(6) SPECIAL
RULE
FOR
FARM
AND
HORTI-
CULTURAL
COOPERATIVES.—Determinations under 
this subsection with respect to an organization de-
scribed in section 943(g)(1) of such Code, as in ef-
fect on the day before the date of the enactment of 
this Act, shall be made at the cooperative level and 
the purposes of this subsection shall be carried out 
in a manner similar to section 199(h)(2) of such 
Code, as added by this Act. Such determinations 
shall be in accordance with such requirements and 
procedures as the Secretary may prescribe. 
(7) CERTAIN RULES TO APPLY.—Rules similar 
to the rules of section 41(f) of such Code shall apply 
for purposes of this subsection. 
(8) COORDINATION WITH BINDING CONTRACT 
RULE.—The deduction determined under paragraph 
(1) for any taxable year shall be reduced by the 
phaseout percentage of any FSC/ETI benefit real-
ized for the taxable year by reason of subsection 
(c)(2) or section 5(c)(1)(B) of the FSC Repeal and 
Extraterritorial Income Exclusion Act of 2000. 
(9) SPECIAL RULE FOR TAXABLE YEAR WHICH 
INCLUDES DATE OF ENACTMENT.—In the case of a 
taxable year which includes the date of the enact-
ment of this Act, the deduction allowed under this
subsection to any current FSC/ETI beneficiary shall 
in no event exceed— 
(A) 100 percent of such beneficiary’s base 
period amount, reduced by 
(B) the aggregate FSC/ETI benefits of 
such beneficiary with respect to transactions oc-
curring during the portion of the taxable year 
ending on the date of the enactment of this Act. 
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIB-
UTABLE TO UNITED STATES PRODUCTION 
ACTIVITIES. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and 
corporations) is amended by adding at the end the fol-
lowing new section: 
‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC-
TION ACTIVITIES. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to 10 percent of the qualified 
production activities income of the taxpayer for the tax-
able year. 
‘‘(b) PHASEIN.—In the case of taxable years begin-
ning in 2004, 2005, 2006, or 2007, subsection (a) shall 
be applied by substituting for the percentage contained
therein the transition percentage determined under the 
following table: 
The transition 
‘‘Taxable years beginning in: 
percentage is: 
2004 ...................................................................................................
2005 ...................................................................................................
2006 ...................................................................................................
2007 ...................................................................................................
9. 
‘‘(c) 
QUALIFIED
PRODUCTION
ACTIVITIES
IN-
COME.—For purposes of this section, the term ‘qualified 
production activities income’ means the product of— 
‘‘(1) the portion of the modified taxable income 
of the taxpayer which is attributable to domestic 
production activities, and 
‘‘(2) the domestic/worldwide fraction. 
‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE 
TO DOMESTIC PRODUCTION ACTIVITIES.—For purposes 
of this section— 
‘‘(1) IN GENERAL.—The portion of the modified 
taxable income which is attributable to domestic pro-
duction activities is so much of the modified taxable 
income for the taxable year as does not exceed— 
‘‘(A) the taxpayer’s domestic production 
gross receipts for such taxable year, reduced by 
‘‘(B) the sum of— 
‘‘(i) the costs of goods sold that are 
allocable to such receipts,
‘‘(ii) other deductions, expenses, or 
losses directly allocable to such receipts, 
and 
‘‘(iii) a proper share of other deduc-
tions, expenses, and losses that are not di-
rectly allocable to such receipts or another 
class of income. 
‘‘(2) ALLOCATION
METHOD.—The Secretary 
shall prescribe rules for the proper allocation of 
items of income, deduction, expense, and loss for 
purposes of determining income attributable to do-
mestic production activities. 
‘‘(3) 
SPECIAL
RULE
FOR
DETERMINING 
COSTS.— 
‘‘(A) For purposes of determining costs 
under clause (i) of paragraph (1)(B), any item 
or service brought into the United States shall 
be treated as acquired by purchase, and its cost 
shall be treated as not less than its value in the 
United States, determined immediately after it 
was brought into the United States. A similar 
rule shall apply in determining the adjusted 
basis of leased or rented property where the 
lease or rental gives rise to domestic production 
gross receipts.
‘‘(B) In the case of any property described 
in subparagraph (A) that had been exported by 
the taxpayer for further manufacture, the in-
crease in cost (or adjusted basis) under sub-
paragraph (A) shall not exceed the difference 
between the value of the property when ex-
ported and the value of the property when 
brought back into the United States after the 
further manufacture. 
‘‘(4) MODIFIED TAXABLE INCOME.—The term 
‘modified taxable income’ means taxable income 
computed without regard to the deduction allowable 
under this section. 
‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.— 
For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘domestic produc-
tion gross receipts’ means the gross receipts of the 
taxpayer which are derived from— 
‘‘(A) any sale, exchange, or other disposi-
tion of, or 
‘‘(B) any lease, rental or license of— 
qualifying production property which was manufac-
tured, produced, grown, or extracted in whole or in 
significant part by the taxpayer within the United 
States.
‘‘(2) SPECIAL
RULES
FOR
CERTAIN
PROP-
ERTY.—In the case of any qualifying production 
property described in subsection (f)(1)(C)— 
(A) such property shall be treated for pur-
poses of paragraph (1) as produced in signifi-
cant part by the taxpayer within the United 
States if more than 50 percent of the aggregate 
development and production costs are incurred 
by the taxpayer within the United States, and 
(B) if a taxpayer acquires such property 
before such property begins to generate sub-
stantial gross receipts, any development or pro-
duction costs incurred before the acquisition 
shall be treated as incurred by the taxpayer for 
purposes of subparagraph (A) and paragraph 
(1). 
‘‘(f) QUALIFYING
PRODUCTION
PROPERTY.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualifying produc-
tion property’ means— 
‘‘(A) any tangible personal property, 
‘‘(B) any computer software, and
‘‘(C) any property described in paragraph 
(3) or (4) of section 168(f), including any un-
derlying copyright or trademark. 
Subparagraph (C) shall not apply to any property 
with respect to which records are required to be 
maintained under section 2257 of title 18, United 
States Code. 
‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC-
TION PROPERTY.—The term ‘qualifying production 
property’ shall not include— 
‘‘(A) consumable property that is sold, 
leased, or licensed by the taxpayer as an inte-
gral part of the provision of services, 
‘‘(B) oil or gas (or any primary product 
thereof), 
‘‘(C) electricity, 
‘‘(D) water supplied by pipeline to the con-
sumer, 
‘‘(E) utility services, or 
‘‘(F) any property (not described in para-
graph (1)(B)) which is a film, tape, recording, 
book, magazine, newspaper, or similar property 
the market for which is primarily topical or oth-
erwise essentially transitory in nature.
‘‘(3) SPECIAL RULE FOR NONCORPORATE TAX-
PAYERS.—In the case of a taxpayer other than a 
corporation subject to tax under section 11, the term 
‘qualifying production property’ only includes— 
‘‘(A) agricultural or horticultural products, in-
cluding timber, and 
‘‘(B) other tangible personal property not de-
scribed in subparagraph (B) or (C) of paragraph (1) 
and not described in section 1221(a)(3). 
‘‘(g) DOMESTIC/WORLDWIDE FRACTION.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘domestic/world-
wide fraction’ means a fraction (not greater than 
1)— 
‘‘(A) the numerator of which is the value 
of the domestic production of the taxpayer, and 
‘‘(B) the denominator of which is the value 
of the worldwide production of the taxpayer. 
‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The 
value of domestic production is the excess (if any) 
of— 
‘‘(A) the domestic production gross re-
ceipts, over
‘‘(B) the cost of purchased inputs allocable 
to such receipts that are deductible under this 
chapter for the taxable year. 
‘‘(3) PURCHASED INPUTS.— 
‘‘(A) IN GENERAL.—Purchased inputs are 
any of the following items acquired by pur-
chase: 
‘‘(i) Services (other than services of 
employees) used in manufacture, produc-
tion, growth, or extraction activities. 
‘‘(ii) Items consumed in connection 
with such activities. 
‘‘(iii) Items incorporated as part of 
the property being manufactured, pro-
duced, grown, or extracted. 
‘‘(B) SPECIAL RULE.—Rules similar to the 
rules of subsection (d)(3) shall apply for pur-
poses of this subsection. 
‘‘(4) VALUE OF WORLDWIDE PRODUCTION.— 
‘‘(A) IN GENERAL.—The value of world-
wide production shall be determined under the 
principles of paragraph (2), except that— 
‘‘(i) worldwide production gross re-
ceipts shall be taken into account, and 
‘‘(ii) paragraph (3)(B) shall not apply.
‘‘(B) WORLDWIDE PRODUCTION GROSS RE-
CEIPTS.—The worldwide production gross re-
ceipts is the amount that would be determined 
under subsection (e) if such subsection were ap-
plied without any reference to the United 
States. 
‘‘(h) DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) UNITED
STATES.—For purposes of this 
section, the term ‘United States’ includes the Com-
monwealth of Puerto Rico and any other possession 
of the United States. 
‘‘(2) EXCLUSION FOR PATRONS OF AGRICUL-
TURAL AND HORTICULTURAL COOPERATIVES.— 
‘‘(A) IN
GENERAL.—If any amount de-
scribed in paragraph (1) or (3) of section 1385 
(a)— 
‘‘(i) is received by a person from an 
organization to which part I of subchapter 
T applies which is engaged in the mar-
keting of agricultural or horticultural prod-
ucts, and 
‘‘(ii) is allocable to the portion of the 
qualified production activities income of 
the organization which is deductible under 
subsection (a) (determined as if the organi-
zation were a corporation if it is not) and 
designated as such by the organization in 
a written notice mailed to its patrons dur-
ing the payment period described in section 
1382(a), 
then such person shall be allowed an exclusion 
from gross income with respect to such amount. 
The taxable income of the organization shall 
not be reduced under section 1382 by the por-
tion of any such amount with respect to which 
an exclusion is allowable to a person by reason 
of this paragraph. 
‘‘(B) SPECIAL
RULES.—For purposes of 
applying subparagraph (A), in determining the 
qualified production activities income of the or-
ganization under this section— 
‘‘(i) there shall not be taken into ac-
count in computing the organization’s 
modified taxable income any deduction al-
lowable under subsection (b) or (c) of sec-
tion 1382 (relating to patronage dividends, 
per-unit retain allocations, and nonpatron-
age distributions), and 
‘‘(ii) the organization shall be treated 
as having manufactured, produced, grown,
or extracted in whole or significant part 
any qualifying production property mar-
keted by the organization which its patrons 
have so manufactured, produced, grown, or 
extracted. 
‘‘(3) SPECIAL RULES FOR PARTNERSHIPS AND 
S CORPORATIONS.—For purposes of this section, a 
partner’s distributive share of any partnership item 
shall be taken into account as if directly realized by 
the partner. A rule similar to the rule of the pre-
ceding sentence shall apply in the case of a share-
holder in an S Corporation. 
‘‘(4) 
SPECIAL
RULE
FOR
AFFILIATED 
GROUPS.— 
‘‘(A) IN GENERAL.—All members of an ex-
panded affiliated group shall be treated as a 
single corporation for purposes of this section. 
‘‘(B) EXPANDED
AFFILIATED
GROUP.— 
The term ‘expanded affiliated group’ means an 
affiliated group as defined in section 1504(a), 
determined— 
‘‘(i) by substituting ‘50 percent’ for 
‘80 percent’ each place it appears, and 
‘‘(ii) without regard to paragraphs (2) 
and (4) of section 1504(b).
For purposes of determining the domestic/ 
worldwide fraction under subsection (g), clause 
(ii) shall be applied by also disregarding para-
graphs (3) and (8) of section 1504(b). 
‘‘(5) COORDINATION WITH MINIMUM TAX.—The 
deduction under this section shall be allowed for 
purposes of the tax imposed by section 55; except 
that for purposes of section 55, alternative minimum 
taxable income shall be taken into account in deter-
mining the deduction under this section. 
‘‘(6) ORDERING
RULE.—The amount of any 
other deduction allowable under this chapter shall be 
determined as if this section had not been enacted. 
‘‘(7) TRADE
OR
BUSINESS
REQUIREMENT.— 
This section shall be applied by only taking into ac-
count items which are attributable to the actual con-
duct of a trade or business. 
‘‘(8) 
COORDINATION
WITH
TRANSITION 
RULES.—For purposes of this section— 
‘‘(A) domestic production gross receipts 
shall not include gross receipts from any trans-
action if the binding contract transition relief of 
section 2(c)(2) of the Job Protection Act of 
2003 applies to such transaction, and
‘‘(B) any deduction allowed under section 
2(e) of such Act shall be disregarded in deter-
mining the portion of the taxable income which 
is attributable to domestic production gross re-
ceipts.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VII of subchapter B of chapter 1 is amended by 
adding at the end the following new item: 
‘‘Sec. 199. Income attributable to domestic production activi-
ties.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years ending after 
2003. 
(2) APPLICATION OF SECTION 15.—Section 15 
of the Internal Revenue Code of 1986 shall apply to 
the amendments made by this section as if they were 
changes in a rate of tax. 
TITLE 
II—EXTENSION 
OF 
IN-
CREASED 
EXPENSING 
FOR 
SMALL BUSINESS 
SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING 
FOR SMALL BUSINESS. 
Subsections (b), (c), and (d) of section 179 (as 
amended by the Jobs and Growth Tax Relief Reconcili-
ation Act of 2003) are each amended by striking ‘‘2006’’ 
each place it appears and inserting ‘‘2008’’. 
TITLE III—ENRON-RELATED TAX 
SHELTER PROVISIONS 
SEC. 301. LIMITATION ON TRANSFER OR IMPORTATION OF 
BUILT-IN LOSSES. 
(a) IN GENERAL.—Section 362 (relating to basis to 
corporations) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.— 
‘‘(1) LIMITATION ON IMPORTATION OF BUILT- 
IN LOSSES.— 
‘‘(A) IN GENERAL.—If in any transaction 
described in subsection (a) or (b) there would 
(but for this subsection) be an importation of a 
net built-in loss, the basis of each property de-
scribed in subparagraph (B) which is acquired 
in such transaction shall (notwithstanding sub-
sections (a) and (b)) be its fair market value 
immediately after such transaction. 
‘‘(B) PROPERTY
DESCRIBED.—For pur-
poses of subparagraph (A), property is de-
scribed in this subparagraph if— 
‘‘(i) gain or loss with respect to such 
property is not subject to tax under this
subtitle in the hands of the transferor im-
mediately before the transfer, and 
‘‘(ii) gain or loss with respect to such 
property is subject to such tax in the 
hands of the transferee immediately after 
such transfer. 
In any case in which the transferor is a part-
nership, the preceding sentence shall be applied 
by treating each partner in such partnership as 
holding such partner’s proportionate share of 
the property of such partnership. 
‘‘(C) IMPORTATION
OF
NET
BUILT-IN 
LOSS.—For purposes of subparagraph (A), 
there is an importation of a net built-in loss in 
a transaction if the transferee’s aggregate ad-
justed bases of property described in subpara-
graph (B) which is transferred in such trans-
action would (but for this paragraph) exceed 
the fair market value of such property imme-
diately after such transaction.’’. 
‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN 
LOSSES IN SECTION 351 TRANSACTIONS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) property is transferred by a 
transferor in any transaction which is de-
scribed in subsection (a) and which is not 
described in paragraph (1) of this sub-
section, and 
‘‘(ii) the transferee’s aggregate ad-
justed bases of such property so trans-
ferred would (but for this paragraph) ex-
ceed the fair market value of such property 
immediately after such transaction, 
then, notwithstanding subsection (a), the trans-
feree’s aggregate adjusted bases of the property 
so transferred shall not exceed the fair market 
value of such property immediately after such 
transaction. 
‘‘(B) ALLOCATION
OF
BASIS
REDUC-
TION.—The aggregate reduction in basis by 
reason of subparagraph (A) shall be allocated 
among the property so transferred in proportion 
to their respective built-in losses immediately 
before the transaction. 
‘‘(C) EXCEPTION FOR TRANSFERS WITHIN 
AFFILIATED
GROUP.—Subparagraph (A) shall 
not apply to any transaction if the transferor 
owns stock in the transferee meeting the re-
quirements of section 1504(a)(2). In the case of 
property to which subparagraph (A) does not
362(e)(1)(B) which is distributed in such liq-
uidation would (but for this subparagraph) ex-
ceed the fair market value of such property im-
mediately after such liquidation.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after the date of 
the enactment of this Act. 
SEC. 302. NO REDUCTION OF BASIS UNDER SECTION 734 IN 
STOCK HELD BY PARTNERSHIP IN COR-
PORATE PARTNER. 
(a) IN GENERAL.—Section 755 is amended by adding 
at the end the following new subsection: 
‘‘(c) NO ALLOCATION
OF BASIS DECREASE
TO 
STOCK OF CORPORATE PARTNER.—In making an alloca-
tion under subsection (a) of any decrease in the adjusted 
basis of partnership property under section 734(b)— 
‘‘(1) no allocation may be made to stock in a 
corporation (or any person which is related (within 
the meaning of section 267(b) or 707(b)(1)) to such 
corporation) which is a partner in the partnership, 
and 
‘‘(2) any amount not allocable to stock by rea-
son of paragraph (1) shall be allocated under sub-
section (a) to other partnership property.
Gain shall be recognized to the partnership to the extent 
that the amount required to be allocated under paragraph 
(2) to other partnership property exceeds the aggregate 
adjusted basis of such other property immediately before 
the allocation required by paragraph (2).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions after the date of 
the enactment of this Act. 
SEC. 303. REPEAL OF SPECIAL RULES FOR FASITS, ETC. 
(a) IN GENERAL.—Part V of subchapter M of chap-
ter 1 (relating to financial asset securitization investment 
trusts) is hereby repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (6) of section 56(g) is amended 
by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 
REMIC’’. 
(2) Clause (ii) of section 382(l)(4)(B) is amend-
ed by striking ‘‘a REMIC to which part IV of sub-
chapter M applies, or a FASIT to which part V of 
subchapter M applies,’’ and inserting ‘‘or a REMIC 
to which part IV of subchapter M applies,’. 
(3) Paragraph (1) of section 582(c) is amended 
by striking ‘‘, and any regular interest in a 
FASIT,’’.
(4) Subparagraph (E) of section 856(c)(5) is 
amended by striking the last sentence. 
(5)(A) Section 860G(a)(1) is amended by add-
ing at the end the following new sentence: ‘‘An inter-
est shall not fail to qualify as a regular interest sole-
ly because the specified principal amount of the reg-
ular interest (or the amount of interest accrued on 
the regular interest) can be reduced as a result of 
the nonoccurrence of 1 or more contingent payments 
with respect to any reverse mortgage loan held by 
the REMIC if, on the startup day for the REMIC, 
the sponsor reasonably believes that all principal and 
interest due under the regular interest will be paid 
at or prior to the liquidation of the REMIC.’’. 
(B) The last sentence of section 860G(a)(3) is 
amended by inserting ‘‘, and any reverse mortgage 
loan (and each balance increase on such loan meet-
ing the requirements of subparagraph (A)(iii)) shall 
be treated as an obligation secured by an interest in 
real property’’ before the period at the end. 
(6) Paragraph (3) of section 860G(a) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (B), 
by striking ‘‘, and’’ at the end of subparagraph (C) 
and inserting a period, and by striking subparagraph 
(D).
(7) Section 860G(a)(3), as amended by para-
graph (6), is amended by adding at the end the fol-
lowing new sentence: ‘‘For purposes of subparagraph 
(A), if more than 50 percent of the obligations 
transferred to, or purchased by, the REMIC are 
originated by the United States or any State (or any 
political subdivision, agency, or instrumentality of 
the United States or any State) and are principally 
secured by an interest in real property, then each 
obligation transferred to, or purchased by, the 
REMIC shall be treated as secured by an interest in 
real property.’’. 
(8)(A) Section 860G(a)(3)(A) is amended by 
striking ‘‘or’’ at the end of clause (i), by inserting 
‘‘or’’ at the end of clause (ii), and by inserting after 
clause (ii) the following new clause: 
‘‘(iii) represents an increase in the 
principal amount under the original terms 
of an obligation described in clause (i) or 
(ii) if such increase— 
‘‘(I) is attributable to an advance 
made to the obligor pursuant to the 
original terms of the obligation, 
‘‘(II) occurs after the startup 
day, and
‘‘(III) 
is 
purchased 
by 
the 
REMIC pursuant to a fixed price con-
tract in effect on the startup day.’’. 
(B) Section 860G(a)(7)(B) is amended to read 
as follows: 
‘‘(B) QUALIFIED
RESERVE
FUND.—For 
purposes of subparagraph (A), the term ‘quali-
fied reserve fund’ means any reasonably re-
quired reserve to— 
‘‘(i) provide for full payment of ex-
penses of the REMIC or amounts due on 
regular interests in the event of defaults on 
qualified mortgages or lower than expected 
returns on cash flow investments, or 
‘‘(ii) provide a source of funds for the 
purchase of obligations described in clause 
(ii) or (iii) of paragraph (3)(A). 
The aggregate fair market value of the assets 
held in any such reserve shall not exceed 50 
percent of the aggregate fair market value of all 
of the assets of the REMIC on the startup day, 
and the amount of any such reserve shall be 
promptly and appropriately reduced to the ex-
tent the amount held in such reserve is no
longer reasonably required for purposes speci-
fied in clause (i) or (ii) of paragraph (3)(A).’’. 
(9) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’. 
(10) Section 1272(a)(6)(B) is amended by add-
ing at the end the following new flush sentence: 
‘‘For purposes of clause (iii), the Secretary 
shall prescribe regulations permitting the use of 
a current prepayment assumption, determined 
as of the close of the accrual period (or such 
other time as the Secretary may prescribe dur-
ing the taxable year in which the accrual period 
ends).’’. 
(11) Subparagraph (C) of section 7701(a)(19) 
is amended by adding ‘‘and’’ at the end of clause 
(ix), by striking ‘‘, and’’ at the end of clause (x) and 
inserting a period, and by striking clause (xi). 
(12) The table of parts for subchapter M of 
chapter 1 is amended by striking the item relating 
to part V. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall take effect on the date of the enactment of this 
Act. 
(2) EXCEPTION FOR EXISTING FASITS.— 
(A) IN GENERAL.—Paragraph (1) shall not 
apply to any FASIT in existence on the date of 
the enactment of this Act to the extent that 
regular interests issued by the FASIT before 
such date continue to remain outstanding in ac-
cordance with the original terms of issuance. 
(B) TRANSFER
OF
ADDITIONAL
ASSETS 
NOT PERMITTED.—Except as provided in regu-
lations prescribed by the Secretary of the 
Treasury or the Secretary’s delegate, subpara-
graph (A) shall cease to apply as of the earliest 
date after the date of the enactment of this Act 
that any property is transferred to the FASIT. 
SEC. 304. EXPANDED DISALLOWANCE OF DEDUCTION FOR 
INTEREST ON CONVERTIBLE DEBT. 
(a) IN GENERAL.—Paragraph (2) of section 163(l) 
is amended by striking ‘‘or a related party’’ and inserting 
‘‘or equity held by the issuer (or any related party) in any 
other person’’. 
(b) CAPITALIZATION ALLOWED WITH RESPECT TO 
EQUITY OF PERSONS OTHER THAN ISSUER AND RE-
LATED PARTIES.—Section 163(l) is amended by redesig-
nating paragraphs (4) and (5) as paragraphs (5) and (6) 
and by inserting after paragraph (3) the following new 
paragraph: 
‘‘(4) CAPITALIZATION ALLOWED WITH RESPECT 
TO EQUITY OF PERSONS OTHER THAN ISSUER AND 
RELATED PARTIES.—If the disqualified debt instru-
ment of a corporation is payable in equity held by 
the issuer (or any related party) in any other person 
(other than a related party), the basis of such equity 
shall be increased by the amount not allowed as a 
deduction by reason of paragraph (1) with respect to 
the instrument.’’. 
(c) EXCEPTION FOR CERTAIN INSTRUMENTS ISSUED 
BY DEALERS IN SECURITIES.—Section 163(l), as amend-
ed by subsection (b), is amended by redesignating para-
graphs (5) and (6) as paragraphs (6) and (7) and by in-
serting after paragraph (4) the following new paragraph: 
‘‘(5) EXCEPTION FOR CERTAIN INSTRUMENTS 
ISSUED BY DEALERS IN SECURITIES.—For purposes 
of this subsection, the term ‘disqualified debt instru-
ment’ does not include indebtedness issued by a 
dealer in securities (or a related party) which is pay-
able in, or by reference to, equity (other than equity 
of the issuer or a related party) held by such dealer 
in its capacity as a dealer in securities. For purposes
of this paragraph, the term ‘dealer in securities’ has 
the meaning given such term by section 475.’’. 
(c) CONFORMING AMENDMENTS.—Paragraph (3) of 
section 163(l) is amended— 
(1) by striking ‘‘or a related party’’ in the ma-
terial preceding subparagraph (A) and inserting ‘‘or 
any other person’’, and 
(2) by striking ‘‘or interest’’ each place it ap-
pears. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to debt instruments issued after 
the date of the enactment of this Act. 
SEC. 305. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269. 
(a) IN GENERAL.—Subsection (a) of section 269 (re-
lating to acquisitions made to evade or avoid income tax) 
is amended to read as follows: 
‘‘(a) IN GENERAL.—If— 
‘‘(1)(A) any person acquires stock in a corpora-
tion, or 
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis 
of such property, in the hands of the acquiring cor-
poration, is determined by reference to the basis in 
the hands of the transferor corporation, and
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal 
income tax by securing the benefit of a deduction, 
credit, or other allowance, 
then the Secretary may disallow such deduction, credit, 
or other allowance.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to stock and property acquired 
after the date of the enactment of this Act. 
SEC. 306. MODIFICATIONS OF CERTAIN RULES RELATING 
TO CONTROLLED FOREIGN CORPORATIONS. 
(a) LIMITATION ON EXCEPTION FROM PFIC RULES 
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED 
FOREIGN
CORPORATIONS.—Paragraph (2) of section 
1297(e) (relating to passive investment company) is 
amended by adding at the end the following flush sen-
tence: 
‘‘Such term shall not include any period if there is 
only a remote likelihood of an inclusion in gross in-
come under section 951(a)(1)(A)(i) of subpart F in-
come of such corporation for such period.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years on controlled for-
eign corporation beginning after the date of the enactment 
of this Act, and to taxable years of United States share-
holder in which or with which such taxable years of con-
trolled foreign corporations end. 
TITLE IV—EXTENSION OF COBRA 
FEES 
SEC. 401. COBRA FEES. 
(a) USE OF MERCHANDISE PROCESSING FEE.—Sec-
tion 13031(f) of the Consolidated Omnibus Budget Rec-
onciliation Act of 1985 (19 U.S.C. 58c(f)) is amended— 
(1) in paragraph (1), by aligning subparagraph 
(B) with subparagraph (A); and 
(2) in paragraph (2), by striking ‘‘commercial 
operations’’ and all that follows through ‘‘proc-
essing’’ and inserting ‘‘customs revenue functions as 
defined in section 415 of the Homeland Security Act 
of 2002 (other than functions performed by the Of-
fice of International Affairs referred to in section 
415(8) of that Act), and for automation (including 
the Automation Commercial Environment computer 
system), and for no other purpose. To the extent 
that funds in the Customs User Fee Account are in-
sufficient to pay the costs of such customs revenue 
functions, customs duties in an amount equal to the 
amount of such insufficiency shall be available, to 
the extent provided for in appropriations Acts, to 
pay the costs of such customs revenue functions in
the amount of such insufficiency, and shall be avail-
able for no other purpose. The provisions of the first 
and second sentences of this paragraph specifying 
the purposes for which amounts in the Customs 
User Fee Account may be made available shall not 
be superseded except by a provision of law which 
specifically modifies or supersedes such provisions.’’. 
(b) REIMBURSEMENT
OF APPROPRIATIONS FROM 
COBRA FEES.—Section 13031(f)(3) of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 
58c(f)(3)) is amended by adding at the end the following: 
‘‘(E) Nothing in this paragraph shall be construed 
to preclude the use of appropriated funds, from sources 
other than the fees collected under subsection (a), to pay 
the costs set forth in clauses (i), (ii), and (iii) of subpara-
graph (A).’’. 
(c) SENSE OF CONGRESS; EFFECTIVE PERIOD FOR 
COLLECTING FEES; STANDARD FOR SETTING FEES.— 
(1) SENSE OF CONGRESS.—The Congress finds 
that— 
(A) the fees set forth in paragraphs (1) 
through (8) of subsection (a) of section 13031 
of the Consolidated Omnibus Budget Reconcili-
ation Act of 1985 have been reasonably related 
to the costs of providing customs services in
services in connection with the activity or item for 
which the fee is charged under such paragraph; 
‘‘(II) the amount of fees collected under such 
paragraphs may not exceed, in the aggregate, the 
amounts paid in that fiscal year for the costs de-
scribed in subsection (f)(3)(A) incurred in providing 
customs services in connection with the activity or 
item for which the fees are charged under such 
paragraphs; 
‘‘(III) a fee may not be collected under any 
such paragraph except to the extent such fee will be 
expended to pay the costs described in subsection 
(f)(3)(A) incurred in providing customs services in 
connection with the activity or item for which the fee 
is charged under such paragraph; and 
‘‘(IV) any fee collected under any such para-
graph shall be available for expenditure only to pay 
the costs described in subsection (f)(3)(A) incurred 
in providing customs services in connection with the 
activity or item for which the fee is charged under 
such paragraph.’’. 
(d) CLERICAL AMENDMENTS.—Section 13031 of the 
Consolidated Omnibus Budget Reconciliation Act of 1985 
is amended—
(1) in subsection (a)(5)(B), by striking ‘‘$1.75’’ 
and inserting ‘‘$1.75.’’; 
(2) in subsection (b)— 
(A) in paragraph (1)(A), by aligning clause 
(iii) with clause (ii); 
(B) in paragraph (7), by striking ‘‘para-
graphs’’ and inserting ‘‘paragraph’’; and 
(C) in paragraph (9), by aligning subpara-
graph (B) with subparagraph (A); and 
(3) in subsection (e)(2), by aligning subpara-
graph (B) with subparagraph (A). 
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