847
date of the enactment of this subsection, 
the applicable percentage is—
‘‘(I) 80 percent for the first tax-
able year of such organization begin-
ning after the date which is 1 year 
after the date of the enactment of this 
subsection, and 
‘‘(II) 70 percent for the second 
such taxable year beginning after such 
date, and 
‘‘(III) 60 percent for the third 
such taxable year beginning after such 
date. 
‘‘(3) ADDITIONAL REQUIREMENT FOR ORGANI-
ZATIONS DESCRIBED IN SUBSECTION (c)(4).—In ad-
dition to the requirements under paragraph (1), an 
organization with respect to which the provision of 
credit counseling services is a substantial purpose 
and which is described in paragraph (4) of sub-
section (c) shall not be exempt from tax under sub-
section (a) unless such organization notifies the Sec-
retary, in such manner as the Secretary may by reg-
ulations prescribe, that it is applying for recognition 
as a credit counseling organization.
848
‘‘(4) CREDIT
COUNSELING
SERVICES; DEBT 
MANAGEMENT
PLAN
SERVICES.—For purposes of 
this subsection—
‘‘(A) CREDIT
COUNSELING
SERVICES.—
The term ‘credit counseling services’ means—
‘‘(i) the providing of educational infor-
mation to the general public on budgeting, 
personal finance, financial literacy, saving 
and spending practices, and the sound use 
of consumer credit, 
‘‘(ii) the assisting of individuals and 
families with financial problems by pro-
viding them with counseling, or 
‘‘(iii) a combination of the activities 
described in clauses (i) and (ii). 
‘‘(B) DEBT
MANAGEMENT
PLAN
SERV-
ICES.—The term ‘debt management plan serv-
ices’ means services related to the repayment, 
consolidation, or restructuring of a consumer’s 
debt, and includes the negotiation with creditors 
of lower interest rates, the waiver or reduction 
of fees, and the marketing and processing of 
debt management plans.’’. 
(b) DEBT MANAGEMENT PLAN SERVICES TREATED 
AS AN UNRELATED BUSINESS.—Section 513 (relating to
849
unrelated trade or business) is amended by adding at the 
end the following: 
‘‘(j) DEBT MANAGEMENT PLAN SERVICES.—The 
term ‘unrelated trade or business’ includes the provision 
of debt management plan services (as defined in section 
501(q)(4)(B)) by any organization other than an organiza-
tion which meets the requirements of section 501(q).’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after the date 
of the enactment of this Act. 
(2) TRANSITION RULE FOR EXISTING ORGANI-
ZATIONS.—In the case of any organization described 
in paragraph (3) or (4) section 501(c) of the Inter-
nal Revenue Code of 1986 and with respect to which 
the provision of credit counseling services is a sub-
stantial purpose on the date of the enactment of this 
Act, the amendments made by this section shall 
apply to taxable years beginning after the date 
which is 1 year after the date of the enactment of 
this Act. 
SEC. 1221. EXPANSION OF THE BASE OF TAX ON PRIVATE 
FOUNDATION NET INVESTMENT INCOME. 
(a) GROSS INVESTMENT INCOME.—
850
(1) IN
GENERAL.—Paragraph (2) of section 
4940(c) (relating to gross investment income) is 
amended by adding at the end the following new 
sentence: ‘‘Such term shall also include income from 
sources similar to those in the preceding sentence.’’. 
(2) CONFORMING AMENDMENT.—Subsection (e) 
of section 509 (relating to gross investment income) 
is amended by adding at the end the following new 
sentence: ‘‘Such term shall also include income from 
sources similar to those in the preceding sentence.’’. 
(b) CAPITAL GAIN NET INCOME.—Paragraph (4) of 
section 4940(c) (relating to capital gains and losses) is 
amended—
(1) in subparagraph (A), by striking ‘‘used for 
the production of interest, dividends, rents, and roy-
alties’’ and inserting ‘‘used for the production of 
gross investment income (as defined in paragraph 
(2))’’, 
(2) in subparagraph (C), by inserting ‘‘or 
carrybacks’’ after ‘‘carryovers’’, and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(D) Except to the extent provided by reg-
ulation, under rules similar to the rules of sec-
tion 1031 (including the exception under sub-
851
section (a)(2) thereof), no gain or loss shall be 
taken into account with respect to any portion 
of property used for a period of not less than 
1 year for a purpose or function constituting 
the basis of the private foundation’s exemption 
if the entire property is exchanged immediately 
following such period solely for property of like 
kind which is to be used primarily for a purpose 
or function constituting the basis for such foun-
dation’s exemption.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 1222. DEFINITION OF CONVENTION OR ASSOCIATION 
OF CHURCHES. 
Section 7701 (relating to definitions) is amended by 
redesignating subsection (o) as subsection (p) and by in-
serting after subsection (n) the following new subsection: 
‘‘(o) CONVENTION
OR ASSOCIATION
OF CHURCH-
ES.—For purposes of this title, any organization which is 
otherwise a convention or association of churches shall not 
fail to so qualify merely because the membership of such 
organization includes individuals as well as churches or be-
cause individuals have voting rights in such organiza-
tion.’’.
852
SEC. 1223. NOTIFICATION REQUIREMENT FOR ENTITIES 
NOT CURRENTLY REQUIRED TO FILE. 
(a) IN GENERAL.—Section 6033 (relating to returns 
by exempt organizations), as amended by this Act, is 
amended by redesignating subsection (i) as subsection (j) 
and by inserting after subsection (h) the following new 
subsection: 
‘‘(i) ADDITIONAL NOTIFICATION REQUIREMENTS.—
Any organization the gross receipts of which in any tax-
able year result in such organization being referred to in 
subsection (a)(3)(A)(ii) or (a)(3)(B)—
‘‘(1) shall furnish annually, in electronic form, 
and at such time and in such manner as the Sec-
retary may by regulations prescribe, information set-
ting forth—
‘‘(A) the legal name of the organization, 
‘‘(B) any name under which such organiza-
tion operates or does business, 
‘‘(C) the organization’s mailing address 
and Internet web site address (if any), 
‘‘(D) the organization’s taxpayer identifica-
tion number, 
‘‘(E) the name and address of a principal 
officer, and
853
‘‘(F) evidence of the continuing basis for 
the organization’s exemption from the filing re-
quirements under subsection (a)(1), and 
‘‘(2) upon the termination of the existence of 
the organization, shall furnish notice of such termi-
nation.’’. 
(b) LOSS OF EXEMPT STATUS FOR FAILURE TO FILE 
RETURN OR NOTICE.—Section 6033 (relating to returns 
by exempt organizations), as amended by subsection (a), 
is amended by redesignating subsection (j) as subsection 
(k) and by inserting after subsection (i) the following new 
subsection: 
‘‘(j) LOSS OF EXEMPT STATUS FOR FAILURE TO 
FILE RETURN OR NOTICE.—
‘‘(1) IN
GENERAL.—If an organization de-
scribed in subsection (a)(1) or (i) fails to file an an-
nual return or notice required under either sub-
section for 3 consecutive years, such organization’s 
status as an organization exempt from tax under 
section 501(a) shall be considered revoked on and 
after the date set by the Secretary for the filing of 
the third annual return or notice. The Secretary 
shall publish and maintain a list of any organization 
the status of which is so revoked.
854
‘‘(2) APPLICATION NECESSARY FOR REINSTATE-
MENT.—Any organization the tax-exempt status of 
which is revoked under paragraph (1) must apply in 
order to obtain reinstatement of such status regard-
less of whether such organization was originally re-
quired to make such an application. 
‘‘(3) RETROACTIVE
REINSTATEMENT
IF
REA-
SONABLE CAUSE SHOWN FOR FAILURE.—If, upon 
application for reinstatement of status as an organi-
zation exempt from tax under section 501(a), an or-
ganization described in paragraph (1) can show to 
the satisfaction of the Secretary evidence of reason-
able cause for the failure described in such para-
graph, the organization’s exempt status may, in the 
discretion of the Secretary, be reinstated effective 
from the date of the revocation under such para-
graph.’’. 
(c) NO DECLARATORY JUDGMENT RELIEF.—Section 
7428(b) (relating to limitations) is amended by adding at 
the end the following new paragraph: 
‘‘(4) NONAPPLICATION FOR CERTAIN REVOCA-
TIONS.—No action may be brought under this sec-
tion with respect to any revocation of status de-
scribed in section 6033(j)(1).’’.
855
(d) NO MONETARY PENALTY FOR FAILURE TO NO-
TIFY.—Section 6652(c)(1) (relating to annual returns 
under section 6033 or 6012(a)(6)) is amended by adding 
at the end the following new subparagraph: 
‘‘(E) NO PENALTY FOR CERTAIN ANNUAL 
NOTICES.—This paragraph shall not apply with 
respect to any notice required under section 
6033(i).’’. 
(e) SECRETARIAL OUTREACH REQUIREMENTS.—
(1) NOTICE REQUIREMENT.—The Secretary of 
the Treasury shall notify in a timely manner every 
organization described in section 6033(i) of the In-
ternal Revenue Code of 1986 (as added by this sec-
tion) of the requirement under such section 6033(i) 
and of the penalty established under section 6033(j) 
of such Code—
(A) by mail, in the case of any organiza-
tion the identity and address of which is in-
cluded in the list of exempt organizations main-
tained by the Secretary, and 
(B) by Internet or other means of out-
reach, in the case of any other organization. 
(2) LOSS OF STATUS PENALTY FOR FAILURE TO 
FILE RETURN.—The Secretary of the Treasury shall 
publicize, in a timely manner in appropriate forms
856
and instructions and through other appropriate 
means, the penalty established under section 6033(j) 
of such Code for the failure to file a return under 
subsection (a)(1) or (i) of section 6033 of such 
Code. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to notices and returns with respect 
to annual periods beginning after 2006. 
SEC. 1224. DISCLOSURE TO STATE OFFICIALS RELATING TO 
EXEMPT ORGANIZATIONS. 
(a) IN GENERAL.—Subsection (c) of section 6104 is 
amended by striking paragraph (2) and inserting the fol-
lowing new paragraphs: 
‘‘(2) DISCLOSURE OF PROPOSED ACTIONS RE-
LATED TO CHARITABLE ORGANIZATIONS.—
‘‘(A) SPECIFIC
NOTIFICATIONS.—In the 
case of an organization to which paragraph (1) 
applies, the Secretary may disclose to the ap-
propriate State officer—
‘‘(i) a notice of proposed refusal to 
recognize such organization as an organi-
zation described in section 501(c)(3) or a 
notice of proposed revocation of such orga-
nization’s recognition as an organization 
exempt from taxation,