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‘‘(ii) such country allows a credit
against its net basis tax for the full amount
of the tax paid to such other foreign coun-
try.
‘‘(C) DEALER.—For purposes of subpara-
graph (A), the term ‘dealer’ means—
‘‘(i) with respect to a security, any
person to whom paragraphs (1) and (2) of
subsection (k) would not apply by reason of
paragraph (4) thereof if such security were
stock, and
‘‘(ii) with respect to any other prop-
erty, any person with respect to whom such
property is described in section 1221(a)(1).
‘‘(D) REGULATIONS.—The Secretary may
prescribe such regulations as may be appropriate
to carry out this paragraph, including regula-
tions to prevent the abuse of the exception pro-
vided by this paragraph and to treat other taxes
as qualified taxes.
‘‘(3) EXCEPTIONS.—The Secretary may by regu-
lation provide that paragraph (1) shall not apply to
property where the Secretary determines that the ap-
plication of paragraph (1) to such property is not
necessary to carry out the purposes of this subsection.
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‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (5), (6), and (7) of sub-
section (k) shall apply for purposes of this subsection.
‘‘(5) DETERMINATION
OF
HOLDING
PERIOD.—
Holding periods shall be determined for purposes of
this subsection without regard to section 1235 or any
similar rule.’’.
(b) CONFORMING AMENDMENT.—The heading of sub-
section (k) of section 901 is amended by inserting ‘‘ON DIVI-
DENDS’’ after ‘‘TAXES’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or accrued more than
30 days after the date of the enactment of this Act.
SEC. 357. QUALIFIED TAX COLLECTION CONTRACTS.
(a) CONTRACT REQUIREMENTS.—
(1) IN GENERAL.—Subchapter A of chapter 64
(relating to collection) is amended by adding at the
end the following new section:
‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
‘‘(a) IN GENERAL.—Nothing in any provision of law
shall be construed to prevent the Secretary from entering
into a qualified tax collection contract.
‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.—For
purposes of this section, the term ‘qualified tax collection
contract’ means any contract which—
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‘‘(1) is for the services of any person (other than
an officer or employee of the Treasury Department)
to locate and contact any taxpayer specified by the
Secretary, to request payment from such taxpayer of
an amount of Federal tax specified by the Secretary,
and to obtain financial information specified by the
Secretary with respect to such taxpayer, and
‘‘(2) prohibits each person providing such serv-
ices under such contract from committing any act or
omission which employees of the Internal Revenue
Service are prohibited from committing in the per-
formance of similar services.
‘‘(c) FEES.—The Secretary may retain and use an
amount not in excess of 25 percent of the amount collected
under any qualified tax collection contract for the costs of
services performed under such contract. The Secretary shall
keep adequate records regarding amounts so retained and
used. The amount credited as paid by any taxpayer shall
be determined without regard to this subsection.
‘‘(d) NO FEDERAL LIABILITY.—The United States
shall not be liable for any act or omission of any person
performing services under a qualified tax collection con-
tract.
‘‘(e) APPLICATION OF FAIR DEBT COLLECTION PRAC-
TICES ACT.—The provisions of the Fair Debt Collection
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Practices Act (15 U.S.C. 1692 et seq.) shall apply to any
qualified tax collection contract, except to the extent super-
seded by any provision of this title.
‘‘(f) CROSS REFERENCES.—
‘‘(1) For damages for certain unauthorized col-
lection actions by persons performing services under
a qualified tax collection contract, see section 7433A.
‘‘(2) For application of Taxpayer Assistance Or-
ders to persons performing services under a qualified
tax collection contract, see section 7811(a)(4).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 7809(a) is amended by insert-
ing ‘‘6306,’’ before ‘‘7651’’.
(B) The table of sections for subchapter A of
chapter 64 is amended by adding at the end the
following new item:
‘‘Sec. 6306. Qualified Tax Collection Contracts.’’.
(b) CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED
COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES
UNDER QUALIFIED TAX COLLECTION CONTRACTS.—
(1) IN GENERAL.—Subchapter B of chapter 76
(relating to proceedings by taxpayers and third par-
ties) is amended by inserting after section 7433 the
following new section:
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‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED
COLLECTION ACTIONS BY PERSONS PER-
FORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
‘‘(a) IN GENERAL.—Subject to the modifications pro-
vided by subsection (b), section 7433 shall apply to the acts
and omissions of any person performing services under a
qualified tax collection contract (as defined in section
6306(b)) to the same extent and in the same manner as
if such person were an employee of the Internal Revenue
Service.
‘‘(b) MODIFICATIONS.—For purposes of subsection
(a)—
‘‘(1) Any civil action brought under section 7433
by reason of this section shall be brought against the
person who entered into the qualified tax collection
contract with the Secretary and shall not be brought
against the United States.
‘‘(2) Such person and not the United States shall
be liable for any damages and costs determined in
such civil action.
‘‘(3) Such civil action shall not be an exclusive
remedy with respect to such person.
‘‘(4) Subsections (c) and (d)(1) of section 7433
shall not apply.’’.
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(2) CLERICAL AMENDMENT.—The table of sec-
tions for subchapter B of chapter 76 is amended by
inserting after the item relating to section 7433 the
following new item:
‘‘Sec. 7433A. Civil damages for certain unauthorized collection ac-
tions by persons performing services under a quali-
fied tax collection contract.’’.
(c) APPLICATION OF TAXPAYER ASSISTANCE ORDERS
TO PERSONS PERFORMING SERVICES UNDER A QUALIFIED
TAX COLLECTION CONTRACT.—Section 7811 (relating to
taxpayer assistance orders) is amended by adding at the
end the following new subsection:
‘‘(g) APPLICATION TO PERSONS PERFORMING SERV-
ICES UNDER A QUALIFIED TAX COLLECTION CONTRACT.—
Any order issued or action taken by the National Taxpayer
Advocate pursuant to this section shall apply to persons
performing services under a qualified tax collection contract
(as defined in section 6306(b)) to the same extent and in
the same manner as such order or action applies to the Sec-
retary.’’.
(d) INELIGIBILITY OF INDIVIDUALS WHO COMMIT MIS-
CONDUCT TO PERFORM UNDER CONTRACT.—Section 1203
of the Internal Revenue Service Restructuring Act of 1998
(relating to termination of employment for misconduct) is
amended by adding at the end the following new subsection:
‘‘(e) INDIVIDUALS PERFORMING SERVICES UNDER A
QUALIFIED TAX COLLECTION CONTRACT.— An individual
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shall cease to be permitted to perform any services under
any qualified tax collection contract (as defined in section
6306(b) of the Internal Revenue Code of 1986) if there is
a final determination by the Secretary of the Treasury
under such contract that such individual committed any
act or omission described under subsection (b) in connection
with the performance of such services.’’.
(e) EFFECTIVE DATE.—The amendments made to this
section shall take effect on the date of the enactment of this
Act.
SEC. 358. EXTENSION OF CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is
amended by striking ‘‘September 30, 2003’’ and inserting
‘‘September 30, 2013’’.
SEC. 359. CLARIFICATION OF EXEMPTION FROM TAX FOR
SMALL PROPERTY AND CASUALTY INSUR-
ANCE COMPANIES.
(a) IN GENERAL.—Section 501(c)(15)(A) is amended
to read as follows:
‘‘(A) Insurance companies or associations
other than life (including interinsurers and re-
ciprocal underwriters) if—
‘‘(i) the gross receipts for the taxable
year do not exceed $600,000, and
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‘‘(ii) more than 50 percent of such
gross receipts consist of premiums.’’.
(b) 
CONTROLLED
GROUP
RULE.—Section
501(c)(15)(C) is amended by inserting ‘‘, except that in ap-
plying section 1563 for purposes of section 831(b)(2)(B)(ii),
subparagraphs (B) and (C) of section 1563(b)(2) shall be
disregarded’’ before the period at the end.
(c) CONFORMING AMENDMENT.—Clause (i) of section
831(b)(2)(A) is amended by striking ‘‘exceed $350,000 but’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2003.
SEC. 360. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL-
MENT AGREEMENTS.
(a) IN GENERAL.—
(1) Section 6159(a) (relating to authorization of
agreements) is amended—
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, and
(B) by inserting ‘‘full or partial’’ after ‘‘fa-
cilitate’’.
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in certain
cases) is amended in the matter preceding paragraph
(1) by inserting ‘‘full’’ before ‘‘payment’’.
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(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT
AGREEMENTS
EVERY
TWO
YEARS.—Section 6159 is
amended by redesignating subsections (d) and (e) as sub-
sections (e) and (f), respectively, and inserting after sub-
section (c) the following new subsection:
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO
YEARS.—In the case of an agreement entered into by the
Secretary under subsection (a) for partial collection of a
tax liability, the Secretary shall review the agreement at
least once every 2 years.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to agreements entered into on or after
the date of the enactment of this Act.
SEC. 361. EXTENSION OF AMORTIZATION OF INTANGIBLES
TO SPORTS FRANCHISES.
(a) IN GENERAL.—Section 197(e) (relating to excep-
tions to definition of section 197 intangible) is amended
by striking paragraph (6) and by redesignating paragraphs
(7) and (8) as paragraphs (6) and (7), respectively.
(b) CONFORMING AMENDMENTS.—
(1)(A) Section 1056 (relating to basis limitation
for player contracts transferred in connection with
the sale of a franchise) is repealed.
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(B) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the
item relating to section 1056.
(2) Section 1253 (relating to transfers of fran-
chises, trademarks, and trade names) is amended by
striking subsection (e).
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property acquired after the date of
the enactment of this Act.
SEC. 362. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS.
(a) IN GENERAL.—Subchapter A of chapter 67 (relat-
ing to interest on underpayments) is amended by adding
at the end the following new section:
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS,
ETC.
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN
AS PAYMENT OF TAX.—A taxpayer may make a cash de-
posit with the Secretary which may be used by the Sec-
retary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed at
the time of the deposit. Such a deposit shall be made in
such manner as the Secretary shall prescribe.
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‘‘(b) NO INTEREST IMPOSED.—To the extent that such
deposit is used by the Secretary to pay tax, for purposes
of section 6601 (relating to interest on underpayments), the
tax shall be treated as paid when the deposit is made.
‘‘(c) RETURN OF DEPOSIT.—Except in a case where
the Secretary determines that collection of tax is in jeop-
ardy, the Secretary shall return to the taxpayer any
amount of the deposit (to the extent not used for a payment
of tax) which the taxpayer requests in writing.
‘‘(d) PAYMENT OF INTEREST.—
‘‘(1) IN GENERAL.—For purposes of section 6611
(relating to interest on overpayments), a deposit
which is returned to a taxpayer shall be treated as a
payment of tax for any period to the extent (and only
to the extent) attributable to a disputable tax for such
period. Under regulations prescribed by the Secretary,
rules similar to the rules of section 6611(b)(2) shall
apply.
‘‘(2) DISPUTABLE TAX.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘disputable tax’ means the
amount of tax specified at the time of the deposit
as the taxpayer’s reasonable estimate of the max-
imum amount of any tax attributable to disput-
able items.
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‘‘(B) SAFE HARBOR BASED ON 30-DAY LET-
TER.—In the case of a taxpayer who has been
issued a 30-day letter, the maximum amount of
tax under subparagraph (A) shall not be less
than the amount of the proposed deficiency speci-
fied in such letter.
‘‘(3) OTHER
DEFINITIONS.—For purposes of
paragraph (2)—
‘‘(A) DISPUTABLE ITEM.—The term ‘disput-
able item’ means any item of income, gain, loss,
deduction, or credit if the taxpayer—
‘‘(i) has a reasonable basis for its
treatment of such item, and
‘‘(ii) reasonably believes that the Sec-
retary also has a reasonable basis for dis-
allowing the taxpayer’s treatment of such
item.
‘‘(B) 30-DAY
LETTER.—The term ‘30-day
letter’ means the first letter of proposed defi-
ciency which allows the taxpayer an opportunity
for administrative review in the Internal Rev-
enue Service Office of Appeals.
‘‘(4) RATE OF INTEREST.—The rate of interest
allowable under this subsection shall be the Federal
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short-term rate determined under section 6621(b),
compounded daily.
‘‘(e) USE OF DEPOSITS.—
‘‘(1) PAYMENT
OF
TAX.—Except as otherwise
provided by the taxpayer, deposits shall be treated as
used for the payment of tax in the order deposited.
‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be
treated as returned to the taxpayer on a last-in, first-
out basis.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
subchapter A of chapter 67 is amended by adding at the
end the following new item:
‘‘Sec. 6603. Deposits made to suspend running of interest on poten-
tial underpayments, etc.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to deposits made after the
date of the enactment of this Act.
(2) COORDINATION WITH DEPOSITS MADE UNDER
REVENUE
PROCEDURE
84–58.—In the case of an
amount held by the Secretary of the Treasury or his
delegate on the date of the enactment of this Act as
a deposit in the nature of a cash bond deposit pursu-
ant to Revenue Procedure 84–58, the date that the
taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue
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Code (as added by this Act) shall be treated as the
date such amount is deposited for purposes of such
section 6603.
SEC. 363. CLARIFICATION OF RULES FOR PAYMENT OF ESTI-
MATED TAX FOR CERTAIN DEEMED ASSET
SALES.
(a) IN GENERAL.—Paragraph (13) of section 338(h)
(relating to tax on deemed sale not taken into account for
estimated tax purposes) is amended by adding at the end
the following: ‘‘The preceding sentence shall not apply with
respect to a qualified stock purchase for which an election
is made under paragraph (10).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to transactions occurring after the
date of the enactment of this Act.
SEC. 364. LIMITATION OF DEDUCTION FOR CHARITABLE
CONTRIBUTIONS OF PATENTS AND SIMILAR
PROPERTY.
(a) IN GENERAL.—Section 170(e)(1)(B) (relating to
certain contributions of ordinary income and capital gain
property) is amended by striking ‘‘or’’ at the end of clause
(i), by adding ‘‘or’’ at the end of clause (ii), and by insert-
ing after clause (ii) the following new clause:
‘‘(iii) of any patent, copyright, trade-
mark, trade name, trade secret, know-how,
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software, or similar property, or applica-
tions or registrations of such property,’’.
(b) ANTI-ABUSE RULES.—The Secretary of the Treas-
ury may prescribe such regulations or other administrative
guidance as may be necessary or appropriate to prevent the
avoidance of the purposes of section 170(e)(1)(B)(iii) of the
Internal Revenue Code of 1986 (as added by subsection (a)),
including preventing—
(1) the circumvention of the reduction of the
charitable deduction by embedding or bundling the
patent or similar property as part of a charitable
contribution of property that includes the patent or
similar property,
(2) the manipulation of the basis of the property
to increase the amount of the charitable deduction
through the use of related persons, pass-thru entities,
or other intermediaries, or through the use of any
provision of law or regulation (including the consoli-
dated return regulations), and
(3) a donor from changing the form of the patent
or similar property to property of a form for which
different deduction rules would apply.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to contributions made after May 7,
2003.
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SEC. 365. EXTENSION OF TRANSFERS OF EXCESS PENSION
ASSETS TO RETIREE HEALTH ACCOUNTS.
(a) AMENDMENT OF INTERNAL REVENUE CODE OF
1986.—Paragraph (5) of section 420(b) (relating to expira-
tion) is amended by striking ‘‘December 31, 2005’’ and in-
serting ‘‘December 31, 2013’’.
(b) AMENDMENTS OF ERISA.—
(1) Section 101(e)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1021(e)(3))
is amended by striking ‘‘Tax Relief Extension Act of
1999’’ and inserting ‘‘Jobs and Growth Tax Relief
Reconciliation Act of 2003’’.
(2) Section 403(c)(1) of such Act (29 U.S.C.
1103(c)(1)) is amended by striking ‘‘Tax Relief Ex-
tension Act of 1999’’ and inserting ‘‘Jobs and Growth
Tax Relief Reconciliation Act of 2003’’.
(3) Paragraph (13) of section 408(b) of such Act
(29 U.S.C. 1108(b)(3)) is amended—
(A) by striking ‘‘January 1, 2006’’ and in-
serting ‘‘January 1, 2014’’, and
(B) by striking ‘‘Tax Relief Extension Act
of 1999’’ and inserting ‘‘Jobs and Growth Tax
Relief Reconciliation Act of 2003’’.
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SEC. 366. PRORATION RULES FOR LIFE INSURANCE BUSI-
NESS OF PROPERTY AND CASUALTY INSUR-
ANCE COMPANIES.
(a) IN GENERAL.—Section 832(b)(4) (defining pre-
miums earned) is amended—
(1) by inserting ‘‘, except that any deduction at-
tributable to such reserves shall be reduced in the
same manner as the deductions provided by sections
243, 244, and 245 for a life insurance company are
reduced under section 805(a)(4)’’ before the period at
the end of the first sentence following subparagraph
(C), and
(2) by adding at the end the following new sen-
tence: ‘‘In applying section 812(d) for purposes of the
reduction under the third preceding sentence, only
gross investment income attributable to the reserves
described in such sentence shall be taken into ac-
count.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2003.
SEC. 367. MODIFICATION OF TREATMENT OF TRANSFERS
TO CREDITORS IN DIVISIVE REORGANIZA-
TIONS.
(a) IN GENERAL.—Section 361(b)(3) (relating to treat-
ment of transfers to creditors) is amended by adding at the
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end the following new sentence: ‘‘In the case of a reorganiza-
tion described in section 368(a)(1)(D) with respect to which
stock or securities of the corporation to which the assets are
transferred are distributed in a transaction which qualifies
under section 355, this paragraph shall apply only to the
extent that the money or other property transferred to such
creditors does not exceed the adjusted bases of such assets
transferred.’’.
(b) LIABILITIES
IN
EXCESS
OF
BASIS.—Section
357(c)(1)(B) is amended by inserting ‘‘with respect to
which stock or securities of the corporation to which the as-
sets are transferred are distributed in a transaction which
qualifies under section 355’’ after ‘‘section 368(a)(1)(D)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers of money or other property,
or liabilities assumed, in connection with a reorganization
occurring on or after the date of the enactment of this Act.
SEC. 368. INCREASE IN AGE OF MINOR CHILDREN WHOSE
UNEARNED INCOME IS TAXED AS IF PARENT’S
INCOME.
(a) IN GENERAL.—Section 1(g)(2)(A) (relating to
child to whom subsection applies) is amended by striking
‘‘age 14’’ and inserting ‘‘age 18’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2003.
SEC. 369. CONSISTENT AMORTIZATION OF PERIODS FOR IN-
TANGIBLES.
(a) START-UP EXPENDITURES.—
(1) ALLOWANCE OF DEDUCTION.—Paragraph (1)
of section 195(b) (relating to start-up expenditures) is
amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer
elects the application of this subsection with respect to
any start-up expenditures—
‘‘(A) the taxpayer shall be allowed a deduc-
tion for the taxable year in which the active
trade or business begins in an amount equal to
the lesser of—
‘‘(i) the amount of start-up expendi-
tures with respect to the active trade or
business, or
‘‘(ii) $5,000, reduced (but not below
zero) by the amount by which such start-up
expenditures exceed $50,000, and
‘‘(B) the remainder of such start-up expend-
itures shall be allowed as a deduction ratably
over the 180-month period beginning with the
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month in which the active trade or business be-
gins.’’.
(2) CONFORMING
AMENDMENT.—Subsection (b)
of section 195 is amended by striking ‘‘AMORTIZE’’
and inserting ‘‘DEDUCT’’ in the heading.
(b) ORGANIZATIONAL EXPENDITURES.—Subsection (a)
of section 248 (relating to organizational expenditures) is
amended to read as follows:
‘‘(a) ELECTION TO DEDUCT.—If a corporation elects
the application of this subsection (in accordance with regu-
lations prescribed by the Secretary) with respect to any or-
ganizational expenditures—
‘‘(1) the corporation shall be allowed a deduction
for the taxable year in which the corporation begins
business in an amount equal to the lesser of—
‘‘(A) the amount of organizational expendi-
tures with respect to the taxpayer, or
‘‘(B) $5,000, reduced (but not below zero) by
the amount by which such organizational ex-
penditures exceed $50,000, and
‘‘(2) the remainder of such organizational ex-
penditures shall be allowed as a deduction ratably
over the 180-month period beginning with the month
in which the corporation begins business.’’.
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(c) TREATMENT OF ORGANIZATIONAL AND SYNDICA-
TION FEES OR PARTNERSHIPS.—
(1) IN
GENERAL.—Section 709(b) (relating to
amortization of organization fees) is amended by re-
designating paragraph (2) as paragraph (3) and by
amending paragraph (1) to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer
elects the application of this subsection (in accordance
with regulations prescribed by the Secretary) with re-
spect to any organizational expenses—
‘‘(A) the taxpayer shall be allowed a deduc-
tion for the taxable year in which the partner-
ship begins business in an amount equal to the
lesser of—
‘‘(i) the amount of organizational ex-
penses with respect to the partnership, or
‘‘(ii) $5,000, reduced (but not below
zero) by the amount by which such organi-
zational expenses exceed $50,000, and
‘‘(B) the remainder of such organizational
expenses shall be allowed as a deduction ratably
over the 180-month period beginning with the
month in which the partnership begins business.
‘‘(2) DISPOSITIONS BEFORE CLOSE OF AMORTI-
ZATION PERIOD.—In any case in which a partnership
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is liquidated before the end of the period to which
paragraph (1)(B) applies, any deferred expenses at-
tributable to the partnership which were not allowed
as a deduction by reason of this section may be de-
ducted to the extent allowable under section 165.’’.
(2) CONFORMING
AMENDMENT.—Subsection (b)
of section 709 is amended by striking ‘‘AMORTIZA-
TION’’ and inserting ‘‘DEDUCTION’’ in the heading.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred after the
date of the enactment of this Act.
SEC. 
370. 
CLARIFICATION 
OF 
DEFINITION 
OF 
NON-
QUALIFIED PREFERRED STOCK.
(a) IN GENERAL.—Section 351(g)(3)(A) is amended
by adding at the end the following: ‘‘Stock shall not be treat-
ed as participating in corporate growth to any significant
extent unless there is a real and meaningful likelihood of
the shareholder actually participating in the earnings and
growth of the corporation.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to transactions after May 14, 2003.
SEC. 371. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) GAS UTILITY PROPERTY.—Section 168(e)(3)(E)
(defining 15-year property) is amended by striking ‘‘and’’
at the end of clause (ii), by striking the period at the end
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of clause (iii) and inserting ‘‘, and’’, and by adding at the
end the following new clause:
‘‘(iv) initial clearing and grading land
improvements with respect to gas utility
property.’’
(b) ELECTRIC UTILITY PROPERTY.—Section 168(e)(3)
is amended by adding at the end the following new subpara-
graph:
‘‘(F) 20-YEAR
PROPERTY.—The term ‘20-
year property’ means initial clearing and grad-
ing land improvements with respect to any elec-
tric utility transmission and distribution plant.’’
(c) CONFORMING AMENDMENTS.—The table contained
in section 168(g)(3)(B) is amended—
(1) by inserting ‘‘or (E)(iv)’’ after ‘‘(E)(iii)’’,
and
(2) by adding at the end the following new item:
‘‘(F) .................................................................................................
25’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 372. PROHIBITION ON NONRECOGNITION OF GAIN
THROUGH 
COMPLETE 
LIQUIDATION 
OF
HOLDING COMPANY.
(a) IN GENERAL.—Section 332 is amended by adding
at the end the following new subsection:
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‘‘(d) RECOGNITION OF GAIN ON LIQUIDATION OF CER-
TAIN HOLDING COMPANIES.—
‘‘(1) IN GENERAL.—Subsection (a) and section
331 shall not apply to any distribution in complete
liquidation of an applicable holding company to the
extent of the earnings and profits of such company.
‘‘(2) APPLICABLE HOLDING COMPANY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘applicable
holding company’ means any corporation—
‘‘(i) which is a member of a chain of
includible corporations with a common par-
ent which is a foreign corporation,
‘‘(ii) the stock of which is directly
owned by such common parent or another
foreign corporation,
‘‘(iii) substantially all of the assets of
which consist of stock in other members of
such chain of corporations, and
‘‘(iv) which has not been in existence
at least 5 years as of the date of the liquida-
tion.
‘‘(B) INCLUDIBLE CORPORATION.—The term
‘includible corporation’ has the meaning given
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such term under section 1504(b) (without regard
to paragraph (3) thereof).’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to distributions in complete liquidation
occurring after the date of the enactment of this Act.
SEC. 373. LEASE TERM TO INCLUDE CERTAIN SERVICE CON-
TRACTS.
(a) IN GENERAL.—Section 168(i)(3) (relating to lease
term) is amended by adding at the end the following new
subparagraph:
‘‘(C) SPECIAL
RULE
FOR
SERVICE
CON-
TRACTS.—In determining a lease term, there
shall be taken into account any optional service
contract or other similar arrangement.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to leases entered into after the date of
the enactment of this Act.
SEC. 374. RECOGNITION OF GAIN FROM THE SALE OF A
PRINCIPAL RESIDENCE ACQUIRED IN A LIKE-
KIND EXCHANGE WITHIN 5 YEARS OF SALE.
(a) IN GENERAL.—Section 121(d) (relating to special
rules for exclusion of gain from sale of principal residence)
is amended by adding at the end the following new para-
graph:
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‘‘(10) PROPERTY ACQUIRED IN LIKE-KIND EX-
CHANGE.—If a taxpayer acquired property in an ex-
change to which section 1031 applied, subsection (a)
shall not apply to the sale or exchange of such prop-
erty if it occurs during the 5-year period beginning
with the exchange to which section 1031 applied.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to sales or exchanges after the date of
the enactment of this Act.
Subtitle F—Other Provisions
SEC. 381. TEMPORARY STATE AND LOCAL FISCAL RELIEF.
(a) $10,000,000,000 FOR A TEMPORARY INCREASE OF
THE MEDICAID FMAP.—
(1) PERMITTING MAINTENANCE OF FISCAL YEAR
2002 FMAP FOR LAST 2 CALENDAR QUARTERS OF FIS-
CAL
YEAR
2003.—Subject to paragraph (5), if the
FMAP determined without regard to this subsection
for a State for fiscal year 2003 is less than the FMAP
as so determined for fiscal year 2002, the FMAP for
the State for fiscal year 2002 shall be substituted for
the State’s FMAP for the third and fourth calendar
quarters of fiscal year 2003, before the application of
this subsection.
(2) PERMITTING MAINTENANCE OF FISCAL YEAR
2003 FMAP FOR FIRST 3 QUARTERS OF FISCAL YEAR
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2004.—Subject to paragraph (5), if the FMAP deter-
mined without regard to this subsection for a State
for fiscal year 2004 is less than the FMAP as so de-
termined for fiscal year 2003, the FMAP for the State
for fiscal year 2003 shall be substituted for the State’s
FMAP for the first, second, and third calendar quar-
ters of fiscal year 2004, before the application of this
subsection.
(3) GENERAL
2.95
PERCENTAGE
POINTS
IN-
CREASE FOR LAST 2 CALENDAR QUARTERS OF FISCAL
YEAR 2003 AND FIRST 3 CALENDAR QUARTERS OF FIS-
CAL YEAR 2004.—Subject to paragraphs (5), (6), and
(7), for each State for the third and fourth calendar
quarters of fiscal year 2003 and for the first, second,
and third calendar quarters of fiscal year 2004, the
FMAP (taking into account the application of para-
graphs (1) and (2)) shall be increased by 2.95 per-
centage points.
(4) INCREASE IN CAP ON MEDICAID PAYMENTS
TO TERRITORIES.—Subject to paragraphs (6) and (7),
with respect to the third and fourth calendar quarters
of fiscal year 2003 and the first, second, and third
calendar quarters of fiscal year 2004, the amounts
otherwise determined for Puerto Rico, the Virgin Is-
lands, Guam, the Northern Mariana Islands, and
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American Samoa under subsections (f) and (g) of sec-
tion 1108 of the Social Security Act (42 U.S.C. 1308)
shall each be increased by an amount equal to 5.90
percent of such amounts.
(5) SCOPE OF APPLICATION.—The increases in
the FMAP for a State under this subsection shall
apply only for purposes of title XIX of the Social Se-
curity Act and shall not apply with respect to—
(A) disproportionate share hospital pay-
ments described in section 1923 of such Act (42
U.S.C. 1396r–4);
(B) payments under title IV or XXI of such
Act (42 U.S.C. 601 et seq. and 1397aa et seq.);
or
(C) any payments under XIX of such Act
that are based on the enhanced FMAP described
in section 2105(b) of such Act (42 U.S.C.
1397ee(b)).
(6) STATE ELIGIBILITY.—
(A) IN GENERAL.—Subject to subparagraph
(B), a State is eligible for an increase in its
FMAP under paragraph (3) or an increase in a
cap amount under paragraph (4) only if the eli-
gibility under its State plan under title XIX of
the Social Security Act (including any waiver
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under such title or under section 1115 of such
Act (42 U.S.C. 1315)) is no more restrictive than
the eligibility under such plan (or waiver) as in
effect on September 2, 2003.
(B) STATE REINSTATEMENT OF ELIGIBILITY
PERMITTED.—A State that has restricted eligi-
bility under its State plan under title XIX of the
Social Security Act (including any waiver under
such title or under section 1115 of such Act (42
U.S.C. 1315)) after September 2, 2003, is eligible
for an increase in its FMAP under paragraph
(3) or an increase in a cap amount under para-
graph (4) in the first calendar quarter (and sub-
sequent calendar quarters) in which the State
has reinstated eligibility that is no more restric-
tive than the eligibility under such plan (or
waiver) as in effect on September 2, 2003.
(C) RULE OF CONSTRUCTION.—Nothing in
subparagraph (A) or (B) shall be construed as
affecting a State’s flexibility with respect to ben-
efits offered under the State medicaid program
under title XIX of the Social Security Act (42
U.S.C. 1396 et seq.) (including any waiver
under such title or under section 1115 of such
Act (42 U.S.C. 1315)).
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(7) REQUIREMENT
FOR
CERTAIN
STATES.—In
the case of a State that requires political subdivisions
within the State to contribute toward the non-Federal
share of expenditures under the State medicaid plan
required under section 1902(a)(2) of the Social Secu-
rity Act (42 U.S.C. 1396a(a)(2)), the State shall not
require that such political subdivisions pay a greater
percentage of the non-Federal share of such expendi-
tures for the third and fourth calendar quarters of fis-
cal year 2003 and the first, second and third calendar
quarters of fiscal year 2004, than the percentage that
was required by the State under such plan on April
1, 2003, prior to application of this subsection.
(8) DEFINITIONS.—In this subsection:
(A) FMAP.—The term ‘‘FMAP’’ means the
Federal medical assistance percentage, as defined
in section 1905(b) of the Social Security Act (42
U.S.C. 1396d(b)).
(B) STATE.—The term ‘‘State’’ has the
meaning given such term for purposes of title
XIX of the Social Security Act (42 U.S.C. 1396
et seq.).
(9) REPEAL.—Effective as of October 1, 2004,
this subsection is repealed.
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(b) $10,000,000,000 FOR ASSISTANCE IN PROVIDING
GOVERNMENT SERVICES.—
(1) ESTABLISHMENT.—
(A) IN GENERAL.—Not later than 45 days
after the date of enactment of this Act, the Sec-
retary shall establish a program under which the
Secretary shall make a payment to each State in
accordance with paragraph (2) and each unit of
general local government which qualifies for a
payment under paragraph (3).
(B) REQUIREMENT.—In making payments
under this subsection, the Secretary shall ensure
that not more than 72.70 percent of the amount
appropriated under subparagraph (C) is paid in
fiscal year 2003.
(C) APPROPRIATION.—There is authorized
to be appropriated and is appropriated for mak-
ing 
payments 
under 
this 
subsection,
$10,000,000,000. Amounts appropriated under
this subparagraph shall remain available for ex-
penditure through September 30, 2004.
(2) $6,000,000,000 PAID TO STATES.—
(A) AMOUNT OF PAYMENT.—
(i) BASED
ON
POPULATION.—Subject
to clause (ii), $6,000,000,000 of the amount
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appropriated under paragraph (1)(C) shall
be used to pay each State an amount equal
to 
the 
relative 
population 
proportion
amount described in clause (iii).
(ii) MINIMUM PAYMENT.—
(I) IN GENERAL.—No State shall
receive a payment under this para-
graph that is less than—
(aa) in the case of any of the
several States or the District of
Columbia, $30,000,000; and
(bb) in the case of the Com-
monwealth of Puerto Rico, the
United States Virgin Islands,
Guam, the Commonwealth of the
Northern Mariana Islands, or
American Samoa, $6,000,000.
(II) PRO RATA ADJUSTMENTS.—
The Secretary shall adjust on a pro
rata basis the amount of the payments
to States determined under this sub-
paragraph to the extent necessary to
comply with the requirements of sub-
clause (I).
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(iii) RELATIVE POPULATION PROPOR-
TION
AMOUNT.—The relative population
proportion amount described in this clause
is the product of—
(I) $6,000,000,000; and
(II) the relative State population
proportion (defined in clause (iv)).
(iv) RELATIVE
STATE
POPULATION
PROPORTION
DEFINED.—For purposes of
clause (iii)(II), the term ‘‘relative State
population proportion’’ means, with respect
to a State, the amount equal to the quotient
of—
(I) the population of the State (as
reported in the most recent decennial
census); and
(II) the total population of all
States (as reported in the most recent
decennial census).
(B) USE OF PAYMENT.—
(i) IN
GENERAL.—Subject to clause
(ii), a State shall use the funds provided
under a payment made under this para-
graph to fund 1 or more of the following ac-
tivities:
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(I) Education or job training.
(II) Health care or other social
services.
(III) Transportation or other in-
frastructure.
(IV) Law enforcement or public
safety.
(V) Essential government services.
(ii) LIMITATION.—A State may only
use funds provided under a payment made
under this paragraph for types of expendi-
tures permitted under the most recently ap-
proved budget for the State.
(C) CERTIFICATION.—In order to receive a
payment under this paragraph for a fiscal year,
the State shall provide the Secretary with a cer-
tification that the State’s proposed uses of the
funds are consistent with subparagraph (B).
(3) $4,000,000,000 PAID TO UNITS OF GENERAL
LOCAL GOVERNMENT.—
(A) ELIGIBILITY.—The Secretary shall, by
regulation, establish procedures under which
units of general local government may qualify
for the payments provided under this paragraph.
Such procedures shall include a requirement that
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no unit of general local government shall be eli-
gible for a payment under this paragraph unless
the unit provides the Secretary with a certifi-
cation that the unit’s proposed uses of the funds
are consistent with subparagraph (C).
(B) AMOUNT OF PAYMENT.—
(i) IN
GENERAL.—Subject to clause
(ii), the Secretary shall pay each unit of
general local government that qualifies for a
payment under the regulation required
under subparagraph (A), an amount equal
to the same ratio to $4,000,000,000 as the
population of such unit of general local gov-
ernment (as reported in the most recent de-
cennial census) bears to the total population
of all such units that qualify for a payment
under this paragraph (as so reported).
(ii) 
ADJUSTMENTS.—The 
Secretary
may adjust the amount of the payment oth-
erwise determined for a unit of general local
government under this subparagraph to the
extent the Secretary determines necessary to
ensure that all such units that would qual-
ify for a payment under this paragraph re-
ceive a payment.
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(C) USE OF PAYMENT.—
(i) IN
GENERAL.—Subject to clause
(ii), a unit of general local government shall
use the funds provided under a payment
made under this paragraph to fund 1 or
more of the following activities:
(I) Education or job training.
(II) Health care or other social
services.
(III) Transportation or other in-
frastructure.
(IV) Law enforcement or public
safety.
(V) Essential government services.
(ii) LIMITATION.—A unit of general
local government may only use funds pro-
vided under a payment made under this
paragraph for types of expenditures per-
mitted under the most recently approved
budget for the unit.
(4) DEFINITIONS.—In this subsection:
(A) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury.
(B) STATE.—The term ‘‘State’’ means the
50 States, the District of Columbia, the Com-
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monwealth of Puerto Rico, the United States
Virgin Islands, Guam, the Commonwealth of the
Northern 
Mariana 
Islands, 
and 
American
Samoa.
(C) UNIT
OF
GENERAL
LOCAL
GOVERN-
MENT.—
(i) IN GENERAL.—The term ‘‘unit of
general local government’’ means—
(I) a county, parish, township,
city, or political subdivision of a coun-
ty, parish, township, or city, that is a
unit of general local government as de-
termined by the Secretary of Commerce
for general statistical purposes; and
(II) the recognized governing body
of an Indian tribe or Alaskan native
village that carries out substantial gov-
ernmental duties and powers.
(ii) 
TREATMENT
OF
SUBSUMED
AREAS.—For purposes of determining a
unit of general local government under this
subsection, the rules under section 6720(c)
of title 31, United States Code, shall apply.
(5) REPEAL.—Effective as of October 1, 2004,
this subsection is repealed.
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SEC. 382. REVIEW OF STATE AGENCY BLINDNESS AND DIS-
ABILITY DETERMINATIONS.
Section 1633 of the Social Security Act (42 U.S.C.
1383b) is amended by adding at the end the following:
‘‘(e)(1) The Commissioner of Social Security shall re-
view determinations, made by State agencies pursuant to
subsection (a) in connection with applications for benefits
under this title on the basis of blindness or disability, that
individuals who have attained 18 years of age are blind
or disabled as of a specified onset date. The Commissioner
of Social Security shall review such a determination before
any action is taken to implement the determination.
‘‘(2)(A) In carrying out paragraph (1), the Commis-
sioner of Social Security shall review—
‘‘(i) at least 25 percent of all determinations re-
ferred to in paragraph (1) that are made in fiscal
year 2004; and
‘‘(ii) at least 50 percent of all such determina-
tions that are made in fiscal year 2005 or thereafter.
‘‘(B) In carrying out subparagraph (A), the Commis-
sioner of Social Security shall, to the extent feasible, select
for review the determinations which the Commissioner of
Social Security identifies as being the most likely to be in-
correct.’’.
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SEC. 383. PROHIBITION ON USE OF SCHIP FUNDS TO PRO-
VIDE COVERAGE FOR CHILDLESS ADULTS.
(a) GENERAL LIMITATIONS ON PAYMENTS.—Section
2105(c)(1) of the Social Security Act (42 U.S.C.
1397ee(c)(1)) is amended by inserting before the period the
following: ‘‘and may not include coverage of a childless
adult unless the childless adult is a pregnant woman. For
purposes of the preceding sentence, a caretaker relative (as
such term is defined for purposes of carrying out section
1931) shall not be considered a childless adult.’’.
(b) LIMITATION
ON WAIVER AUTHORITY.—Section
2107 of the Social Security Act (42 U.S.C. 1397gg) is
amended by adding at the end the following:
‘‘(f) LIMITATION OF WAIVER AUTHORITY.—Notwith-
standing subsection (e)(2)(A) and section 1115(a), the Sec-
retary may not approve a waiver, experimental, pilot, or
demonstration project, or an amendment to such a project
that has been approved as of the date of enactment of this
subsection, that would allow funds made available under
this title to be used to provide child health assistance or
other health benefits coverage to a childless adult, other than
a childless adult who is a pregnant woman. For purposes
of the preceding sentence, a caretaker relative (as such term
is defined for purposes of carrying out section 1931) shall
not be considered a childless adult.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section take effect on the date of enactment of this Act and
apply to proposals to conduct a waiver, experimental, pilot,
or demonstration project affecting the State children’s
health insurance program under title XXI of such Act, and
to any proposals to amend such a project, that are approved
or extended on or after such date of enactment.
(d) RULE OF CONSTRUCTION.—Nothing in this section
or the amendments made by this section shall be construed
to—
(1) authorize the waiver of any provision of title
XXI of the Social Security Act (42 U.S.C. 1397aa et
seq.) that is not otherwise authorized to be waived
under such title or under title XI of such Act (42
U.S.C. 1301 et seq.) as of the date of enactment of this
Act; or
(2) imply congressional approval of any waiver,
experimental, pilot, or demonstration project affecting
the State children’s health insurance program under
title XXI of such Act that has been approved as of
such date of enactment.
SEC. 384. MEDICAID DSH ALLOTMENTS.
(a) TEMPORARY INCREASE IN FLOOR FOR TREATMENT
AS AN EXTREMELY LOW DSH STATE UNDER THE MED-
ICAID PROGRAM.—
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(1) IN GENERAL.—Section 1923(f)(5) of the So-
cial Security Act (42 U.S.C. 1396r–4(f)(5)) is
amended—
(A) by striking ‘‘In the case of’’ and insert-
ing the following:
‘‘(A) IN GENERAL.—In the case of’’; and
(B) by adding at the end the following:
‘‘(B) TEMPORARY INCREASE IN FLOOR FOR
FISCAL YEAR 2004.—During the period that be-
gins on October 1, 2003, and ends on September
30, 2004, subparagraph (A) shall be applied—
‘‘(i) by substituting ‘fiscal year 2002’
for ‘fiscal year 1999’;
‘‘(iii) by substituting ‘Centers for
Medicare & Medicaid Services’ for ‘Health
Care Financing Administration’;
‘‘(ii) by substituting ‘August 31, 2003’
for ‘August 31, 2000’;
‘‘(iv) by substituting ‘3 percent’ for ‘1
percent’ each place it appears;
‘‘(v) by substituting ‘fiscal year 2004’
for ‘fiscal year 2001’; and
‘‘(vi) without regard to the second sen-
tence.’’.
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(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) take effect on October 1, 2003, and
apply to DSH allotments under title XIX of the So-
cial Security Act only with respect to fiscal year
2004.
(b) 
ALLOTMENT
ADJUSTMENT
FOR
CERTAIN
STATES.—
(1) IN GENERAL.—Section 1923(f) of the Social
Security Act (42 U.S.C. 1396r–4(f)) is amended—
(A) by redesignating paragraph (6) as
paragraph (7); and
(B) by inserting after paragraph (5) the fol-
lowing:
‘‘(6) ALLOTMENT
ADJUSTMENT
FOR
CERTAIN
STATES.—
‘‘(A) TENNESSEE.—Only with respect to fis-
cal year 2004, if the statewide waiver approved
under section 1115 for the State of Tennessee
with respect to the requirements of this title (as
in effect on the date of enactment of this para-
graph) is revoked or terminated, the Secretary
shall—
‘‘(i) permit the State of Tennessee to
submit an amendment to its State plan that
would describe the methodology to be used
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by the State (after the effective date of such
revocation or termination) to identify and
make payments to disproportionate share
hospitals, including children’s hospitals and
institutions for mental diseases or other
mental health facilities (other than State-
owned institutions or facilities), on the
basis of the proportion of patients served by
such hospitals that are low-income patients
with special needs; and
‘‘(ii) provide for purposes of this sub-
section for computation of an appropriate
DSH allotment for the State for fiscal year
2004 that provides for the maximum
amount (permitted consistent with para-
graph (3)(B)(ii)) that does not result in
greater expenditures under this title than
would have been made if such waiver had
not been revoked or terminated.
‘‘(B) HAWAII.—The Secretary shall compute
a DSH allotment for the State of Hawaii for fis-
cal year 2004 in the same manner as DSH allot-
ments are determined with respect to those States
to which paragraph (5) applies (but without re-
gard to the requirement under such paragraph
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that total expenditures under the State plan for
disproportionate share hospital adjustments for
any fiscal year exceeds 0).’’.
(2) TREATMENT OF INSTITUTIONS FOR MENTAL
DISEASES.—Section 1923(h)(1) of the Social Security
Act (42 U.S.C. 1396r–4(h)(1)) is amended—
(A) in paragraph (1), in the matter pre-
ceding subparagraph (A), by striking ‘‘Payment’’
and inserting ‘‘Subject to paragraph (3), pay-
ment’’; and
(B) by adding at the end the following:
‘‘(3) SPECIAL RULE.—The limitation of para-
graph (1) shall not apply in the case of Tennessee
with respect to fiscal year 2004 in the case of a rev-
ocation or termination of its statewide waiver de-
scribed in subsection (f)(6)(A).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect as if enacted on Oc-
tober 1, 2002.
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TITLE IV—SMALL BUSINESS AND
AGRICULTURAL PROVISIONS
Subtitle A—Small Business
Provisions
SEC. 401. EXCLUSION OF CERTAIN INDEBTEDNESS OF
SMALL BUSINESS INVESTMENT COMPANIES
FROM ACQUISITION INDEBTEDNESS.
(a) IN GENERAL.—Section 514(c) (relating to acquisi-
tion indebtedness) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(10) CERTAIN INDEBTEDNESS OF SMALL BUSI-
NESS INVESTMENT COMPANIES.—For purposes of this
section, the term ‘acquisition indebtedness’ does not
include any indebtedness incurred by a small business
investment company licensed under the Small Busi-
ness Investment Act of 1958 which is evidenced by a
debenture—
‘‘(A) issued by such company under section
303(a) of such Act, or
‘‘(B) held or guaranteed by the Small Busi-
ness Administration.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to any indebtedness incurred after De-
cember 31, 2002, by a small business investment company
described in section 514(c)(10) of the Internal Revenue Code
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of 1986 (as added by this section) with respect to property
acquired by such company after such date.
SEC. 402. REPEAL OF OCCUPATIONAL TAXES RELATING TO
DISTILLED SPIRITS, WINE, AND BEER.
(a) REPEAL OF OCCUPATIONAL TAXES.—
(1) IN GENERAL.—The following provisions of
part II of subchapter A of chapter 51 (relating to oc-
cupational taxes) are hereby repealed:
(A) Subpart A (relating to proprietors of
distilled spirits plants, bonded wine cellars, etc.).
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale deal-
ers) (other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers)
(other than section 5124).
(E) Subpart G (relating to general provi-
sions) (other than sections 5142, 5143, 5145, and
5146).
(2) NONBEVERAGE DOMESTIC DRAWBACK.—Sec-
tion 5131 is amended by striking ‘‘, on payment of
a special tax per annum,’’.
(3) INDUSTRIAL USE OF DISTILLED SPIRITS.—
Section 5276 is hereby repealed.
(b) CONFORMING AMENDMENTS.—
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(1)(A) The heading for part II of subchapter A
of chapter 51 and the table of subparts for such part
are amended to read as follows:
‘‘PART II—MISCELLANEOUS PROVISIONS
‘‘Subpart A. Manufacturers of stills.
‘‘Subpart B. Nonbeverage domestic drawback claimants.
‘‘Subpart C. Recordkeeping by dealers.
‘‘Subpart D. Other provisions.’’.
(B) The table of parts for such subchapter A is
amended by striking the item relating to part II and
inserting the following new item:
‘‘Part II. Miscellaneous provisions.’’.
(2) Subpart C of part II of such subchapter (re-
lating to manufacturers of stills) is redesignated as
subpart A.
(3)(A) Subpart F of such part II (relating to
nonbeverage domestic drawback claimants) is redesig-
nated as subpart B and sections 5131 through 5134
are redesignated as sections 5111 through 5114, re-
spectively.
(B) The table of sections for such subpart B, as
so redesignated, is amended—
(i) by redesignating the items relating to
sections 5131 through 5134 as relating to sec-
tions 5111 through 5114, respectively, and
(ii) by striking ‘‘and rate of tax’’ in the
item relating to section 5111, as so redesignated.
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(C) Section 5111, as redesignated by subpara-
graph (A), is amended—
(i) by striking ‘‘AND RATE OF TAX’’ in
the section heading,
(ii) by striking the subsection heading for
subsection (a), and
(iii) by striking subsection (b).
(4) Part II of subchapter A of chapter 51 is
amended by adding after subpart B, as redesignated
by paragraph (3), the following new subpart:
‘‘Subpart C—Recordkeeping by Dealers
‘‘Sec. 5121. Recordkeeping by wholesale dealers.
‘‘Sec. 5122. Recordkeeping by retail dealers.
‘‘Sec. 5123. Preservation and inspection of records, and entry of
premises for inspection.’’.
(5)(A) Section 5114 (relating to records) is
moved to subpart C of such part II and inserted after
the table of sections for such subpart.
(B) Section 5114 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’,
and
(ii) by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b)
the following new subsection:
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‘‘(c) WHOLESALE DEALERS.—For purposes of this
part—
‘‘(1) WHOLESALE
DEALER
IN
LIQUORS.—The
term ‘wholesale dealer in liquors’ means any dealer
(other than a wholesale dealer in beer) who sells, or
offers for sale, distilled spirits, wines, or beer, to an-
other dealer.
‘‘(2) WHOLESALE DEALER IN BEER.—The term
‘wholesale dealer in beer’ means any dealer who sells,
or offers for sale, beer, but not distilled spirits or
wines, to another dealer.
‘‘(3) DEALER.—The term ‘dealer’ means any
person who sells, or offers for sale, any distilled spir-
its, wines, or beer.
‘‘(4) PRESUMPTION IN CASE OF SALE OF 20 WINE
GALLONS OR MORE.—The sale, or offer for sale, of dis-
tilled spirits, wines, or beer, in quantities of 20 wine
gallons or more to the same person at the same time,
shall be presumptive evidence that the person making
such sale, or offer for sale, is engaged in or carrying
on the business of a wholesale dealer in liquors or a
wholesale dealer in beer, as the case may be. Such
presumption may be overcome by evidence satisfac-
torily showing that such sale, or offer for sale, was
made to a person other than a dealer.’’.
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(C) Paragraph (3) of section 5121(d), as so re-
designated, is amended by striking ‘‘section 5146’’
and inserting ‘‘section 5123’’.
(6)(A) Section 5124 (relating to records) is
moved to subpart C of part II of subchapter A of
chapter 51 and inserted after section 5121.
(B) Section 5124 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’,
(ii) by striking ‘‘section 5146’’ in subsection
(c) and inserting ‘‘section 5123’’, and
(iii) by redesignating subsection (c) as sub-
section (d) and inserting after subsection (b) the
following new subsection:
‘‘(c) 
RETAIL
DEALERS.—For 
purposes 
of 
this
section—
‘‘(1) RETAIL
DEALER
IN
LIQUORS.—The term
‘retail dealer in liquors’ means any dealer (other than
a retail dealer in beer) who sells, or offers for sale,
distilled spirits, wines, or beer, to any person other
than a dealer.
‘‘(2) RETAIL DEALER IN BEER.—The term ‘retail
dealer in beer’ means any dealer who sells, or offers
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for sale, beer, but not distilled spirits or wines, to any
person other than a dealer.
‘‘(3) DEALER.—The term ‘dealer’ has the mean-
ing given such term by section 5121(c)(3).’’.
(7) Section 5146 is moved to subpart C of part
II of subchapter A of chapter 51, inserted after section
5122, and redesignated as section 5123.
(8) Part II of subchapter A of chapter 51 is
amended by inserting after subpart C the following
new subpart:
‘‘Subpart D—Other Provisions
‘‘Sec. 5131. Packaging distilled spirits for industrial uses.
‘‘Sec. 5132. Prohibited purchases by dealers.’’.
(9) Section 5116 is moved to subpart D of part
II of subchapter A of chapter 51, inserted after the
table of sections, redesignated as section 5131, and
amended by inserting ‘‘(as defined in section
5121(c))’’ after ‘‘dealer’’ in subsection (a).
(10) Subpart D of part II of subchapter A of
chapter 51 is amended by adding at the end thereof
the following new section:
‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
‘‘(a) IN GENERAL.—Except as provided in regulations
prescribed by the Secretary, it shall be unlawful for a dealer
to purchase distilled spirits for resale from any person other
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than a wholesale dealer in liquors who is required to keep
the records prescribed by section 5121.
‘‘(b) PENALTY AND FORFEITURE.—
‘‘For penalty and forfeiture provisions applicable
to violations of subsection (a), see sections 5687 and
7302.’’.
(11) Subsection (b) of section 5002 is amended—
(A) by striking ‘‘section 5112(a)’’ and in-
serting ‘‘section 5121(c)(3)’’,
(B) by striking ‘‘section 5112’’ and insert-
ing ‘‘section 5121(c)’’,
(C) by striking ‘‘section 5122’’ and insert-
ing ‘‘section 5122(c)’’.
(12) Subparagraph (A) of section 5010(c)(2) is
amended by striking ‘‘section 5134’’ and inserting
‘‘section 5114’’.
(13) Subsection (d) of section 5052 is amended
to read as follows:
‘‘(d) BREWER.—For purposes of this chapter, the term
‘brewer’ means any person who brews beer or produces beer
for sale. Such term shall not include any person who pro-
duces only beer exempt from tax under section 5053(e).’’.
(14) The text of section 5182 is amended to read
as follows:
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‘‘For provisions requiring recordkeeping by
wholesale liquor dealers, see section 5121, and by re-
tail liquor dealers, see section 5122.’’.
(15) Subsection (b) of section 5402 is amended
by striking ‘‘section 5092’’ and inserting ‘‘section
5052(d)’’.
(16) Section 5671 is amended by striking ‘‘or
5091’’.
(17)(A) Part V of subchapter J of chapter 51 is
hereby repealed.
(B) The table of parts for such subchapter J is
amended by striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are
moved to subchapter D of chapter 52, inserted after
section 5731, redesignated as sections 5732, 5733, and
5734, respectively, and amended by striking ‘‘this
part’’ each place it appears and inserting ‘‘this sub-
chapter’’.
(B) Section 5732, as redesignated by subpara-
graph (A), is amended by striking ‘‘(except the tax
imposed by section 5131)’’ each place it appears.
(C) Paragraph (2) of section 5733(c), as redesig-
nated by subparagraph (A), is amended by striking
‘‘liquors’’ both places it appears and inserting ‘‘to-
bacco products and cigarette papers and tubes’’.
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(D) The table of sections for subchapter D of
chapter 52 is amended by adding at the end thereof
the following:
‘‘Sec. 5732. Payment of tax.
‘‘Sec. 5733. Provisions relating to liability for occupational taxes.
‘‘Sec. 5734. Application of State laws.’’.
(E) Section 5731 is amended by striking sub-
section (c) and by redesignating subsection (d) as sub-
section (c).
(19) Subsection (c) of section 6071 is amended
by striking ‘‘section 5142’’ and inserting ‘‘section
5732’’.
(20) Paragraph (1) of section 7652(g) is
amended—
(A) by striking ‘‘subpart F’’ and inserting
‘‘subpart B’’, and
(B) by striking ‘‘section 5131(a)’’ and in-
serting ‘‘section 5111’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on July 1, 2003, but shall not apply
to taxes imposed for periods before such date.
SEC. 403. CUSTOM GUNSMITHS.
(a) SMALL MANUFACTURERS EXEMPT FROM FIRE-
ARMS EXCISE TAX.—Section 4182 (relating to exemptions)
is amended by redesignating subsection (c) as subsection (d)
and by inserting after subsection (b) the following new sub-
section:
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‘‘(c) SMALL MANUFACTURERS, ETC.—
‘‘(1) IN GENERAL.—The tax imposed by section
4181 shall not apply to any article described in such
section if manufactured, produced, or imported by a
person who manufactures, produces, and imports less
than 50 of such articles during the calendar year.
‘‘(2) CONTROLLED GROUPS.—All persons treated
as a single employer for purposes of subsection (a) or
(b) of section 52 shall be treated as one person for
purposes of paragraph (1).’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to articles sold by the manu-
facturer, producer, or importer on or after the date
which is the first day of the month beginning at least
2 weeks after the date of the enactment of this Act.
(2) NO
INFERENCE.—Nothing in the amend-
ments made by this section shall be construed to cre-
ate any inference with respect to the proper tax treat-
ment of any sales before the effective date of such
amendments.
SEC. 404. SIMPLIFICATION OF EXCISE TAX IMPOSED ON
BOWS AND ARROWS.
(a) BOWS.—Section 4161(b)(1) (relating to bows) is
amended to read as follows:
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‘‘(1) BOWS.—
‘‘(A) IN
GENERAL.—There is hereby im-
posed on the sale by the manufacturer, producer,
or importer of any bow which has a draw weight
of 30 pounds or more, a tax equal to 11 percent
of the price for which so sold.
‘‘(B) ARCHERY EQUIPMENT.—There is here-
by imposed on the sale by the manufacturer, pro-
ducer, or importer—
‘‘(i) of any part or accessory suitable
for inclusion in or attachment to a bow de-
scribed in subparagraph (A), and
‘‘(ii) of any quiver or broadhead suit-
able for use with an arrow described in
paragraph (3),
a tax equal to 11 percent of the price for which
so sold.’’.
(b) ARROWS.—Section 4161(b) (relating to bows and
arrows, etc.) is amended by redesignating paragraph (3)
as paragraph (4) and inserting after paragraph (2) the fol-
lowing:
‘‘(3) ARROWS.—
‘‘(A) IN
GENERAL.—There is hereby im-
posed on the sale by the manufacturer, producer,
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or importer of any arrow, a tax equal to 12 per-
cent of the price for which so sold.
‘‘(B) EXCEPTION.—The tax imposed by sub-
paragraph (A) on an arrow shall not apply if
the arrow contains an arrow shaft subject to the
tax imposed by paragraph (2).
‘‘(C) ARROW.—For purposes of this para-
graph, the term ‘arrow’ means any shaft de-
scribed in paragraph (2) to which additional
components are attached.’’.
(c) CONFORMING AMENDMENT.—The heading of sec-
tion 4161(b)(2) (relating to arrows) is amended by striking
‘‘ARROWS.—’’ and inserting ‘‘ARROW COMPONENTS.—’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to articles sold by the manufacturer,
producer, or importer after the date of the enactment of this
Act.
Subtitle B—Agricultural Provisions
SEC. 411. CAPITAL GAIN TREATMENT UNDER SECTION
631(b) TO APPLY TO OUTRIGHT SALES BY
LANDOWNERS.
(a) IN GENERAL.—The first sentence of section 631(b)
(relating to disposal of timber with a retained economic in-
terest) is amended by striking ‘‘retains an economic interest
in such timber’’ and inserting ‘‘either retains an economic
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interest in such timber or makes an outright sale of such
timber’’.
(b) CONFORMING AMENDMENT.—The third sentence of
section 631(b) is amended by striking ‘‘The date of dis-
posal’’ and inserting ‘‘In the case of disposal of timber with
a retained economic interest, the date of disposal’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales after the date of the enactment
of this Act.
SEC. 412. SPECIAL RULES FOR LIVESTOCK SOLD ON AC-
COUNT OF WEATHER-RELATED CONDITIONS.
(a) RULES FOR REPLACEMENT OF INVOLUNTARILY
CONVERTED LIVESTOCK.—Subsection (e) of section 1033
(relating to involuntary conversions) is amended—
(1) by striking ‘‘CONDITIONS.—For purposes’’
and inserting ‘‘CONDITIONS.—
‘‘(1) IN GENERAL.—For purposes’’, and
(2) by adding at the end the following new para-
graph:
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—
‘‘(A) IN GENERAL.—In the case of drought,
flood, or other weather-related conditions de-
scribed in paragraph (1) which result in the
area being designated as eligible for assistance
by the Federal Government, subsection (a)(2)(B)
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shall be applied with respect to any converted
property by substituting ‘4 years’ for ‘2 years’.
‘‘(B) 
FURTHER
EXTENSION
BY
SEC-
RETARY.—The Secretary may extend on a re-
gional basis the period for replacement under
this section (after the application of subpara-
graph (A)) for such additional time as the Sec-
retary determines appropriate if the weather-re-
lated conditions which resulted in such applica-
tion continue for more than 3 years.’’.
(b) INCOME INCLUSION RULES.—Section 451(e) (relat-
ing to special rule for proceeds from livestock sold on ac-
count of drought, flood, or other weather-related conditions)
is amended by adding at the end the following new para-
graph:
‘‘(3) SPECIAL
ELECTION
RULES.—If section
1033(e)(2) applies to a sale or exchange of livestock
described in paragraph (1), the election under para-
graph (1) shall be deemed valid if made during the
replacement period described in such section.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to any taxable year with respect to
which the due date of the return is after December 31, 2002.
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SEC. 413. EXCLUSION FOR LOAN PAYMENTS UNDER NA-
TIONAL HEALTH SERVICE CORPS LOAN RE-
PAYMENT PROGRAM.
(a) IN GENERAL.—Section 108(f) (relating to student
loans) is amended by adding at the end the following new
paragraph:
‘‘(4) LOAN PAYMENTS UNDER NATIONAL HEALTH
SERVICE CORPS LOAN REPAYMENT PROGRAM.—In the
case of an individual, gross income shall not include
any amount received under section 338B(g) of the
Public Health Service Act.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to amounts received by an indi-
vidual in taxable years beginning after December 31, 2002.
SEC. 414. PAYMENT OF DIVIDENDS ON STOCK OF COOPERA-
TIVES WITHOUT REDUCING PATRONAGE DIVI-
DENDS.
(a) IN GENERAL.—Subsection (a) of section 1388 (re-
lating to patronage dividend defined) is amended by adding
at the end the following: ‘‘For purposes of paragraph (3),
net earnings shall not be reduced by amounts paid during
the year as dividends on capital stock or other proprietary
capital interests of the organization to the extent that the
articles of incorporation or bylaws of such organization or
other contract with patrons provide that such dividends are
in addition to amounts otherwise payable to patrons which
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are derived from business done with or for patrons during
the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to distributions in taxable years ending
after the date of the enactment of this Act.
TITLE V—SIMPLIFICATION AND
OTHER PROVISIONS
Subtitle A—Uniform Definition of
Child
SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.
Section 152 is amended to read as follows:
‘‘SEC. 152. DEPENDENT DEFINED.
‘‘(a) IN GENERAL.—For purposes of this subtitle, the
term ‘dependent’ means—
‘‘(1) a qualifying child, or
‘‘(2) a qualifying relative.
‘‘(b) EXCEPTIONS.—For purposes of this section—
‘‘(1) DEPENDENTS
INELIGIBLE.—If an indi-
vidual is a dependent of a taxpayer for any taxable
year of such taxpayer beginning in a calendar year,
such individual shall be treated as having no depend-
ents for any taxable year of such individual begin-
ning in such calendar year.
‘‘(2) MARRIED
DEPENDENTS.—An individual
shall not be treated as a dependent of a taxpayer
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under subsection (a) if such individual has made a
joint return with the individual’s spouse under sec-
tion 6013 for the taxable year beginning in the cal-
endar year in which the taxable year of the taxpayer
begins.
‘‘(3) CITIZENS OR NATIONALS OF OTHER COUN-
TRIES.—
‘‘(A) IN GENERAL.—The term ‘dependent’
does not include an individual who is not a cit-
izen or national of the United States unless such
individual is a resident of the United States or
a country contiguous to the United States.
‘‘(B) EXCEPTION FOR ADOPTED CHILD.—
Subparagraph (A) shall not exclude any child of
a taxpayer (within the meaning of subsection
(f)(1)(B)) from the definition of ‘dependent’ if—
‘‘(i) for the taxable year of the tax-
payer, the child’s principal place of abode is
the home of the taxpayer, and
‘‘(ii) the taxpayer is a citizen or na-
tional of the United States.
‘‘(c) QUALIFYING
CHILD.—For purposes of this
section—
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‘‘(1) IN GENERAL.—The term ‘qualifying child’
means, with respect to any taxpayer for any taxable
year, an individual—
‘‘(A) who bears a relationship to the tax-
payer described in paragraph (2),
‘‘(B) who has the same principal place of
abode as the taxpayer for more than one-half of
such taxable year,
‘‘(C) who meets the age requirements of
paragraph (3), and
‘‘(D) who has not provided over one-half of
such individual’s own support for the calendar
year in which the taxable year of the taxpayer
begins.
‘‘(2) RELATIONSHIP
TEST.—For purposes of
paragraph (1)(A), an individual bears a relationship
to the taxpayer described in this paragraph if such
individual is—
‘‘(A) a child of the taxpayer or a descendant
of such a child, or
‘‘(B) a brother, sister, stepbrother, or step-
sister of the taxpayer or a descendant of any
such relative.
‘‘(3) AGE REQUIREMENTS.—
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‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(C), an individual meets the require-
ments of this paragraph if such individual—
‘‘(i) has not attained the age of 19 as
of the close of the calendar year in which
the taxable year of the taxpayer begins, or
‘‘(ii) is a student who has not attained
the age of 24 as of the close of such calendar
year.
‘‘(B) SPECIAL
RULE
FOR
DISABLED.—In
the case of an individual who is permanently
and totally disabled (as defined in section
22(e)(3)) at any time during such calendar year,
the requirements of subparagraph (A) shall be
treated as met with respect to such individual.
‘‘(4) SPECIAL RULE RELATING TO 2 OR MORE
CLAIMING QUALIFYING CHILD.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and subsection (e), if (but for
this paragraph) an individual may be and is
claimed as a qualifying child by 2 or more tax-
payers for a taxable year beginning in the same
calendar year, such individual shall be treated as
the qualifying child of the taxpayer who is—
‘‘(i) a parent of the individual, or
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‘‘(ii) if clause (i) does not apply, the
taxpayer with the highest adjusted gross in-
come for such taxable year.
‘‘(B) MORE
THAN
PARENT
CLAIMING
QUALIFYING
CHILD.—If the parents claiming
any qualifying child do not file a joint return to-
gether, such child shall be treated as the quali-
fying child of—
‘‘(i) the parent with whom the child re-
sided for the longest period of time during
the taxable year, or
‘‘(ii) if the child resides with both par-
ents for the same amount of time during
such taxable year, the parent with the high-
est adjusted gross income.
‘‘(d) QUALIFYING RELATIVE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘qualifying rel-
ative’ means, with respect to any taxpayer for any
taxable year, an individual—
‘‘(A) who bears a relationship to the tax-
payer described in paragraph (2),
‘‘(B) whose gross income for the calendar
year in which such taxable year begins is less
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than the exemption amount (as defined in sec-
tion 151(d)),
‘‘(C) with respect to whom the taxpayer
provides over one-half of the individual’s support
for the calendar year in which such taxable year
begins, and
‘‘(D) who is not a qualifying child of such
taxpayer or of any other taxpayer for any tax-
able year beginning in the calendar year in
which such taxable year begins.
‘‘(2) RELATIONSHIP.—For purposes of para-
graph (1)(A), an individual bears a relationship to
the taxpayer described in this paragraph if the indi-
vidual is any of the following with respect to the tax-
payer:
‘‘(A) A child or a descendant of a child.
‘‘(B) A brother, sister, stepbrother, or step-
sister.
‘‘(C) The father or mother, or an ancestor of
either.
‘‘(D) A stepfather or stepmother.
‘‘(E) A son or daughter of a brother or sis-
ter of the taxpayer.
‘‘(F) A brother or sister of the father or
mother of the taxpayer.
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‘‘(G) A son-in-law, daughter-in-law, father-
in-law, mother-in-law, brother-in-law, or sister-
in-law.
‘‘(H) An individual (other than an indi-
vidual who at any time during the taxable year
was the spouse, determined without regard to
section 7703, of the taxpayer) who, for the tax-
able year of the taxpayer, has as such individ-
ual’s principal place of abode the home of the
taxpayer and is a member of the taxpayer’s
household.
‘‘(3) SPECIAL
RULE
RELATING
TO
MULTIPLE
SUPPORT AGREEMENTS.—For purposes of paragraph
(1)(C), over one-half of the support of an individual
for a calendar year shall be treated as received from
the taxpayer if—
‘‘(A) no one person contributed over one-half
of such support,
‘‘(B) over one-half of such support was re-
ceived from 2 or more persons each of whom, but
for the fact that any such person alone did not
contribute over one-half of such support, would
have been entitled to claim such individual as a
dependent for a taxable year beginning in such
calendar year,
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‘‘(C) the taxpayer contributed over 10 per-
cent of such support, and
‘‘(D) each person described in subparagraph
(B) (other than the taxpayer) who contributed
over 10 percent of such support files a written
declaration (in such manner and form as the
Secretary may by regulations prescribe) that
such person will not claim such individual as a
dependent for any taxable year beginning in
such calendar year.
‘‘(4) SPECIAL RULE RELATING TO INCOME OF
HANDICAPPED DEPENDENTS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(B), the gross income of an individual
who is permanently and totally disabled (as de-
fined in section 22(e)(3)) at any time during the
taxable year shall not include income attrib-
utable to services performed by the individual at
a sheltered workshop if—
‘‘(i) the availability of medical care at
such workshop is the principal reason for
the individual’s presence there, and
‘‘(ii) the income arises solely from ac-
tivities at such workshop which are incident
to such medical care.
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‘‘(B) SHELTERED
WORKSHOP
DEFINED.—
For purposes of subparagraph (A), the term
‘sheltered workshop’ means a school—
‘‘(i) which provides special instruction
or training designed to alleviate the dis-
ability of the individual, and
‘‘(ii) which is operated by an organiza-
tion described in section 501(c)(3) and ex-
empt from tax under section 501(a), or by
a State, a possession of the United States,
any political subdivision of any of the fore-
going, the United States, or the District of
Columbia.
‘‘(5) SPECIAL SUPPORT TEST IN CASE OF STU-
DENTS.—For purposes of paragraph (1)(C), in the
case of an individual who is—
‘‘(A) a child of the taxpayer, and
‘‘(B) a student,
amounts received as scholarships for study at an edu-
cational 
organization 
described 
in 
section
170(b)(1)(A)(ii) shall not be taken into account in de-
termining whether such individual received more than
one-half of such individual’s support from the tax-
payer.
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‘‘(6) SPECIAL RULES FOR SUPPORT.—For pur-
poses of this subsection—
‘‘(A) payments to a spouse which are in-
cludible in the gross income of such spouse under
section 71 or 682 shall not be treated as a pay-
ment by the payor spouse for the support of any
dependent,
‘‘(B) amounts expended for the support of a
child or children shall be treated as received from
the noncustodial parent (as defined in subsection
(e)(3)(B)) to the extent that such parent provided
amounts for such support, and
‘‘(C) in the case of the remarriage of a par-
ent, support of a child received from the parent’s
spouse shall be treated as received from the par-
ent.
‘‘(e) SPECIAL RULE FOR DIVORCED PARENTS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(c)(4) or (d)(1)(C), if—
‘‘(A) a child receives over one-half of the
child’s support during the calendar year from
the child’s parents—
‘‘(i) who are divorced or legally sepa-
rated under a decree of divorce or separate
maintenance,
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‘‘(ii) who are separated under a writ-
ten separation agreement, or
‘‘(iii) who live apart at all times dur-
ing the last 6 months of the calendar year,
and
‘‘(B) such child is in the custody of 1 or
both of the child’s parents for more than 1⁄2 of
the calendar year,
such child shall be treated as being the qualifying
child or qualifying relative of the noncustodial parent
for a calendar year if the requirements described in
paragraph (2) are met.
‘‘(2) REQUIREMENTS.—For purposes of para-
graph (1), the requirements described in this para-
graph are met if—
‘‘(A) a decree of divorce or separate mainte-
nance or written agreement between the parents
applicable to the taxable year beginning in such
calendar year provides that—
‘‘(i) the noncustodial parent shall be
entitled to any deduction allowable under
section 151 for such child, or
‘‘(ii) the custodial parent will sign a
written declaration that such parent will
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not claim such child as a dependent for
such taxable year, and
‘‘(B) in the case of such an agreement exe-
cuted before January 1, 1985, the noncustodial
parent provides at least $600 for the support of
such child during such calendar year.
‘‘(3) CUSTODIAL
PARENT
AND
NONCUSTODIAL
PARENT.—For purposes of this subsection—
‘‘(A) CUSTODIAL PARENT.—The term ‘custo-
dial parent’ means the parent with whom a
child shared the same principal place of abode
for the greater portion of the calendar year.
‘‘(B) NONCUSTODIAL
PARENT.—The term
‘noncustodial parent’ means the parent who is
not the custodial parent.
‘‘(4) 
EXCEPTION
FOR
MULTIPLE-SUPPORT
AGREEMENTS.—This subsection shall not apply in
any case where over one-half of the support of the
child is treated as having been received from a tax-
payer under the provision of subsection (d)(3).
‘‘(f) OTHER DEFINITIONS AND RULES.—For purposes
of this section—
‘‘(1) CHILD DEFINED.—
‘‘(A) IN GENERAL.—The term ‘child’ means
an individual who is—
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‘‘(i) a son, daughter, stepson, or step-
daughter of the taxpayer, or
‘‘(ii) an eligible foster child of the tax-
payer.
‘‘(B) ADOPTED
CHILD.—In determining
whether any of the relationships specified in sub-
paragraph (A)(i) or paragraph (4) exists, a le-
gally adopted individual of the taxpayer, or an
individual who is placed with the taxpayer by
an authorized placement agency for adoption by
the taxpayer, shall be treated as a child of such
individual by blood.
‘‘(C) ELIGIBLE FOSTER CHILD.—For pur-
poses of subparagraph (A)(ii), the term ‘eligible
foster child’ means an individual who is placed
with the taxpayer by an authorized placement
agency or by judgment, decree, or other order of
any court of competent jurisdiction.
‘‘(2) STUDENT
DEFINED.—The term ‘student’
means an individual who during each of 5 calendar
months during the calendar year in which the taxable
year of the taxpayer begins—
‘‘(A) is a full-time student at an edu-
cational 
organization 
described 
in 
section
170(b)(1)(A)(ii), or
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‘‘(B) is pursuing a full-time course of insti-
tutional on-farm training under the supervision
of an accredited agent of an educational organi-
zation described in section 170(b)(1)(A)(ii) or of
a State or political subdivision of a State.
‘‘(3) PLACE OF ABODE.—An individual shall not
be treated as having the same principal place of abode
of the taxpayer if at any time during the taxable year
of the taxpayer the relationship between the indi-
vidual and the taxpayer is in violation of local law.
‘‘(4) BROTHER AND SISTER.—The terms ‘brother’
and ‘sister’ include a brother or sister by the half
blood.
‘‘(5) TREATMENT OF MISSING CHILDREN.—
‘‘(A) IN GENERAL.—Solely for the purposes
referred to in subparagraph (B), a child of the
taxpayer—
‘‘(i) who is presumed by law enforce-
ment authorities to have been kidnapped by
someone who is not a member of the family
of such child or the taxpayer, and
‘‘(ii) who had, for the taxable year in
which the kidnapping occurred, the same
principal place of abode as the taxpayer for
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more than one-half of the portion of such
year before the date of the kidnapping,
shall be treated as meeting the requirement of
subsection (c)(1)(B) with respect to a taxpayer
for all taxable years ending during the period
that the individual is kidnapped.
‘‘(B) PURPOSES.—Subparagraph (A) shall
apply solely for purposes of determining—
‘‘(i) the deduction under section 151(c),
‘‘(ii) the credit under section 24 (relat-
ing to child tax credit),
‘‘(iii) whether an individual is a sur-
viving spouse or a head of a household (as
such terms are defined in section 2), and
‘‘(iv) the earned income credit under
section 32.
‘‘(C) COMPARABLE TREATMENT OF CERTAIN
QUALIFYING
RELATIVES.—For purposes of this
section, a child of the taxpayer—
‘‘(i) who is presumed by law enforce-
ment authorities to have been kidnapped by
someone who is not a member of the family
of such child or the taxpayer, and
‘‘(ii) who was (without regard to this
paragraph) a qualifying relative of the tax-
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payer for the portion of the taxable year be-
fore the date of the kidnapping,
shall be treated as a qualifying relative of the
taxpayer for all taxable years ending during the
period that the child is kidnapped.
‘‘(D) TERMINATION OF TREATMENT.—Sub-
paragraphs (A) and (C) shall cease to apply as
of the first taxable year of the taxpayer begin-
ning after the calendar year in which there is a
determination that the child is dead (or, if ear-
lier, in which the child would have attained age
18).
‘‘(6) CROSS REFERENCES.—
‘‘For provision treating child as dependent of both
parents for purposes of certain provisions, see sec-
tions 105(b), 132(h)(2)(B), and 213(d)(5).’’.
SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF
HOUSEHOLD.
(a) HEAD
OF HOUSEHOLD.—Clause (i) of section
2(b)(1)(A) is amended to read as follows:
‘‘(i) a qualifying child of the indi-
vidual (as defined in section 152(c), deter-
mined without regard to section 152(e)), but
not if such child—
‘‘(I) is married at the close of the
taxpayer’s taxable year, and
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‘‘(II) is not a dependent of such
individual 
by 
reason 
of 
section
152(b)(2) or 152(b)3), or both, or’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 2(b)(2) is amended by striking sub-
paragraph (A) and by redesignating subparagraphs
(B), (C), and (D) as subparagraphs (A), (B), and
(C), respectively.
(2) Clauses (i) and (ii) of section 2(b)(3)(B) are
amended to read as follows:
‘‘(i) subparagraph (H) of section
152(d)(2), or
‘‘(ii) paragraph (3) of section 152(d).’’.
SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.
(a) IN GENERAL.—Section 21(a)(1) is amended by
striking ‘‘In the case of an individual who maintains a
household which includes as a member one or more quali-
fying individuals (as defined in subsection (b)(1))’’ and in-
serting ‘‘In the case of an individual for which there are
1 or more qualifying individuals (as defined in subsection
(b)(1)) with respect to such individual’’.
(b) QUALIFYING INDIVIDUAL.—Paragraph (1) of sec-
tion 21(b) is amended to read as follows:
‘‘(1) QUALIFYING INDIVIDUAL.—The term ‘quali-
fying individual’ means—
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‘‘(A) a dependent of the taxpayer (as de-
fined in section 152(a)(1)) who has not attained
age 13,
‘‘(B) a dependent of the taxpayer who is
physically or mentally incapable of caring for
himself or herself and who has the same prin-
cipal place of abode as the taxpayer for more
than one-half of such taxable year, or
‘‘(C) the spouse of the taxpayer, if the
spouse is physically or mentally incapable of
caring for himself or herself and who has the
same principal place of abode as the taxpayer
for more than one-half of such taxable year.’’.
(c) CONFORMING AMENDMENT.—Paragraph (1) of sec-
tion 21(e) is amended to read as follows:
‘‘(1) PLACE OF ABODE.—An individual shall not
be treated as having the same principal place of abode
of the taxpayer if at any time during the taxable year
of the taxpayer the relationship between the indi-
vidual and the taxpayer is in violation of local law.’’.
SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.
(a) IN GENERAL.—Paragraph (1) of section 24(c) is
amended to read as follows:
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‘‘(1) IN GENERAL.—The term ‘qualifying child’
means a qualifying child of the taxpayer (as defined
in section 152(c)) who has not attained age 17.’’.
(b) CONFORMING AMENDMENT.—Section 24(c)(2) is
amended by striking ‘‘the first sentence of section 152(b)(3)’’
and inserting ‘‘subparagraph (A) of section 152(b)(3)’’.
SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.
(a) QUALIFYING CHILD.—Paragraph (3) of section
32(c) is amended to read as follows:
‘‘(3) QUALIFYING CHILD.—
‘‘(A) IN
GENERAL.—The term ‘qualifying
child’ means a qualifying child of the taxpayer
(as defined in section 152(c), determined without
regard to paragraph (1)(D) thereof and section
152(e)).
‘‘(B) 
MARRIED
INDIVIDUAL.—The 
term
‘qualifying child’ shall not include an individual
who is married as of the close of the taxpayer’s
taxable year unless the taxpayer is entitled to a
deduction under section 151 for such taxable
year with respect to such individual (or would be
so entitled but for section 152(e)).
‘‘(C) PLACE OF ABODE.—For purposes of
subparagraph (A), the requirements of section
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152(c)(1)(B) shall be met only if the principal
place of abode is in the United States.
‘‘(D) IDENTIFICATION REQUIREMENTS.—
‘‘(i) IN GENERAL.—A qualifying child
shall not be taken into account under sub-
section (b) unless the taxpayer includes the
name, age, and TIN of the qualifying child
on the return of tax for the taxable year.
‘‘(ii) OTHER
METHODS.—The Sec-
retary may prescribe other methods for pro-
viding the information described in clause
(i).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 32(c)(1) is amended by striking sub-
paragraph (C) and by redesignating subparagraphs
(D), (E), (F), and (G) as subparagraphs (C), (D),
(E), and (F), respectively.
(2) Section 32(c)(4) is amended by striking
‘‘(3)(E)’’ and inserting ‘‘(3)(C)’’.
(3) Section 32(m) is amended by striking ‘‘sub-
sections 
(c)(1)(F)’’ 
and 
inserting 
‘‘subsections
(c)(1)(E)’’.
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SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL
EXEMPTION FOR DEPENDENTS.
Subsection (c) of section 151 is amended to read as
follows:
‘‘(c) ADDITIONAL EXEMPTION FOR DEPENDENTS.—An
exemption of the exemption amount for each individual who
is a dependent (as defined in section 152) of the taxpayer
for the taxable year.’’.
SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.
(1) Section 21(e)(5) is amended—
(A) by striking ‘‘paragraph (2) or (4) of’’ in
subparagraph (A), and
(B) by striking ‘‘within the meaning of sec-
tion 152(e)(1)’’ and inserting ‘‘as defined in sec-
tion 152(e)(3)(A)’’.
(2) Section 21(e)(6)(B) is amended by striking
‘‘section 151(c)(3)’’ and inserting ‘‘section 152(f)(1)’’.
(3) Section 25B(c)(2)(B) is amended by striking
‘‘151(c)(4)’’ and inserting ‘‘152(f)(2)’’.
(4)(A) Subparagraphs (A) and (B) of section
51(i)(1) are each amended by striking ‘‘paragraphs
(1) through (8) of section 152(a)’’ both places it ap-
pears and inserting ‘‘subparagraphs (A) through (G)
of section 152(d)(2)’’.
(B) Section 51(i)(1)(C) is amended by striking
‘‘152(a)(9)’’ and inserting ‘‘152(d)(2)(H)’’.
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(5) Section 72(t)(7)(A)(iii) is amended by strik-
ing ‘‘151(c)(3)’’ and inserting ‘‘152(f)(1)’’.
(6) Section 129(c)(2) is amended by striking
‘‘151(c)(3)’’ and inserting ‘‘152(f)(1)’’.
(7) The first sentence of section 132(h)(2)(B) is
amended by striking ‘‘151(c)(3)’’ and inserting
‘‘152(f)(1)’’.
(8) Section 153 is amended by striking para-
graph (1) and by redesignating paragraphs (2), (3),
and (4) as paragraphs (1), (2), and (3), respectively.
(9) Section 170(g)(3) is amended by striking
‘‘paragraphs (1) through (8) of section 152(a)’’ and
inserting ‘‘subparagraphs (A) through (G) of section
152(d)(2)’’.
(10) The second sentence of section 213(d)(11) is
amended by striking ‘‘paragraphs (1) through (8) of
section 152(a)’’ and inserting ‘‘subparagraphs (A)
through (G) of section 152(d)(2)’’.
(11) Section 529(e)(2)(B) is amended by striking
‘‘paragraphs (1) through (8) of section 152(a)’’ and
inserting ‘‘subparagraphs (A) through (G) of section
152(d)(2)’’.
(12) Section 2032A(c)(7)(D) is amended by
striking ‘‘section 151(c)(4)’’ and inserting ‘‘section
152(f)(2)’’.
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(13) Section 7701(a)(17) is amended by striking
‘‘152(b)(4), 682,’’ and inserting ‘‘682’’.
(14) Section 7702B(f)(2)(C)(iii) is amended by
striking ‘‘paragraphs (1) through (8) of section
152(a)’’ and inserting ‘‘subparagraphs (A) through
(G) of section 152(d)(2)’’.
(15) Section 7703(b)(1) is amended—
(A) by striking ‘‘151(c)(3)’’ and inserting
‘‘152(f)(1)’’, and
(B) by striking ‘‘paragraph (2) or (4) of’’.
SEC. 508. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to
taxable years beginning after December 31, 2003.
Subtitle B—Simplification
SEC. 511. CONSOLIDATION OF LIFE AND NON-LIFE COM-
PANY RETURNS.
(a) IN GENERAL.—Section 1504 (relating to definition
of affiliated group) is amended by striking subsection (c)
and by redesignating subsections (d), (e), and (f) as sub-
sections (c), (d), and (e), respectively.
(b) CONFORMING AMENDMENTS.—
(1) Section 243(b)(2)(A) is amended by striking
‘‘, 1504(b)(4), and 1504(c)’’ and inserting ‘‘and
1504(b)(4)’’.
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(2) Section 818(e)(1) is amended by striking ‘‘If
an election under section 1504(c)(2) is effect with re-
spect to an affiliated group for the taxable year’’ and
inserting ‘‘If an affiliated group includes members
which are, and which are not, life insurance compa-
nies for any taxable year’’.
(3) Section 1503(c)(1) is amended by striking
‘‘an election under section 1504(c)(2) is in effect for
the taxable year’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2009.
(d) WAIVER OF 5-YEAR WAITING PERIOD.—Under reg-
ulations prescribed by the Secretary of the Treasury or his
delegate, an automatic waiver from the 5-year waiting pe-
riod for reconsolidation provided in section 1504(a)(3) of
the Internal Revenue Code of 1986 shall be granted to any
corporation which was previously an includible corporation
but was subsequently deemed a nonincludible corporation
as a result of becoming a subsidiary of a corporation which
was not an includible corporation solely by operation of sec-
tion 1504(c)(2) of such Code (as in effect on the day before
the date of the enactment of this Act).
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(e) NONTERMINATION OF GROUP.—No affiliated group
shall terminate solely as a result of the amendments made
by this section.
SEC. 512. SPECIAL RULES FOR TAXATION OF LIFE INSUR-
ANCE COMPANIES.
(a) REDUCTION IN MUTUAL LIFE INSURANCE COM-
PANY DEDUCTIONS NOT TO APPLY.—
(1) IN GENERAL.—Section 809 (relating to re-
duction in certain deductions of material life insur-
ance companies) is amended by adding at the end the
following:
‘‘(j) DIFFERENTIAL EARNINGS RATE TREATED
AS
ZERO.—Notwithstanding subsection (c) or (f), the differen-
tial earnings rate shall be treated as zero for purposes of
computing both the differential earnings amount and the
recomputed differential earnings amount for any taxable
year of a mutual life insurance company beginning after
December 31, 2003, and before January 1, 2009.’’.
(2) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning
after December 31, 2003.
(b) DISTRIBUTIONS TO SHAREHOLDERS FROM PRE-
1984 POLICYHOLDERS SURPLUS ACCOUNT.—
(1) IN GENERAL.—Section 815 (relating to dis-
tributions to shareholders from pre-1984 policyholders
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surplus account) is amended by adding at the end the
following:
‘‘(g) SPECIAL
RULES
APPLICABLE
DURING
2004
THROUGH 2008.—In the case of any taxable year of a stock
life insurance company beginning after December 31, 2003,
and before January 1, 2009—
‘‘(1) the amount under subsection (a)(2) for such
taxable year shall be treated as zero, and
‘‘(2) notwithstanding subsection (b), in deter-
mining any subtractions from an account under sub-
sections (c)(3) and (d)(3), any distribution to share-
holders during such taxable year shall be treated as
made first out of the policyholders surplus account,
then out of the shareholders surplus account, and fi-
nally out of other accounts.’’.
(2) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning
after December 31, 2003.
SEC. 513. MODIFICATION OF ACTIVE BUSINESS DEFINITION
UNDER SECTION 355.
(a) IN GENERAL.—Section 355(b) (defining active con-
duct of a trade or business) is amended by adding at the
end the following new paragraph:
‘‘(3) SPECIAL RULES RELATING TO ACTIVE BUSI-
NESS REQUIREMENT.—
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‘‘(A) IN GENERAL.—For purposes of deter-
mining whether a corporation meets the require-
ment of paragraph (2)(A), all members of such
corporation’s separate affiliated group shall be
treated as one corporation. For purposes of the
preceding sentence, a corporation’s separate af-
filiated group is the affiliated group which would
be determined under section 1504(a) if such cor-
poration were the common parent and section
1504(b) did not apply.
‘‘(B) CONTROL.—For purposes of para-
graph (2)(D), all distributee corporations which
are members of the same affiliated group (as de-
fined in section 1504(a) without regard to sec-
tion 1504(b)) shall be treated as one distributee
corporation.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 355(b)(2) is
amended to read as follows:
‘‘(A) it is engaged in the active conduct of
a trade or business,’’.
(2) Section 355(b)(2) is amended by striking the
last sentence.
(c) EFFECTIVE DATE.—
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(1) IN
GENERAL.—The amendments made by
this section shall apply—
(A) to distributions after the date of the en-
actment of this Act, and
(B) for purposes of determining the contin-
ued qualification under section 355(b)(2)(A) of
the Internal Revenue Code of 1986 (as amended
by subsection (b)(1)) of distributions made before
such date, as a result of an acquisition, disposi-
tion, or other restructuring after such date.
(2) TRANSITION RULE.—The amendments made
by this section shall not apply to any distribution
pursuant to a transaction which is—
(A) made pursuant to an agreement which
was binding on such date of enactment and at
all times thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before such
date, or
(C) described on or before such date in a
public announcement or in a filing with the Se-
curities and Exchange Commission.
(3) ELECTION TO HAVE AMENDMENTS APPLY.—
Paragraph (2) shall not apply if the distributing cor-
poration elects not to have such paragraph apply to
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distributions of such corporation. Any such election,
once made, shall be irrevocable.
Subtitle C—Other Provisions
SEC. 521. CIVIL RIGHTS TAX RELIEF.
(a) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 (defining adjusted gross income) is amended by
inserting after paragraph (18) the following new item:
‘‘(19) COSTS INVOLVING DISCRIMINATION SUITS,
ETC.—Any deduction allowable under this chapter for
attorney fees and court costs paid by, or on behalf of,
the taxpayer in connection with any action involving
a claim of unlawful discrimination (as defined in
subsection (e)) or a claim of a violation of subchapter
III of chapter 37 of title 31, United States Code. The
preceding sentence shall not apply to any deduction
in excess of the amount includible in the taxpayer’s
gross income for the taxable year on account of a
judgment or settlement (whether by suit or agreement
and whether as lump sum or periodic payments) re-
sulting from such claim.’’.
(b) UNLAWFUL DISCRIMINATION DEFINED.—Section
62 is amended by adding at the end the following new sub-
section:
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‘‘(e) UNLAWFUL DISCRIMINATION DEFINED.—For pur-
poses of subsection (a)(19), the term ‘unlawful discrimina-
tion’ means an act that is unlawful under any of the fol-
lowing:
‘‘(1) Section 302 of the Civil Rights Act of 1991
(2 U.S.C. 1202).
‘‘(2) Section 201, 202, 203, 204, 205, 206, or 207
of the Congressional Accountability Act of 1995 (2
U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or 1317).
‘‘(3) The National Labor Relations Act (29
U.S.C. 151 et seq.).
‘‘(4) The Fair Labor Standards Act of 1938 (29
U.S.C. 201 et seq.).
‘‘(5) Section 4 or 15 of the Age Discrimination
in Employment Act of 1967 (29 U.S.C. 623 or 633a).
‘‘(6) Section 501 or 504 of the Rehabilitation Act
of 1973 (29 U.S.C. 791 or 794).
‘‘(7) Section 510 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1140).
‘‘(8) Title IX of the Education Amendments of
1972 (29 U.S.C. 1681 et seq.).
‘‘(9) The Employee Polygraph Protection Act of
1988 (29 U.S.C. 201 et seq.).
‘‘(10) The Worker Adjustment and Retraining
Notification Act (29 U.S.C. 2102 et seq.).
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‘‘(11) Section 105 of the Family and Medical
Leave Act of 1993 (29 U.S.C. 2615).
‘‘(12) Chapter 43 of title 38, United States Code
(relating to employment and reemployment rights of
members of the uniformed services).
‘‘(13) Section 1977, 1979, or 1980 of the Revised
Statutes (42 U.S.C. 1981, 1983, or 1985).
‘‘(14) Section 703, 704, or 717 of the Civil
Rights Act of 1964 (42 U.S.C. 2000e–2, 2000e–3, or
2000e–16).
‘‘(15) Section 804, 805, 806, 808, or 818 of the
Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608,
or 3617).
‘‘(16) Section 102, 202, 302, or 503 of the Amer-
icans with Disabilities Act of 1990 (42 U.S.C. 12112,
12132, 12182, or 12203).
‘‘(17) Any provision of Federal law (popularly
known as whistleblower protection provisions) prohib-
iting the discharge of an employee, the discrimination
against an employee, or any other form of retaliation
or reprisal against an employee for asserting rights or
taking other actions permitted under Federal law.
‘‘(18) Any provision of State or local law, or
common law claims permitted under Federal, State,
or local law—
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‘‘(i) providing for the enforcement of
civil rights, or
‘‘(ii) regulating any aspect of the em-
ployment relationship, including prohib-
iting the discharge of an employee, the dis-
crimination against an employee, or any
other form of retaliation or reprisal against
an employee for asserting rights or taking
other actions permitted by law.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to fees and costs paid after the date of
the enactment of this Act with respect to any judgment or
settlement occurring after such date.
SEC. 522. INCREASE IN SECTION 382 LIMITATION FOR COM-
PANIES EMERGING FROM BANKRUPTCY.
(a) IN GENERAL.—Section 382(b) (relating to section
382 limitation) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) INCREASE IN SECTION 382 LIMITATION FOR
COMPANIES
EMERGING
FROM
BANKRUPTCY.—In the
case of any new loss corporation which immediately
before any ownership change was an old loss corpora-
tion under the jurisdiction of the court in a title 11
or similar case (as defined in subsection (l)(5)(G)),
the section 382 limitation for any post-change year
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beginning in 2004 or 2005 shall be an amount equal
to 200 percent of the amount otherwise determined
under paragraph (1) for such year.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to ownership changes after December 31,
2002.
SEC. 523. INCREASE IN HISTORIC REHABILITATION CREDIT
FOR CERTAIN LOW-INCOME HOUSING FOR
THE ELDERLY.
(a) IN GENERAL.—Section 47 (relating to rehabilita-
tion credit) is amended by adding at the end the following
new subsection:
‘‘(e) SPECIAL RULE REGARDING CERTAIN HISTORIC
STRUCTURES.—In the case of any qualified rehabilitation
expenditure 
with 
respect 
to 
any 
certified 
historic
structure—
‘‘(1) which is placed in service after the date of
the enactment of this subsection,
‘‘(2) which is part of a qualified low-income
building with respect to which a credit under section
42 is allowed, and
‘‘(3) substantially all of the residential rental
units of which are used for tenants who have attained
the age of 65,
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subsection (a)(2) shall be applied by substituting ‘25 per-
cent’ for ‘20 percent’.’’.
(b) APPLICATION OF MACRS.—The Internal Revenue
Code of 1986 shall be applied and administered as if para-
graph (4)(X) of section 251(d) of the Tax Reform Act of
1986 as applied to the amendments made by section 201
of such Act had not been enacted with respect to any prop-
erty described in such paragraph and placed in service after
the date of the enactment of this Act.
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to property placed in service after
the date of the enactment of this Act.
SEC. 524. MODIFICATION OF APPLICATION OF INCOME
FORECAST METHOD OF DEPRECIATION.
(a) IN GENERAL.—Section 167(g) (relating to depre-
ciation under income forecast method) is amended by add-
ing at the end the following new paragraph:
‘‘(7) TREATMENT OF PARTICIPATIONS AND RE-
SIDUALS.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining the depreciation deduction allowable
with respect to a property under this subsection,
the taxpayer may include participations and re-
siduals with respect to such property in the ad-
justed basis of such property for the taxable year
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in which the property is placed in service, but
only to the extent that such participations and
residuals relate to income estimated (for pur-
poses of this subsection) to be earned in connec-
tion with the property before the close of the 10th
taxable year referred to in paragraph (1)(A).
‘‘(B) PARTICIPATIONS
AND
RESIDUALS.—
For purposes of this paragraph, the term ‘par-
ticipations and residuals’ means, with respect to
any property, costs the amount of which by con-
tract varies with the amount of income earned in
connection with such property.
‘‘(C) SPECIAL
RULES
RELATING
TO
RE-
COMPUTATION YEARS.—If the adjusted basis of
any property is determined under this para-
graph, paragraph (4) shall be applied by sub-
stituting ‘for each taxable year in such period’
for ‘for such period’.
‘‘(D) COORDINATION WITH OTHER RULES.—
‘‘(i) 
Notwithstanding 
subparagraph
(A), the taxpayer may exclude participa-
tions and residuals from the adjusted basis
of such property and deduct such participa-
tions and residuals in the taxable year that
such participations and residuals are paid.
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‘‘(ii) Deductions computed in accord-
ance with this paragraph shall be allowable
notwithstanding paragraph (1)(B) or sec-
tions 263, 263A, 404, 419, or 461(h).
‘‘(E) 
AUTHORITY
TO
MAKE
ADJUST-
MENTS.—The Secretary shall prescribe appro-
priate adjustments to the basis of property and
to the look-back method for the additional
amounts allowable as a deduction solely by rea-
son of this paragraph.’’.
(b) DETERMINATION OF INCOME.—Section 167(g)(5)
(relating to special rules) is amended by redesignating sub-
paragraphs (E) and (F) as subparagraphs (F) and (G), re-
spectively, and inserting after subparagraph (D) the fol-
lowing new subparagraph:
‘‘(E) 
TREATMENT
OF
DISTRIBUTION
COSTS.—For purposes of this subsection, the in-
come with respect to any property shall be the
taxpayer’s gross income from such property.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
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SEC. 525. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN
GOVERNMENTAL BONDS.
(a) IN GENERAL.—Section 149(d)(3)(A)(i) (relating to
advance refundings of other bonds) is amended—
(1) by striking ‘‘or’’ at the end of subclause (I),
(2) by adding ‘‘or’’ at the end of subclause (II),
and
(3) by inserting after subclause (II) the fol-
lowing:
‘‘(III) the 2nd advance refunding
of the original bond if the original
bond was issued after 1985 or the 3rd
advance refunding of the original bond
if the original bond was issued before
1986, if, in either case, the refunding
bond is issued before the date which is
2 years after the date of the enactment
of this subclause and the original bond
was issued as part of an issue 90 per-
cent or more of the net proceeds of
which were used to finance a public el-
ementary or secondary school in any
State in which the State’s highest court
ruled by opinion issued on November
21, 2002, that the State school funding
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system violated the State constitution
and was constitutionally inadequate,’’.
(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. 526. EXCLUSION OF INCOME DERIVED FROM CERTAIN
WAGERS ON HORSE RACES FROM GROSS IN-
COME OF NONRESIDENT ALIEN INDIVIDUALS.
(a) IN GENERAL.—Subsection (b) of section 872 (relat-
ing to exclusions) is amended by redesignating paragraphs
(5), (6), and (7) as paragraphs (6), (7), and (8), respec-
tively, and inserting after paragraph (4) the following new
paragraph:
‘‘(5) INCOME DERIVED FROM WAGERING TRANS-
ACTIONS IN CERTAIN PARIMUTUEL POOLS.—Gross in-
come derived by a nonresident alien individual from
a legal wagering transaction initiated outside the
United States in a parimutuel pool with respect to a
live horse race in the United States.’’.
(b) CONFORMING AMENDMENT.—Section 883(a)(4) is
amended by striking ‘‘(5), (6), and (7)’’ and inserting ‘‘(6),
(7), and (8)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to proceeds from wagering transactions
after September 30, 2003.
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SEC. 527. FEDERAL REIMBURSEMENT OF EMERGENCY
HEALTH SERVICES FURNISHED TO UNDOCU-
MENTED ALIENS.
(a) TOTAL AMOUNT AVAILABLE FOR ALLOTMENT.—
There is appropriated, out of any funds in the Treasury
not otherwise appropriated, $48,000,000 for fiscal year
2004, for the purpose of making allotments under this sec-
tion to States described in paragraph (1) or (2) of sub-
section (b). Funds appropriated under the preceding sen-
tence shall remain available until expended.
(b) STATE ALLOTMENTS.—
(1) BASED ON PERCENTAGE OF UNDOCUMENTED
ALIENS.—
(A) IN GENERAL.—Out of the amount ap-
propriated under subsection (a) for fiscal year
2004, the Secretary shall use $32,000,000 of such
amount to make allotments for such fiscal year
in accordance with subparagraph (B).
(B) FORMULA.—The amount of the allot-
ment for each State for fiscal year 2004 shall be
equal to the product of—
(i) the total amount available for allot-
ments under this paragraph for the fiscal
year; and
(ii) the percentage of undocumented
aliens residing in the State with respect to
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the total number of such aliens residing in
all States, as determined by the Statistics
Division of the Immigration and Natu-
ralization Service, as of January 2003,
based on the 2000 decennial census.
(2) BASED
ON
NUMBER
OF
UNDOCUMENTED
ALIEN APPREHENSION STATES.—
(A) IN GENERAL.—Out of the amount ap-
propriated under subsection (a) for fiscal year
2004, the Secretary shall use $16,000,000 of such
amount to make allotments for such fiscal year
for each of the 6 States with the highest number
of undocumented alien apprehensions for such
fiscal year.
(B) DETERMINATION OF ALLOTMENTS.—The
amount of the allotment for each State described
in subparagraph (A) for fiscal year 2004 shall
bear the same ratio to the total amount available
for allotments under this paragraph for the fiscal
year as the ratio of the number of undocumented
alien apprehensions in the State in that fiscal
year bears to the total of such numbers for all
such States for such fiscal year.
(C) DATA.—For purposes of this paragraph,
the highest number of undocumented alien ap-
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prehensions for fiscal year 2004 shall be based on
the 4 most recent quarterly apprehension rates
for undocumented aliens in such States, as re-
ported by the Immigration and Naturalization
Service.
(3) RULE OF CONSTRUCTION.—Nothing in this
section shall be construed as prohibiting a State that
is described in both of paragraphs (1) and (2) from
receiving an allotment under both paragraphs for fis-
cal year 2004.
(c) USE OF FUNDS.—
(1) AUTHORITY TO MAKE PAYMENTS.—From the
allotments made for a State under subsection (b) for
fiscal year 2004, the Secretary shall pay directly to
local governments, hospitals, or other providers lo-
cated in the State (including providers of services re-
ceived through an Indian Health Service facility
whether operated by the Indian Health Service or by
an Indian tribe or tribal organization) that provide
uncompensated emergency health services furnished to
undocumented aliens during that fiscal year, and to
the State, such amounts (subject to the total amount
available from such allotments) as the local govern-
ments, hospitals, providers, or State demonstrate were
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incurred for the provision of such services during that
fiscal year.
(2) LIMITATION
ON
STATE
USE
OF
FUNDS.—
Funds paid to a State from allotments made under
subsection (b) for fiscal year 2004 may only be used
for making payments to local governments, hospitals,
or other providers for costs incurred in providing
emergency health services to undocumented aliens or
for State costs incurred with respect to the provision
of emergency health services to such aliens.
(3) INCLUSION OF COSTS INCURRED WITH RE-
SPECT TO CERTAIN ALIENS.—Uncompensated emer-
gency health services furnished to aliens who have
been allowed to enter the United States for the sole
purpose of receiving emergency health services may be
included in the determination of costs incurred by a
State, local government, hospital, or other provider
with respect to the provision of such services.
(d) APPLICATIONS; ADVANCE PAYMENTS.—
(1) DEADLINE FOR ESTABLISHMENT OF APPLICA-
TION PROCESS.—
(A) IN
GENERAL.—Not later than Sep-
tember 1, 2003, the Secretary shall establish a
process under which States, local governments,
hospitals, or other providers located in the State
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may apply for payments from allotments made
under subsection (b) for fiscal year 2004 for un-
compensated emergency health services furnished
to undocumented aliens during that fiscal year.
(B) INCLUSION OF MEASURES TO COMBAT
FRAUD.—The Secretary shall include in the
process established under subparagraph (A)
measures to ensure that fraudulent payments are
not made from the allotments determined under
subsection (b).
(2) ADVANCE
PAYMENT; RETROSPECTIVE
AD-
JUSTMENT.—The process established under paragraph
(1) shall allow for making payments under this sec-
tion for each quarter of fiscal year 2004 on the basis
of advance estimates of expenditures submitted by ap-
plicants for such payments and such other investiga-
tion as the Secretary may find necessary, and for
making reductions or increases in the payments as
necessary to adjust for any overpayment or under-
payment for prior quarters of such fiscal year.
(e) DEFINITIONS.—In this section:
(1) HOSPITAL.—The term ‘‘hospital’’ has the
meaning given such term in section 1861(e) of the So-
cial Security Act (42 U.S.C. 1395x(e)).
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(2) INDIAN TRIBE; TRIBAL ORGANIZATION.—The
terms ‘‘Indian tribe’’ and ‘‘tribal organization’’ have
the meanings given such terms in section 4 of the In-
dian Health Care Improvement Act (25 U.S.C. 1603).
(3) PROVIDER.—The term ‘‘provider’’ includes a
physician, any other health care professional licensed
under State law, and any other entity that furnishes
emergency health services, including ambulance serv-
ices.
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(5) STATE.—The term ‘‘State’’ means the 50
States and the District of Columbia.
(f) ENTITLEMENT.—This section constitutes budget au-
thority in advance of appropriations Acts and represents
the obligation of the Federal Government to provide for the
payment of amounts provided under this section.
SEC. 528. PREMIUMS FOR MORTGAGE INSURANCE.
(a) MORTGAGE INSURANCE PREMIUMS TREATED AS
INTEREST.—
(1) IN
GENERAL.—Paragraph (3) of section
163(h) (relating to qualified residence interest) is
amended by adding after subparagraph (D) the fol-
lowing new subparagraph:
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‘‘(E) MORTGAGE
INSURANCE
PREMIUMS
TREATED AS INTEREST.—
‘‘(i) IN GENERAL.—Premiums paid or
accrued for qualified mortgage insurance by
a taxpayer during the taxable year in con-
nection with acquisition indebtedness with
respect to a qualified residence of the tax-
payer shall be treated for purposes of this
subsection as qualified residence interest.
‘‘(ii) PHASEOUT.—The amount other-
wise allowable as a deduction under clause
(i) shall be reduced (but not below zero) by
10 percent of such amount for each $1,000
($500 in the case of a married individual
filing a separate return) (or fraction there-
of) that the taxpayer’s adjusted gross in-
come for the taxable year exceeds $100,000
($50,000 in the case of a married indi-
vidual filing a separate return).’’.
(2) DEFINITION
AND
SPECIAL
RULES.—Para-
graph (4) of section 163(h) (relating to other defini-
tions and special rules) is amended by adding at the
end the following new subparagraphs:
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‘‘(E) QUALIFIED MORTGAGE INSURANCE.—
The 
term 
‘qualified 
mortgage 
insurance’
means—
‘‘(i) mortgage insurance provided by
the Veterans Administration, the Federal
Housing Administration, or the Rural
Housing Administration, and
‘‘(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this
subparagraph).
‘‘(F) SPECIAL RULES FOR PREPAID QUALI-
FIED MORTGAGE INSURANCE.—Any amount paid
by the taxpayer for qualified mortgage insurance
that is properly allocable to any mortgage the
payment of which extends to periods that are
after the close of the taxable year in which such
amount is paid shall be chargeable to capital ac-
count and shall be treated as paid in such peri-
ods to which so allocated. No deduction shall be
allowed for the unamortized balance of such ac-
count if such mortgage is satisfied before the end
of its term. The preceding sentences shall not
apply to amounts paid for qualified mortgage
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insurance provided by the Veterans Administra-
tion or the Rural Housing Administration.’’.
(b) INFORMATION RETURNS RELATING TO MORTGAGE
INSURANCE.—Section 6050H (relating to returns relating
to mortgage interest received in trade or business from indi-
viduals) is amended by adding at the end the following new
subsection:
‘‘(h) RETURNS RELATING TO MORTGAGE INSURANCE
PREMIUMS.—
‘‘(1) IN
GENERAL.—The Secretary may pre-
scribe, by regulations, that any person who, in the
course of a trade or business, receives from any indi-
vidual premiums for mortgage insurance aggregating
$600 or more for any calendar year, shall make a re-
turn with respect to each such individual. Such re-
turn shall be in such form, shall be made at such
time, and shall contain such information as the Sec-
retary may prescribe.
‘‘(2) STATEMENT TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return
under paragraph (1) shall furnish to each individual
with respect to whom a return is made a written
statement showing such information as the Secretary
may prescribe. Such written statement shall be fur-
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nished on or before January 31 of the year following
the calendar year for which the return under para-
graph (1) was required to be made.
‘‘(3) SPECIAL
RULES.—For purposes of this
subsection—
‘‘(A) rules similar to the rules of subsection
(c) shall apply, and
‘‘(B) 
the 
term 
‘mortgage 
insurance’
means—
‘‘(i) mortgage insurance provided by
the Veterans Administration, the Federal
Housing Administration, or the Rural
Housing Administration, and
‘‘(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this
subparagraph).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or accrued after the
date of enactment of this section in taxable years ending
after such date.
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SEC. 529. SENSE OF THE SENATE ON REPEALING THE 1993
TAX HIKE ON SOCIAL SECURITY BENEFITS
SECTION.
(a) FINDINGS.—(1) The 1993 tax on social security
benefits was imposed as part of President Clinton’s agenda
to raise taxes.
(2) The original 1993 tax hike on social security bene-
fits was to raise income taxes on social security retirees
with as little as $25,000 of income.
(3) Repeated efforts to repeal the 1993 tax hike on so-
cial security benefits have failed.
(4) Seniors rely on social security benefits as well as
dividend income to fund their retirement and they should
have taxes reduced on both sources of income.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the Senate Finance Committee should report out
the Social Security Benefits Tax Relief Act of 2003, S. 514,
to repeal the tax on seniors not later than July 31, 2003,
and the Senate shall consider such bill not later than Sep-
tember 30, 2003, in a manner consistent with the preserva-
tion of the Medicare Trust Fund.
SEC. 530. FLAT TAX.
(a) FINDINGS.—The Senate finds the following:
(1) The current Internal Revenue Code, with its
myriad deductions, credits and schedules, and over
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17,000 pages of rules and regulations, is long overdue
for an overhaul.
(2) The current Internal Revenue Code has over
6,900,000,000 words compared to the bible at
1,773,000 words, the Declaration of Independence at
1,300 words, The Gettysburg Address at 267 words,
and the Pledge of Allegiance at only 31 words.
(3) It is an unacceptable waste of our Nation’s
precious resources when Americans spend more than
5,800,000,000 hours every year compiling informa-
tion and filling out Internal Revenue Code tax forms.
In addition, taxpayers spend $194,000,000,000 each
year in tax code compliance. America’s resources
could be dedicated to far more productive pursuits.
(4) The primary goal of any tax reform is to
promote growth and remove the inefficiencies of the
current tax code. The flat tax will expand the econ-
omy by an estimated $2,000,000,000,000 over seven
years.
(5) Another important goal of the flat tax is to
achieve fairness, with a single low flat tax rate for all
individuals and businesses.
(6) Simplicity is another critically important
goal of the flat tax, and it is in the public interest
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to have a ten-lined tax form that fits on a postcard
and takes 10 minutes to fill out.
(7) A comprehensive analyses of our tax struc-
ture has concluded that a flat tax of 19 percent could
be imposed upon individuals and be revenue neutral.
(8) If the decision is made to include deduct-
ibility on items such as interest on home mortgages
and charitable contributions, the flat tax would be
raised from a 19 percent to a 20 percent rate to ac-
commodate the deductions and remain revenue neu-
tral.
(9) The flat tax would tax business at a 20 per-
cent rate on net profits and be revenue neutral and
lead to investment decisions being made on the basis
of productivity rather than for tax avoidance.
(10) The flat tax would lead to the elimination
of the capital gains tax. This would become a power-
ful incentive for savings and investment—which
translates into economic growth and expansion, more
and better jobs, and raising the standard of living for
all Americans.
(11) The flat tax would lower the cost of capital
by allowing businesses to write off the cost of capital
purchase in the same year the purchase was made as
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opposed to complying with complicated depreciation
schedules.
(12) By eliminating the double tax on dividends,
the flat tax eliminates the distortions in the tax code
favoring debt over equity financing by businesses.
(13) The flat tax would eliminate the estate and
gift tax. With the elimination of the estate and gift
tax, family-held businesses will be much more stable
under the flat tax system.
(14) As tax loopholes are eliminated and the tax
code is simplified, there will be far less opportunity
for tax avoidance and fraud, which now amounts to
over $120,000,000,000 in uncollected revenue annu-
ally.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the Senate Finance Committee and the Joint Eco-
nomic Committee should undertake a comprehensive anal-
ysis of simplification including flat tax proposals, includ-
ing appropriate hearings and consider legislation providing
for a flat tax.
SEC. 531. TOLL TAX ON EXCESS QUALIFIED FOREIGN DIS-
TRIBUTION AMOUNT.
(a) IN GENERAL.—Subpart F of part III of subchapter
N of chapter 1 is amended by adding at the end the fol-
lowing new section:
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‘‘SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOR-
EIGN DISTRIBUTION AMOUNT.
‘‘(a) TOLL TAX IMPOSED ON EXCESS QUALIFIED FOR-
EIGN DISTRIBUTION AMOUNT.—If a corporation elects the
application of this section, a tax shall be imposed on the
taxpayer in an amount equal to 5.25 percent of—
‘‘(1) the taxpayer’s excess qualified foreign dis-
tribution amount, and
‘‘(2) the amount determined under section 78
which is attributable to such excess qualified foreign
distribution amount.
Such tax shall be imposed in lieu of the tax imposed under
section 11 or 55 on the amounts described in paragraphs
(1) and (2) for such taxable year.
‘‘(b) EXCESS
QUALIFIED
FOREIGN
DISTRIBUTION
AMOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘excess qualified
foreign distribution amount’ means the excess (if any)
of—
‘‘(A) dividends received by the taxpayer
during the taxable year which are—
‘‘(i) from 1 or more corporations which
are controlled foreign corporations in which
the taxpayer is a United States shareholder
on the date such dividends are paid, and
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‘‘(ii) described in a domestic reinvest-
ment plan approved by the taxpayer’s presi-
dent, chief executive officer, or comparable
official before the payment of such dividends
and subsequently approved by the tax-
payer’s board of directors, management
committee, executive committee, or similar
body, which plan shall provide for the rein-
vestment of such dividends in the United
States, including as a source for the fund-
ing of worker hiring and training; infra-
structure; research and development; capital
investments; or the financial stabilization of
the corporation for the purposes of job reten-
tion or creation, over
‘‘(B) the base dividend amount.
‘‘(2) BASE DIVIDEND AMOUNT.—The term ‘base
dividend amount’ means an amount designated under
subsection (c)(7), but not less than the average
amount of dividends received during the fixed base
period from 1 or more corporations which are con-
trolled foreign corporations in which the taxpayer is
a United States shareholder on the date such divi-
dends are paid.
‘‘(3) FIXED BASE PERIOD.—
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‘‘(A) IN GENERAL.—The term ‘fixed base pe-
riod’ means each of 3 taxable years which are
among the 5 most recent taxable years of the tax-
payer ending on or before December 31, 2002,
determined by disregarding—
‘‘(i) the 1 taxable year for which the
taxpayer had the highest amount of divi-
dends from 1 or more corporations which
are controlled foreign corporations relative
to the other 4 taxable years, and
‘‘(ii) the 1 taxable year for which the
taxpayer had the lowest amount of divi-
dends from such corporations relative to the
other 4 taxable years.
‘‘(B) SHORTER
PERIOD.—If the taxpayer
has fewer than 5 taxable years ending on or be-
fore December 31, 2002, then in lieu of applying
subparagraph (A), the fixed base period shall
mean such shorter period representing all of the
taxable years of the taxpayer ending on or before
December 31, 2002.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) DIVIDENDS.—The term ‘dividend’ means a
dividend as defined in section 316, except that the
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term shall also include amounts described in section
951(a)(1)(B), and shall exclude amounts described in
sections 78 and 959.
‘‘(2) CONTROLLED FOREIGN CORPORATIONS AND
UNITED
STATES
SHAREHOLDERS.—The term ‘con-
trolled foreign corporation’ shall have the same mean-
ing as under section 957(a) and the term ‘United
States shareholder’ shall have the same meaning as
under section 951(b).
‘‘(3) FOREIGN
TAX
CREDITS.—The amount of
any income, war, profits, or excess profit taxes paid
(or deemed paid under sections 902 and 960) or ac-
crued by the taxpayer with respect to the excess quali-
fied foreign distribution amount for which a credit
would be allowable under section 901 in the absence
of this section, shall be reduced by 85 percent.
‘‘(4) FOREIGN TAX CREDIT LIMITATION.—For all
purposes of section 904, there shall be disregarded 85
percent of—
‘‘(A) the excess qualified foreign distribution
amount,
‘‘(B) the amount determined under section
78 which is attributable to such excess qualified
foreign distribution amount, and
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‘‘(C) the amounts (including assets, gross
income, and other relevant bases of apportion-
ment) which are attributable to the excess quali-
fied foreign distribution amount which would,
determined without regard to this section, be
used to apportion the expenses, losses, and deduc-
tions of the taxpayer under section 861 and 864
in determining its taxable income from sources
without the United States.
For purposes of applying subparagraph (C), the prin-
ciples of section 864(e)(3)(A) shall apply.
‘‘(5) TREATMENT OF ACQUISITIONS AND DISPOSI-
TIONS.—Rules similar to the rules of section 41(f)(3)
shall apply in the case of acquisitions or dispositions
of controlled foreign corporations occurring on or
after the first day of the earliest taxable year taken
into account in determining the fixed base period.
‘‘(6) TREATMENT OF CONSOLIDATED GROUPS.—
Members of an affiliated group of corporations filing
a consolidated return under section 1501 shall be
treated as a single taxpayer in applying the rules of
this section.
‘‘(7) DESIGNATION
OF
DIVIDENDS.—Subject to
subsection (b)(2), the taxpayer shall designate the
particular dividends received during the taxable year
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from 1 or more corporations which are controlled for-
eign corporations in which it is a United States
shareholder which are dividends excluded from the ex-
cess qualified foreign distribution amount. The total
amount of such designated dividends shall equal the
base dividend amount.
‘‘(8) TREATMENT
OF
EXPENSES, LOSSES, AND
DEDUCTIONS.—Any expenses, losses, or deductions of
the taxpayer allowable under subchapter B—
‘‘(A) shall not be applied to reduce the
amounts described in subsection (a)(1), and
‘‘(B) shall be applied to reduce other income
of the taxpayer (determined without regard to
the amounts described in subsection (a)(1)).
‘‘(d) ELECTION.—
‘‘(1) IN GENERAL.—An election under this sec-
tion shall be made on the taxpayer’s timely filed in-
come tax return for the taxable year (determined by
taking extensions into account) ending 120 days or
more after the date of the enactment of this section,
and, once made, may be revoked only with the consent
of the Secretary.
‘‘(2) ALL
CONTROLLED
FOREIGN
CORPORA-
TIONS.—The election shall apply to all corporations
which are controlled foreign corporations in which the
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taxpayer is a United States shareholder during the
taxable year.
‘‘(3) CONSOLIDATED GROUPS.—If a taxpayer is
a member of an affiliated group of corporations filing
a consolidated return under section 1501 for the tax-
able year, an election under this section shall be made
by the common parent of the affiliated group which
includes the taxpayer, and shall apply to all members
of the affiliated group.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary and appropriate to
carry out the purposes of this section, including regulations
under section 55 and regulations addressing corporations
which, during the fixed base period or thereafter, join or
leave an affiliated group of corporations filing a consoli-
dated return.’’.
(b) CONFORMING AMENDMENT.—The table of sections
for subpart F of part III of subchapter N of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 965. Toll tax imposed on excess qualified foreign distribution
amount.’’.
(c) EFFECTIVE DATE.—Except as otherwise provided,
the amendments made by this section, other than the
amendment made by subsection (d), shall apply only to the
first taxable year of the electing taxpayer ending 120 days
or more after the date of the enactment of this Act.
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(d) TERMINATION OF REHABILITATION CREDIT FOR
BUILDINGS OTHER THAN CERTIFIED HISTORIC STRUC-
TURES.—Section 47 (relating to rehabilitation credit) is
amended by adding at the end the following new subsection:
‘‘(e) TERMINATION OF CREDIT FOR BUILDINGS OTHER
THAN CERTIFIED HISTORIC STRUCTURES.—No credit shall
be allowed under subsection (a)(1) with respect to expendi-
tures incurred after December 31, 2003.’’.
SEC. 532. CHILD SUPPORT ENFORCEMENT.
(a) INCLUSION IN INCOME OF AMOUNT OF UNPAID
CHILD SUPPORT.—Section 108 (relating to discharge of in-
debtedness income) is amended by adding at the end the
following new subsection:
‘‘(h) UNPAID CHILD SUPPORT.—
‘‘(1) IN GENERAL.—For purposes of this chapter,
any unpaid child support of a delinquent debtor for
any taxable year shall be treated as amounts includ-
ible in gross income of the delinquent debtor for the
taxable year.
‘‘(2) DEFINITIONS.—For the purposes of this
subsection—
‘‘(A) CHILD
SUPPORT.—The term ‘child
support’ means—
‘‘(i) any periodic payment of a fixed
amount, or
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‘‘(ii) any payment of a medical ex-
pense, education expense, insurance pre-
mium, or other similar item,
which is required to be paid to a custodial par-
ent by an individual under a support instru-
ment for the support of any qualifying child of
such individual. ‘Child support’ does not include
any amount which is described in section
408(a)(3) of the Social Security Act and which
has been assigned to a State.
‘‘(B) CUSTODIAL PARENT.—The term ‘custo-
dial parent’ means an individual who is entitled
to receive child support and who has registered
with the appropriate State office of child support
enforcement charged with implementing section
454 of the Social Security Act.
‘‘(C) DELINQUENT DEBTOR.—The term ‘de-
linquent debtor’ means a taxpayer who owes un-
paid child support to a custodial parent.
‘‘(D) QUALIFYING CHILD.—The term ‘quali-
fying child’ means a child of a custodial parent
with respect to whom a dependent deduction is
allowable under section 151 for the taxable year
(or would be so allowable but for paragraph (2)
or (4) of section 152(e)).
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‘‘(E) SUPPORT
INSTRUMENT.—The term
‘support instrument’ means—
‘‘(i) a decree of divorce or separate
maintenance or a written instrument inci-
dent to such a decree,
‘‘(ii) a written separation agreement,
or
‘‘(iii) a decree (not described in clause
(i)) of a court or administrative agency re-
quiring a parent to make payments for the
support or maintenance of 1 or more chil-
dren of such parent.
‘‘(F) UNPAID CHILD SUPPORT.—The term
‘unpaid child support’ means child support that
is payable for months during a custodial par-
ent’s taxable year and unpaid as of the last day
of such taxable year, provided that such unpaid
amount as of such day equals or exceeds one-half
of the total amount of child support due to the
custodial parent for such year.
‘‘(3) COORDINATION
WITH
OTHER
LAWS.—
Amounts treated as income by paragraph (1) shall
not be treated as income by reason of paragraph (1)
for the purposes of any provision of law which is not
an internal revenue law.’’.
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(b) 
EFFECTIVE
DATE; 
IMPLEMENTATION.—The
amendments made by is section shall apply to taxable years
beginning after December 31, 2002. The Secretary of the
Treasury shall publish Form 1099–CS (or such other form
that may be prescribed to comply with the amendment
made by subsection (b)(1)) and regulations, if any, that
may be deemed necessary to carry out the purposes of this
Act, not later than 90 days after the date of enactment of
this Act.
SEC. 533. LOW-INCOME HOUSING TAX CREDIT.
(a) FINDINGS.—The Senate finds the following:
(1) The low-income housing tax credit is the Na-
tion’s primary program for producing affordable
rental housing.
(2) Each year, the low-income housing tax credit
produces over 115,000 affordable apartments.
(3) Since Congress created the low-income hous-
ing tax credit in 1986, the credit has created
1,500,000 units of affordable housing for about
3,500,000 Americans.
(4) Analyses have found that certain approaches
to reducing or eliminating the taxation of dividends
have the potential to reduce the value of the low-in-
come housing tax credit and so reduce the amount of
affordable housing available.
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(5) As of 2001, over 7,000,000 American renter
families (1 in 5) suffer severe housing affordability
problems, meaning that the family spends more than
half of its income on rent or lives in substandard
housing.
(6) More than 150,000 apartments in the low-
cost rental housing inventory are lost each year due
to rent increases, abandonment, and deterioration.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that any reduction or elimination of the taxation on
dividends should include provisions to preserve the success
of the low-income housing tax credit.
SEC. 534. EXPENSING OF BROADBAND INTERNET ACCESS
EXPENDITURES.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
porations) is amended by inserting after section 190 the fol-
lowing new section:
‘‘SEC. 191. BROADBAND EXPENDITURES.
‘‘(a) TREATMENT OF EXPENDITURES.—
‘‘(1) IN
GENERAL.—A taxpayer may elect to
treat any qualified broadband expenditure which is
paid or incurred by the taxpayer as an expense which
is not chargeable to capital account. Any expenditure
which is so treated shall be allowed as a deduction.
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‘‘(2) ELECTION.—An election under paragraph
(1) shall be made at such time and in such manner
as the Secretary may prescribe by regulation.
‘‘(b) QUALIFIED BROADBAND EXPENDITURES.—For
purposes of this section—
‘‘(1) 
IN
GENERAL.—The 
term 
‘qualified
broadband expenditure’ means, with respect to any
taxable year, any direct or indirect costs incurred
and properly taken into account with respect to the
purchase or installation of qualified equipment (in-
cluding any upgrades thereto), together with any di-
rect or indirect costs incurred and properly taken
into account with respect to the connection of such
qualified equipment to any qualified subscriber, but
only if such costs are incurred after December 31,
2003, and before January 1, 2005.
‘‘(2) CERTAIN
SATELLITE
EXPENDITURES
EX-
CLUDED.—Such term shall not include any costs in-
curred with respect to the launching of any satellite
equipment.
‘‘(3) LEASED EQUIPMENT.—Such term shall in-
clude so much of the purchase price paid by the lessor
of equipment subject to a lease described in subsection
(c)(2)(B) as is attributable to expenditures incurred
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by the lessee which would otherwise be described in
paragraph (1).
‘‘(4) LIMITATION
WITH
REGARD
TO
CURRENT
GENERATION BROADBAND SERVICES.—Only 50 per-
cent of the amounts taken into account under para-
graph (1) with respect to qualified equipment through
which current generation broadband services are pro-
vided shall be treated as qualified broadband expendi-
tures.
‘‘(c) WHEN EXPENDITURES TAKEN INTO ACCOUNT.—
For purposes of this section—
‘‘(1) IN GENERAL.—Qualified broadband expend-
itures with respect to qualified equipment shall be
taken into account with respect to the first taxable
year in which—
‘‘(A) current generation broadband services
are provided through such equipment to qualified
subscribers, or
‘‘(B) next generation broadband services are
provided through such equipment to qualified
subscribers.
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—Qualified expenditures
shall be taken into account under paragraph (1)
only with respect to qualified equipment—
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‘‘(i) the original use of which com-
mences with the taxpayer, and
‘‘(ii) which is placed in service,
after December 31, 2003.
‘‘(B) SALE-LEASEBACKS.—For purposes of
subparagraph (A), if property—
‘‘(i) is originally placed in service
after December 31, 2003, by any person,
and
‘‘(ii) sold and leased back by such per-
son within 3 months after the date such
property was originally placed in service,
such property shall be treated as originally
placed in service not earlier than the date on
which such property is used under the leaseback
referred to in clause (ii).
‘‘(d) SPECIAL ALLOCATION RULES.—
‘‘(1) CURRENT GENERATION BROADBAND SERV-
ICES.—For purposes of determining the amount of
qualified broadband expenditures under subsection
(a)(1) with respect to qualified equipment through
which current generation broadband services are pro-
vided, if the qualified equipment is capable of serving
both qualified subscribers and other subscribers, the
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qualified broadband expenditures shall be multiplied
by a fraction—
‘‘(A) the numerator of which is the sum of
the number of potential qualified subscribers
within the rural areas and the underserved areas
which the equipment is capable of serving with
current generation broadband services, and
‘‘(B) the denominator of which is the total
potential subscriber population of the area which
the equipment is capable of serving with current
generation broadband services.
‘‘(2) NEXT
GENERATION
BROADBAND
SERV-
ICES.—For purposes of determining the amount of
qualified broadband expenditures under subsection
(a)(1) with respect to qualified equipment through
which next generation broadband services are pro-
vided, if the qualified equipment is capable of serving
both qualified subscribers and other subscribers, the
qualified expenditures shall be multiplied by a
fraction—
‘‘(A) the numerator of which is the sum
of—
‘‘(i) the number of potential qualified
subscribers within the rural areas and un-
derserved areas, plus
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‘‘(ii) the number of potential qualified
subscribers within the area consisting only
of residential subscribers not described in
clause (i),
which the equipment is capable of serving with
next generation broadband services, and
‘‘(B) the denominator of which is the total
potential subscriber population of the area which
the equipment is capable of serving with next
generation broadband services.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) ANTENNA.—The term ‘antenna’ means any
device used to transmit or receive signals through the
electromagnetic spectrum, including satellite equip-
ment.
‘‘(2) CABLE OPERATOR.—The term ‘cable oper-
ator’ has the meaning given such term by section
602(5) of the Communications Act of 1934 (47 U.S.C.
522(5)).
‘‘(3) COMMERCIAL MOBILE SERVICE CARRIER.—
The term ‘commercial mobile service carrier’ means
any person authorized to provide commercial mobile
radio service as defined in section 20.3 of title 47,
Code of Federal Regulations.
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‘‘(4) CURRENT GENERATION BROADBAND SERV-
ICE.—The term ‘current generation broadband serv-
ice’ means the transmission of signals at a rate of at
least 1,000,000 bits per second to the subscriber and
at least 128,000 bits per second from the subscriber.
‘‘(5) MULTIPLEXING OR DEMULTIPLEXING.—The
term ‘multiplexing’ means the transmission of 2 or
more signals over a single channel, and the term
‘demultiplexing’ means the separation of 2 or more
signals previously combined by compatible multi-
plexing equipment.
‘‘(6) NEXT GENERATION BROADBAND SERVICE.—
The term ‘next generation broadband service’ means
the transmission of signals at a rate of at least
22,000,000 bits per second to the subscriber and at
least 5,000,000 bits per second from the subscriber.
‘‘(7) NONRESIDENTIAL SUBSCRIBER.—The term
‘nonresidential subscriber’ means any person who
purchases broadband services which are delivered to
the permanent place of business of such person.
‘‘(8) OPEN VIDEO SYSTEM OPERATOR.—The term
‘open video system operator’ means any person au-
thorized to provide service under section 653 of the
Communications Act of 1934 (47 U.S.C. 573).
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‘‘(9) OTHER
WIRELESS
CARRIER.—The term
‘other wireless carrier’ means any person (other than
a telecommunications carrier, commercial mobile
service carrier, cable operator, open video system op-
erator, or satellite carrier) providing current genera-
tion broadband services or next generation broadband
service to subscribers through the radio transmission
of energy.
‘‘(10) PACKET
SWITCHING.—The term ‘packet
switching’ means controlling or routing the path of
any digitized transmission signal which is assembled
into packets or cells.
‘‘(11) PROVIDER.—The term ‘provider’ means,
with respect to any qualified equipment—
‘‘(A) a cable operator,
‘‘(B) a commercial mobile service carrier,
‘‘(C) an open video system operator,
‘‘(D) a satellite carrier,
‘‘(E) a telecommunications carrier, or
‘‘(F) any other wireless carrier,
providing current generation broadband services or
next generation broadband services to subscribers
through such qualified equipment.
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‘‘(12) PROVISION
OF
SERVICES.—A provider
shall be treated as providing services to 1 or more
subscribers if—
‘‘(A) such a subscriber has been passed by
the provider’s equipment and can be connected to
such equipment for a standard connection fee,
‘‘(B) the provider is physically able to de-
liver current generation broadband services or
next generation broadband services, as applica-
ble, to such a subscriber without making more
than an insignificant investment with respect to
such subscriber,
‘‘(C) the provider has made reasonable ef-
forts to make such subscribers aware of the avail-
ability of such services,
‘‘(D) such services have been purchased by
1 or more such subscribers, and
‘‘(E) such services are made available to
such subscribers at average prices comparable to
those at which the provider makes available
similar services in any areas in which the pro-
vider makes available such services.
‘‘(13) QUALIFIED EQUIPMENT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
equipment’ means equipment which provides
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current generation broadband services or next
generation broadband services—
‘‘(i) at least a majority of the time
during periods of maximum demand to
each subscriber who is utilizing such serv-
ices, and
‘‘(ii) in a manner substantially the
same as such services are provided by the
provider to subscribers through equipment
with respect to which no deduction is al-
lowed under subsection (a)(1).
‘‘(B) ONLY
CERTAIN
INVESTMENT
TAKEN
INTO ACCOUNT.—Except as provided in subpara-
graph (C) or (D), equipment shall be taken into
account under subparagraph (A) only to the ex-
tent it—
‘‘(i) extends from the last point of
switching to the outside of the unit, build-
ing, dwelling, or office owned or leased by
a subscriber in the case of a telecommuni-
cations carrier,
‘‘(ii) extends from the customer side of
the mobile telephone switching office to a
transmission/receive 
antenna 
(including
such antenna) owned or leased by a sub-
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scriber in the case of a commercial mobile
service carrier,
‘‘(iii) extends from the customer side of
the headend to the outside of the unit, build-
ing, dwelling, or office owned or leased by
a subscriber in the case of a cable operator
or open video system operator, or
‘‘(iv) extends from a transmission/re-
ceive antenna (including such antenna)
which transmits and receives signals to or
from multiple subscribers, to a trans-
mission/receive antenna (including such an-
tenna) on the outside of the unit, building,
dwelling, or office owned or leased by a sub-
scriber in the case of a satellite carrier or
other wireless carrier, unless such other
wireless carrier is also a telecommuni-
cations carrier.
‘‘(C) PACKET
SWITCHING
EQUIPMENT.—
Packet switching equipment, regardless of loca-
tion, shall be taken into account under subpara-
graph (A) only if it is deployed in connection
with equipment described in subparagraph (B)
and is uniquely designed to perform the function
of packet switching for current generation
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broadband services or next generation broadband
services, but only if such packet switching is the
last in a series of such functions performed in
the transmission of a signal to a subscriber or
the first in a series of such functions performed
in the transmission of a signal from a sub-
scriber.
‘‘(D) MULTIPLEXING AND DEMULTIPLEXING
EQUIPMENT.—Multiplexing and demultiplexing
equipment shall be taken into account under sub-
paragraph (A) only to the extent it is deployed
in connection with equipment described in sub-
paragraph (B) and is uniquely designed to per-
form 
the 
function 
of 
multiplexing 
and
demultiplexing packets or cells of data and mak-
ing associated application adaptions, but only if
such multiplexing or demultiplexing equipment
is located between packet switching equipment
described in subparagraph (C) and the sub-
scriber’s premises.
‘‘(14) 
QUALIFIED
SUBSCRIBER.—The 
term
‘qualified subscriber’ means—
‘‘(A) with respect to the provision of current
generation broadband services—
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‘‘(i) 
any 
nonresidential 
subscriber
maintaining a permanent place of business
in a rural area or underserved area, or
‘‘(ii) any residential subscriber resid-
ing in a dwelling located in a rural area or
underserved area which is not a saturated
market, and
‘‘(B) with respect to the provision of next
generation broadband services—
‘‘(i) 
any 
nonresidential 
subscriber
maintaining a permanent place of business
in a rural area or underserved area, or
‘‘(ii) any residential subscriber.
‘‘(15) RESIDENTIAL
SUBSCRIBER.—The term
‘residential subscriber’ means any individual who
purchases broadband services which are delivered to
such individual’s dwelling.
‘‘(16) RURAL
AREA.—The term ‘rural area’
means any census tract which—
‘‘(A) is not within 10 miles of any incor-
porated or census designated place containing
more than 25,000 people, and
‘‘(B) is not within a county or county
equivalent which has an overall population den-
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sity of more than 500 people per square mile of
land.
‘‘(17) RURAL
SUBSCRIBER.—The term ‘rural
subscriber’ means any residential subscriber residing
in a dwelling located in a rural area or nonresiden-
tial subscriber maintaining a permanent place of
business located in a rural area.
‘‘(18) SATELLITE CARRIER.—The term ‘satellite
carrier’ means any person using the facilities of a
satellite or satellite service licensed by the Federal
Communications Commission and operating in the
Fixed-Satellite Service under part 25 of title 47 of the
Code of Federal Regulations or the Direct Broadcast
Satellite Service under part 100 of title 47 of such
Code to establish and operate a channel of commu-
nications for distribution of signals, and owning or
leasing a capacity or service on a satellite in order
to provide such point-to-multipoint distribution.
‘‘(19) SATURATED
MARKET.—The term ‘satu-
rated market’ means any census tract in which, as of
the date of the enactment of this section—
‘‘(A) current generation broadband services
have been provided by a single provider to 85
percent or more of the total number of potential
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residential subscribers residing in dwellings lo-
cated within such census tract, and
‘‘(B) such services can be utilized—
‘‘(i) at least a majority of the time
during periods of maximum demand by
each such subscriber who is utilizing such
services, and
‘‘(ii) in a manner substantially the
same as such services are provided by the
provider to subscribers through equipment
with respect to which no deduction is al-
lowed under subsection (a)(1).
‘‘(20) 
SUBSCRIBER.—The 
term 
‘subscriber’
means any person who purchases current generation
broadband services or next generation broadband serv-
ices.
‘‘(21) 
TELECOMMUNICATIONS
CARRIER.—The
term ‘telecommunications carrier’ has the meaning
given such term by section 3(44) of the Communica-
tions Act of 1934 (47 U.S.C. 153(44)), but—
‘‘(A) includes all members of an affiliated
group of which a telecommunications carrier is
a member, and
‘‘(B) does not include a commercial mobile
service carrier.
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‘‘(22) TOTAL
POTENTIAL
SUBSCRIBER
POPU-
LATION.—The term ‘total potential subscriber popu-
lation’ means, with respect to any area and based on
the most recent census data, the total number of po-
tential residential subscribers residing in dwellings
located in such area and potential nonresidential sub-
scribers maintaining permanent places of business lo-
cated in such area.
‘‘(23) UNDERSERVED AREA.—The term ‘under-
served area’ means any census tract which is located
in—
‘‘(A) an empowerment zone or enterprise
community designated under section 1391,
‘‘(B) the District of Columbia Enterprise
Zone established under section 1400,
‘‘(C) a renewal community designated
under section 1400E, or
‘‘(D) a low-income community designated
under section 45D.
‘‘(24) UNDERSERVED
SUBSCRIBER.—The term
‘underserved subscriber’ means any residential sub-
scriber residing in a dwelling located in an under-
served area or nonresidential subscriber maintaining
a permanent place of business located in an under-
served area.
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‘‘(f) SPECIAL RULES.—
‘‘(1) PROPERTY
USED
OUTSIDE
THE
UNITED
STATES, 
ETC., 
NOT
QUALIFIED.—No expenditures
shall be taken into account under subsection (a)(1)
with respect to the portion of the cost of any property
referred to in section 50(b) or with respect to the por-
tion of the cost of any property taken into account
under section 179.
‘‘(2) BASIS REDUCTION.—
‘‘(A) IN
GENERAL.—For purposes of this
title, the basis of any property shall be reduced
by the portion of the cost of such property taken
into account under subsection (a)(1).
‘‘(B) ORDINARY INCOME RECAPTURE.—For
purposes of section 1245, the amount of the de-
duction allowable under subsection (a)(1) with
respect to any property which is of a character
subject to the allowance for depreciation shall be
treated as a deduction allowed for depreciation
under section 167.
‘‘(3) COORDINATION WITH SECTION 38.—No cred-
it shall be allowed under section 38 with respect to
any amount for which a deduction is allowed under
subsection (a)(1).’’.
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(b) SPECIAL RULE FOR MUTUAL OR COOPERATIVE
TELEPHONE COMPANIES.—Section 501(c)(12)(B) (relating
to list of exempt organizations) is amended by striking ‘‘or’’
at the end of clause (iii), by striking the period at the end
of clause (iv) and inserting ‘‘, or’’, and by adding at the
end the following:
‘‘(v) from the sale of property subject to
a lease described in section 191(c)(2)(B),
but only to the extent such income does not
in any year exceed an amount equal to the
qualified broadband expenditures which
would be taken into account under section
191 for such year if the mutual or coopera-
tive telephone company was not exempt
from taxation and was treated as the owner
of the property subject to such lease.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1) (relating to capital ex-
penditures) is amended by striking ‘‘or’’ at the end of
subparagraph (G), by striking the period at the end
of subparagraph (H) and inserting ‘‘, or’’, and by
adding at the end the following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 191.’’.
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(2) Section 1016(a) of such Code is amended by
striking ‘‘and’’ at the end of paragraph (27), by strik-
ing the period at the end of paragraph (28) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(29) 
to 
the 
extent 
provided 
in 
section
191(f)(2).’’.
(3) The table of sections for part VI of sub-
chapter A of chapter 1 of such Code is amended by
inserting after the item relating to section 190 the fol-
lowing new item:
‘‘Sec. 191. Broadband expenditures.’’.
(d) DESIGNATION OF CENSUS TRACTS.—
(1) IN GENERAL.—The Secretary of the Treasury
shall, not later than 90 days after the date of the en-
actment of this Act, designate and publish those cen-
sus tracts meeting the criteria described in para-
graphs (16), (22), and (23) of section 191(e) of the In-
ternal Revenue Code of 1986 (as added by this sec-
tion). In making such designations, the Secretary of
the Treasury shall consult with such other depart-
ments and agencies as the Secretary determines ap-
propriate.
(2) SATURATED MARKET.—
(A) IN GENERAL.—For purposes of desig-
nating and publishing those census tracts meet-
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ing the criteria described in subsection (e)(19) of
such section 191—
(i) the Secretary of the Treasury shall
prescribe not later than 30 days after the
date of the enactment of this Act the form
upon which any provider which takes the
position that it meets such criteria with re-
spect to any census tract shall submit a list
of such census tracts (and any other infor-
mation required by the Secretary) not later
than 60 days after the date of the publica-
tion of such form, and
(ii) the Secretary of the Treasury shall
publish an aggregate list of such census
tracts and the applicable providers not later
than 30 days after the last date such sub-
missions are allowed under clause (i).
(B) NO SUBSEQUENT LISTS REQUIRED.—
The Secretary of the Treasury shall not be re-
quired to publish any list of census tracts meet-
ing such criteria subsequent to the list described
in subparagraph (A)(ii).
(C) AUTHORITY TO DISREGARD FALSE SUB-
MISSIONS.—In addition to imposing any other
applicable penalties, the Secretary of the Treas-
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ury shall have the discretion to disregard any
form described in subparagraph (A)(i) on which
a provider knowingly submitted false informa-
tion.
(e) OTHER REGULATORY MATTERS.—
(1) PROHIBITION.—No Federal or State agency
or instrumentality shall adopt regulations or rate-
making procedures that would have the effect of con-
fiscating any deduction or portion thereof allowed
under section 191 of the Internal Revenue Code of
1986 (as added by this section) or otherwise sub-
verting the purpose of this section.
(2) TREASURY REGULATORY AUTHORITY.—It is
the intent of Congress in providing the election to de-
duct qualified broadband expenditures under section
191 of the Internal Revenue Code of 1986 (as added
by this section) to provide incentives for the purchase,
installation, and connection of equipment and facili-
ties offering expanded broadband access to the Inter-
net for users in certain low income and rural areas
of the United States, as well as to residential users
nationwide, in a manner that maintains competitive
neutrality among the various classes of providers of
broadband services. Accordingly, the Secretary of the
Treasury shall prescribe such regulations as may be
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necessary or appropriate to carry out the purposes of
section 191 of such Code, including—
(A) regulations to determine how and when
a taxpayer that incurs qualified broadband ex-
penditures satisfies the requirements of section
191 of such Code to provide broadband services,
and
(B) regulations describing the information,
records, and data taxpayers are required to pro-
vide the Secretary to substantiate compliance
with the requirements of section 191 of such
Code.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenditures incurred after December
31, 2003.
SEC. 535. INCOME TAX CREDIT FOR DISTILLED SPIRITS
WHOLESALERS AND FOR DISTILLED SPIRITS
IN CONTROL STATE BAILMENT WAREHOUSES
FOR COSTS OF CARRYING FEDERAL EXCISE
TAXES ON BOTTLED DISTILLED SPIRITS.
(a) IN GENERAL.—Subpart A of part I of subchapter
A of chapter 51 (relating to gallonage and occupational
taxes) is amended by adding at the end the following new
section:
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‘‘SEC. 5011. INCOME TAX CREDIT FOR AVERAGE COST OF
CARRYING EXCISE TAX.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the distilled spirits credit for any taxable year
is the amount equal to the product of—
‘‘(1) in the case of—
‘‘(A) any eligible wholesaler—
‘‘(i) the number of cases of bottled dis-
tilled spirits—
‘‘(I) which were bottled in the
United States, and
‘‘(II) which are purchased by such
wholesaler during the taxable year di-
rectly from the bottler of such spirits,
or
‘‘(B) any person which is subject to section
5005 and which is not an eligible wholesaler, the
number of cases of bottled distilled spirits which
are stored in a warehouse operated by, or on be-
half of, a State, or agency or political subdivi-
sion thereof, on which title has not passed on an
unconditional sale basis, and
‘‘(2) the average tax-financing cost per case for
the most recent calendar year ending before the begin-
ning of such taxable year.
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‘‘(b) ELIGIBLE WHOLESALER.—For purposes of this
section, the term ‘eligible wholesaler’ means any person
which holds a permit under the Federal Alcohol Adminis-
tration Act as a wholesaler of distilled spirits which is not
a State, or agency or political subdivision thereof.
‘‘(c) AVERAGE TAX-FINANCING COST.—
‘‘(1) IN GENERAL.—For purposes of this section,
the average tax-financing cost per case for any cal-
endar year is the amount of interest which would ac-
crue at the deemed financing rate during a 60-day
period on an amount equal to the deemed Federal ex-
cise tax per case.
‘‘(2) DEEMED FINANCING RATE.—For purposes
of paragraph (1), the deemed financing rate for any
calendar year is the average of the corporate overpay-
ment rates under paragraph (1) of section 6621(a)
(determined without regard to the last sentence of
such paragraph) for calendar quarters of such year.
‘‘(3) DEEMED
FEDERAL
EXCISE
TAX
PER
CASE.—For purposes of paragraph (1), the deemed
Federal excise tax per case is $25.68.
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘(1) CASE.—The term ‘case’ means 12 80-proof
750 milliliter bottles.
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‘‘(2) NUMBER OF CASES IN LOT.—The number of
cases in any lot of distilled spirits shall be determined
by dividing the number of liters in such lot by 9.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (b) of section 38 is amended by
striking ‘‘plus’’ at the end of paragraph (14), by
striking the period at the end of paragraph (15) and
inserting ‘‘, plus’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(16) the distilled spirits credit determined
under section 5011(a).’’.
(2) Subsection (d) of section 39 (relating to
carryback and carryforward of unused credits) is
amended by adding at the end the following new
paragraph:
‘‘(11) NO CARRYBACK OF SECTION 5011 CREDIT
BEFORE JANUARY 1, 2003.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the credit determined under section 5011(a)
may be carried back to a taxable year beginning be-
fore January 1, 2003.’’.
(3) The table of sections for subpart A of part I
of subchapter A of chapter 51 is amended by adding
at the end the following new item:
‘‘Sec. 5011. Income tax credit for average cost of carrying excise
tax.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 536. CLARIFICATION OF CONTRIBUTION IN AID OF
CONSTRUCTION FOR WATER AND SEWERAGE
DISPOSAL UTILITIES.
(a) IN
GENERAL.—Subparagraph (A) of section
118(c)(3) (relating to definitions) is amended to read as
follows:
‘‘(A) CONTRIBUTION IN AID OF CONSTRUC-
TION.—The term ‘contribution in aid of con-
struction’ shall be defined by regulations pre-
scribed by the Secretary, except that such term—
‘‘(i) shall include amounts paid as cus-
tomer connection fees (including amounts
paid to connect the customer’s water service
line or sewer lateral line to the utility’s dis-
tribution or collection system or extend a
main water or sewer line to provide service
to a customer), and
‘‘(ii) shall not include amounts paid as
service charges for starting or stopping serv-
ices.’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to contributions made after the date
of the enactment of this Act.
SEC. 537. RESTORATION OF DEDUCTION FOR TRAVEL EX-
PENSES OF SPOUSE, ETC. ACCOMPANYING
TAXPAYER ON BUSINESS TRAVEL.
(a) IN GENERAL.—Subsection (m) of section 274 (re-
lating to additional limitations on travel expenses) is
amended by striking paragraph (3)(A).
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to amounts paid or incurred after the
date of the enactment of this Act, and on or before December
31, 2004.
SEC. 538. CERTAIN SIGHTSEEING FLIGHTS EXEMPT FROM
TAXES ON AIR TRANSPORTATION.
(a) IN GENERAL.—Section 4281 (relating to small air-
craft on nonestablished lines) is amended by adding at the
end the following new sentence: ‘‘For purposes of this sec-
tion, an aircraft shall not be considered as operated on an
established line if such aircraft is operated on a flight the
sole purpose of which is sightseeing.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply with respect to transportation beginning
on or after the date of the enactment of this Act, but shall
not apply to any amount paid before such date.
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SEC. 539. CONFORMING THE INTERNAL REVENUE CODE OF
1986 TO REQUIREMENTS IMPOSED BY THE
WOMEN’S HEALTH AND CANCER RIGHTS ACT
OF 1998.
(a) IN GENERAL.—Subchapter B of chapter 100 (relat-
ing to other requirements) is amended by inserting after
section 9812 the following new section:
‘‘SEC. 9813. REQUIRED COVERAGE FOR RECONSTRUCTIVE
SURGERY FOLLOWING MASTECTOMIES.
‘‘(a) IN GENERAL.—A group health plan that provides
medical and surgical benefits with respect to a mastectomy
shall provide, in a case of a participant or beneficiary who
is receiving benefits in connection with a mastectomy and
who elects breast reconstruction in connection with such
mastectomy, coverage for—
‘‘(1) all stages of reconstruction of the breast on
which the mastectomy has been performed,
‘‘(2) surgery and reconstruction of the other
breast to produce a symmetrical appearance, and
‘‘(3) prostheses and physical complications of
mastectomy, including lymphedemas,
in a manner determined in consultation with the attending
physician and the patient. Such coverage may be subject
to annual deductibles and coinsurance provisions as may
be deemed appropriate and as are consistent with those es-
tablished for other benefits under the plan. Written notice
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of the availability of such coverage shall be delivered to the
participant upon enrollment and annually thereafter.
‘‘(b) PROHIBITIONS.—A group health plan may not—
‘‘(1) deny to a patient eligibility, or continued
eligibility, to enroll or to renew coverage under the
terms of the plan, solely for the purpose of avoiding
the requirements of this section, and
‘‘(2) penalize or otherwise reduce or limit the re-
imbursement of an attending provider, or provide in-
centives (monetary or otherwise) to an attending pro-
vider, to induce such provider to provide care to an
individual participant or beneficiary in a manner
inconsistent with this section.
‘‘(c) RULE OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed to prevent a group health plan from
negotiating the level and type of reimbursement with a pro-
vider for care provided in accordance with this section.’’
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 100 of such Code is amended inserting after the
item relating to section 9812 the following new item:
‘‘Sec. 9813. Required coverage for reconstructive surgery following
mastectomies.’’
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply with respect to plan years be-
ginning on or after the date of enactment of this Act.
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(2) SPECIAL RULE FOR COLLECTIVE BARGAINING
AGREEMENTS.—In the case of a group health plan
maintained pursuant to 1 or more collective bar-
gaining agreements between employee representatives
and 1 or more employers, any plan amendment made
pursuant to a collective bargaining agreement relat-
ing to the plan which amends the plan solely to con-
form to any requirement added by this section shall
not be treated as a termination of such collective bar-
gaining agreement.
SEC. 540. EXPANSION OF DESIGNATED RENEWAL COMMU-
NITY AREA BASED ON 2000 CENSUS DATA.
(a) RENEWAL COMMUNITIES.—Section 1400E (relat-
ing to designation of renewal communities) is amended by
adding at the end the following new subsection:
‘‘(g) EXPANSION OF DESIGNATED AREAS.—
‘‘(1) EXPANSION BASED ON 2000 CENSUS.—At
the request of the nominating entity with respect to
a renewal community, the Secretary of Housing and
Urban Development may expand the area of a re-
newal community to include any census tract—
‘‘(A) which, at the time such community
was nominated, met the requirements of this sec-
tion for inclusion in such community but for the
failure of such tract to meet 1 or more of the
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population and poverty rate requirements of this
section using 1990 census data, and
‘‘(B) which meets all failed population and
poverty rate requirements of this section using
2000 census data.
‘‘(2) EXPANSION TO CERTAIN AREAS WHICH DO
NOT MEET POPULATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—At the request of 1 or
more local governments and the State or States
in which an area described in subparagraph (B)
is located, the Secretary of Housing and Urban
Development may expand a designated area to
include such area.
‘‘(B) AREA.—An area is described in this
subparagraph if—
‘‘(i) the area is adjacent to at least 1
other area designated as a renewal commu-
nity,
‘‘(ii) the area has a population less
than the population required under sub-
section (c)(2)(C), and
‘‘(iii)(I) the area meets the require-
ments of subparagraphs (A) and (B) of sub-
section (c)(2) and subparagraph (A) of sub-
section (c)(3), or
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‘‘(II) the area contains a population of
less than 100 people.
‘‘(3) APPLICABILITY.—Any expansion of a re-
newal community under this section shall take effect
as provided in subsection (b).’’.
(b) EFFECTIVE DATE.—The amendment made by this
subsection shall take effect as if included in the amendments
made by section 101 of the Community Renewal Tax Relief
Act of 2000.
SEC. 541. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY
FOR EMPLOYMENT CREDIT BY EMPLOYING
RESIDENTS OF CERTAIN OTHER RENEWAL
COMMUNITIES.
(a) IN GENERAL.—Section 1400H(b)(2) (relating to
modification) is amended by striking ‘‘and’’ at the end of
paragraph (1), by striking the period at the end of para-
graph (2) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(3) subsection (d)(1)(B) thereof shall be applied
by substituting ‘such renewal community, an adjacent
renewal community within the same State as such re-
newal community, or a renewal community within
such State which is within 5 miles of any border of
such renewal community’ for ‘such empowerment
zone’.’’.
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(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall take effect as if included in the amendment
made by section 101(a) of the Community Renewal Tax Re-
lief Act of 2000.
SEC. 542. EXPANSION OF INCOME TAX EXCLUSION FOR
COMBAT ZONE SERVICE.
(a) COMBAT ZONE SERVICE TO INCLUDE TRANSIT TO
ZONE.—Section 112(c)(3) of the Internal Revenue Code of
1986 (relating to definitions) is amended by adding at the
end the following new sentence: ‘‘Such service shall include
any period (not to exceed 14 days) of direct transit to the
combat zone.’’.
(b) REMOVAL
OF LIMITATION
ON EXCLUSION
FOR
COMMISSIONED OFFICERS.—
(1) IN GENERAL.—Subsection (b) of section 112
of the Internal Revenue Code of 1986 (relating to cer-
tain combat zone compensation of members of the
Armed Forces) is repealed.
(2) CONFORMING AMENDMENTS.—
(A) Section 112(a) of such Code is
amended—
(i) by striking ‘‘below the grade of com-
missioned officer’’, and
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(ii) by striking ‘‘ENLISTED
PER-
SONNEL’’ in the heading and inserting ‘‘IN
GENERAL’’.
(B) Section 112(c) of such Code is amended
by striking paragraphs (1) and (5) and by redes-
ignating paragraphs (2), (3), and (4) as para-
graphs (1), (2), and (3), respectively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to months beginning after December 31,
2002.
SEC. 543. AVAILABILITY OF CERTAIN TAX BENEFITS FOR
MEMBERS OF THE ARMED FORCES PER-
FORMING SERVICES AT GUANTANAMO BAY
NAVAL STATION, CUBA, AND ON THE ISLAND
OF DIEGO GARCIA.
(a) GENERAL RULE.—In the case of a member of the
Armed Forces of the United States who is entitled to special
pay under section 305 of title 37, United States Code (relat-
ing to special pay: hardship duty pay), for services per-
formed as a member of the Joint Task Force Guantanamo
at Guantanamo Bay Naval Station, Cuba, or for services
performed on the Island of Diego Garcia as part of Oper-
ation Iraqi Freedom, such member shall be treated in the
same manner as if such services were in a combat zone (as
determined under section 112 of the Internal Revenue Code
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of 1986) for purposes of the following provisions of such
Code:
(1) Section 2(a)(3) (relating to special rule
where deceased spouse was in missing status).
(2) Section 112 (relating to the exclusion of cer-
tain combat pay of members of the Armed Forces).
(3) Section 692 (relating to income taxes of
members of Armed Forces on death).
(4) Section 2201 (relating to members of the
Armed Forces dying in combat zone or by reason of
combat-zone-incurred wounds, etc.).
(5) Section 3401(a)(1) (defining wages relating
to combat pay for members of the Armed Forces).
(6) Section 4253(d) (relating to the taxation of
phone service originating from a combat zone from
members of the Armed Forces).
(7) Section 6013(f)(1) (relating to joint return
where individual is in missing status).
(8) Section 7508 (relating to time for performing
certain acts postponed by reason of service in combat
zone).
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), this section shall take effect on January 1,
2003.
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(2) 
WITHHOLDING.—Subsection 
(a)(5) 
shall
apply to remuneration paid after December 31, 2002.
SEC. 544. CITRUS CANKER TREE RELIEF.
(a) RATABLE INCLUSION.—
(1) IN GENERAL.—Part I of subchapter Q of
chapter 1 (relating to income averaging) is amended
by inserting after section 1301 the following new sec-
tion:
‘‘SEC. 1302. RATABLE INCOME INCLUSION FOR CITRUS CAN-
KER TREE PAYMENTS.
‘‘(a) IN GENERAL.—At the election of the taxpayer,
any amount taken into account as income or gain by reason
of receiving a citrus canker tree payment shall be included
in the income of the taxpayer ratably over the 10-year pe-
riod beginning with the taxable year in which the payment
is received or accrued by the taxpayer. Such election shall
be made on the return of tax for such taxable year in such
manner as the Secretary prescribes, and, once made shall
be irrevocable.
‘‘(b) CITRUS CANKER TREE PAYMENT.—For purposes
of subsection (a), the term ‘citrus canker tree payment’
means a payment made to an owner of a commercial citrus
grove to recover income that was lost as a result of the re-
moval of commercial citrus trees to control canker under
the amendments to the citrus canker regulations (7 C.F.R.
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301) made by the final rule published in the Federal Reg-
ister by the Secretary of Agriculture on June 18, 2001 (66
Fed. Reg. 32713, Docket No. 00–37–4).’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter Q of chapter 1 is
amended by inserting after the item relating to sec-
tion 1301 the following new item:
Sec. 1302. Ratable income inclusion for citrus canker tree payments.’’.
(b) EXPANSION
OF PERIOD WITHIN WHICH CON-
VERTED CITRUS TREE PROPERTY MUST BE REPLACED.—
Section 1033 (relating to period within which property
must be replaced) is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
‘‘(k) COMMERCIAL TREES DESTROYED BECAUSE OF
CITRUS TREE CANKER.—In the case of commercial citrus
trees which are compulsorily or involuntarily converted
under a public order as a result of the citrus tree canker,
clause (i) of subsection (a)(2)(B) shall be applied as if such
clause reads: ‘4 years after the close of the first taxable year
in which any part of the gain upon conversion is realized,
or such additional period after the close of such taxable year
as determined appropriate by the Secretary on a regional
basis if a State or Federal plant health authority deter-
mines with respect to such region that the land on which
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such trees grew is not free from the bacteria that causes
citrus tree canker’.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning before, on,
or after the date of the enactment of this Act.
SEC. 545. EXCLUSION OF CERTAIN PUNITIVE DAMAGE
AWARDS.
(a) IN GENERAL.—Section 104 (relating to compensa-
tion for injuries or sickness) is amended by redesignating
subsection (d) as subsection (e), and by inserting after sub-
section (c) the following new subsection:
‘‘(d) EXCLUSION OF PUNITIVE DAMAGES PAID TO A
STATE UNDER A SPLIT-AWARD STATUTE.—
‘‘(1) IN GENERAL.—The phrase ‘(other than pu-
nitive damages)’ in subsection (a) shall not apply
to—
‘‘(A) any portion of an award of punitive
damages in a civil action which is paid to a
State under a split-award statute, or
‘‘(B) any attorneys’ fees or other costs in-
curred by the taxpayer in connection with ob-
taining an award of punitive damages to which
subparagraph (A) is applicable.
‘‘(2) SPLIT-AWARD STATUTE.—For purposes of
this subsection, the term ‘split-award statute’ means
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a State law that requires a fixed portion of an award
of punitive damages in a civil action to be paid to
the State.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to awards made in taxable years ending
after the date of the enactment of this Act.
SEC. 546. TREATMENT OF CERTAIN IMPORTED RECYCLED
HALONS.
(a) IN GENERAL.—Section 1803(c) of the Small Busi-
ness Job Protection Act of 1986 (Public Law 104–188) is
amended by striking ‘‘1997’’ and ‘‘1998’’ and inserting
‘‘1994’’.
(b) WAIVER OF LIMITATIONS.—If refund or credit of
any overpayment of tax resulting from the amendment
made by this section is prevented at any time before the
close of the 1-year period beginning on the date of the enact-
ment of this Act by the operation of any law or rule of
law (including res judicata), such refund or credit may nev-
ertheless be made or allowed if claim therefor is filed before
the close of such period.
SEC. 547. MODIFICATION OF INVOLUNTARY CONVERSION
RULES FOR BUSINESSES AFFECTED BY THE
SEPTEMBER 11TH TERRORIST ATTACKS.
(a) IN GENERAL.—Subsection (g) of section 1400L is
amended to read as follows:
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‘‘(g) MODIFICATION OF RULES APPLICABLE TO NON-
RECOGNITION OF GAIN.—In the case of property which is
compulsorily or involuntarily converted as a result of the
terrorist attacks on September 11, 2001, in the New York
Liberty Zone—
‘‘(1) which was held by a corporation which is
a member of an affiliated group filing a consolidated
return, such corporation shall be treated as satisfying
the purchase requirement of section 1033(a)(2) with
respect to such property to the extent such require-
ment is satisfied by another member of the group, and
‘‘(2) notwithstanding subsections (g) and (h) of
section 1033, clause (i) of section 1033(a)(2)(B) shall
be applied by substituting ‘5 years’ for ‘2 years’ with
respect to property which is compulsorily or involun-
tarily converted as a result of the terrorist attacks on
September 11, 2001, in the New York Liberty Zone
but only if substantially all of the use of the replace-
ment property is in the City of New York, New
York.’’.
(b) EFFECTIVE DATE.—The amendments made by this
Act shall apply to involuntary conversions occurring on or
after September 11, 2001.
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Subtitle D—Medicare Provisions
SEC. 561. EQUALIZING URBAN AND RURAL STANDARDIZED
PAYMENT AMOUNTS UNDER THE MEDICARE
INPATIENT 
HOSPITAL 
PROSPECTIVE 
PAY-
MENT SYSTEM.
(a) IN GENERAL.—Section 1886(d)(3)(A)(iv) of the
Social Security Act (42 U.S.C. 1395ww(d)(3)(A)(iv)) is
amended—
(1) by striking ‘‘(iv) For discharges’’ and insert-
ing ‘‘(iv)(I) Subject to subclause (II), for discharges’’;
and
(2) by adding at the end the following new sub-
clause:
‘‘(II) For discharges occurring in a fiscal year
beginning with fiscal year 2004, the Secretary shall
compute a standardized amount for hospitals located
in any area within the United States and within
each region equal to the standardized amount com-
puted for the previous fiscal year under this subpara-
graph for hospitals located in a large urban area (or,
beginning with fiscal year 2005, for hospitals located
in any area) increased by the applicable percentage
increase under subsection (b)(3)(B)(i) for the fiscal
year involved.’’.
(b) CONFORMING AMENDMENTS.—
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(1) COMPUTING DRG-SPECIFIC RATES.—Section
1886(d)(3)(D) of the Social Security Act (42 U.S.C.
1395ww(d)(3)(D)) is amended—
(A) in the heading, by striking ‘‘IN DIF-
FERENT AREAS’’;
(B) in the matter preceding clause (i), by
striking ‘‘, each of’’;
(C) in clause (i)—
(i) in the matter preceding subclause
(I), by inserting ‘‘for fiscal years before fis-
cal year 2004,’’ before ‘‘for hospitals’’; and
(ii) in subclause (II), by striking
‘‘and’’ after the semicolon at the end;
(D) in clause (ii)—
(i) in the matter preceding subclause
(I), by inserting ‘‘for fiscal years before fis-
cal year 2004,’’ before ‘‘for hospitals’’; and
(ii) in subclause (II), by striking the
period at the end and inserting ‘‘; and’’;
and
(E) by adding at the end the following new
clause:
‘‘(iii) for a fiscal year beginning after fiscal
year 2003, for hospitals located in all areas, to
the product of—
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‘‘(I) 
the 
applicable 
standardized
amount (computed under subparagraph
(A)), reduced under subparagraph (B), and
adjusted or reduced under subparagraph (C)
for the fiscal year; and
‘‘(II) the weighting factor (determined
under paragraph (4)(B)) for that diagnosis-
related group.’’.
(2) TECHNICAL CONFORMING SUNSET.—Section
1886(d)(3) of the Social Security Act (42 U.S.C.
1395ww(d)(3)) is amended—
(A) in the matter preceding subparagraph
(A), by inserting ‘‘, for fiscal years before fiscal
year 1997,’’ before ‘‘a regional adjusted DRG
prospective payment rate’’; and
(B) in subparagraph (D), in the matter
preceding clause (i), by inserting ‘‘, for fiscal
years before fiscal year 1997,’’ before ‘‘a regional
DRG prospective payment rate for each region,’’.
SEC. 562. FAIRNESS IN THE MEDICARE DISPROPORTIONATE
SHARE HOSPITAL (DSH) ADJUSTMENT FOR
RURAL HOSPITALS.
(a) EQUALIZING DSH PAYMENT AMOUNTS.—
(1) IN GENERAL.—Section 1886(d)(5)(F)(vii) of
the 
Social 
Security 
Act 
(42 
U.S.C.
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1395ww(d)(5)(F)(vii)) is amended by inserting ‘‘,
and, after October 1, 2003, for any other hospital de-
scribed in clause (iv),’’ after ‘‘clause (iv)(I)’’ in the
matter preceding subclause (I).
(2) 
CONFORMING
AMENDMENTS.—Section
1886(d)(5)(F) of the Social Security Act (42 U.S.C.
1395ww(d)(5)(F)) is amended—
(A) in clause (iv)—
(i) in subclause (II)—
(I) by inserting ‘‘and before Octo-
ber 1, 2003,’’ after ‘‘April 1, 2001,’’;
and
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’
after ‘‘clause (xiii)’’;
(ii) in subclause (III)—
(I) by inserting ‘‘and before Octo-
ber 1, 2003,’’ after ‘‘April 1, 2001,’’;
and
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
1, 2003, is equal to the percent deter-
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mined in accordance with the applica-
ble formula described in clause (vii)’’
after ‘‘clause (xii)’’;
(iii) in subclause (IV)—
(I) by inserting ‘‘and before Octo-
ber 1, 2003,’’ after ‘‘April 1, 2001,’’;
and
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’
after ‘‘clause (x) or (xi)’’;
(iv) in subclause (V)—
(I) by inserting ‘‘and before Octo-
ber 1, 2003,’’ after ‘‘April 1, 2001,’’;
and
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’
after ‘‘clause (xi)’’; and
(v) in subclause (VI)—
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(I) by inserting ‘‘and before Octo-
ber 1, 2003,’’ after ‘‘April 1, 2001,’’;
and
(II) by inserting ‘‘or, for dis-
charges occurring on or after October
1, 2003, is equal to the percent deter-
mined in accordance with the applica-
ble formula described in clause (vii)’’
after ‘‘clause (x)’’;
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘For discharges occurring
before October 1, 2003, the formula’’; and
(C) in each of clauses (x), (xi), (xii), and
(xiii), by striking ‘‘For purposes’’ and inserting
‘‘With respect to discharges occurring before Oc-
tober 1, 2003, for purposes’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to discharges occurring on
or after October 1, 2003.
SEC. 563. MEDICARE INPATIENT HOSPITAL PAYMENT AD-
JUSTMENT FOR LOW-VOLUME HOSPITALS.
Section 1886(d) of the Social Security Act (42 U.S.C.
1395ww(d)) is amended by adding at the end the following
new paragraph:
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‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME
HOSPITALS.—
‘‘(A) PAYMENT ADJUSTMENT.—
‘‘(i) IN
GENERAL.—Notwithstanding
any other provision of this section, for each
cost reporting period (beginning with the
cost reporting period that begins in fiscal
year 2005), the Secretary shall provide for
an additional payment amount to each low-
volume hospital (as defined in clause (iii))
for discharges occurring during that cost re-
porting period to increase the amount paid
to such hospital under this section for such
discharges by the applicable percentage in-
crease determined under clause (ii).
‘‘(ii) APPLICABLE
PERCENTAGE
IN-
CREASE.—The Secretary shall determine a
percentage increase applicable under this
paragraph that ensures that—
‘‘(I) no percentage increase in
payments under this paragraph ex-
ceeds 25 percent of the amount of pay-
ment that would otherwise be made to
a low-volume hospital under this sec-
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tion for each discharge (but for this
paragraph);
‘‘(II) low-volume hospitals that
have the lowest number of discharges
during a cost reporting period receive
the highest percentage increase in pay-
ments due to the application of this
paragraph; and
‘‘(III) the percentage increase in
payments due to the application of this
paragraph is reduced as the number of
discharges per cost reporting period in-
creases.
‘‘(iii) LOW-VOLUME
HOSPITAL
DE-
FINED.—For purposes of this paragraph,
the term ‘low-volume hospital’ means, for a
cost reporting period, a subsection (d) hos-
pital (as defined in paragraph (1)(B)) other
than a critical access hospital (as defined in
section 1861(mm)(1)) that—
‘‘(I) the Secretary determines had
an average of less than 2,000 dis-
charges (determined with respect to all
patients and not just individuals re-
ceiving benefits under this title) during
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the 3 most recent cost reporting periods
for which data are available that pre-
cede the cost reporting period to which
this paragraph applies; and
‘‘(II) is located at least 15 miles
from a similar hospital (or is deemed
by the Secretary to be so located by
reason of such factors as the Secretary
determines appropriate, including the
time required for an individual to
travel to the nearest alternative source
of appropriate inpatient care (taking
into account the location of such alter-
native source of inpatient care and
any weather or travel conditions that
may affect such travel time)).
‘‘(B) PROHIBITING CERTAIN REDUCTIONS.—
Notwithstanding subsection (e), the Secretary
shall not reduce the payment amounts under this
section to offset the increase in payments result-
ing from the application of subparagraph (A).’’.
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SEC. 564. ADJUSTMENT TO THE MEDICARE INPATIENT HOS-
PITAL PPS WAGE INDEX TO REVISE THE
LABOR-RELATED SHARE OF SUCH INDEX.
(a) IN GENERAL.—Section 1886(d)(3)(E) of the Social
Security Act (42 U.S.C. 1395ww(d)(3)(E)) is amended—
(1) by striking ‘‘WAGE LEVELS.—The Secretary’’
and inserting ‘‘WAGE LEVELS.—
‘‘(i) IN GENERAL.—Except as provided in
clause (ii), the Secretary’’; and
(2) by adding at the end the following new
clause:
‘‘(ii) ALTERNATIVE PROPORTION TO BE AD-
JUSTED BEGINNING IN FISCAL YEAR 2004.—
‘‘(I) IN GENERAL.—Except as provided
in subclause (II), for discharges occurring
on or after October 1, 2003, the Secretary
shall substitute ‘62 percent’ for the propor-
tion described in the first sentence of clause
(i).
‘‘(II) HOLD HARMLESS FOR CERTAIN
HOSPITALS.—If the application of subclause
(I) would result in lower payments to a hos-
pital than would otherwise be made, then
this subparagraph shall be applied as if this
clause had not been enacted.’’.
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(b) 
WAIVING
BUDGET
NEUTRALITY.—Section
1886(d)(3)(E) of the Social Security Act (42 U.S.C.
1395ww(d)(3)(E)), as amended by subsection (a), is amend-
ed by adding at the end of clause (i) the following new sen-
tence: ‘‘The Secretary shall apply the previous sentence for
any period as if the amendments made by section 564(a)
of the Jobs and Growth Tax Relief Reconciliation Act of
2003 had not been enacted.’’.
SEC. 565. ONE-YEAR EXTENSION OF HOLD HARMLESS PRO-
VISIONS FOR SMALL RURAL HOSPITALS AND
TEMPORARY TREATMENT OF CERTAIN SOLE
COMMUNITY HOSPITALS TO LIMIT DECLINE
IN PAYMENT UNDER THE OPD PPS.
(a) 
HOLD
HARMLESS
PROVISIONS.—Section
1833(t)(7)(D)(i) of the Social Security Act (42 U.S.C.
1395l(t)(7)(D)(i)) is amended—
(1) in the heading, by striking ‘‘SMALL’’ and in-
serting ‘‘CERTAIN’’;
(2) by inserting ‘‘or a sole community hospital
(as defined in section 1886(d)(5)(D)(iii)) located in a
rural area’’ after ‘‘100 beds’’; and
(3) by striking ‘‘2004’’ and inserting ‘‘2005’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a)(2) shall apply with respect to payment for OPD
services furnished on and after January 1, 2004.
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SEC. 566. CRITICAL ACCESS HOSPITAL (CAH) IMPROVE-
MENTS.
(a) PERMITTING HOSPITALS TO ALLOCATE SWING
BEDS AND ACUTE CARE INPATIENT BEDS SUBJECT TO A
TOTAL LIMIT OF 25 BEDS.—
(1) IN GENERAL.—Section 1820(c)(2)(B)(iii) of
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395i–
4(c)(2)(B)(iii)) is amended to read as follows:
‘‘(iii) provides not more than a total of
25 extended care service beds (pursuant to
an agreement under subsection (f)) or acute
care inpatient beds (meeting such standards
as the Secretary may establish) for pro-
viding inpatient care for a period that does
not exceed, as determined on an annual, av-
erage basis, 96 hours per patient;’’.
(2) CONFORMING AMENDMENT.—Section 1820(f)
of the Social Security Act (42 U.S.C. 1395i–4(f)) is
amended by striking ‘‘and the number of beds used at
any time for acute care inpatient services does not ex-
ceed 15 beds’’.
(b) ELIMINATION OF THE ISOLATION TEST FOR COST-
BASED CAH AMBULANCE SERVICES.—
(1) IN GENERAL.—Section 1834(l)(8) of the So-
cial Security Act (42 U.S.C. 1395m(l)(8)), as added
by section 205(a) of the Medicare, Medicaid, and
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SCHIP Benefits Improvement and Protection Act of
2000 (114 Stat. 2763A–482), as enacted into law by
section 1(a)(6) of Public Law 106–554 (114 Stat.
2763), is amended by striking the comma at the end
of subparagraph (B) and all that follows and insert-
ing a period.
(2) TECHNICAL CORRECTION.—Section 1834(l) of
the Social Security Act (42 U.S.C. 1395m(l)) is
amended by redesignating paragraph (8), as added by
section 221(a) of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000
(114 Stat. 2763A–486), as enacted into law by section
1(a)(6) of Public Law 106–554 (114 Stat. 2763), as
paragraph (9).
(c) COVERAGE OF COSTS FOR CERTAIN EMERGENCY
ROOM ON-CALL PROVIDERS.—
(1) IN GENERAL.—Section 1834(g)(5) of the So-
cial Security Act (42 U.S.C. 1395m(g)(5)) is
amended—
(A) in the heading—
(i) by inserting ‘‘CERTAIN’’ before
‘‘EMERGENCY’’; and
(ii) by striking ‘‘PHYSICIANS’’ and in-
serting ‘‘PROVIDERS’’;
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(B) by striking ‘‘emergency room physicians
who are on-call (as defined by the Secretary)’’
and inserting ‘‘physicians, physician assistants,
nurse practitioners, and clinical nurse specialists
who are on-call (as defined by the Secretary) to
provide emergency services’’; and
(C) by striking ‘‘physicians’ services’’ and
inserting ‘‘services covered under this title’’.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply with respect to costs in-
curred for services provided on or after January 1,
2004.
(d) AUTHORIZATION OF PERIODIC INTERIM PAYMENT
(PIP).—
(1) IN GENERAL.—Section 1815(e)(2) of the So-
cial Security Act (42 U.S.C. 1395g(e)(2)) is
amended—
(A) in subparagraph (C), by striking ‘‘and’’
after the semicolon at the end;
(B) in subparagraph (D), by adding ‘‘and’’
after the semicolon at the end; and
(C) by inserting after subparagraph (D) the
following new subparagraph:
‘‘(E) inpatient critical access hospital services,’’.
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(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply with respect to pay-
ments for inpatient critical access hospital services
furnished on or after January 1, 2004.
(e) EXCLUSION OF NEW CAHS FROM PPS HOSPITAL
WAGE INDEX CALCULATION.—Section 1886(d)(3)(E)(i) of
the Social Security Act (42 U.S.C. 1395ww(d)(3)(E)(i)), as
amended by section 564, is amended by inserting after the
first sentence the following new sentence: ‘‘In calculating
the hospital wage levels under the preceding sentence appli-
cable with respect to cost reporting periods beginning on
or after January 1, 2004, the Secretary shall exclude the
wage levels of any hospital that became a critical access
hospital prior to the cost reporting period for which such
hospital wage levels are calculated.’’.
SEC. 567. TEMPORARY INCREASE FOR HOME HEALTH SERV-
ICES FURNISHED IN A RURAL AREA.
(a) IN GENERAL.—In the case of home health services
furnished in a rural area (as defined in section
1886(d)(2)(D) of the Social Security Act (42 U.S.C.
1395ww(d)(2)(D))) on or after October 1, 2003, and before
October 1, 2005, the Secretary of Health and Human Serv-
ices shall increase the payment amount otherwise made
under section 1895 of such Act (42 U.S.C. 1395fff ) for such
services by 10 percent.
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(b) WAIVING BUDGET NEUTRALITY.—The Secretary of
Health and Human Services shall not reduce the standard
prospective payment amount (or amounts) under section
1895 of the Social Security Act (42 U.S.C. 1395fff ) appli-
cable to home health services furnished during a period to
offset the increase in payments resulting from the applica-
tion of subsection (a).
(c) NO EFFECT ON SUBSEQUENT PERIODS.—The pay-
ment increase provided under subsection (a) for a period
under such subsection, shall not apply to episodes and visits
ending after such period, and shall not be taken into ac-
count in calculating the payment amounts applicable for
episodes and visits occurring after such period.
SEC. 568. TEMPORARY INCREASE IN PAYMENTS FOR CER-
TAIN SERVICES FURNISHED BY SMALL RURAL
HOSPITALS UNDER MEDICARE PROSPECTIVE
PAYMENT 
SYSTEM 
FOR 
HOSPITAL 
OUT-
PATIENT DEPARTMENT SERVICES.
(a) INCREASE.—
(1) IN GENERAL.—In the case of an applicable
covered OPD service (as defined in paragraph (2))
that is furnished by a hospital described in para-
graph (7)(D)(i) of section 1833(t) of the Social Secu-
rity Act (42 U.S.C. 1395l(t)) on or after January 1,
2004, and before January 1, 2007, the Secretary of
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Health and Human Services (in this section referred
to as the ‘‘Secretary’’) shall increase the medicare
OPD fee schedule amount (as determined under para-
graph (4)(A) of such section) that is applicable for
such service in that year (determined without regard
to any increase under this section in a previous year)
by 5 percent.
(2) APPLICABLE
COVERED
OPD
SERVICES
DE-
FINED.—For purposes of this section, the term ‘‘appli-
cable covered OPD service’’ means a covered clinic or
emergency room visit that is classified within the
groups of covered OPD services (as defined in para-
graph (1)(B) of section 1833(t) of the Social Security
Act (42 U.S.C. 1395l(t))) established under paragraph
(2)(B) of such section.
(b) NO EFFECT ON COPAYMENT AMOUNT.—The Sec-
retary shall compute the copayment amount for applicable
covered OPD services under section 1833(t)(8)(A) of the So-
cial Security Act (42 U.S.C. 1395l(t)(8)(A)) as if this sec-
tion had not been enacted.
(c) NO EFFECT ON INCREASE UNDER HOLD HARM-
LESS OR OUTLIER PROVISIONS.—The Secretary shall apply
the temporary hold harmless provision under paragraph
(7)(D)(i) of section 1833(t) of the Social Security Act (42
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U.S.C. 1395l(t)) and the outlier provision under paragraph
(5) of such section as if this section had not been enacted.
(d) WAIVING BUDGET NEUTRALITY AND NO REVISION
OR ADJUSTMENTS.—The Secretary shall not make any revi-
sion or adjustment under subparagraph (A), (B), or (C)
of section 1833(t)(9) of the Social Security Act (42 U.S.C.
1395l(t)(9)) because of the application of subsection (a)(1).
(e) NO EFFECT ON PAYMENTS AFTER INCREASE PE-
RIOD ENDS.—The Secretary shall not take into account any
payment increase provided under subsection (a)(1) in deter-
mining payments for covered OPD services (as defined in
paragraph (1)(B) of section 1833(t) of the Social Security
Act (42 U.S.C. 1395l(t))) under such section that are fur-
nished after January 1, 2007.
(f) FINDINGS.—The Senate finds the following:
(1) The medicare program has a responsibility
to pay enough for beneficial new technologies in order
to ensure that medicare beneficiaries have access to
care; however, such program must also be a prudent
purchaser of health care items and services.
(2) The 2003 Medicare Hospital Outpatient Pro-
spective Payment System Regulation may have re-
sulted in limiting beneficiary access to care.
(3) A methodology should be developed under the
medicare outpatient prospective payment system
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under section 1833(t) of the Social Security Act (42
U.S.C. 1395l(t)) with appropriate resources and such
methodology should be implemented January 1, 2004.
This will ensure that all hospitals are appropriately
reimbursed for the drugs and biologics that are used
in the outpatient setting which in turn will ensure
patient access to new technologies.
(g) TECHNICAL AMENDMENT.—Section 1833(t)(2)(B)
(42 U.S.C. 1395l(t)(2)(B)) is amended by inserting ‘‘(and
periodically revise such groups pursuant to paragraph
(9)(A))’’ after ‘‘establish groups’’.
SEC. 569 TEMPORARY INCREASE FOR GROUND AMBULANCE
SERVICES FURNISHED IN A RURAL AREA.
Section 1834(l) of the Social Security Act (42 U.S.C.
1395m(l)), as amended by section 566(b)(2), is amended by
adding at the end the following new paragraph:
‘‘(10) TEMPORARY INCREASE FOR GROUND AM-
BULANCE SERVICES FURNISHED IN A RURAL AREA.—
‘‘(A) IN
GENERAL.—Notwithstanding any
other provision of this subsection, in the case of
ground ambulance services furnished on or after
January 1, 2004, and before January 1, 2007,
for which the transportation originates in a
rural area described in paragraph (9) or in a
rural census tract described in such paragraph,
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the fee schedule established under this section
shall provide that the rate for the service other-
wise established, after application of any in-
crease under such paragraph, shall be increased
by 5 percent.
‘‘(B) APPLICATION
OF
INCREASED
PAY-
MENTS
AFTER
2006.—The increased payments
under subparagraph (A) shall not be taken into
account in calculating payments for services fur-
nished on or after the period specified in such
subparagraph.’’.
SEC. 570. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC
AND FEDERALLY QUALIFIED HEALTH CENTER
SERVICES FROM THE MEDICARE PPS FOR
SKILLED NURSING FACILITIES.
(a) IN GENERAL.—Section 1888(e) of the Social Secu-
rity Act (42 U.S.C. 1395yy(e)) is amended—
(1) in paragraph (2)(A)(i)(II), by striking
‘‘clauses (ii) and (iii)’’ and inserting ‘‘clauses (ii),
(iii), and (iv)’’; and
(2) by adding at the end of paragraph (2)(A) the
following new clause:
‘‘(iv) EXCLUSION OF CERTAIN RURAL
HEALTH CLINIC AND FEDERALLY QUALIFIED
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HEALTH
CENTER
SERVICES.—Services de-
scribed in this clause are—
‘‘(I) rural health clinic services
(as defined in paragraph (1) of section
1861(aa)); and
‘‘(II) Federally qualified health
center services (as defined in para-
graph (3) of such section);
that would be described in clause (ii) if such
services were furnished by a physician or
practitioner not affiliated with a rural
health clinic or a Federally qualified health
center.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to services furnished on or after Jan-
uary 1, 2004.
SEC. 571. MEDICARE INCENTIVE PAYMENT PROGRAM IM-
PROVEMENTS.
(a) PROCEDURES FOR SECRETARY, AND NOT PHYSI-
CIANS, TO DETERMINE WHEN BONUS PAYMENTS UNDER
MEDICARE INCENTIVE PAYMENT PROGRAM SHOULD BE
MADE.—Section 1833(m) of the Social Security Act (42
U.S.C. 1395l(m)) is amended—
(1) by inserting ‘‘(1)’’ after ‘‘(m)’’; and
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(2) by adding at the end the following new para-
graph:
‘‘(2) The Secretary shall establish procedures under
which the Secretary, and not the physician furnishing the
service, is responsible for determining when a payment is
required to be made under paragraph (1).’’.
(b) EDUCATIONAL PROGRAM REGARDING THE MEDI-
CARE INCENTIVE PAYMENT PROGRAM.—The Secretary shall
establish and implement an ongoing educational program
to provide education to physicians under the medicare pro-
gram on the medicare incentive payment program under
section 1833(m) of the Social Security Act (42 U.S.C.
1395l(m)).
(c) ONGOING STUDY AND ANNUAL REPORT ON THE
MEDICARE INCENTIVE PAYMENT PROGRAM.—
(1) ONGOING STUDY.—The Secretary shall con-
duct an ongoing study on the medicare incentive pay-
ment program under section 1833(m) of the Social
Security Act (42 U.S.C. 1395l(m)). Such study shall
focus on whether such program increases the access of
medicare beneficiaries who reside in an area that is
designated (under section 332(a)(1)(A) of the Public
Health Service Act (42 U.S.C. 254e(a)(1)(A))) as a
health professional shortage area to physicians’ serv-
ices under the medicare program.
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(2) ANNUAL REPORTS.—Not later than 1 year
after the date of enactment of this Act, and annually
thereafter, the Secretary shall submit to Congress a
report on the study conducted under paragraph (1),
together with recommendations for such legislation
and administrative action as the Secretary considers
appropriate.
SEC. 572. TWO-YEAR TREATMENT OF CERTAIN CLINICAL DI-
AGNOSTIC LABORATORY TESTS FURNISHED
BY A SOLE COMMUNITY HOSPITAL.
Notwithstanding subsections (a)(1)(D) and (h) of sec-
tion 1833 of the Social Security Act (42 U.S.C. 1395l) and
section 1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in
the case of a clinical diagnostic laboratory test covered
under part B of title XVIII of such Act that is furnished
in 2004 or 2005 by a sole community hospital (as defined
in section 1886(d)(5)(D)(iii) of such Act (42 U.S.C.
1395ww(d)(5)(D)(iii))) as part of services provided to pa-
tients of the hospital, the following rules shall apply:
(1) PAYMENT BASED ON REASONABLE COSTS.—
The amount of payment for such test shall be 100 per-
cent of the reasonable costs of the hospital in fur-
nishing such test.
(2) NO BENEFICIARY COST-SHARING.—No coin-
surance, deductible, copayment, or other cost-sharing
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otherwise applicable under such part B shall apply
with respect to such test.
SEC. 573. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC AD-
JUSTMENTS OF PAYMENTS FOR PHYSICIANS’
SERVICES.
Section 1848(e)(1) of the Social Security Act (42
U.S.C. 1395w–4(e)(1)) is amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graphs (B) and (C)’’ and inserting ‘‘subparagraphs
(B), (C), and (E)’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) FLOOR FOR PRACTICE EXPENSE, MAL-
PRACTICE, AND WORK GEOGRAPHIC INDICES.—
For purposes of payment for services furnished
on or after January 1, 2004, after calculating
the practice expense, malpractice, and work geo-
graphic indices in clauses (i), (ii), and (iii) of
subparagraph (A) and in subparagraph (B), the
Secretary shall increase any such index to 1.00
for any locality for which such index is less than
1.00.’’.