to the limitations prescribed in sections 854 
        and 857.''.
    (b) Exclusion of Dividends From Investment Income.--Subparagraph 
(B) of section 163(d)(4) (defining net investment income) is amended by 
adding at the end the following flush sentence:
    ``Such term shall include qualified dividend income (as defined in 
section 116(b)) only to the extent the taxpayer elects to treat such 
income as investment income for purposes of this subsection.''.
    (c) Treatment of Dividends From Regulated Investment Companies.--
            (1) Subsection (a) of section 854 (relating to dividends 
        received from regulated investment companies) is amended by 
        inserting ``section 116 (relating to partial exclusion of 
        dividends received by individuals) and'' after ``For purposes 
        of''.
            (2) Paragraph (1) of section 854(b) (relating to other 
        dividends) is amended by redesignating subparagraph (B) as 
        subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) Exclusion under section 116.--
                            ``(i) In general.--If the aggregate 
                        dividends received by a regulated investment 
                        company during any taxable year are less than 
                        95 percent of its gross income, then, in 
                        computing the exclusion under section 116, 
                        rules similar to the rules of subparagraph (A) 
                        shall apply.
                            ``(ii) Gross income.--For purposes of 
                        clause (i), in the case of 1 or more sales or 
                        other dispositions of stock or securities, the 
                        term `gross income' includes only the excess 
                        of--
                                    ``(I) the net short-term capital 
                                gain from such sales or dispositions, 
                                over
                                    ``(II) the net long-term capital 
                                loss from such sales or 
                                dispositions.''.
            (3) Subparagraph (C) of section 854(b)(1), as redesignated 
        by paragraph (2), is amended by striking ``subparagraph (A)'' 
        and inserting ``subparagraph (A) or (B)''.
            (4) Paragraph (2) of section 854(b) is amended by inserting 
        ``the exclusion under section 116 and'' after ``for purposes 
        of''.
            (5) Subsection (b) of section 854 is amended by adding at 
        the end the following new paragraph:
            ``(5) Coordination with section 116.--For purposes of 
        paragraph (1)(B), an amount shall be treated as a dividend only 
        if the amount is qualified dividend income (within the meaning 
        of section 116(b)).''.
    (d) Treatment of Dividends Received From Real Estate Investment 
Trusts.--Section 857(c) (relating to restrictions applicable to 
dividends received from real estate investment trusts) is amended to 
read as follows:
    ``(c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
            ``(1) Section 243.--For purposes of section 243 (relating 
        to deductions for dividends received by corporations), a 
        dividend received from a real estate investment trust which 
        meets the requirements of this part shall not be considered a 
        dividend.
            ``(2) Section 116.--For purposes of section 116 (relating 
        to exclusion of dividends), rules similar to the rules of 
        section 854(b)(1)(B) shall apply to dividends received from a 
        real estate trust which meets the requirements of this part.''.
    (e) Conforming Amendments.--
            (1) Subsection (f) of section 301 is amended adding at the 
        end the following new paragraph:
            ``(4) For partial exclusion from gross income of dividends 
        received by individuals, see section 116.''.
            (2) Paragraph (1) of section 306(a) is amended by adding at 
        the end the following new subparagraph:
                    ``(D) Treatment as dividend.--For purposes of 
                section 116, any amount treated as ordinary income 
                under this paragraph shall be treated as a dividend 
                received from the corporation.''.
            (3)(A) Subpart C of part II of subchapter C of chapter 1 
        (relating to collapsible corporations) is repealed.
            (B)(i) Section 338(h) is amended by striking paragraph 
        (14).
            (ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are 
        each amended by striking ``, 341(e)(12),''.
            (iii) The table of subparts for part II of subchapter C of 
        chapter 1 is amended by striking the item related to subpart C.
            (4) Section 531(a) is amended by inserting ``90 percent (80 
        percent in the case of taxable years beginning after 2007) of'' 
        after ``equal to''.
            (5) Section 541(a) is amended by inserting ``90 percent (80 
        percent in the case of taxable years beginning after 2007) of'' 
        after ``equal to''.
            (6) Section 584(c) is amended by adding at the end the 
        following new flush sentence:
    ``The proportionate share of each participant in the amount of 
dividends received by the common trust fund and to which section 116 
applies shall be considered for purposes of such paragraph as having 
been received by such participant.''.
            (7) Section 643(a) is amended by redesignating paragraph 
        (7) as paragraph (8) and by inserting after paragraph (6) the 
        following new paragraph:
            ``(7) Excluded dividends.--There shall be included the 
        amount of any dividends excluded from gross income under 
        section 116 (relating to partial exclusion of dividends).''.
            (8) Paragraph (5) of section 702(a) is amended to read as 
        follows:
            ``(5) dividends with respect to which section 116 or part 
        VII of subchapter B applies,''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 110. NONREFUNDABLE PERSONAL CREDIT FOR INTEREST ON STATE AND LOCAL 
              BONDS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new section:

``SEC. 25E. INTEREST ON STATE AND LOCAL BONDS.

    ``(a) In General.--If a taxpayer other than a corporation holds a 
State or local bond on one or more interest payment dates of the bond 
during any taxable year, there shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year an amount equal to the 
sum of the credits determined under subsection (b) with respect to such 
dates.
    ``(b) Amount of Credit.--The amount of the credit determined under 
this subsection with respect to any interest payment date for a State 
or local bond is 25 percent of the amount of interest payable by the 
issuer with respect to such date.
    ``(c) State or Local Bond.--
            ``(1) In general.--For purposes of this section, the term 
        `State or local bond' means any bond issued as part of an issue 
        if the interest on such bond would (but for this section) be 
        excludable from gross income under section 103.
            ``(2) Applicable rules.--For purposes of applying paragraph 
        (1)--
                    ``(A) for purposes of section 149(b), a State or 
                local bond shall not be treated as federally guaranteed 
                by reason of the credit allowed under subsection (a), 
                and
                    ``(B) for purposes of section 148, the yield on a 
                State or local bond shall be determined without regard 
                to the credit allowed under subsection (a).
    ``(d) Interest Payment Date.--For purposes of this section, the 
term `interest payment date' means any date on which the holder of 
record of the State or local bond is entitled to a payment of interest 
under such bond.
    ``(e) Special Rules.--
            ``(1) Interest on state or local bonds includible in gross 
        income for federal income tax purposes.--For purposes of this 
        title, interest on any State or local bond shall be includible 
        in gross income.
            ``(2) Application of certain rules.--Rules similar to the 
        rules of subsections (f), (g), (h), and (i) of section 54A 
        shall apply for purposes of the credit allowed under subsection 
        (a).
    ``(f) Regulations.--The Secretary may prescribe such regulations 
and other guidance as may be necessary or appropriate to carry out this 
section.''.
    (b) Conforming Amendments.--
            (1) Section 103(b) is amended by adding at the end the 
        following new paragraph:
            ``(4) Interest for which credit is allowable.--The interest 
        on any State or local bond for which a credit under seciton 25E 
        is allowable.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 25E. Interest on State and local bonds.''.
    (c) Transitional Coordination With State Law.--Except as otherwise 
provided by a State after the date of the enactment of this Act, the 
interest on any State or local bond (as defined in section 25E of the 
Internal Revenue Code of 1986, as added by this section) and the amount 
of any credit determined under such section with respect to such bond 
shall be treated for purposes of the income tax laws of such State as 
being exempt from Federal income tax.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2010.

SEC. 111. RETIREMENT SAVINGS ACCOUNTS.

    (a) In General.--Section 408A (relating to Roth IRAs) is amended to 
read as follows:

``SEC. 408A. RETIREMENT SAVINGS ACCOUNTS.

    ``(a) In General.--Except as provided in this section, a retirement 
savings account shall be treated for purposes of this title in the same 
manner as an individual retirement plan.
    ``(b) Retirement Savings Account.--For purposes of this title, the 
term `retirement savings account' means an individual retirement plan 
(as defined in section 7701(a)(37)) which--
            ``(1) is designated (in such manner as the Secretary may 
        prescribe) at the time of establishment of the plan as a 
        retirement savings account, and
            ``(2) does not accept any contribution (other than a 
        qualified rollover contribution) which is not in cash.
    ``(c) Treatment of Contributions.--
            ``(1) Contribution limit.--Notwithstanding subsections 
        (a)(1) and (b)(2)(A) of section 408, the aggregate amount of 
        contributions for any taxable year to all retirement savings 
        accounts maintained for the benefit of an individual shall not 
        exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) the amount of compensation includible in the 
                individual's gross income for such taxable year.
            ``(2) Special rule for certain married individuals.--In the 
        case of any individual who files a joint return for the taxable 
        year, the amount taken into account under paragraph (1)(B) 
        shall be increased by the excess (if any) of--
                    ``(A) the compensation includible in the gross 
                income of such individual's spouse for the taxable 
                year, over
                    ``(B) the aggregate amount of contributions for the 
                taxable year to all retirement savings accounts 
                maintained for the benefit of such spouse.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to a retirement savings account may be made even 
        after the individual for whom the account is maintained has 
        attained age 70\1/2\.
            ``(4) Mandatory distribution rules not to apply before 
        death.--Notwithstanding subsections (a)(6) and (b)(3) of 
        section 408 (relating to required distributions), the following 
        provisions shall not apply to any retirement savings account:
                    ``(A) Section 401(a)(9)(A).
                    ``(B) The incidental death benefit requirements of 
                section 401(a).
            ``(5) Rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to a retirement savings account unless it is a 
                qualified rollover contribution.
                    ``(B) Coordination with limit.--A qualified 
                rollover contribution shall not be taken into account 
                for purposes of paragraph (1).
            ``(6) Rollovers from plans with taxable distributions.--
                    ``(A) In general.--Notwithstanding sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16), in the 
                case of any contribution to which this paragraph 
                applies--
                            ``(i) there shall be included in gross 
                        income any amount which would be includible 
                        were it not part of a qualified rollover 
                        contribution,
                            ``(ii) section 72(t) shall not apply, and
                            ``(iii) unless the taxpayer elects not to 
                        have this clause apply for any taxable year, 
                        any amount required to be included in gross 
                        income for such taxable year by reason of this 
                        paragraph for any contribution before January 
                        1, 2011, shall be so included ratably over the 
                        4-taxable year period beginning with such 
                        taxable year.
                Any election under clause (iii) for any contributions 
                during a taxable year may not be changed after the due 
                date (including extensions of time) for filing the 
                taxpayer's return for such taxable year.
                    ``(B) Contributions to which paragraph applies.--
                This paragraph shall apply to any qualified rollover 
                contribution to a retirement savings account (other 
                than a rollover contribution from another such 
                account).
                    ``(C) Conversions of iras.--The conversion of an 
                individual retirement plan (other than a retirement 
                savings account) to a retirement savings account shall 
                be treated for purposes of this paragraph as a 
                contribution to which this paragraph applies.
                    ``(D) Additional reporting requirements.--Trustees 
                and plan administrators of eligible retirement plans 
                (as defined in section 402(c)(8)(B)) and retirement 
                savings accounts shall report such information as the 
                Secretary may require to ensure that amounts required 
                to be included in gross income under subparagraph (A) 
                are so included. Such reports shall be made at such 
                time and in such form and manner as the Secretary may 
                require. The Secretary may provide that such 
                information be included as additional information in 
                reports required under section 408(i) or 6047.
                    ``(E) Special rules for contributions to which a 4-
                year averaging applies.--In the case of a qualified 
                rollover contribution to which subparagraph (A)(iii) 
                applied, the following rules shall apply:
                            ``(i) Acceleration of inclusion.--
                                    ``(I) In general.--The amount 
                                required to be included in gross income 
                                for each of the first 3 taxable years 
                                in the 4-year period under subparagraph 
                                (A)(iii) shall be increased by the 
                                aggregate distributions from retirement 
                                savings accounts for such taxable year 
                                which are allocable under subsection 
                                (d)(3) to the portion of such qualified 
                                rollover contribution required to be 
                                included in gross income under 
                                subparagraph (A)(i).
                                    ``(II) Limitation on aggregate 
                                amount included.--The amount required 
                                to be included in gross income for any 
                                taxable year under subparagraph 
                                (A)(iii) shall not exceed the aggregate 
                                amount required to be included in gross 
                                income under subparagraph (A)(iii) for 
                                all taxable years in the 4-year period 
                                (without regard to subclause (I)) 
                                reduced by amounts included for all 
                                preceding taxable years.
                            ``(ii) Death of distributee.--
                                    ``(I) In general.--If the 
                                individual required to include amounts 
                                in gross income under such subparagraph 
                                dies before all of such amounts are 
                                included, all remaining amounts shall 
                                be included in gross income for the 
                                taxable year which includes the date of 
                                death.
                                    ``(II) Special rule for surviving 
                                spouse.--If the spouse of the 
                                individual described in subclause (I) 
                                acquires the individual's entire 
                                interest in any retirement savings 
                                account to which such qualified 
                                rollover contribution is properly 
                                allocable, the spouse may elect to 
                                treat the remaining amounts described 
                                in subclause (I) as includible in the 
                                spouse's gross income in the taxable 
                                years of the spouse ending with or 
                                within the taxable years of such 
                                individual in which such amounts would 
                                otherwise have been includible. Any 
                                such election may not be made or 
                                changed after the due date (including 
                                extensions of time) for filing the 
                                spouse's return for the taxable year 
                                which includes the date of death.
                    ``(F) 5-year holding period rules.--If--
                            ``(i) any portion of a distribution from a 
                        retirement savings account is properly 
                        allocable to a qualified rollover contribution 
                        with respect to which an amount is includible 
                        in gross income under subparagraph (A)(i),
                            ``(ii) such distribution is made during the 
                        5-taxable year period beginning with the 
                        taxable year for which such contribution was 
                        made, and
                            ``(iii) such distribution is not described 
                        in clause (i), (ii), or (iii) of subsection 
                        (d)(2)(A),
                then section 72(t) shall be applied as if such portion 
                were includible in gross income.
            ``(7) Time when contributions made.--For purposes of this 
        section, a taxpayer shall be deemed to have made a contribution 
        to a retirement savings account on the last day of the 
        preceding taxable year if the contribution is made on account 
        of such taxable year and is made not later than the time 
        prescribed by law for filing the return for such taxable year 
        (not including extensions thereof).
            ``(8) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2011, the $5,000 
                amount under paragraph (1)(A) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2010' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding rules.--If any amount after 
                adjustment under subparagraph (A) is not a multiple of 
                $500, such amount shall be rounded to the next lower 
                multiple of $500.
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        retirement savings account shall not be includible in gross 
        income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any payment or distribution--
                            ``(i) made on or after the date on which 
                        the individual attains age 58,
                            ``(ii) made to a beneficiary (or to the 
                        estate of the individual) on or after the death 
                        of the individual,
                            ``(iii) attributable to the individual's 
                        being disabled (within the meaning of section 
                        72(m)(7)), or
                            ``(iv) to which section 72(t)(2)(F) applies 
                        (if such payment or distribution is made before 
                        January 1, 2014).
                    ``(B) Distributions of excess contributions and 
                earnings.--The term `qualified distribution' shall not 
                include any distribution of any contribution described 
                in section 408(d)(4) and any net income allocable to 
                the contribution.
            ``(3) Ordering rules.--For purposes of applying this 
        section and section 72 to any distribution from a retirement 
        savings account, such distribution shall be treated as made--
                    ``(A) from contributions to the extent that the 
                amount of such distribution, when added to all previous 
                distributions from the retirement savings account, does 
                not exceed the aggregate contributions to the 
                retirement savings account, and
                    ``(B) from such contributions in the following 
                order:
                            ``(i) Contributions other than qualified 
                        rollover contributions with respect to which an 
                        amount is includible in gross income under 
                        subsection (c)(6)(A)(i).
                            ``(ii) Qualified rollover contributions 
                        with respect to which an amount is includible 
                        in gross income under subsection (c)(6)(A)(i) 
                        on a first-in, first-out basis.
        Any distribution allocated to a qualified rollover contribution 
        under subparagraph (B)(ii) shall be allocated first to the 
        portion of such contribution required to be included in gross 
        income.
            ``(4) Aggregation rules.--Section 408(d)(2) shall be 
        applied separately with respect to retirement savings accounts 
        and other individual retirement plans.
    ``(e) Qualified Rollover Contribution.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified rollover contribution' means--
                    ``(A) a rollover contribution to a retirement 
                savings account of an individual from another such 
                account of such individual or such individual's spouse, 
                or from an individual retirement plan of such 
                individual, but only if such rollover contribution 
                meets the requirements of section 408(d)(3), and
                    ``(B) a rollover contribution described in section 
                402(c), 402A(c)(3)(A), 403(a)(4), 403(b)(8), or 
                457(e)(16).
            ``(2) Coordination with limitation on ira rollovers.--For 
        purposes of section 408(d)(3)(B), there shall be disregarded 
        any qualified rollover contribution from an individual 
        retirement plan (other than a retirement savings account) to a 
        retirement savings account.
    ``(f) Individual Retirement Plan.--For purposes of this section--
            ``(1) a simplified employee pension or a simple retirement 
        account may not be designated as a retirement savings account, 
        and
            ``(2) contributions to any such pension or account shall 
        not be taken into account for purposes of subsection (c)(1).
    ``(g) Compensation.--For purposes of this section, the term 
`compensation' includes earned income (as defined in section 
401(c)(2)). Such term does not include any amount received as a pension 
or annuity and does not include any amount received as deferred 
compensation. Such term shall include any amount includible in the 
individual's gross income under section 71 with respect to a divorce or 
separation instrument described in section 71(b)(2)(A). For purposes of 
this subsection, section 401(c)(2) shall be applied as if the term 
trade or business for purposes of section 1402 included service 
described in section 1402(c)(6).''.
    (b) Roth IRAs Treated as Retirement Savings Accounts.--In the case 
of any taxable year beginning after December 31, 2010, any Roth IRA (as 
defined in section 408A(b) of the Internal Revenue Code of 1986, as in 
effect on the day before the date of the enactment of this Act) shall 
be treated for purposes of such Code as having been designated at the 
time of the establishment of the plan as a retirement savings account 
under section 408A(b) of such Code (as amended by this section).
    (c) Contributions to Other Individual Retirement Plans 
Prohibited.--
            (1) Individual retirement accounts.--Paragraph (1) of 
        section 408(a) is amended to read as follows:
            ``(1) Except in the case of a simplified employee pension, 
        a simple retirement account, or a rollover contribution 
        described in subsection (d)(3) or in section 402(c), 403(a)(4), 
        403(b)(8), or 457(e)(16), no contribution will be accepted on 
        behalf of any individual for any taxable year beginning after 
        December 31, 2010. In the case of any simplified employee 
        pension or simple retirement account, no contribution will be 
        accepted unless it is in cash and contributions will not be 
        accepted for the taxable year on behalf of any individual in 
        excess of--
                    ``(A) in the case of a simplified employee pension, 
                the amount of the limitation in effect under section 
                415(c)(1)(A), and
                    ``(B) in the case of a simple retirement account, 
                the sum of the dollar amount in effect under subsection 
                (p)(2)(A)(ii) and the employer contribution required 
                under subparagraph (A)(iii) or (B)(i) of subsection 
                (p)(2).''.
            (2) Individual retirement annuities.--Paragraph (2) of 
        section 408(b) is amended--
                    (A) by redesignating subparagraphs (A), (B), and 
                (C) as subparagraphs (B), (C), and (D), respectively, 
                and by inserting before subparagraph (B), as so 
                redesignated, the following new subparagraph:
                    ``(A) except in the case of a simplified employee 
                pension, a simple retirement account, or a rollover 
                contribution described in subsection (d)(3) or in 
                section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), a 
                premium shall not be accepted on behalf of any 
                individual for any taxable year beginning after 
                December 31, 2010,'', and
                    (B) by amending subparagraph (C), as redesignated 
                by subparagraph (A), to read as follows:
                    ``(C) the annual premium on behalf of any 
                individual will not exceed--
                            ``(i) in the case of a simplified employee 
                        pension, the amount of the limitation in effect 
                        under section 415(c)(1)(A), and
                            ``(ii) in the case of a simple retirement 
                        account, the sum of the dollar amount in effect 
                        under subsection (p)(2)(A)(ii) and the employer 
                        contribution required under subparagraph 
                        (A)(iii) or (B)(i) of subsection (p)(2), and''.
    (d) Conforming Amendments.--
            (1)(A) Section 219 is amended to read as follows:

``SEC. 219. CONTRIBUTIONS TO CERTAIN RETIREMENT PLANS ALLOWING ONLY 
              EMPLOYEE CONTRIBUTIONS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction the amount contributed on behalf of 
such individual to a plan described in section 501(c)(18).
    ``(b) Maximum Amount of Deduction.--The amount allowable as a 
deduction under subsection (a) to any individual for any taxable year 
shall not exceed the lesser of--
            ``(1) $7,000, or
            ``(2) an amount equal to 25 percent of the compensation (as 
        defined in section 415(c)(3)) includible in the individual's 
        gross income for such taxable year.
    ``(c) Beneficiary Must Be Under Age 70\1/2\.--No deduction shall be 
allowed under this section with respect to any contribution on behalf 
of an individual if such individual has attained age 70\1/2\ before the 
close of such individual's taxable year for which the contribution was 
made.
    ``(d) Special Rules.--
            ``(1) Married individuals.--The maximum deduction under 
        subsection (b) shall be computed separately for each 
        individual, and this section shall be applied without regard to 
        any community property laws.
            ``(2) Reports.--The Secretary shall prescribe regulations 
        which prescribe the time and the manner in which reports to the 
        Secretary and plan participants shall be made by the plan 
        administrator of a qualified employer or government plan 
        receiving qualified voluntary employee contributions.
    ``(e) Cross Reference.--For failure to provide required reports, 
see section 6652(g).''.
            (B) Section 25B(d) is amended--
                    (i) in paragraph (1)(A), by striking ``(as defined 
                in section 219(e))'', and
                    (ii) by adding at the end the following new 
                paragraph:
            ``(3) Qualified retirement contribution.--The term 
        `qualified retirement contribution' means--
                    ``(A) any amount paid in cash for the taxable year 
                by or on behalf of an individual to an individual 
                retirement plan for such individual's benefit, and
                    ``(B) any amount contributed on behalf of any 
                individual to a plan described in section 
                501(c)(18).''.
            (C) Section 86(f)(3) is amended by striking ``section 
        219(f)(1)'' and inserting ``section 408A(g)''.
            (D) Section 132(m)(3) is amended by inserting ``(as in 
        effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``section 219(g)(5)''.
            (E) Subparagraphs (A), (B), and (C) of section 220(d)(4) 
        are each amended by inserting ``, as in effect on the day 
        before the date of the enactment of the Retirement Savings 
        Account Act'' at the end.
            (F) Section 408(b) is amended in the last sentence by 
        striking ``section 219(b)(1)(A)'' and inserting ``paragraph 
        (2)(C)''.
            (G) Section 408(p)(2)(D)(ii) is amended by inserting ``(as 
        in effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``section 219(g)(5)''.
            (H) Section 409A(d)(2) is amended by inserting ``(as in 
        effect on the day before the date of the enactment of the 
        Retirement Savings Account Act)'' after ``subparagraph 
        (A)(iii))''.
            (I) Section 501(c)(18)(D)(i) is amended by striking 
        ``section 219(b)(3)'' and inserting ``section 219(b)''.
            (J) Section 6652(g) is amended by striking ``section 
        219(f)(4)'' and inserting ``section 219(d)(2)''.
            (K) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        219 and inserting the following new item:

``Sec. 219. Contributions to certain retirement plans allowing only 
                            employee contributions.''.
            (2)(A) Section 408(d)(4)(B) is amended to read as follows:
                    ``(B) no amount is excludable from gross income 
                under subsection (h) or (k) of section 402 with respect 
                to such contribution, and''.
            (B) Section 408(d)(5)(A) is amended to read as follows:
                    ``(A) In general.--In the case of any individual, 
                if the aggregate contributions (other than rollover 
                contributions) paid for any taxable year to an 
                individual retirement account or for an individual 
                retirement annuity do not exceed the dollar amount in 
                effect under subsection (a)(1) or (b)(2)(C), as the 
                case may be, paragraph (1) shall not apply to the 
                distribution of any such contribution to the extent 
                that such contribution exceeds the amount which is 
                excludable from gross income under subsection (h) or 
                (k) of section 402, as the case may be, for the taxable 
                year for which the contribution was paid--
                            ``(i) if such distribution is received 
                        after the date described in paragraph (4),
                            ``(ii) but only to the extent that such 
                        excess contribution has not been excluded from 
                        gross income under subsection (h) or (k) of 
                        section 402.''.
            (C) Section 408(d)(5) is amended by striking the last 
        sentence.
            (D) Section 408(d)(7) is amended to read as follows:
            ``(7) Certain transfers from simplified employee pensions 
        prohibited until deferral test met.--Notwithstanding any other 
        provision of this subsection or section 72(t), paragraph (1) 
        and section 72(t)(1) shall apply to the transfer or 
        distribution from a simplified employee pension of any 
        contribution under a salary reduction arrangement described in 
        subsection (k)(6) (or any income allocable thereto) before a 
        determination as to whether the requirements of subsection 
        (k)(6)(A)(iii) are met with respect to such contribution.''.
            (E) Section 408 is amended by striking subsection (j).
            (F)(i) Section 408 is amended by striking subsection (o).
            (ii) Section 6693 is amended by striking subsection (b) and 
        by redesignating subsections (c) and (d) as subsections (b) and 
        (c), respectively.
            (G) Section 408(p) is amended by striking paragraph (8) and 
        by redesignating paragraphs (9) and (10) as paragraphs (8) and 
        (9), respectively.
            (3)(A) Section 4973(a)(1) is amended to read as follows:
            ``(1) an individual retirement plan,''.
            (B) Section 4973(b) is amended to read as follows:
    ``(b) Excess Contributions to Simplified Employee Pensions and 
Simple Retirement Accounts.--For purposes of this section, in the case 
of simplified employee pensions or simple retirement accounts, the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the pension or account, over
                    ``(B) the amount applicable to the pension or 
                account under subsection (a)(1) or (b)(2) of section 
                408, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the account for the 
                taxable year which were included in the gross income of 
                the payee under section 408(d)(1),
                    ``(B) the distributions out of the account for the 
                taxable year to which section 408(d)(5) applies, and
                    ``(C) the excess (if any) of the maximum amount 
                excludable from gross income for the taxable year under 
                subsection (h) or (k) of section 402 over the amount 
                contributed to the pension or account for the taxable 
                year.
For purposes of this subsection, any contribution which is distributed 
from a simplified employee pension or simple retirement account in a 
distribution to which section 408(d)(4) applies shall be treated as an 
amount not contributed.''.
            (C) Section 4973 is amended by adding at the end the 
        following new subsection:
    ``(h) Excess Contributions to Certain Individual Retirement 
Plans.--For purposes of this section, in the case of individual 
retirement plans (other than retirement savings accounts, simplified 
employee pensions, and simple retirement accounts), the term `excess 
contribution' means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the individual retirement plans, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the plans which were 
                included in gross income under section 408(d)(1), and
                    ``(B) the distributions out of the plans for the 
                taxable year to which section 408(d)(5) applies.
For purposes of this subsection, any contribution which is distributed 
from the plan in a distribution to which section 408(d)(4) applies 
shall be treated as an amount not contributed.''.
            (4)(A) Sections 402(c)(8)(B), 402A(c)(3)(A)(ii), 
        1361(c)(2)(A), 3405(e)(1)(B), and 4973(f) are each amended by 
        striking ``Roth IRA'' each place it appears and inserting 
        ``retirement savings account''.
            (B) Section 4973(f)(1)(A) is amended by striking ``Roth 
        IRAs'' and inserting ``retirement savings accounts''.
            (C) Paragraphs (1)(B) and (2)(B) of section 4973(f) are 
        each amended by striking ``sections 408A(c)(2) and (c)(3)'' and 
        inserting ``section 408A(c)(1)''.
            (D) Subsection (f) of section 4973 is amended in the 
        heading by striking ``roth iras'' and inserting ``retirement 
        savings accounts''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 112. LIFETIME SAVINGS ACCOUNTS.

    (a) In General.--Subchapter F of Chapter 1 (relating to exempt 
organizations) is amended by adding at the end the following new part:

                  ``PART IX--LIFETIME SAVINGS ACCOUNTS

``SEC. 530A. LIFETIME SAVINGS ACCOUNTS.

    ``(a) General Rule.--A Lifetime Savings Account shall be exempt 
from taxation under this subtitle. Notwithstanding the preceding 
sentence, such account shall be subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated business income of 
charitable organizations).
    ``(b) Lifetime Savings Account.--For purposes of this section, the 
term `Lifetime Savings Account' means a trust created or organized in 
the United States for the exclusive benefit of an individual or his 
beneficiaries and which is designated (in such manner as the Secretary 
shall prescribe) at the time of the establishment of the trust as a 
Lifetime Savings Account, but only if the written governing instrument 
creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        contribution described in subsection (d)--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                calendar year in excess of the contribution limit 
                specified in subsection (c)(1).
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section or who has so demonstrated with respect to any 
        individual retirement plan.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(c) Treatment of Contributions and Distributions.--
            ``(1) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions (other than qualified rollover 
                contributions described in subsection (d)) for any 
                calendar year to all Lifetime Savings Accounts 
                maintained for the benefit of an individual shall not 
                exceed $2,000.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        calendar year after 2011, the $2,000 amount 
                        under subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year, 
                                determined by substituting `calendar 
                                year 2010' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.
            ``(2) Distributions.--Any distribution from a Lifetime 
        Savings Account shall not be includible in gross income.
    ``(d) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a 
contribution to a Lifetime Savings Account--
            ``(1) from another such account of the same beneficiary, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account,
            ``(2) from a Lifetime Savings Account of a spouse of the 
        beneficiary of the account to which the contribution is made, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account, and
            ``(3) before January 1, 2011, from--
                    ``(A) a qualified tuition program pursuant to 
                section 529(c)(3)(E), or
                    ``(B) a Coverdell education savings account 
                pursuant to section 530(d)(9).
    ``(e) Loss of Taxation Exemption of Account Where Beneficiary 
Engages in Prohibited Transaction.--Rules similar to the rules of 
paragraph (2) of section 408(e) shall apply to any Lifetime Savings 
Account.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account or an annuity contract issued by an insurance company 
qualified to do business in a State shall be treated as a trust under 
this section if--
            ``(1) the custodial account or annuity contract would, 
        except for the fact that it is not a trust, constitute a trust 
        which meets the requirements of subsection (b), and
            ``(2) in the case of a custodial account, the assets of 
        such account are held by a bank (as defined in section 408(n)) 
        or another person who demonstrates, to the satisfaction of the 
        Secretary, that the manner in which he will administer the 
        account will be consistent with the requirements of this 
        section.
For purposes of this title, in the case of a custodial account or 
annuity contract treated as a trust by reason of the preceding 
sentence, the person holding the assets of such account or holding such 
annuity contract shall be treated as the trustee thereof.
    ``(g) Reports.--The trustee of a Lifetime Savings Account shall 
make such reports regarding such account to the Secretary and to the 
beneficiary of the account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 (relating 
        to tax on excess contributions to certain tax-favored accounts 
        and annuities) is amended by striking ``or'' at the end of 
        paragraph (4), by inserting ``or'' at the end of paragraph (5), 
        and by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) a Lifetime Savings Account (as defined in section 
        530A),''.
            (2) Excess contribution.--Section 4973 is amended by adding 
        at the end the following new subsection:
    ``(h) Excess Contributions to Lifetime Savings Accounts.--For 
purposes of this section--
            ``(1) In general.--In the case of Lifetime Savings Accounts 
        (within the meaning of section 530A), the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount contributed 
                for the calendar year to such accounts (other than 
                qualified rollover contributions (as defined in section 
                530A(d))) exceeds the contribution limit under section 
                530A(c)(1), and
                    ``(B) the amount determined under this subsection 
                for the preceding calendar year, reduced by the excess 
                (if any) of the maximum amount allowable as a 
                contribution under section 530A(c)(1) for the calendar 
                year over the amount contributed to the accounts for 
                the calendar year.
            ``(2) Special rule.--A contribution shall not be taken into 
        account under paragraph (1) if such contribution (together with 
        the amount of net income attributable to such contribution) is 
        returned to the beneficiary before July 1 of the year following 
        the year in which the contribution is made.''.
    (c) Failure To Provide Reports on Lifetime Savings Accounts.--
Paragraph (2) of section 6693(a) (relating to failure to provide 
reports on individual retirement accounts or annuities) is amended by 
striking ``and'' at the end of subparagraph (D), by striking the period 
at the end of subparagraph (E) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                    ``(F) section 530A(g) (relating to Lifetime Savings 
                Accounts).''.
    (d) Rollovers From Certain Other Tax-Free Accounts.--
            (1) Qualified state tuition plans.--Paragraph (3) of 
        section 529(c) (relating to distributions) is amended by adding 
        at the end the following new subparagraph:
                    ``(E) Rollovers to lifetime savings accounts.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to the qualified portion of any 
                        distribution which, before January 1, 2012, and 
                        within 60 days of such distribution, is 
                        transferred to a Lifetime Savings Account 
                        (within the meaning of section 530A) of the 
                        designated beneficiary. This subparagraph shall 
                        only apply to distributions in accordance with 
                        the previous sentence from an account which was 
                        in existence with respect to such designated 
                        beneficiary on December 31, 2009.
                            ``(ii) Qualified portion.--For purposes of 
                        this subparagraph, the term `qualified portion' 
                        means the amount equal to the sum of--
                                    ``(I) the lesser of $50,000 or the 
                                amount which is in the account of the 
                                designated beneficiary on December 31, 
                                2009,
                                    ``(II) any contributions to such 
                                account for the taxable year beginning 
                                after December 31, 2009, and before 
                                January 1, 2011, and
                                    ``(III) any earnings of such 
                                account for such year.
                            ``(iii) Limitation.--The sum of the amounts 
                        taken into account under clause (ii)(II) with 
                        respect to all accounts of the designated 
                        beneficiary plus any amounts with respect to 
                        such designated beneficiary taken into account 
                        under section 530(d)(9)(B)(ii) shall not exceed 
                        the sum of $2,000 plus the earnings 
                        attributable to such amounts.''.
            (2) Coverdell education savings accounts.--Subsection (d) 
        of section 530 (relating to tax treatment of distributions) is 
        amended by inserting at the end the following new paragraph:
            ``(9) Rollovers to lifetime savings accounts.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the qualified portion of any amount paid or distributed 
                from a Coverdell education savings account to the 
                extent that the amount received is paid, before January 
                1, 2012, and not later than the 60th day after the date 
                of such payment or distribution, into a Lifetime 
                Savings Account (within the meaning of section 530A) 
                for the benefit of the same beneficiary. This paragraph 
                shall only apply to amounts paid or distributed in 
                accordance with the preceding sentence from an account 
                which was in existence with respect to such beneficiary 
                on December 31, 2009.
                    ``(B) Qualified portion.--For purposes of this 
                paragraph, the term `qualified portion' means the 
                amount equal to the sum of--
                            ``(i) the amount which is in the account of 
                        the beneficiary on December 31, 2009,
                            ``(ii) any contributions to such account 
                        for the taxable year beginning after December 
                        31, 2009, and before January 1, 2011, and
                            ``(iii) any earnings of such account for 
                        such year.
                    ``(C) Limitation.--The sum of the amounts taken 
                into account under subparagraph (B)(ii) with respect to 
                all accounts of the beneficiary plus any amounts with 
                respect to such beneficiary taken into account under 
                section 529(c)(3)(E)(ii)(II) shall not exceed the sum 
                of $2,000 plus the earnings attributable to such 
                amounts.''.
    (e) Conforming Amendment.--The table of parts for subchapter F of 
chapter 1 is amended by adding at the end the following new item:

                ``Part IX. Lifetime Savings Accounts''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 113. CONSOLIDATION OF TAX CREDITS AND DEDUCTIONS FOR EDUCATION 
              EXPENSES.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986 
(relating to Hope and Lifetime Learning Credits) is amended to read as 
follows:

``SEC. 25A. QUALIFIED TUITION AND RELATED EXPENSES CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of any eligible individual 
        for whom an election is in effect under this section, there 
        shall be allowed as a credit against the tax imposed by this 
        chapter for the taxable year an amount equal to the applicable 
        percentage of so much of the qualified tuition and related 
        expenses paid by the taxpayer during the taxable year (for 
        education furnished to the eligible individual during any 
        academic period beginning in such taxable year) as does not 
        exceed $10,000.
            ``(2) Applicable percentage.--For purposes of subsection 
        (a), the applicable percentage is--
                    ``(A) for the first 2 taxable years such an 
                election is in effect with respect to an eligible 
                individual, 20 percent,
                    ``(B) for the next 2 such taxable years, 15 
                percent, and
                    ``(C) notwithstanding subparagraph (A), for any 
                taxable year such eligible individual attends or is 
                enrolled in only one academic period, 15 percent.
    ``(b) Limitations.--
            ``(1) Modified adjusted gross income limitation.--
                    ``(A) In general.--The amount which would (but for 
                this paragraph) be taken into account under subsection 
                (a) for the taxable year shall be reduced (but not 
                below zero) by the amount determined under paragraph 
                (2).
                    ``(B) Amount of reduction.--The amount determined 
                under this paragraph is the amount which bears the same 
                ratio to the amount which would be so taken into 
                account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $50,000 (twice such amount 
                                in the case of a joint return), bears 
                                to
                            ``(ii) $40,000 (twice such amount in the 
                        case of a joint return).
                    ``(C) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                increased by any amount excluded from gross income 
                under section 911, 931, or 933.
            ``(2) Credit allowed for only 4 taxable years.--An election 
        to have this section apply with respect to any eligible 
        individual may not be made for any taxable year if such an 
        election (by the taxpayer or any other individual) is in effect 
        with respect to such individual for any 4 prior taxable years.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means any individual described in paragraph (2).
            ``(2) Qualified tuition and related expenses.--
                    ``(A) In general.--The term `qualified tuition and 
                related expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151,
                at an eligible educational institution for courses of 
                instruction of such individual at such institution.
                    ``(B) Student loan interest.--
                            ``(i) In general.--Such term shall include 
                        so much of the interest paid on any qualified 
                        education loan of such individual as does not 
                        exceed $2,500, reduced by any amount taken into 
                        account under this section for any preceding 
                        taxable year.
                            ``(ii) Qualified education loan.--For 
                        purposes of clause (i), the term `qualified 
                        education loan' means any indebtedness incurred 
                        by the taxpayer solely to pay qualified tuition 
                        and related expenses--
                                    ``(I) which are incurred on behalf 
                                of an eligible individual as of the 
                                time the indebtedness was incurred,
                                    ``(II) which are paid or incurred 
                                within a reasonable period of time 
                                before or after the indebtedness is 
                                incurred, and
                                    ``(III) which are attributable to 
                                education furnished during a period 
                                during which the recipient was an 
                                eligible individual.
                        Such term includes indebtedness used to 
                        refinance indebtedness which qualifies as a 
                        qualified education loan. Such term shall not 
                        include any indebtedness owed to a person who 
                        is related (within the meaning of section 
                        267(b) or 707(b)(1)) to the eligible individual 
                        or to any person by reason of a loan under any 
                        qualified employer plan (as defined in section 
                        72(p)(4)) or under any contract referred to in 
                        section 72(p)(5).
                    ``(C) Books.--Such term shall include books 
                required for such individual's academic courses of 
                instruction at the eligible educational institution.
                    ``(D) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies, unless such course or other 
                education is part of the individual's degree program.
                    ``(E) Exception for nonacademic fees.--Such term 
                does not include student activity fees, athletic fees, 
                insurance expenses, or other expenses unrelated to an 
                individual's academic course of instruction.
            ``(3) Eligible educational institution.--The term `eligible 
        educational institution' means an institution--
                    ``(A) which is described in section 481 of the 
                Higher Education Act of 1965, as in effect on the date 
                of the enactment of the Taxpayer Relief Act of 1997, 
                and
                    ``(B) which is eligible to participate in a program 
                under title IV of the Higher Education Act of 1965.
    ``(d) Special Rules.--
            ``(1) Identification requirement.--No credit shall be 
        allowed under subsection (a) to a taxpayer with respect to an 
        eligible student unless the taxpayer includes the name and 
        taxpayer identification number of such student on the return of 
        tax for the taxable year.
            ``(2) Adjustment for certain scholarships.--The amount of 
        qualified tuition and related expenses otherwise taken into 
        account under subsection (a) with respect to an individual for 
        an academic period shall be reduced (before the application of 
        subsections (a) and (b)) by the sum of any amounts paid for the 
        benefit of such individual which are allocable to such period 
        as--
                    ``(A) a qualified scholarship which is excludable 
                from gross income under section 117,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or under chapter 1606 of title 10, United 
                States Code, and
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for such student's educational expenses, or 
                attributable to such individual's enrollment at an 
                eligible educational institution, which is excludable 
                from gross income under any law of the United States.
            ``(3) Treatment of expenses paid by dependent.--If a 
        deduction under section 151 with respect to an individual is 
        allowed to another taxpayer for a taxable year beginning in the 
        calendar year in which such individual's taxable year begins--
                    ``(A) no credit shall be allowed under subsection 
                (a) to such individual for such individual's taxable 
                year, and
                    ``(B) qualified tuition and related expenses paid 
                by such individual during such individual's taxable 
                year shall be treated for purposes of this section as 
                paid by such other taxpayer.
            ``(4) Treatment of certain prepayments.--If qualified 
        tuition and related expenses are paid by the taxpayer during a 
        taxable year for an academic period which begins during the 
        first 3 months following such taxable year, such academic 
        period shall be treated for purposes of this section as 
        beginning during such taxable year.
            ``(5) Denial of double benefit.--No credit shall be allowed 
        under this section for any expense for which deduction is 
        allowed under any other provision of this chapter.
            ``(6) No credit for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(7) Nonresident aliens.--If the taxpayer is a nonresident 
        alien individual for any portion of the taxable year, this 
        section shall apply only if such individual is treated as a 
        resident alien of the United States for purposes of this 
        chapter by reason of an election under subsection (g) or (h) of 
        section 6013.
    ``(e) Inflation Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2011, the $50,000 amount in subsection 
        (b)(1)(B)(i)(II) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2010' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $1,000, such amount shall be rounded 
        to the next lowest multiple of $1,000.
    ``(f) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a recapture of the credit allowed under this 
section in cases where there is a refund in a subsequent taxable year 
of any expense which was taken into account in determining the amount 
of such credit.''.
    (b) Repeal of Deduction for Interest on Education Loans.--Part VII 
of subchapter B of chapter 1 (relating to additional itemized 
deductions for individuals) is amended by striking section 221.
    (c) Conforming Amendments.--
            (1) Section 62(a) is amended by striking paragraph (17).
            (2) Subparagraph (A) of section 86(b)(2) is amended by 
        striking ``, 221''.
            (3) Subparagraph (B) of section 72(t)(7) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (4) Subparagraph (A) of section 135(c)(4) is amended by 
        striking ``, 221''.
            (5) Subparagraph (A) of section 137(b)(3) is amended by 
        striking ``, 221''.
            (6) Paragraph (2) of section 163(h) is amended by adding 
        ``and'' at the end of subparagraph (D), by striking ``, and'' 
        at the end of subparagraph (E) and inserting a period, and by 
        striking subparagraph (F).
            (7) Subparagraph (A) of section 199(d)(2) is amended by 
        striking ``, 221''.
            (8) Clause (ii) of section 219(g)(3)(A) is amended by 
        striking ``, 221''.
            (9) Clause (iii) of section 469(i)(3)(F) is amended by 
        striking ``, 221''.
            (10) Subclause (I) of section 529(c)(3)(B)(v) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (11) Paragraph (3) of section 529(e) is amended--
                    (A) by striking ``(as defined in section 
                25A(b)(3))'' in subparagraph (A), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Eligible student.--For purposes of this 
                paragraph, the term `eligible student' means, with 
                respect to any academic period, a student who--
                            ``(i) meets the requirements of section 
                        484(a)(1) of the Higher Education Act of 1965 
                        (20 U.S.C. 1091(a)(1)), as in effect on the 
                        date of the enactment of the Taxpayer Relief 
                        Act of 1997, and
                            ``(ii) is carrying at least \1/2\ the 
                        normal full-time workload for the course of 
                        study the student is pursuing.''.
            (12) Subclause (I) of section 530(d)(2)(C)(i) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (13) Clause (iii) of section 530(d)(4)(B) is amended by 
        striking ``section 25A(g)(2)'' and inserting ``section 
        25A(d)(2)''.
            (14) Section 1400O is amended by adding at the end the 
        following flush sentence:
``For purposes of this section, any reference to section 25A shall be 
treated as a reference to such section as in effect on the day before 
the date of the enactment of this sentence.''.
            (15) Subparagraph (J) of section 6213(g)(2) is amended by 
        striking ``section 25A(g)(1)'' and inserting ``section 
        25A(d)(1)''.
    (d) Clerical Amendments.--
            (1) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by striking the item 
        relating to section 25A and inserting the following:

``25A. Qualified tuition and related expenses credit.''.
            (2) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        221.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid after December 31, 2010, for education furnished 
in academic periods beginning after such date.

SEC. 114. TERMINATION OF VARIOUS EXCLUSIONS, EXEMPTIONS, DEDUCTIONS, 
              AND CREDITS.

    (a) In General.--Subchapter C of chapter 90 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7875. TERMINATION OF CERTAIN PROVISIONS.

    ``The following provisions shall not apply to taxable years 
beginning after December 31, 2010:
            ``(1) Section 74(c) (relating to exclusion of certain 
        employee achievement awards).
            ``(2) Section 79 (relating to exclusion of group-term life 
        insurance purchased for employees).
            ``(3) Section 119 (relating to exclusion of meals or 
        lodging furnished for the convenience of the employer).
            ``(4) Section 125 (relating to exclusion of cafeteria plan 
        benefits).
            ``(5) Section 132 (relating to certain fringe benefits), 
        except with respect to subsection (a)(5) thereof (relating to 
        exclusion of qualified transportation fringe).
            ``(6) Section 217 (relating to deduction for moving 
        expenses).
            ``(7) Section 454 (relating to deferral of tax on 
        obligations issued at discount).
            ``(8) Section 501(c)(9) (relating to tax-exempt status of 
        voluntary employees' beneficiary associations).
            ``(9) Section 911 (relating to exclusion of earned income 
        of citizens or residents of the United States living abroad).
            ``(10) Section 912 (relating to exemption for certain 
        allowances).''.
    (b) Conforming Amendment.--The table of sections for subchapter C 
of chapter 90 is amended by adding at the end the following new item:

``Sec. 7875. Termination of certain provisions.''.

SEC. 115. SIMPLIFIED TAX RETURN PREPARATION.

    Beginning on January 1, 2011, the Internal Revenue Service shall 
provide to any taxpayer who requests it a simplified ``Easyfile'' pre-
prepared income tax return, on paper, compact disc, or through the 
Internet, based on data the Internal Revenue Service receives with 
respect to such taxpayer (including wages, self-employment income, and 
dividend, capital gains, and interest income). The Internal Revenue 
Service shall provide with every ``Easyfile'' a one-page summary of how 
the most recently available fiscal year's tax revenue was spent, 
including spending on Social Security, Medicare, Medicaid, defense, and 
interest on the Federal debt.

          TITLE II--CORPORATE AND BUSINESS INCOME TAX REFORMS

SEC. 201. CORPORATE FLAT TAX.

    (a) In General.--Subsection (b) of section 11 (relating to tax 
imposed) is amended to read as follows:
    ``(b) Amount of Tax.--The amount of tax imposed by subsection (a) 
shall be equal to 24 percent of the taxable income.''.
    (b) Conforming Amendments.--
            (1) Section 280C(c)(3)(B)(ii)(II) is amended by striking 
        ``maximum rate of tax under section 11(b)(1)'' and inserting 
        ``rate of tax under section 11(b)''.
            (2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 
        860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 1446(b)(2)(B), and 
        7874(e)(1)(B) are each amended by striking ``highest rate of 
        tax specified in section 11(b)(1)'' and inserting ``rate of tax 
        specified in section 11(b)''.
            (3) Section 904(b)(3)(D)(ii) is amended by striking 
        ``(determined without regard to the last sentence of section 
        11(b)(1))''.
            (4) Section 962 is amended by striking subsection (c) and 
        by redesignating subsection (d) as subsection (c).
            (5) Section 1201(a) is amended by striking ``(determined 
        without regard to the last 2 sentences of section 11(b)(1))''.
            (6) Section 1561(a) is amended--
                    (A) by striking paragraph (1) and by redesignating 
                paragraphs (2), (3), and (4) as paragraphs (1), (2), 
                and (3), respectively,
                    (B) by striking ``The amounts specified in 
                paragraph (1), the'' and inserting ``The'',
                    (C) by striking ``paragraph (2)'' and inserting 
                ``paragraph (1)'',
                    (D) by striking ``paragraph (3)'' both places it 
                appears and inserting ``paragraph (2)'',
                    (E) by striking ``paragraph (4)'' and inserting 
                ``paragraph (3)'', and
                    (F) by striking the fourth sentence.
            (7) Subsection (b) of section 1561 is amended to read as 
        follows:
    ``(b) Certain Short Taxable Years.--If a corporation has a short 
taxable year which does not include a December 31 and is a component 
member of a controlled group of corporations with respect to such 
taxable year, then for purposes of this subtitle, the amount to be used 
in computing the accumulated earnings credit under section 535(c) (2) 
and (3) of such corporation for such taxable year shall be the amount 
specified in subsection (a)(1) divided by the number of corporations 
which are component members of such group on the last day of such 
taxable year. For purposes of the preceding sentence, section 1563(b) 
shall be applied as if such last day were substituted for December 
31.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIRCRAFT.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new subsection:
    ``(q) Treatment of Travel on Corporate Aircraft.--The rate at which 
an amount allowable as a deduction under this chapter for the use of an 
aircraft owned by the taxpayer is determined shall not exceed the rate 
at which an amount paid or included in income by an employee of such 
taxpayer for the personal use of such aircraft is determined.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 203. UNLIMITED EXPENSING OF DEPRECIABLE ASSETS AND INVENTORIES FOR 
              CERTAIN SMALL BUSINESSES.

    (a) Unlimited Expensing.--Section 179 (relating to election to 
expense certain depreciable business assets) is amended by adding at 
the end the following new subsection:
    ``(f) Unlimited Expensing for Certain Small Business Taxpayers.--
            ``(1) In general.--In the case of any eligible taxpayer, 
        this section shall be applied with respect to any taxable year 
        without regard to subsection (b).
            ``(2) Eligible taxpayer.--For purposes of this subsection, 
        a taxpayer is an eligible taxpayer with respect to any taxable 
        year if for all prior taxable years beginning after December 
        31, 2010, the taxpayer (or any predecessor) met the gross 
        receipts test of section 448(c) (determined by substituting 
        `$1,000,000' for `$5,000,000' each place it appears).''.
    (b) Clarification of Inventory Rules for Small Business.--Section 
471 (relating to general rule for inventories) is amended by 
redesignating subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Small Business Taxpayers Not Required to Use Inventories.--
            ``(1) In general.--An eligible taxpayer (as determined 
        under section 179(f)(2)) shall not be required to use 
        inventories under this section for a taxable year.
            ``(2) Treatment of taxpayers not using inventories.--If an 
        eligible taxpayer does not use inventories with respect to any 
        property for any taxable year beginning after December 31, 
        2010, such property shall be treated as a material or supply 
        which is not incidental.''.
    (c) Effective Date and Special Rules.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2010.
            (2) Change in method of accounting.--In the case of any 
        taxpayer changing the taxpayer's method of accounting for any 
        taxable year under the amendments made by this section--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 481 
                of the Internal Revenue Code of 1986 shall be taken 
                into account over a period (not greater than 4 taxable 
                years) beginning with such taxable year.

SEC. 204. TERMINATION OF VARIOUS PREFERENTIAL TREATMENTS.

    (a) In General.--Section 7875, as added by this Act, is amended--
            (1) by inserting ``(or transactions in the case of sections 
        referred to in paragraphs (14), (15), (16), (17), and (20))'' 
        after ``taxable years beginning'', and
            (2) by adding at the end the following new paragraphs:
            ``(11) Section 43 (relating to enhanced oil recovery 
        credit).
            ``(12) Section 199 (relating to income attributable to 
        domestic production activities).
            ``(13) Section 263(c) (relating to intangible drilling and 
        development costs in the case of oil and gas wells and 
        geothermal wells).
            ``(14) Section 382(l)(5) (relating to exception from net 
        operating loss limitations for corporations in bankruptcy 
        proceeding).
            ``(15) Section 451(i) (relating to special rules for sales 
        or dispositions to implement Federal Energy Regulatory 
        Commission or State electric restructuring policy).
            ``(16) Section 453A (relating to special rules for 
        nondealers), but only with respect to the dollar limitation 
        under subsection (b)(1) thereof and subsection (b)(3) thereof 
        (relating to exception for personal use and farm property).
            ``(17) Section 460(e)(1) (relating to special rules for 
        long-term home construction contracts or other short-term 
        construction contracts).
            ``(18) Section 613A (relating to percentage depletion in 
        case of oil and gas wells).
            ``(19) Section 616 (relating to development costs).
            ``(20) Sections 861(a)(6), 862(a)(6), 863(b)(2), 863(b)(3), 
        and 865(b) (relating to inventory property sales source rule 
        exception).''.
    (b) Full Tax Rate on Nuclear Decommissioning Reserve Fund.--
Subparagraph (B) of section 468A(e)(2) is amended to read as follows:
                    ``(B) Rate of tax.--For purposes of subparagraph 
                (A), the rate set forth in this subparagraph is 25 
                percent.''.
    (c) Deferral of Active Income of Controlled Foreign Corporations.--
Section 952 (relating to subpart F income defined) is amended by adding 
at the end the following new subsection:
    ``(e) Special Application of Subpart.--
            ``(1) In general.--For taxable years beginning after 
        December 31, 2010, notwithstanding any other provision of this 
        subpart, the term `subpart F income' means, in the case of any 
        controlled foreign corporation, the income of such corporation 
        derived from any foreign country.
            ``(2) Applicable rules.--Rules similar to the rules under 
        the last sentence of subsection (a) and subsection (d) shall 
        apply to this subsection.''.
    (d) Depreciation on Equipment in Excess of Alternative Depreciation 
System.--Section 168(g)(1) (relating to alternative depreciation 
system) is amended by striking ``and'' at the end of subparagraph (D), 
by adding ``and'' at the end of subparagraph (E), and by inserting 
after subparagraph (E) the following new subparagraph:
                    ``(F) notwithstanding subsection (a), any tangible 
                property placed in service after December 31, 2010,''.
    (e) Effective Date.--The amendments made by subsections (b) and (c) 
shall apply to taxable years beginning after December 31, 2010.

SEC. 205. PASS-THROUGH BUSINESS ENTITY TRANSPARENCY.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall report to the Committee on Finance 
of the Senate and the Committee on Ways and Means of the House of 
Representatives regarding the implementation of additional reporting 
requirements with respect to any pass-through entity with the goal of 
the reduction of tax avoidance through the use of such entities. In 
addition, the Secretary shall develop procedures to share such report 
data with State revenue agencies under the disclosure requirements of 
section 6103(d) of the Internal Revenue Code of 1986.

SEC. 206. MODIFICATION OF EFFECTIVE DATE OF LEASING PROVISIONS OF THE 
              AMERICAN JOBS CREATION ACT OF 2004.

    (a) Leases to Foreign Entities.--Section 849(b) of the American 
Jobs Creation Act of 2004 is amended by adding at the end the following 
new paragraph:
            ``(5) Leases to foreign entities.--In the case of tax-
        exempt use property leased to a tax-exempt entity which is a 
        foreign person or entity, the amendments made by this part 
        shall apply to taxable years beginning after December 31, 2010, 
        with respect to leases entered into on or before March 12, 
        2004.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the enactment of the American Jobs Creation 
Act of 2004.

SEC. 207. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED OIL 
              COMPANIES.

    (a) General Rule.--Notwithstanding any other provision of law, if a 
taxpayer is an applicable integrated oil company for its last taxable 
year ending in calendar year 2010, the taxpayer shall--
            (1) increase, effective as of the close of such taxable 
        year, the value of each historic LIFO layer of inventories of 
        crude oil, natural gas, or any other petroleum product (within 
        the meaning of section 4611) by the layer adjustment amount, 
        and
            (2) decrease its cost of goods sold for such taxable year 
        by the aggregate amount of the increases under paragraph (1).
If the aggregate amount of the increases under paragraph (1) exceed the 
taxpayer's cost of goods sold for such taxable year, the taxpayer's 
gross income for such taxable year shall be increased by the amount of 
such excess.
    (b) Layer Adjustment Amount.--For purposes of this section--
            (1) In general.--The term ``layer adjustment amount'' 
        means, with respect to any historic LIFO layer, the product 
        of--
                    (A) $18.75, and
                    (B) the number of barrels of crude oil (or in the 
                case of natural gas or other petroleum products, the 
                number of barrel-of-oil equivalents) represented by the 
                layer.
            (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
        equivalent'' has the meaning given such term by section 
        29(d)(5) (as in effect before its redesignation by the Energy 
        Tax Incentives Act of 2005).
    (c) Application of Requirement.--
            (1) No change in method of accounting.--Any adjustment 
        required by this section shall not be treated as a change in 
        method of accounting.
            (2) Underpayments of estimated tax.--No addition to the tax 
        shall be made under section 6655 of the Internal Revenue Code 
        of 1986 (relating to failure by corporation to pay estimated 
        tax) with respect to any underpayment of an installment 
        required to be paid with respect to the taxable year described 
        in subsection (a) to the extent such underpayment was created 
        or increased by this section.
    (d) Applicable Integrated Oil Company.--For purposes of this 
section, the term ``applicable integrated oil company'' means an 
integrated oil company (as defined in section 291(b)(4) of the Internal 
Revenue Code of 1986) which has an average daily worldwide production 
of crude oil of at least 500,000 barrels for the taxable year and which 
had gross receipts in excess of $1,000,000,000 for its last taxable 
year ending during calendar year 2008. For purposes of this subsection 
all persons treated as a single employer under subsections (a) and (b) 
of section 52 of the Internal Revenue Code of 1986 shall be treated as 
1 person and, in the case of a short taxable year, the rule under 
section 448(c)(3)(B) shall apply.

SEC. 208. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO LARGE 
              INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY 
              TAXPAYERS.

    (a) In General.--Section 901 (relating to credit for taxes of 
foreign countries and of possessions of the United States) is amended 
by redesignating subsection (m) as subsection (n) and by inserting 
after subsection (l) the following new subsection:
    ``(m) Special Rules Relating to Large Integrated Oil Companies 
Which Are Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer which is a large integrated oil company to a foreign 
        country or possession of the United States for any period shall 
        not be considered a tax--
                    ``(A) if, for such period, the foreign country or 
                possession does not impose a generally applicable 
                income tax, or
                    ``(B) to the extent such amount exceeds the amount 
                (determined in accordance with regulations) which--
                            ``(i) is paid by such dual capacity 
                        taxpayer pursuant to the generally applicable 
                        income tax imposed by the country or 
                        possession, or
                            ``(ii) would be paid if the generally 
                        applicable income tax imposed by the country or 
                        possession were applicable to such dual 
                        capacity taxpayer.
                Nothing in this paragraph shall be construed to imply 
                the proper treatment of any such amount not in excess 
                of the amount determined under subparagraph (B).
            ``(2) Dual capacity taxpayer.--For purposes of this 
        subsection, the term `dual capacity taxpayer' means, with 
        respect to any foreign country or possession of the United 
        States, a person who--
                    ``(A) is subject to a levy of such country or 
                possession, and
                    ``(B) receives (or will receive) directly or 
                indirectly a specific economic benefit (as determined 
                in accordance with regulations) from such country or 
                possession.
            ``(3) Generally applicable income tax.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `generally applicable 
                income tax' means an income tax (or a series of income 
                taxes) which is generally imposed under the laws of a 
                foreign country or possession on income derived from 
                the conduct of a trade or business within such country 
                or possession.
                    ``(B) Exceptions.--Such term shall not include a 
                tax unless it has substantial application, by its terms 
                and in practice, to--
                            ``(i) persons who are not dual capacity 
                        taxpayers, and
                            ``(ii) persons who are citizens or 
                        residents of the foreign country or possession.
            ``(4) Large integrated oil company.--For purposes of this 
        subsection, the term `large integrated oil company' means, with 
        respect to any taxable year, an integrated oil company (as 
        defined in section 291(b)(4)) which--
                    ``(A) had gross receipts in excess of 
                $1,000,000,000 for such taxable year, and
                    ``(B) has an average daily worldwide production of 
                crude oil of at least 500,000 barrels for such taxable 
                year.''
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes paid or accrued in taxable years beginning after 
        the date of the enactment of this Act.
            (2) Contrary treaty obligations upheld.--The amendments 
        made by this section shall not apply to the extent contrary to 
        any treaty obligation of the United States.

SEC. 209. REPEAL OF LOWER OF COST OR MARKET VALUE OF INVENTORY RULE.

    (a) In General.--Subsection (a) of section 471 (relating to general 
rules for inventories) is amended to read as follows:
    ``(a) General Rule.--Whenever in the opinion of the Secretary the 
use of inventories is necessary in order clearly to determine the 
income of the taxpayer, inventories shall be valued at cost.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 210. REINSTITUTION OF PER COUNTRY FOREIGN TAX CREDIT.

    (a) In General.--Subsection (a) of section 904 (relating to 
limitation on credit) is amended to read as follows:
    ``(a) Limitation.--The amount of the credit in respect of the tax 
paid or accrued to any foreign country or possession of the United 
States shall not exceed the same proportion of the tax against which 
such credit is taken which the taxpayer's taxable income from sources 
within such country or possession (but not in excess of the taxpayer's 
entire taxable income) bears to such taxpayer's entire taxable income 
for the same taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2010.

SEC. 211. APPLICATION OF RULES TREATING INVERTED CORPORATIONS AS 
              DOMESTIC CORPORATIONS TO CERTAIN TRANSACTIONS OCCURRING 
              AFTER MARCH 20, 2002.

    (a) In General.--Section 7874(b) (relating to inverted corporations 
treated as domestic corporations) is amended to read as follows:
    ``(b) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--Notwithstanding section 7701(a)(4), a 
        foreign corporation shall be treated for purposes of this title 
        as a domestic corporation if such corporation would be a 
        surrogate foreign corporation if subsection (a)(2) were applied 
        by substituting `80 percent' for `60 percent'.
            ``(2) Special rule for certain transactions occurring after 
        march 20, 2002.--
                    ``(A) In general.--If--
                            ``(i) paragraph (1) does not apply to a 
                        foreign corporation, but
                            ``(ii) paragraph (1) would apply to such 
                        corporation if, in addition to the substitution 
                        under paragraph (1), subsection (a)(2) were 
                        applied by substituting `March 20, 2002' for 
                        `March 4, 2003' each place it appears,
                then paragraph (1) shall apply to such corporation but 
                only with respect to taxable years of such corporation 
                beginning after December 31, 2010.
                    ``(B) Special rules.--Subject to such rules as the 
                Secretary may prescribe, in the case of a corporation 
                to which paragraph (1) applies by reason of this 
                paragraph--
                            ``(i) the corporation shall be treated, as 
                        of the close of its last taxable year beginning 
                        before January 1, 2011, as having transferred 
                        all of its assets, liabilities, and earnings 
                        and profits to a domestic corporation in a 
                        transaction with respect to which no tax is 
                        imposed under this title,
                            ``(ii) the bases of the assets transferred 
                        in the transaction to the domestic corporation 
                        shall be the same as the bases of the assets in 
                        the hands of the foreign corporation, subject 
                        to any adjustments under this title for built-
                        in losses,
                            ``(iii) the basis of the stock of any 
                        shareholder in the domestic corporation shall 
                        be the same as the basis of the stock of the 
                        shareholder in the foreign corporation for 
                        which it is treated as exchanged, and
                            ``(iv) the transfer of any earnings and 
                        profits by reason of clause (i) shall be 
                        disregarded in determining any deemed dividend 
                        or foreign tax creditable to the domestic 
                        corporation with respect to such transfer.
                    ``(C) Regulations.--The Secretary may prescribe 
                such regulations as may be necessary or appropriate to 
                carry out this paragraph, including regulations to 
                prevent the avoidance of the purposes of this 
                paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2010.

SEC. 212. INDEXING CORPORATE INTEREST DEDUCTION FOR INFLATION.

    (a) In General.--Section 163 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) the 
following new subsection:
    ``(n) Indexing Corporate Interest Deduction for Inflation.--
            ``(1) In general.--In the case of a corporation, the 
        deduction allowed under this chapter for interest paid for any 
        taxable year with respect to any obligation shall be adjusted 
        by multiplying the amount otherwise so allowed by 1 minus the 
        fractional exclusion rate for such taxable year.
            ``(2) Fractional exclusion rate.--For any taxable year, the 
        Secretary shall determine the fractional exclusion rate using--
                    ``(A) a fraction--
                            ``(i) the numerator of which is the cost-
                        of-living adjustment determined under section 
                        1(f)(3) for the calendar year in which the 
                        taxable year begins by substituting `the second 
                        preceding calendar year' for `calendar year 
                        1992' in subparagraph (B) thereof, and
                            ``(ii) the denominator of which is the 
                        nominal interest rate for such obligation, and
                    ``(B) a constant real before tax rate of return of 
                6 percent.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 213. PROHIBITION OF ADVANCE REFUNDING OF BONDS.

    (a) In General.--Subsection (d) of section 149 is amended--
            (1) by striking paragraphs (1), (2), (3), (4), and (6),
            (2) by redesignating paragraphs (5) and (7) as paragraphs 
        (2) and (3), respectively, and
            (3) by inserting before paragraph (2) (as redesignated by 
        paragraph (2) the following new paragraph:
            ``(1) Prohibition.--Nothing in section 103(a) or in any 
        other provision of law shall be construed to provide an 
        exemption from Federal income tax for interest on any bond 
        issued as part of an issue to advance refund a bond.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to refunding bonds issued on or after the date of the enactment 
of this Act.

SEC. 214. CBO STUDY ON GOVERNMENT SPENDING ON BUSINESSES.

    (a) Study.--The Congressional Budget Office shall identify the 
Federal Government's direct and indirect spending on businesses, using 
among other sources, the corporate welfare lists produced by the Cato 
Institute and the Bureau of Economic Analysis of the Department of 
Commerce, and, from that pool of spending, identify the least 
economically justifiable and suggest options for how Congress could 
potentially reduce Federal spending on the least justifiable programs 
by at least $230,000,000,000 during a 10-year period.
    (b) Report.--The Congressional Budget Office shall report not later 
than one year after the date of the enactment of this Act on the 
results of the study required under subsection (a) and shall submit 
such report for the purpose of hearing by the Committee on the Budget 
of the House of Representatives and the Committee on the Budget of the 
Senate.

              TITLE III--REPEAL OF ALTERNATIVE MINIMUM TAX

SEC. 301. REPEAL OF ALTERNATIVE MINIMUM TAX.

    (a) In General.--Section 55(a) (relating to alternative minimum tax 
imposed) is amended by adding at the end the following new flush 
sentence:
``For purposes of this title, the tentative minimum tax on any taxpayer 
for any taxable year beginning after December 31, 2010, shall be 
zero.''.
    (b) Modification of Limitation on Use of Credit for Prior Year 
Minimum Tax Liability.--Subsection (c) of section 53 (relating to 
credit for prior year minimum tax liability) is amended to read as 
follows:
    ``(c) Limitation.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        credit allowable under subsection (a) for any taxable year 
        shall not exceed the excess (if any) of--
                    ``(A) the regular tax liability of the taxpayer for 
                such taxable year reduced by the sum of the credits 
                allowable under subparts A, B, D, E, and F of this 
                part, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Taxable years beginning after 2010.--In the case of 
        any taxable year beginning after December 31, 2010, the credit 
        allowable under subsection (a) to a taxpayer other than a 
        corporation for any taxable year shall not exceed 90 percent of 
        the regular tax liability of the taxpayer for such taxable year 
        reduced by the sum of the credits allowable under subparts A, 
        B, D, E, and F of this part.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

                       TITLE IV--OTHER PROVISIONS

               Subtitle A--Improvements in Tax Compliance

SEC. 401. INFORMATION REPORTING ON PAYMENTS TO CORPORATIONS.

    (a) In General.--Section 6041 is amended by adding at the end the 
following new subsections:
    ``(h) Application to Corporations.--Notwithstanding any regulation 
prescribed by the Secretary before the date of the enactment of this 
subsection, for purposes of this section the term `person' includes any 
corporation that is not an organization exempt from tax under section 
501(a).
    ``(i) Regulations.--The Secretary may prescribe such regulations 
and other guidance as may be appropriate or necessary to carry out the 
purposes of this section, including rules to prevent duplicative 
reporting of transactions.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 2010.

SEC. 402. ADDITIONAL REPORTING REQUIREMENTS BY REGULATION.

    The Secretary of the Treasury is authorized to issue regulations 
under which with respect to payments made after December 31, 2010--
            (1) any merchant acquiring bank is required to annually 
        report to the Secretary the gross reimbursement payments made 
        to merchants in a calendar year, unless the benefit of such 
        reporting does not justify the cost of compliance, as 
        determined by the Secretary,
            (2) any contractor receiving payments of $600 or more in a 
        calendar year from a particular business is required to furnish 
        such business the contractor's certified taxpayer 
        identification number or be subject to withholding on such 
        payments at a flat rate percentage selected by the contractor, 
        and
            (3) any Federal, State, or local government is required to 
        report to the Secretary any non-wage payment to procure 
        property and services, other than payments of interest, 
        payments for real property, payments to tax-exempt entities or 
        foreign governments, intergovernmental payments, and payments 
        made pursuant to a classified or confidential contract.

SEC. 403. INCREASE IN INFORMATION RETURN PENALTIES.

    (a) Failure To File Correct Information Returns.--
            (1) In general.--Section 6721(a)(1) is amended--
                    (A) by striking ``$50'' and inserting ``$250'', and
                    (B) by striking ``$250,000'' and inserting 
                ``$3,000,000''.
            (2) Reduction where correction in specified period.--
                    (A) Correction within 30 days.--Section 6721(b)(1) 
                is amended--
                            (i) by striking ``$15'' and inserting 
                        ``$50'',
                            (ii) by striking ``$50'' and inserting 
                        ``$250'', and
                            (iii) by striking ``$75,000'' and inserting 
                        ``$500,000''.
                    (B) Failures corrected on or before august 1.--
                Section 6721(b)(2) is amended--
                            (i) by striking ``$30'' and inserting 
                        ``$100'',
                            (ii) by striking ``$50'' and inserting 
                        ``$250'', and
                            (iii) by striking ``$150,000'' and 
                        inserting ``$1,500,000''.
            (3) Lower limitation for persons with gross receipts of not 
        more than $5,000,000.--Section 6721(d)(1) is amended--
                    (A) in subparagraph (A)--
                            (i) by striking ``$100,000'' and inserting 
                        ``$1,000,000'', and
                            (ii) by striking ``$250,000'' and inserting 
                        ``$3,000,000'',
                    (B) in subparagraph (B)--
                            (i) by striking ``$25,000'' and inserting 
                        ``$175,000'', and
                            (ii) by striking ``$75,000'' and inserting 
                        ``$500,000'', and
                    (C) in subparagraph (C)--
                            (i) by striking ``$50,000'' and inserting 
                        ``$500,000'', and
                            (ii) by striking ``$150,000'' and inserting 
                        ``$1,500,000''.
            (4) Penalty in case of intentional disregard.--Section 
        6721(e) is amended--
                    (A) by striking ``$100'' in paragraph (2) and 
                inserting ``$500'', and
                    (B) by striking ``$250,000'' in paragraph (3)(A) 
                and inserting ``$3,000,000''.
    (b) Failure To Furnish Correct Payee Statements.--
            (1) In general.--Section 6722(a) is amended--
                    (A) by striking ``$50'' and inserting ``$250'', and
                    (B) by striking ``$100,000'' and inserting 
                ``$1,000,000''.
            (2) Penalty in case of intentional disregard.--Section 
        6722(c) is amended--
                    (A) by striking ``$100'' in paragraph (1) and 
                inserting ``$500'', and
                    (B) by striking ``$100,000'' in paragraph (2)(A) 
                and inserting ``$1,000,000''.
    (c) Failure To Comply With Other Information Reporting 
Requirements.--Section 6723 is amended--
            (1) by striking ``$50'' and inserting ``$250'', and
            (2) by striking ``$100,000'' and inserting ``$1,000,000''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to information returns required to be filed on or 
after January 1, 2011.

SEC. 404. E-FILING REQUIREMENT FOR CERTAIN LARGE ORGANIZATIONS.

    (a) In General.--The first sentence of section 6011(e)(2) is 
amended to read as follows: ``In prescribing regulations under 
paragraph (1), the Secretary shall take into account (among other 
relevant factors) the ability of the taxpayer to comply at reasonable 
cost with the requirements of such regulations.''.
    (b) Conforming Amendment.--Section 6724 is amended by striking 
subsection (c).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after December 31, 2010.

SEC. 405. IMPLEMENTATION OF STANDARDS CLARIFYING WHEN EMPLOYEE LEASING 
              COMPANIES CAN BE HELD LIABLE FOR THEIR CLIENTS' FEDERAL 
              EMPLOYMENT TAXES.

    With respect to employment tax returns required to be filed with 
respect to wages paid on or after January 1, 2011, the Secretary of the 
Treasury shall issue regulations establishing--
            (1) standards for holding employee leasing companies 
        jointly and severally liable with their clients for Federal 
        employment taxes under chapters 21, 22, 23, and 24 of the 
        Internal Revenue Code of 1986, and
            (2) standards for holding such companies solely liable for 
        such taxes.

SEC. 406. EXPANSION OF IRS ACCESS TO INFORMATION IN NATIONAL DIRECTORY 
              OF NEW HIRES FOR TAX ADMINISTRATION PURPOSES.

    (a) In General.--Paragraph (3) of section 453(j) of the Social 
Security Act (42 U.S.C. 653(j)) is amended to read as follows:
            ``(3) Administration of federal tax laws.--The Secretary of 
        the Treasury shall have access to the information in the 
        National Directory of New Hires for purposes of administering 
        the Internal Revenue Code of 1986.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 407. MODIFICATION OF CRIMINAL PENALTIES FOR WILLFUL FAILURES 
              INVOLVING TAX PAYMENTS AND FILING REQUIREMENTS.

    (a) Increase in Penalty for Attempt To Evade or Defeat Tax.--
Section 7201 (relating to attempt to evade or defeat tax) is amended--
            (1) by striking ``$100,000'' and inserting ``$500,000'',
            (2) by striking ``$500,000'' and inserting ``$1,000,000'', 
        and
            (3) by striking ``5 years'' and inserting ``10 years''.
    (b) Modification of Penalties for Willful Failure To File Return, 
Supply Information, or Pay Tax.--
            (1) In general.--Section 7203 (relating to willful failure 
        to file return, supply information, or pay tax) is amended--
                    (A) in the first sentence--
                            (i) by striking ``Any person'' and 
                        inserting the following:
    ``(a) In General.--Any person'', and
                            (ii) by striking ``$25,000'' and inserting 
                        ``$50,000'',
                    (B) in the third sentence, by striking ``section'' 
                and inserting ``subsection'', and
                    (C) by adding at the end the following new 
                subsection:
    ``(b) Aggravated Failure To File.--
            ``(1) In general.--In the case of any failure described in 
        paragraph (2), the first sentence of subsection (a) shall be 
        applied by substituting--
                    ``(A) `felony' for `misdemeanor',
                    ``(B) `$250,000 ($500,000' for `$50,000 ($100,000', 
                and
                    ``(C) `5 years' for `1 year'.
            ``(2) Failure described.--A failure described in this 
        paragraph is--
                    ``(A) a failure to make a return described in 
                subsection (a) for any 3 taxable years occurring during 
                any period of 5 consecutive taxable years if the 
                aggregate tax liability for such period is not less 
                than $50,000, or
                    ``(B) a failure to make a return if the tax 
                liability giving rise to the requirement to make such 
                return is attributable to an activity which is a felony 
                under any State or Federal law.''.
            (2) Penalty may be applied in addition to other 
        penalties.--Section 7204 (relating to fraudulent statement or 
        failure to make statement to employees) is amended by striking 
        ``the penalty provided in section 6674'' and inserting ``the 
        penalties provided in sections 6674 and 7203(b)''.
    (c) Fraud and False Statements.--Section 7206 (relating to fraud 
and false statements) is amended--
            (1) by striking ``$100,000'' and inserting ``$500,000'',
            (2) by striking ``$500,000'' and inserting ``$1,000,000'', 
        and
            (3) by striking ``3 years'' and inserting ``5 years''.
    (d) Increase in Monetary Limitation for Underpayment or Overpayment 
of Tax Due to Fraud.--Section 7206 (relating to fraud and false 
statements), as amended by subsection (a)(3), is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6401(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to actions, and failures to act, occurring after the date of the 
enactment of this Act.

SEC. 408. PENALTIES FOR FAILURE TO FILE CERTAIN RETURNS ELECTRONICALLY.

    (a) In General.--Part I of subchapter A of chapter 68 (relating to 
additions to the tax, additional amounts, and assessable penalties) is 
amended by inserting after section 6652 the following new section:

``SEC. 6652A. FAILURE TO FILE CERTAIN RETURNS ELECTRONICALLY.

    ``(a) In General.--If a person fails to file a return described in 
section 6651 or 6652(c)(1) in electronic form as required under section 
6011(e)--
            ``(1) such failure shall be treated as a failure to file 
        such return (even if filed in a form other than electronic 
        form), and
            ``(2) the penalty imposed under section 6651 or 6652(c), 
        whichever is appropriate, shall be equal to the greater of--
                    ``(A) the amount of the penalty under such section, 
                determined without regard to this section, or
                    ``(B) the amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the penalty determined under this subsection is equal to 
        $40 for each day during which a failure described under 
        subsection (a) continues. The maximum penalty under this 
        paragraph on failures with respect to any 1 return shall not 
        exceed the lesser of $20,000 or 10 percent of the gross 
        receipts of the taxpayer for the year.
            ``(2) Increased penalties for taxpayers with gross receipts 
        between $1,000,000 and $100,000,000.--
                    ``(A) Taxpayers with gross receipts between 
                $1,000,000 and $25,000,000.--In the case of a taxpayer 
                having gross receipts exceeding $1,000,000 but not 
                exceeding $25,000,000 for any year--
                            ``(i) the first sentence of paragraph (1) 
                        shall be applied by substituting `$200' for 
                        `$40', and
                            ``(ii) in lieu of applying the second 
                        sentence of paragraph (1), the maximum penalty 
                        under paragraph (1) shall not exceed $100,000.
                    ``(B) Taxpayers with gross receipts over 
                $25,000,000.--Except as provided in paragraph (3), in 
                the case of a taxpayer having gross receipts exceeding 
                $25,000,000 for any year--
                            ``(i) the first sentence of paragraph (1) 
                        shall be applied by substituting `$500' for 
                        `$40', and
                            ``(ii) in lieu of applying the second 
                        sentence of paragraph (1), the maximum penalty 
                        under paragraph (1) shall not exceed $250,000.
            ``(3) Increased penalties for certain taxpayers with gross 
        receipts exceeding $100,000,000.--In the case of a return 
        described in section 6651--
                    ``(A) Taxpayers with gross receipts between 
                $100,000,000 and $250,000,000.--In the case of a 
                taxpayer having gross receipts exceeding $100,000,000 
                but not exceeding $250,000,000 for any year--
                            ``(i) the amount of the penalty determined 
                        under this subsection shall equal the sum of--
                                    ``(I) $50,000, plus
                                    ``(II) $1,000 for each day during 
                                which such failure continues (twice 
                                such amount for each day such failure 
                                continues after the first such 60 
                                days), and
                            ``(ii) the maximum amount under clause 
                        (i)(II) on failures with respect to any 1 
                        return shall not exceed $200,000.
                    ``(B) Taxpayers with gross receipts over 
                $250,000,000.--In the case of a taxpayer having gross 
                receipts exceeding $250,000,000 for any year--
                            ``(i) the amount of the penalty determined 
                        under this subsection shall equal the sum of--
                                    ``(I) $250,000, plus
                                    ``(II) $2,500 for each day during 
                                which such failure continues (twice 
                                such amount for each day such failure 
                                continues after the first such 60 
                                days), and
                            ``(ii) the maximum amount under clause 
                        (i)(II) on failures with respect to any 1 
                        return shall not exceed $250,000.
                    ``(C) Exception for certain returns.--Subparagraphs 
                (A) and (B) shall not apply to any return of tax 
                imposed under section 511.''.
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6652 the following new item:

``Sec. 6652A. Failure to file certain returns electronically.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns required to be filed on or after January 1, 2011.

SEC. 409. REPORTING ON IDENTIFICATION OF BENEFICIAL OWNERS OF CERTAIN 
              FOREIGN FINANCIAL ACCOUNTS.

    (a) In General.--Subchapter A of chapter 3 is amended by adding at 
the end the following new section:

``SEC. 1447. WITHHOLDABLE PAYMENTS TO CERTAIN FOREIGN FINANCIAL 
              ACCOUNTS.

    ``(a) In General.--In the case of any withholdable payment to a 
foreign financial account, the withholding agent with respect to such 
payment shall deduct and withhold from such payment a tax equal to 30 
percent of the amount of such payment if such agent does not meet the 
reporting requirements under subsection (b) with respect to such 
payment.
    ``(b) Reporting Requirements.--The requirements of this subsection 
are met with respect to any withholdable payment to a foreign financial 
account if the withholding agent with respect to such payment--
            ``(1) identifies--
                    ``(A) the beneficial owner or owners of such 
                account by name, address, TIN (if any), and
                    ``(B) the account number,
            ``(2) obtains evidence of the nationality of such owner or 
        owners,
            ``(3) complies with such verification and due diligence 
        procedures as the Secretary may require with respect to such 
        identification and obtaining of such evidence, and
            ``(4) reports such identification and evidence to the 
        Secretary in such manner as the Secretary requires.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Withholdable payment.--Except as otherwise provided 
        by the Secretary, the term `withholdable payment' means--
                    ``(A) any payment of interest (including any 
                original issue discount), dividends, rents, and other 
                fixed or determinable annual or periodical gains and 
                profits, if such payment is from sources within the 
                United States, and
                    ``(B) any gross proceeds from the sale or other 
                disposition of any property of a type which can produce 
                interest or dividends from sources within the United 
                States.
            ``(2) Withholding agent.--The term `withholding agent' 
        means all persons, in whatever capacity acting, having the 
        control, receipt, custody, disposal, or payment of any 
        withholdable payment.
            ``(3) Foreign financial account.--
                    ``(A) In general.--The term `foreign financial 
                account' means any financial account maintained by a 
                foreign financial institution.
                    ``(B) Financial account.--Except as otherwise 
                provided by the Secretary, the term `financial account' 
                means, with respect to any foreign financial 
                institution--
                            ``(i) any depository account maintained by 
                        such financial institution, and
                            ``(ii) any custodial account maintained by 
                        such financial institution.
            ``(4) Foreign financial institution.--
                    ``(A) In general.--The term `foreign financial 
                institution' means any financial institution which is a 
                foreign entity. Except as otherwise provided by the 
                Secretary, such term shall not include a financial 
                institution which is organized under the laws of any 
                possession of the United States.
                    ``(B) Financial institution.--Except as otherwise 
                provided by the Secretary, the term `financial 
                institution' means any entity that--
                            ``(i) accepts deposits in the ordinary 
                        course of a banking or similar business,
                            ``(ii) is engaged primarily in the business 
                        of holding financial assets for the account of 
                        others, or
                            ``(iii) is engaged (or holding itself out 
                        as being engaged) primarily in the business of 
                        investing, reinvesting, or trading in 
                        securities (as defined in section 475(c)(2) 
                        without regard to the last sentence thereof), 
                        partnership interests, commodities (as defined 
                        in section 475(e)(2)), or any interest 
                        (including a futures or forward contract or 
                        option) in such securities, partnership 
                        interests, or commodities.
                    ``(C) Foreign entity.--The term `foreign entity' 
                means any entity which is not a United States person.
    ``(d) Exception for Certain Payments.--Subsection (a) shall not 
apply to any payment to the extent that the beneficial owner of such 
payment is--
            ``(1) any foreign government, any political subdivision of 
        a foreign government, or any wholly owned agency or 
        instrumentality of any one or more of the foregoing,
            ``(2) any international organization or any wholly owned 
        agency or instrumentality thereof,
            ``(3) any foreign central bank of issue, or
            ``(4) any other class of persons identified by the 
        Secretary for purposes of this subsection as posing a low risk 
        of tax evasion.
    ``(e) Confidentiality of Information.--For purposes of this 
section, rules similar to the rules of section 3406(f) shall apply.
    ``(f) Coordination With Other Withholding Provisions.--The 
Secretary shall provide for the coordination of this section with other 
withholding provisions under this title, including providing for the 
proper crediting of amounts deducted and withheld under this section 
against amounts required to be deducted and withheld under such other 
provisions.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as may be necessary or appropriate to carry out the 
purposes of, and prevent the avoidance of, this section.''.
    (b) Conforming Amendment.--The table of sections for subchapter A 
of chapter 3 is amended by adding at the end the following new item:

``Sec. 1447. Withholdable payments to certain foreign financial 
                            accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 2010.

                Subtitle B--Requiring Economic Substance

SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (o) as subsection (p) and by inserting after subsection (n) 
the following new subsection:
    ``(o) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) subject to clause (iii), the 
                                taxpayer has a substantial purpose 
                                (other than a Federal tax purpose) for 
                                entering into such transaction.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance solely 
                        by reason of having a potential for profit 
                        unless the present value of the reasonably 
                        expected pre-Federal tax profit from the 
                        transaction is substantial in relation to the 
                        present value of the expected net Federal tax 
                        benefits that would be allowed if the 
                        transaction were respected. In determining pre-
                        Federal tax profit, there shall be taken into 
                        account fees and other transaction expenses and 
                        to the extent provided by the Secretary, 
                        foreign taxes.
                            ``(iii) Special rules for determining 
                        whether non-federal tax purpose.--For purposes 
                        of clause (i)(II)--
                                    ``(I) a purpose of achieving a 
                                financial accounting benefit shall not 
                                be taken into account in determining 
                                whether a transaction has a substantial 
                                purpose (other than a Federal tax 
                                purpose) if the origin of such 
                                financial accounting benefit is a 
                                reduction of Federal tax, and
                                    ``(II) the taxpayer shall not be 
                                treated as having a substantial purpose 
                                (other than a Federal tax purpose) with 
                                respect to a transaction if the only 
                                such purpose is the reduction of non-
                                Federal taxes and the transaction will 
                                result in a reduction of Federal taxes 
                                substantially equal to, or greater 
                                than, the reduction in non-Federal 
                                taxes because of similarities between 
                                the laws imposing the taxes.
            ``(2) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
            ``(3) Other provisions not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law or provision of this title, 
        and the requirements of this subsection shall be construed as 
        being in addition to any such other rule of law or provision of 
        this title.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 30 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `30 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if 
        there is a lack of economic substance (within the meaning of 
        section 7701(o)(1)(B)) for the transaction giving rise to the 
        claimed benefit.
    ``(d) Rules Applicable To Assertion, Compromise, and Collection of 
Penalty.--
            ``(1) In general.--Only the Chief Counsel for the Internal 
        Revenue Service may assert a penalty imposed under this section 
        or may compromise all or any portion of such penalty. The Chief 
        Counsel may delegate the authority under this paragraph only to 
        an individual holding the position of chief of a branch within 
        the Office of the Chief Counsel for the Internal Revenue 
        Service.
            ``(2) Specific requirements.--
                    ``(A) Assertion of penalty.--The Chief Counsel for 
                the Internal Revenue Service (or the Chief Counsel's 
                delegate under paragraph (1)) shall not assert a 
                penalty imposed under this section unless, before the 
                assertion of the penalty, the taxpayer is provided--
                            ``(i) a notice of intent to assert the 
                        penalty, and
                            ``(ii) an opportunity to provide to the 
                        Commissioner (or the Chief Counsel's delegate 
                        under paragraph (1)) a written response to the 
                        proposed penalty within a reasonable period of 
                        time after such notice.
                    ``(B) Compromise of penalty.--A compromise shall 
                not result in a reduction in the penalty imposed by 
                this section in an amount greater than the amount which 
                bears the same ratio to the amount of the penalty 
                determined without regard to the compromise as--
                            ``(i) the reduction under the compromise in 
                        the noneconomic substance transaction 
                        understatement to which the penalty relates, 
                        bears to
                            ``(ii) the amount of the noneconomic 
                        substance transaction understatement determined 
                        without regard to the compromise.
            ``(3) Rules relating to relevancy requirement.--
                    ``(A) Determination of relevance by chief 
                counsel.--The Chief Counsel for the Internal Revenue 
                Service (or the Chief Counsel's delegate under 
                paragraph (1)) may assert, compromise, or collect a 
                penalty imposed by this section with respect to a 
                noneconomic substance transaction even if there has not 
                been a court determination that the economic substance 
                doctrine was relevant for purposes of this title to the 
                transaction if the Chief Counsel (or delegate) 
                determines that either was so relevant.
                    ``(B) Final order of court.--If there is a final 
                order of a court that determines that the economic 
                substance doctrine was not relevant for purposes of 
                this title to a transaction (or series of 
                transactions), any penalty imposed under this section 
                with respect to the transaction (or series of 
                transactions) shall be rescinded.
            ``(4) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply to a compromise under 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--
            ``(1) For coordination of penalty with understatements 
        under section 6662 and other special rules, see section 
        6662A(e).
            ``(2) For reporting of penalty imposed under this section 
        to the Securities and Exchange Commission, see section 
        6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A)--
                            (i) by inserting ``6662B or'' before 
                        ``6663'' in the text, and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (C) in paragraph (2)(B)--
                            (i) by inserting ``and section 6662B'' 
                        after ``This section'', and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (D) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (E) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(B)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or to penalty under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) (relating to interest on unpaid 
taxes attributable to nondisclosed reportable transactions) is 
amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``and Noneconomic Substance Transactions'' 
        in the heading thereof after ``Transactions''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.

         Subtitle C--Internet Gambling Taxation and Regulation

SEC. 421. TAX ON INTERNET GAMBLING; LICENSEE INFORMATION REPORTING.

    (a) In General.--Chapter 36 (relating to certain other excise 
taxes) is amended by adding at the end the following new subchapter:

                   ``Subchapter E--Internet Gambling

``Sec. 4491. Imposition of Internet gambling license fee.
``Sec. 4492. Record requirements.

``SEC. 4491. IMPOSITION OF INTERNET GAMBLING LICENSE FEE.

    ``(a) Federal Fee.--Each licensee within the meaning of section 
5382 of title 31, United States Code, shall be required to pay an 
Internet gambling license fee by the end of each calendar month in an 
amount equal to two percent of all funds deposited by customers during 
the preceding month into an account maintained by that licensee or any 
agent of that licensee that can be used for the purpose of placing a 
bet or wager as defined in section 5362(1) of title 31, United States 
Code.
    ``(b) Deposits.--Deposits made by or on behalf of a licensee of 
Internet gambling winnings or returns of funds by or on behalf of a 
licensee to the account of a customer shall not be treated as a deposit 
for purposes of this section.
    ``(c) Persons Liable for Fee.--The Internet gambling license fee 
shall be the direct and exclusive obligation of the Internet gambling 
operator and may not be deducted from the amounts available as deposits 
to the person placing a bet. Notwithstanding the foregoing, any person 
making a deposit for the purpose of placing a bet or wager with a 
person who is required but has failed to obtain a license pursuant to 
subchapter V of chapter 53 of title 31, United States Code, shall be 
liable for and pay the fee under this subchapter on all such deposits, 
but such liability shall not excuse any failure to pay the fee on the 
part of the person who is required but has failed to obtain such 
license.
    ``(d) Unauthorized Bets or Wagers.--There is hereby imposed a fee 
in an amount equal to 50 percent of all funds deposited into an account 
that can be used for placing a bet or wager within the meaning of 
Section 5362(1) of title 31, United States Code, with any person that 
is not authorized pursuant to section 5382 of that title. Such tax is 
due by the end of each calendar month with respect to deposits during 
the preceding month.
    ``(e) Disposition.--Amounts paid as Internet gambling license fees 
or on unauthorized bets or wagers under this section shall be deposited 
in the general fund of the Treasury and treated as revenue.
    ``(f) Administrative Provisions.--Except to the extent the 
Secretary shall by regulations prescribe, the fees imposed by this 
section shall be subject to the administrative provisions of this title 
applicable to excise taxes imposed by chapter 35.

``SEC. 4492. RECORD REQUIREMENTS.

    ``Each person liable for fees under this subchapter, except for a 
person making a deposit who is liable for fees pursuant to section 
4491(e), shall keep a daily record showing deposits as defined in this 
subchapter, in addition to all other records required pursuant to 
section 6001(a).''.
    (b) Information Returns.--Subpart A of part III of subchapter A of 
chapter 61 (relating to information concerning persons subject to 
special provisions) is amended by adding at the end the following new 
section:

``SEC. 6050X. RETURNS RELATING TO INTERNET GAMBLING.

    ``(a) Requirement.--Every person who is a licensee (within the 
meaning of section 5382(3) of title 31, United States Code) or who 
otherwise is engaged in the business of accepting any bet or wager 
within the meaning of section 5362(1) of title 31, United States Code, 
during a taxable year shall furnish, at such time and in such manner as 
the Secretary shall by regulations prescribe, the information described 
in subsection (b), and such person shall maintain (in the location, in 
the manner, and to the extent prescribed in regulations) such records 
as may be appropriate to the information described in subsection (b).
    ``(b) Required Information.--For purposes of subsection (a), the 
information described is set forth below, which information may be 
modified as appropriate by the Secretary through regulation--
            ``(1) the name, address, and TIN of the licensee or other 
        person engaged in the business of accepting any bet or wager,
            ``(2) the name, address, and TIN of each person placing a 
        bet or wager with the licensee or other person engaged in the 
        business of accepting any bet or wager during the calendar 
        year,
            ``(3) the gross winnings, gross wagers, and gross losses 
        for the calendar year of each person placing a bet or wager 
        with the licensee or other person engaged in the business of 
        accepting any bet or wager during the year,
            ``(4) the net Internet gambling winnings for each such 
        person for the calendar year,
            ``(5) the amount of tax withheld with respect to each such 
        person for the calendar year,
            ``(6) beginning and end-of-year account balances for each 
        such person for the calendar year, and
            ``(7) amounts deposited and withdrawn by each such person 
        during the calendar year.
    ``(c) Statement To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person whose name is required to 
be set forth in such return by reason of placing a bet or wager a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to each person whose name is required to be set 
        forth in such return.
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) was 
required to be made.
    ``(d) Definitions.--
            ``(1) Net internet gambling winnings.--The term `net 
        Internet gambling winnings' means gross winnings from wagers 
        placed over the Internet with a person required to be licensed 
        under section 5382 of chapter 53 of title 31, United States 
        Code, less the amounts wagered.
            ``(2) Internet; wager.--The terms `Internet' and `wager' 
        shall have the respective meanings given such terms by section 
        5362 of chapter 53 of title 31, United States Code.''.
    (c) Clerical Amendments.--
            (1) The table of subchapters for chapter 36 is amended by 
        adding at the end the following new item:

                 ``subchapter e. internet gambling.''.

            (2) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 is amended by inserting after the 
        item relating to section 6050W the following new item:

``Sec. 6050X. Returns relating to Internet gambling.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bets or wagers placed after the date of the enactment of this 
Act.

SEC. 422. WITHHOLDING FROM CERTAIN GAMBLING WINNINGS.

    (a) Net Internet Gambling Winnings.--Paragraph (3) of section 
3406(b) (relating to other reportable payments for purposes of backup 
withholding) is amended--
            (1) by striking ``or'' in subparagraph (E);
            (2) by striking ``.'' and inserting ``, or'' at the end of 
        subparagraph (F); and
            (3) by adding at the end thereof the following new 
        subparagraph:
                    ``(G) section 6050X(b)(4) (relating to net Internet 
                gambling winnings).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bets or wagers placed after the date of the enactment of this Act.

SEC. 423. WITHHOLDING OF TAX ON NONRESIDENT ALIENS.

    (a) Tax on Nonresident Alien Individuals.--Paragraph (1) of section 
871(a) (relating to income not connected with United States business) 
is amended--
            (1) by striking ``and'' at the end of subparagraph (C),
            (2) by inserting ``and'' at the end of subparagraph (D), 
        and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) the gross amount of winnings from each wager 
                placed over the Internet with a person required to be 
                licensed under section 5382 of chapter 53 of title 31, 
                United States Code (as such terms are defined in 
                section 6050X(d)(2)),''.
    (b) Exemption for Certain Gambling Winnings.--Section 871(j) 
(relating to exemption for certain gambling winnings) is amended by 
inserting before the period at the end the following: ``or to any bets 
or wagers placed over the Internet (as such terms are defined in 
section 6050X(d)(2))''.
    (c) Withholding of Tax on Nonresident Alien Individuals.--The first 
sentence of subsection (b) of section 1441 (relating to withholding of 
tax on nonresident aliens) is amended by inserting after ``gains 
subject to tax under section 871(a)(1)(D),'' the following: ``the gross 
amount of winnings from wagers placed over the Internet described in 
section 871(a)(1)(E),''.
    (d) Source of Internet Gambling Winnings.--Subsection (a) of 
section 861 is amending by inserting at the end thereof the following 
new paragraph:
            ``(9) Internet gambling winnings.--Any Internet gambling 
        winnings received from a licensee within the meaning of section 
        5382(3) of title 31, United States Code.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to bets or wagers placed after the date of the enactment of this 
Act.

SEC. 424. TERRITORIAL EXTENT.

    Paragraph (2) of section 4404 is amended to read as follows:
            ``(2) placed within the United States or any Commonwealth, 
        territory, or possession thereof by a United States citizen or 
        resident.''.

SEC. 425. FEDERAL LICENSING REQUIREMENT FOR INTERNET GAMBLING 
              OPERATORS.

    (a) In General.--Chapter 53 of title 31, United States Code, is 
amended by adding at the end the following new subchapter:

         ``SUBCHAPTER V--REGULATION OF LAWFUL INTERNET GAMBLING

``Sec. 5381. Congressional findings
    ``The Congress finds the following:
            ``(1) Since the development of the Internet, millions of 
        people have chosen to gamble online, and today Internet 
        gambling is offered by operators located in many different 
        countries under a variety of licensing and regulatory regimes.
            ``(2) Despite the increasing use of the Internet for 
        gambling by persons in the United States, there is no Federal 
        or State regulatory regime in place to protect United States 
        citizens who choose to engage in this interstate activity, or 
        to oversee operators to establish and enforce standards of 
        integrity and fairness.
            ``(3) In the United States, gambling activities, equipment, 
        and operations have been subject to various forms of Federal 
        and State control, regulation, and enforcement, with some form 
        of gambling being permitted in nearly every State and by many 
        Indian tribes.
            ``(4) Internet gambling in the United States should be 
        controlled by a strict Federal licensing and regulatory 
        framework to protect underage and otherwise vulnerable 
        individuals, to ensure the games are fair, to address the 
        concerns of law enforcement, and to enforce any limitations on 
        the activity established by the States and Indian tribes.
            ``(5) An effective Federal licensing system would ensure 
        that licenses are issued only to Internet gambling operators 
        which meet strict criteria to protect consumers, and which--
                    ``(A) are in good financial and legal standing, and 
                of good character, honesty, and integrity;
                    ``(B) utilize appropriate technology to determine 
                the age and location of users;
                    ``(C) adopt and implement systems to protect minors 
                and problem gamblers;
                    ``(D) adopt and implement systems to enforce any 
                applicable Federal, State, and Indian tribe limitations 
                on Internet gambling; and
                    ``(E) have in place risk-based methods to identify 
                and combat money laundering and fraud relating to 
                Internet gambling, and to protect the privacy and 
                security of users.
            ``(6) There is a need to extend the regulatory provisions 
        of this Act to all persons, locations, equipment, practices, 
        and associations related to Internet gambling, with each State 
        and Indian tribe having the ability to limit Internet gambling 
        operators from offering Internet gambling to persons located 
        within its territory by opting out of the provisions of this 
        Act.
``Sec. 5382. Definitions
    ``For purposes of this subchapter, the following definitions shall 
apply:
            ``(1) Applicant.--The term `applicant' means any person who 
        has applied for a license pursuant to this subchapter.
            ``(2) Bet or wager.--The term `bet or wager' has the same 
        meaning as in section 5362(1).
            ``(3) Enforcement agent.--The term `enforcement agent' 
        means any individual authorized by the Secretary to enforce the 
        provisions of this subchapter and regulations prescribed under 
        this subchapter.
            ``(4) Indian lands and indian tribe.--The terms `Indian 
        lands' and `Indian tribe' have the same meanings as in section 
        4 of the Indian Gaming Regulatory Act.
            ``(5) Internet.--The term `Internet' has the same meaning 
        as in section 5362(5).
            ``(6) Licensee.--The term `licensee' means an entity 
        authorized to operate an Internet gambling facility in 
        accordance with this subchapter.
            ``(7) Operate an internet gambling facility.--The term 
        `operate an Internet gambling facility' or `operation of an 
        Internet gambling facility' means the direction, management, 
        supervision, or control of an Internet site through which bets 
        or wagers are initiated, received, or otherwise made, whether 
        by telephone, Internet, satellite, or other wire or wireless 
        communication.
            ``(8) Secretary.--The term `Secretary' means the Secretary 
        of the Treasury, or any person designated by the Secretary.
            ``(9) State.--The term `State' means any State of the 
        United States, the District of Columbia, or any commonwealth, 
        territory, or other possession of the United States.
            ``(10) Sporting event.--The term `sporting event' means any 
        athletic competition, whether professional, scholastic, or 
        amateur.
``Sec. 5383. Establishment and administration of licensing program
    ``(a) Treasury Responsibilities.--The Secretary shall have 
responsibility for the following activities:
            ``(1) Exercising full regulatory jurisdiction over--
                    ``(A) the operation of Internet gambling facilities 
                by licensees; and
                    ``(B) the licensure of all applicants.
            ``(2) Prescribing such regulations as may be necessary to 
        administer and enforce the requirements of this subchapter.
            ``(3) Employing enforcement agents with sufficient training 
        and experience to administer the requirements of this 
        subchapter and the regulations prescribed under this 
        subchapter.
            ``(4) Enforcing the requirements of this subchapter through 
        all appropriate means provided under this subchapter and other 
        provisions of law.
    ``(b) Internet Gambling Licensing Program.--
            ``(1) Licensing required for certain internet gambling.--No 
        person may operate an Internet gambling facility that knowingly 
        accepts bets or wagers from persons located in the United 
        States without a license issued by the Secretary in accordance 
        with this subchapter.
            ``(2) Authority under valid license.--A licensee may accept 
        bets or wagers from persons located in the United States, 
        subject to the limitations set forth in this subchapter, so 
        long as its license remains in good standing.
    ``(c) Application for License.--
            ``(1) In general.--Any person seeking authority to operate 
        an Internet gambling facility offering services to persons in 
        the United States may apply for a license issued by the 
        Secretary.
            ``(2) Information required.--Any application for a license 
        under this subchapter shall contain such information as may be 
        required by the Secretary, including the following:
                    ``(A) The criminal and credit history of the 
                applicant, any senior executive and director of the 
                applicant, and any person deemed to be in control of 
                the applicant.
                    ``(B) The financial statements of the applicant.
                    ``(C) Documentation showing the corporate structure 
                of the applicant and all related businesses and 
                affiliates.
                    ``(D) Documentation containing detailed evidence of 
                the applicant's plan for complying with all applicable 
                regulations should a license be issued, with particular 
                emphasis on the applicant's ability to--
                            ``(i) protect underage and problem 
                        gamblers;
                            ``(ii) ensure games are being operated 
                        fairly; and
                            ``(iii) comply with and address the 
                        concerns of law enforcement.
                    ``(E) Certification that the applicant agrees to 
                submit to United States jurisdiction and all applicable 
                United States laws relating to acceptance by the 
                applicant of bets or wagers over the Internet from 
                persons located in the United States and all associated 
                activities.
    ``(d) Standards for License Issuance; Suitability Qualifications 
and Disqualification Standards.--
            ``(1) Suitability for licensing standards.--
                    ``(A) In general.--No person shall be eligible to 
                obtain a license unless the Secretary has determined, 
                upon completion of a background check and 
                investigation, that the applicant, and any person 
                deemed to be in control of the applicant, is suitable 
                for licensing.
                    ``(B) Associates of applicants.--If the applicant 
                is a corporation, partnership, or other business 
                entity, a background check and investigation shall 
                occur with respect to the president or other chief 
                executive of the corporation, partnership, or other 
                business entity and other partners or senior executives 
                and directors of the corporation, partnership, or 
                entity, as determined appropriate by the Secretary, in 
                the Secretary's sole discretion.
                    ``(C) Background check and investigation.--The 
                Secretary shall establish standards and procedures for 
                conducting background checks and investigations for 
                purposes of this subsection.
            ``(2) Suitability for licensing standards described.--For 
        purposes of this subchapter, an applicant and any other person 
        associated with the applicant, as applicable, is suitable for 
        licensing if the applicant demonstrates to the Secretary by 
        clear and convincing evidence that the applicant (or individual 
        associated with the applicant, as applicable)--
                    ``(A) is a person of good character, honesty, and 
                integrity;
                    ``(B) is a person whose prior activities, 
                reputation, habits, and associations do not--
                            ``(i) pose a threat to the public interest 
                        or to the effective regulation and control of 
                        the licensed activities; or
                            ``(ii) create or enhance the dangers of 
                        unsuitable, unfair, or illegal practices, 
                        methods, and activities in the conduct of the 
                        licensed activities or the carrying on of the 
                        business and financial arrangements incidental 
                        to such activities;
                    ``(C) is capable of and likely to conduct the 
                activities for which the applicant is licensed in 
                accordance with the provisions of this subchapter and 
                any regulations prescribed under this subchapter;
                    ``(D) has or guarantees acquisition of adequate 
                business competence and experience in the operation of 
                Internet gambling facilities; and
                    ``(E) has or will obtain sufficient financing for 
                the nature of the proposed operation and from a 
                suitable source.
            ``(3) Unsuitable for licensing.--An applicant or any other 
        person may not be determined to be suitable for licensing 
        within the meaning of this subchapter if the applicant or such 
        person--
                    ``(A) has failed to provide information and 
                documentation material to a determination of 
                suitability for licensing under paragraph (1);
                    ``(B) has supplied information which is untrue or 
                misleading as to a material fact pertaining to any such 
                determination;
                    ``(C) has been convicted of an offense punishable 
                by imprisonment of more than 1 year; or
                    ``(D) is delinquent in filing any applicable 
                Federal or State tax returns or in the payment of any 
                taxes, penalties, additions to tax, or interest owed to 
                a State or the United States.
            ``(4) Ongoing requirement.--A licensee (and any other 
        person who is required to be determined to be suitable for 
        licensing in connection with such licensee) shall meet the 
        standards necessary to be suitable for licensing throughout the 
        term of the license.
            ``(5) Protection of the public trust.--The Secretary may 
        take such action as is necessary to protect the public trust, 
        including the implementation of such safeguards as may be 
        necessary to ensure the operation of an Internet gambling 
        facility licensed under this subchapter is controlled only by 
        persons who are suitable for licensing.
            ``(6) Enforcement actions.--
                    ``(A) Determination of unsuitability for continued 
                licensure.--If the Secretary finds that an individual 
                owner or holder of a security of a licensee, or of a 
                holding or intermediary company of a licensee or any 
                person with an economic interest in a licensee or a 
                director, partner, or officer of a licensee is not 
                suitable for licensing, the Secretary may determine 
                that the licensee is not qualified to continue as a 
                licensee.
                    ``(B) Action to protect the public interest, 
                including suspension.--If the Secretary may determine 
                that the licensee is not qualified to continue as a 
                licensee, the Secretary shall propose action necessary 
                to protect the public interest, including, if deemed 
                necessary, the suspension of the licensee.
                    ``(C) Imposition of conditions including removal of 
                parties.--Notwithstanding a determination under 
                subparagraph (A), the Secretary may allow a licensee to 
                continue engaging in licensed activities by imposing 
                conditions on the licensee under penalty of revocation 
                or suspension of a license, including--
                            ``(i) the identification of any person 
                        determined to be unsuitable for licensing; and
                            ``(ii) the establishment of appropriate 
                        safeguards to ensure such person is excluded 
                        from any interest in the licensed activities.
    ``(e) Assessments for Administrative Expenses.--
            ``(1) User fees.--
                    ``(A) In general.--The cost of administering this 
                subchapter with respect to each licensee, including the 
                cost of any review or examination of a licensee to 
                ensure compliance with the terms of the license and 
                this subchapter, shall be assessed by the Secretary 
                against the licensee institution by written notice in 
                an amount appropriate to meet the Secretary's expenses 
                in carrying out such administration, review, or 
                examination.
                    ``(B) Disposition.--Amounts assessed by the 
                Secretary as user fees under subparagraph (A) shall--
                            ``(i) be maintained by the Secretary solely 
                        for use in accordance with clause (ii);
                            ``(ii) be available to the Secretary to 
                        cover all expenses incurred by the Secretary in 
                        carrying out this subchapter; and
                            ``(iii) not be construed to be Government 
                        funds or appropriated monies, or subject to 
                        apportionment for the purposes of chapter 15 or 
                        any other authority.
                    ``(C) Hearing.--Any licensee against whom an 
                assessment is assessed under this paragraph shall be 
                afforded an agency hearing if such person submits a 
                request for such hearing within 20 days after the 
                issuance of the notice of assessment.
                    ``(D) Collection.--
                            ``(i) Referral.--If any licensee fails to 
                        pay an assessment under this paragraph after 
                        the assessment has become final, the Secretary 
                        shall recover the amount assessed by action in 
                        the appropriate United States district court.
                            ``(ii) Appropriateness of assessment not 
                        reviewable.--In any civil action under clause 
                        (i), the validity and appropriateness of the 
                        assessment shall not be subject to review.
            ``(2) Direct and exclusive obligation of licensee.--The 
        user fee shall be the direct and exclusive obligation of the 
        licensee and may not be deducted from amounts available as 
        deposits to any person placing a bet.
    ``(f) Approval of License.--The Secretary shall grant licenses 
under this subchapter if the applicant meets the criteria set by the 
Secretary set forth in this subchapter and in any regulations 
promulgated thereunder.
    ``(g) Safeguards Required of Licensee.--No person shall receive or 
retain a license under this section unless the person maintains or 
requires mechanisms so that the following requirements, and the 
standards established under section 5384, are met with respect to any 
Internet bet or wager:
            ``(1) Legal age.--Appropriate safeguards to ensure that the 
        individual placing a bet or wager is of legal age as defined by 
        the law of the State or tribal area in which the individual is 
        located at the time the bet or wager is placed.
            ``(2) Permissible location.--Appropriate safeguards to 
        ensure that the individual placing a bet or wager is physically 
        located in a jurisdiction that permits Internet gambling at the 
        time the bet or wager is placed.
            ``(3) Collection of customer taxes.--Appropriate mechanisms 
        to ensure that all taxes relating to Internet gambling from 
        persons engaged in Internet gambling are collected at the time 
        of any payment of any proceeds of Internet gambling.
            ``(4) Collection of taxes of licensee.--Appropriate 
        mechanisms to ensure that all taxes relating to Internet 
        gambling from any licensee are collected and disbursed as 
        required by law, and that adequate records to enable later 
        audit or verification are maintained.
            ``(5) Safeguards against financial crime.--Appropriate 
        safeguards to combat fraud, money laundering, and terrorist 
        finance.
            ``(6) Safeguards against compulsive gambling.--Appropriate 
        safeguards to combat compulsive Internet gambling.
            ``(7) Privacy safeguards.--Appropriate safeguards to 
        protect the privacy and security of any person engaged in 
        Internet gambling.
            ``(8) Payment of assessments.--Appropriate mechanisms to 
        ensure that any assessment under subsection (e) is paid to the 
        Secretary.
            ``(9) Other requirements.--Such other requirements as the 
        Secretary may establish by regulation or order.
    ``(h) Term and Renewal of License.--
            ``(1) Term.--Any license issued under this section shall be 
        issued for a 5-year term beginning on the date of issuance.
            ``(2) Renewal.--Licenses may be renewed in accordance with 
        the requirements prescribed by the Secretary pursuant to this 
        subchapter.
    ``(i) Revocation of License.--
            ``(1) In general.--Any license granted under this 
        subchapter may be revoked by the Secretary if--
                    ``(A) the licensee fails to comply with any 
                provision of this subchapter; or
                    ``(B) the licensee is determined to be unsuitable 
                for licensing, within the meaning of this subchapter.
            ``(2) Final action.--Any revocation of a license under 
        paragraph (1) shall be treated as a final action by the 
        Secretary.
    ``(j) Regulations.--The regulations prescribed by the Secretary 
under this subchapter shall include regulations to fully implement--
            ``(1) safeguards required for licensees under subsection 
        (g); and
            ``(2) the requirements for programs relating to the Problem 
        Gambling, Responsible Gambling, and Self-Exclusion Program 
        under section 5384.
    ``(k) Administrative Provisions.--
            ``(1) General powers of secretary.--The Secretary shall 
        have the authority to engage in the following:
                    ``(A) Investigate the suitability of each applicant 
                to ensure compliance with this subchapter and 
                regulations prescribed under this subchapter.
                    ``(B) Require licensees to maintain appropriate 
                procedures to ensure compliance with this subchapter 
                and regulations prescribed under this subchapter.
                    ``(C) Examine any licensee and any books, papers, 
                records, or other data of licensees relevant to any 
                recordkeeping or reporting requirements imposed by the 
                Secretary under this subchapter.
                    ``(D) When determined by the Secretary to be 
                necessary, summon a licensee or an applicant for a 
                license, an officer or employee of a licensee or any 
                such applicant (including a former officer or 
                employee), or any person having possession, custody, or 
                care of the reports and records required by the 
                Secretary under this subchapter, to appear before the 
                Secretary or a designee of the Secretary at a time and 
                place named in the summons and to produce such books, 
                papers, records, or other data, and to give testimony, 
                under oath, as may be relevant or material to any 
                investigation in connection with the enforcement of 
                this subchapter or any application for a license under 
                this subchapter.
                    ``(E) Investigate any violation of this subchapter 
                and any regulation under this subchapter and any other 
                violation of law relating to the operation of an 
                Internet gambling facility.
                    ``(F) Conduct continuing reviews of applicants and 
                licensees and the operation of Internet gambling 
                facilities by use of technological means, onsite 
                observation of facilities, including servers, or other 
                reasonable means to assure compliance with this 
                subchapter and any regulations promulgated hereunder.
            ``(2) Administrative aspects of summons.--
                    ``(A) Production at designated site.--A summons 
                issued pursuant to this subsection may require that 
                books, papers, records, or other data stored or 
                maintained at any place be produced at any business 
                location of a licensee or applicant for a license or 
                any designated location in any State or in any 
                territory or other place subject to the jurisdiction of 
                the United States not more than 500 miles distant from 
                any place where the licensee or applicant for a license 
                operates or conducts business in the United States.
                    ``(B) No liability for expenses.--The United States 
                shall not be liable for any expense incurred in 
                connection with the production of books, papers, 
                records, or other data under this subsection.
                    ``(C) Service of summons.--Service of a summons 
                issued under this subsection may be by registered mail 
                or in such other manner calculated to give actual 
                notice as the Secretary may prescribe by regulation.
            ``(3) Contumacy or refusal.--
                    ``(A) Referral to attorney general.--In case of 
                contumacy by a person issued a summons under this 
                subsection or a refusal by such person to obey such 
                summons or to allow the Secretary to conduct an 
                examination, the Secretary shall refer the matter to 
                the Secretary of the Treasury for referral to the 
                Attorney General.
                    ``(B) Jurisdiction of court.--The Attorney General 
                may invoke the aid of any court of the United States to 
                compel compliance with the summons within the 
                jurisdiction of which--
                            ``(i) the investigation which gave rise to 
                        the summons or the examination is being or has 
                        been carried on;
                            ``(ii) the person summoned is an 
                        inhabitant; or
                            ``(iii) the person summoned carries on 
                        business or may be found.
                    ``(C) Court order.--The court may issue an order 
                requiring the person summoned to appear before the 
                Secretary or a delegate of the Secretary to produce 
                books, papers, records, and other data, to give 
                testimony as may be necessary to explain how such 
                material was compiled and maintained, to allow the 
                Secretary to examine the business of a licensee, and to 
                pay the costs of the proceeding.
                    ``(D) Failure to comply with order.--Any failure to 
                obey the order of the court may be punished by the 
                court as a contempt thereof.
                    ``(E) Service of process.--All process in any case 
                under this subsection may be served in any judicial 
                district in which such person may be found.
    ``(l) Civil Money Penalties.--
            ``(1) In general.--The Secretary may assess upon any 
        licensee or other person subject to the requirements of this 
        subchapter for any willful violation of this subchapter or any 
        regulation prescribed or order issued under this subchapter, a 
        civil penalty of not more than the greater of--
                    ``(A) the amount (not to exceed $100,000) involved 
                in the violation, if any; or
                    ``(B) $25,000.
            ``(2) Assessment.--
                    ``(A) Written notice.--Any penalty imposed under 
                paragraph (1) may be assessed and collected by the 
                Secretary by written notice.
                    ``(B) Finality of assessment.--If, with respect to 
                any assessment under paragraph (1), a hearing is not 
                requested pursuant to subparagraph (E) within the 
                period of time allowed under such subparagraph, the 
                assessment shall constitute a final and unappealable 
                order.
                    ``(C) Authority to modify or remit penalty.--The 
                Secretary may compromise, modify, or remit any penalty 
                which the Secretary may assess or has already assessed 
                under paragraph (1).
                    ``(D) Mitigating factors.--In determining the 
                amount of any penalty imposed under paragraph (1), the 
                Secretary shall take into account the appropriateness 
                of the penalty with respect to--
                            ``(i) the size of the financial resources 
                        and the good faith of the person against whom 
                        the penalty is assessed;
                            ``(ii) the gravity of the violation;
                            ``(iii) the history of previous violations; 
                        and
                            ``(iv) such other matters as justice may 
                        require.
                    ``(E) Hearing.--The person against whom any penalty 
                is assessed under paragraph (1) shall be afforded an 
                agency hearing if such person submits a request for 
                such hearing within 20 days after the issuance of the 
                notice of assessment.
                    ``(F) Collection.--
                            ``(i) Referral.--If any person fails to pay 
                        an assessment after any penalty assessed under 
                        this paragraph has become final, the Secretary 
                        shall recover the amount assessed by action in 
                        the appropriate United States district court.
                            ``(ii) Appropriateness of penalty not 
                        reviewable.--In any civil action under clause 
                        (i), the validity and appropriateness of the 
                        penalty shall not be subject to review.
                    ``(G) Disbursement.--All penalties collected under 
                authority of this subsection shall be deposited into 
                the Treasury.
            ``(3) Condition for licensure.--Payment by a licensee of 
        any civil penalty assessed under this subsection that has 
        become final shall be a requirement for the retention of its 
        license.
    ``(m) Treatment of Records.--In light of business competition, 
confidentiality, and privacy concerns, the Secretary shall protect from 
disclosure information submitted in support of a license application 
under this subchapter and information collected in the course of 
regulating licensees to the full extent permitted by sections 552 and 
552a of title 5, United States Code.
    ``(n) Suitability for Licensing Requirements for Certain Service 
Providers.--
            ``(1) In general.--Any person that knowingly manages, 
        administers, or controls bets or wagers that are initiated, 
        received, or otherwise made within the United States or that 
        otherwise manages or administers the games with which such bets 
        or wagers are associated must meet all of the suitability for 
        licensing criteria established under this section in the same 
        manner and to the same extent as if that person were itself a 
        licensee.
            ``(2) Subject to same enforcement jurisdiction.--Any 
        failure on the part of such person to remain suitable for 
        licensing shall be grounds for revocation of the license of the 
        licensee for whom such service is provided, in the same manner 
        and in accordance with subsection (i).
    ``(o) Reliance on State and Tribal Regulatory Body Certifications 
of Suitability for Applicants.--
            ``(1) Qualification of state and tribal regulatory 
        bodies.--
                    ``(A) Application for determination.--Any State or 
                tribal regulatory body with expertise in regulating 
                gambling may--
                            ``(i) notify the Secretary of its 
                        willingness to review prospective applicants to 
                        certify whether any such applicant meets the 
                        qualifications established under this 
                        subchapter; and
                            ``(ii) provide the Secretary with such 
                        documentation as the Secretary determines 
                        necessary for the Secretary to determine 
                        whether such State or tribal regulatory body is 
                        qualified to conduct such review and may be 
                        relied upon by the Secretary to make any such 
                        certification.
                    ``(B) Determination and notice.--Within 60 days 
                after receiving any notice under subparagraph(A)(i), 
                the Secretary shall--
                            ``(i) make the determination as to whether 
                        a State or tribal regulatory body is qualified 
                        to conduct a review of prospective applicants 
                        and may be relied upon to certify whether any 
                        such applicant meets the qualifications 
                        established under this subchapter; and
                            ``(ii) notify the State or tribal 
                        regulatory body of such determination.
            ``(2) Actions by qualified authorities.--During the period 
        that any determination of qualification under paragraph (1)(B) 
        is in effect with respect to any such State or tribal 
        regulatory body, the State or tribal regulatory body--
                    ``(A) may undertake reviews of any applicant to 
                determine whether the applicant or any person 
                associated with the applicant meets the criteria for 
                suitability for licensing established under this 
                subchapter;
                    ``(B) may impose on each such applicant an 
                administrative fee or assessment for conducting such 
                review in an amount the regulatory body determines to 
                be necessary to meet its expenses in the conduct of 
                such review; and
                    ``(C) shall process and assess each applicant 
                fairly and equally based on objective criteria, 
                regardless of any prior licensing of an applicant by 
                the State or tribal regulatory body.
            ``(3) Reliance on state or tribal certification.--Any 
        applicant may provide a certification of suitability for 
        licensing made by any State or tribal regulatory body under 
        paragraph (2), together with all documentation the applicant 
        has submitted to any such State or tribal regulatory body, to 
        the Secretary, and any such certification and documentation 
        shall be relied on by the Secretary as evidence that an 
        applicant has met the suitability for licensing requirements 
        under this section.
            ``(4) Authority of secretary to review.--Notwithstanding 
        any certification of suitability for licensing made by any 
        State or tribal regulatory body, the Secretary retains the 
        authority to review, withhold, or revoke any license if the 
        Secretary has reason to believe that any applicant or licensee 
        does not meet the suitability requirements for licensing 
        established under this section, or any other requirement of a 
        licensee.
            ``(5) Reliance on qualified regulatory body for other 
        purposes.--At the discretion of the Secretary, the Secretary 
        may rely on any State and tribal regulatory body found 
        qualified under this subsection for such other regulatory and 
        enforcement activities as the Secretary finds to be useful and 
        appropriate to carry out the purposes of this subchapter.
            ``(6) Revocation of qualification.--The Secretary may 
        revoke, at any time and for any reason, the qualification of 
        any State or tribal regulatory body to certify or to conduct 
        any other regulatory or enforcement activity to carry out the 
        purposes of this subchapter.
``Sec. 5384. Problem Gambling, Responsible Gambling, and Self-Exclusion 
              Program
    ``(a) Regulations Required.--The Secretary and any State or tribal 
regulatory body that has been qualified under subsection 5383(o) shall 
prescribe regulations for the development of a Problem Gambling, 
Responsible Gambling, and Self-Exclusion Program on the basis of 
standards that each licensee shall implement as a condition of 
licensure.
    ``(b) Minimum Requirements.--Any application for a license shall 
include a submission to the Secretary or qualified State or tribal 
regulatory body setting forth a comprehensive program that is 
intended--
            ``(1) to verify the identity and age of each customer;
            ``(2) to ensure that no customers under the legal age as 
        defined by State or tribal law, as applicable, may initiate or 
        otherwise make any bets or wagers;
            ``(3) to verify the State or tribal land in which the 
        customer is located at the time the customer attempts to 
        initiate a bet or wager;
            ``(4) to ensure that no customer who is located in a State 
        or tribal land that opts out pursuant to section 5386 can 
        initiate or otherwise make a bet or wager prohibited by such 
        opt-out;
            ``(5) to ensure that responsible gambling materials are 
        made available to customers upon request;
            ``(6) to make available individualized responsible gambling 
        options that any customer may choose, including any stake 
        limit, loss limit, deposit limit, and session time limit 
        option, and any other similar option, that the Secretary or 
        qualified State or tribal regulatory body may deem appropriate 
        and require to be made available;
            ``(7) to protect the privacy and security of any customer 
        in connection with any lawful Internet gambling activity; and
            ``(8) to protect against fraud and money laundering 
        relating to Internet gambling activity.
    ``(c) List of Persons Self-Excluded From Gambling Activities.--
            ``(1) Establishment.--
                    ``(A) In general.--The Secretary shall provide by 
                regulation for the establishment of a list of persons 
                self-excluded from gambling activities at all licensee 
                sites.
                    ``(B) Placement request.--Any person may request 
                placement on the list of self-excluded persons by--
                            ``(i) acknowledging in a manner to be 
                        established by the Secretary that the person 
                        wishes to be denied gambling privileges; and
                            ``(ii) agreeing that, during any period of 
                        voluntary exclusion, the person may not collect 
                        any winnings or recover any losses resulting 
                        from any gambling activity at any licensee 
                        sites.
            ``(2) Placement and removal procedures.--The regulations 
        prescribed by the Secretary under paragraph (1)(A) shall 
        establish procedures for placements on, and removals from, the 
        list of self-excluded persons.
            ``(3) Limitation on liability.--
                    ``(A) In general.--The United States, the 
                Secretary, an enforcement agent, or a licensee, or any 
                employee or agent of the United States, the Secretary, 
                an enforcement agent, or a licensee, shall not be 
                liable to any self-excluded person or to any other 
                party in any judicial or administrative proceeding for 
                any harm, monetary or otherwise, which may arise as a 
                result of--
                            ``(i) any failure to withhold gambling 
                        privileges from, or to restore gambling 
                        privileges to, a self-excluded person; or
                            ``(ii) otherwise permitting a self-excluded 
                        person to engage in gambling activity while on 
                        the list of self-excluded persons.
                    ``(B) Rule of construction.--No provision of 
                subparagraph (A) shall be construed as preventing the 
                Director from assessing any regulatory sanction against 
                a licensee for failing to comply with the minimum 
                standards prescribed pursuant to this subsection.
            ``(4) Disclosure provisions.--
                    ``(A) In general.--Notwithstanding any other 
                provision of Federal or State law, the list of self-
                excluded persons shall not be open to public 
                inspection.
                    ``(B) Affiliate disclosure.--Any licensees may 
                disclose the identities of persons on the self-excluded 
                list to any affiliated company or, where required to 
                comply with this subsection, any service provider, to 
                the extent that the licensee ensures that any 
                affiliated company or service provider maintains such 
                information under confidentiality provisions comparable 
                to those in this subsection.
            ``(5) Limitation on liability for disclosure.--A licensee 
        or an employee, agent, or affiliate of a licensee shall not be 
        liable to any self-excluded person or to any other party in any 
        judicial proceeding for any harm, monetary or otherwise, which 
        may arise as a result of disclosure or publication in any 
        manner.
    ``(d) Gambling by Prohibited Persons.--
            ``(1) Prohibition benefitting from prohibited gambling 
        activity.--A person who is prohibited from gambling with a 
        licensee by law, or by order of the Secretary or any court of 
        competent jurisdiction, including any person on the self-
        exclusion list as established in accordance with subsection 
        (c), shall not collect, in any manner or proceeding, any 
        winnings or recover any losses arising as a result of any 
        prohibited gambling activity.
            ``(2) Forfeiture.--In addition to any other penalty 
        provided by law, any money or thing of value that has been 
        obtained by, or is owed to, any prohibited person by a licensee 
        as a result of bets or wagers made by a prohibited person shall 
        be subject to forfeiture by order of the Secretary, following 
        notice to the prohibited person and opportunity to be heard.
            ``(3) Deposit of forfeited funds.--Any funds forfeited 
        pursuant to this subsection shall be deposited into the general 
        fund of the Treasury.
    ``(e) Problem or Compulsive Gamblers Not on the List of Self-
Excluded Persons.--
            ``(1) Public awareness program.--
                    ``(A) In general.--The Secretary and any State or 
                tribal regulatory body that has been qualified under 
                subsection 5383(o) shall provide by regulation for the 
                establishment of a program to alert the public to the 
                existence, consequences, and availability of the self-
                exclusion list, and shall prepare and promulgate 
                written materials to be used in such a program.
                    ``(B) Licensee-provided publicity.--Regulations 
                prescribed under subparagraph (A) may require a 
                licensee to make available literature or screen 
                displays relating to the existence of the program.
            ``(2) Rule of construction.--No provision of this 
        subsection shall be construed as creating a legal duty in the 
        Secretary, a qualified State or tribal regulatory body, a 
        licensee, or any representative of a licensee to identify or to 
        exclude problem or compulsive gamblers not on the list of self-
        excluded persons.
            ``(3) Immunity.--The United States, the Secretary, a 
        qualified State or tribal regulatory body, a licensee, and any 
        employee or agent of a licensee, shall not be liable to any 
        person in any proceeding for losses or other damages of any 
        kind arising out of that person's gambling activities based on 
        a claim that the person was a compulsive, problem, or 
        pathological gambler.
``Sec. 5385. Financial transaction providers
    ``(a) In General.--No financial transaction provider shall be held 
liable for engaging in financial activities and transactions for or on 
behalf of a licensee or involving a licensee, including payments 
processing activities, if such activities are performed in compliance 
with this subchapter and with applicable Federal and State laws.
    ``(b) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Financial transaction provider.--The term `financial 
        transaction provider' means a creditor, credit card issuer, 
        financial institution, operator of a terminal at which an 
        electronic fund transfer may be initiated, money transmitting 
        business, or international, national, regional, or local 
        payment network utilized to effect a credit transaction, 
        electronic fund transfer, stored value product transaction, or 
        money transmitting service, or a participant in such network, 
        or other participant in a payment system.
            ``(2) Other terms.--
                    ``(A) Credit, creditor, credit card, and card 
                issuer.--The terms `credit', `creditor', `credit card', 
                and `card issuer' have the meanings given the terms in 
                section 103 of the Truth in Lending Act.
                    ``(B) Electronic fund transfer.--The term 
                `electronic fund transfer'--
                            ``(i) has the meaning given the term in 
                        section 903 of the Electronic Fund Transfer 
                        Act, except that the term includes transfers 
                        that would otherwise be excluded under section 
                        903(6)(E) of such Act; and
                            ``(ii) includes any fund transfer covered 
                        by Article 4A of the Uniform Commercial Code, 
                        as in effect in any State.
                    ``(C) Financial institution.--The term `financial 
                institution' has the meaning given the term in section 
                903 of the Electronic Fund Transfer Act, except that 
                such term does not include a casino, sports book, or 
                other business at or through which bets or wagers may 
                be placed or received.
                    ``(D) Insured depository institution.--The term 
                `insured depository institution'--
                            ``(i) has the meaning given the term in 
                        section 3(c) of the Federal Deposit Insurance 
                        Act; and
                            ``(ii) includes an insured credit union (as 
                        defined in section 101 of the Federal Credit 
                        Union Act).
                    ``(E) Money transmitting business and money 
                transmitting service.--The terms `money transmitting 
                business' and `money transmitting service' have the 
                meanings given the terms in section 5330(d) (determined 
                without regard to any regulations prescribed by the 
                Secretary under such section).
``Sec. 5386. Limitation of licenses in States and Indian lands
    ``(a) State Opt-Out Exercise.--
            ``(1) Limitations imposed by states.--
                    ``(A) In general.--No licensee may engage, under 
                any license issued under this subchapter, in the 
                operation of an Internet gambling facility that 
                knowingly accepts bets or wagers initiated by persons 
                who reside in any State which provides notice that it 
                will limit such bets or wagers, if the Governor or 
                other chief executive officer of such State informs the 
                Director of such limitation, in a manner which clearly 
                identifies the nature and extent of such limitation, 
                before the end of the 90-day period beginning on the 
                date of the enactment of the Internet Gambling 
                Regulation, Consumer Protection, and Enforcement Act, 
                or in accordance with paragraph (2), until such time as 
                any notice of any amendment or repeal of such specific 
                limitation becomes effective under paragraph (2).
                    ``(B) Coordination between state and tribal opt-out 
                exercises.--Any State limitation under subparagraph (A) 
                shall not apply to the acceptance by a licensee of bets 
                or wagers from persons located within the tribal lands 
                of an Indian tribe that--
                            ``(i) has itself opted out pursuant to 
                        subsection (b) (in which case the tribal opt-
                        out exercise under such subsection shall 
                        apply); or
                            ``(ii) would be entitled pursuant to other 
                        applicable law to permit such bets or wagers to 
                        be initiated and received within its territory 
                        without use of the Internet.
                    ``(C) Coordination with indian gaming regulatory 
                act.--No decision by a State under this subsection 
                shall be considered in making any determination with 
                regard to the ability of an Indian tribe to offer any 
                class of gambling activity pursuant to section 11 of 
                the Indian Gaming Regulatory Act.
            ``(2) Changes to state limitations.--The establishment, 
        repeal, or amendment by any State of any limitation referred to 
        in paragraph (1) after the end of the 90-day period beginning 
        on the date of the enactment of this subchapter shall apply, 
        for purposes of this subchapter, beginning on the first January 
        1 that occurs after the end of the 60-day period beginning on 
        the later of--
                    ``(A) the date a notice of such establishment, 
                repeal, or amendment is provided by the Governor or 
                other chief executive officer of such State in writing 
                to the Secretary; or
                    ``(B) the effective date of such establishment, 
                repeal, or amendment.
    ``(b) Indian Tribe Opt-Out Exercise.--
            ``(1) Limitations imposed by indian tribes.--No Internet 
        gambling licensee knowingly may accept a bet or wager from a 
        person located in the tribal lands of any Indian tribe which 
        limits such gambling activities or other contests if the 
        principal chief or other chief executive officer of such Indian 
        tribe informs the Secretary of such limitation, in a manner 
        which clearly identifies the nature and extent of such 
        limitation, before the end of the 90-day period beginning on 
        the date of the enactment of the Internet Gambling Regulation, 
        Consumer Protection, and Enforcement Act, or in accordance with 
        paragraph (2), until such time as any notice of any amendment 
        or repeal of such specific limitation becomes effective under 
        paragraph (2).
            ``(2) Changes to indian tribe limitations.--The 
        establishment, repeal, or amendment by any Indian tribe of any 
        limitation referred to in paragraph (1) after the end of the 
        90-day period beginning on the date of the enactment of this 
        subchapter shall apply, for purposes of this subchapter, 
        beginning on the first January 1 that occurs after the end of 
        the 60-day period beginning on the later of--
                    ``(A) the date a notice of such establishment, 
                repeal, or amendment is provided by the principal chief 
                or other chief executive officer of such Indian tribe 
                in writing to the Secretary; or
                    ``(B) the effective date of such establishment, 
                repeal, or amendment.
    ``(c) Notification and Enforcement of State and Indian Tribe 
Limitations.--
            ``(1) In general.--The Secretary shall notify all licensees 
        and applicants of all States and Indian tribes that have 
        provided notice pursuant to paragraph (1) or (2) of subsection 
        (a) or (b), as the case may be, promptly upon receipt of such 
        notice and in no event fewer than 30 days before the effective 
        date of such notice.
            ``(2) Compliance.--The Secretary shall take effective 
        measures to ensure that any licensee under this subchapter, as 
        a condition of the license, complies with any limitation or 
        prohibition imposed by any State or Indian tribe to which the 
        licensee is subject under subsection (a) or (b), as the case 
        may be.
            ``(3) Violations.--It shall be a violation of this 
        subchapter for any licensee knowingly to accept bets or wagers 
        initiated or otherwise made by persons located within any State 
        or in the tribal lands of any Indian tribe for which a notice 
        is in effect under subsection (a) or (b), as the case may be.
            ``(4) State attorney general enforcement.--In any case in 
        which the attorney general of a State, or any State or local 
        law enforcement agency authorized by the State attorney general 
        or by State statute to prosecute violations of consumer 
        protection law, has reason to believe that an interest of the 
        residents of that State has been or is threatened or adversely 
        affected by a violation by a licensee pursuant to paragraph 
        (2), the State, or the State or local law enforcement agency on 
        behalf of the residents of the agency's jurisdiction, may bring 
        a civil action on behalf of the residents of that State or 
        jurisdiction in a district court of the United States located 
        therein, to--
                    ``(A) enjoin that practice; or
                    ``(B) enforce compliance with this subchapter.
``Sec. 5387. Professional and Amateur Sports Protection Act 
              prohibitions
    ``No provision of this subchapter shall be construed as authorizing 
any licensee to operate an Internet gambling facility that knowingly 
accepts bets or wagers on sporting events from persons located in the 
United States in violation of section 3702 of title 28, United States 
Code, except for fantasy or simulation sports games (as defined in 
section 5362 of this title).
``Sec. 5388. Safe harbors
    ``It shall be a complete defense against any prosecution or 
enforcement action under any Federal or State law against any person 
possessing a valid license under this subchapter that the activity is 
authorized under and has been carried out lawfully under the terms of 
this subchapter.
``Sec. 5389. Relation to section 1084 of title 18 and the Unlawful 
              Internet Gambling Enforcement Act
    ``Section 1084 of title 18 and subchapter IV of this chapter shall 
not apply to any Internet bet or wager occurring pursuant to a license 
issued by the Secretary under this subchapter.
``Sec. 5390. Cheating and other fraud
    ``(a) Electronic Cheating Devices Prohibited.--No person 
initiating, receiving, or otherwise making a bet or wager with a 
licensee, or sending, receiving, or inviting information assisting with 
a bet or wager with a licensee, knowingly shall use, or assist another 
in the use of, an electronic, electrical, or mechanical device which is 
designed, constructed, or programmed specifically for use in obtaining 
an advantage in any game authorized under this subchapter, where such 
advantage is prohibited or otherwise violates the rules of play 
established by the licensee.
    ``(b) Additional Offense.--No person initiating, receiving, or 
otherwise making a bet or wager with a licensee, or sending, receiving, 
or inviting information assisting with a bet or wager with a licensee, 
knowingly shall use or possess any cheating device with intent to cheat 
or defraud any licensee or other persons placing bets or wagers with 
such licensee.
    ``(c) Permanent Injunction.--Upon conviction of a person for 
violation of this section, the court may enter a permanent injunction 
enjoining such person from initiating, receiving, or otherwise making 
bets or wagers or sending, receiving, or inviting information assisting 
in the placing of bets or wagers.
    ``(d) Criminal Penalty.--Whoever violates subsection (a) or (b) of 
this section shall be fined under title 18 of the United States Code or 
imprisoned for not more than 5 years, or both.''.
    (b) Rules of Construction.--
            (1) Technical and conforming amendment.--Section 310(b)(2) 
        of title 31, United States Code is amended--
                    (A) by redesignating subparagraphs (J) and (K) as 
                subparagraphs (K) and (L), respectively; and
                    (B) by inserting after subparagraph (I) the 
                following new subparagraph:
                    ``(J) Administer the requirements of subchapter V 
                of chapter 53.''.
    (c) Clerical Amendment.--The table of subchapters and sections for 
chapter 53 of title 31, United States Code, is amended by adding at the 
end the following:

         ``subchapter v--regulation of lawful internet gambling

``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.''.

SEC. 426. REPORT REQUIRED.

    (a) In General.--Before the end of the 1-year period beginning on 
the effective date of the regulations prescribed under section 327(a), 
and annually thereafter, the Secretary shall submit a report to 
Congress on the licensing and regulation of Internet gambling 
operators.
    (b) Information Required.--Each report submitted under subsection 
(a) shall include the following information:
            (1) A comprehensive statement regarding the prohibitions 
        notified by the States and Indian tribes pursuant to section 
        5386 of title 31, United States Code.
            (2) Relevant statistical information on applicants and 
        licenses.
            (3) The amount of licensing and user fees collected during 
        the period covered by the report.
            (4) Information on regulatory or enforcement actions 
        undertaken during the period.
            (5) Any other information that may be useful to Congress in 
        evaluating the effectiveness of the Act in meeting its purpose, 
        including the provision of protections against underage 
        gambling, compulsive gambling, money laundering, and fraud, and 
        in combating tax avoidance relating to Internet gambling.

SEC. 427. EFFECTIVE DATE.

    (a) Regulations.--The Secretary of the Treasury shall prescribe 
such regulations as the Secretary may determine to be appropriate to 
implement subchapter V of chapter 53 of title 31, United States Code 
(as added by this Act) and shall publish such regulations in final form 
in the Federal Register before the end of the 180-day period beginning 
on the date of the enactment of this Act.
    (b) Scope of Application.--The amendment made by section 325(a) 
shall apply after the end of the 90-day period beginning on the date of 
the publication of the regulations in final form in accordance with 
subsection (a).

                       Subtitle D--Miscellaneous

SEC. 431. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) (relating to treble damage 
        payments under the antitrust laws) is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively,
                    (B) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendment.--The heading for section 162(g) 
        is amended by inserting ``Or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 (relating to 
        information at source) is amended by adding at the end the 
        following new subsection:
    ``(h) Section To Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 432. APPLICATION OF MEDICARE PAYROLL TAX TO ALL STATE AND LOCAL 
              GOVERNMENT EMPLOYEES.

    (a) In General.--Paragraph (2) of section 3121(u) is amended--
            (1) by striking ``subparagraphs (B) and (C)'' in 
        subparagraph (A) and inserting ``subparagraph (B)'', and
            (2) by striking subparagraphs (C) and (D).
    (b) Entitlement to Hospital Insurance Benefits.--Subsection (p) of 
section 210 of the Social Security Act is amended--
            (1) by striking ``paragraphs (2) and (3)'' in paragraph 
        (1)(B) and inserting ``paragraph (2)'', and
            (2) by striking paragraphs (3) and (4).
    (c) Conforming Amendment.--Paragraph (2) of section 218(v) of the 
Social Security Act is amended to read as follows:
            ``(2) This subsection shall apply only with respect to 
        employees who are not otherwise covered under the State's 
        agreement under this section.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services performed after the date of the enactment of this 
Act.

SEC. 433. CORRECTIONS FOR CPI OVERSTATEMENT IN COST-OF-LIVING 
              INDEXATION.

    (a) In General.--Paragraph (3) of section 1(f) (defining Consumer 
Price Index), as amended by ths Act, is amended to read as follows:
            ``(3) Cost-of-living adjustment.--
                    ``(A) In general.--For purposes of paragraph (2), 
                the cost-of-living adjustment for any calendar year is 
                the product of--
                            ``(i) the CPI fraction for calendar years 
                        before 2013, multiplied by
                            ``(ii) the Chained CPI fraction for 
                        calendar years after 2012,
                reduced by 1.
                    ``(B) CPI fraction for calendar years before 
                2013.--The CPI fraction for calendar years before 2013 
                is the fraction--
                            ``(i) the numerator of which is the CPI for 
                        the calendar year 2011, and
                            ``(ii) the denominator of which is the CPI 
                        for the calendar year 2010.
                    ``(C) Chained cpi fraction for calendar years after 
                2012.--The Chained CPI fraction for calendar years 
                after 2012 is the fraction--
                            ``(i) the numerator of which is the Chained 
                        CPI for the preceding calendar year, and
                            ``(ii) the denominator of which is the 
                        Chained CPI for the calendar year 2011.''.
    (b) Conforming Amendments.--
            (1) Paragraph (4) of section 1(f) is amended to read as 
        follows:
            ``(4) CPI and chained cpi for any calendar year.--For 
        purposes of paragraph (3)--
                    ``(A) CPI.--The CPI for any calendar year is the 
                average of the Consumer Price Index as of the close of 
                the 12-month period ending on August 31 of such 
                calendar year.
                    ``(B) Chained cpi.--The Chained CPI for any 
                calendar year is the average of the Chained Consumer 
                Price Index as of the close of the 12-month period 
                ending on August 31 of such calendar year.''.
            (2) Paragraph (5) of section 1(f) is amended to read as 
        follows:
            ``(5) Consumer price index and chained consumer price 
        index.--For purposes of paragraph (4)--
                    ``(A) Consumer price index.--The term `Consumer 
                Price Index' means the last Consumer Price Index for 
                all-urban consumers published by the Department of 
                Labor. For purposes of the preceding sentence, the 
                revision of the Consumer Price Index which is most 
                consistent with the Consumer Price Index for calendar 
                year 1986 shall be used.
                    ``(B) Chained consumer price index.--The term 
                `Chained Consumer Price Index' means the initial 
                Chained Consumer Price Index for all-urban consumers 
                published by the Department of Labor.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2012.

              TITLE V--TECHNICAL AND CONFORMING AMENDMENTS

SEC. 501. TECHNICAL AND CONFORMING AMENDMENTS.

    The Secretary of the Treasury or the Secretary's delegate shall not 
later than 90 days after the date of the enactment of this Act, submit 
to the Committee on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate a draft of any technical and 
conforming changes in the Internal Revenue Code of 1986 which are 
necessary to reflect throughout such Code the purposes of the 
provisions of, and amendments made by, this Act.
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