I 
110TH CONGRESS 
2D SESSION 
H. R. 6595 
To amend the Internal Revenue Code of 1986 to provide middle class tax 
relief while closing tax loopholes, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 24, 2008 
Mr. WALZ of Minnesota (for himself, Mr. ELLISON, Mr. EMANUEL, and Mr. 
HILL) introduced the following bill; which was referred to the Committee 
on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
middle class tax relief while closing tax loopholes, and 
for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Middle Class Tax Fairness Act of 2008’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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shall be considered to be made to a section or other provi-
sion 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, etc. 
TITLE I—TAX RELIEF PROVISIONS 
Sec. 101. Temporary increase in standard deduction. 
Sec. 102. Additional standard deduction for real property taxes for non-
itemizers. 
Sec. 103. Refundable child credit. 
TITLE II—REVENUE PROVISIONS 
Sec. 201. Income of partners for performing investment management services 
treated as ordinary income received for performance of serv-
ices. 
Sec. 202. Limitation of deduction for income attributable to domestic produc-
tion of oil, gas, or primary products thereof. 
Sec. 203. Limitation on treaty benefits for certain deductible payments. 
Sec. 204. Returns relating to payments made in settlement of payment card 
and third party network transactions. 
Sec. 205. High income individuals subject to overall limitation on itemized de-
ductions and phaseout of deductions for personal exemptions. 
Sec. 206. Nonqualified deferred compensation from certain tax indifferent par-
ties. 
Sec. 207. Broker reporting of customer’s basis in securities transactions. 
Sec. 208. Repeal of worldwide allocation of interest. 
Sec. 209. Clarification of economic substance doctrine. 
TITLE III—DEFICIT REDUCTION 
Sec. 301. Deficit reduction. 
TITLE I—TAX RELIEF 
PROVISIONS 
SEC. 101. TEMPORARY INCREASE IN STANDARD DEDUC-
TION. 
(a) IN GENERAL.—Section 63(c) is amended by add-
ing at the end the following new paragraph: 
‘‘(7) INCREASE
IN
BASIC
STANDARD
DEDUC-
TION FOR 2008 AND 2009.—In the case of any taxable 
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year beginning in 2008 or 2009, for purposes of 
paragraph (1)(A), the basic standard deduction for 
any such taxable year shall, in lieu of the amount 
determined under paragraph (2), be 200 percent of 
the amount in effect under paragraph (2) for such 
taxable year, determined after the application of 
paragraph (4).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 102. ADDITIONAL STANDARD DEDUCTION FOR REAL 
PROPERTY TAXES FOR NONITEMIZERS. 
(a) IN GENERAL.—Section 63(c)(1) (defining stand-
ard deduction) is amended by striking ‘‘and’’ at the end 
of subparagraph (A), by striking the period at the end 
of subparagraph (B) and inserting ‘‘, and’’, and by adding 
at the end the following new subparagraph: 
‘‘(C) in the case of any taxable year begin-
ning in 2008 or 2009, the real property tax de-
duction.’’. 
(b) DEFINITION.—Section 63(c), as amended, is 
amended by adding at the end the following new para-
graph: 
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TITLE II—REVENUE PROVISIONS 
SEC. 201. INCOME OF PARTNERS FOR PERFORMING IN-
VESTMENT MANAGEMENT SERVICES TREAT-
ED AS ORDINARY INCOME RECEIVED FOR 
PERFORMANCE OF SERVICES. 
(a) IN GENERAL.—Part I of subchapter K of chapter 
1 is amended by adding at the end the following new sec-
tion: 
‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIP. 
‘‘(a) TREATMENT
OF
DISTRIBUTIVE
SHARE
OF 
PARTNERSHIP ITEMS.—For purposes of this title, in the 
case of an investment services partnership interest— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
702(b)— 
‘‘(A) any net income with respect to such 
interest for any partnership taxable year shall 
be treated as ordinary income for the perform-
ance of services, and 
‘‘(B) any net loss with respect to such in-
terest for such year, to the extent not dis-
allowed under paragraph (2) for such year, 
shall be treated as an ordinary loss. 
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All items of income, gain, deduction, and loss which 
are taken into account in computing net income or 
net loss shall be treated as ordinary income or ordi-
nary loss (as the case may be). 
‘‘(2) TREATMENT OF LOSSES.— 
‘‘(A) LIMITATION.—Any net loss with re-
spect to such interest shall be allowed for any 
partnership taxable year only to the extent that 
such loss does not exceed the excess (if any) 
of— 
‘‘(i) the aggregate net income with re-
spect to such interest for all prior partner-
ship taxable years, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest not disallowed under 
this subparagraph for all prior partnership 
taxable years. 
‘‘(B) CARRYFORWARD.—Any net loss for 
any partnership taxable year which is not al-
lowed by reason of subparagraph (A) shall be 
treated as an item of loss with respect to such 
partnership interest for the succeeding partner-
ship taxable year. 
‘‘(C) BASIS ADJUSTMENT.—No adjustment 
to the basis of a partnership interest shall be 
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made on account of any net loss which is not 
allowed by reason of subparagraph (A). 
‘‘(D) EXCEPTION
FOR
BASIS
ATTRIB-
UTABLE TO PURCHASE OF A PARTNERSHIP IN-
TEREST.—In the case of an investment services 
partnership interest acquired by purchase, para-
graph (1)(B) shall not apply to so much of any 
net loss with respect to such interest for any 
taxable year as does not exceed the excess of— 
‘‘(i) the basis of such interest imme-
diately after such purchase, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest to which paragraph 
(1)(B) did not apply by reason of this sub-
paragraph for all prior taxable years. 
Any net loss to which paragraph (1)(B) does 
not apply by reason of this subparagraph shall 
not be taken into account under subparagraph 
(A). 
‘‘(E) PRIOR
PARTNERSHIP
YEARS.—Any 
reference in this paragraph to prior partnership 
taxable years shall only include prior partner-
ship taxable years to which this section applies. 
‘‘(3) NET INCOME AND LOSS.—For purposes of 
this section— 
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‘‘(A) NET
INCOME.—The term ‘net in-
come’ means, with respect to any investment 
services partnership interest, for any partner-
ship taxable year, the excess (if any) of— 
‘‘(i) all items of income and gain 
taken into account by the holder of such 
interest under section 702 with respect to 
such interest for such year, over 
‘‘(ii) all items of deduction and loss so 
taken into account. 
‘‘(B) NET
LOSS.—The term ‘net loss’ 
means with respect to such interest for such 
year, the excess (if any) of the amount de-
scribed in subparagraph (A)(ii) over the amount 
described in subparagraph (A)(i). 
‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 
‘‘(1) GAIN.—Any gain on the disposition of an 
investment services partnership interest shall be 
treated as ordinary income for the performance of 
services. 
‘‘(2) LOSS.—Any loss on the disposition of an 
investment services partnership interest shall be 
treated as an ordinary loss to the extent of the ex-
cess (if any) of— 
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‘‘(A) the aggregate net income with respect 
to such interest for all partnership taxable 
years, over 
‘‘(B) the aggregate net loss with respect to 
such interest allowed under subsection (a)(2) 
for all partnership taxable years. 
‘‘(3) DISPOSITION OF PORTION OF INTEREST.— 
In the case of any disposition of an investment serv-
ices partnership interest, the amount of net loss 
which otherwise would have (but for subsection 
(a)(2)(C)) applied to reduce the basis of such inter-
est shall be disregarded for purposes of this section 
for all succeeding partnership taxable years. 
‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP-
ERTY.—In the case of any distribution of property 
by a partnership with respect to any investment 
services partnership interest held by a partner— 
‘‘(A) the excess (if any) of— 
‘‘(i) the fair market value of such 
property at the time of such distribution, 
over 
‘‘(ii) the adjusted basis of such prop-
erty in the hands of the partnership, 
shall be taken into account as an increase in 
such partner’s distributive share of the taxable 
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income of the partnership (except to the extent 
such excess is otherwise taken into account in 
determining the taxable income of the partner-
ship), 
‘‘(B) such property shall be treated for 
purposes of subpart B of part II as money dis-
tributed to such partner in an amount equal to 
such fair market value, and 
‘‘(C) the basis of such property in the 
hands of such partner shall be such fair market 
value. 
Subsection (b) of section 734 shall be applied with-
out regard to the preceding sentence. 
‘‘(5) APPLICATION OF SECTION 751.—In apply-
ing section 751(a), an investment services partner-
ship interest shall be treated as an inventory item. 
‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER-
EST.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ means any interest in a 
partnership which is held by any person if such per-
son provides (directly or indirectly) a substantial 
quantity of any of the following services with respect 
to the assets of the partnership in the conduct of the 
trade or business of providing such services: 
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‘‘(A) Advising as to the advisability of in-
vesting in, purchasing, or selling any specified 
asset. 
‘‘(B) Managing, acquiring, or disposing of 
any specified asset. 
‘‘(C) Arranging financing with respect to 
acquiring specified assets. 
‘‘(D) Any activity in support of any service 
described in subparagraphs (A) through (C). 
For purposes of this paragraph, the term ‘specified 
asset’ means securities (as defined in section 
475(c)(2) without regard to the last sentence there-
of), real estate, commodities (as defined in section 
475(e)(2))), or options or derivative contracts with 
respect to securities (as so defined), real estate, or 
commodities (as so defined). 
‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) a portion of an investment serv-
ices partnership interest is acquired on ac-
count of a contribution of invested capital, 
and 
‘‘(ii) the partnership makes a reason-
able allocation of partnership items be-
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tween the portion of the distributive share 
that is with respect to invested capital and 
the portion of such distributive share that 
is not with respect to invested capital, 
then subsection (a) shall not apply to the por-
tion of the distributive share that is with re-
spect to invested capital. An allocation will not 
be treated as reasonable for purposes of this 
subparagraph if such allocation would result in 
the partnership allocating a greater portion of 
income to invested capital than any other part-
ner not providing services would have been allo-
cated with respect to the same amount of in-
vested capital. 
‘‘(B) SPECIAL RULE FOR DISPOSITIONS.— 
In any case to which subparagraph (A) applies, 
subsection (b) shall not apply to any gain or 
loss allocable to invested capital. The portion of 
any gain or loss attributable to invested capital 
is the proportion of such gain or loss which is 
based on the distributive share of gain or loss 
that would have been allocable to invested cap-
ital under subparagraph (A) if the partnership 
sold all of its assets immediately before the dis-
position. 
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of such partner and amounts of income 
and loss treated as allocable to invested 
capital shall be adjusted accordingly. 
‘‘(d) OTHER INCOME
AND GAIN
IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a person performs (directly or indi-
rectly) investment management services for any 
entity, 
‘‘(B) such person holds a disqualified in-
terest with respect to such entity, and 
‘‘(C) the value of such interest (or pay-
ments thereunder) is substantially related to 
the amount of income or gain (whether or not 
realized) from the assets with respect to which 
the investment management services are per-
formed, 
any income or gain with respect to such interest 
shall be treated as ordinary income for the perform-
ance of services. Rules similar to the rules of sub-
section (c)(2) shall apply where such interest was ac-
quired on account of invested capital in such entity. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
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‘‘(A) DISQUALIFIED INTEREST.—The term 
‘disqualified interest’ means, with respect to 
any entity— 
‘‘(i) any interest in such entity other 
than indebtedness, 
‘‘(ii) convertible or contingent debt of 
such entity, 
‘‘(iii) any option or other right to ac-
quire property described in clause (i) or 
(ii), and 
‘‘(iv) any derivative instrument en-
tered into (directly or indirectly) with such 
entity or any investor in such entity. 
Such term shall not include a partnership inter-
est and shall not include stock in a taxable cor-
poration. 
‘‘(B) TAXABLE CORPORATION.—The term 
‘taxable corporation’ means— 
‘‘(i) a domestic C corporation, or 
‘‘(ii) a foreign corporation subject to a 
comprehensive foreign income tax. 
‘‘(C) INVESTMENT
MANAGEMENT
SERV-
ICES.—The term ‘investment management serv-
ices’ means a substantial quantity of any of the 
services described in subsection (c)(1) which are 
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provided in the conduct of the trade or business 
of providing such services. 
‘‘(D) COMPREHENSIVE
FOREIGN
INCOME 
TAX.—The term ‘comprehensive foreign income 
tax’ means, with respect to any foreign corpora-
tion, the income tax of a foreign country if— 
‘‘(i) such corporation is eligible for the 
benefits of a comprehensive income tax 
treaty between such foreign country and 
the United States, or 
‘‘(ii) such corporation demonstrates to 
the satisfaction of the Secretary that such 
foreign country has a comprehensive in-
come tax. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as are necessary or appropriate to carry 
out the purposes of this section, including regulations to— 
‘‘(1) prevent the avoidance of the purposes of 
this section, and 
‘‘(2) coordinate this section with the other pro-
visions of this subchapter. 
‘‘(f) CROSS REFERENCE.—For 40 percent no fault 
penalty on certain underpayments due to the avoidance 
of this section, see section 6662.’’. 
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(b) APPLICATION
TO REAL ESTATE INVESTMENT 
TRUSTS.— 
(1) IN
GENERAL.—Subsection (c) of section 
856 is amended by adding at the end the following 
new paragraph: 
‘‘(9) EXCEPTION FROM RECHARACTERIZATION 
OF INCOME FROM INVESTMENT SERVICES PARTNER-
SHIP INTERESTS.— 
‘‘(A) IN GENERAL.—Paragraphs (2), (3), 
and (4) shall be applied without regard to sec-
tion 710 (relating to special rules for partners 
providing investment management services to 
partnership). 
‘‘(B) SPECIAL RULE FOR PARTNERSHIPS 
OWNED BY REITS.—Section 7704 shall be ap-
plied without regard to section 710 in the case 
of a partnership which meets each of the fol-
lowing requirements: 
‘‘(i) Such partnership is treated as 
publicly traded under section 7704 solely 
by reason of interests in such partnership 
being convertible into interests in a real es-
tate investment trust which is publicly 
traded. 
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‘‘(ii) 50 percent or more of the capital 
and profits interests of such partnership 
are owned, directly or indirectly, at all 
times during the taxable year by such real 
estate investment trust (determined with 
the application of section 267(c)). 
‘‘(iii) Such partnership meets the re-
quirements of paragraphs (2), (3), and (4) 
(applied without regard to section 710).’’. 
(2) CONFORMING AMENDMENT.—Paragraph (4) 
of section 7704(d) is amended by inserting ‘‘(deter-
mined without regard to section 856(c)(8))’’ after 
‘‘856(c)(2)’’. 
(c) IMPOSITION
OF
PENALTY
ON
UNDERPAY-
MENTS.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 is amended by inserting after paragraph (5) 
the following new paragraph: 
‘‘(6) The application of subsection (d) of section 
710 or the regulations prescribed under section 
710(e) to prevent the avoidance of the purposes of 
section 710.’’. 
(2) AMOUNT OF PENALTY.— 
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(A) IN GENERAL.—Section 6662 is amend-
ed by adding at the end the following new sub-
section: 
‘‘(i) INCREASE IN PENALTY IN CASE OF PROPERTY 
TRANSFERRED FOR INVESTMENT MANAGEMENT SERV-
ICES.—In the case of any portion of an underpayment to 
which this section applies by reason of subsection (b)(6), 
subsection (a) shall be applied with respect to such portion 
by substituting ‘40 percent’ for ‘20 percent’.’’. 
(B) CONFORMING
AMENDMENTS.—Sub-
paragraph (B) of section 6662A(e)(2) is 
amended— 
(i) by striking ‘‘section 6662(h)’’ and 
inserting ‘‘subsection (h) or (i) of section 
6662’’, and 
(ii) by striking ‘‘GROSS
VALUATION 
MISSTATEMENT PENALTY’’ in the heading 
and inserting ‘‘CERTAIN
INCREASED
UN-
DERPAYMENT PENALTIES’’. 
(3) REASONABLE CAUSE EXCEPTION NOT AP-
PLICABLE.—Subsection (c) of section 6664 is 
amended— 
(A) by redesignating paragraphs (2) and 
(3) as paragraphs (3) and (4), respectively, 
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(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to taxable years ending after 
June 18, 2008. 
(2) PARTNERSHIP TAXABLE YEARS WHICH IN-
CLUDE
EFFECTIVE
DATE.—In applying section 
710(a) of the Internal Revenue Code of 1986 (as 
added by this section) in the case of any partnership 
taxable year which includes June 18, 2008, the 
amount of the net income referred to in such section 
shall be treated as being the lesser of the net income 
for the entire partnership taxable year or the net in-
come determined by only taking into account items 
attributable to the portion of the partnership taxable 
year which is after such date. 
(3) DISPOSITIONS
OF
PARTNERSHIP
INTER-
ESTS.—Section 710(b) of the Internal Revenue Code 
of 1986 (as added by this section) shall apply to dis-
positions and distributions after June 18, 2008. 
(4) OTHER INCOME AND GAIN IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.—Sec-
tion 710(d) of such Code (as added by this section) 
shall take effect on June 18, 2008. 
(5) PUBLICLY
TRADED
PARTNERSHIPS.—For 
purposes of applying section 7704, the amendments 
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made by this section shall apply to taxable years be-
ginning after December 31, 2010. 
SEC. 202. LIMITATION OF DEDUCTION FOR INCOME AT-
TRIBUTABLE TO DOMESTIC PRODUCTION OF 
OIL, GAS, OR PRIMARY PRODUCTS THEREOF. 
(a) DENIAL
OF DEDUCTION
FOR MAJOR INTE-
GRATED OIL COMPANIES FOR INCOME ATTRIBUTABLE TO 
DOMESTIC PRODUCTION
OF OIL, GAS, OR PRIMARY 
PRODUCTS THEREOF.— 
(1) IN GENERAL.—Subparagraph (B) of section 
199(c)(4) (relating to exceptions) is amended by 
striking ‘‘or’’ at the end of clause (ii), by striking 
the period at the end of clause (iii) and inserting ‘‘, 
or’’, and by inserting after clause (iii) the following 
new clause: 
‘‘(iv) in the case of any major inte-
grated oil company (as defined in section 
167(h)(5)(B)), the production, refining, 
processing, transportation, or distribution 
of oil, gas, or any primary product thereof 
during any taxable year described in sec-
tion 167(h)(5)(B).’’. 
(2) PRIMARY PRODUCT.—Section 199(c)(4)(B) 
is amended by adding at the end the following flush 
sentence: 
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‘‘For purposes of clause (iv), the term ‘primary 
product’ has the same meaning as when used in 
section 927(a)(2)(C), as in effect before its re-
peal.’’. 
(b) LIMITATION ON OIL RELATED QUALIFIED PRO-
DUCTION ACTIVITIES INCOME FOR TAXPAYERS OTHER 
THAN MAJOR INTEGRATED OIL COMPANIES.— 
(1) IN GENERAL.—Section 199(d) is amended 
by redesignating paragraph (9) as paragraph (10) 
and by inserting after paragraph (8) the following 
new paragraph: 
‘‘(9) SPECIAL RULE FOR TAXPAYERS WITH OIL 
RELATED
QUALIFIED
PRODUCTION
ACTIVITIES
IN-
COME.— 
‘‘(A) IN GENERAL.—If a taxpayer (other 
than a major integrated oil company (as defined 
in section 167(h)(5)(B))) has oil related quali-
fied production activities income for any taxable 
year beginning after 2009, the amount of the 
deduction under subsection (a) shall be reduced 
by 3 percent of the least of— 
‘‘(i) the oil related qualified produc-
tion activities income of the taxpayer for 
the taxable year, 
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‘‘(ii) the qualified production activities 
income of the taxpayer for the taxable 
year, or 
‘‘(iii) 
taxable 
income 
(determined 
without regard to this section). 
‘‘(B) OIL
RELATED
QUALIFIED
PRODUC-
TION
ACTIVITIES
INCOME.—The term ‘oil re-
lated qualified production activities income’ 
means for any taxable year the qualified pro-
duction activities income which is attributable 
to the production, refining, processing, trans-
portation, or distribution of oil, gas, or any pri-
mary product thereof during such taxable 
year.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
199(d)(2) (relating to application to individuals) is 
amended by striking ‘‘subsection (a)(1)(B)’’ and in-
serting ‘‘subsections (a)(1)(B) and (d)(9)(A)(iii)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
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SEC. 203. LIMITATION ON TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 (relating to income 
affected by treaty) is amended by adding at the end the 
following new subsection: 
‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER-
TAIN DEDUCTIBLE PAYMENTS.— 
‘‘(1) IN GENERAL.—In the case of any deduct-
ible related-party payment, any withholding tax im-
posed under chapter 3 (and any tax imposed under 
subpart A or B of this part) with respect to such 
payment may not be reduced under any treaty of the 
United States unless any such withholding tax would 
be reduced under a treaty of the United States if 
such payment were made directly to the foreign par-
ent corporation. 
‘‘(2) 
DEDUCTIBLE
RELATED-PARTY
PAY-
MENT.—For purposes of this subsection, the term 
‘deductible related-party payment’ means any pay-
ment made, directly or indirectly, by any person to 
any other person if the payment is allowable as a de-
duction under this chapter and both persons are 
members of the same foreign controlled group of en-
tities. 
‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI-
TIES.—For purposes of this subsection— 
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‘‘(A) IN
GENERAL.—The term ‘foreign 
controlled group of entities’ means a controlled 
group of entities the common parent of which 
is a foreign corporation. 
‘‘(B) CONTROLLED GROUP OF ENTITIES.— 
The term ‘controlled group of entities’ means a 
controlled group of corporations as defined in 
section 1563(a)(1), except that— 
‘‘(i) ‘more than 50 percent’ shall be 
substituted for ‘at least 80 percent’ each 
place it appears therein, and 
‘‘(ii) the determination shall be made 
without regard to subsections (a)(4) and 
(b)(2) of section 1563. 
A partnership or any other entity (other than a 
corporation) shall be treated as a member of a 
controlled group of entities if such entity is con-
trolled 
(within 
the 
meaning 
of 
section 
954(d)(3)) by members of such group (includ-
ing any entity treated as a member of such 
group by reason of this sentence). 
‘‘(4) FOREIGN
PARENT
CORPORATION.—For 
purposes of this subsection, the term ‘foreign parent 
corporation’ means, with respect to any deductible 
related-party payment, the common parent of the 
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foreign controlled group of entities referred to in 
paragraph (3)(A). 
‘‘(5) REGULATIONS.—The Secretary may pre-
scribe such regulations or other guidance as are nec-
essary or appropriate to carry out the purposes of 
this subsection, including regulations or other guid-
ance which provide for— 
‘‘(A) the treatment of two or more persons 
as members of a foreign controlled group of en-
tities if such persons would be the common par-
ent of such group if treated as one corporation, 
and 
‘‘(B) the treatment of any member of a 
foreign controlled group of entities as the com-
mon parent of such group if such treatment is 
appropriate taking into account the economic 
relationships among such entities.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after the date 
of the enactment of this Act. 
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SEC. 204. RETURNS RELATING TO PAYMENTS MADE IN SET-
TLEMENT OF PAYMENT CARD AND THIRD 
PARTY NETWORK TRANSACTIONS. 
(a) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 is amended by adding at the end 
the following new section: 
‘‘SEC. 6050W. RETURNS RELATING TO PAYMENTS MADE IN 
SETTLEMENT OF PAYMENT CARD AND THIRD 
PARTY NETWORK TRANSACTIONS. 
‘‘(a) IN GENERAL.—Each payment settlement entity 
shall make a return for each calendar year setting forth— 
‘‘(1) the name, address, and TIN of each par-
ticipating payee to whom one or more payments in 
settlement of reportable payment transactions are 
made, and 
‘‘(2) the gross amount of the reportable pay-
ment transactions with respect to each such partici-
pating payee. 
Such return shall be made at such time and in such form 
and manner as the Secretary may require by regulations. 
‘‘(b) PAYMENT SETTLEMENT ENTITY.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘payment settle-
ment entity’ means— 
‘‘(A) in the case of a payment card trans-
action, the merchant acquiring entity, and 
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‘‘(B) in the case of a third party network 
transaction, the third party settlement organi-
zation. 
‘‘(2) MERCHANT
ACQUIRING
ENTITY.—The 
term ‘merchant acquiring entity’ means the bank or 
other organization which has the contractual obliga-
tion to make payment to participating payees in set-
tlement of payment card transactions. 
‘‘(3) THIRD
PARTY
SETTLEMENT
ORGANIZA-
TION.—The term ‘third party settlement organiza-
tion’ means the central organization which has the 
contractual obligation to make payment to partici-
pating payees of third party network transactions. 
‘‘(4) SPECIAL
RULES
RELATED
TO
INTER-
MEDIARIES.—For purposes of this section— 
‘‘(A) AGGREGATED PAYEES.—In any case 
where reportable payment transactions of more 
than one participating payee are settled 
through an intermediary— 
‘‘(i) such intermediary shall be treated 
as the participating payee for purposes of 
determining the reporting obligations of 
the payment settlement entity with respect 
to such transactions, and 
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‘‘(ii) such intermediary shall be treat-
ed as the payment settlement entity with 
respect to the settlement of such trans-
actions with the participating payees. 
‘‘(B) 
ELECTRONIC
PAYMENT 
FACILITATORS.—In any case where an elec-
tronic payment facilitator or other third party 
makes payments in settlement of reportable 
payment transactions on behalf of the payment 
settlement entity, the return under subsection 
(a) shall be made by such electronic payment 
facilitator or other third party in lieu of the 
payment settlement entity. 
‘‘(c) REPORTABLE PAYMENT TRANSACTION.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘reportable pay-
ment transaction’ means any payment card trans-
action and any third party network transaction. 
‘‘(2) PAYMENT CARD TRANSACTION.—The term 
‘payment card transaction’ means any transaction in 
which a payment card is accepted as payment. 
‘‘(3) THIRD PARTY NETWORK TRANSACTION.— 
The term ‘third party network transaction’ means 
any transaction which is settled through a third 
party payment network. 
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‘‘(d) OTHER DEFINITIONS.—For purposes of this 
section— 
‘‘(1) PARTICIPATING PAYEE.— 
‘‘(A) IN
GENERAL.—The term ‘partici-
pating payee’ means— 
‘‘(i) in the case of a payment card 
transaction, any person who accepts a pay-
ment card as payment, and 
‘‘(ii) in the case of a third party net-
work transaction, any person who accepts 
payment from a third party settlement or-
ganization in settlement of such trans-
action. 
‘‘(B) EXCLUSION OF FOREIGN PERSONS.— 
Except as provided by the Secretary in regula-
tions or other guidance, such term shall not in-
clude any person with a foreign address. 
‘‘(C) 
INCLUSION
OF
GOVERNMENTAL 
UNITS.—The term ‘person’ includes any govern-
mental unit (and any agency or instrumentality 
thereof). 
‘‘(2) PAYMENT
CARD.—The term ‘payment 
card’ means any card which is issued pursuant to an 
agreement or arrangement which provides for— 
‘‘(A) one or more issuers of such cards, 
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‘‘(B) a network of persons unrelated to 
each other, and to the issuer, who agree to ac-
cept such cards as payment, and 
‘‘(C) standards and mechanisms for set-
tling the transactions between the merchant ac-
quiring entities and the persons who agree to 
accept such cards as payment. 
The acceptance as payment of any account number 
or other indicia associated with a payment card shall 
be treated for purposes of this section in the same 
manner as accepting such payment card as payment. 
‘‘(3) THIRD PARTY PAYMENT NETWORK.—The 
term ‘third party payment network’ means any 
agreement or arrangement— 
‘‘(A) which involves the establishment of 
accounts with a central organization by a sub-
stantial number of persons who— 
‘‘(i) are unrelated to such organiza-
tion, 
‘‘(ii) provide goods or services, and 
‘‘(iii) have agreed to settle trans-
actions for the provision of such goods or 
services pursuant to such agreement or ar-
rangement, 
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‘‘(B) which provides for standards and 
mechanisms for settling such transactions, and 
‘‘(C) which guarantees persons providing 
goods or services pursuant to such agreement 
or arrangement that such persons will be paid 
for providing such goods or services. 
Such term shall not include any agreement or ar-
rangement which provides for the issuance of pay-
ment cards. 
‘‘(e) EXCEPTION FOR DE MINIMIS PAYMENTS BY 
THIRD PARTY SETTLEMENT ORGANIZATIONS.—A third 
party settlement organization shall be required to report 
any information under subsection (a) with respect to third 
party network transactions of any participating payee only 
if— 
‘‘(1) the amount which would otherwise be re-
ported under subsection (a)(2) with respect to such 
transactions exceeds $20,000, and 
‘‘(2) the aggregate number of such transactions 
exceeds 200. 
‘‘(f) STATEMENTS 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 with respect to whom such 
a return is required a written statement showing— 
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‘‘(1) the name, address, and phone number of 
the information contact of the person required to 
make such return, and 
‘‘(2) the gross amount of the reportable pay-
ment transactions with respect to the person re-
quired to be shown on the return. 
The written statement required under the preceding sen-
tence shall be furnished to the person on or before Janu-
ary 31 of the year following the calendar year for which 
the return under subsection (a) was required to be made. 
Such statement may be furnished electronically, and if so, 
the email address of the person required to make such 
return may be shown in lieu of the phone number. 
‘‘(g) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out this section, including rules 
to prevent the reporting of the same transaction more 
than once.’’. 
(b) PENALTY FOR FAILURE TO FILE.— 
(1) RETURN.—Subparagraph (B) of section 
6724(d)(1) is amended— 
(A) by striking ‘‘or’’ at the end of clause 
(xx), 
(B) by redesignating the clause (xix) that 
follows clause (xx) as clause (xxi), 
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(C) by striking ‘‘and’’ at the end of clause 
(xxi), as redesignated by subparagraph (B) and 
inserting ‘‘or’’, and 
(D) by adding at the end the following: 
‘‘(xxii) section 6050W (relating to re-
turns to payments made in settlement of 
payment card transactions), and’’. 
(2) STATEMENT.—Paragraph (2) of section 
6724(d) is amended by striking ‘‘or’’ at the end of 
subparagraph (BB), by striking the period at the 
end of the subparagraph (CC) and inserting ‘‘, or’’, 
and by inserting after subparagraph (CC) the fol-
lowing: 
‘‘(DD) section 6050W(c) (relating to re-
turns relating to payments made in settlement 
of payment card transactions).’’. 
(c) APPLICATION
OF
BACKUP
WITHHOLDING.— 
Paragraph (3) of section 3406(b) is amended by striking 
‘‘or’’ at the end of subparagraph (D), by striking the pe-
riod at the end of subparagraph (E) and inserting ‘‘, or’’, 
and by adding at the end the following new subparagraph: 
‘‘(F) section 6050W (relating to returns 
relating to payments made in settlement of pay-
ment card transactions).’’. 
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(d) CLERICAL AMENDMENT.—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 
6050V the following: 
‘‘Sec. 6050W. Returns relating to payments made in settlement of payment 
card and third party network transactions.’’. 
(e) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to returns for calendar years 
beginning after December 31, 2010. 
(2) APPLICATION OF BACKUP WITHHOLDING.— 
(A) IN GENERAL.—The amendment made 
by subsection (c) shall apply to amounts paid 
after December 31, 2011. 
(B) ELIGIBILITY FOR TIN MATCHING PRO-
GRAM.—Solely for purposes of carrying out any 
TIN matching program established by the Sec-
retary under section 3406(i) of the Internal 
Revenue Code of 1986— 
(i) the amendments made this section 
shall be treated as taking effect on the 
date of the enactment of this Act, and 
(ii) each person responsible for setting 
the standards and mechanisms referred to 
in section 6050W(d)(2)(C) of such Code, 
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as added by this section, for settling trans-
actions involving payment cards shall be 
treated in the same manner as a payment 
settlement entity. 
SEC. 205. HIGH INCOME INDIVIDUALS SUBJECT TO OVER-
ALL LIMITATION ON ITEMIZED DEDUCTIONS 
AND PHASEOUT OF DEDUCTIONS FOR PER-
SONAL EXEMPTIONS. 
(a) OVERALL LIMITATION
ON ITEMIZED DEDUC-
TIONS.—Section 68 (relating to overall limitation on 
itemized deductions) is amended by striking subsections 
(f) and (g) and inserting the following new subsection: 
‘‘(f) PHASEOUT OF LIMITATION.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
whose adjusted gross income is not more than 
$250,000 ($500,000 in the case of a joint return or 
a surviving spouse (as defined in section 2(a)))— 
‘‘(A) in the case of any taxable year begin-
ning in 2008 or 2009, the reduction under sub-
section (a) shall be equal to 1⁄3 of the amount 
which would (but for this subsection) be the 
amount of such reduction, and 
‘‘(B) in the case of any taxable year begin-
ning after 2009, subsection (a) shall not apply. 
‘‘(2) PHASEOUT BASED ON INCOME.— 
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‘‘(A) IN GENERAL.—In the case of a tax-
payer whose adjusted gross income is more 
than $250,000 ($500,000 in the case of a joint 
return or a surviving spouse (as defined in sec-
tion 2(a))), the reduction under subsection (a) 
shall be equal to the applicable fraction of the 
amount which would (but for this subsection) 
be the amount of such reduction. 
‘‘(B) APPLICABLE
FRACTION.—For pur-
poses of subparagraph (A), the term ‘applicable 
fraction’ means— 
‘‘(i) in the case of any taxable year 
beginning in 2008 or 2009, a fraction (not 
in excess of 1) equal to the sum of— 
‘‘(I) 1⁄3, plus 
‘‘(II) 1⁄30 for each $1,000 (or 
fraction thereof) by which the tax-
payer’s adjusted gross income exceeds 
$250,000 ($500,000 in the case of a 
joint return or a surviving spouse (as 
defined in section 2(a))), and 
‘‘(ii) in the case of any taxable year 
beginning in 2010, a fraction (not in ex-
cess of 1) equal to 1⁄20 for each $1,000 (or 
fraction thereof) by which the taxpayer’s 
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a surviving spouse (as defined in section 
2(a))).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 
206. 
NONQUALIFIED 
DEFERRED 
COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
(a) IN GENERAL.—Subpart B of part II of sub-
chapter E of chapter 1 is amended by inserting after sec-
tion 457 the following new section: 
‘‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
‘‘(a) IN GENERAL.—Any compensation which is de-
ferred under a nonqualified deferred compensation plan of 
a nonqualified entity shall be includible in gross income 
when there is no substantial risk of forfeiture of the rights 
to such compensation. 
‘‘(b) NONQUALIFIED ENTITY.—For purposes of this 
section, the term ‘nonqualified entity’ means— 
‘‘(1) any foreign corporation unless substan-
tially all of its income is— 
‘‘(A) effectively connected with the conduct 
of a trade or business in the United States, or 
‘‘(B) subject to a comprehensive foreign in-
come tax, and 
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‘‘(2) any partnership unless substantially all of 
its income is allocated to persons other than— 
‘‘(A) foreign persons with respect to whom 
such income is not subject to a comprehensive 
foreign income tax, and 
‘‘(B) organizations which are exempt from 
tax under this title. 
‘‘(c) DETERMINABILITY OF AMOUNTS OF COMPENSA-
TION.— 
‘‘(1) IN GENERAL.—If the amount of any com-
pensation is not determinable at the time that such 
compensation is otherwise includible in gross income 
under subsection (a)— 
‘‘(A) such amount shall be so includible in 
gross income when determinable, and 
‘‘(B) the tax imposed under this chapter 
for the taxable year in which such compensation 
is includible in gross income shall be increased 
by the sum of— 
‘‘(i) the amount of interest determined 
under paragraph (2), and 
‘‘(ii) an amount equal to 20 percent of 
the amount of such compensation. 
‘‘(2) INTEREST.—For purposes of paragraph 
(1)(B)(i), the interest determined under this para-
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graph for any taxable year is the amount of interest 
at the underpayment rate under section 6621 plus 
1 percentage point on the underpayments that would 
have occurred had the deferred compensation been 
includible in gross income for the taxable year in 
which first deferred or, if later, the first taxable year 
in which such deferred compensation is not subject 
to a substantial risk of forfeiture. 
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.— 
‘‘(A) IN GENERAL.—The rights of a person 
to compensation shall be treated as subject to 
a substantial risk of forfeiture only if such per-
son’s rights to such compensation are condi-
tioned upon the future performance of substan-
tial services by any individual. 
‘‘(B) 
EXCEPTION
FOR
COMPENSATION 
BASED ON GAIN RECOGNIZED ON AN INVEST-
MENT ASSET.— 
‘‘(i) IN GENERAL.—To the extent pro-
vided in regulations prescribed by the Sec-
retary, if compensation is determined solely 
by reference to the amount of gain recog-
nized on the disposition of an investment 
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asset, such compensation shall be treated 
as subject to a substantial risk of for-
feiture until the date of such disposition. 
‘‘(ii) INVESTMENT ASSET.—For pur-
poses of clause (i), the term ‘investment 
asset’ means any single asset (other than 
an investment fund or similar entity)— 
‘‘(I) acquired directly by an in-
vestment fund or similar entity, 
‘‘(II) with respect to which such 
entity does not (nor does any person 
related to such entity) participate in 
the active management of such asset 
(or if such asset is an interest in an 
entity, in the active management of 
the activities of such entity), and 
‘‘(III) substantially all of any 
gain on the disposition of which (other 
than such deferred compensation) is 
allocated to investors in such entity. 
‘‘(iii) COORDINATION
WITH
SPECIAL 
RULE.—Paragraph (3)(B) shall not apply 
to any compensation to which clause (i) 
applies. 
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‘‘(2) COMPREHENSIVE FOREIGN INCOME TAX.— 
The term ‘comprehensive foreign income tax’ means, 
with respect to any foreign person, the income tax 
of a foreign country if— 
‘‘(A) such person is eligible for the benefits 
of a comprehensive income tax treaty between 
such foreign country and the United States, or 
‘‘(B) such person demonstrates to the sat-
isfaction of the Secretary that such foreign 
country has a comprehensive income tax. 
‘‘(3) NONQUALIFIED
DEFERRED
COMPENSA-
TION PLAN.— 
‘‘(A) 
IN
GENERAL.—The 
term 
‘non-
qualified deferred compensation plan’ has the 
meaning 
given 
such 
term 
under 
section 
409A(d), except that such term shall include 
any plan that provides a right to compensation 
based on the appreciation in value of a specified 
number of equity units of the service recipient. 
‘‘(B) 
EXCEPTION.—Compensation 
shall 
not be treated as deferred for purposes of this 
section if the service provider receives payment 
of such compensation not later than 12 months 
after the end of the taxable year of the service 
recipient during which the right to the payment 
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of such compensation is no longer subject to a 
substantial risk of forfeiture. 
‘‘(4) EXCEPTION FOR CERTAIN COMPENSATION 
WITH
RESPECT
TO
EFFECTIVELY
CONNECTED
IN-
COME.—In the case a foreign corporation with in-
come which is taxable under section 882, this section 
shall not apply to compensation which, had such 
compensation had been paid in cash on the date that 
such compensation ceased to be subject to a sub-
stantial risk of forfeiture, would have been deduct-
ible by such foreign corporation against such income. 
‘‘(5) APPLICATION OF RULES.—Rules similar to 
the rules of paragraphs (5) and (6) of section 
409A(d) shall apply. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section, including regula-
tions disregarding a substantial risk of forfeiture in cases 
where necessary to carry out the purposes of this sec-
tion.’’. 
(b) CONFORMING AMENDMENT.—Section 26(b)(2) is 
amended by striking ‘‘and’’ at the end of subparagraph 
(U), by striking the period at the end of subparagraph 
(V) and inserting ‘‘, and’’, and by adding at the end the 
following new subparagraph: 
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‘‘(A) IN GENERAL.—The term ‘covered se-
curity’ means any specified security acquired on 
or after the applicable date if such security— 
‘‘(i) was acquired through a trans-
action in the account in which such secu-
rity is held, or 
‘‘(ii) was transferred to such account 
from an account in which such security 
was a covered security, but only if the 
broker received a statement under section 
6045A with respect to the transfer. 
‘‘(B) SPECIFIED
SECURITY.—The term 
‘specified security’ means— 
‘‘(i) any share of stock in a corpora-
tion, 
‘‘(ii) any note, bond, debenture, or 
other evidence of indebtedness, 
‘‘(iii) any commodity, or contract or 
derivative with respect to such commodity, 
if the Secretary determines that adjusted 
basis reporting is appropriate for purposes 
of this subsection, and 
‘‘(iv) any other financial instrument 
with respect to which the Secretary deter-
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