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who, immediately before such death, was a cov-
ered expatriate. 
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE 
SUBJECT TO ESTATE OR GIFT TAX.—Such term shall 
not include— 
‘‘(A) any property shown on a timely filed 
return of tax imposed by chapter 12 which is a 
taxable gift by the covered expatriate, and 
‘‘(B) any property included in the gross es-
tate of the covered expatriate for purposes of 
chapter 11 and shown on a timely filed return 
of tax imposed by chapter 11 of the estate of 
the covered expatriate. 
‘‘(3) TRANSFERS IN TRUST.— 
‘‘(A) DOMESTIC TRUSTS.—In the case of a 
covered gift or bequest made to a domestic 
trust— 
‘‘(i) subsection (a) shall apply in the 
same manner as if such trust were a 
United States citizen, and 
‘‘(ii) the tax imposed by subsection (a) 
on such gift or bequest shall be paid by 
such trust. 
‘‘(B) FOREIGN TRUSTS.— 
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‘‘(i) IN GENERAL.—In the case of a 
covered gift or bequest made to a foreign 
trust, subsection (a) shall apply to any dis-
tribution attributable to such gift or be-
quest from such trust (whether from in-
come or corpus) to a United States citizen 
or resident in the same manner as if such 
distribution were a covered gift or bequest. 
‘‘(ii) DEDUCTION FOR TAX PAID BY 
RECIPIENT.—There shall be allowed as a 
deduction under section 164 the amount of 
tax imposed by this section which is paid 
or accrued by a United States citizen or 
resident by reason of a distribution from a 
foreign trust, but only to the extent such 
tax is imposed on the portion of such dis-
tribution which is included in the gross in-
come of such citizen or resident. 
‘‘(iii) ELECTION TO BE TREATED AS 
DOMESTIC TRUST.—Solely for purposes of 
this section, a foreign trust may elect to be 
treated as a domestic trust. Such an elec-
tion may be revoked with the consent of 
the Secretary. 
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‘‘(f) COVERED EXPATRIATE.—For purposes of this 
section, the term ‘covered expatriate’ has the meaning 
given to such term by section 877A(g)(1).’’. 
(2) CLERICAL
AMENDMENT.—The table of 
chapters for subtitle B is amended by inserting after 
the item relating to chapter 14 the following new 
item: 
‘‘CHAPTER 15. GIFTS AND BEQUESTS FROM EXPATRIATES.’’. 
(c) DEFINITION
OF
TERMINATION
OF
UNITED 
STATES CITIZENSHIP.— 
(1) IN GENERAL.—Section 7701(a) is amended 
by adding at the end the following new paragraph: 
‘‘(50) TERMINATION OF UNITED STATES CITI-
ZENSHIP.— 
‘‘(A) IN
GENERAL.—An individual shall 
not cease to be treated as a United States cit-
izen before the date on which the individual’s 
citizenship is treated as relinquished under sec-
tion 877A(g)(4). 
‘‘(B) DUAL CITIZENS.—Under regulations 
prescribed by the Secretary, subparagraph (A) 
shall not apply to an individual who became at 
birth a citizen of the United States and a cit-
izen of another country.’’. 
(2) CONFORMING AMENDMENTS.— 
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(A) Paragraph (1) of section 877(e) is 
amended to read as follows: 
‘‘(1) IN GENERAL.—Any long-term resident of 
the United States who ceases to be a lawful perma-
nent resident of the United States (within the mean-
ing of section 7701(b)(6)) shall be treated for pur-
poses of this section and sections 2107, 2501, and 
6039G in the same manner as if such resident were 
a citizen of the United States who lost United States 
citizenship on the date of such cessation or com-
mencement.’’. 
(B) Paragraph (6) of section 7701(b) is 
amended by adding at the end the following 
flush sentence: 
‘‘An individual shall cease to be treated as a lawful 
permanent resident of the United States if such in-
dividual commences to be treated as a resident of a 
foreign country under the provisions of a tax treaty 
between the United States and the foreign country, 
does not waive the benefits of such treaty applicable 
to residents of the foreign country, and notifies the 
Secretary of the commencement of such treatment.’’. 
(C) Section 7701 is amended by striking 
subsection (n) and by redesignating subsections 
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(o) and (p) as subsections (n) and (o), respec-
tively. 
(d) INFORMATION
RETURNS.—Section 6039G is 
amended— 
(1) by inserting ‘‘or 877A’’ after ‘‘section 
877(b)’’ in subsection (a), and 
(2) by inserting ‘‘or 877A’’ after ‘‘section 
877(a)’’ in subsection (d). 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part II of subchapter N of chapter 1 
is amended by inserting after the item relating to section 
877 the following new item: 
‘‘Sec. 877A. Tax responsibilities of expatriation.’’. 
(f) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this 
subsection, the amendments made by this section 
shall apply to expatriates (as defined in section 
877A(g) of the Internal Revenue Code of 1986, as 
added by this section) whose expatriation date (as so 
defined) is on or after the date of the enactment of 
this Act. 
(2) GIFTS AND BEQUESTS.—Chapter 15 of the 
Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to covered gifts and bequests 
(as defined in section 2801 of such Code, as so 
added) received on or after the date of the enact-
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ment of this Act, regardless of when the transferor 
expatriated. 
SEC. 505. REPEAL OF SUSPENSION OF CERTAIN PENALTIES 
AND INTEREST. 
(a) IN GENERAL.—Section 6404 is amended by strik-
ing subsection (g) and by redesignating subsection (h) as 
subsection (g). 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to notices provided by the Sec-
retary of the Treasury, or his delegate, after the date 
which is 6 months after the date of the enactment of the 
Small Business and Work Opportunity Tax Act of 2007. 
SEC. 506. UNUSED MERCHANDISE DRAWBACK. 
(a) IN GENERAL.—Section 313(j)(2) of the Tariff 
Act of 1930 (19 U.S.C. 1313(j)(2)) is amended by adding 
at the end the following: ‘‘For purposes of subparagraph 
(A) of this paragraph, wine of the same color having a 
price variation not to exceed 50 percent between the im-
ported wine and the exported wine shall be deemed to be 
commercially interchangeable.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply with respect to claims filed for 
drawback under section 313(j)(2) of the Tariff Act of 
1930 on or after the date of the enactment of this Act. 
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TITLE VI—REVENUE 
PROVISIONS 
Subtitle A—Nonqualified Deferred 
Compensation 
From 
Certain 
Tax Indifferent Parties 
SEC. 
601. 
NONQUALIFIED 
DEFERRED 
COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
(a) IN GENERAL.—Subpart B of part II of sub-
chapter E of chapter 1 (relating to taxable year for which 
items of gross income included) is amended by inserting 
after section 457 the following new section: 
‘‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
‘‘(a) IN GENERAL.—Any compensation which is de-
ferred under a nonqualified deferred compensation plan of 
a nonqualified entity shall be taken into account for pur-
poses of this chapter when there is no substantial risk of 
forfeiture of the rights to such compensation. 
‘‘(b) NONQUALIFIED ENTITY.—For purposes of this 
section, the term ‘nonqualified entity’ means— 
‘‘(1) any foreign corporation unless substan-
tially all of such income is— 
‘‘(A) effectively connected with the conduct 
of a trade or business in the United States, or 
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‘‘(B) subject to a comprehensive foreign in-
come tax, and 
‘‘(2) any partnership unless substantially all of 
such income is allocated to persons other than— 
‘‘(A) foreign persons with respect to whom 
such income is not subject to a comprehensive 
foreign income tax, and 
‘‘(B) organizations which are exempt from 
tax under this title. 
‘‘(c) ASCERTAINABILITY
OF AMOUNTS
OF COM-
PENSATION.— 
‘‘(1) IN GENERAL.—If the amount of any com-
pensation is not ascertainable at the time that such 
compensation is otherwise to be taken into account 
under subsection (a)— 
‘‘(A) such amount shall be so taken into 
account when ascertainable, and 
‘‘(B) the tax imposed under this chapter 
for the taxable year in which such compensation 
is taken into account under subparagraph (A) 
shall be increased by the sum of— 
‘‘(i) the amount of interest determined 
under paragraph (2), and 
‘‘(ii) an amount equal to 20 percent of 
the amount of such compensation. 
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‘‘(2) INTEREST.—For purposes of paragraph 
(1)(B)(i), the interest determined under this para-
graph for any taxable year is the amount of interest 
at the underpayment rate under section 6621 plus 
1 percentage point on the underpayments that would 
have occurred had the deferred compensation been 
includible in gross income for the taxable year in 
which first deferred or, if later, the first taxable year 
in which such deferred compensation is not subject 
to a substantial risk of forfeiture. 
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.—The 
rights of a person to compensation shall be treated 
as subject to a substantial risk of forfeiture only if 
such person’s rights to such compensation are condi-
tioned upon the future performance of substantial 
services by any individual. 
‘‘(2) COMPREHENSIVE FOREIGN INCOME TAX.— 
The term ‘comprehensive foreign income tax’ means, 
with respect to any foreign person, the income tax 
of a foreign country if— 
‘‘(A) such person is eligible for the benefits 
of a comprehensive income tax treaty between 
such foreign country and the United States, or 
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‘‘(B) such person demonstrates to the sat-
isfaction of the Secretary that such foreign 
country has a comprehensive income tax. 
Such term shall not include any tax unless such tax 
includes rules for the deductibility of deferred com-
pensation which are similar to the rules of this title. 
‘‘(3) NONQUALIFIED
DEFERRED
COMPENSA-
TION PLAN.—The term ‘nonqualified deferred com-
pensation plan’ has the meaning given such term 
under section 409A(d), except that such term shall 
include any plan that provides a right to compensa-
tion based on the appreciation in value of a specified 
number of equity units of the service recipient. 
‘‘(4) APPLICATION OF RULES.—Rules similar to 
the rules of paragraphs (5) and (6) of section 
409A(d) shall apply. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section, including regula-
tions disregarding a substantial risk of forfeiture in cases 
where necessary to carry out the purposes of this sec-
tion.’’. 
(b) CONFORMING AMENDMENT.—Section 26(b)(2) is 
amended by striking ‘‘and’’ at the end of subparagraph 
(S), by striking the period at the end of subparagraph (T) 
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and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new subparagraph: 
‘‘(U) section 457A(c)(1)(B) (relating to as-
certainability of amounts of compensation).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
of subpart B of part II of subchapter E of chapter 1 is 
amended by inserting after the item relating to section 
457 the following new item: 
‘‘Sec. 457A. Nonqualified deferred compensation from certain tax indifferent 
parties.’’. 
(d) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to amounts deferred which 
are attributable to services performed after Decem-
ber 31, 2007. 
(2) APPLICATION TO EXISTING DEFERRALS.— 
In the case of any amount deferred to which the 
amendments made by this section do not apply solely 
by reason of the fact that the amount is attributable 
to services performed before January 1, 2008, to the 
extent such amount is not includible in gross income 
in a taxable year beginning before 2017, such 
amounts shall be includible in gross income in the 
later of— 
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(A) the last taxable year beginning before 
2017, or 
(B) the taxable year in which there is no 
substantial risk of forfeiture of the rights to 
such compensation (determined in the same 
manner as determined for purposes of section 
457A of the Internal Revenue Code of 1986, as 
added by this section). 
(3) ACCELERATED PAYMENTS.—No later than 
60 days after the date of the enactment of this Act, 
the Secretary shall issue guidance providing a lim-
ited period of time during which a nonqualified de-
ferred compensation arrangement attributable to 
services performed on or before December 31, 2007, 
may, without violating the requirements of section 
409A(a) of the Internal Revenue Code of 1986, be 
amended to conform the date of distribution to the 
date the amounts are required to be included in in-
come. 
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Subtitle B—Provisions Related to 
Certain Investment Partnerships 
SEC. 611. INCOME OF PARTNERS FOR PERFORMING IN-
VESTMENT MANAGEMENT SERVICES TREAT-
ED AS ORDINARY INCOME RECEIVED FOR 
PERFORMANCE OF SERVICES. 
(a) IN GENERAL.—Part I of subchapter K of chapter 
1 is amended by adding at the end the following new sec-
tion: 
‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIP. 
‘‘(a) TREATMENT
OF
DISTRIBUTIVE
SHARE
OF 
PARTNERSHIP ITEMS.—For purposes of this title, in the 
case of an investment services partnership interest— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
702(b)— 
‘‘(A) any net income with respect to such 
interest for any partnership taxable year shall 
be treated as ordinary income for the perform-
ance of services, and 
‘‘(B) any net loss with respect to such in-
terest for such year, to the extent not dis-
allowed under paragraph (2) for such year, 
shall be treated as an ordinary loss. 
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‘‘(2) TREATMENT OF LOSSES.— 
‘‘(A) LIMITATION.—Any net loss with re-
spect to such interest shall be allowed for any 
partnership taxable year only to the extent that 
such loss does not exceed the excess (if any) 
of— 
‘‘(i) the aggregate net income with re-
spect to such interest for all prior partner-
ship taxable years, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest not disallowed under 
this subparagraph for all prior partnership 
taxable years. 
‘‘(B) CARRYFORWARD.—Any net loss for 
any partnership taxable year which is not al-
lowed by reason of subparagraph (A) shall be 
treated as an item of loss with respect to such 
partnership interest for the succeeding partner-
ship taxable year. 
‘‘(C) BASIS ADJUSTMENT.—No adjustment 
to the basis of a partnership interest shall be 
made on account of any net loss which is not 
allowed by reason of subparagraph (A). 
‘‘(D) EXCEPTION
FOR
BASIS
ATTRIB-
UTABLE TO PURCHASE OF A PARTNERSHIP IN-
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TEREST.—In the case of an investment services 
partnership interest acquired by purchase, para-
graph (1)(B) shall not apply to so much of any 
net loss with respect to such interest for any 
taxable year as does not exceed the excess of— 
‘‘(i) the basis of such interest imme-
diately after such purchase, over 
‘‘(ii) the aggregate net loss with re-
spect to such interest to which paragraph 
(1)(B) did not apply by reason of this sub-
paragraph for all prior taxable years. 
Any net loss to which paragraph (1)(B) does 
not apply by reason of this subparagraph shall 
not be taken into account under subparagraph 
(A). 
‘‘(E) PRIOR
PARTNERSHIP
YEARS.—Any 
reference in this paragraph to prior partnership 
taxable years shall only include prior partner-
ship taxable years to which this section applies. 
‘‘(3) NET INCOME AND LOSS.—For purposes of 
this section— 
‘‘(A) NET
INCOME.—The term ‘net in-
come’ means, with respect to any investment 
services partnership interest, for any partner-
ship taxable year, the excess (if any) of— 
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‘‘(i) all items of income and gain 
taken into account by the holder of such 
interest under section 702 with respect to 
such interest for such year, over 
‘‘(ii) all items of deduction and loss so 
taken into account. 
‘‘(B) NET
LOSS.—The term ‘net loss’ 
means with respect to such interest for such 
year, the excess (if any) of the amount de-
scribed in subparagraph (A)(ii) over the amount 
described in subparagraph (A)(i). 
‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 
‘‘(1) GAIN.—Any gain on the disposition of an 
investment services partnership interest shall be 
treated as ordinary income for the performance of 
services. 
‘‘(2) LOSS.—Any loss on the disposition of an 
investment services partnership interest shall be 
treated as an ordinary loss to the extent of the ex-
cess (if any) of— 
‘‘(A) the aggregate net income with respect 
to such interest for all partnership taxable 
years, over 
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‘‘(B) the aggregate net loss with respect to 
such interest allowed under subsection (a)(2) 
for all partnership taxable years. 
‘‘(3) DISPOSITION OF PORTION OF INTEREST.— 
In the case of any disposition of an investment serv-
ices partnership interest, the amount of net loss 
which otherwise would have (but for subsection 
(a)(2)(C)) applied to reduce the basis of such inter-
est shall be disregarded for purposes of this section 
for all succeeding partnership taxable years. 
‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP-
ERTY.—In the case of any distribution of appre-
ciated property by a partnership with respect to any 
investment services partnership interest, gain shall 
be recognized by the partnership in the same man-
ner as if the partnership sold such property at fair 
market value at the time of the distribution. For 
purposes of this paragraph, the term ‘appreciated 
property’ means any property with respect to which 
gain would be determined if sold as described in the 
preceding sentence. 
‘‘(5) APPLICATION OF SECTION 751.—In apply-
ing section 751(a), an investment services partner-
ship interest shall be treated as an inventory item. 
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‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER-
EST.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ means any interest in a 
partnership which is held by any person if such per-
son provides (directly or indirectly) a substantial 
quantity of any of the following services with respect 
to the assets of the partnership in the conduct of the 
trade or business of providing such services: 
‘‘(A) Advising as to the advisability of in-
vesting in, purchasing, or selling any specified 
asset. 
‘‘(B) Managing, acquiring, or disposing of 
any specified asset. 
‘‘(C) Arranging financing with respect to 
acquiring specified assets. 
‘‘(D) Any activity in support of any service 
described in subparagraphs (A) through (C). 
For purposes of this paragraph, the term ‘specified 
asset’ means securities (as defined in section 
475(c)(2) without regard to the last sentence there-
of), real estate, commodities (as defined in section 
475(e)(2))), or options or derivative contracts with 
respect to securities (as so defined), real estate, or 
commodities (as so defined). 
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‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) a portion of an investment serv-
ices partnership interest is acquired on ac-
count of a contribution of invested capital, 
and 
‘‘(ii) the partnership makes a reason-
able allocation of partnership items be-
tween the portion of the distributive share 
that is with respect to invested capital and 
the portion of such distributive share that 
is not with respect to invested capital, 
then subsection (a) shall not apply to the por-
tion of the distributive share that is with re-
spect to invested capital. An allocation will not 
be treated as reasonable for purposes of this 
subparagraph if such allocation would result in 
the partnership allocating a greater portion of 
income to invested capital than any other part-
ner not providing services would have been allo-
cated with respect to the same amount of in-
vested capital. 
‘‘(B) SPECIAL RULE FOR DISPOSITIONS.— 
In any case to which subparagraph (A) applies, 
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