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108TH CONGRESS 
2D SESSION 
H. R. 4520
To amend the Internal Revenue Code of 1986 to remove impediments in 
such Code and make our manufacturing, service, and high-technology 
businesses and workers more competitive and productive both at home 
and abroad. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 4, 2004
Mr. THOMAS (for himself, Mr. CRANE, Mr. SHAW, Mrs. JOHNSON of Con-
necticut, Mr. HOUGHTON, Mr. HERGER, Mr. MCCRERY, Mr. CAMP, Mr. 
RAMSTAD, Mr. SAM JOHNSON of Texas, Ms. DUNN, Mr. COLLINS, Mr. 
PORTMAN, Mr. ENGLISH, Mr. HAYWORTH, Mr. HULSHOF, Mr. MCINNIS, 
Mr. LEWIS of Kentucky, Mr. FOLEY, Mr. BRADY of Texas, and Mr. 
RYAN of Wisconsin) introduced the following bill; which was referred to 
the Committee on Ways and Means, and in addition to the Committee 
on Agriculture, for a period to be subsequently determined by the Speak-
er, in each case for consideration of such provisions as fall within the ju-
risdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to remove 
impediments in such Code and make our manufacturing, 
service, and high-technology businesses and workers more 
competitive and productive both at home and abroad.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘American Jobs Creation Act of 2004’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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 of 
this Act is as follows:
Sec. 1. Short title; etc. 
TITLE I—END SANCTIONS AND REDUCE CORPORATE TAX RATES 
FOR DOMESTIC MANUFACTURING AND SMALL CORPORATIONS 
Sec. 101. Repeal of exclusion for extraterritorial income. 
Sec. 102. Reduced corporate income tax rate for domestic production activities 
income. 
Sec. 103. Reduced corporate income tax rate for small corporations. 
TITLE II—JOB CREATION TAX INCENTIVES FOR 
MANUFACTURERS, SMALL BUSINESSES, AND FARMERS 
Subtitle A—Small Business Expensing 
Sec. 201. 2-year extension of increased expensing for small business. 
Subtitle B—Depreciation 
Sec. 211. Recovery period for depreciation of certain leasehold improvements 
and restaurant property. 
Sec. 212. Modification of depreciation allowance for aircraft. 
Sec. 213. Modification of placed in service rule for bonus depreciation property. 
Subtitle C—S Corporation Reform and Simplification 
Sec. 221. Members of family treated as 1 shareholder. 
Sec. 222. Increase in number of eligible shareholders to 100. 
Sec. 223. Expansion of bank S corporation eligible shareholders to include 
IRAs. 
Sec. 224. Disregard of unexercised powers of appointment in determining po-
tential current beneficiaries of ESBT. 
Sec. 225. Transfer of suspended losses incident to divorce, etc.
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Sec. 226. Use of passive activity loss and at-risk amounts by qualified sub-
chapter S trust income beneficiaries. 
Sec. 227. Exclusion of investment securities income from passive income test 
for bank S corporations. 
Sec. 228. Treatment of bank director shares. 
Sec. 229. Relief from inadvertently invalid qualified subchapter S subsidiary 
elections and terminations. 
Sec. 230. Information returns for qualified subchapter S subsidiaries. 
Sec. 231. Repayment of loans for qualifying employer securities. 
Subtitle D—Alternative Minimum Tax Relief 
Sec. 241. Foreign tax credit under alternative minimum tax. 
Sec. 242. Expansion of exemption from alternative minimum tax for small cor-
porations. 
Sec. 243. Income averaging for farmers not to increase alternative minimum 
tax. 
Subtitle E—Restructuring of Incentives for Alcohol Fuels, Etc. 
Sec. 251. Reduced rates of tax on gasohol replaced with excise tax credit; re-
peal of other alcohol-based fuel incentives; etc. 
Sec. 252. Alcohol fuel subsidies borne by general fund. 
Subtitle F—Stock Options and Employee Stock Purchase Plan Stock Options 
Sec. 261. Exclusion of incentive stock options and employee stock purchase 
plan stock options from wages. 
Subtitle G—Incentives to Reinvest Foreign Earnings in United States 
Sec. 271. Incentives to reinvest foreign earnings in United States. 
Subtitle H—Other Incentive Provisions 
Sec. 281. Special rules for livestock sold on account of weather-related condi-
tions. 
Sec. 282. Payment of dividends on stock of cooperatives without reducing pa-
tronage dividends. 
Sec. 283. Capital gain treatment under section 631(b) to apply to outright 
sales by landowners. 
Sec. 284. Distributions from publicly traded partnerships treated as qualifying 
income of regulated investment companies. 
Sec. 285. Improvements related to real estate investment trusts. 
Sec. 286. Treatment of certain dividends of regulated investment companies. 
Sec. 287. Taxation of certain settlement funds. 
Sec. 288. Expansion of human clinical trials qualifying for orphan drug credit. 
Sec. 289. Simplification of excise tax imposed on bows and arrows. 
Sec. 290. Repeal of excise tax on fishing tackle boxes. 
Sec. 291. Sonar devices suitable for finding fish. 
Sec. 292. Income tax credit to distilled spirits wholesalers for cost of carrying 
Federal excise taxes on bottled distilled spirits. 
Sec. 293. Suspension of occupational taxes relating to distilled spirits, wine, 
and beer. 
TITLE III—TAX REFORM AND SIMPLIFICATION FOR UNITED 
STATES BUSINESSES
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Sec. 301. Interest expense allocation rules. 
Sec. 302. Recharacterization of overall domestic loss. 
Sec. 303. Reduction to 2 foreign tax credit baskets. 
Sec. 304. Look-thru rules to apply to dividends from noncontrolled section 902 
corporations. 
Sec. 305. Attribution of stock ownership through partnerships to apply in de-
termining section 902 and 960 credits. 
Sec. 306. Clarification of treatment of certain transfers of intangible property. 
Sec. 307. United States property not to include certain assets of controlled for-
eign corporation. 
Sec. 308. Election not to use average exchange rate for foreign tax paid other 
than in functional currency. 
Sec. 309. Repeal of withholding tax on dividends from certain foreign corpora-
tions. 
Sec. 310. Provide equal treatment for interest paid by foreign partnerships and 
foreign corporations. 
Sec. 311. Look-thru treatment of payments between related controlled foreign 
corporations under foreign personal holding company income 
rules. 
Sec. 312. Look-thru treatment for sales of partnership interests. 
Sec. 313. Repeal of foreign personal holding company rules and foreign invest-
ment company rules. 
Sec. 314. Determination of foreign personal holding company income with re-
spect to transactions in commodities. 
Sec. 315. Modifications to treatment of aircraft leasing and shipping income. 
Sec. 316. Modification of exceptions under subpart F for active financing. 
TITLE IV—EXTENSION OF CERTAIN EXPIRING PROVISIONS 
Sec. 401. Allowance of nonrefundable personal credits against regular and min-
imum tax liability. 
Sec. 402. Extension of research credit. 
Sec. 403. Extension of credit for electricity produced from certain renewable re-
sources. 
Sec. 404. Indian employment tax credit. 
Sec. 405. Work opportunity credit. 
Sec. 406. Welfare-to-work credit. 
Sec. 407. Certain expenses of elementary and secondary school teachers. 
Sec. 408. Extension of accelerated depreciation benefit for property on Indian 
reservations. 
Sec. 409. Charitable contributions of computer technology and equipment used 
for educational purposes. 
Sec. 410. Expensing of environmental remediation costs. 
Sec. 411. Availability of medical savings accounts. 
Sec. 412. Taxable income limit on percentage depletion for oil and natural gas 
produced from marginal properties. 
Sec. 413. Qualified zone academy bonds. 
Sec. 414. District of Columbia. 
Sec. 415. Extension of certain New York Liberty Zone bond financing. 
Sec. 416. Disclosures relating to terrorist activities. 
Sec. 417. Disclosure of return information relating to student loans. 
Sec. 418. Cover over of tax on distilled spirits. 
Sec. 419. Joint review of strategic plans and budget for the Internal Revenue 
Service. 
Sec. 420. Parity in the application of certain limits to mental health benefits.
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Sec. 637. Clarification of banking business for purposes of determining invest-
ment of earnings in United States property. 
Sec. 638. Alternative tax for certain small insurance companies. 
Sec. 639. Denial of deduction for interest on underpayments attributable to 
nondisclosed reportable transactions. 
Sec. 640. Clarification of rules for payment of estimated tax for certain deemed 
asset sales. 
Sec. 641. Recognition of gain from the sale of a principal residence acquired 
in a like-kind exchange within 5 years of sale. 
Sec. 642. Prevention of mismatching of interest and original issue discount de-
ductions and income inclusions in transactions with related for-
eign persons. 
Sec. 643. Exclusion from gross income for interest on overpayments of income 
tax by individuals. 
Sec. 644. Deposits made to suspend running of interest on potential underpay-
ments. 
Sec. 645. Partial payment of tax liability in installment agreements. 
Sec. 646. Affirmation of consolidated return regulation authority. 
PART III—LEASING 
Sec. 647. Reform of tax treatment of certain leasing arrangements. 
Sec. 648. Limitation on deductions allocable to property used by governments 
or other tax-exempt entities. 
Sec. 649. Effective date. 
Subtitle C—Reduction of Fuel Tax Evasion 
Sec. 651. Exemption from certain excise taxes for mobile machinery. 
Sec. 652. Taxation of aviation-grade kerosene. 
Sec. 653. Dye injection equipment. 
Sec. 654. Authority to inspect on-site records. 
Sec. 655. Registration of pipeline or vessel operators required for exemption of 
bulk transfers to registered terminals or refineries. 
Sec. 656. Display of registration. 
Sec. 657. Penalties for failure to register and failure to report. 
Sec. 658. Collection from customs bond where importer not registered. 
Sec. 659. Modifications of tax on use of certain vehicles. 
Sec. 660. Modification of ultimate vendor refund claims with respect to farm-
ing. 
Sec. 661. Dedication of revenues from certain penalties to the Highway Trust 
Fund. 
Sec. 662. Taxable fuel refunds for certain ultimate vendors. 
Sec. 663. Two-party exchanges. 
Sec. 664. Simplification of tax on tires. 
Subtitle D—Nonqualified Deferred Compensation Plans 
Sec. 671. Treatment of nonqualified deferred compensation plans. 
Subtitle E—Other Revenue Provisions 
Sec. 681. Qualified tax collection contracts. 
Sec. 682. Treatment of charitable contributions of patents and similar property. 
Sec. 683. Increased reporting for noncash charitable contributions. 
Sec. 684. Donations of motor vehicles, boats, and aircraft. 
Sec. 685. Extension of amortization of intangibles to sports franchises.
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Sec. 686. Modification of continuing levy on payments to Federal venders. 
Sec. 687. Modification of straddle rules. 
Sec. 688. Addition of vaccines against hepatitis A to list of taxable vaccines. 
Sec. 689. Addition of vaccines against influenza to list of taxable vaccines. 
Sec. 690. Extension of IRS user fees. 
Sec. 691. COBRA fees. 
Sec. 692. Safe harbor for churches. 
TITLE VII—MARKET REFORM FOR TOBACCO GROWERS 
Sec. 701. Short title. 
Sec. 702. Effective date. 
Subtitle A—Termination of Federal Tobacco Quota and Price Support 
Programs 
Sec. 711. Termination of tobacco quota program and related provisions. 
Sec. 712. Termination of tobacco price support program and related provisions. 
Sec. 713. Liability. 
Subtitle B—Transitional Payments to Tobacco Quota Holders and Active 
Producers of Tobacco 
Sec. 721. Definitions of active tobacco producer and quota holder. 
Sec. 722. Payments to tobacco quota holders. 
Sec. 723. Transition payments for active producers of quota tobacco. 
Sec. 724. Resolution of disputes. 
Sec. 725. Source of funds for payments.
TITLE I—END SANCTIONS AND 
REDUCE 
CORPORATE 
TAX 
RATES FOR DOMESTIC MANU-
FACTURING AND SMALL COR-
PORATIONS 
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 
INCOME. 
(a) IN GENERAL.—Section 114 is hereby repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Subpart E of part III of subchapter N of 
chapter 1 (relating to qualifying foreign trade in-
come) is hereby repealed.
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(2) The table of subparts for such part III is 
amended by striking the item relating to subpart E. 
(3) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the 
item relating to section 114. 
(4) 
The 
second 
sentence 
of 
section 
56(g)(4)(B)(i) is amended by striking ‘‘114 or’’. 
(5) Section 275(a) is amended—
(A) by inserting ‘‘or’’ at the end of para-
graph (4)(A), by striking ‘‘or’’ at the end of 
paragraph (4)(B) and inserting a period, and 
by striking subparagraph (C), and 
(B) by striking the last sentence. 
(6) Paragraph (3) of section 864(e) is amend-
ed—
(A) by striking: 
‘‘(3) TAX-EXEMPT
ASSETS
NOT
TAKEN
INTO 
ACCOUNT.—
‘‘(A) IN GENERAL.—For purposes of’’; and 
inserting: 
‘‘(3) TAX-EXEMPT
ASSETS
NOT
TAKEN
INTO 
ACCOUNT.—For purposes of’’, and 
(B) by striking subparagraph (B). 
(7) Section 903 is amended by striking ‘‘114, 
164(a),’’ and inserting ‘‘164(a)’’.
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(8) Section 999(c)(1) is amended by striking 
‘‘941(a)(5),’’. 
(c) EFFECTIVE DATE.—Except as provided in sub-
section (d), the amendments made by this section shall 
apply to transactions after December 31, 2004. 
(d) TRANSITIONAL RULE FOR 2005 AND 2006.—
(1) IN GENERAL.—In the case of transactions 
during 2005 or 2006, the amount includible in gross 
income by reason of the amendments made by this 
section shall not exceed the applicable percentage of 
the amount which would have been so included but 
for this subsection. 
(2) APPLICABLE PERCENTAGE.—For purposes 
of paragraph (1), the applicable percentage shall be 
as follows: 
(A) For 2005, the applicable percentage 
shall be 20 percent. 
(B) For 2006, the applicable percentage 
shall be 40 percent. 
(e) REVOCATION OF ELECTION TO BE TREATED AS 
DOMESTIC CORPORATION.—If, during the 1-year period 
beginning on the date of the enactment of this Act, a cor-
poration for which an election is in effect under section 
943(e) of the Internal Revenue Code of 1986 revokes such 
election, no gain or loss shall be recognized with respect
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to property treated as transferred under clause (ii) of sec-
tion 943(e)(4)(B) of such Code to the extent such prop-
erty—
(1) was treated as transferred under clause (i) 
thereof, or 
(2) was acquired during a taxable year to which 
such election applies and before May 1, 2003, in the 
ordinary course of its trade or business. 
The Secretary of the Treasury (or such Secretary’s dele-
gate) may prescribe such regulations as may be necessary 
to prevent the abuse of the purposes of this subsection. 
(f) BINDING CONTRACTS.—The amendments made 
by this section shall not apply to any transaction in the 
ordinary course of a trade or business which occurs pursu-
ant to a binding contract—
(1) which is between the taxpayer and a person 
who is not a related person (as defined in section 
943(b)(3) of such Code, as in effect on the day be-
fore the date of the enactment of this Act), and 
(2) which is in effect on January 14, 2002, and 
at all times thereafter. 
For purposes of this subsection, a binding contract shall 
include a purchase option, renewal option, or replacement 
option which is included in such contract and which is en-
forceable against the seller or lessor.
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SEC. 102. REDUCED CORPORATE INCOME TAX RATE FOR 
DOMESTIC 
PRODUCTION 
ACTIVITIES 
IN-
COME. 
(a) LIMITATION ON TAX ON QUALIFIED PRODUCTION 
ACTIVITIES INCOME.—Section 11 is amended by redesig-
nating subsections (c) and (d) as subsections (d) and (e), 
respectively, and by inserting after subsection (b) the fol-
lowing new subsection: 
‘‘(c) LIMITATION ON TAX ON QUALIFIED PRODUC-
TION ACTIVITIES INCOME.—
‘‘(1) IN GENERAL.—If a corporation has quali-
fied production activities income for any taxable 
year, the tax imposed by this section shall not exceed 
the sum of—
‘‘(A) a tax computed at the rates and in 
the manner as if this subsection had not been 
enacted on the taxable income reduced by the 
amount of qualified production activities in-
come, plus 
‘‘(B) a tax equal to 32 percent (34 percent 
in the case of taxable years beginning before 
January 1, 2007) of the qualified production 
activities income (or, if less, taxable income). 
‘‘(2) QUALIFIED
PRODUCTION
ACTIVITIES
IN-
COME.—
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‘‘(A) IN
GENERAL.—The term ‘qualified 
production activities income’ for any taxable 
year means an amount equal to the excess (if 
any) of—
‘‘(i) the taxpayer’s domestic produc-
tion gross receipts for such taxable year, 
over 
‘‘(ii) the sum of— 
‘‘(I) the cost of goods sold that 
are allocable to such receipts, 
‘‘(II) other deductions, expenses, 
or losses directly allocable to such re-
ceipts, and 
‘‘(III) a ratable portion of other 
deductions, expenses, and losses that 
are not directly allocable to such re-
ceipts or another class of income. 
‘‘(B) ALLOCATION
METHOD.—The Sec-
retary shall prescribe rules for the proper allo-
cation of items of income, deduction, expense, 
and loss for purposes of determining income at-
tributable to domestic production activities. 
‘‘(3) 
DOMESTIC
PRODUCTION
GROSS
RE-
CEIPTS.—For purposes of this subsection, the term
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‘domestic production gross receipts’ means the gross 
receipts of the taxpayer which are derived from—
‘‘(A) any lease, rental, license, sale, ex-
change, or other disposition of—
‘‘(i) qualifying production property 
which was manufactured, produced, grown, 
or extracted in whole or in significant part 
by the taxpayer within the United States, 
or 
‘‘(ii) any qualified film produced by 
the taxpayer, or 
‘‘(B) construction, engineering, or architec-
tural services performed in the United States 
for construction projects in the United States. 
‘‘(4) QUALIFYING
PRODUCTION
PROPERTY.—
For purposes of this subsection, the term ‘qualifying 
production property’ means—
‘‘(A) tangible personal property, 
‘‘(B) any computer software, and 
‘‘(C) any property described in section 
168(f)(4). 
‘‘(5) QUALIFIED FILM.—For purposes of this 
subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified 
film’ means any property described in section
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168(f)(3) if not less than 50 percent of the 
total compensation relating to the production of 
such property is compensation for services per-
formed in the United States by actors, produc-
tion personnel, directors, and producers. 
‘‘(B) EXCEPTION.—Such term does not in-
clude property with respect to which records are 
required to be maintained under section 2257 
of title 18, United States Code. 
‘‘(6) RELATED PERSONS.—For purposes of this 
subsection—
‘‘(A) IN
GENERAL.—The term ‘domestic 
production gross receipts’ shall not include any 
gross receipts of the taxpayer derived from 
property leased, licensed, or rented by the tax-
payer for use by any related person. 
‘‘(B) RELATED PERSON.—For purposes of 
subparagraph (A), a person shall be treated as 
related to another person if such persons are 
treated as a single employer under subsection 
(a) or (b) of section 52 or subsection (m) or (o) 
of section 414, except that determinations 
under subsections (a) and (b) of section 52 
shall be made without regard to section 
1563(b).’’.
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‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
15% of taxable income. 
Over 
$50,000 
but 
not 
over 
$75,000.
$7,500, plus 25% of the excess over 
$50,000. 
Over 
$75,000 
but 
not 
over 
$20,000,000.
$13,750, plus 32% of the excess over 
$75,000. 
Over $20,000,000 ..........................
$6,389,750, plus 35% of the excess 
over $20,000,000.
‘‘(2) FOR TAXABLE YEARS BEGINNING IN 2011 
OR 2012.—In the case of taxable years beginning in 
2011 or 2012, the amount of the tax imposed by 
subsection (a) shall be determined in accordance 
with the following table:
‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
15% of taxable income. 
Over 
$50,000 
but 
not 
over 
$75,000.
$7,500, plus 25% of the excess over 
$50,000. 
Over 
$75,000 
but 
not 
over 
$5,000,000.
$13,750, plus 32% of the excess over 
$75,000. 
Over $5,000,000 but not over 
$10,000,000.
$1,589,750, plus 34% of the excess 
over $5,000,000. 
Over $10,000,000 ..........................
$3,289,750, plus 35% of the excess 
over $10,000,000.
‘‘(3) FOR TAXABLE YEARS BEGINNING IN 2008, 
2009, OR 2010.—In the case of taxable years begin-
ning in 2008, 2009, or 2010, the amount of the tax 
imposed by subsection (a) shall be determined in ac-
cordance with the following table:
‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
15% of taxable income. 
Over 
$50,000 
but 
not 
over 
$75,000.
$7,500, plus 25% of the excess over 
$50,000. 
Over 
$75,000 
but 
not 
over 
$1,000,000.
$13,750, plus 32% of the excess over 
$75,000. 
Over $1,000,000 but not over 
$10,000,000.
$309,750, plus 34% of the excess 
over $1,000,000. 
Over $10,000,000 ..........................
$3,369,750, plus 35% of the excess 
over $10,000,000.
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‘‘(4) FOR TAXABLE YEARS BEGINNING IN 2005, 
2006, OR 2007.—In the case of taxable years begin-
ning in 2005, 2006, or 2007, the amount of the tax 
imposed by subsection (a) shall be determined in ac-
cordance with the following table:
‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
15% of taxable income. 
Over 
$50,000 
but 
not 
over 
$75,000.
$7,500, plus 25% of the excess over 
$50,000. 
Over 
$75,000 
but 
not 
over 
$1,000,000.
$13,750, plus 33% of the excess over 
$75,000. 
Over $1,000,000 but not over 
$10,000,000.
$319,000, plus 34% of the excess 
over $1,000,000. 
Over $10,000,000 ..........................
$3,379,000, plus 35% of the excess 
over $10,000,000.
‘‘(5) PHASEOUT OF LOWER RATES FOR CER-
TAIN TAXPAYERS.—
‘‘(A) GENERAL RULE FOR YEARS BEFORE 
2013.—
‘‘(i) IN GENERAL.—In the case of tax-
able years beginning before 2013 with re-
spect to a corporation which has taxable 
income in excess of the applicable amount 
for any taxable year, the amount of tax de-
termined under paragraph (1), (2), (3) or 
(4) for such taxable year shall be increased 
by the lesser of (I) 5 percent of such ex-
cess, or (II) the maximum increase 
amount.
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‘‘(ii) MAXIMUM INCREASE AMOUNT.—
For purposes of clause (i)—
‘‘In the case of any taxable year
beginning during: 
The applicable 
amount is: 
The maximum 
increase amount 
is: 
2005, 2006, or 2007 ..........................
$1,000,000
$21,000
2008, 2009, or 2010 ..........................
$1,000,000
$30,250
2011 or 2012 ......................................
$5,000,000
$110,250. 
‘‘(B) HIGHER INCOME CORPORATIONS.—In 
the case of a corporation which has taxable in-
come in excess of $20,000,000 ($15,000,000 in 
the case of taxable years beginning before 
2013), the amount of the tax determined under 
the foregoing provisions of this subsection shall 
be increased by an additional amount equal to 
the lesser of (i) 3 percent of such excess, or (ii) 
$610,250 ($100,000 in the case of taxable 
years beginning before 2013).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 904(b)(3)(D)(ii) is amended to read 
as follows: 
‘‘(ii) in the case of a corporation, sec-
tion 1201(a) applies to such taxable 
year.’’. 
(2) Section 1201(a) is amended by striking 
‘‘the last 2 sentences of section 11(b)(1)’’ and in-
serting ‘‘section 11(b)(5)’’. 
(3) Section 1561(a) is amended—
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(A) by striking ‘‘the last 2 sentences of 
section 
11(b)(1)’’ 
and 
inserting 
‘‘section 
11(b)(5)’’, and 
(B) by striking ‘‘such last 2 sentences’’ 
and inserting ‘‘section 11(b)(5)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
TITLE II—JOB CREATION TAX IN-
CENTIVES 
FOR 
MANUFAC-
TURERS, SMALL BUSINESSES, 
AND FARMERS 
Subtitle A—Small Business 
Expensing 
SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING 
FOR SMALL BUSINESS. 
Subsections (b), (c), and (d) of section 179 are each 
amended by striking ‘‘2006’’ each place it appears and 
inserting ‘‘2008’’. 
Subtitle B—Depreciation 
SEC. 211. RECOVERY PERIOD FOR DEPRECIATION OF CER-
TAIN LEASEHOLD IMPROVEMENTS AND RES-
TAURANT PROPERTY. 
(a) 15-YEAR
RECOVERY
PERIOD.—Subparagraph 
(E) of section 168(e)(3) (relating to classification of cer-
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tain property) is amended by striking ‘‘and’’ at the end 
of clause (ii), by striking the period at the end of clause 
(iii) and inserting a comma, and by adding at the end the 
following new clauses: 
‘‘(iv) any qualified leasehold improve-
ment property placed in service before Jan-
uary 1, 2006, and 
‘‘(v) any qualified restaurant property 
placed in service before January 1, 2006.’’
(b) QUALIFIED LEASEHOLD IMPROVEMENT PROP-
ERTY.—Subsection (e) of section 168 is amended by add-
ing at the end the following new paragraph: 
‘‘(6) QUALIFIED
LEASEHOLD
IMPROVEMENT 
PROPERTY.—The term ‘qualified leasehold improve-
ment property’ has the meaning given such term in 
section 168(k)(3) except that the following special 
rules shall apply: 
‘‘(A) IMPROVEMENTS MADE BY LESSOR.—
In the case of an improvement made by the per-
son who was the lessor of such improvement 
when such improvement was placed in service, 
such improvement shall be qualified leasehold 
improvement property (if at all) only so long as 
such improvement is held by such person.
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‘‘(B) EXCEPTION FOR CHANGES IN FORM 
OF BUSINESS.—Property shall not cease to be 
qualified leasehold improvement property under 
subparagraph (A) by reason of—
‘‘(i) death, 
‘‘(ii) a transaction to which section 
381(a) applies, 
‘‘(iii) a mere change in the form of 
conducting the trade or business so long as 
the property is retained in such trade or 
business as qualified leasehold improve-
ment property and the taxpayer retains a 
substantial interest in such trade or busi-
ness, 
‘‘(iv) the acquisition of such property 
in an exchange described in section 1031, 
1033, or 1038 to the extent that the basis 
of such property includes an amount rep-
resenting the adjusted basis of other prop-
erty owned by the taxpayer or a related 
person, or 
‘‘(v) the acquisition of such property 
by the taxpayer in a transaction described 
in section 332, 351, 361, 721, or 731 (or 
the acquisition of such property by the tax-
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payer from the transferee or acquiring cor-
poration in a transaction described in such 
section), to the extent that the basis of the 
property in the hands of the taxpayer is 
determined by reference to its basis in the 
hands of the transferor or distributor.’’. 
(c) QUALIFIED
RESTAURANT
PROPERTY.—Sub-
section (e) of section 168 (as amended by subsection (b)) 
is further amended by adding at the end the following new 
paragraph: 
‘‘(7) QUALIFIED RESTAURANT PROPERTY.—The 
term ‘qualified restaurant property’ means any sec-
tion 1250 property which is an improvement to a 
building if—
‘‘(A) such improvement is placed in service 
more than 3 years after the date such building 
was first placed in service, and 
‘‘(B) more than 50 percent of the build-
ing’s square footage is devoted to preparation 
of, and seating for on-premises consumption of, 
prepared meals.’’. 
(d) REQUIREMENT TO USE STRAIGHT LINE METH-
OD.—
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(1) Paragraph (3) of section 168(b) is amended 
by adding at the end the following new subpara-
graphs: 
‘‘(G) 
Qualified 
leasehold 
improvement 
property described in subsection (e)(6). 
‘‘(H) Qualified restaurant property de-
scribed in subsection (e)(7).’’. 
(2) Subparagraph (A) of section 168(b)(2) is 
amended by inserting before the comma ‘‘not re-
ferred to in paragraph (3)’’. 
(e) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by adding at the end the 
following new items:
‘‘(E)(iv) ..................................................................
‘‘(E)(v) ...................................................................
39’’.
(f) 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. 212. MODIFICATION OF DEPRECIATION ALLOWANCE 
FOR AIRCRAFT. 
(a) AIRCRAFT
TREATED
AS
QUALIFIED
PROP-
ERTY.—
(1) IN
GENERAL.—Paragraph (2) of section 
168(k) is amended by redesignating subparagraphs 
(C) through (F) as subparagraphs (D) through (G),
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respectively, and by inserting after subparagraph 
(B) the following new subparagraph: 
‘‘(C) 
CERTAIN
AIRCRAFT.—The 
term 
‘qualified property’ includes property—
‘‘(i) which meets the requirements of 
clauses (ii) and (iii) of subparagraph (A), 
‘‘(ii) which is an aircraft which is not 
a transportation property (as defined in 
subparagraph (B)(iii)) other than for agri-
cultural or firefighting purposes, 
‘‘(iii) which is purchased and on which 
such purchaser, at the time of the contract 
for purchase, has made a nonrefundable 
deposit of the lesser of—
‘‘(I) 10 percent of the cost, or 
‘‘(II) $100,000, and 
‘‘(iv) which has—
‘‘(I) an estimated production pe-
riod exceeding 4 months, and 
‘‘(II) 
a 
cost 
exceeding 
$200,000.’’. 
(2) PLACED IN SERVICE DATE.—Clause (iv) of 
section 168(k)(2)(A) is amended by striking ‘‘sub-
paragraph (B)’’ and inserting ‘‘subparagraphs (B) 
and (C)’’.
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(b) CONFORMING AMENDMENTS.—
(1) Section 168(k)(2)(B) is amended by adding 
at the end the following new clause: 
‘‘(iv) 
APPLICATION
OF
SUBPARA-
GRAPH.—This 
subparagraph 
shall 
not 
apply to any property which is described in 
subparagraph (C).’’. 
(2) Section 168(k)(4)(A)(ii) is amended by 
striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para-
graph (2)(D)’’. 
(3) Section 168(k)(4)(B)(iii) is amended by in-
serting ‘‘and paragraph (2)(C)’’ after ‘‘of this para-
graph)’’. 
(4) Section 168(k)(4)(C) is amended by striking 
‘‘subparagraphs (B) and (D)’’ and inserting ‘‘sub-
paragraphs (B), (C), and (E)’’. 
(5) Section 168(k)(4)(D) is amended by strik-
ing ‘‘Paragraph (2)(E)’’ and inserting ‘‘Paragraph 
(2)(F)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in the amend-
ments made by section 101 of the Job Creation and Work-
er Assistance Act of 2002.
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SEC. 213. MODIFICATION OF PLACED IN SERVICE RULE 
FOR BONUS DEPRECIATION PROPERTY. 
(a) IN GENERAL.—Section 168(k)(2)(D) (relating to 
special rules) is amended by adding at the end the fol-
lowing new clause: 
‘‘(iii) SYNDICATION.—For purposes of 
subparagraph (A)(ii), if—
‘‘(I) property is originally placed 
in service after September 10, 2001, 
by the lessor of such property, 
‘‘(II) such property is sold by 
such lessor or any subsequent pur-
chaser within 3 months after the date 
so placed in service (or, in the case of 
multiple units of property subject to 
the same lease, within 3 months after 
the date the final unit is placed in 
service, so long as the period between 
the time the first unit is placed in 
service and the time the last unit is 
placed in service does not exceed 12 
months), and 
‘‘(III) the user of such property 
after the last sale during such 3-
month period remains the same as
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‘‘(A) IN GENERAL.—For purpose of sub-
section (b)(1)(A)—
‘‘(i) except as provided in clause (ii), 
a husband and wife (and their estates) 
shall be treated as 1 shareholder, and 
‘‘(ii) in the case of a family with re-
spect to which an election is in effect 
under subparagraph (D), all members of 
the family shall be treated as 1 share-
holder. 
‘‘(B) MEMBERS
OF
THE
FAMILY.—For 
purpose of subparagraph (A)(ii)—
‘‘(i) IN GENERAL.—The term ‘mem-
bers of the family’ means the common an-
cestor, lineal descendants of the common 
ancestor, and the spouses (or former 
spouses) of such lineal descendants or com-
mon ancestor. 
‘‘(ii) COMMON ANCESTOR.—For pur-
poses of this paragraph, an individual shall 
not be considered a common ancestor if, as 
of the later of the effective date of this 
paragraph or the time the election under 
section 1362(a) is made, the individual is 
more than 3 generations removed from the
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youngest generation of shareholders who 
would (but for this clause) be members of 
the family. For purposes of the preceding 
sentence, a spouse (or former spouse) shall 
be treated as being of the same generation 
as the individual to which such spouse is 
(or was) married. 
‘‘(C) EFFECT OF ADOPTION, ETC.—In de-
termining whether any relationship specified in 
subparagraph (B) exists, the rules of section 
152(b)(2) shall apply. 
‘‘(D) ELECTION.—An election under sub-
paragraph (A)(ii)—
‘‘(i) may, except as otherwise provided 
in regulations prescribed by the Secretary, 
be made by any member of the family, and 
‘‘(ii) shall remain in effect until termi-
nated as provided in regulations prescribed 
by the Secretary.’’. 
(b) RELIEF FROM INADVERTENT INVALID ELECTION 
OR TERMINATION.—Section 1362(f) (relating to inad-
vertent invalid elections or terminations), as amended by 
section 229, is amended—
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(1) by inserting ‘‘or section 1361(c)(1)(A)(ii)’’ 
after ‘‘section 1361(b)(3)(B)(ii),’’ in paragraph (1), 
and 
(2) by inserting ‘‘or section 1361(c)(1)(D)(iii)’’ 
after ‘‘section 1361(b)(3)(C),’’ in paragraph (1)(B). 
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made 
by subsection (a) shall apply to taxable years begin-
ning after December 31, 2004. 
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to elections and termi-
nations made after December 31, 2004. 
SEC. 222. INCREASE IN NUMBER OF ELIGIBLE SHARE-
HOLDERS TO 100. 
(a) IN GENERAL.—Section 1361(b)(1)(A) (defining 
small business corporation) is amended by striking ‘‘75’’ 
and inserting ‘‘100’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 223. EXPANSION OF BANK S CORPORATION ELIGIBLE 
SHAREHOLDERS TO INCLUDE IRAS. 
(a) IN GENERAL.—Section 1361(c)(2)(A) (relating to 
certain trusts permitted as shareholders) is amended by 
inserting after clause (v) the following new clause:
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‘‘(vi) In the case of a corporation 
which is a bank (as defined in section 
581), a trust which constitutes an indi-
vidual retirement account under section 
408(a), including one designated as a Roth 
IRA under section 408A, but only to the 
extent of the stock held by such trust in 
such bank as of the date of the enactment 
of this clause.’’. 
(b) 
TREATMENT
AS
SHAREHOLDER.—Section 
1361(c)(2)(B) (relating to treatment as shareholders) is 
amended by adding at the end the following new clause: 
‘‘(vi) In the case of a trust described 
in clause (vi) of subparagraph (A), the in-
dividual for whose benefit the trust was 
created shall be treated as a shareholder.’’. 
(c) SALE OF BANK STOCK IN IRA RELATING TO S 
CORPORATION ELECTION EXEMPT FROM PROHIBITED 
TRANSACTION RULES.—Section 4975(d) (relating to ex-
emptions) is amended by striking ‘‘or’’ at the end of para-
graph (14), by striking the period at the end of paragraph 
(15) and inserting ‘‘; or’’, and by adding at the end the 
following new paragraph: 
‘‘(16) a sale of stock held by a trust which con-
stitutes an individual retirement account under sec-
•HR 4520 IH1S 
tion 408(a) to the individual for whose benefit such 
account is established if—
‘‘(A) such stock is in a bank (as defined in 
section 581), 
‘‘(B) such stock is held by such trust as of 
the date of the enactment of this paragraph, 
‘‘(C) such sale is pursuant to an election 
under section 1362(a) by such bank, 
‘‘(D) such sale is for fair market value at 
the time of sale (as established by an inde-
pendent appraiser) and the terms of the sale 
are otherwise at least as favorable to such trust 
as the terms that would apply on a sale to an 
unrelated party, 
‘‘(E) such trust does not pay any commis-
sions, costs, or other expenses in connection 
with the sale, and 
‘‘(F) the stock is sold in a single trans-
action for cash not later than 120 days after 
the S corporation election is made.’’. 
(d) CONFORMING AMENDMENT.—Section 512(e)(1) 
is amended by inserting ‘‘1361(c)(2)(A)(vi) or’’ before 
‘‘1361(c)(6)’’.
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(1) by inserting ‘‘, section 1361(b)(3)(B)(ii),’’ 
after ‘‘subsection (a)’’ in paragraph (1), 
(2) by inserting ‘‘, section 1361(b)(3)(C),’’ after 
‘‘subsection (d)’’ in paragraph (1)(B), 
(3) by amending paragraph (3)(A) to read as 
follows: 
‘‘(A) so that the corporation for which the 
election was made is a small business corpora-
tion or a qualified subchapter S subsidiary, as 
the case may be, or’’, 
(4) by amending paragraph (4) to read as fol-
lows: 
‘‘(4) the corporation for which the election was 
made, and each person who was a shareholder in 
such corporation at any time during the period spec-
ified pursuant to this subsection, agrees to make 
such adjustments (consistent with the treatment of 
such corporation as an S corporation or a qualified 
subchapter S subsidiary, as the case may be) as may 
be required by the Secretary with respect to such pe-
riod,’’, and 
(5) by inserting ‘‘or a qualified subchapter S 
subsidiary, as the case may be’’ after ‘‘S corpora-
tion’’ in the matter following paragraph (4).
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(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 230. INFORMATION RETURNS FOR QUALIFIED SUB-
CHAPTER S SUBSIDIARIES. 
(a) IN GENERAL.—Section 1361(b)(3)(A) (relating 
to treatment of certain wholly owned subsidiaries) is 
amended by inserting ‘‘and in the case of information re-
turns required under part III of subchapter A of chapter 
61’’ after ‘‘Secretary’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 231. REPAYMENT OF LOANS FOR QUALIFYING EM-
PLOYER SECURITIES. 
(a) IN GENERAL.—Subsection (f) of section 4975 (re-
lating to other definitions and special rules) is amended 
by adding at the end the following new paragraph: 
‘‘(7) S CORPORATION
REPAYMENT
OF
LOANS 
FOR QUALIFYING EMPLOYER SECURITIES.—A plan 
shall not be treated as violating the requirements of 
section 401 or 409 or subsection (e)(7), or as engag-
ing in a prohibited transaction for purposes of sub-
section (d)(3), merely by reason of any distribution 
(as described in section 1368(a)) with respect to S
•HR 4520 IH1S 
corporation stock that constitutes qualifying em-
ployer securities, which in accordance with the plan 
provisions is used to make payments on a loan de-
scribed in subsection (d)(3) the proceeds of which 
were used to acquire such qualifying employer secu-
rities (whether or not allocated to participants). The 
preceding sentence shall not apply in the case of a 
distribution which is paid with respect to any em-
ployer security which is allocated to a participant 
unless the plan provides that employer securities 
with a fair market value of not less than the amount 
of such distribution are allocated to such participant 
for the year which (but for the preceding sentence) 
such distribution would have been allocated to such 
participant.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions with respect to S 
corporation stock made after December 31, 2004. 
Subtitle D—Alternative Minimum 
Tax Relief 
SEC. 241. FOREIGN TAX CREDIT UNDER ALTERNATIVE MIN-
IMUM TAX. 
(a) IN GENERAL.—
(1) Subsection (a) of section 59 is amended by 
striking paragraph (2) and by redesignating para-
•HR 4520 IH1S 
graphs (3) and (4) as paragraphs (2) and (3), re-
spectively. 
(2) Section 53(d)(1)(B)(i)(II) is amended by 
striking ‘‘and if section 59(a)(2) did not apply’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 242. EXPANSION OF EXEMPTION FROM ALTERNATIVE 
MINIMUM TAX FOR SMALL CORPORATIONS. 
(a) IN GENERAL.—Subparagraphs (A) and (B) of 
section 
55(e)(1) 
are 
each 
amended 
by 
striking 
‘‘$7,500,000’’ each place it appears and inserting 
‘‘$20,000,000’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 243. INCOME AVERAGING FOR FARMERS NOT TO IN-
CREASE ALTERNATIVE MINIMUM TAX. 
(a) IN GENERAL.—Subsection (c) of section 55 (de-
fining regular tax) is amended by redesignating paragraph 
(2) as paragraph (3) and by inserting after paragraph (1) 
the following new paragraph: 
‘‘(2) COORDINATION WITH INCOME AVERAGING 
FOR FARMERS.—Solely for purposes of this section, 
section 1301 (relating to averaging of farm income)
•HR 4520 IH1S 
shall not apply in computing the regular tax liabil-
ity.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. 
Subtitle E—Restructuring of 
Incentives for Alcohol Fuels, Etc. 
SEC. 251. REDUCED RATES OF TAX ON GASOHOL REPLACED 
WITH 
EXCISE 
TAX 
CREDIT; 
REPEAL 
OF 
OTHER ALCOHOL-BASED FUEL INCENTIVES; 
ETC. 
(a) EXCISE TAX CREDIT FOR ALCOHOL FUEL MIX-
TURES.—
(1) IN
GENERAL.—Subsection (f) of section 
6427 is amended to read as follows: 
‘‘(f) ALCOHOL FUEL MIXTURES.—
‘‘(1) IN
GENERAL.—The amount of credit 
which would (but for section 40(c)) be determined 
under section 40(a)(1) for any period—
‘‘(A) shall, with respect to taxable events 
occurring during such period, be treated—
‘‘(i) as a payment of the taxpayer’s li-
ability for tax imposed by section 4081, 
and
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‘‘(ii) as received at the time of the 
taxable event, and 
‘‘(B) to the extent such amount of credit 
exceeds such liability for such period, shall (ex-
cept as provided in subsection (k)) be paid sub-
ject to subsection (i)(3) by the Secretary with-
out interest. 
‘‘(2) SPECIAL RULES.—
‘‘(A) ONLY
CERTAIN
ALCOHOL
TAKEN 
INTO
ACCOUNT.—For purposes of paragraph 
(1), section 40 shall be applied—
‘‘(i) by not taking into account alcohol 
with a proof of less than 190, and 
‘‘(ii) by treating as alcohol the alcohol 
gallon equivalent of ethyl tertiary butyl 
ether or other ethers produced from such 
alcohol. 
‘‘(B) TREATMENT
OF
REFINERS.—For 
purposes of paragraph (1), in the case of a mix-
ture—
‘‘(i) the alcohol in which is described 
in subparagraph (A)(ii), and 
‘‘(ii) which is produced by any person 
at a refinery prior to any taxable event,
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‘‘(ii) which is not less than 1 week. 
In the case of an electronic claim, this subpara-
graph shall be applied without regard to clause 
(i). 
‘‘(B) 
PAYMENT
OF
CLAIM.—Notwith-
standing subsection (f)(1)(B), if the Secretary 
has not paid pursuant to a claim filed under 
this section within 45 days of the date of the 
filing of such claim (20 days in the case of an 
electronic claim), the claim shall be paid with 
interest from such date determined by using the 
overpayment rate and method under section 
6621. 
‘‘(C) TIME FOR FILING CLAIM.—No claim 
filed under this paragraph shall be allowed un-
less filed on or before the last day of the first 
quarter following the earliest quarter included 
in the claim.’’
(b) REPEAL OF OTHER INCENTIVES FOR FUEL MIX-
TURES.—
(1) Subsection (b) of section 4041 is amended 
to read as follows: 
‘‘(b) EXEMPTION
FOR
OFF-HIGHWAY
BUSINESS 
USE.—
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‘‘(1) IN GENERAL.—No tax shall be imposed by 
subsection (a) or (d)(1) on liquids sold for use or 
used in an off-highway business use. 
‘‘(2) TAX WHERE OTHER USE.—If a liquid on 
which no tax was imposed by reason of paragraph 
(1) is used otherwise than in an off-highway busi-
ness use, a tax shall be imposed by paragraph 
(1)(B), (2)(B), or (3)(A)(ii) of subsection (a) 
(whichever is appropriate) and by the corresponding 
provision of subsection (d)(1) (if any). 
‘‘(3) OFF-HIGHWAY BUSINESS USE DEFINED.—
For purposes of this subsection, the term ‘off-high-
way business use’ has the meaning given to such 
term by section 6421(e)(2); except that such term 
shall not, for purposes of subsection (a)(1), include 
use in a diesel-powered train.’’
(2) Section 4041(k) is hereby repealed. 
(3) Section 4081(c) is hereby repealed. 
(4) Section 4091(c) is hereby repealed. 
(c) TRANSFERS TO HIGHWAY TRUST FUND.—Para-
graph (4) of section 9503(b) is amended by adding ‘‘or’’ 
at the end of subparagraph (B), by striking the comma 
at the end of subparagraph (C) and inserting a period, 
and by striking subparagraphs (D), (E), and (F). 
(d) CONFORMING AMENDMENTS.—
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(1) Subsection (c) of section 40 is amended to 
read as follows: 
‘‘(c) COORDINATION
WITH
EXCISE
TAX
BENE-
FITS.—The amount of the credit determined under this 
section with respect to any alcohol shall, under regulations 
prescribed by the Secretary, be properly reduced to take 
into account the benefit provided with respect to such alco-
hol under section 6427(f).’’
(2) Subparagraph (B) of section 40(d)(4) is 
amended by striking ‘‘under section 4041(k) or 
4081(c)’’ and inserting ‘‘under section 6427(f)’’. 
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section 
shall apply to fuel sold or used after September 30, 
2004. 
(2) SUBSECTION (c).—The amendments made 
by subsection (c) shall apply to taxes imposed after 
September 30, 2003. 
SEC. 252. ALCOHOL FUEL SUBSIDIES BORNE BY GENERAL 
FUND. 
(a) TRANSFERS TO FUND.—Section 9503(b)(1) is 
amended by adding at the end the following new flush sen-
tence:
•HR 4520 IH1S 
‘‘For purposes of this paragraph, the amount of 
taxes received under section 4081 shall include any 
amount treated as a payment under section 
6427(f)(1)(A) and shall not be reduced by the 
amount paid under section 6427(f)(1)(B).’’. 
(b) TRANSFERS FROM FUND.—Subparagraph (A) of 
section 9503(c)(2) is amended by adding at the end the 
following new sentence: ‘‘Clauses (i)(III) and (ii) shall not 
apply to claims under section 6427(f)(1)(B).’’
(c) EFFECTIVE DATE.—
(1) SUBSECTION (a).—The amendment made by 
subsection (a) shall apply to taxes received after 
September 30, 2004. 
(2) SUBSECTION (b).—The amendment made by 
subsection (b) shall apply to amounts paid after 
September 30, 2004, and (to the extent related to 
section 34 of the Internal Revenue Code of 1986) to 
fuel used after such date. 
Subtitle F—Stock Options and Em-
ployee 
Stock 
Purchase 
Plan 
Stock Options 
SEC. 261. EXCLUSION OF INCENTIVE STOCK OPTIONS AND 
EMPLOYEE STOCK PURCHASE PLAN STOCK 
OPTIONS FROM WAGES. 
(a) EXCLUSION FROM EMPLOYMENT TAXES.—
•HR 4520 IH1S 
(1) SOCIAL SECURITY TAXES.—
(A) Section 3121(a) (relating to definition 
of wages) is amended by striking ‘‘or’’ at the 
end of paragraph (20), by striking the period at 
the end of paragraph (21) and inserting ‘‘; or’’, 
and by inserting after paragraph (21) the fol-
lowing new paragraph: 
‘‘(22) remuneration on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(B) Section 209(a) of the Social Security 
Act is amended by striking ‘‘or’’ at the end of 
paragraph (17), by striking the period at the 
end of paragraph (18) and inserting ‘‘; or’’, and 
by inserting after paragraph (18) the following 
new paragraph: 
‘‘(19) Remuneration on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)
•HR 4520 IH1S 
of the Internal Revenue Code of 1986) or under 
an employee stock purchase plan (as defined in 
section 423(b) of such Code), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(2) 
RAILROAD
RETIREMENT
TAXES.—Sub-
section (e) of section 3231 is amended by adding at 
the end the following new paragraph: 
‘‘(12) QUALIFIED STOCK OPTIONS.—The term 
‘compensation’ shall not include any remuneration 
on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(3) UNEMPLOYMENT TAXES.—Section 3306(b) 
(relating to definition of wages) is amended by strik-
ing ‘‘or’’ at the end of paragraph (17), by striking 
the period at the end of paragraph (18) and insert-
ing ‘‘; or’’, and by inserting after paragraph (18) the 
following new paragraph: 
‘‘(19) remuneration on account of—
•HR 4520 IH1S 
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(b) WAGE WITHHOLDING NOT REQUIRED ON DIS-
QUALIFYING DISPOSITIONS.—Section 421(b) (relating to 
effect of disqualifying dispositions) is amended by adding 
at the end the following new sentence: ‘‘No amount shall 
be required to be deducted and withheld under chapter 
24 with respect to any increase in income attributable to 
a disposition described in the preceding sentence.’’. 
(c) WAGE WITHHOLDING NOT REQUIRED ON COM-
PENSATION WHERE OPTION PRICE IS BETWEEN 85 PER-
CENT AND 100 PERCENT OF VALUE OF STOCK.—Section 
423(c) (relating to special rule where option price is be-
tween 85 percent and 100 percent of value of stock) is 
amended by adding at the end the following new sentence: 
‘‘No amount shall be required to be deducted and withheld 
under chapter 24 with respect to any amount treated as 
compensation under this subsection.’’.
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to stock acquired pursuant to op-
tions exercised after the date of the enactment of this Act. 
Subtitle G—Incentives to Reinvest 
Foreign Earnings in United States 
SEC. 271. INCENTIVES TO REINVEST FOREIGN EARNINGS IN 
UNITED STATES. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 (relating to controlled foreign cor-
porations) is amended by adding at the end the following 
new section: 
‘‘SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION. 
‘‘(a) DEDUCTION.—
‘‘(1) IN GENERAL.—In the case of a corpora-
tion which is a United States shareholder, there 
shall be allowed as a deduction an amount equal to 
85 percent of the dividends which are received by 
such shareholder from controlled foreign corpora-
tions during the election period. 
‘‘(2) DIVIDENDS PAID INDIRECTLY FROM CON-
TROLLED FOREIGN CORPORATIONS.—If, within the 
election period, a United States shareholder receives 
a distribution from a controlled foreign corporation 
which is excluded from gross income under section 
959(a), such distribution shall be treated for pur-
•HR 4520 IH1S 
poses of this section as a dividend to the extent of 
any amount included in income by such United 
States shareholder under section 951(a)(1)(A) as a 
result of any dividend paid during the election period 
to—
‘‘(A) such controlled foreign corporation 
from another controlled foreign corporation that 
is in a chain of ownership described in section 
958(a), or 
‘‘(B) any other controlled foreign corpora-
tion in such chain of ownership, but only to the 
extent of distributions described in section 
959(b) which are made during the election pe-
riod to the controlled foreign corporation from 
which such United States shareholder received 
such distribution. 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount of dividends 
taken into account under subsection (a) shall not ex-
ceed the greater of—
‘‘(A) $500,000,000, 
‘‘(B) the amount shown on the applicable 
financial statement as earnings permanently re-
invested outside the United States, or
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‘‘(C) in the case of an applicable financial 
statement which fails to show a specific amount 
of earnings permanently reinvested outside the 
United States and which shows a specific 
amount of tax liability attributable to such 
earnings, the amount of such earnings deter-
mined in such manner as the Secretary may 
prescribe. 
Except as provided in subparagraph (C), if there is 
no statement or such statement fails to show a spe-
cific amount of such earnings or liability, such 
amount shall be treated as being zero for purposes 
of this paragraph. 
‘‘(2) DIVIDENDS MUST BE EXTRAORDINARY.—
The amount of dividends taken into account under 
subsection (a) shall not exceed the excess (if any) 
of—
‘‘(A) the dividends received during the tax-
able year by such shareholder from controlled 
foreign corporations, over 
‘‘(B) the annual average for the base pe-
riod years of—
‘‘(i) the dividends received during 
each base period year by such shareholder 
from such corporations,
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‘‘(ii) the amounts includible in such 
shareholder’s gross income for each base 
period year under section 951(a)(1)(B) 
with respect to such corporations, and 
‘‘(iii) the amounts that would have 
been included for each base period year 
but for section 959(a) with respect to such 
corporations. 
The amount taken into account under clause 
(iii) for any base period year shall not include 
any amount which is not includible in gross in-
come by reason of an amount described in 
clause (ii) with respect to a prior taxable year. 
‘‘(3) REQUIREMENT
TO
INVEST
IN
UNITED 
STATES.—Subsection (a) shall not apply to any divi-
dend received by a United States shareholder unless 
the amount of the dividend is invested in the United 
States pursuant to a plan describing the expendi-
tures to be made with such amount—
‘‘(A) which, before the dividend is received, 
is approved by the president or chief executive 
officer of such shareholder, and 
‘‘(B) which is approved by the Board of 
Directors (or management committee) of such
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shareholder no later than its first meeting on or 
after the date the dividend is received. 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) ELECTION
PERIOD.—The term ‘election 
period’ means—
‘‘(A) if this section applies to the tax-
payer’s last taxable year beginning before the 
date of the enactment of this section, any 6-
month or shorter period during such year which 
is after the date of the enactment of this sec-
tion and which is selected by the taxpayer, and 
‘‘(B) if this section applies to the tax-
payer’s first taxable year beginning on or after 
such date, the 1st 6 months of such taxable 
year. 
‘‘(2) APPLICABLE
FINANCIAL
STATEMENT.—
The term ‘applicable financial statement’ means the 
most recently audited financial statement (including 
notes and other documents which accompany such 
statement)—
‘‘(A) which is certified on or before March 
31, 2003, as being prepared in accordance with 
generally accepted accounting principles, and
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‘‘(B) which is used for the purposes of a 
statement or report—
‘‘(i) to creditors, 
‘‘(ii) to shareholders, or 
‘‘(iii) for any other substantial nontax 
purpose. 
In the case of a corporation required to file a finan-
cial statement with the Securities and Exchange 
Commission, such term means the most recent such 
statement filed on or before March 31, 2003. 
‘‘(3) BASE
PERIOD
YEARS.—The base period 
years are the 3 taxable years—
‘‘(A) which are among the 5 most recent 
taxable years ending on or before March 31, 
2003, and 
‘‘(B) 
which 
are 
determined 
by 
dis-
regarding—
‘‘(i) 1 taxable year for which the sum 
of the amounts described in clauses (i), 
(ii), and (iii) of subsection (b)(2)(B) is the 
largest, and 
‘‘(ii) 1 taxable year for which such 
sum is the smallest.
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Rules similar to the rules of subparagraphs (A) and 
(B) of section 41(f)(3) shall apply for purposes of 
this paragraph. 
‘‘(4) COORDINATION
WITH
DIVIDENDS
RE-
CEIVED DEDUCTION.—No deduction shall be allowed 
under section 243 or 245 for any dividend for which 
a deduction is allowed under this section. 
‘‘(d) DENIAL OF FOREIGN TAX CREDIT.—
‘‘(1) IN GENERAL.—No credit shall be allowed 
under section 901 for any taxes paid or accrued (or 
treated as paid or accrued) with respect to the de-
ductible portion of any dividend or of any amount 
described in subsection (a)(2). No deduction shall be 
allowed under this chapter for any tax for which 
credit is not allowable by reason of the preceding 
sentence. 
‘‘(2) DEDUCTIBLE PORTION.—For purposes of 
paragraph (1), unless the taxpayer otherwise speci-
fies, the deductible portion of any dividend is the 
amount which bears the same ratio to the amount 
of such dividend as the amount allowed as a deduc-
tion under subsection (a) for the taxable year bears 
to the amount described in subsection (b)(2)(A) for 
such year.
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‘‘(e) INCREASE IN TAX ON INCLUDED AMOUNTS NOT 
REDUCED BY CREDITS, ETC.—
‘‘(1) IN GENERAL.—Any tax under this chapter 
by reason of nondeductible CFC dividends shall not 
be treated as tax imposed by this chapter for pur-
poses of determining—
‘‘(A) the amount of any credit allowable 
under this chapter, or 
‘‘(B) the amount of the tax imposed by 
section 55. 
Subparagraph (A) shall not apply to the credit 
under section 53 or to the credit under section 27(a) 
with respect to taxes attributable to such dividends. 
‘‘(2) INCLUSIONS MAY NOT BE OFFSET BY NET 
OPERATING LOSSES.—
‘‘(A) IN GENERAL.—The taxable income of 
any United States shareholder for any taxable 
year shall in no event be less than the amount 
of nondeductible CFC dividends received during 
such year. 
‘‘(B) COORDINATION WITH SECTION 172.—
The nondeductible CFC dividends for any tax-
able year shall not be taken into account—
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‘‘(i) in determining under section 172 
the amount of any net operating loss for 
such taxable year, and 
‘‘(ii) in determining taxable income 
for such taxable year for purposes of the 
2nd sentence of section 172(b)(2). 
‘‘(3) NONDEDUCTIBLE
CFC
DIVIDENDS.—For 
purposes of this subsection, the term ‘nondeductible 
CFC dividends’ means the excess of the amount of 
dividends taken into account under subsection (a) 
over the deduction allowed under subsection (a) for 
such dividends. 
‘‘(f) ELECTION.—This section shall apply for the tax-
payer’s first taxable year beginning on or after the date 
of the enactment of this section if the taxpayer elects its 
application for such taxable year. The taxpayer may elect 
to apply this section to the taxpayer’s last taxable year 
beginning before the date of the enactment of this section 
in lieu of such first taxable year.’’
(b) ALTERNATIVE MINIMUM TAX.—Subparagraph 
(C) of section 56(g)(4) is amended by adding at the end 
the following new clause: 
‘‘(v) SPECIAL RULE FOR CERTAIN DIS-
TRIBUTIONS FROM CONTROLLED FOREIGN 
CORPORATIONS.—Clause (i) shall not apply
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to any deduction allowable under section 
965.’’. 
(c) CLERICAL 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. Temporary dividends received deduction.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending on or after 
the date of the enactment of this Act. 
Subtitle H—Other Incentive 
Provisions 
SEC. 281. 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 
paragraph: 
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—
‘‘(A) 
IN
GENERAL.—In 
the 
case 
of 
drought, flood, or other weather-related condi-
tions described in paragraph (1) which result in 
the area being designated as eligible for assist-
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ance by the Federal Government, subsection 
(a)(2)(B) 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.—Subsection (e) of 
section 451 (relating to special rule for proceeds from live-
stock sold on account of drought, flood, or other weather-
related conditions) is amended by adding at the end the 
following new paragraph: 
‘‘(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
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to which the due date (without regard to extensions) for 
the return is after December 31, 2002. 
SEC. 282. PAYMENT OF DIVIDENDS ON STOCK OF COOPERA-
TIVES 
WITHOUT 
REDUCING 
PATRONAGE 
DIVIDENDS. 
(a) IN GENERAL.—Subsection (a) of section 1388 
(relating to patronage dividend defined) is amended by 
adding at the end the following: ‘‘For purposes of para-
graph (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 ex-
tent 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 pay-
able to patrons which 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 
beginning after the date of the enactment of this Act. 
SEC. 283. 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 eco-
nomic interest) is amended by striking ‘‘retains an eco-
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nomic interest in such timber’’ and inserting ‘‘either re-
tains an economic interest in such timber or makes an 
outright sale of such timber’’. 
(b) CONFORMING AMENDMENTS.—
(1) The third sentence of section 631(b) is 
amended by striking ‘‘The date of disposal’’ and in-
serting ‘‘In the case of disposal of timber with a re-
tained economic interest, the date of disposal’’. 
(2) The heading for section 631(b) is amended 
by striking ‘‘WITH A RETAINED ECONOMIC INTER-
EST’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales after December 31, 2004. 
SEC. 284. DISTRIBUTIONS FROM PUBLICLY TRADED PART-
NERSHIPS TREATED AS QUALIFYING INCOME 
OF REGULATED INVESTMENT COMPANIES. 
(a) IN GENERAL.—Paragraph (2) of section 851(b) 
(defining regulated investment company) is amended to 
read as follows: 
‘‘(2) at least 90 percent of its gross income is 
derived from—
‘‘(A) dividends, interest, payments with re-
spect to securities loans (as defined in section 
512(a)(5)), and gains from the sale or other 
disposition of stock or securities (as defined in
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section 2(a)(36) of the Investment Company 
Act of 1940, as amended) or foreign currencies, 
or other income (including but not limited to 
gains from options, futures or forward con-
tracts) derived with respect to its business of 
investing in such stock, securities, or currencies, 
and 
‘‘(B) distributions or other income derived 
from an interest in a qualified publicly traded 
partnership (as defined in subsection (h)); 
and’’. 
(b) SOURCE
FLOW-THROUGH
RULE
NOT
TO 
APPLY.—The last sentence of section 851(b) is amended 
by inserting ‘‘(other than a qualified publicly traded part-
nership as defined in subsection (h))’’ after ‘‘derived from 
a partnership’’. 
(c) LIMITATION ON OWNERSHIP.—Subsection (c) of 
section 851 is amended by redesignating paragraph (5) 
as paragraph (6) and inserting after paragraph (4) the 
following new paragraph: 
‘‘(5) The term ‘outstanding voting securities of 
such issuer’ shall include the equity securities of a 
qualified publicly traded partnership (as defined in 
subsection (h)).’’.
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(d) DEFINITION OF QUALIFIED PUBLICLY TRADED 
PARTNERSHIP.—Section 851 is amended by adding at the 
end the following new subsection: 
‘‘(h) QUALIFIED
PUBLICLY
TRADED
PARTNER-
SHIP.—For purposes of this section, the term ‘qualified 
publicly traded partnership’ means a publicly traded part-
nership described in section 7704(b) other than a partner-
ship which would satisfy the gross income requirements 
of section 7704(c)(2) if qualifying income included only 
income described in subsection (b)(2)(A).’’. 
(e) DEFINITION OF QUALIFYING INCOME.—Section 
7704(d)(4) is amended by striking ‘‘section 851(b)(2)’’ 
and inserting ‘‘section 851(b)(2)(A)’’. 
(f) LIMITATION ON COMPOSITION OF ASSETS.—Sub-
paragraph (B) of section 851(b)(3) is amended to read 
as follows: 
‘‘(B) not more than 25 percent of the 
value of its total assets is invested in—
‘‘(i) the securities (other than Govern-
ment securities or the securities of other 
regulated investment companies) of any 
one issuer, 
‘‘(ii) the securities (other than the se-
curities of other regulated investment com-
panies) of two or more issuers which the
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taxpayer controls and which are deter-
mined, under regulations prescribed by the 
Secretary, to be engaged in the same or 
similar trades or businesses or related 
trades or businesses, or 
‘‘(iii) the securities of one or more 
qualified publicly traded partnerships (as 
defined in subsection (h)).’’. 
(g) APPLICATION
OF SPECIAL PASSIVE ACTIVITY 
RULE TO REGULATED INVESTMENT COMPANIES.—Sub-
section (k) of section 469 (relating to separate application 
of section in case of publicly traded partnerships) is 
amended by adding at the end the following new para-
graph: 
‘‘(4) APPLICATION
TO
REGULATED
INVEST-
MENT COMPANIES.—For purposes of this section, a 
regulated investment company (as defined in section 
851) holding an interest in a qualified publicly trad-
ed partnership (as defined in section 851(h)) shall 
be treated as a taxpayer described in subsection 
(a)(2) with respect to items attributable to such in-
terest.’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act.
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parent of the pre-election worldwide affiliated 
group and may be made only for the first tax-
able year beginning after December 31, 2008, 
in which such affiliated group includes 1 or 
more financial corporations. Such an election, 
once made, shall apply to all financial corpora-
tions which are members of the electing finan-
cial institution group for such taxable year and 
all subsequent years unless revoked with the 
consent of the Secretary. 
‘‘(E) 
DEFINITIONS
RELATING
TO 
GROUPS.—For purposes of this paragraph—
‘‘(i) PRE-ELECTION WORLDWIDE AF-
FILIATED GROUP.—The term ‘pre-election 
worldwide affiliated group’ means, with re-
spect to a corporation, the worldwide affili-
ated group of which such corporation 
would (but for an election under this para-
graph) be a member for purposes of apply-
ing paragraph (1). 
‘‘(ii) ELECTING
FINANCIAL
INSTITU-
TION GROUP.—The term ‘electing financial 
institution group’ means the group of cor-
porations to which this subsection applies 
separately by reason of the application of
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‘‘(C) TREATMENT OF FINANCIAL SERVICES 
INCOME AND COMPANIES.—
‘‘(i) IN GENERAL.—Financial services 
income shall be treated as general category 
income in the case of—
‘‘(I) a member of a financial 
services group, and 
‘‘(II) any other person if such 
person is predominantly engaged in 
the active conduct of a banking, insur-
ance, financing, or similar business. 
‘‘(ii) FINANCIAL SERVICES GROUP.—
The term ‘financial services group’ means 
any affiliated group (as defined in section 
1504(a) without regard to paragraphs (2) 
and (3) of section 1504(b)) which is pre-
dominantly engaged in the active conduct 
of a banking, insurance, financing, or simi-
lar business. In determining whether such 
a group is so engaged, there shall be taken 
into account only the income of members 
of the group that are—
‘‘(I) United States corporations, 
or