I 
109TH CONGRESS 
2D SESSION 
H. R. 5176 
To amend the Internal Revenue Code of 1986 to make the Federal income 
tax system simpler, fairer, and more fiscally responsible, and for other 
purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 25, 2006 
Mr. EMANUEL introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to make 
the Federal income tax system simpler, fairer, and more 
fiscally responsible, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 
TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Fair Flat Tax Act of 2006’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
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to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; amendment of 1986 Code; table of contents. 
Sec. 2. Purpose. 
TITLE I—INDIVIDUAL INCOME TAX REFORMS 
Sec. 101. 3 progressive individual income tax rates for all forms of income. 
Sec. 102. Increase in basic standard deduction. 
Sec. 103. Simplified family credit. 
Sec. 104. Expanded access to college. 
Sec. 105. Deduction for mortgage interest whether or not individual itemizes. 
Sec. 106. Universal pension accounts. 
Sec. 107. Repeal of individual alternative minimum tax. 
TITLE II—INCOME TAX REFORMS 
Subtitle A—Provisions Relating to Corporate and Business Income Tax 
Sec. 201. Corporate flat tax. 
Sec. 202. Treatment of travel on corporate aircraft. 
Sec. 203. Valuation of employee personal use of noncommercial aircraft. 
Sec. 204. Elimination of tax expenditures that subsidize inefficiencies in the 
health care system. 
Sec. 205. Pass-through business entity transparency. 
Sec. 206. Broker reporting of customer’s basis in securities transactions. 
Sec. 207. Repeal of lower cost or market inventory method. 
Sec. 208. Imposition of withholding on certain payments made by government 
entities. 
Subtitle B—Provisions Designed to Curtail Tax Shelters 
Sec. 211. Penalty for promoting abusive tax shelters. 
Sec. 212. Penalty for aiding and abetting the understatement of tax liability. 
Sec. 213. Increase in criminal monetary penalty limitation for the under-
payment or overpayment of tax due to fraud. 
Subtitle C—Economic Substance Doctrine 
Sec. 221. Clarification of economic substance doctrine. 
Sec. 222. Penalty for understatements attributable to transactions lacking eco-
nomic substance, etc. 
Sec. 223. Denial of deduction for interest on underpayments attributable to 
noneconomic substance transactions. 
Subtitle D—Provisions Relating to Oil and Gas 
Sec. 231. Elimination of amortization of geological and geophysical expendi-
tures for major integrated oil companies. 
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Sec. 232. Revaluation of lifo inventories of large integrated oil companies. 
Subtitle E—Uniform Definition of Child 
Sec. 241. Repeal of uniform definition of child and restoration of prior rule. 
Subtitle F—Other Revenue Provisions 
Sec. 251. Inflation adjustment of tax on distilled spirits, beer, wine, and to-
bacco. 
Sec. 252. Termination of various exclusions, exemptions, deductions, and cred-
its. 
Sec. 253. Termination of various preferential treatments. 
TITLE III—TECHNICAL AND CONFORMING AMENDMENTS; 
SUNSET 
Sec. 301. Technical and conforming amendments. 
Sec. 302. Sunset. 
SEC. 2. PURPOSE. 
The purpose of this Act is to amend the Internal Rev-
enue Code of 1986— 
(1) to make the Federal individual income tax 
system simpler, fairer, and more transparent by— 
(A) recognizing the overall tax burden on 
individual Americans, 
(B) repealing the individual alternative 
minimum tax, 
(C) increasing the basic standard deduc-
tion and maintaining itemized deductions for 
principal residence mortgage interest and chari-
table contributions, 
(D) reducing the number of exclusions, ex-
emptions, deductions, and credits, and 
(E) treating all income equally, 
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(2) to make the Federal corporate income tax 
rate a flat 35 percent and eliminate special tax pref-
erences that favor particular types of businesses or 
activities, and 
(3) to partially offset the Federal budget deficit 
through the increased revenues resulting from these 
reforms. 
TITLE I—INDIVIDUAL INCOME 
TAX REFORMS 
SEC. 101. 3 PROGRESSIVE INDIVIDUAL INCOME TAX RATES 
FOR ALL FORMS OF INCOME. 
(a) MARRIED INDIVIDUALS FILING JOINT RETURNS 
AND SURVIVING SPOUSES.—The table contained in sec-
tion 1(a) is amended to read as follows: 
‘‘If taxable income is: 
The tax is: 
Not over $25,000 ..........................
15% of taxable income.
Over 
$25,000 
but 
not 
over 
$120,000.
$3,750, plus 25% of the excess over 
$25,000
Over $120,000 ...............................
$27,500, plus 35% of the excess over 
$120,000.’’. 
(b) HEADS OF HOUSEHOLDS.—The table contained 
in section 1(b) is amended to read as follows: 
‘‘If taxable income is: 
The tax is: 
Not over $16,000 ..........................
15% of taxable income.
Over 
$16,000 
but 
not 
over 
$105,000.
$2,400, plus 25% of the excess over 
$16,000
Over $105,000 ...............................
$24,650, plus 35% of the excess over 
$105,000.’’. 
(c) UNMARRIED INDIVIDUALS (OTHER THAN SUR-
VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—The 
table contained in section 1(c) is amended to read as fol-
lows: 
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‘‘If taxable income is: 
The tax is: 
Not over $15,000 ..........................
15% of taxable income.
Over 
$15,000 
but 
not 
over 
$70,000.
$2,250, plus 25% of the excess over 
$15,000
Over $70,000 .................................
$16,000, plus 35% of the excess over 
$70,000.’’. 
(d) MARRIED INDIVIDUALS FILING SEPARATE RE-
TURNS.—The table contained in section 1(d) is amended 
to read as follows: 
‘‘If taxable income is: 
The tax is: 
Not over $12,500 ..........................
15% of taxable income.
Over 
$12,500 
but 
not 
over 
$60,000.
$1,875, plus 25% of the excess over 
$12,500
Over $60,000 .................................
$13,750, plus 35% of the excess over 
$60,000.’’. 
(e) CONFORMING AMENDMENTS TO INFLATION AD-
JUSTMENT.—Section 1(f) is amended— 
(1) by striking ‘‘1993’’in paragraph (1) and in-
serting ‘‘2006’’, 
(2) by striking ‘‘except as provided in para-
graph (8)’’ in paragraph (2)(A), 
(3) by striking ‘‘1992’’ in paragraph (3)(B) and 
inserting ‘‘2005’’, 
(4) by striking paragraphs (7) and (8), and 
(5) by striking ‘‘Phaseout of Marriage Penalty 
in 15–Percent Bracket;’’ in the heading thereof. 
(f) REPEAL OF RATE DIFFERENTIAL FOR CAPITAL 
GAINS AND DIVIDENDS.— 
(1) REPEAL OF 2003 RATE REDUCTION.—Sec-
tion 303 of the Jobs and Growth Tax Relief Rec-
onciliation Act of 2003 is amended by striking ‘‘De-
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cember 3, 2008’’ and inserting ‘‘December 31, 
2005’’. 
(2) TERMINATION OF PRE-2003 CAPITAL GAIN 
RATE
DIFFERENTIAL.—Section 1(h) is amended 
(after the application of paragraph (1)) by adding at 
the end the following new paragraph: 
‘‘(13) TERMINATION.—This section shall not 
apply to taxable years beginning after December 31, 
2005.’’. 
(g) ADDITIONAL CONFORMING AMENDMENTS.— 
(1) Section 1 is amended by striking subsection 
(i). 
(2) The Internal Revenue Code of 1986 is 
amended by striking ‘‘calendar year 1992’’ each 
place it appears and inserting ‘‘calendar year 2005’’. 
(3) Section 1445(e)(1) (after the application of 
subsection (g)(1)) is amended by striking ‘‘(or, to 
the extent provided in regulations, 20 percent)’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION. 
(a) IN GENERAL.—Paragraph (2) of section 63(c) 
(defining standard deduction) is amended to read as fol-
lows: 
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‘‘(2) BASIC STANDARD DEDUCTION.—For pur-
poses of paragraph (1), the basic standard deduction 
is— 
‘‘(A) 200 percent of the dollar amount in 
effect under subparagraph (C) for the taxable 
year in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), 
‘‘(B) $26,250 in the case of a head of 
household (as defined in section 2(b)), or 
‘‘(C) $15,000 in any other case.’’. 
(b) CONFORMING AMENDMENT TO INFLATION AD-
JUSTMENT.—Section 63(c)(4)(B)(i) is amended by strik-
ing ‘‘(2)(B), (2)(C), or’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 103. SIMPLIFIED FAMILY CREDIT. 
(a) IN GENERAL.—Section 32 (relating to earned in-
come credit) is amended to read as follows: 
‘‘SEC. 32. SIMPLIFIED FAMILY CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible individual, there shall be allowed as a credit against 
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the tax imposed by this subtitle for the taxable year an 
amount equal to the lesser of— 
‘‘(1) $2,500 multiplied by the number of quali-
fying children of the taxpayer, or 
‘‘(2) 50 percent of modified adjusted gross in-
come. 
‘‘(b) LIMITATIONS.— 
‘‘(1) LIMITATION
BASED
ON
MODIFIED
AD-
JUSTED GROSS INCOME.— 
‘‘(A) IN
GENERAL.—The amount of the 
credit allowable under subsection (a) shall be 
reduced (but not below zero) by $50 for each 
$1,000 (or fraction thereof) by which the tax-
payer’s modified adjusted gross income exceeds 
the threshold amount. 
‘‘(B) THRESHOLD AMOUNT.—For purposes 
of paragraph (1), the term ‘threshold amount’ 
means $60,000 ($120,000 in the case of a joint 
return). For purposes of this paragraph, mar-
ital status shall be determined under section 
7703. 
‘‘(3) LIMITATION ON NUMBER OF QUALIFYING 
CHILDREN TAKEN INTO ACCOUNT.—For purposes of 
subsection (a), not more than 3 qualifying children 
of the taxpayer may be taken into account. 
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‘‘(4) LIMITATION ON AMOUNT OF REFUNDABLE 
CREDIT.— 
‘‘(A) IN
GENERAL.—The amount of the 
credit allowed under subsection (a) for a tax-
able year which is allowed under this subpart 
shall not exceed the modified adjusted gross in-
come of the taxpayer for such year. 
‘‘(B) ALLOWANCE OF REMAINING AMOUNT 
OF CREDIT.—The excess of— 
‘‘(i) the amount of the credit allowed 
under subsection (a), over 
‘‘(ii) the amount of the credit allowed 
under this subpart by reason of subpara-
graph (A), shall be treated as a credit al-
lowed under subpart B for such taxable 
year and not under this subpart. 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means any individual who has a quali-
fying child for the taxable year. 
‘‘(B) INDIVIDUAL
WHO
IS
QUALIFYING 
CHILD
INELIGIBLE.—If an individual is the 
qualifying child of a taxpayer for any taxable 
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year of such taxpayer beginning in a calendar 
year, such individual shall not be treated as an 
eligible individual for any taxable year of such 
individual beginning in such calendar year. 
‘‘(C) EXCEPTION FOR INDIVIDUAL CLAIM-
ING
BENEFITS
UNDER
SECTION
911.—The 
term ‘eligible individual’ does not include any 
individual who claims the benefits of section 
911 (relating to citizens or residents living 
abroad) for the taxable year. 
‘‘(D) LIMITATION ON ELIGIBILITY OF NON-
RESIDENT
ALIENS.—The term ‘eligible indi-
vidual’ shall not include any individual who is 
a nonresident alien individual for any portion of 
the taxable year unless such individual is treat-
ed for such taxable year as a resident of the 
United States for purposes of this chapter by 
reason of an election under subsection (g) or 
(h) of section 6013. 
‘‘(E) IDENTIFICATION NUMBER REQUIRE-
MENT.—No credit shall be allowed under this 
section to an eligible individual who does not in-
clude on the return of tax for the taxable 
year— 
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‘‘(i) such individual’s taxpayer identi-
fication number, and 
‘‘(ii) if the individual is married (with-
in the meaning of section 7703), the tax-
payer identification number of such indi-
vidual’s spouse. 
‘‘(F) INDIVIDUALS WHO DO NOT INCLUDE 
TIN, ETC., OF
ANY
QUALIFYING
CHILD.—No 
credit shall be allowed under this section to any 
eligible individual who has one or more quali-
fying children if no qualifying child of such in-
dividual is taken into account under subsection 
(b) by reason of paragraph (2)(B). 
‘‘(2) QUALIFYING CHILD.— 
‘‘(A) IN GENERAL.—The term ‘qualifying 
child’ has the meaning given such term by sec-
tion 152, determined without regard to sub-
sections (b)(1), (b)(2), and (d)(1)(B) thereof. 
‘‘(B) 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. 
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‘‘(ii) OTHER
METHODS.—The Sec-
retary may prescribe other methods for 
providing the information described in 
clause (i). 
‘‘(C) ABODE
MUST
BE
IN
THE
UNITED 
STATES.—An individual shall not be treated as 
a qualifying child for purposes of this section 
unless the principal place of abode of such indi-
vidual is in the United States. 
‘‘(3) MODIFIED
ADJUSTED
GROSS
INCOME.— 
The term ‘modified adjusted gross income’ means 
adjusted gross income— 
‘‘(A) determined without regard to sections 
135, 137, 221, 911, 931, and 933, and 
‘‘(B) increased by the amount of interest 
received or accrued by the taxpayer during the 
taxable year which is exempt from tax. 
‘‘(d) MARRIED INDIVIDUALS.—In the case of an indi-
vidual who is married (within the meaning of section 
7703), this section shall apply only if a joint return is filed 
for the taxable year under section 6013. 
‘‘(e) TAXABLE YEAR MUST BE FULL TAXABLE 
YEAR.—Except in the case of a taxable year closed by rea-
son of the death of the taxpayer, no credit shall be allow-
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able under this section in the case of a taxable year cov-
ering a period of less than 12 months. 
‘‘(f) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning after 2006, each of the dollar 
amounts in subsection (b)(1)(B) shall be increased 
by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2005’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
‘‘(2) ROUNDING.—If any dollar amount in sub-
section (b)(1)(B) after being increased under para-
graph (1) is not a multiple of $1,000, such dollar 
amount shall be rounded to the nearest multiple of 
$1,000. 
‘‘(i) COORDINATION WITH CERTAIN MEANS-TESTED 
PROGRAMS.—For purposes of— 
‘‘(1) the United States Housing Act of 1937, 
‘‘(2) title V of the Housing Act of 1949, 
‘‘(3) section 101 of the Housing and Urban De-
velopment Act of 1965, 
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‘‘(4) sections 221(d)(3), 235, and 236 of the 
National Housing Act, and 
‘‘(5) the Food Stamp Act of 1977, 
any refund made to an individual (or the spouse of an 
individual) by reason of this section, and any payment 
made to such individual (or such spouse) by an employer 
under section 3507, shall not be treated as income (and 
shall not be taken into account in determining resources 
for the month of its receipt and the following month). 
‘‘(j) IDENTIFICATION NUMBERS.—Solely for pur-
poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer 
identification number means a social security number 
issued to an individual by the Social Security Administra-
tion (other than a social security number issued pursuant 
to clause (II) (or that portion of clause (III) that relates 
to clause (II)) of section 205(c)(2)(B)(i) of the Social Se-
curity Act).’’. 
(b) REPEALS OF OTHER PROVISIONS.— 
(1) CHILD CREDIT.—Section 24 is hereby re-
pealed. 
(2) DEDUCTION FOR EXEMPTION FOR DEPEND-
ENTS DISALLOWED TO CREDIT RECIPIENTS.—Sub-
section (c) of section 151 is amended by adding at 
the end the following new sentence: ‘‘No exemption 
shall be allowed under this section for a dependent 
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for a taxable year if a credit is allowed under section 
32 with respect to such dependent for such taxable 
year.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) AMENDMENTS
RELATING
TO
REPEAL
OF 
CHILD CREDIT.— 
(A) Sections 25(e)(1)(C) and 1400C(d) are 
both amended by striking ‘‘24,’’. 
(B) Section 501(c)(26) is amended by in-
serting ‘‘(as in effect before the enactment of 
the Fair Flat Tax Act of 2006)’’ after ‘‘section 
24(c)’’. 
(C) Section 6213(g)(2) is amended— 
(i) by striking subparagraph (I), and 
(ii) in subparagraph (L), by striking 
‘‘21, 24, or 32’’ and inserting ‘‘21 or 32’’. 
(2) AMENDMENTS
RELATING
TO
REPEAL
OF 
DEDUCTION FOR EXEMPTION FOR DEPENDENTS.— 
(A) Section 2(a) is amended by striking ‘‘a 
deduction for the taxable year under section 
151’’ and inserting ‘‘a credit for the taxable 
year under section 32’’. 
(B) Section 2(b) is amended by striking ‘‘a 
deduction for the taxable year for such person 
under section 151’’ and inserting ‘‘a credit for 
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the taxable year for such person under section 
32’’. 
(C) Section 21(b)(1)(A) is amended by 
striking ‘‘a deduction under section 151(c)’’ 
and inserting ‘‘a credit under section 32’’. 
(D) Section 21(e)(6)(A) is amended by 
striking ‘‘deduction under section 151(c)’’ and 
inserting ‘‘credit under section 32’’. 
(E) Section 25B(c)(2)(A) is amended by 
striking ‘‘deduction under section 151’’ and in-
serting ‘‘credit under section 32’’. 
(F) Section 35(d)(1)(B) is amended by 
striking ‘‘deduction under section 151(c)’’ and 
inserting ‘‘credit under section 32’’. 
(G) Section 35(g)(4) is amended by strik-
ing ‘‘deduction under section 151’’ and insert-
ing ‘‘credit under section 32’’. 
(H) Section 63(c)(5) is amended by strik-
ing ‘‘deduction under section 151’’ and insert-
ing ‘‘credit under section 32’’. 
(I) Section 129(c)(1) is amended by strik-
ing ‘‘deduction is allowable under section 151(c) 
(relating to personal exemptions for depend-
ents) ’’ and inserting ‘‘credit is allowable under 
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section 32 (relating to simplified family cred-
it)’’. 
(J) Section 135(c)(2)(A)(iii) is amended by 
striking ‘‘deduction under section 151’’ and in-
serting ‘‘credit under section 32’’. 
(K) Section 220(b)(6) is amended by strik-
ing ‘‘deduction under section 151’’ and insert-
ing ‘‘credit under section 32’’. 
(L) Section 221(c) is amended by striking 
‘‘deduction under section 151’’ and inserting 
‘‘credit under section 32’’. 
(M) Section 2032A(c)(7)(D) is amended by 
striking ‘‘section 151(c)(4)’’ and inserting ‘‘sec-
tion 32(c)(3)(F)’’. 
(N) Section 6012(a)(1)(A) is amended by 
striking ‘‘an exemption for such spouse under 
section 151(c)’’ and inserting ‘‘a credit for such 
spouse under section 32’’. 
(O) Section 7703(b)(1) is amended by 
striking ‘‘deduction for the taxable year under 
section 151’’ and inserting ‘‘credit for the tax-
able year under section 32’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart C of part IV of subchapter A of chapter 1 
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is amended by striking the item relating to section 32 and 
inserting the following: 
‘‘Sec. 32. Simplified family credit.’’. 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2005. 
(2) TRANSITIONAL RULE FOR NONCUSTODIAL 
PARENTS.— 
(A) IN GENERAL.—If, on the last day of 
the taxable year, an eligible individual is the 
noncustodial parent of a qualifying child, the 
Internal Revenue Code of 1986 shall be applied 
to such individual without regard to the amend-
ments made by this section. 
(B) DEFINITIONS.—For purposes of sub-
paragraph (A), the terms ‘‘eligible individual’’ 
and ‘‘qualifying child’’ shall have the meanings 
given such terms by section 32(c) of the Inter-
nal Revenue Code of 1986 (as amended by this 
section). 
(3) TAXPAYERS HELD HARMLESS.—In the case 
of a taxpayer who, for the first taxable year ending 
after the date of the enactment of this Act, would 
be allowed a deduction of the exemption amount 
under section 151(c) of the Internal Revenue Code 
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of 1986 (determined without regard to the amend-
ments made by this section) with respect to any de-
pendent of the taxpayer, the taxpayer may elect to 
apply the Internal Revenue Code of 1986 with re-
spect to such dependent as if amendments made by 
this section had not been enacted. 
SEC. 104. EXPANDED ACCESS TO COLLEGE. 
(a) REPLACEMENT WITH REFUNDABLE CREDIT FOR 
HIGHER EDUCATION EXPENSES.—Subpart C of part IV 
of subchapter A of chapter 1 (relating to refundable cred-
its) is amended by redesignating section 36 as section 37 
and by inserting after section 35 the following new section: 
‘‘SEC. 36. HIGHER EDUCATION EXPENSES. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this subtitle for the taxable year the amount 
equal to the qualified tuition and related expenses paid 
by the taxpayer during the taxable year (for education fur-
nished to the eligible student during any academic period 
beginning in such taxable year). 
‘‘(b) LIMITATIONS.— 
‘‘(1) DOLLAR
LIMITATION.—The amount al-
lowed as a credit under subsection (a) for a taxable 
year shall not exceed $3,000. 
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‘‘(2) ACADEMIC LIMITATIONS.—Expenses may 
not be taken into account under subsection (a) with 
respect to an eligible student for an academic year 
if— 
‘‘(A) in the case of a program at the un-
dergraduate level, expenses have been taken 
into account under this section in all prior tax-
able years with respect to such student for any 
program at the undergraduate level for the full- 
time equivalent of 4 academic years, and 
‘‘(B) in the case of a program at the grad-
uate level, expenses have been taken into ac-
count under this section in all prior taxable 
years with respect to such student for any pro-
gram at the graduate level for the full-time 
equivalent of 2 academic years. 
For purposes of the preceding sentence, the deter-
mination of full-time equivalent of academic years 
shall be under regulations issued by the Secretary. 
‘‘(c) ELIGIBLE STUDENT.—For purposes of this sub-
section, the term ‘eligible student’ means, with respect to 
any academic period, a student who— 
‘‘(1) 
meets 
the 
requirements 
of 
section 
484(a)(1) of the Higher Education Act of 1965 (20 
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U.S.C. 1091(a)(1)), as in effect on the date of the 
enactment of this section, and 
‘‘(2) is carrying at least 1/2 the normal full- 
time work load for the course of study the student 
is pursuing. 
‘‘(d) ELECTION NOT TO HAVE SECTION APPLY.—A 
taxpayer may elect not to have this section apply with re-
spect to the qualified tuition and related expenses of an 
individual for any taxable year. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED
TUITION
AND
RELATED
EX-
PENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
tuition and related expenses’ means tuition and 
fees required for the enrollment or attendance 
of— 
‘‘(i) the taxpayer, 
‘‘(ii) the taxpayer’s spouse, or 
‘‘(iii) any dependent of the taxpayer 
with respect to whom the taxpayer is al-
lowed a deduction under section 151, at an 
eligible educational institution for courses 
of instruction of such individual at such in-
stitution. 
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‘‘(B) EXCEPTION FOR EDUCATION INVOLV-
ING SPORTS, ETC.—Such term does not include 
expenses with respect to any course or other 
education involving sports, games, or hobbies, 
unless such course or other education is part of 
the individual’s degree program. 
‘‘(C) 
EXCEPTION
FOR
NONACADEMIC 
FEES.—Such term does not include student ac-
tivity fees, athletic fees, insurance expenses, or 
other expenses unrelated to an individual’s aca-
demic course of instruction. 
‘‘(2) ELIGIBLE EDUCATIONAL INSTITUTION.— 
The term ‘eligible educational institution’ means an 
institution— 
‘‘(A) which is described in section 481 of 
the Higher Education Act of 1965 (20 U.S.C. 
1088), as in effect on the date of the enactment 
of this section, and 
‘‘(B) which is eligible to participate in a 
program under title IV of such Act. 
‘‘(3) ACADEMIC
YEAR.—The term ‘academic 
year’ has the meaning given such term by section 
481(a)(2) of the Higher Education Act of 1965 (20 
U.S.C. 1088(a)(2)). 
‘‘(f) SPECIAL RULES.— 
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‘‘(1) 
IDENTIFICATION
REQUIREMENT.—No 
credit shall be allowed under subsection (a) to a tax-
payer with respect to the qualified tuition and re-
lated expenses of an individual unless the taxpayer 
includes the name and taxpayer identification num-
ber of such individual on the return of tax for the 
taxable year. 
‘‘(2) ADJUSTMENT
FOR
CERTAIN
SCHOLAR-
SHIPS, ETC.—The amount of qualified tuition and 
related expenses otherwise taken into account under 
subsection (a) with respect to an individual for an 
academic period shall be reduced by the sum of any 
amounts paid for the benefit of such individual 
which are allocable to such period as— 
‘‘(A) a qualified scholarship which is ex-
cludable from gross income under section 117, 
‘‘(B) an educational assistance allowance 
under chapter 30, 31, 32, 34, or 35 of title 38, 
United States Code, or under chapter 1606 of 
title 10, United States Code, and 
‘‘(C) a payment (other than a gift, be-
quest, devise, or inheritance within the meaning 
of section 102(a) for such individual’s edu-
cational expenses, or attributable to such indi-
vidual’s enrollment at an eligible educational in-
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stitution, which is excludable from gross income 
under any law of the United States. 
‘‘(3) TREATMENT OF EXPENSES PAID BY DE-
PENDENT.—If a deduction under section 151 with 
respect to an individual is allowed to another tax-
payer for a taxable year beginning in the calendar 
year in which such individual’s taxable year begins— 
‘‘(A) no credit shall be allowed under sub-
section (a) to such individual for such individ-
ual’s taxable year, and 
‘‘(B) qualified tuition and related expenses 
paid by such individual during such individual’s 
taxable year shall be treated for purposes of 
this section as paid by such other taxpayer. 
‘‘(4) 
TREATMENT
OF
CERTAIN
PREPAY-
MENTS.—If qualified tuition and related expenses 
are paid by the taxpayer during a taxable year for 
an academic period which begins during the first 3 
months following such taxable year, such academic 
period shall be treated for purposes of this section 
as beginning during such taxable year. 
‘‘(5) DENIAL OF DOUBLE BENEFIT.—No credit 
shall be allowed under this section for any expense 
for which a deduction is allowed under any other 
provision of this chapter. 
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‘‘(6) NO
CREDIT
FOR
MARRIED
INDIVIDUALS 
FILING SEPARATE RETURNS.—If the taxpayer is a 
married individual (within the meaning of section 
7703, this section shall apply only if the taxpayer 
and the taxpayer’s spouse file a joint return for the 
taxable year. 
‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is 
a nonresident alien individual for any portion of the 
taxable year, this section shall apply only if such in-
dividual is treated as a resident alien of the United 
States for purposes of this chapter by reason of an 
election under subsection (g) or (h) of section 6013. 
‘‘(g) REGULATIONS.—The Secretary may prescribe 
such regulations as may be necessary or appropriate to 
carry out this section, including regulations providing for 
a recapture of the credit allowed under this section in 
cases where there is a refund in a subsequent taxable year 
of any amount which was taken into account in deter-
mining the amount of such credit.’’. 
(b) REPEAL
OF CERTAIN CREDITS, EXCLUSIONS, 
AND DEDUCTIONS RELATING
TO HIGHER EDUCATION 
EXPENSES.—The following sections of the Internal Rev-
enue Code of 1986 are hereby repealed: 
(1) Section 25A (relating to Hope and Lifetime 
Learning Credits). 
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(2) Section 127 (relating to educational assist-
ance programs). 
(3) Section 222 (relating to qualified tuition 
and related expenses). 
(4) Section 117(d) (relating to qualified tuition 
reduction). 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Section 62(a) is amended by striking para-
graph (18). 
(2) The following sections are amended by 
striking 
‘‘222,’’: 
86(b)(2)(A), 
135(c)(4)(A), 
137(b)(3)(A), 
199(d)(2)(A), 
219(g)(3)(A)(2), 
221(b)(2)(C)(i), and 469(i)(F). 
(3) Section 51A(b)(5)(B) is amended by insert-
ing ‘‘or’’ after clause (ii), by striking clause (iii), and 
by redesignating clause (iv) as clause (iii). 
(4) 
Sections 
125(f), 
221(d)(2)(A), 
414(n)(3)(C), 
3121(a)(18), 
3401(a)(18), 
and 
6039D(d)(1) are each amended by striking ‘‘127,’’. 
(5) Section 132(j)(8) is amended by striking 
‘‘which are not excludable from gross income under 
section 127’’. 
(6) Section 137(c)(2) is amended by inserting 
‘‘(as in effect on the date of enactment of the Fair 
Flat Tax Act of 2006)’’ after ‘‘127(b)’’. 
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(7) Section 1397(a)(2)(A) is amended by strik-
ing clause (i). 
(8) Section 3306(b)(13) is amended by striking 
‘‘127, or’’. 
(9) Subparagraph (B) of section 72(t)(7) is 
amended by striking ‘‘section 25A(g)(2)’’ and insert-
ing ‘‘section 36(c)(3)(B)(2)(v)(I)’’. 
(10) Subparagraph (A) of section 135(d)(2) is 
amended by striking ‘‘section 25A’’ and inserting 
‘‘section 36’’. 
(11) Section 221(e) is amended— 
(A) in paragraph (2)(B), by striking ‘‘sec-
tion 
25A(g)(2)’’ 
and 
inserting 
‘‘section 
36(c)(3)(B)(2)(v)(I)’’ and by striking ‘‘section 
25A(f)(2)’’ 
and 
inserting 
‘‘section 
36(c)(3)(B)(2)(v)(I)’’, and 
(B) in paragraph (3), by striking ‘‘section 
25A(b)(3)’’ and inserting ‘‘section 36(c)’’. 
(12) Section 529 is amended— 
(A) by amending clause (v) of subsection 
(c)(3)(B) to read as follows: 
‘‘(v) COORDINATION WITH SCHOLAR-
SHIPS AND HIGHER EDUCATION REFUND-
ABLE CREDIT.—The total amount of quali-
fied higher education expenses with respect 
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to an individual for the taxable year shall 
be reduced with respect to an individual 
for an academic period— 
‘‘(I) by the sum of any amounts 
paid for the benefit of such individual 
which are allocable to such period 
as— 
‘‘(aa) a qualified scholarship 
which is excludable from gross 
income under section 117, 
‘‘(bb) an educational assist-
ance allowance under chapter 30, 
31, 32, 34, or 35 of title 38, 
United States Code, or under 
chapter 1606 of title 10, United 
States Code, and 
‘‘(cc) a payment (other than 
a gift, bequest, devise, or inherit-
ance within the meaning of sec-
tion 102(a) for such individual’s 
educational expenses, or attrib-
utable to such individual’s enroll-
ment at an eligible educational 
institution, which is excludable 
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from gross income under any law 
of the United States, and 
‘‘(II) by the amount of such ex-
penses which were taken into account 
in determining the credit allowed to 
the taxpayer or any other person 
under section 36.’’, and 
(B) in subsection (e)(3)(B)(i) by striking 
‘‘section 25A(b)(3)’’ and inserting ‘‘section 
36(c)’’. 
(13) Section 530(d) is amended— 
(A) in paragraph (2)(C)(i)(I) by striking 
‘‘section 25A(g)(2)’’ and inserting ‘‘section 
36(c)(3)(B)(2)(v)(I)’’, 
(B) in paragraph (2)(C)(i)(II) by striking 
‘‘section 25A’’ and inserting ‘‘section 36’’, and 
(C) in paragraph (4)(B)(iii) by striking 
‘‘section 25A(g)(2)’’ and inserting ‘‘section 
36(c)(3)(B)(2)(v)(I)’’. 
(14) Subsection (e) of section 6050S is amend-
ed by striking ‘‘section 25A (without regard to sub-
section (g)(2) thereof)’’ and inserting ‘‘section 36 
(without regard to clause (v)(I) of subsection 
(c)(3)(B)(2) thereof)’’. 
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(15) Subparagraph (J) of section 6213(g)(2) is 
amended by striking ‘‘section 25A(g)(1)’’ and insert-
ing ‘‘section 36(f)(1)’’. 
(16) Paragraph (2) of section 1324(b) of title 
31, United States Code, is amended by inserting ‘‘or 
36’’ after ‘‘section 35’’. 
(17) The table of sections for subpart C of part 
IV of subchapter A of chapter 1 is amended by re-
designating the item relating to section 36 as an 
item relating to section 37 and by inserting after the 
item relating to section 35 the following new item: 
‘‘Sec. 36. Higher education expenses’’. 
(18) The table of sections for subpart A of such 
part IV is amended by striking the item relating to 
section 25A. 
(19) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the 
item relating to section 127. 
(20) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by striking the 
item relating to section 222. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
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SEC. 105. DEDUCTION FOR MORTGAGE INTEREST WHETH-
ER OR NOT INDIVIDUAL ITEMIZES. 
(a) IN GENERAL.—Subsection (a) of section 62 (de-
fining adjusted gross income) is amended by redesignating 
paragraph (19) (as added by section 703(a) of the Amer-
ican Jobs Creation Act of 2004) as paragraph (20) and 
by inserting after paragraph (20) (as so redesignated) the 
following new paragraph: 
‘‘(21) QUALIFIED RESIDENCE INTEREST.—The 
deduction allowed under section 163 by reason of 
subsection (h)(2)(D) thereof.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to interest paid in taxable years 
beginning after the date of the enactment of this Act. 
SEC. 106. UNIVERSAL PENSION ACCOUNTS. 
(a) DEDUCTION FOR CONTRIBUTIONS.— 
(1) IN GENERAL.—Part VII of subchapter B of 
chapter 1 (relating to additional itemized deductions 
for individuals) is amended by inserting after section 
219 the following new section: 
‘‘SEC. 219A. CONTRIBUTIONS TO UNIVERSAL PENSION AC-
COUNTS. 
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an 
individual, there shall be allowed as a deduction an 
amount equal to the qualified universal pension contribu-
tions of the individual for the taxable year. 
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‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.— 
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to any individual for 
any taxable year shall not exceed the lesser of— 
‘‘(A) the deductible amount, or 
‘‘(B) an amount equal to the compensation 
includible in the individual’s gross income for 
such taxable year. 
‘‘(2) DEDUCTIBLE AMOUNT.—For purposes of 
paragraph (1)(A), the deductible amount shall be de-
termined in accordance with the following table: 
‘‘For taxable years beginning in calendar 
year— 
The de-
ductible 
amount 
is— 
2006 or 2007 ...............................................................
$4,000
2008 or thereafter ........................................................
$5,000. 
‘‘(3) COST-OF-LIVING ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2008, the $5,000 amount in paragraph (2) 
shall be increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar 
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year 2007’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof. 
‘‘(B) ROUNDING.—If any amount after ad-
justment under clause (i) is not a multiple of 
$500, such amount shall be rounded to the next 
lower multiple of $500. 
‘‘(c) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.— 
‘‘(1) IN GENERAL.—The deductible amount oth-
erwise applicable under subsection (b) for any tax-
able year shall be reduced (but not below zero) by 
the amount determined under paragraph (2). 
‘‘(2) AMOUNT OF REDUCTION.— 
‘‘(A) IN
GENERAL.—The amount deter-
mined under this paragraph with respect to any 
dollar limitation shall be the amount which 
bears the same ratio to such limitation as— 
‘‘(i) the excess of— 
‘‘(I) 
the 
taxpayer’s 
adjusted 
gross income for such taxable year, 
over 
‘‘(II) 
the 
applicable 
dollar 
amount, bears to 
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‘‘(ii) $15,000 ($10,000 in the case of 
a joint return or a married individual filing 
a separate return). 
‘‘(B) APPLICABLE DOLLAR AMOUNT.—For 
purposes of subparagraph (A), the applicable 
dollar amount is— 
‘‘(i) in the case of a taxpayer filing a 
joint return, $150,000, 
‘‘(ii) in the case of any other taxpayer 
(other than a married individual filing a 
separate return), $95,000, and 
‘‘(iii) in the case of a married indi-
vidual filing a separate return, zero. 
‘‘(C) NO REDUCTION BELOW $200 UNTIL 
COMPLETE
PHASE-OUT.—No dollar limitation 
shall be reduced below $200 under subpara-
graph (A) unless (without regard to this sub-
paragraph) such limitation is reduced to zero. 
‘‘(D) ROUNDING.—Any amount deter-
mined under this paragraph which is not a mul-
tiple of $10 shall be rounded to the next lowest 
$10. 
‘‘(3) ADJUSTED GROSS INCOME.—For purposes 
of this subsection, adjusted gross income of any tax-
payer shall be determined— 
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‘‘(A) after application of sections 86, 219, 
and 469, and 
‘‘(B) without regard to sections 135, 137, 
221, and 911 or the deduction allowable under 
this section. 
‘‘(4) MARRIED INDIVIDUALS FILING SEPARATE 
RETURNS.— 
‘‘(A) IN GENERAL.—In the case of a mar-
ried individual filing a separate return, the 
amount 
applicable 
under 
paragraph 
(2)(A)(i)(II) is zero. 
‘‘(B) SPECIAL RULE FOR MARRIED INDI-
VIDUALS
FILING
SEPARATELY
AND
LIVING 
APART.—A husband and wife who— 
‘‘(i) file separate returns for any tax-
able year, and 
‘‘(ii) live apart at all times during 
such taxable year, 
shall not be treated as married individuals for 
purposes of this subsection. 
‘‘(d) SPECIAL RULES FOR CERTAIN MARRIED INDI-
VIDUALS.— 
‘‘(1) IN GENERAL.—In the case of an individual 
to whom this paragraph applies for the taxable year, 
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the limitation of paragraph (1) of subsection (b) 
shall be equal to the lesser of— 
‘‘(A) the dollar amount in effect under 
subsection (b)(1)(A) for the taxable year, or 
‘‘(B) the sum of— 
‘‘(i) the compensation includible in 
such individual’s gross income for the tax-
able year, plus 
‘‘(ii) the compensation includible in 
the gross income of such individual’s 
spouse for the taxable year reduced by the 
amount allowed as a deduction under sub-
section (a) to such spouse for such taxable 
year. 
‘‘(2) INDIVIDUALS
TO
WHOM
PARAGRAPH
(1) 
APPLIES.—Paragraph (1) shall apply to any indi-
vidual if— 
‘‘(A) such individual files a joint return for 
the taxable year, and 
‘‘(B) the amount of compensation (if any) 
includible in such individual’s gross income for 
the taxable year is less than the compensation 
includible in the gross income of such individ-
ual’s spouse for the taxable year. 
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‘‘(e) QUALIFIED UNIVERSAL PENSION CONTRIBU-
TIONS.—For purposes of this section, the term ‘qualified 
universal pension contribution’ means any amount paid in 
cash for the taxable year by or on behalf of an individual 
to a Universal PensionAccount for such individual’s ben-
efit. 
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) ATTAINMENT OF AGE 701⁄2.—No deduction 
shall be allowed under this section with respect to 
any qualified retirement contribution for the benefit 
of an individual if such individual has attained age 
701⁄2 before the close of such individual’s taxable 
year for which the contribution was made. 
‘‘(2) RECONTRIBUTED
AMOUNTS.—No deduc-
tion shall be allowed under this section with respect 
to a rollover contribution to a Universal Pension Ac-
count. 
‘‘(3) DENIAL
OF
DEDUCTION
FOR
AMOUNT 
CONTRIBUTED TO INHERITED ACCOUNTS.—No de-
duction shall be allowed under this section with re-
spect to any amount paid to an inherited Universal 
Pension Account. 
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.— 
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‘‘(1) COMPENSATION.—For purposes of this 
section, the term ‘compensation’ has the meaning 
given to such term by section 219(f)(1). 
‘‘(2) MARRIED
INDIVIDUALS.—The maximum 
deduction under subsection (b) shall be computed 
separately for each individual, and this section shall 
be applied without regard to any community prop-
erty laws. 
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED 
MADE.—A taxpayer shall be deemed to have made a 
contribution to a Universal Pension Account on the 
last day of the preceding taxable year if the con-
tribution is made on account of such taxable year 
and is made not later than the time prescribed by 
law for filing the return for such taxable year (not 
including extensions thereof). 
‘‘(4) EMPLOYER PAYMENTS.—For purposes of 
this title, any amount paid by an employer to a Uni-
versal Pension Account shall be treated as payment 
of compensation to the employee (other than a self- 
employed individual who is an employee within the 
meaning of section 401(c)(1)) includible in the em-
ployee’s gross income in the taxable year for which 
the amount was contributed, whether or not a de-
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duction for such payment is allowable under this sec-
tion to the employee. 
‘‘(5) EXCESS
CONTRIBUTIONS
TREATED
AS 
CONTRIBUTION
MADE
DURING
SUBSEQUENT
YEAR 
FOR WHICH THERE IS AN UNUSED LIMITATION.—A 
rule similar to the rule of section 219(f)(5) shall 
apply for purposes of this section.’’. 
(2) DEDUCTION ALLOWED WHETHER OR NOT 
TAXPAYER ITEMIZES DEDUCTIONS.—Subsection (a) 
of section 62 is amended by inserting after para-
graph (20) the following new paragraph: 
‘‘(21) CONTRIBUTIONS TO UNIVERSAL PENSION 
ACCOUNTS.—The deduction allowed by section 
219A.’’. 
(3) TECHNICAL AMENDMENTS.— 
(A) Subparagraph (B) of section 135(c)(4) 
is amended by striking ‘‘and 219’’ and inserting 
‘‘219, and 219A’’. 
(B) Subparagraph (B) of section 137(b)(3) 
is amended by inserting ‘‘219A,’’ after ‘‘219,’’. 
(C) Subparagraph (A) of section 199(d)(2) 
is amended by inserting ‘‘219A,’’ after ‘‘219,’’. 
(D) Clause (ii) of section 219(g)(3)(A) is 
amended by inserting ‘‘219A,’’ after ‘‘137,’’. 
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(E) Clause (ii) of section 221(b)(2)(C) is 
amended by inserting ‘‘219A,’’ after ‘‘219,’’. 
(F) Clause (ii) of section 222(b)(2)(C) is 
amended by inserting ‘‘219A,’’ after ‘‘219,’’. 
(G) Clause (iii) of section 469(i)(3)(F) is 
amended by inserting ‘‘219A,’’ after ‘‘219,’’. 
(4) CLERICAL AMENDMENT.—The table of sec-
tions for part VII of subchapter B of chapter 1 is 
amended by inserting after the item relating to sec-
tion 219 the following new item: 
‘‘Sec. 219A. Contributions to Universal Pension Accounts.’’. 
(b) UNIVERSAL PENSION ACCOUNTS.— 
(1) IN GENERAL.—Subpart A of part I of sub-
chapter D of chapter 1 is amended by inserting after 
section 408A the following new section: 
‘‘SEC. 408B. UNIVERSAL PENSION ACCOUNTS. 
‘‘(a) IN GENERAL.—For purposes of this title, the 
term ‘Universal Pension Account’ means a trust created 
or organized in the United States for the exclusive benefit 
of an individual or such individual’s beneficiaries, but only 
if the written governing instrument creating the trust 
meets the following requirements: 
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (b)(3) or in section 
402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no con-
tribution will be accepted unless it is in cash, and 
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contributions will not be accepted for the taxable 
year on behalf of any individual in excess of the de-
ductible amount in effect for such taxable year 
under section 219A(b)(2). 
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates 
to the satisfaction of the Secretary that the manner 
in which such other person will administer the trust 
will be consistent with the requirements of this sec-
tion. 
‘‘(3) No part of the trust funds will be invested 
in life insurance contracts. 
‘‘(4) The interest of an individual in the bal-
ance in such individual’s account is nonforfeitable. 
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust 
fund or common investment fund. 
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9) 
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the 
trust is maintained. 
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.— 
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‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount distributed out 
of a Universal Pension Account shall be included in 
gross income by the distributee without regard to 
basis. 
‘‘(2) 
EXCEPTION
FOR
IMMEDIATE
ANNU-
ITIES.—If any distribution is a part of a series of 
substantially equal periodic payments (not less fre-
quently than annually) made for the life (or life ex-
pectancy) of the distributee or the joint lives (or 
joint life expectancies) of such distributee and such 
distributee’s designated beneficiary, the amount in-
cludible in gross income under paragraph (1) shall 
be determined in the manner provided under section 
72. The rules of section 408(d)(2) shall apply for 
purposes of the preceding sentence. 
‘‘(3) EXCEPTION FOR ROLLOVERS.— 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply to any amount distributed out of a 
Universal Pension Account to the individual for 
whose benefit the account is maintained if the 
entire amount received (including money and 
any other property) is paid into a Universal 
Pension Account (other than an endowment 
contract) for the benefit of such individual not 
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later than the 60th day after the day on which 
the individual receives the distribution. 
‘‘(B) LIMITATION.—This paragraph does 
not apply to any amount described in subpara-
graph (A) received by an individual from a Uni-
versal Pension Account if at any time during 
the 1-year period ending on the day of such re-
ceipt such individual received any other amount 
described in that subparagraph from a Uni-
versal Pension Account which was not includible 
in such individual’s gross income because of the 
application of this paragraph. 
‘‘(C) SPECIAL
RULES.—Rules similar to 
the rules of subparagraphs (C), (D), (E), (F), 
and (I) of section 408(d)(3) shall apply for pur-
poses of this paragraph. 
‘‘(4) EXCEPTION
FOR
QUALIFIED
DISTRIBU-
TIONS.— 
‘‘(A) DISTRIBUTIONS
FOR
HIGHER
EDU-
CATION
EXPENSES.—Paragraph (1) shall not 
apply to distributions to an individual to the ex-
tent such distributions do not exceed the quali-
fied higher education expenses (as defined in 
section 72(t)(7)) of the taxpayer for the taxable 
year. 
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‘‘(B) DISTRIBUTIONS
FOR
FIRST
HOME 
PURCHASES.—Paragraph (1) shall not apply to 
distributions to an individual which are quali-
fied first-time homebuyer distributions (as de-
fined in section 72(t)(8)). 
‘‘(5) OTHER DISTRIBUTIONS.—Rules similar to 
the rules of paragraphs (4) and (6) of section 
408(d) shall apply for purposes of this subsection. 
‘‘(c) TAX TREATMENT OF ACCOUNTS.— 
‘‘(1) EXEMPTION
FROM
TAX.—Any Universal 
Pension Account is exempt from taxation under this 
subtitle unless such account has ceased to be a Uni-
versal Pension Account by reason of paragraph (2). 
Notwithstanding the preceding sentence, any such 
account is subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations). 
‘‘(2) LOSS
OF
EXEMPTION
FOR
PROHIBITED 
TRANSACTION.—Rules similar to the rules of section 
408(e)(2) shall apply for purposes of this subsection. 
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY; PURCHASE OF ENDOWMENT CONTRACT; COM-
MINGLING
AMOUNTS
IN
CERTAIN
COMMON
TRUST 
FUNDS AND COMMON INVESTMENT FUNDS.—Rules 
similar to the rules of paragraphs (4), (5), and (6) 
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of section 408(e) shall apply for purposes of this 
subsection. 
‘‘(d) ROLLOVERS PERMITTED FROM IRA’S, ETC.— 
Solely for purposes of determining whether any rollover 
may be made to a Universal Pension Account, a Universal 
Pension Account shall be treated as if it were an individual 
retirement plan. No amount may be distributed in a roll-
over other than to a Universal Pension Account. 
‘‘(e) SPECIAL RULES.— 
‘‘(1) COMMUNITY PROPERTY LAWS.—This sec-
tion shall be applied without regard to any commu-
nity property laws. 
‘‘(2) CUSTODIAL ACCOUNTS.—Rules similar to 
the rules of section 408(g) shall apply for purposes 
of this subsection. 
‘‘(3) INVESTMENT IN COLLECTIBLES TREATED 
AS DISTRIBUTIONS.—The acquisition by a Universal 
Pension Account of any collectible (as defined in sec-
tion 408(m)) shall be treated (for purposes of this 
section and section 402) as a distribution from such 
account in an amount equal to the cost to such ac-
count of such collectible. 
‘‘(f) REPORTS.—The trustee of a Universal Pension 
Account shall make such reports regarding such Account 
to the Secretary and to the individuals for whom the Ac-
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count is, or is to be, maintained with respect to contribu-
tions (and the years to which they relate), distributions, 
aggregating $10 or more in any calendar year and such 
other matters as the Secretary may require. The reports 
required by this subsection— 
‘‘(1) shall be filed at such time and in such 
manner as the Secretary prescribes, and 
‘‘(2) shall be furnished to individuals— 
‘‘(A) not later than January 31 of the cal-
endar year following the calendar year to which 
such reports relate, and 
‘‘(B) in such manner as the Secretary pre-
scribes.’’. 
(2) TECHNICAL AMENDMENTS.— 
(A) EXCESS CONTRIBUTIONS.— 
(i) IN
GENERAL.—Subsection (a) of 
section 4973 is amended by redesignating 
paragraphs (2), (3), and (4) as paragraphs 
(3), (4), and (5), respectively, and by in-
serting after paragraph (1) the following 
new paragraph: 
‘‘(2) a Universal Pension Account (as defined in 
section 408B),’’. 
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(ii) DETERMINATION
OF
EXCESS.— 
Section 4973 is amended by adding at the 
end the following new subsection: 
‘‘(i) EXCESS CONTRIBUTIONS TO UNIVERSAL PEN-
SION ACCOUNTS.—Rules similar to the rules under sub-
section (b) shall apply to any Universal Pension Account 
(as defined in section 408B).’’. 
(B) 
EARLY
WITHDRAWAL
PENALTY, 
ETC.—Subsection (c) of section 4974 is amend-
ed by striking ‘‘or’’ at the end of paragraph (4), 
by striking the period at the end of paragraph 
(5) and inserting ‘‘, or’’, and by inserting after 
paragraph (5) the following new paragraph: 
‘‘(6) a Universal Pension Account described in 
section 408B.’’. 
(C) PROHIBITED TRANSACTIONS.— 
(i) IN
GENERAL.—Paragraph (1) of 
section 4975(e) is amended by redesig-
nating subparagraphs (D), (E), and (F) as 
subparagraphs (E), (F), and (G), respec-
tively, and by inserting after subparagraph 
(C) the following new subparagraph: 
‘‘(D) a Universal Pension Account de-
scribed in section 408B,’’. 
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(ii) EXCEPTION.—Subsection (c) of 
section 4975 is amended by adding at the 
end the following new paragraph: 
‘‘(5) SPECIAL RULE FOR UNIVERSAL PENSION 
ACCOUNTS.—An individual for whose benefit a Uni-
versal Pension Account is established shall be ex-
empt from the tax imposed by this section with re-
spect to any transaction concerning such Account 
(which would otherwise be taxable under this sec-
tion) if section 408B(d)(2) applies with respect to 
such transaction.’’. 
(D) FAILURE
TO
PROVIDE
REPORTS.— 
Paragraph (2) of section 6693(a) (relating to 
failure to provide reports on individual retire-
ment accounts or annuities) is amended by re-
designating subparagraphs (C) and (D) as sub-
paragraphs (D) and (E), respectively, and by 
inserting after subparagraph (B) the following 
new subparagraph: 
‘‘(C) a Universal Pension Account de-
scribed in section 408B,’’. 
(E) W–2 REPORTING.—Subsection (a) of 
section 6051 is amended by striking ‘‘and’’ at 
the end of paragraph (10), by striking the pe-
riod at the end of paragraph (11) and inserting 
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‘‘, and’’, and by inserting after paragraph (11) 
the following new paragraph: 
‘‘(12) the total amount of elective employer con-
tributions under section 408B(f)(2)(A).’’. 
(F) OTHER
TECHNICAL
AMENDMENTS.— 
The following provisions are each amended by 
inserting ‘‘408B(f),’’ after ‘‘408(p),’’: 
(i) Subsections (b) and (c) of section 
414. 
(ii) Section 414(m)(4)(B). 
(iii) Section 414(n)(3)(B). 
(iv) Section 414(u)(1)(C). 
(G) ELECTIVE
CONTRIBUTIONS
SUBJECT 
TO FICA AND FUTA.— 
(i) Paragraph (5) of section 3121(a) 
is amended by striking ‘‘or’’ at the end of 
subparagraph (H), by striking the semi-
colon at the end of subparagraph (I) and 
inserting ‘‘, or’’, and by adding at the end 
the following new subparagraph: 
‘‘(J) under an arrangement to which sec-
tion 408B(f) applies, other than any elective 
contributions under paragraph (2)(A) thereof;’’. 
(ii) Paragraph (4) of section 209(a) of 
the Social Security Act is amended by add-
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ing at the end ‘‘or (J) under an arrange-
ment to which section 408B(f) of such 
Code applies, other than any elective con-
tributions under paragraph (2)(A) there-
of;’’. 
(iii) Paragraph (5) of section 3306(b) 
is amended by striking ‘‘or’’ at the end of 
subparagraph (G), by striking the semi-
colon at the end of subparagraph (H) and 
inserting ‘‘, or’’, and by adding at the end 
the following new subparagraph: 
‘‘(I) under an arrangement to which sec-
tion 408B(f) applies, other than any elective 
contributions under paragraph (2)(A) thereof;’’. 
(iv) 
Paragraph 
(12) 
of 
section 
3401(a) is amended by adding at the end 
the following new subparagraph: 
‘‘(F) under an arrangement to which sec-
tion 408B(f) applies; or’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart A of part I of subchapter D of 
chapter 1 is amended by inserting after the item re-
lating to section 408A the following new item: 
‘‘Sec. 408B. Universal Pension Accounts.’’. 
(c) TERMINATION
OF CONTRIBUTIONS
TO INDI-
VIDUAL RETIREMENT PLANS, INCLUDING ROTH IRA’S.— 
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(1) Subsection (a) of section 408 is amended by 
adding at the end the following new paragraph: 
‘‘(7) No contribution (other than a rollover con-
tribution referred to in paragraph (1)) shall be ac-
cepted for any taxable year beginning after Decem-
ber 31, 2005, unless such account is a simplified 
employee pension or a simple retirement account.’’. 
(2) Subsection (b) of section 408 is amended by 
inserting after paragraph (4) the following new 
paragraph: 
‘‘(5) No contribution shall be accepted for any 
taxable year beginning after December 31, 2005, un-
less such annuity is a simplified employee pension or 
a simple retirement account.’’. 
(d) CREDIT FOR SMALL EMPLOYERS MAINTAINING 
SALARY REDUCTION ARRANGEMENTS
FOR UNIVERSAL 
PENSION ACCOUNTS.— 
(1) IN GENERAL.—Subpart D of part IV of 
subchapter A of chapter 1 (relating to business re-
lated credits) is amended by adding at the end the 
following new section: 
‘‘SEC. 45N. SMALL EMPLOYER UNIVERSAL PENSION AC-
COUNT COSTS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible employer, the small employer 
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Universal Pension Account cost credit determined under 
this section for any taxable year is the aggregate of the 
amount determined under subsection (b) for each em-
ployee participating in an arrangement meeting the re-
quirements of section 408B(f). 
‘‘(b) AMOUNT OF CREDIT.—The amount of the credit 
determined under this section for any taxable year with 
respect to an employee shall be— 
‘‘(1) $50 for the taxable year which includes the 
date that the arrangement referred to subsection (a) 
becomes effective, 
‘‘(2) $20 for each of the 3 taxable years fol-
lowing the taxable year described in paragraph (1), 
and 
‘‘(3) zero for any other taxable year. 
‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this 
section, the term ‘eligible employer’ means, with respect 
to any taxable year, an employer which had no more than 
100 employees on a typical business day during the most 
recent calendar year ending before such taxable year. For 
purposes of the preceding sentence, all persons treated as 
a single employer under subsection (a) or (b) of section 
52, or subsection (n) or (o) of section 414, shall be treated 
as one person.’’. 
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(2) CREDIT ALLOWED AS PART OF GENERAL 
BUSINESS CREDIT.—Section 38(b) (defining current 
year business credit) is amended by striking ‘‘plus’’ 
at the end of paragraph (25), by striking the period 
at the end of paragraph (26) and inserting ‘‘, plus’’, 
and by adding at the end the following new para-
graph: 
‘‘(27) in the case of an eligible employer (as de-
fined in section 45J(c)), the small employer Uni-
versal Pension Account cost credit determined under 
section 45J(a).’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart D of part IV of subchapter A of 
chapter 1 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 45N. Small employer Universal Pension Account costs’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 107. REPEAL OF INDIVIDUAL ALTERNATIVE MINIMUM 
TAX. 
(a) IN GENERAL.—Section 55(a) (relating to alter-
native minimum tax imposed) is amended by adding at 
the end the following new flush sentence: 
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‘‘For purposes of this title, the tentative minimum tax on 
any taxpayer other than a corporation for any taxable year 
beginning after December 31, 2005, shall be zero.’’. 
(b) MODIFICATION
OF LIMITATION
ON USE
OF 
CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.— 
Subsection (c) of section 53 (relating to credit for prior 
year minimum tax liability) is amended to read as follows: 
‘‘(c) LIMITATION.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the credit allowable under subsection (a) 
for any taxable year shall not exceed the excess (if 
any) of— 
‘‘(A) the regular tax liability of the tax-
payer for such taxable year reduced by the sum 
of the credits allowable under subparts A, B, D, 
E, and F of this part, over 
‘‘(B) the tentative minimum tax for the 
taxable year. 
‘‘(2) 
TAXABLE
YEARS
BEGINNING
AFTER 
2005.—In the case of any taxable year beginning 
after 2005, the credit allowable under subsection (a) 
to a taxpayer other than a corporation for any tax-
able year shall not exceed 90 percent of the regular 
tax liability of the taxpayer for such taxable year re-
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duced by the sum of the credits allowable under sub-
parts A, B, D, E, and F of this part.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
TITLE II—INCOME TAX 
REFORMS 
Subtitle A—Provisions Relating to 
Corporate and Business Income 
Tax 
SEC. 201. CORPORATE FLAT TAX. 
(a) IN GENERAL.—Subsection (b) of section 11 (re-
lating to tax imposed) is amended to read as follows: 
‘‘(b) AMOUNT OF TAX.—The amount of tax imposed 
by subsection (a) shall be equal to 35 percent of the tax-
able income.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 280C(c)(3)(B)(ii)(II) is amended by 
striking ‘‘maximum rate of tax under section 
11(b)(1)’’ and inserting ‘‘rate of tax under section 
11(b)’’. 
(2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 
860K(d)(2)(A)(ii), 
860K(e)(1)(B)(ii), 
1446(b)(2)(B), and 7874(e)(1)(B) are each amended 
by striking ‘‘highest rate of tax specified in section 
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11(b)(1)’’ and inserting ‘‘rate of tax specified in sec-
tion 11(b)’’. 
(3) Section 904(b)(3)(D)(ii) is amended by 
striking ‘‘(determined without regard to the last sen-
tence of section 11(b)(1))’’. 
(4) Section 962 is amended by striking sub-
section (c) and by redesignating subsection (d) as 
subsection (c). 
(5) Section 1201(a) is amended by striking 
‘‘(determined without regard to the last 2 sentences 
of section 11(b)(1))’’. 
(6) Section 1561(a) is amended— 
(A) by striking paragraph (1) and by re-
designating paragraphs (2), (3), and (4) as 
paragraphs (1), (2), and (3), respectively, 
(B) by striking ‘‘The amounts specified in 
paragraph (1), the’’ and inserting ‘‘The’’, 
(C) by striking ‘‘paragraph (2)’’ and in-
serting ‘‘paragraph (1)’’, 
(D) by striking ‘‘paragraph (3)’’ both 
places it appears and inserting ‘‘paragraph 
(2)’’, 
(E) by striking ‘‘paragraph (4)’’ and in-
serting ‘‘paragraph (3)’’, and 
(F) by striking the fourth sentence. 
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(7) Subsection (b) of section 1561 is amended 
to read as follows: 
‘‘(b) CERTAIN SHORT TAXABLE YEARS.—If a cor-
poration has a short taxable year which does not include 
a December 31 and is a component member of a controlled 
group of corporations with respect to such taxable year, 
then for purposes of this subtitle, the amount to be used 
in computing the accumulated earnings credit under sec-
tion 535(c)(2) and (3) of such corporation for such taxable 
year shall be the amount specified in subsection (a)(1) di-
vided by the number of corporations which are component 
members of such group on the last day of such taxable 
year. For purposes of the preceding sentence, section 
1563(b) shall be applied as if such last day were sub-
stituted for December 31.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIR-
CRAFT. 
(a) IN GENERAL.—Section 162 (relating to trade or 
business expenses) is amended by redesignating subsection 
(q) as subsection (r) and b inserting after subsection (p) 
the following new subsection: 
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