H. R. 4520
One Hundred Eighth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the twentieth day of January, two thousand and four
An Act
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 Representatives of
the United States of America in Congress assembled,
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 otherwise expressly
provided, whenever in this Act an amendment 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 provision 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—PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic production activi-
ties.
TITLE II—BUSINESS TAX INCENTIVES
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.
Subtitle C—Community Revitalization
Sec. 221. Modification of targeted areas and low-income communities for new mar-
kets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000 census
data.
Sec. 223. Modification of income requirement for census tracts within high migra-
tion rural counties.
Subtitle D—S Corporation Reform and Simplification
Sec. 231. Members of family treated as 1 shareholder.
Sec. 232. Increase in number of eligible shareholders to 100.
Sec. 233. Expansion of bank S corporation eligible shareholders to include IRAs.
Sec. 234. Disregard of unexercised powers of appointment in determining potential
current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.
Sec. 236. Use of passive activity loss and at-risk amounts by qualified subchapter
S trust income beneficiaries.
H. R. 4520—2
Sec. 237. Exclusion of investment securities income from passive income test for
bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S subsidiary elec-
tions and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.
Sec. 240. Repayment of loans for qualifying employer securities.
Subtitle E—Other Business Incentives
Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of depreciation.
Sec. 243. Improvements related to real estate investment trusts.
Sec. 244. Special rules for certain film and television productions.
Sec. 245. Credit for maintenance of railroad track.
Sec. 246. Suspension of occupational taxes relating to distilled spirits, wine, and
beer.
Sec. 247. Modification of unrelated business income limitation on investment in
certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international shipping ac-
tivities using per ton rate.
Subtitle F—Stock Options and Employee Stock Purchase Plan Stock Options
Sec. 251. Exclusion of incentive stock options and employee stock purchase plan
stock options from wages.
TITLE III—TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A—Volumetric Ethanol Excise Tax Credit
Sec. 301. Alcohol and biodiesel excise tax credit and extension of alcohol fuels in-
come tax credit.
Sec. 302. Biodiesel income tax credit.
Sec. 303. Information reporting for persons claiming certain tax benefits.
Subtitle B—Agricultural Incentives
Sec. 311. Special rules for livestock sold on account of weather-related conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing patronage
dividends.
Sec. 313. Apportionment of small ethanol producer credit.
Sec. 314. Coordinate farmers and fishermen income averaging and the alternative
minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to outright sales by
landowners.
Sec. 316. Modification to cooperative marketing rules to include value added proc-
essing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers’ cooperative or-
ganizations.
Sec. 318. Certain expenses of rural letter carriers.
Sec. 319. Treatment of certain income of cooperatives.
Sec. 320. Exclusion for payments to individuals under National Health Service
Corps loan repayment program and certain State loan repayment pro-
grams.
Sec. 321. Modification of safe harbor rules for timber REITs.
Sec. 322. Expensing of certain reforestation expenditures.
Subtitle C—Incentives for Small Manufacturers
Sec. 331. Net income from publicly traded partnerships treated as qualifying in-
come of regulated investment companies.
Sec. 332. Simplification of excise tax imposed on bows and arrows.
Sec. 333. Reduction of excise tax on fishing tackle boxes.
Sec. 334. Sonar devices suitable for finding fish.
Sec. 335. Charitable contribution deduction for certain expenses incurred in sup-
port of Native Alaskan subsistence whaling.
Sec. 336. Modification of depreciation allowance for aircraft.
Sec. 337. Modification of placed in service rule for bonus depreciation property.
Sec. 338. Expensing of capital costs incurred in complying with Environmental Pro-
tection Agency sulfur regulations.
Sec. 339. Credit for production of low sulfur diesel fuel.
Sec. 340. Expansion of qualified small-issue bond program.
Sec. 341. Oil and gas from marginal wells.
TITLE IV—TAX REFORM AND SIMPLIFICATION FOR UNITED STATES
BUSINESSES
Sec. 401. Interest expense allocation rules.
H. R. 4520—3
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled section 902 cor-
porations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply in deter-
mining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible property.
Sec. 407. United States property not to include certain assets of controlled foreign
corporation.
Sec. 408. Translation of foreign taxes.
Sec. 409. Repeal of withholding tax on dividends from certain foreign corporations.
Sec. 410. Equal treatment of interest paid by foreign partnerships and foreign cor-
porations.
Sec. 411. Treatment of certain dividends of regulated investment companies.
Sec. 412. Look-thru treatment for sales of partnership interests.
Sec. 413. Repeal of foreign personal holding company rules and foreign investment
company rules.
Sec. 414. Determination of foreign personal holding company income with respect
to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping income.
Sec. 416. Modification of exceptions under subpart F for active financing.
Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax credit carryback.
Sec. 418. Modification of the treatment of certain REIT distributions attributable
to gain from sales or exchanges of United States real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races and dog
races from gross income of nonresident alien individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.
Sec. 421. Foreign tax credit under alternative minimum tax.
Sec. 422. Incentives to reinvest foreign earnings in United States.
Sec. 423. Delay in effective date of final regulations governing exclusion of income
from international operation of ships or aircraft.
Sec. 424. Study of earnings stripping provisions.
TITLE V—DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
Sec. 501. Deduction of State and local general sales taxes in lieu of State and local
income taxes.
TITLE VI—FAIR AND EQUITABLE TOBACCO REFORM
Sec. 601. Short title.
Subtitle A—Termination of Federal Tobacco Quota and Price Support Programs
Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related provisions.
Sec. 613. Conforming amendments.
Sec. 614. Continuation of liability for 2004 and earlier crop years.
Subtitle B—Transitional Payments to Tobacco Quota Holders and Producers of
Tobacco
Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.
Sec. 623. Contract payments for producers of quota tobacco.
Sec. 624. Administration.
Sec. 625. Use of assessments as source of funds for payments.
Sec. 626. Tobacco Trust Fund.
Sec. 627. Limitation on total expenditures.
Subtitle C—Implementation and Transition
Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan costs.
Sec. 642. Regulations.
Sec. 643. Effective date.
TITLE VII—MISCELLANEOUS PROVISIONS
Sec. 701. Brownfields demonstration program for qualified green building and sus-
tainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain brownfield sites
from unrelated business taxable income.
Sec. 703. Civil rights tax relief.
Sec. 704. Modification of class life for certain track facilities.
Sec. 705. Suspension of policyholders surplus account provisions.
Sec. 706. Certain Alaska natural gas pipeline property treated as 7-year property.
H. R. 4520—4
Sec. 707. Extension of enhanced oil recovery credit to certain Alaska facilities.
Sec. 708. Method of accounting for naval shipbuilders.
Sec. 709. Modification of minimum cost requirement for transfer of excess pension
assets.
Sec. 710. Expansion of credit for electricity produced from certain renewable re-
sources.
Sec. 711. Certain business credits allowed against regular and minimum tax.
Sec. 712. Inclusion of primary and secondary medical strategies for children and
adults with sickle cell disease as medical assistance under the Medicaid
program.
Sec. 713. Ceiling fans.
Sec. 714. Certain steam generators, and certain reactor vessel heads and pressur-
izers, used in nuclear facilities.
TITLE VIII—REVENUE PROVISIONS
Subtitle A—Provisions to Reduce Tax Avoidance Through Individual and Corporate
Expatriation
Sec. 801. Tax treatment of expatriated entities and their foreign parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated corporations.
Sec. 803. Reinsurance of United States risks in foreign jurisdictions.
Sec. 804. Revision of tax rules on expatriation of individuals.
Sec. 805. Reporting of taxable mergers and acquisitions.
Sec. 806. Studies.
Subtitle B—Provisions Relating to Tax Shelters
PART I—TAXPAYER-RELATED PROVISIONS
Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other reportable trans-
actions having a significant tax avoidance purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating to taxpayer
communications.
Sec. 814. Statute of limitations for taxable years for which required listed trans-
actions not reported.
Sec. 815. Disclosure of reportable transactions.
Sec. 816. Failure to furnish information regarding reportable transactions.
Sec. 817. Modification of penalty for failure to maintain lists of investors.
Sec. 818. Penalty on promoters of tax shelters.
Sec. 819. Modifications of substantial understatement penalty for nonreportable
transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to tax shelters
and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial accounts.
Sec. 822. Regulation of individuals practicing before the Department of the Treas-
ury.
PART II—OTHER PROVISIONS
Sec. 831. Treatment of stripped interests in bond and preferred stock funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding taxes on in-
come other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.
Sec. 834. No reduction of basis under section 734 in stock held by partnership in
corporate partner.
Sec. 835. Repeal of special rules for FASITS.
Sec. 836. Limitation on transfer or importation of built-in losses.
Sec. 837. Clarification of banking business for purposes of determining investment
of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable to nondis-
closed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for certain deemed
asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence acquired in a
like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue discount deduc-
tions and income inclusions in transactions with related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential underpay-
ments.
Sec. 843. Partial payment of tax liability in installment agreements.
Sec. 844. Affirmation of consolidated return regulation authority.
Sec. 845. Expanded disallowance of deduction for interest on convertible debt.
H. R. 4520—5
PART III—LEASING
Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by governments or
other tax-exempt entities.
Sec. 849. Effective date.
Subtitle C—Reduction of Fuel Tax Evasion
Sec. 851. Exemption from certain excise taxes for mobile machinery.
Sec. 852. Modification of definition of off-highway vehicle.
Sec. 853. Taxation of aviation-grade kerosene.
Sec. 854. Dye injection equipment.
Sec. 855. Elimination of administrative review for taxable use of dyed fuel.
Sec. 856. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 857. Termination of dyed diesel use by intercity buses.
Sec. 858. Authority to inspect on-site records.
Sec. 859. Assessable penalty for refusal of entry.
Sec. 860. Registration of pipeline or vessel operators required for exemption of bulk
transfers to registered terminals or refineries.
Sec. 861. Display of registration.
Sec. 862. Registration of persons within foreign trade zones, etc.
Sec. 863. Penalties for failure to register and failure to report.
Sec. 864. Electronic filing of required information reports.
Sec. 865. Taxable fuel refunds for certain ultimate vendors.
Sec. 866. Two-party exchanges.
Sec. 867. Modifications of tax on use of certain vehicles.
Sec. 868. Dedication of revenues from certain penalties to the Highway Trust Fund.
Sec. 869. Simplification of tax on tires.
Sec. 870. Transmix and diesel fuel blend stocks treated as taxable fuel.
Sec. 871. Study regarding fuel tax compliance.
Subtitle D—Other Revenue Provisions
Sec. 881. Qualified tax collection contracts.
Sec. 882. Treatment of charitable contributions of patents and similar property.
Sec. 883. Increased reporting for noncash charitable contributions.
Sec. 884. Donations of motor vehicles, boats, and airplanes.
Sec. 885. Treatment of nonqualified deferred compensation plans.
Sec. 886. Extension of amortization of intangibles to sports franchises.
Sec. 887. Modification of continuing levy on payments to Federal vendors.
Sec. 888. Modification of straddle rules.
Sec. 889. Addition of vaccines against hepatitis A to list of taxable vaccines.
Sec. 890. Addition of vaccines against influenza to list of taxable vaccines.
Sec. 891. Extension of IRS user fees.
Sec. 892. COBRA fees.
Sec. 893. Prohibition on nonrecognition of gain through complete liquidation of
holding company.
Sec. 894. Effectively connected income to include certain foreign source income.
Sec. 895. Recapture of overall foreign losses on sale of controlled foreign corpora-
tion.
Sec. 896. Recognition of cancellation of indebtedness income realized on satisfaction
of debt with partnership interest.
Sec. 897. Denial of installment sale treatment for all readily tradable debt.
Sec. 898. Modification of treatment of transfers to creditors in divisive reorganiza-
tions.
Sec. 899. Clarification of definition of nonqualified preferred stock.
Sec. 900. Modification of definition of controlled group of corporations.
Sec. 901. Class lives for utility grading costs.
Sec. 902. Consistent amortization of periods for intangibles.
Sec. 903. Freeze of provisions regarding suspension of interest where Secretary
fails to contact taxpayer.
Sec. 904. Increase in withholding from supplemental wage payments in excess of
$1,000,000.
Sec. 905. Treatment of sale of stock acquired pursuant to exercise of stock options
to comply with conflict-of-interest requirements.
Sec. 906. Application of basis rules to nonresident aliens.
Sec. 907. Limitation of employer deduction for certain entertainment expenses.
Sec. 908. Residence and source rules relating to United States possessions.
Sec. 909. Sales or dispositions to implement Federal Energy Regulatory Commis-
sion or State electric restructuring policy.
Sec. 910. Expansion of limitation on depreciation of certain passenger automobiles.
H. R. 4520—6
TITLE I—PROVISIONS RELATING TO RE-
PEAL 
OF 
EXCLUSION 
FOR
EXTRATERRITORIAL INCOME
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 income) is hereby repealed.
(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 subchapter 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 paragraph (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 amended—
(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)’’.
(8) Section 999(c)(1) is amended by striking ‘‘941(a)(5),’’.
(c) EFFECTIVE DATE.—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 corporation 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 to property treated as transferred under clause (ii)
of section 943(e)(4)(B) of such Code to the extent such property—
(1) was treated as transferred under clause (i) thereof,
or
H. R. 4520—7
(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 delegate) 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 pursuant 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 before the date of the enactment
of this Act), and
(2) which is in effect on September 17, 2003, 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 enforceable against the
seller or lessor.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO
DOMESTIC PRODUCTION ACTIVITIES.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amended
by adding at the end the following new section:
‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION
ACTIVITIES.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a deduction
an amount equal to 9 percent of the lesser of—
‘‘(A) the qualified production activities income of the
taxpayer for the taxable year, or
‘‘(B) taxable income (determined without regard to this
section) for the taxable year.
‘‘(2) PHASEIN.—In the case of any taxable year beginning
after 2004 and before 2010, paragraph (1) and subsections
(d)(1) and (d)(6) shall be applied by substituting for the percent-
age contained therein the transition percentage determined
under the following table:
‘‘For taxable years
The
transition
beginning in:
percentage is:
2005 or 2006 .....................................................................................
2007, 2008, or 2009 ..........................................................................
6.
‘‘(b) DEDUCTION LIMITED TO WAGES PAID.—
‘‘(1) IN GENERAL.—The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed
50 percent of the W–2 wages of the employer for the taxable
year.
‘‘(2) W–2 WAGES.—For purposes of paragraph (1), the term
‘W–2 wages’ means the sum of the aggregate amounts the
taxpayer is required to include on statements under paragraphs
(3) and (8) of section 6051(a) with respect to employment of
employees of the taxpayer during the calendar year ending
during the taxpayer’s taxable year.
‘‘(3) ACQUISITIONS AND DISPOSITIONS.—The Secretary shall
provide for the application of this subsection in cases where
H. R. 4520—8
the taxpayer acquires, or disposes of, the major portion of
a trade or business or the major portion of a separate unit
of a trade or business during the taxable year.
‘‘(c) QUALIFIED PRODUCTION ACTIVITIES INCOME.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified production activities
income’ for any taxable year means an amount equal to the
excess (if any) of—
‘‘(A) the taxpayer’s domestic production gross receipts
for such taxable year, over
‘‘(B) 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 receipts, and
‘‘(iii) a ratable portion of other deductions,
expenses, and losses that are not directly allocable
to such receipts or another class of income.
‘‘(2) ALLOCATION METHOD.—The Secretary shall prescribe
rules for the proper allocation of items of income, deduction,
expense, and loss for purposes of determining income attrib-
utable to domestic production activities.
‘‘(3) SPECIAL RULES FOR DETERMINING COSTS.—
‘‘(A) IN GENERAL.—For purposes of determining costs
under clause (i) of paragraph (1)(B), any item or service
brought into the United States shall be treated as acquired
by purchase, and its cost shall be treated as not less
than its value immediately after it entered the United
States. A similar rule shall apply in determining the
adjusted basis of leased or rented property where the lease
or rental gives rise to domestic production gross receipts.
‘‘(B) EXPORTS FOR FURTHER MANUFACTURE.—In the case
of any property described in subparagraph (A) that had
been exported by the taxpayer for further manufacture,
the increase in cost or adjusted basis under subparagraph
(A) shall not exceed the difference between the value of
the property when exported and the value of the property
when brought back into the United States after the further
manufacture.
‘‘(4) DOMESTIC PRODUCTION GROSS RECEIPTS.—
‘‘(A) IN GENERAL.—The term ‘domestic production gross
receipts’ means the gross receipts of the taxpayer which
are derived from—
‘‘(i) any lease, rental, license, sale, exchange, or
other disposition of—
‘‘(I) qualifying production property which was
manufactured, produced, grown, or extracted by
the taxpayer in whole or in significant part within
the United States,
‘‘(II) any qualified film produced by the tax-
payer, or
‘‘(III) electricity, natural gas, or potable water
produced by the taxpayer in the United States,
‘‘(ii) construction performed in the United States,
or
H. R. 4520—9
‘‘(iii) engineering or architectural services per-
formed in the United States for construction projects
in the United States.
‘‘(B) EXCEPTIONS.—Such term shall not include gross
receipts of the taxpayer which are derived from—
‘‘(i) the sale of food and beverages prepared by
the taxpayer at a retail establishment, and
‘‘(ii) the transmission or distribution of electricity,
natural gas, or potable water.
‘‘(5) QUALIFYING PRODUCTION PROPERTY.—The term ‘quali-
fying production property’ means—
‘‘(A) tangible personal property,
‘‘(B) any computer software, and
‘‘(C) any property described in section 168(f)(4).
‘‘(6) QUALIFIED FILM.—The term ‘qualified film’ means any
property described in section 168(f)(3) if not less than 50 percent
of the total compensation relating to the production of such
property is compensation for services performed in the United
States by actors, production personnel, directors, and producers.
Such term does not include property with respect to which
records are required to be maintained under section 2257 of
title 18, United States Code.
‘‘(7) RELATED PERSONS.—
‘‘(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
taxpayer 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 sub-
sections (a) and (b) of section 52 shall be made without
regard to section 1563(b).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) APPLICATION
OF
SECTION
TO
PASS-THRU
ENTITIES.—
‘‘(A) IN GENERAL.—In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity—
‘‘(i) subject to the provisions of paragraphs (2) and
(3), this section shall be applied at the shareholder,
partner, or similar level, and
‘‘(ii) the Secretary shall prescribe rules for the
application of this section, including rules relating to—
‘‘(I) restrictions on the allocation of the deduc-
tion to taxpayers at the partner or similar level,
and
‘‘(II) additional reporting requirements.
‘‘(B) APPLICATION
OF
WAGE
LIMITATION.—Notwith-
standing subparagraph (A)(i), for purposes of applying sub-
section (b), a shareholder, partner, or similar person which
is allocated qualified production activities income from an
S corporation, partnership, estate, trust, or other pass-
thru entity shall also be treated as having been allocated
W–2 wages from such entity in an amount equal to the
lesser of—
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‘‘(i) such person’s allocable share of such wages
(without regard to this subparagraph), as determined
under regulations prescribed by the Secretary, or
‘‘(ii) 2 times 9 percent of the qualified production
activities income allocated to such person for the tax-
able year.
‘‘(2) APPLICATION TO INDIVIDUALS.—In the case of an indi-
vidual, subsection (a)(1)(B) shall be applied by substituting
‘adjusted gross income’ for ‘taxable income’. For purposes of
the preceding sentence, adjusted gross income shall be
determined—
‘‘(A) after application of sections 86, 135, 137, 219,
221, 222, and 469, and
‘‘(B) without regard to this section.
‘‘(3) PATRONS
OF
AGRICULTURAL
AND
HORTICULTURAL
COOPERATIVES.—
‘‘(A) IN GENERAL.—If any amount described in para-
graph (1) or (3) of section 1385(a)—
‘‘(i) is received by a person from an organization
to which part I of subchapter T applies which is
engaged—
‘‘(I) in the manufacturing, production, growth,
or extraction in whole or significant part of any
agricultural or horticultural product, or
‘‘(II) in the marketing of agricultural or horti-
cultural products, and
‘‘(ii) is allocable to the portion of the qualified
production activities income of the organization which,
but for this paragraph, would be deductible under sub-
section (a) by the organization and is designated as
such by the organization in a written notice mailed
to its patrons during the payment period described
in section 1382(d),
then such person shall be allowed a deduction under sub-
section (a) with respect to such amount. The taxable income
of the organization shall not be reduced under section
1382 by reason of any amount to which the preceding
sentence applies.
‘‘(B) 
SPECIAL
RULES.—For 
purposes 
of 
applying
subparagraph (A), in determining the qualified production
activities income which would be deductible by the
organization under subsection (a)—
‘‘(i) there shall not be taken into account in com-
puting the organization’s taxable income any deduction
allowable under subsection (b) or (c) of section 1382
(relating to patronage dividends, per-unit retain alloca-
tions, and nonpatronage distributions), and
‘‘(ii) in the case of an organization described in
subparagraph (A)(i)(II), the organization shall be
treated as having manufactured, produced, grown, or
extracted in whole or significant part any qualifying
production property marketed by the organization
which its patrons have so manufactured, produced,
grown, or extracted.
‘‘(4) SPECIAL RULE FOR AFFILIATED GROUPS.—
H. R. 4520—11
‘‘(A) IN GENERAL.—All members of an expanded affili-
ated group shall be treated as a single corporation for
purposes of this section.
‘‘(B) EXPANDED
AFFILIATED
GROUP.—For purposes of
this section, the term ‘expanded affiliated group’ means
an affiliated group as defined in section 1504(a),
determined—
‘‘(i) by substituting ‘50 percent’ for ‘80 percent’
each place it appears, and
‘‘(ii) without regard to paragraphs (2) and (4) of
section 1504(b).
‘‘(C) ALLOCATION OF DEDUCTION.—Except as provided
in regulations, the deduction under subsection (a) shall
be allocated among the members of the expanded affiliated
group in proportion to each member’s respective amount
(if any) of qualified production activities income.
‘‘(5) TRADE OR BUSINESS REQUIREMENT.—This section shall
be applied by only taking into account items which are attrib-
utable to the actual conduct of a trade or business.
‘‘(6) COORDINATION
WITH
MINIMUM
TAX.—The deduction
under this section shall be allowed for purposes of the tax
imposed by section 55; except that for purposes of section
55, the deduction under subsection (a) shall be 9 percent of
the lesser of—
‘‘(A) qualified production activities income (determined
without regard to part IV of subchapter A), or
‘‘(B) alternative minimum taxable income (determined
without regard to this section) for the taxable year.
In the case of an individual, subparagraph (B) shall be applied
by substituting ‘adjusted gross income’ for ‘alternative min-
imum taxable income’. For purposes of the preceding sentence,
adjusted gross income shall be determined in the same manner
as provided in paragraph (2).
‘‘(7) REGULATIONS.—The Secretary shall prescribe such
regulations as are necessary to carry out the purposes of this
section.’’.
(b) MINIMUM TAX.—Section 56(g)(4)(C) (relating to disallowance
of items not deductible in computing earnings and profits) is
amended by adding at the end the following new clause:
‘‘(v) DEDUCTION
FOR
DOMESTIC
PRODUCTION.—
Clause (i) shall not apply to any amount allowable
as a deduction under section 199.’’.
(c) SPECIAL RULE RELATING TO ELECTION TO TREAT CUTTING
OF TIMBER AS A SALE OR EXCHANGE.—Any election under section
631(a) of the Internal Revenue Code of 1986 made for a taxable
year ending on or before the date of the enactment of this Act
may be revoked by the taxpayer for any taxable year ending after
such date. For purposes of determining whether such taxpayer
may make a further election under such section, such election
(and any revocation under this section) shall not be taken into
account.
(d) TECHNICAL AMENDMENTS.—
(1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and
219(g)(3)(A)(ii) are each amended by inserting ‘‘199,’’ before
‘‘221’’.
(2) Clause (i) of section 221(b)(2)(C) is amended by inserting
by inserting ‘‘199,’’ before ‘‘222’’.
H. R. 4520—12
(3) Clause (i) of section 222(b)(2)(C) is amended by inserting
‘‘199,’’ before ‘‘911’’.
(4) Paragraph (1) of section 246(b) is amended by inserting
‘‘199,’’ after ‘‘172,’’.
(5) Clause (iii) of section 469(i)(3)(F) is amended by
inserting ‘‘199,’’ before ‘‘219,’’.
(6) Subsection (a) of section 613 is amended by inserting
‘‘and without the deduction under section 199’’ after ‘‘without
allowances for depletion’’.
(7) Subsection (a) of section 1402 is amended by striking
‘‘and’’ at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ‘‘, and’’, and by
inserting after paragraph (15) the following new paragraph:
‘‘(16) the deduction provided by section 199 shall not be
allowed.’’.
(8) The table of sections for part VI of subchapter B of
chapter 1 is amended by adding at the end the following new
item:
‘‘Sec. 199. Income attributable to domestic production activities.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
TITLE II—BUSINESS TAX INCENTIVES
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 CERTAIN LEASE-
HOLD IMPROVEMENTS AND RESTAURANT PROPERTY.
(a) 15-YEAR RECOVERY PERIOD.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain 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 improvement property
placed in service before January 1, 2006, and
‘‘(v) any qualified restaurant property placed in
service before January 1, 2006.’’.
(b) QUALIFIED
LEASEHOLD
IMPROVEMENT
PROPERTY.—Sub-
section (e) of section 168 is amended by adding at the end the
following new paragraph:
‘‘(6) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY.—The
term ‘qualified leasehold improvement 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 person who was the lessor
of such improvement when such improvement was placed
H. R. 4520—13
in service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as such
improvement is held by such person.
‘‘(B) EXCEPTION FOR CHANGES IN FORM OF BUSINESS.—
Property shall not cease to be qualified leasehold improve-
ment 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
improvement property and the taxpayer retains a
substantial interest in such trade or business,
‘‘(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 representing the adjusted basis of other
property owned by the taxpayer or a related person,
or
‘‘(v) the acquisition of such property by the tax-
payer in a transaction described in section 332, 351,
361, 721, or 731 (or the acquisition of such property
by the taxpayer 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.—Subsection (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 section 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 building’s square
footage is devoted to preparation of, and seating for on-
premises consumption of, prepared meals.’’.
(d) REQUIREMENT TO USE STRAIGHT LINE METHOD.—
(1) Paragraph (3) of section 168(b) is amended by adding
at the end the following new subparagraphs:
‘‘(G) 
Qualified 
leasehold 
improvement 
property
described in subsection (e)(6).
‘‘(H) Qualified restaurant property described in sub-
section (e)(7).’’.
(2) Subparagraph (A) of section 168(b)(2) is amended by
inserting before the comma ‘‘not referred 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.
H. R. 4520—14
Subtitle C—Community Revitalization
SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME
COMMUNITIES FOR NEW MARKETS TAX CREDIT.
(a) TARGETED AREAS.—Paragraph (2) of section 45D(e) (relating
to targeted areas) is amended to read as follows:
‘‘(2) TARGETED
POPULATIONS.—The Secretary shall pre-
scribe regulations under which 1 or more targeted populations
(within the meaning of section 103(20) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (12
U.S.C. 4702(20))) may be treated as low-income communities.
Such regulations shall include procedures for determining
which entities are qualified active low-income community
businesses with respect to such populations.’’.
(b) TRACTS WITH LOW POPULATION.—Subsection (e) of section
45D (defining low-income community) is amended by adding at
the end the following:
‘‘(4) TRACTS WITH LOW POPULATION.—A population census
tract with a population of less than 2,000 shall be treated
as a low-income community for purposes of this section if such
tract—
‘‘(A) is within an empowerment zone the designation
of which is in effect under section 1391, and
‘‘(B) is contiguous to 1 or more low-income communities
(determined without regard to this paragraph).’’.
(c) EFFECTIVE DATES.—
(1) TARGETED AREAS.—The amendment made by subsection
(a) shall apply to designations made by the Secretary of the
Treasury after the date of the enactment of this Act.
(2) TRACTS WITH LOW POPULATION.—The amendment made
by subsection (b) shall apply to investments made after the
date of the enactment of this Act.
SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA
BASED ON 2000 CENSUS DATA.
(a) IN GENERAL.—Section 1400E (relating to designation of
renewal communities) is amended by adding at the end the following
new subsection:
‘‘(g) EXPANSION OF DESIGNATED AREA BASED ON 2000 CENSUS.—
‘‘(1) IN GENERAL.—At the request of all governments which
nominated an area as a renewal community, the Secretary
of Housing and Urban Development may expand the area of
such community to include any census tract if—
‘‘(A)(i) at the time such community was nominated,
such community would have met the requirements of this
section using 1990 census data even if such tract had
been included in such community, and
‘‘(ii) such tract has a poverty rate using 2000 census
data which exceeds the poverty rate for such tract using
1990 census data, or
‘‘(B)(i) such community would be described in subpara-
graph (A)(i) but for the failure to meet one or more of
the requirements of paragraphs (2)(C)(i), (3)(C), and (3)(D)
of subsection (c) using 1990 census data,
H. R. 4520—15
‘‘(ii) such community, including such tract, has a popu-
lation of not more than 200,000 using either 1990 census
data or 2000 census data,
‘‘(iii) such tract meets the requirement of subsection
(c)(3)(C) using 2000 census data, and
‘‘(iv) such tract meets the requirement of subparagraph
(A)(ii).
‘‘(2) EXCEPTION
FOR
CERTAIN
CENSUS
TRACTS
WITH
LOW
POPULATION IN 1990.—In the case of any census tract which
did not have a poverty rate determined by the Bureau of
the Census using 1990 census data, paragraph (1)(B) shall
be applied without regard to clause (iv) thereof.
‘‘(3) SPECIAL RULE FOR CERTAIN CENSUS TRACTS WITH LOW
POPULATION IN 2000.—At the request of all governments which
nominated an area as a renewal community, the Secretary
of Housing and Urban Development may expand the area of
such community to include any census tract if—
‘‘(A) either—
‘‘(i) such tract has no population using 2000 census
data, or
‘‘(ii) no poverty rate for such tract is determined
by the Bureau of the Census using 2000 census data,
‘‘(B) such tract is one of general distress, and
‘‘(C) such community, including such tract, meets the
requirements of subparagraphs (A) and (B) of subsection
(c)(2).
‘‘(4) PERIOD IN EFFECT.—Any expansion under this sub-
section shall take effect as provided in subsection (b).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect as if included in the amendments made by section
101 of the Community Renewal Tax Relief Act of 2000.
SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES.
(a) IN GENERAL.—Section 45D(e) (relating to low-income commu-
nity), as amended by this Act, is amended by inserting after para-
graph (4) the following new paragraph:
‘‘(5) MODIFICATION OF INCOME REQUIREMENT FOR CENSUS
TRACTS WITHIN HIGH MIGRATION RURAL COUNTIES.—
‘‘(A) IN GENERAL.—In the case of a population census
tract located within a high migration rural county, para-
graph (1)(B)(i) shall be applied by substituting ‘85 percent’
for ‘80 percent’.
‘‘(B) HIGH MIGRATION RURAL COUNTY.—For purposes
of this paragraph, the term ‘high migration rural county’
means any county which, during the 20-year period ending
with the year in which the most recent census was con-
ducted, has a net out-migration of inhabitants from the
county of at least 10 percent of the population of the
county at the beginning of such period.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendment made by section
121(a) of the Community Renewal Tax Relief Act of 2000.
H. R. 4520—16
Subtitle D—S Corporation Reform and
Simplification
SEC. 231. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) IN GENERAL.—Paragraph (1) of section 1361(c) (relating
to special rules for applying subsection (b)) is amended to read
as follows:
‘‘(1) MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.—
‘‘(A) IN GENERAL.—For purpose of subsection (b)(1)(A)—
‘‘(i) except as provided in clause (ii), a husband
and wife (and their estates) shall be treated as 1 share-
holder, and
‘‘(ii) in the case of a family with respect 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 ‘members of the family’
means the common ancestor, lineal descendants of the
common ancestor, and the spouses (or former spouses)
of such lineal descendants or common ancestor.
‘‘(ii) COMMON ANCESTOR—For purposes 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
6 generations removed from the 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 determining
whether any relationship specified in subparagraph (B)
exists, the rules of section 152(b)(2) shall apply.
‘‘(D) ELECTION.—An election under subparagraph
(A)(ii)—
‘‘(i) may, except as otherwise provided in regula-
tions prescribed by the Secretary, be made by any
member of the family, and
‘‘(ii) shall remain in effect until terminated as pro-
vided in regulations prescribed by the Secretary.’’.
(b) RELIEF FROM INADVERTENT INVALID ELECTION OR TERMI-
NATION.—Section 1362(f) (relating to inadvertent invalid elections
or terminations), as amended by this Act, is amended—
(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 beginning after December 31,
2004.
H. R. 4520—17
(2) SUBSECTION (b).—The amendments made by subsection
(b) shall apply to elections and terminations made after
December 31, 2004.
SEC. 232. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS 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. 233. EXPANSION OF BANK S CORPORATION ELIGIBLE SHARE-
HOLDERS 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:
‘‘(vi) In the case of a corporation which is a bank
(as defined in section 581), a trust which constitutes
an individual 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 individual for whose ben-
efit the trust was created shall be treated as a share-
holder.’’.
(c) SALE OF BANK STOCK IN IRA RELATING TO S CORPORATION
ELECTION EXEMPT FROM PROHIBITED TRANSACTION RULES.—Section
4975(d) (relating to exemptions) is amended by striking ‘‘or’’ at
the end of paragraph (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 constitutes
an individual retirement account under section 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 independent 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 commissions, costs,
or other expenses in connection with the sale, and
‘‘(F) the stock is sold in a single transaction 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)’’.
H. R. 4520—18
(e) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 234. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT
IN DETERMINING POTENTIAL CURRENT BENEFICIARIES
OF ESBT.
(a) IN GENERAL.—Section 1361(e)(2) (defining potential current
beneficiary) is amended—
(1) by inserting ‘‘(determined without regard to any power
of appointment to the extent such power remains unexercised
at the end of such period)’’ after ‘‘of the trust’’ in the first
sentence, and
(2) by striking ‘‘60-day’’ in the second sentence and
inserting ‘‘1-year’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 235. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE,
ETC.
(a) IN GENERAL.—Section 1366(d)(2) (relating to indefinite
carryover of disallowed losses and deductions) is amended to read
as follows:
‘‘(2) INDEFINITE
CARRYOVER
OF
DISALLOWED
LOSSES
AND
DEDUCTIONS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), any loss or deduction which is disallowed for any
taxable year by reason of paragraph (1) shall be treated
as incurred by the corporation in the succeeding taxable
year with respect to that shareholder.
‘‘(B) TRANSFERS
OF
STOCK
BETWEEN
SPOUSES
OR
INCIDENT
TO
DIVORCE.—In the case of any transfer
described in section 1041(a) of stock of an S corporation,
any loss or deduction described in subparagraph (A) with
respect such stock shall be treated as incurred by the
corporation in the succeeding taxable year with respect
to the transferee.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 236. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS
BY QUALIFIED SUBCHAPTER S TRUST INCOME BENE-
FICIARIES.
(a) IN GENERAL.—Section 1361(d)(1) (relating to special rule
for qualified subchapter S trust) is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (A),
(2) by striking the period at the end of subparagraph (B)
and inserting ‘‘, and’’, and
(3) by adding at the end the following new subparagraph:
‘‘(C) for purposes of applying sections 465 and 469
to the beneficiary of the trust, the disposition of the S
corporation stock by the trust shall be treated as a disposi-
tion by such beneficiary.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers made after December 31, 2004.
H. R. 4520—19
SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PAS-
SIVE INCOME TEST FOR BANK S CORPORATIONS.
(a) IN GENERAL.—Section 1362(d)(3) (relating to where passive
investment income exceeds 25 percent of gross receipts for 3
consecutive taxable years and corporation has accumulated earnings
and profits) is amended by adding at the end the following new
subparagraph:
‘‘(F) EXCEPTION
FOR
BANKS; ETC.—In the case of a
bank (as defined in section 581), a bank holding company
(within the meaning of section 2(a) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(a))), or a financial
holding company (within the meaning of section 2(p) of
such Act), the term ‘passive investment income’ shall not
include—
‘‘(i) interest income earned by such bank or com-
pany, or
‘‘(ii) dividends on assets required to be held by
such bank or company, including stock in the Federal
Reserve Bank, the Federal Home Loan Bank, or the
Federal Agricultural Mortgage Bank or participation
certificates issued by a Federal Intermediate Credit
Bank.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUB-
CHAPTER 
S 
SUBSIDIARY 
ELECTIONS 
AND 
TERMI-
NATIONS.
(a) IN
GENERAL.—Section 1362(f) (relating to inadvertent
invalid elections or terminations) is amended—
(1) by inserting ‘‘, section 1361(b)(3)(B)(ii),’’ after ‘‘sub-
section (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 or the termination occurred is a small business
corporation or a qualified subchapter S subsidiary, as the
case may be, or’’,
(4) by amending paragraph (4) to read as follows:
‘‘(4) the corporation for which the election was made or
the termination occurred, and each person who was a share-
holder in such corporation at any time during the period speci-
fied pursuant to this subsection, agrees to make such adjust-
ments (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 period,’’, and
(5) by inserting ‘‘or a qualified subchapter S subsidiary,
as the case may be’’ after ‘‘S corporation’’ in the matter following
paragraph (4).
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to elections made and terminations made after December
31, 2004.
H. R. 4520—20
SEC. 239. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER 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 returns required under part III of sub-
chapter 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. 240. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURI-
TIES.
(a) IN GENERAL.—Subsection (f) of section 4975 (relating 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 engaging in a prohibited transaction for purposes of
subsection (d)(3), merely by reason of any distribution (as
described in section 1368(a)) with respect to S corporation stock
that constitutes qualifying employer securities, which in accord-
ance with the plan provisions is used to make payments on
a loan described in subsection (d)(3) the proceeds of which
were used to acquire such qualifying employer securities
(whether or not allocated to participants). The preceding sen-
tence shall not apply in the case of a distribution which is
paid with respect to any employer security which is allocated
to a participant unless the plan provides that employer securi-
ties 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, 1997.
Subtitle E—Other Business Incentives
SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAIL-
ROADS 
AND 
INLAND 
WATERWAY 
TRANSPORTATION
WHICH REMAIN IN GENERAL FUND.
(a) TAXES ON TRAINS.—
(1) IN
GENERAL.—Clause (ii) of section 4041(a)(1)(C) is
amended by striking subclauses (I), (II), and (III) and inserting
the following new subclauses:
‘‘(I) 3.3 cents per gallon after December 31,
2004, and before July 1, 2005,
‘‘(II) 2.3 cents per gallon after June 30, 2005,
and before January 1, 2007, and
‘‘(III) 0 after December 31, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
‘‘(3) DIESEL
FUEL
USED
IN
TRAINS.—In the case of any
sale for use or use after December 31, 2006, there is hereby
H. R. 4520—21
imposed a tax of 0.1 cent per gallon on any liquid other than
gasoline (as defined in section 4083)—
‘‘(A) sold by any person to an owner, lessee, or other
operator of a diesel-powered train for use as a fuel in
such train, or
‘‘(B) used by any person as a fuel in a diesel-powered
train unless there was a taxable sale of such fuel under
subparagraph (A).
No tax shall be imposed by this paragraph on the sale or
use of any liquid if tax was imposed on such liquid under
section 4081.’’.
(B) Subsection (f) of section 4082 is amended by
striking ‘‘section 4041(a)(1)’’ and inserting ‘‘subsections
(a)(1) and (d)(3) of section 4041’’.
(C) Subparagraph (B) of section 6421(f)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).’’.
(D) Subparagraph (B) of section 6427(l)(3) is amended
to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).’’.
(b) FUEL USED
ON INLAND WATERWAYS.—Subparagraph (C)
of section 4042(b)(2) is amended to read as follows:
‘‘(C) The deficit reduction rate is—
‘‘(i) 3.3 cents per gallon after December 31, 2004,
and before July 1, 2005,
‘‘(ii) 2.3 cents per gallon after June 30, 2005, and
before January 1, 2007, and
‘‘(iii) 0 after December 31, 2006.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST
METHOD OF DEPRECIATION.
(a) IN GENERAL.—Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the
following new paragraph:
‘‘(7) TREATMENT OF PARTICIPATIONS AND RESIDUALS.—
‘‘(A) IN
GENERAL.—For purposes of determining the
depreciation deduction allowable with respect to a property
under this subsection, the taxpayer may include participa-
tions and residuals with respect to such property in the
adjusted basis of such property for the taxable year in
which the property is placed in service, but only to the
extent that such participations and residuals relate to
income estimated (for purposes of this subsection) to be
earned in connection with the property before the close
of the 10th taxable year referred to in paragraph (1)(A).
‘‘(B) PARTICIPATIONS AND RESIDUALS.—For purposes of
this paragraph, the term ‘participations and residuals’
means, with respect to any property, costs the amount
of which by contract varies with the amount of income
earned in connection with such property.
H. R. 4520—22
‘‘(C) SPECIAL
RULES
RELATING
TO
RECOMPUTATION
YEARS.—If the adjusted basis of any property is determined
under this paragraph, paragraph (4) shall be applied by
substituting ‘for each taxable year in such period’ for ‘for
such period’.
‘‘(D) OTHER SPECIAL RULES.—
‘‘(i) PARTICIPATIONS
AND
RESIDUALS.—Notwith-
standing subparagraph (A), the taxpayer may exclude
participations and residuals from the adjusted basis
of such property and deduct such participations and
residuals in the taxable year that such participations
and residuals are paid.
‘‘(ii) COORDINATION
WITH
OTHER
RULES.—Deduc-
tions computed in accordance with this paragraph shall
be allowable notwithstanding paragraph (1)(B), section
263, 263A, 404, 419, or 461(h).
‘‘(E) AUTHORITY
TO
MAKE
ADJUSTMENTS.—The Sec-
retary shall prescribe appropriate adjustments to the basis
of property and to the look-back method for the additional
amounts allowable as a deduction solely by reason of this
paragraph.’’.
(b) DETERMINATION OF INCOME.—Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and
(F) as subparagraphs (F) and (G), respectively, and inserting after
subparagraph (D) the following new subparagraph:
‘‘(E) TREATMENT OF DISTRIBUTION COSTS.—For purposes
of this subsection, the income with respect to any property
shall be the taxpayer’s gross income from such property.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to property placed in service after the date of the
enactment of this Act.
SEC. 243. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT
TRUSTS.
(a) EXPANSION OF STRAIGHT DEBT SAFE HARBOR.—Section 856
(defining real estate investment trust) is amended—
(1) in subsection (c) by striking paragraph (7), and
(2) by adding at the end the following new subsection:
‘‘(m) SAFE HARBOR IN APPLYING SUBSECTION (c)(4).—
‘‘(1) IN GENERAL.—In applying subclause (III) of subsection
(c)(4)(B)(iii), except as otherwise determined by the Secretary
in regulations, the following shall not be considered securities
held by the trust:
‘‘(A) Straight debt securities of an issuer which meet
the requirements of paragraph (2).
‘‘(B) Any loan to an individual or an estate.
‘‘(C) Any section 467 rental agreement (as defined in
section 467(d)), other than with a person described in sub-
section (d)(2)(B).
‘‘(D) Any obligation to pay rents from real property
(as defined in subsection (d)(1)).
‘‘(E) Any security issued by a State or any political
subdivision thereof, the District of Columbia, a foreign
government or any political subdivision thereof, or the
Commonwealth of Puerto Rico, but only if the determina-
tion of any payment received or accrued under such security
does not depend in whole or in part on the profits of
H. R. 4520—23
any entity not described in this subparagraph or payments
on any obligation issued by such an entity,
‘‘(F) Any security issued by a real estate investment
trust.
‘‘(G) Any other arrangement as determined by the Sec-
retary.
‘‘(2) SPECIAL RULES RELATING TO STRAIGHT DEBT SECURI-
TIES.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1)(A),
securities meet the requirements of this paragraph if such
securities are straight debt, as defined in section 1361(c)(5)
(without regard to subparagraph (B)(iii) thereof).
‘‘(B) SPECIAL
RULES
RELATING
TO
CERTAIN
CONTIN-
GENCIES.—For purposes of subparagraph (A), any interest
or principal shall not be treated as failing to satisfy section
1361(c)(5)(B)(i) solely by reason of the fact that—
‘‘(i) the time of payment of such interest or prin-
cipal is subject to a contingency, but only if—
‘‘(I) any such contingency does not have the
effect of changing the effective yield to maturity,
as determined under section 1272, other than a
change in the annual yield to maturity which does
not exceed the greater of 1⁄4 of 1 percent or 5
percent of the annual yield to maturity, or
‘‘(II) neither the aggregate issue price nor the
aggregate face amount of the issuer’s debt
instruments held by the trust exceeds $1,000,000
and not more than 12 months of unaccrued interest
can be required to be prepaid thereunder, or
‘‘(ii) the time or amount of payment is subject
to a contingency upon a default or the exercise of
a prepayment right by the issuer of the debt, but
only if such contingency is consistent with customary
commercial practice.
‘‘(C) SPECIAL RULES RELATING TO CORPORATE OR PART-
NERSHIP
ISSUERS.—In the case of an issuer which is a
corporation or a partnership, securities that otherwise
would be described in paragraph (1)(A) shall be considered
not to be so described if the trust holding such securities
and any of its controlled taxable REIT subsidiaries (as
defined in subsection (d)(8)(A)(iv)) hold any securities of
the issuer which—
‘‘(i) are not described in paragraph (1) (prior to
the application of this subparagraph), and
‘‘(ii) have an aggregate value greater than 1 per-
cent of the issuer’s outstanding securities determined
without regard to paragraph (3)(A)(i).
‘‘(3) LOOK-THROUGH RULE FOR PARTNERSHIP SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of applying subclause
(III) of subsection (c)(4)(B)(iii)—
‘‘(i) a trust’s interest as a partner in a partnership
(as defined in section 7701(a)(2)) shall not be consid-
ered a security, and
‘‘(ii) the trust shall be deemed to own its propor-
tionate share of each of the assets of the partnership.
‘‘(B) DETERMINATION OF TRUST’S INTEREST IN PARTNER-
SHIP
ASSETS.—For purposes of subparagraph (A), with
H. R. 4520—24
respect to any taxable year beginning after the date of
the enactment of this subparagraph—
‘‘(i) the trust’s interest in the partnership assets
shall be the trust’s proportionate interest in any securi-
ties issued by the partnership (determined without
regard to subparagraph (A)(i) and paragraph (4), but
not including securities described in paragraph (1)),
and
‘‘(ii) the value of any debt instrument shall be
the adjusted issue price thereof, as defined in section
1272(a)(4).
‘‘(4) CERTAIN PARTNERSHIP DEBT INSTRUMENTS NOT TREATED
AS A SECURITY.—For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)—
‘‘(A) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considered
a security to the extent of the trust’s interest as a partner
in the partnership, and
‘‘(B) any debt instrument issued by a partnership and
not described in paragraph (1) shall not be considered
a security if at least 75 percent of the partnership’s gross
income (excluding gross income from prohibited trans-
actions) is derived from sources referred to in subsection
(c)(3).
‘‘(5) SECRETARIAL GUIDANCE.—The Secretary is authorized
to provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an arrange-
ment shall not be considered a security held by the trust
for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of sub-
section (c)(5).’’.
(b) CLARIFICATION OF APPLICATION OF LIMITED RENTAL EXCEP-
TION.—Subparagraph (A) of section 856(d)(8) (relating to special
rules for taxable REIT subsidiaries) is amended to read as follows:
‘‘(A) LIMITED RENTAL EXCEPTION.—
‘‘(i) IN
GENERAL.—The requirements of this
subparagraph are met with respect to any property
if at least 90 percent of the leased space of the property
is rented to persons other than taxable REIT subsidi-
aries of such trust and other than persons described
in paragraph (2)(B).
‘‘(ii) 
RENTS
MUST
BE
SUBSTANTIALLY
COM-
PARABLE.—Clause (i) shall apply only to the extent
that the amounts paid to the trust as rents from real
property (as defined in paragraph (1) without regard
to paragraph (2)(B)) from such property are substan-
tially comparable to such rents paid by the other ten-
ants of the trust’s property for comparable space.
‘‘(iii) TIMES FOR TESTING RENT COMPARABILITY.—
The substantial comparability requirement of clause
(ii) shall be treated as met with respect to a lease
to a taxable REIT subsidiary of the trust if such
requirement is met under the terms of the lease—
‘‘(I) at the time such lease is entered into,
H. R. 4520—25
‘‘(II) at the time of each extension of the lease,
including a failure to exercise a right to terminate,
and
‘‘(III) at the time of any modification of the
lease between the trust and the taxable REIT sub-
sidiary if the rent under such lease is effectively
increased pursuant to such modification.
With respect to subclause (III), if the taxable REIT
subsidiary of the trust is a controlled taxable REIT
subsidiary of the trust, the term ‘rents from real prop-
erty’ shall not in any event include rent under such
lease to the extent of the increase in such rent on
account of such modification.
‘‘(iv) CONTROLLED TAXABLE REIT SUBSIDIARY.—For
purposes of clause (iii), the term ‘controlled taxable
REIT subsidiary’ means, with respect to any real estate
investment trust, any taxable REIT subsidiary of such
trust if such trust owns directly or indirectly—
‘‘(I) stock possessing more than 50 percent of
the total voting power of the outstanding stock
of such subsidiary, or
‘‘(II) stock having a value of more than 50
percent of the total value of the outstanding stock
of such subsidiary.
‘‘(v) CONTINUING QUALIFICATION BASED ON THIRD
PARTY ACTIONS.—If the requirements of clause (i) are
met at a time referred to in clause (iii), such require-
ments shall continue to be treated as met so long
as there is no increase in the space leased to any
taxable REIT subsidiary of such trust or to any person
described in paragraph (2)(B).
‘‘(vi) CORRECTION PERIOD.—If there is an increase
referred to in clause (v) during any calendar quarter
with respect to any property, the requirements of
clause (iii) shall be treated as met during the quarter
and the succeeding quarter if such requirements are
met at the close of such succeeding quarter.’’.
(c) DELETION OF CUSTOMARY SERVICES EXCEPTION.—Subpara-
graph (B) of section 857(b)(7) (relating to redetermined rents) is
amended by striking clause (ii) and by redesignating clauses (iii),
(iv), (v), (vi), and (vii) as clauses (ii), (iii), (iv), (v), and (vi), respec-
tively.
(d) CONFORMITY
WITH
GENERAL
HEDGING
DEFINITION.—
Subparagraph (G) of section 856(c)(5) (relating to treatment of
certain hedging instruments) is amended to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING INSTRUMENTS.—
Except to the extent provided by regulations, any income
of a real estate investment trust from a hedging transaction
(as defined in clause (ii) or (iii) of section 1221(b)(2)(A))
which is clearly identified pursuant to section 1221(a)(7),
including gain from the sale or disposition of such a trans-
action, shall not constitute gross income under paragraph
(2) to the extent that the transaction hedges any indebted-
ness incurred or to be incurred by the trust to acquire
or carry real estate assets.’’.
(e) CONFORMITY
WITH
REGULATED
INVESTMENT
COMPANY
RULES.—Clause (i) of section 857(b)(5)(A) (relating to imposition
H. R. 4520—26
of tax in case of failure to meet certain requirements) is amended
by striking ‘‘90 percent’’ and inserting ‘‘95 percent’’.
(f) SAVINGS PROVISIONS.—
(1) RULES OF APPLICATION FOR FAILURE TO SATISFY SECTION
856(c)(4).—Section 856(c) (relating to definition of real estate
investment trust) is amended by inserting after paragraph (6)
the following new paragraph:
‘‘(7) RULES OF APPLICATION FOR FAILURE TO SATISFY PARA-
GRAPH (4).—
‘‘(A) DE
MINIMIS
FAILURE.—A corporation, trust, or
association that fails to meet the requirements of para-
graph (4)(B)(iii) for a particular quarter shall nevertheless
be considered to have satisfied the requirements of such
paragraph for such quarter if—
‘‘(i) such failure is due to the ownership of assets
the total value of which does not exceed the lesser
of—
‘‘(I) 1 percent of the total value of the trust’s
assets at the end of the quarter for which such
measurement is done, and
‘‘(II) $10,000,000, and
‘‘(ii)(I) the corporation, trust, or association, fol-
lowing the identification of such failure, disposes of
assets in order to meet the requirements of such para-
graph within 6 months after the last day of the quarter
in which the corporation, trust or association’s identi-
fication of the failure to satisfy the requirements of
such paragraph occurred or such other time period
prescribed by the Secretary and in the manner pre-
scribed by the Secretary, or
‘‘(II) the requirements of such paragraph are other-
wise met within the time period specified in subclause
(I).
‘‘(B) FAILURES EXCEEDING DE MINIMIS AMOUNT.—A cor-
poration, trust, or association that fails to meet the require-
ments of paragraph (4) for a particular quarter shall never-
theless be considered to have satisfied the requirements
of such paragraph for such quarter if—
‘‘(i) such failure involves the ownership of assets
the total value of which exceeds the de minimis
standard described in subparagraph (A)(i) at the end
of the quarter for which such measurement is done,
‘‘(ii) following the corporation, trust, or associa-
tion’s identification of the failure to satisfy the require-
ments of such paragraph for a particular quarter, a
description of each asset that causes the corporation,
trust, or association to fail to satisfy the requirements
of such paragraph at the close of such quarter of any
taxable year is set forth in a schedule for such quarter
filed in accordance with regulations prescribed by the
Secretary,
‘‘(iii) the failure to meet the requirements of such
paragraph for a particular quarter is due to reasonable
cause and not due to willful neglect,
‘‘(iv) the corporation, trust, or association pays a
tax computed under subparagraph (C), and
H. R. 4520—27
‘‘(v)(I) the corporation, trust, or association dis-
poses of the assets set forth on the schedule specified
in clause (ii) within 6 months after the last day of
the quarter in which the corporation, trust or associa-
tion’s identification of the failure to satisfy the require-
ments of such paragraph occurred or such other time
period prescribed by the Secretary and in the manner
prescribed by the Secretary, or
‘‘(II) the requirements of such paragraph are other-
wise met within the time period specified in subclause
(I).
‘‘(C) TAX.—For purposes of subparagraph (B)(iv)—
‘‘(i) TAX
IMPOSED.—If a corporation, trust, or
association elects the application of this subparagraph,
there is hereby imposed a tax on the failure described
in subparagraph (B) of such corporation, trust, or
association. Such tax shall be paid by the corporation,
trust, or association.
‘‘(ii) TAX
COMPUTED.—The amount of the tax
imposed by clause (i) shall be the greater of—
‘‘(I) $50,000, or
‘‘(II) the amount determined (pursuant to regu-
lations promulgated by the Secretary) by multi-
plying the net income generated by the assets
described in the schedule specified in subpara-
graph (B)(ii) for the period specified in clause (iii)
by the highest rate of tax specified in section 11.
‘‘(iii) PERIOD.—For purposes of clause (ii)(II), the
period described in this clause is the period beginning
on the first date that the failure to satisfy the require-
ments of such paragraph (4) occurs as a result of
the ownership of such assets and ending on the earlier
of the date on which the trust disposes of such assets
or the end of the first quarter when there is no longer
a failure to satisfy such paragraph (4).
‘‘(iv) ADMINISTRATIVE PROVISIONS.—For purposes of
subtitle F, the taxes imposed by this subparagraph
shall be treated as excise taxes with respect to which
the deficiency procedures of such subtitle apply.’’.
(2) MODIFICATION OF RULES OF APPLICATION FOR FAILURE
TO SATISFY SECTIONS 856(c)(2) OR 856(c)(3).—Paragraph (6) of
section 856(c) (relating to definition of real estate investment
trust) is amended by striking subparagraphs (A) and (B), by
redesignating subparagraph (C) as subparagraph (B), and by
inserting before subparagraph (B) (as so redesignated) the fol-
lowing new subparagraph:
‘‘(A) following the corporation, trust, or association’s
identification of the failure to meet the requirements of
paragraph (2) or (3), or of both such paragraphs, for any
taxable year, a description of each item of its gross income
described in such paragraphs is set forth in a schedule
for such taxable year filed in accordance with regulations
prescribed by the Secretary, and’’.
(3) REASONABLE CAUSE EXCEPTION TO LOSS OF REIT STATUS
IF FAILURE TO SATISFY REQUIREMENTS.—Subsection (g) of section
856 (relating to termination of election) is amended—
H. R. 4520—28
(A) in paragraph (1) by inserting before the period
at the end of the first sentence the following: ‘‘unless para-
graph (5) applies’’, and
(B) by adding at the end the following new paragraph:
‘‘(5) ENTITIES TO WHICH PARAGRAPH APPLIES.—This para-
graph applies to a corporation, trust, or association—
‘‘(A) which is not a real estate investment trust to
which the provisions of this part apply for the taxable
year due to one or more failures to comply with one or
more of the provisions of this part (other than subsection
(c)(6) or (c)(7) of section 856),
‘‘(B) such failures are due to reasonable cause and
not due to willful neglect, and
‘‘(C) if such corporation, trust, or association pays (as
prescribed by the Secretary in regulations and in the same
manner as tax) a penalty of $50,000 for each failure to
satisfy a provision of this part due to reasonable cause
and not willful neglect.’’.
(4) DEDUCTION OF TAX PAID FROM AMOUNT REQUIRED TO
BE
DISTRIBUTED.—Subparagraph (E) of section 857(b)(2) is
amended by striking ‘‘(7)’’ and inserting ‘‘(7) of this subsection,
section 856(c)(7)(B)(iii), and section 856(g)(1).’’.
(5) EXPANSION OF DEFICIENCY DIVIDEND PROCEDURE.—Sub-
section (e) of section 860 is amended by striking ‘‘or’’ at the
end of paragraph (2), by striking the period at the end of
paragraph (3) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2000.
(2) SUBSECTIONS (c) THROUGH (f).—The amendments made
by subsections (c), (d), (e), and (f) shall apply to taxable years
beginning after the date of the enactment of this Act.
SEC. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION
PRODUCTIONS.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 is
amended by inserting after section 180 the following new section:
‘‘SEC. 181. TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION
PRODUCTIONS.
‘‘(a) ELECTION TO TREAT COSTS AS EXPENSES.—
‘‘(1) IN GENERAL.—A taxpayer may elect to treat the cost
of any qualified film or television production as an expense
which is not chargeable to capital account. Any cost so treated
shall be allowed as a deduction.
‘‘(2) DOLLAR LIMITATION.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
any qualified film or television production the aggregate
cost of which exceeds $15,000,000.
‘‘(B) HIGHER DOLLAR LIMITATION FOR PRODUCTIONS IN
CERTAIN AREAS.—In the case of any qualified film or tele-
vision production the aggregate cost of which is signifi-
cantly incurred in an area eligible for designation as—
H. R. 4520—29
‘‘(i) a low-income community under section 45D,
or
‘‘(ii) a distressed county or isolated area of distress
by the Delta Regional Authority established under sec-
tion 2009aa–1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting
‘$20,000,000’ for ‘$15,000,000’.
‘‘(b) NO
OTHER
DEDUCTION
OR
AMORTIZATION
DEDUCTION
ALLOWABLE.—With respect to the basis of any qualified film or
television production to which an election is made under subsection
(a), no other depreciation or amortization deduction shall be allow-
able.
‘‘(c) ELECTION.—
‘‘(1) IN
GENERAL.—An election under this section with
respect to any qualified film or television production shall be
made in such manner as prescribed by the Secretary and by
the due date (including extensions) for filing the taxpayer’s
return of tax under this chapter for the taxable year in which
costs of the production are first incurred.
‘‘(2) REVOCATION OF ELECTION.—Any election made under
this section may not be revoked without the consent of the
Secretary.
‘‘(d) QUALIFIED FILM OR TELEVISION PRODUCTION.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified film or television
production’ means any production described in paragraph (2)
if 75 percent of the total compensation of the production is
qualified compensation.
‘‘(2) PRODUCTION.—
‘‘(A) IN GENERAL.—A production is described in this
paragraph if such production is property described in sec-
tion 168(f)(3). For purposes of a television series, only the
first 44 episodes of such series may be taken into account.
‘‘(B) EXCEPTION.—A production is not described in this
paragraph if records are required under section 2257 of
title 18, United States Code, to be maintained with respect
to any performer in such production.
‘‘(3) QUALIFIED COMPENSATION.—For purposes of paragraph
(1)—
‘‘(A) IN GENERAL.—The term ‘qualified compensation’
means compensation for services performed in the United
States by actors, directors, producers, and other relevant
production personnel.
‘‘(B) PARTICIPATIONS AND RESIDUALS EXCLUDED.—The
term ‘compensation’ does not include participations and
residuals (as defined in section 167(g)(7)(B)).
‘‘(e) APPLICATION OF CERTAIN OTHER RULES.—For purposes of
this section, rules similar to the rules of subsections (b)(2) and
(c)(4) of section 194 shall apply.
‘‘(f) TERMINATION.—This section shall not apply to qualified
film and television productions commencing after December 31,
2008.’’.
(b) CONFORMING AMENDMENT.—The table of sections for part
VI of subchapter B of chapter 1 is amended by inserting after
the item relating to section 180 the following new item:
‘‘Sec. 181. Treatment of certain qualified film and television productions.’’.
H. R. 4520—30
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to qualified film and television productions (as defined
in section 181(d)(1) of the Internal Revenue Code of 1986, as added
by this section) commencing after the date of the enactment of
this Act.
SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits) is amended by adding
at the end the following new section:
‘‘SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the railroad
track maintenance credit determined under this section for the
taxable year is an amount equal to 50 percent of the qualified
railroad track maintenance expenditures paid or incurred by an
eligible taxpayer during the taxable year.
‘‘(b) LIMITATION.—The credit allowed under subsection (a) for
any taxable year shall not exceed the product of—
‘‘(1) $3,500, and
‘‘(2) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year.
A mile of railroad track may be taken into account by a person
other than the owner only if such mile is assigned to such person
by the owner for purposes of this subsection. Any mile which
is so assigned may not be taken into account by the owner for
purposes of this subsection.
‘‘(c) ELIGIBLE TAXPAYER.—For purposes of this section, the term
‘eligible taxpayer’ means—
‘‘(1) any Class II or Class III railroad, and
‘‘(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who furnishes
railroad-related property or services to such a person.
‘‘(d) QUALIFIED
RAILROAD
TRACK
MAINTENANCE
EXPENDI-
TURES.—For purposes of this section, the term ‘qualified railroad
track maintenance expenditures’ means expenditures (whether or
not otherwise chargeable to capital account) for maintaining rail-
road track (including roadbed, bridges, and related track structures)
owned or leased as of January 1, 2005, by a Class II or Class
III railroad.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) CLASS II OR CLASS III RAILROAD.—For purposes of this
section, the terms ‘Class II railroad’ and ‘Class III railroad’
have the respective meanings given such terms by the Surface
Transportation Board.
‘‘(2) CONTROLLED GROUPS.—Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of this
section.
‘‘(3) BASIS ADJUSTMENT.—For purposes of this subtitle, if
a credit is allowed under this section with respect to any
railroad track, the basis of such track shall be reduced by
the amount of the credit so allowed.
‘‘(f) APPLICATION OF SECTION.—This section shall apply to quali-
fied railroad track maintenance expenditures paid or incurred
during taxable years beginning after December 31, 2004, and before
January 1, 2008.’’.
(b) LIMITATION ON CARRYBACK.—
H. R. 4520—31
(1) IN GENERAL.—Subsection (d) of section 39 is amended
to read as follows:
‘‘(d) TRANSITIONAL RULE.—No portion of the unused business
credit for any taxable year which is attributable to a credit specified
in section 38(b) or any portion thereof may be carried back to
any taxable year before the first taxable year for which such speci-
fied credit or such portion is allowable (without regard to subsection
(a)).’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply with respect to taxable years ending after
December 31, 2003.
(c) CONFORMING AMENDMENTS.—
(1) Section 38(b) (relating to general business credit) is
amended by striking ‘‘plus’’ at the end of paragraph (14), by
striking the period at the end of paragraph (15) and inserting
‘‘, plus’’, and by adding at the end the following new paragraph:
‘‘(16) the railroad track maintenance credit determined
under section 45G(a).’’.
(2) Subsection (a) of section 1016 is amended by striking
‘‘and’’ at the end of paragraph (27), by striking the period
at the end of paragraph (28) and inserting ‘‘, and’’, and by
inserting after paragraph (28) the following new paragraph:
‘‘(29) in the case of railroad track with respect to which
a credit was allowed under section 45G, to the extent provided
in section 45G(e)(3).’’.
(d) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 45F the following new item:
‘‘Sec. 45G. Railroad track maintenance credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 246. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DIS-
TILLED SPIRITS, WINE, AND BEER.
(a) IN GENERAL.—Subpart G of part II of subchapter A of
chapter 51 is amended by redesignating section 5148 as section
5149 and by inserting after section 5147 the following new section:
‘‘SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.
‘‘(a) IN GENERAL.—Notwithstanding sections 5081, 5091, 5111,
5121, and 5131, the rate of tax imposed under such sections for
the suspension period shall be zero. During such period, persons
engaged in or carrying on a trade or business covered by such
sections shall register under section 5141 and shall comply with
the recordkeeping requirements under this part.
‘‘(b) SUSPENSION PERIOD.—For purposes of subsection (a), the
suspension period is the period beginning on July 1, 2005, and
ending on June 30, 2008.’’.
(b) CONFORMING AMENDMENT.—Section 5117 is amended by
adding at the end the following new subsection:
‘‘(d) SPECIAL RULE DURING SUSPENSION PERIOD.—Except as
provided in subsection (b) or by the Secretary, during the suspension
period (as defined in section 5148) it shall be unlawful for any
dealer to purchase distilled spirits for resale from any person other
than a wholesale dealer in liquors who is required to keep records
under section 5114.’’.
H. R. 4520—32
(c) CLERICAL AMENDMENT.—The table of sections for subpart
G of part II of subchapter A of chapter 51 is amended by striking
the last item and inserting the following new items:
‘‘Sec. 5148. Suspension of occupational tax.
‘‘Sec. 5149. Cross references.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 247. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITA-
TION ON INVESTMENT IN CERTAIN SMALL BUSINESS
INVESTMENT COMPANIES.
(a) IN GENERAL.—Paragraph (6) of section 514(c) (relating to
acquisition indebtedness) is amended to read as follows:
‘‘(6) CERTAIN FEDERAL FINANCING.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘acquisition indebtedness’ does not include—
‘‘(i) an obligation, to the extent that it is insured
by the Federal Housing Administration, to finance the
purchase, rehabilitation, or construction of housing for
low and moderate income persons, or
‘‘(ii) indebtedness incurred by a small business
investment company licensed after the date of the
enactment of the American Jobs Creation Act of 2004
under the Small Business Investment Act of 1958 if
such indebtedness is evidenced by a debenture—
‘‘(I) issued by such company under section
303(a) of such Act, and
‘‘(II) held or guaranteed by the Small Business
Administration.
‘‘(B) LIMITATION.—Subparagraph (A)(ii) shall not apply
with respect to any small business investment company
during any period that—
‘‘(i) any organization which is exempt from tax
under this title (other than a governmental unit) owns
more than 25 percent of the capital or profits interest
in such company, or
‘‘(ii) organizations which are exempt from tax
under this title (including governmental units other
than any agency or instrumentality of the United
States) own, in the aggregate, 50 percent or more
of the capital or profits interest in such company.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to indebtedness incurred after the date of the enactment
of this Act by a small business investment company licensed after
the date of the enactment of this Act.
SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN
INTERNATIONAL SHIPPING ACTIVITIES USING PER TON
RATE.
(a) IN GENERAL.—Chapter 1 is amended by inserting after
subchapter Q the following new subchapter:
H. R. 4520—33
‘‘Subchapter R—Election To Determine Corporate Tax on
Certain International Shipping Activities Using Per Ton
Rate
‘‘Sec. 1352. Alternative tax on qualifying shipping activities.
‘‘Sec. 1353. Notional shipping income.
‘‘Sec. 1354. Alternative tax election; revocation; termination.
‘‘Sec. 1355. Definitions and special rules.
‘‘Sec. 1356. Qualifying shipping activities.
‘‘Sec. 1357. Items not subject to regular tax; depreciation; interest.
‘‘Sec. 1358. Allocation of credits, income, and deductions.
‘‘Sec. 1359. Disposition of qualifying vessels.
‘‘SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.
‘‘In the case of an electing corporation, the tax imposed by
section 11 shall be the amount equal to the sum of—
‘‘(1) the tax imposed by section 11 determined after the
application of this subchapter, and
‘‘(2) a tax equal to—
‘‘(A) the highest rate of tax specified in section 11,
multiplied by
‘‘(B) the notional shipping income for the taxable year.
‘‘SEC. 1353. NOTIONAL SHIPPING INCOME.
‘‘(a) IN GENERAL.—For purposes of this subchapter, the notional
shipping income of an electing corporation shall be the sum of
the amounts determined under subsection (b) for each qualifying
vessel operated by such electing corporation.
‘‘(b) AMOUNTS.—
‘‘(1) IN
GENERAL.—For purposes of subsection (a), the
amount of notional shipping income of an electing corporation
for each qualifying vessel for the taxable year shall equal
the product of—
‘‘(A) the daily notional shipping income, and
‘‘(B) the number of days during the taxable year that
the electing corporation operated such vessel as a qualifying
vessel in United States foreign trade.
‘‘(2) TREATMENT OF VESSELS THE INCOME FROM WHICH IS
NOT OTHERWISE SUBJECT TO TAX.—In the case of a qualifying
vessel any of the income from which is not included in gross
income by reason of section 883 or otherwise, the amount
of notional shipping income from such vessel for the taxable
year shall be the amount which bears the same ratio to such
shipping income (determined without regard to this paragraph)
as the gross income from the operation of such vessel in the
United States foreign trade bears to the sum of such gross
income and the income so excluded.
‘‘(c) DAILY NOTIONAL SHIPPING INCOME.—For purposes of sub-
section (b), the daily notional shipping income from the operation
of a qualifying vessel is—
‘‘(1) 40 cents for each 100 tons of so much of the net
tonnage of the vessel as does not exceed 25,000 net tons,
and
‘‘(2) 20 cents for each 100 tons of so much of the net
tonnage of the vessel as exceeds 25,000 net tons.
‘‘(d) MULTIPLE OPERATORS
OF VESSEL.—If for any period 2
or more persons are operators of a qualifying vessel, the notional
shipping income from the operation of such vessel for such period
H. R. 4520—34
shall be allocated among such persons on the basis of their respec-
tive ownership and charter interests in such vessel or on such
other basis as the Secretary may prescribe by regulations.
‘‘SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMI-
NATION.
‘‘(a) IN GENERAL.—A qualifying vessel operator may elect the
application of this subchapter.
‘‘(b) TIME AND MANNER; YEARS FOR WHICH EFFECTIVE.—An
election under this subchapter—
‘‘(1) shall be made in such form as prescribed by the Sec-
retary, and
‘‘(2) shall be effective for the taxable year for which made
and all succeeding taxable years until terminated under sub-
section (d).
Such election may be effective for any taxable year only if made
before the due date (including extensions) for filing the corporation’s
return for such taxable year.
‘‘(c) CONSISTENT ELECTIONS BY MEMBERS
OF CONTROLLED
GROUPS.—An election under subsection (a) by a member of a con-
trolled group shall apply to all qualifying vessel operators that
are members of such group.
‘‘(d) TERMINATION.—
‘‘(1) BY REVOCATION.—
‘‘(A) IN
GENERAL.—An election under subsection (a)
may be terminated by revocation.
‘‘(B) WHEN EFFECTIVE.—Except as provided in subpara-
graph (C)—
‘‘(i) a revocation made during the taxable year
and on or before the 15th day of the 3d month thereof
shall be effective on the 1st day of such taxable year,
and
‘‘(ii) a revocation made during the taxable year
but after such 15th day shall be effective on the 1st
day of the following taxable year.
‘‘(C) REVOCATION
MAY
SPECIFY
PROSPECTIVE
DATE.—
If the revocation specifies a date for revocation which is
on or after the day on which the revocation is made, the
revocation shall be effective for taxable years beginning
on and after the date so specified.
‘‘(2) BY PERSON CEASING TO BE QUALIFYING VESSEL OPER-
ATOR.—
‘‘(A) IN
GENERAL.—An election under subsection (a)
shall be terminated whenever (at any time on or after
the 1st day of the 1st taxable year for which the corporation
is an electing corporation) such corporation ceases to be
a qualifying vessel operator.
‘‘(B) WHEN EFFECTIVE.—Any termination under this
paragraph shall be effective on and after the date of ces-
sation.
‘‘(C) ANNUALIZATION.—The Secretary shall prescribe
such annualization and other rules as are appropriate in
the case of a termination under this paragraph.
‘‘(e) ELECTION AFTER TERMINATION.—If a qualifying vessel oper-
ator has made an election under subsection (a) and if such election
has been terminated under subsection (d), such operator (and any
successor operator) shall not be eligible to make an election under
H. R. 4520—35
subsection (a) for any taxable year before its 5th taxable year
which begins after the 1st taxable year for which such termination
is effective, unless the Secretary consents to such election.
‘‘SEC. 1355. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this subchapter—
‘‘(1) ELECTING CORPORATION.—The term ‘electing corpora-
tion’ means any corporation for which an election is in effect
under this subchapter.
‘‘(2) ELECTING GROUP; CONTROLLED GROUP.—
‘‘(A) ELECTING
GROUP.—The term ‘electing group’
means a controlled group of which one or more members
is an electing corporation.
‘‘(B) CONTROLLED GROUP.—The term ‘controlled group’
means any group which would be treated as a single
employer under subsection (a) or (b) of section 52 if para-
graphs (1) and (2) of section 52(a) did not apply.
‘‘(3) QUALIFYING VESSEL OPERATOR.—The term ‘qualifying
vessel operator’ means any corporation—
‘‘(A) who operates one or more qualifying vessels, and
‘‘(B) who meets the shipping activity requirement in
subsection (c).
‘‘(4) QUALIFYING
VESSEL.—The term ‘qualifying vessel’
means a self-propelled (or a combination self-propelled and
non-self-propelled) United States flag vessel of not less than
10,000 deadweight tons used exclusively in the United States
foreign trade during the period that the election under this
subchapter is in effect.
‘‘(5) UNITED STATES FLAG VESSEL.—The term ‘United States
flag vessel’ means any vessel documented under the laws of
the United States.
‘‘(6) UNITED STATES DOMESTIC TRADE.—The term ‘United
States domestic trade’ means the transportation of goods or
passengers between places in the United States.
‘‘(7) UNITED
STATES
FOREIGN
TRADE.—The term ‘United
States foreign trade’ means the transportation of goods or pas-
sengers between a place in the United States and a foreign
place or between foreign places.
‘‘(8) CHARTER.—The term ‘charter’ includes an operating
agreement.
‘‘(b) OPERATING A VESSEL.—For purposes of this subchapter—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
a person is treated as operating any vessel during any period
if such vessel is—
‘‘(A) owned by, or chartered (including a time charter)
to, the person, and
‘‘(B) is in use as a qualifying vessel during such period.
‘‘(2) BAREBOAT CHARTERS.—A person is treated as operating
and using a vessel that it has chartered out on bareboat charter
terms only if—
‘‘(A)(i) the vessel is temporarily surplus to the person’s
requirements and the term of the charter does not exceed
3 years, or
‘‘(ii) the vessel is bareboat chartered to a member of
a controlled group which includes such person or to an
unrelated person who sub-bareboats or time charters the
H. R. 4520—36
vessel to such a member (including the owner of the vessel),
and
‘‘(B) the vessel is used as a qualifying vessel by the
person to whom ultimately chartered.
‘‘(c) SHIPPING ACTIVITY REQUIREMENT.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, a corporation meets the shipping activity require-
ment of this subsection for any taxable year only if the require-
ment of paragraph (4) is met for each of the 2 preceding
taxable years.
‘‘(2) SPECIAL RULE FOR 1ST YEAR OF ELECTION.—A corpora-
tion meets the shipping activity requirement of this subsection
for the first taxable year for which the election under section
1354(a) is in effect only if the requirement of paragraph (4)
is met for the preceding taxable year.
‘‘(3) CONTROLLED GROUPS.—A corporation who is a member
of a controlled group meets the shipping activity requirement
of this subsection only if such requirement is met determined—
‘‘(A) by treating all members of such group as 1 person,
and
‘‘(B) by disregarding vessel charters between members
of such group.
‘‘(4) REQUIREMENT.—The requirement of this paragraph is
met for any taxable year if, on average during such year,
at least 25 percent of the aggregate tonnage of qualifying ves-
sels used by the corporation were owned by such corporation
or chartered to such corporation on bareboat charter terms.
‘‘(d) ACTIVITIES CARRIED ON PARTNERSHIPS, ETC.—In applying
this subchapter to a partner in a partnership—
‘‘(1) each partner shall be treated as operating vessels
operated by the partnership,
‘‘(2) each partner shall be treated as conducting the activi-
ties conducted by the partnership, and
‘‘(3) the extent of a partner’s ownership or charter interest
in any vessel owned by or chartered to the partnership shall
be determined on the basis of the partner’s interest in the
partnership.
A similar rule shall apply with respect to other pass-thru entities.
‘‘(e) EFFECT OF TEMPORARILY CEASING TO OPERATE A QUALI-
FYING VESSEL.—
‘‘(1) IN GENERAL.—For purposes of subsections (b) and (c),
an electing corporation shall be treated as continuing to use
a qualifying vessel during any period of temporary cessation
if the electing corporation gives timely notice to the Secretary
stating—
‘‘(A) that it has temporarily ceased to operate the quali-
fying vessel, and
‘‘(B) its intention to resume operating the qualifying
vessel.
‘‘(2) NOTICE.—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corpora-
tion’s tax return for the taxable year in which the temporary
cessation begins.
‘‘(3) PERIOD
DISREGARD
IN
EFFECT.—The period of tem-
porary cessation under paragraph (1) shall continue until the
earlier of the date on which—
H. R. 4520—37
‘‘(A) the electing corporation abandons its intention
to resume operation of the qualifying vessel, or
‘‘(B) the electing corporation resumes operation of the
qualifying vessel.
‘‘(f) EFFECT OF TEMPORARILY OPERATING A QUALIFYING VESSEL
IN THE UNITED STATES DOMESTIC TRADE.—
‘‘(1) IN
GENERAL.—For purposes of this subchapter, an
electing corporation shall be treated as continuing to use a
qualifying vessel in the United States foreign trade during
any period of temporary use in the United States domestic
trade if the electing corporation gives timely notice to the
Secretary stating—
‘‘(A) that it temporarily operates or has operated in
the United States domestic trade a qualifying vessel which
had been used in the United States foreign trade, and
‘‘(B) its intention to resume operation of the vessel
in the United States foreign trade.
‘‘(2) NOTICE.—Notice shall be deemed timely if given not
later than the due date (including extensions) for the corpora-
tion’s tax return for the taxable year in which the temporary
cessation begins.
‘‘(3) PERIOD
DISREGARD
IN
EFFECT.—The period of tem-
porary use under paragraph (1) continues until the earlier
of the date of which—
‘‘(A) the electing corporation abandons its intention
to resume operations of the vessel in the United States
foreign trade, or
‘‘(B) the electing corporation resumes operation of the
vessel in the United States foreign trade.
‘‘(4) NO DISREGARD IF DOMESTIC TRADE USE EXCEEDS 30
DAYS.—Paragraph (1) shall not apply to any qualifying vessel
which is operated in the United States domestic trade for
more than 30 days during the taxable year.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.
‘‘SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For purposes of this
subchapter, the term ‘qualifying shipping activities’ means—
‘‘(1) core qualifying activities,
‘‘(2) qualifying secondary activities, and
‘‘(3) qualifying incidental activities.
‘‘(b) CORE QUALIFYING ACTIVITIES.—For purposes of this sub-
chapter, the term ‘core qualifying activities’ means activities in
operating qualifying vessels in United States foreign trade.
‘‘(c) QUALIFYING SECONDARY ACTIVITIES.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualifying secondary activities’
means secondary activities but only to the extent that, without
regard to this subchapter, the gross income derived by such
corporation from such activities does not exceed 20 percent
of the gross income derived by the corporation from its core
qualifying activities.
‘‘(2) SECONDARY ACTIVITIES.—The term ‘secondary activities’
means—
H. R. 4520—38
‘‘(A) the active management or operation of vessels
other than qualifying vessels in the United States foreign
trade,
‘‘(B) the provision of vessel, barge, container, or cargo-
related facilities or services to any person,
‘‘(C) other activities of the electing corporation and
other members of its electing group that are an integral
part of its business of operating qualifying vessels in United
States foreign trade, including—
‘‘(i) ownership or operation of barges, containers,
chassis, and other equipment that are the complement
of, or used in connection with, a qualifying vessel in
United States foreign trade,
‘‘(ii) the inland haulage of cargo shipped, or to
be shipped, on qualifying vessels in United States for-
eign trade, and
‘‘(iii) the provision of terminal, maintenance,
repair, logistical, or other vessel, barge, container, or
cargo-related services that are an integral part of oper-
ating qualifying vessels in United States foreign trade,
and
‘‘(D) such other activities as may be prescribed by
the Secretary pursuant to regulations.
‘‘(3) COORDINATION WITH CORE ACTIVITIES.—
‘‘(A) IN GENERAL.—Such term shall not include any
core qualifying activities.
‘‘(B) NONELECTING CORPORATIONS.—In the case of a
corporation (other than an electing corporation) which is
a member of an electing group, any core qualifying activi-
ties of the corporation shall be treated as qualifying sec-
ondary activities (and not as core qualifying activities).
‘‘(d) QUALIFYING INCIDENTAL ACTIVITIES.—For purposes of this
section, the term ‘qualified incidental activities’ means shipping-
related activities if—
‘‘(1) they are incidental to the corporation’s core qualifying
activities,
‘‘(2) they are not qualifying secondary activities, and
‘‘(3) without regard to this subchapter, the gross income
derived by such corporation from such activities does not exceed
0.1 percent of the corporation’s gross income from its core
qualifying activities.
‘‘(e) APPLICATION OF GROSS INCOME TESTS IN CASE OF ELECTING
GROUP.—In the case of an electing group, subsections (c)(1) and
(d)(3) shall be applied as if such group were 1 entity, and the
limitations under such subsections shall be allocated among the
corporations in such group.
‘‘SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION;
INTEREST.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross income of an
electing corporation shall not include its income from qualifying
shipping activities.
‘‘(b) ELECTING GROUP MEMBER.—Gross income of a corporation
(other than an electing corporation) which is a member of an
electing group shall not include its income from qualifying shipping
activities conducted by such member.
‘‘(c) DENIAL OF LOSSES, DEDUCTIONS, AND CREDITS.—
H. R. 4520—39
‘‘(1) GENERAL RULE.—Subject to paragraph (2), each item
of loss, deduction (other than for interest expense), or credit
of any taxpayer with respect to any activity the income from
which is excluded from gross income under this section shall
be disallowed.
‘‘(2) DEPRECIATION.—
‘‘(A) IN GENERAL.—Notwithstanding paragraph (1), the
adjusted basis (for purposes of determining gain) of any
qualifying vessel shall be determined as if the deduction
for depreciation had been allowed.
‘‘(B) METHOD.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii), the straight-line method of depreciation shall apply
to qualifying vessels the income from operation of
which is excluded from gross income under this section.
‘‘(ii) EXCEPTION.—Clause (i) shall not apply to any
qualifying vessel which is subject to a charter entered
into before the date of the enactment of this sub-
chapter.
‘‘(3) INTEREST.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the interest expense of an electing corporation shall
be disallowed in the ratio that the fair market value of
such corporation’s qualifying vessels bears to the fair
market value of such corporation’s total assets.
‘‘(B) ELECTING GROUP.—In the case of a corporation
which is a member of an electing group, the interest
expense of such corporation shall be disallowed in the
ratio that the fair market value of such corporation’s quali-
fying vessels bears to the fair market value of the electing
groups total assets.
‘‘SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
‘‘(a) QUALIFYING SHIPPING ACTIVITIES.—For purposes of this
chapter, the qualifying shipping activities of an electing corporation
shall be treated as a separate trade or business activity distinct
from all other activities conducted by such corporation.
‘‘(b) EXCLUSION OF CREDITS OR DEDUCTIONS.—
‘‘(1) No deduction shall be allowed against the notional
shipping income of an electing corporation, and no credit shall
be allowed against the tax imposed by section 1352(a)(2).
‘‘(2) No deduction shall be allowed for any net operating
loss attributable to the qualifying shipping activities of any
person to the extent that such loss is carried forward by such
person from a taxable year preceding the first taxable year
for which such person was an electing corporation.
‘‘(c) TRANSACTIONS NOT AT ARM’S LENGTH.—Section 482 applies
in accordance with this subsection to a transaction or series of
transactions—
‘‘(1) as between an electing corporation and another person,
or
‘‘(2) as between an person’s qualifying shipping activities
and other activities carried on by it.
‘‘SEC. 1359. DISPOSITION OF QUALIFYING VESSELS.
‘‘(a) IN GENERAL.—If any qualifying vessel operator sells or
disposes of any qualifying vessel in an otherwise taxable trans-
action, at the election of such operator, no gain shall be recognized
H. R. 4520—40
if any replacement qualifying vessel is acquired during the period
specified in subsection (b), except to the extent that the amount
realized upon such sale or disposition exceeds the cost of the replace-
ment qualifying vessel.
‘‘(b) PERIOD WITHIN WHICH PROPERTY MUST BE REPLACED.—
The period referred to in subsection (a) shall be the period beginning
one year prior to the disposition of the qualifying vessel and
ending—
‘‘(1) 3 years after the close of the first taxable year in
which the gain is realized, or
‘‘(2) subject to such terms and conditions as may be speci-
fied by the Secretary, on such later date as the Secretary
may designate on application by the taxpayer.
Such application shall be made at such time and in such manner
as the Secretary may by regulations prescribe.
‘‘(c) APPLICATION OF SECTION TO NONCORPORATE OPERATORS.—
For purposes of this section, the term ‘qualifying vessel operator’
includes any person who would be a qualifying vessel operator
were such person a corporation.
‘‘(d) TIME FOR ASSESSMENT OF DEFICIENCY ATTRIBUTABLE TO
GAIN.—If a qualifying vessel operator has made the election pro-
vided in subsection (a), then—
‘‘(1) the statutory period for the assessment of any defi-
ciency, for any taxable year in which any part of the gain
is realized, attributable to such gain shall not expire prior
to the expiration of 3 years from the date the Secretary is
notified by such operator (in such manner as the Secretary
may by regulations prescribe) of the replacement qualifying
vessel or of an intention not to replace, and
‘‘(2) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of section
6212(c) or the provisions of any other law or rule of law which
would otherwise prevent such assessment.
‘‘(e) BASIS OF REPLACEMENT QUALIFYING VESSEL.—In the case
of any replacement qualifying vessel purchased by the qualifying
vessel operator which resulted in the nonrecognition of any part
of the gain realized as the result of a sale or other disposition
of a qualifying vessel, the basis shall be the cost of the replacement
qualifying vessel decreased in the amount of the gain not so recog-
nized; and if the property purchased consists of more than one
piece of property, the basis determined under this sentence shall
be allocated to the purchased properties in proportion to their
respective costs.’’.
(b) TECHNICAL AMENDMENTS.—
(1) The second sentence of section 56(g)(4)(B)(i), as amended
by this Act, is further amended by inserting ‘‘or 1357’’ after
‘‘section 139A’’.
(2) The table of subchapters for chapter 1 is amended
by inserting after the item relating to subchapter S the fol-
lowing new item:
‘‘Subchapter R. Election to determine corporate tax on certain international
shipping activities using per ton rate.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
H. R. 4520—41
Subtitle F—Stock Options and Employee
Stock Purchase Plan Stock Options
SEC. 251. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE
STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES.
(a) EXCLUSION FROM EMPLOYMENT TAXES.—
(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
following new paragraph:
‘‘(22) remuneration on account of—
‘‘(A) a transfer of a share of stock to any individual
pursuant to an exercise of an incentive stock option (as
defined in section 422(b)) or under an employee stock pur-
chase 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 incentive stock option (as
defined in section 422(b) 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.—Subsection (e) of section
3231 is amended by adding at the end the following new para-
graph:
‘‘(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 incentive stock option (as
defined in section 422(b)) or under an employee stock pur-
chase 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 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 incentive stock option (as
defined in section 422(b)) or under an employee stock pur-
chase plan (as defined in section 423(b)), or
‘‘(B) any disposition by the individual of such stock.’’.
(b) WAGE WITHHOLDING NOT REQUIRED ON DISQUALIFYING DIS-
POSITIONS.—Section 421(b) (relating to effect of disqualifying dis-
positions) is amended by adding at the end the following new
sentence: ‘‘No amount shall be required to be deducted and withheld
H. R. 4520—42
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 COMPENSATION
WHERE OPTION PRICE IS BETWEEN 85 PERCENT AND 100 PERCENT
OF VALUE OF STOCK.—Section 423(c) (relating to special rule where
option price is between 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.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to stock acquired pursuant to options exercised after
the date of the enactment of this Act.
TITLE 
III—TAX 
RELIEF 
FOR 
AGRI-
CULTURE AND SMALL MANUFACTUR-
ERS
Subtitle A—Volumetric Ethanol Excise Tax
Credit
SEC. 301. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTEN-
SION OF ALCOHOL FUELS INCOME TAX CREDIT.
(a) IN GENERAL.—Subchapter B of chapter 65 (relating to rules
of special application) is amended by inserting after section 6425
the following new section:
‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
‘‘(a) ALLOWANCE
OF CREDITS.—There shall be allowed as a
credit against the tax imposed by section 4081 an amount equal
to the sum of—
‘‘(1) the alcohol fuel mixture credit, plus
‘‘(2) the biodiesel mixture credit.
‘‘(b) ALCOHOL FUEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this section, the alcohol
fuel mixture credit is the product of the applicable amount
and the number of gallons of alcohol used by the taxpayer
in producing any alcohol fuel mixture for sale or use in a
trade or business of the taxpayer.
‘‘(2) 
APPLICABLE
AMOUNT.—For 
purposes 
of 
this
subsection—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the applicable amount is 51 cents.
‘‘(B) MIXTURES NOT CONTAINING ETHANOL.—In the case
of an alcohol fuel mixture in which none of the alcohol
consists of ethanol, the applicable amount is 60 cents.
‘‘(3) ALCOHOL FUEL MIXTURE.—For purposes of this sub-
section, the term ‘alcohol fuel mixture’ means a mixture of
alcohol and a taxable fuel which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.
H. R. 4520—43
For purposes of subparagraph (A), a mixture produced by any
person at a refinery prior to a taxable event which includes
ethyl tertiary butyl ether or other ethers produced from alcohol
shall be treated as sold at the time of its removal from the
refinery (and only at such time) to another person for use
as a fuel.
‘‘(4) OTHER DEFINITIONS.—For purposes of this subsection—
‘‘(A) ALCOHOL.—The term ‘alcohol’ includes methanol
and ethanol but does not include—
‘‘(i) alcohol produced from petroleum, natural gas,
or coal (including peat), or
‘‘(ii) alcohol with a proof of less than 190 (deter-
mined without regard to any added denaturants).
Such term also includes an alcohol gallon equivalent of
ethyl tertiary butyl ether or other ethers produced from
such alcohol.
‘‘(B) TAXABLE FUEL.—The term ‘taxable fuel’ has the
meaning given such term by section 4083(a)(1).
‘‘(5) TERMINATION.—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.
‘‘(c) BIODIESEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this section, the biodiesel
mixture credit is the product of the applicable amount and
the number of gallons of biodiesel used by the taxpayer in
producing any biodiesel mixture for sale or use in a trade
or business of the taxpayer.
‘‘(2) 
APPLICABLE
AMOUNT.—For 
purposes 
of 
this
subsection—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the applicable amount is 50 cents.
‘‘(B) AMOUNT FOR AGRI-BIODIESEL.—In the case of any
biodiesel which is agri-biodiesel, the applicable amount is
$1.00.
‘‘(3) BIODIESEL MIXTURE.—For purposes of this section, the
term ‘biodiesel mixture’ means a mixture of biodiesel and diesel
fuel (as defined in section 4083(a)(3)), determined without
regard to any use of kerosene, which—
‘‘(A) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(B) is used as a fuel by the taxpayer producing such
mixture.
‘‘(4) CERTIFICATION
FOR
BIODIESEL.—No credit shall be
allowed under this subsection unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agri-
biodiesel in the product.
‘‘(5) OTHER DEFINITIONS.—Any term used in this subsection
which is also used in section 40A shall have the meaning
given such term by section 40A.
‘‘(6) TERMINATION.—This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.
‘‘(d) MIXTURE NOT USED AS A FUEL, ETC.—
‘‘(1) IMPOSITION OF TAX.—If—
‘‘(A) any credit was determined under this section with
respect to alcohol or biodiesel used in the production of
H. R. 4520—44
any alcohol fuel mixture or biodiesel mixture, respectively,
and
‘‘(B) any person—
‘‘(i) separates the alcohol or biodiesel from the
mixture, or
‘‘(ii) without separation, uses the mixture other
than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the applicable amount and the number
of gallons of such alcohol or biodiesel.
‘‘(2) APPLICABLE
LAWS.—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent with
this section, apply in respect of any tax imposed under para-
graph (1) as if such tax were imposed by section 4081 and
not by this section.
‘‘(e) COORDINATION WITH EXEMPTION FROM EXCISE TAX.—Rules
similar to the rules under section 40(c) shall apply for purposes
of this section.’’.
(b) REGISTRATION REQUIREMENT.—Section 4101(a)(1) (relating
to registration), as amended by section 861, is amended by inserting
‘‘and every person producing or importing biodiesel (as defined
in section 40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))’’
before ‘‘shall register with the Secretary’’.
(c) ADDITIONAL AMENDMENTS.—
(1) Section 40(c) is amended by striking ‘‘subsection (b)(2),
(k), or (m) of section 4041, section 4081(c), or section 4091(c)’’
and inserting ‘‘section 4041(b)(2), section 6426, or section
6427(e)’’.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
‘‘(4) VOLUME OF ALCOHOL.—For purposes of determining
under subsection (a) the number of gallons of alcohol with
respect to which a credit is allowable under subsection (a),
the volume of alcohol shall include the volume of any dena-
turant (including gasoline) which is added under any formulas
approved by the Secretary to the extent that such denaturants
do not exceed 5 percent of the volume of such alcohol (including
denaturants).’’.
(3) Section 40(e)(1) is amended—
(A) by striking ‘‘2007’’ in subparagraph (A) and
inserting ‘‘2010’’, and
(B) by striking ‘‘2008’’ in subparagraph (B) and
inserting ‘‘2011’’.
(4) Section 40(h) is amended—
(A) by striking ‘‘2007’’ in paragraph (1) and inserting
‘‘2010’’, and
(B) by striking ‘‘, 2006, or 2007’’ in the table contained
in paragraph (2) and inserting ‘‘through 2010’’.
(5) Section 4041(b)(2)(B) is amended by striking ‘‘a sub-
stance other than petroleum or natural gas’’ and inserting
‘‘coal (including peat)’’.
(6) Section 4041 is amended by striking subsection (k).
(7) Section 4081 is amended by striking subsection (c).
(8) Paragraph (2) of section 4083(a) is amended to read
as follows:
‘‘(2) GASOLINE.—The term ‘gasoline’—
H. R. 4520—45
‘‘(A) includes any gasoline blend, other than qualified
methanol 
or 
ethanol 
fuel 
(as 
defined 
in 
section
4041(b)(2)(B)), partially exempt methanol or ethanol fuel
(as defined in section 4041(m)(2)), or a denatured alcohol,
and
‘‘(B) includes, to the extent prescribed in regulations—
‘‘(i) any gasoline blend stock, and
‘‘(ii) any product commonly used as an additive
in gasoline (other than alcohol).
For purposes of subparagraph (B)(i), the term ‘gasoline blend
stock’ means any petroleum product component of gasoline.’’.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:
‘‘(e) ALCOHOL OR BIODIESEL USED TO PRODUCE ALCOHOL FUEL
AND BIODIESEL MIXTURES.—Except as provided in subsection (k)—
‘‘(1) USED TO PRODUCE A MIXTURE.—If any person produces
a mixture described in section 6426 in such person’s trade
or business, the Secretary shall pay (without interest) to such
person an amount equal to the alcohol fuel mixture credit
or the biodiesel mixture credit with respect to such mixture.
‘‘(2) COORDINATION WITH OTHER REPAYMENT PROVISIONS.—
No amount shall be payable under paragraph (1) with respect
to any mixture with respect to which an amount is allowed
as a credit under section 6426.
‘‘(3) TERMINATION.—This subsection shall not apply with
respect to—
‘‘(A) any alcohol fuel mixture (as defined in section
6426(b)(3)) sold or used after December 31, 2010, and
‘‘(B) any biodiesel mixture (as defined in section
6426(c)(3)) sold or used after December 31, 2006.’’.
(10) Section 6427(i)(3) is amended—
(A) by striking ‘‘subsection (f)’’ both places it appears
in subparagraph (A) and inserting ‘‘subsection (e)(1)’’,
(B) by striking ‘‘gasoline, diesel fuel, or kerosene used
to produce a qualified alcohol mixture (as defined in section
4081(c)(3))’’ in subparagraph (A) and inserting ‘‘a mixture
described in section 6426’’,
(C) by adding at the end of subparagraph (A) the
following new flush sentence:
‘‘In the case of an electronic claim, this subparagraph shall
be applied without regard to clause (i).’’,
(D) by striking ‘‘subsection (f)(1)’’ in subparagraph (B)
and inserting ‘‘subsection (e)(1)’’,
(E) by striking ‘‘20 days of the date of the filing of
such claim’’ in subparagraph (B) and inserting ‘‘45 days
of the date of the filing of such claim (20 days in the
case of an electronic claim)’’, and
(F) by striking ‘‘ALCOHOL MIXTURE’’ in the heading and
inserting ‘‘ALCOHOL FUEL AND BIODIESEL MIXTURE’’.
(11) Section 9503(b)(1) is amended by adding at the end
the following new flush sentence:
‘‘For purposes of this paragraph, taxes received under sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.’’.
(12) Section 9503(b)(4) is amended—
(A) by adding ‘‘or’’ at the end of subparagraph (C),
H. R. 4520—46
(B) by striking the comma at the end of subparagraph
(D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(13) Section 9503(c)(2)(A) is amended by adding at the
end the following: ‘‘Clauses (i)(III) and (ii) shall not apply
to claims under section 6427(e).’’.
(14) The table of sections for subchapter B of chapter
65 is amended by inserting after the item relating to section
6425 the following new item:
‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply to
fuel sold or used after December 31, 2004.
(2) REGISTRATION REQUIREMENT.—The amendment made
by subsection (b) shall take effect on April 1, 2005.
(3) EXTENSION OF ALCOHOL FUELS CREDIT.—The amend-
ments made by paragraphs (3), (4), and (14) of subsection
(c) shall take effect on the date of the enactment of this Act.
(4) REPEAL
OF
GENERAL
FUND
RETENTION
OF
CERTAIN
ALCOHOL FUELS TAXES.—The amendments made by subsection
(c)(12) shall apply to fuel sold or used after September 30,
2004.
(e) FORMAT FOR FILING.—The Secretary of the Treasury shall
describe the electronic format for filing claims described in section
6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amended
by subsection (c)(10)(C)) not later than December 31, 2004.
SEC. 302. BIODIESEL INCOME TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended by
inserting after section 40 the following new section:
‘‘SEC. 40A. BIODIESEL USED AS FUEL.
‘‘(a) GENERAL RULE.—For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year
is an amount equal to the sum of—
‘‘(1) the biodiesel mixture credit, plus
‘‘(2) the biodiesel credit.
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT AND BIODIESEL
CREDIT.—For purposes of this section—
‘‘(1) BIODIESEL MIXTURE CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel mixture credit of any
taxpayer for any taxable year is 50 cents for each gallon
of biodiesel used by the taxpayer in the production of
a qualified biodiesel mixture.
‘‘(B) QUALIFIED BIODIESEL MIXTURE.—The term ‘quali-
fied biodiesel mixture’ means a mixture of biodiesel and
diesel fuel (as defined in section 4083(a)(3)), determined
without regard to any use of kerosene, which—
‘‘(i) is sold by the taxpayer producing such mixture
to any person for use as a fuel, or
‘‘(ii) is used as a fuel by the taxpayer producing
such mixture.
‘‘(C) SALE OR USE MUST BE IN TRADE OR BUSINESS,
ETC.—Biodiesel used in the production of a qualified bio-
diesel mixture shall be taken into account—
H. R. 4520—47
‘‘(i) only if the sale or use described in subpara-
graph (B) is in a trade or business of the taxpayer,
and
‘‘(ii) for the taxable year in which such sale or
use occurs.
‘‘(D) CASUAL OFF-FARM PRODUCTION NOT ELIGIBLE.—
No credit shall be allowed under this section with respect
to any casual off-farm production of a qualified biodiesel
mixture.
‘‘(2) BIODIESEL CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel credit of any taxpayer
for any taxable year is 50 cents for each gallon of biodiesel
which is not in a mixture with diesel fuel and which
during the taxable year—
‘‘(i) is used by the taxpayer as a fuel in a trade
or business, or
‘‘(ii) is sold by the taxpayer at retail to a person
and placed in the fuel tank of such person’s vehicle.
‘‘(B) USER CREDIT NOT TO APPLY TO BIODIESEL SOLD
AT RETAIL.—No credit shall be allowed under subparagraph
(A)(i) with respect to any biodiesel which was sold in a
retail sale described in subparagraph (A)(ii).
‘‘(3) CREDIT FOR AGRI-BIODIESEL.—In the case of any bio-
diesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shall
be applied by substituting ‘$1.00’ for ‘50 cents’.
‘‘(4) CERTIFICATION
FOR
BIODIESEL.—No credit shall be
allowed under this section unless the taxpayer obtains a certifi-
cation (in such form and manner as prescribed by the Secretary)
from the producer or importer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agri-
biodiesel in the product.
‘‘(c) COORDINATION WITH CREDIT AGAINST EXCISE TAX.—The
amount of the credit determined under this section with respect
to any biodiesel shall be properly reduced to take into account
any benefit provided with respect to such biodiesel solely by reason
of the application of section 6426 or 6427(e).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) BIODIESEL.—The term ‘biodiesel’ means the monoalkyl
esters of long chain fatty acids derived from plant or animal
matter which meet—
‘‘(A) the registration requirements for fuels and fuel
additives established by the Environmental Protection
Agency under section 211 of the Clean Air Act (42 U.S.C.
7545), and
‘‘(B) the requirements of the American Society of
Testing and Materials D6751.
‘‘(2) AGRI-BIODIESEL.—The term ‘agri-biodiesel’ means bio-
diesel derived solely from virgin oils, including esters derived
from virgin vegetable oils from corn, soybeans, sunflower seeds,
cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds,
rice bran, and mustard seeds, and from animal fats.
‘‘(3) MIXTURE OR BIODIESEL NOT USED AS A FUEL, ETC.—
‘‘(A) MIXTURES.—If—
‘‘(i) any credit was determined under this section
with respect to biodiesel used in the production of
any qualified biodiesel mixture, and
H. R. 4520—48
‘‘(ii) any person—
‘‘(I) separates the biodiesel from the mixture,
or
‘‘(II) without separation, uses the mixture
other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(1)(A) and the number of gallons of such biodiesel in
such mixture.
‘‘(B) BIODIESEL.—If—
‘‘(i) any credit was determined under this section
with respect to the retail sale of any biodiesel, and
‘‘(ii) any person mixes such biodiesel or uses such
biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(2)(A) and the number of gallons of such biodiesel.
‘‘(C) APPLICABLE LAWS.—All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed
under subparagraph (A) or (B) as if such tax were imposed
by section 4081 and not by this chapter.
‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS.—
Under regulations prescribed by the Secretary, rules similar
to the rules of subsection (d) of section 52 shall apply.
‘‘(e) TERMINATION.—This section shall not apply to any sale
or use after December 31, 2006.’’.
(b) CREDIT TREATED AS PART OF GENERAL BUSINESS CREDIT.—
Section 38(b) (relating to current year business credit), as amended
by this Act, is amended by striking ‘‘plus’’ at the end of paragraph
(15), by striking the period at the end of paragraph (16) and
inserting ‘‘, plus’’, and by inserting after paragraph (16) the fol-
lowing new paragraph:
‘‘(17) the biodiesel fuels credit determined under section
40A(a).’’.
(c) CONFORMING AMENDMENTS.—
(1)(A) Section 87 is amended to read as follows:
‘‘SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.
‘‘Gross income includes—
‘‘(1) the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section
40(a), and
‘‘(2) the biodiesel fuels credit determined with respect to
the taxpayer for the taxable year under section 40A(a).’’.
(B) The item relating to section 87 in the table of sections
for part II of subchapter B of chapter 1 is amended by striking
‘‘fuel credit’’ and inserting ‘‘and biodiesel fuels credits’’.
(2) Section 196(c) is amended by striking ‘‘and’’ at the
end of paragraph (9), by striking the period at the end of
paragraph (10) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(11) the biodiesel fuels credit determined under section
40A(a).’’.
H. R. 4520—49
(3) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding after the item
relating to section 40 the following new item:
‘‘Sec. 40A. Biodiesel used as fuel.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to fuel produced, and sold or used, after December
31, 2004, in taxable years ending after such date.
SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CER-
TAIN TAX BENEFITS.
(a) IN GENERAL.—Subpart C of part III of subchapter A of
chapter 32 is amended by adding at the end the following new
section:
‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CER-
TAIN TAX BENEFITS.
‘‘(a) IN GENERAL.—The Secretary shall require any person
claiming tax benefits—
‘‘(1) under the provisions of section 34, 40, and 40A, to
file a return at the time such person claims such benefits
(in such manner as the Secretary may prescribe), and
‘‘(2) under the provisions of section 4041(b)(2), 6426, or
6427(e) to file a quarterly return (in such manner as the Sec-
retary may prescribe).
‘‘(b) CONTENTS OF RETURN.—Any return filed under this section
shall provide such information relating to such benefits and the
coordination of such benefits as the Secretary may require to ensure
the proper administration and use of such benefits.
‘‘(c) ENFORCEMENT.—With respect to any person described in
subsection (a) and subject to registration requirements under this
title, rules similar to rules of section 4222(c) shall apply with
respect to any requirement under this section.’’.
(b) CONFORMING AMENDMENT.—The table of sections for sub-
part C of part III of subchapter A of chapter 32 is amended by
adding at the end the following new item:
‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 2005.
Subtitle B—Agricultural Incentives
SEC. 311. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF
WEATHER-RELATED CONDITIONS.
(a) REPLACEMENT
OF LIVESTOCK WITH OTHER FARM PROP-
ERTY.—Subsection (f) of section 1033 (relating to involuntary conver-
sions) is amended—
(1) by inserting ‘‘drought, flood, or other weather-related
conditions, or’’ after ‘‘because of’’,
(2) by inserting ‘‘in the case of soil contamination or other
environmental contamination’’ after ‘‘including real property’’,
and
(3) by striking ‘‘WHERE THERE HAS BEEN ENVIRONMENTAL
CONTAMINATION’’ in the heading and inserting ‘‘IN CERTAIN
CASES’’.
H. R. 4520—50
(b) EXTENSION
OF REPLACEMENT PERIOD
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 conditions described in paragraph
(1) which result in the area being designated as eligible
for assistance 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
SECRETARY.—The Sec-
retary may extend on a regional basis the period for
replacement under this section (after the application of
subparagraph (A)) for such additional time as the Secretary
determines appropriate if the weather-related conditions
which resulted in such application continue for more than
3 years.’’.
(c) INCOME INCLUSION RULES.—Section 451(e) (relating to spe-
cial rule for proceeds from livestock 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 paragraph (1) shall be deemed valid if made
during the replacement period described in such section.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to any taxable year with respect to which the due
date (without regard to extensions) for the return is after December
31, 2002.
SEC. 312. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITH-
OUT 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 paragraph (3), net earnings shall not
be reduced by amounts paid during the year as dividends on capital
stock or other proprietary capital interests of the organization to
the extent that the articles of incorporation or bylaws of such
organization or other contract with patrons provide that such divi-
dends are in addition to amounts otherwise payable 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. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.
(a) ALLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF
A COOPERATIVE.—Section 40(g) (relating to definitions and special
rules for eligible small ethanol producer credit) is amended by
adding at the end the following new paragraph:
‘‘(6) ALLOCATION OF SMALL ETHANOL PRODUCER CREDIT TO
PATRONS OF COOPERATIVE.—
‘‘(A) ELECTION TO ALLOCATE.—
H. R. 4520—51
‘‘(i) IN
GENERAL.—In the case of a cooperative
organization described in section 1381(a), any portion
of the credit determined under subsection (a)(3) for
the taxable year may, at the election of the organiza-
tion, be apportioned pro rata among patrons of the
organization on the basis of the quantity or value
of business done with or for such patrons for the tax-
able year.
‘‘(ii) FORM AND EFFECT OF ELECTION.—An election
under clause (i) for any taxable year shall be made
on a timely filed return for such year. Such election,
once made, shall be irrevocable for such taxable year.
‘‘(B) TREATMENT
OF
ORGANIZATIONS
AND
PATRONS.—
‘‘(i) ORGANIZATIONS.—The amount of the credit not
apportioned to patrons pursuant to subparagraph (A)
shall be included in the amount determined under
subsection (a)(3) for the taxable year of the organiza-
tion.
‘‘(ii) PATRONS.—The amount of the credit appor-
tioned to patrons pursuant to subparagraph (A) shall
be included in the amount determined under such sub-
section for the first taxable year of each patron ending
on or after the last day of the payment period (as
defined in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of each
patron ending on or after the date on which the patron
receives notice from the cooperative of the apportion-
ment.
‘‘(iii) SPECIAL RULES FOR DECREASE IN CREDITS FOR
TAXABLE
YEAR.—If the amount of the credit of the
organization determined under such subsection for a
taxable year is less than the amount of such credit
shown on the return of the organization for such year,
an amount equal to the excess of—
‘‘(I) such reduction, over
‘‘(II) the amount not apportioned to such
patrons under subparagraph (A) for the taxable
year,
shall be treated as an increase in tax imposed by
this chapter on the organization. Such increase shall
not be treated as tax imposed by this chapter for
purposes of determining the amount of any credit
under this chapter or for purposes of section 55.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVER-
AGING AND THE ALTERNATIVE MINIMUM TAX.
(a) IN
GENERAL.—Section 55(c) (defining 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
AND FISHERMEN.—Solely for purposes of this section, section
1301 (relating to averaging of farm and fishing income) shall
not apply in computing the regular tax.’’.
(b) ALLOWING INCOME AVERAGING FOR FISHERMEN.—
H. R. 4520—52
(1) IN GENERAL.—Section 1301(a) is amended by striking
‘‘farming business’’ and inserting ‘‘farming business or fishing
business’’.
(2) DEFINITION OF ELECTED FARM INCOME.—
(A) IN GENERAL.—Clause (i) of section 1301(b)(1)(A)
is amended by inserting ‘‘or fishing business’’ before the
semicolon.
(B) CONFORMING AMENDMENT.—Subparagraph (B) of
section 1301(b)(1) is amended by inserting ‘‘or fishing busi-
ness’’ after ‘‘farming business’’ both places it occurs.
(3) DEFINITION OF FISHING BUSINESS.—Section 1301(b) is
amended by adding at the end the following new paragraph:
‘‘(4) FISHING BUSINESS.—The term ‘fishing business’ means
the conduct of commercial fishing as defined in section 3 of
the Magnuson-Stevens Fishery Conservation and Management
Act (16 U.S.C. 1802).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 315. CAPITAL GAIN TREATMENT UNDER SECTION 631(b) TO APPLY
TO OUTRIGHT SALES BY LANDOWNERS.
(a) IN GENERAL.—The first sentence of section 631(b) (relating
to disposal of timber with a retained economic interest) is amended
by striking ‘‘retains an economic interest in such timber’’ and
inserting ‘‘either retains 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 inserting ‘‘In the case of
disposal of timber with a retained economic interest, the date
of disposal’’.
(2) The heading for section 631(b) is amended by striking
‘‘WITH A RETAINED ECONOMIC INTEREST’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales after December 31, 2004.
SEC. 316. MODIFICATION TO COOPERATIVE MARKETING RULES TO
INCLUDE VALUE ADDED PROCESSING INVOLVING ANI-
MALS.
(a) IN GENERAL.—Section 1388 (relating to definitions and spe-
cial rules) is amended by adding at the end the following new
subsection:
‘‘(k) COOPERATIVE MARKETING INCLUDES VALUE-ADDED PROC-
ESSING INVOLVING ANIMALS.—For purposes of section 521 and this
subchapter, the marketing of the products of members or other
producers shall include the feeding of such products to cattle, hogs,
fish, chickens, or other animals and the sale of the resulting animals
or animal products.’’.
(b) CONFORMING AMENDMENT.—Section 521(b) is amended by
adding at the end the following new paragraph:
‘‘(7) CROSS REFERENCE.—
‘‘For treatment of value-added processing involving animals, see
section 1388(k).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
H. R. 4520—53
SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO
FARMERS’ COOPERATIVE ORGANIZATIONS.
(a) IN GENERAL.—Section 7428(a)(1) (relating to declaratory
judgments of tax exempt organizations) is amended by striking
‘‘or’’ at the end of subparagraph (B) and by adding at the end
the following new subparagraph:
‘‘(D) with respect to the initial classification or con-
tinuing classification of a cooperative as an organization
described in section 521(b) which is exempt from tax under
section 521(a), or’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to pleadings filed after the date of the
enactment of this Act.
SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) IN GENERAL.—Section 162(o) (relating to treatment of cer-
tain reimbursed expenses of rural mail carriers) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following:
‘‘(2) SPECIAL RULE WHERE EXPENSES EXCEED REIMBURSE-
MENTS.—Notwithstanding paragraph (1)(A), if the expenses
incurred by an employee for the use of a vehicle in performing
services described in paragraph (1) exceed the qualified
reimbursements for such expenses, such excess shall be taken
into account in computing the miscellaneous itemized deduc-
tions of the employee under section 67.’’.
(b) CONFORMING AMENDMENT.—The heading for section 162(o)
is amended by striking ‘‘REIMBURSED’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) INCOME FROM OPEN ACCESS
AND NUCLEAR DECOMMIS-
SIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section 501(c)(12)
is amended by striking clause (ii) and adding at the end the
following:
‘‘(ii) from any provision or sale of electric energy
transmission services or ancillary services if such serv-
ices are provided on a nondiscriminatory open access
basis under an open access transmission tariff
approved or accepted by FERC or under an inde-
pendent transmission provider agreement approved or
accepted by FERC (other than income received or
accrued directly or indirectly from a member),
‘‘(iii) from the provision or sale of electric energy
distribution services or ancillary services if such serv-
ices are provided on a nondiscriminatory open access
basis to distribute electric energy not owned by the
mutual or electric cooperative company—
‘‘(I) to end-users who are served by distribution
facilities not owned by such company or any of
its members (other than income received or
accrued directly or indirectly from a member), or
‘‘(II) generated by a generation facility not
owned or leased by such company or any of its
H. R. 4520—54
members and which is directly connected to dis-
tribution facilities owned by such company or any
of its members (other than income received or
accrued directly or indirectly from a member),
‘‘(iv) from any nuclear decommissioning trans-
action, or
‘‘(v) from any asset exchange or conversion trans-
action.
Clauses (ii) through (v) shall not apply to taxable years
beginning after December 31, 2006.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Paragraph (12) of
section 501(c) is amended by adding at the end the following
new subparagraphs:
‘‘(E) For purposes of subparagraph (C)(ii), the term
‘FERC’ means the Federal Energy Regulatory Commission
and references to such term shall be treated as including
the Public Utility Commission of Texas with respect to
any ERCOT utility (as defined in section 212(k)(2)(B) of
the Federal Power Act (16 U.S.C. 824k(k)(2)(B))).
‘‘(F) For purposes of subparagraph (C)(iii), the term
‘nuclear decommissioning transaction’ means—
‘‘(i) any transfer into a trust, fund, or instrument
established to pay any nuclear decommissioning costs
if the transfer is in connection with the transfer of
the mutual or cooperative electric company’s interest
in a nuclear power plant or nuclear power plant unit,
‘‘(ii) any distribution from any trust, fund, or
instrument established to pay any nuclear decommis-
sioning costs, or
‘‘(iii) any earnings from any trust, fund, or
instrument established to pay any nuclear decommis-
sioning costs.
‘‘(G) For purposes of subparagraph (C)(iv), the term
‘asset exchange or conversion transaction’ means any vol-
untary exchange or involuntary conversion of any property
related to generating, transmitting, distributing, or selling
electric energy by a mutual or cooperative electric company,
the gain from which qualifies for deferred recognition under
section 1031 or 1033, but only if the replacement property
acquired by such company pursuant to such section con-
stitutes property which is used, or to be used, for—
‘‘(i) generating, transmitting, distributing, or
selling electric energy, or
‘‘(ii) producing, transmitting, distributing, or
selling natural gas.’’.
(b) TREATMENT OF INCOME FROM LOAD LOSS TRANSACTIONS,
ETC.—Paragraph (12) of section 501(c), as amended by subsection
(a)(2), is amended by adding after subparagraph (G) the following
new subparagraph:
‘‘(H)(i) In the case of a mutual or cooperative electric
company described in this paragraph or an organization
described in section 1381(a)(2)(C), income received or
accrued from a load loss transaction shall be treated as
an amount collected from members for the sole purpose
of meeting losses and expenses.
‘‘(ii) For purposes of clause (i), the term ‘load loss
transaction’ means any wholesale or retail sale of electric
H. R. 4520—55
energy (other than to members) to the extent that the
aggregate sales during the recovery period do not exceed
the load loss mitigation sales limit for such period.
‘‘(iii) For purposes of clause (ii), the load loss mitigation
sales limit for the recovery period is the sum of the annual
load losses for each year of such period.
‘‘(iv) For purposes of clause (iii), a mutual or coopera-
tive electric company’s annual load loss for each year of
the recovery period is the amount (if any) by which—
‘‘(I) the megawatt hours of electric energy sold
during such year to members of such electric company
are less than
‘‘(II) the megawatt hours of electric energy sold
during the base year to such members.
‘‘(v) For purposes of clause (iv)(II), the term ‘base year’
means—
‘‘(I) the calendar year preceding the start-up year,
or
‘‘(II) at the election of the mutual or cooperative
electric company, the second or third calendar years
preceding the start-up year.
‘‘(vi) For purposes of this subparagraph, the recovery
period is the 7-year period beginning with the start-up
year.
‘‘(vii) For purposes of this subparagraph, the start-
up year is the first year that the mutual or cooperative
electric company offers nondiscriminatory open access or
the calendar year which includes the date of the enactment
of this subparagraph, if later, at the election of such com-
pany.
‘‘(viii) A company shall not fail to be treated as a
mutual or cooperative electric company for purposes of
this paragraph or as a corporation operating on a coopera-
tive basis for purposes of section 1381(a)(2)(C) by reason
of the treatment under clause (i).
‘‘(ix) For purposes of subparagraph (A), in the case
of a mutual or cooperative electric company, income
received, or accrued, indirectly from a member shall be
treated as an amount collected from members for the sole
purpose of meeting losses and expenses.
‘‘(x) This subparagraph shall not apply to taxable years
beginning after December 31, 2006.’’.
(c) EXCEPTION FROM UNRELATED BUSINESS TAXABLE INCOME.—
Subsection (b) of section 512 (relating to modifications) is amended
by adding at the end the following new paragraph:
‘‘(18) TREATMENT OF MUTUAL OR COOPERATIVE ELECTRIC
COMPANIES.—In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be excluded
income which is treated as member income under subparagraph
(H) thereof.’’.
(d) CROSS REFERENCE.—Section 1381 is amended by adding
at the end the following new subsection:
H. R. 4520—56
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss transactions of organiza-
tions described in subsection (a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER
NATIONAL HEALTH SERVICE CORPS LOAN REPAYMENT
PROGRAM AND CERTAIN STATE LOAN REPAYMENT PRO-
GRAMS.
(a) IN GENERAL.—Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
‘‘(4) PAYMENTS UNDER NATIONAL HEALTH SERVICE CORPS
LOAN REPAYMENT PROGRAM AND CERTAIN STATE LOAN REPAY-
MENT PROGRAMS.—In the case of an individual, gross income
shall not include any amount received under section 338B(g)
of the Public Health Service Act or under a State program
described in section 338I of such Act.’’.
(b) TREATMENT FOR PURPOSES OF EMPLOYMENT TAXES.—Each
of the following provisions is amended by inserting ‘‘108(f)(4),’’ after
‘‘74(c),’’:
(1) Section 3121(a)(20).
(2) Section 3231(e)(5).
(3) Section 3306(b)(16).
(4) Section 3401(a)(19).
(5) Section 209(a)(17) of the Social Security Act.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts received by an individual in taxable years
beginning after December 31, 2003.
SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.
(a) EXPANSION OF PROHIBITED TRANSACTION SAFE HARBOR.—
Section 857(b)(6) (relating to income from prohibited transactions)
is amended by redesignating subparagraphs (D) and (E) as subpara-
graphs (E) and (F), respectively, and by inserting after subpara-
graph (C) the following new subparagraph:
‘‘(D) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED
TRANSACTIONS.—For purposes of this part, the term ‘prohib-
ited transaction’ does not include a sale of property which
is a real estate asset (as defined in section 856(c)(5)(B))
if—
‘‘(i) the trust held the property for not less than
4 years in connection with the trade or business of
producing timber,
‘‘(ii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year period
preceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),
and
‘‘(II) are directly related to operation of the
property for the production of timber or for the
preservation of the property for use as timberland,
do not exceed 30 percent of the net selling price of
the property,
H. R. 4520—57
‘‘(iii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year period
preceding the date of sale which—
‘‘(I) are includible in the basis of the property
(other than timberland acquisition expenditures),
and
‘‘(II) are not directly related to operation of
the property for the production of timber, or for
the preservation of the property for use as
timberland,
do not exceed 5 percent of the net selling price of
the property,
‘‘(iv)(I) during the taxable year the trust does not
make more than 7 sales of property (other than sales
of foreclosure property or sales to which section 1033
applies), or
‘‘(II) the aggregate adjusted bases (as determined
for purposes of computing earnings and profits) of prop-
erty (other than sales of foreclosure property or sales
to which section 1033 applies) sold during the taxable
year does not exceed 10 percent of the aggregate bases
(as so determined) of all of the assets of the trust
as of the beginning of the taxable year,
‘‘(v) in the case that the requirement of clause
(iv)(I) is not satisfied, substantially all of the marketing
expenditures with respect to the property were made
through an independent contractor (as defined in sec-
tion 856(d)(3)) from whom the trust itself does not
derive or receive any income, and
‘‘(vi) the sales price of the property sold by the
trust is not based in whole or in part on income or
profits, including income or profits derived from the
sale or operation of such property.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) IN GENERAL.—So much of subsection (b) of section 194
(relating to amortization of reforestation expenditures) as precedes
paragraph (2) is amended to read as follows:
‘‘(b) TREATMENT AS EXPENSES.—
‘‘(1) ELECTION TO TREAT CERTAIN REFORESTATION EXPENDI-
TURES AS EXPENSES.—
‘‘(A) IN GENERAL.—In the case of any qualified timber
property with respect to which the taxpayer has made
(in accordance with regulations prescribed by the Secretary)
an election under this subsection, the taxpayer shall treat
reforestation expenditures which are paid or incurred
during the taxable year with respect to such property as
an expense which is not chargeable to capital account.
The reforestation expenditures so treated shall be allowed
as a deduction.
‘‘(B) DOLLAR
LIMITATION.—The aggregate amount of
reforestation expenditures which may be taken into account
under subparagraph (A) with respect to each qualified
timber property for any taxable year shall not exceed
H. R. 4520—58
$10,000 ($5,000 in the case of a separate return by a
married individual (as defined in section 7703)).’’.
(b) NET
AMORTIZABLE
BASIS.—Section 194(c)(2) (defining
amortizable basis) is amended by inserting ‘‘which have not been
taken into account under subsection (b)’’ after ‘‘expenditures’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 194(b) is amended by striking paragraphs (3)
and (4).
(2) Section 194(b)(2) is amended by striking ‘‘paragraph
(1)’’ both places it appears and inserting ‘‘paragraph (1)(B)’’.
(3) Section 194(c) is amended by striking paragraph (4)
and inserting the following new paragraphs:
‘‘(4) TREATMENT OF TRUSTS AND ESTATES.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), this section shall not apply to trusts and estates.
‘‘(B) AMORTIZATION DEDUCTION ALLOWED TO ESTATES.—
The benefit of the deduction for amortization provided by
subsection (a) shall be allowed to estates in the same
manner as in the case of an individual. The allowable
deduction shall be apportioned between the income bene-
ficiary and the fiduciary under regulations prescribed by
the Secretary. Any amount so apportioned to a beneficiary
shall be taken into account for purposes of determining
the amount allowable as a deduction under subsection (a)
to such beneficiary.
‘‘(5) APPLICATION WITH OTHER DEDUCTIONS.—No deduction
shall be allowed under any other provision of this chapter
with respect to any expenditure with respect to which a deduc-
tion is allowed or allowable under this section to the taxpayer.’’.
(4) The heading for section 194 is amended by striking
‘‘AMORTIZATION’’ and inserting ‘‘TREATMENT’’.
(5) The item relating to section 194 in the table of sections
for part VI of subchapter B of chapter 1 is amended by striking
‘‘Amortization’’ and inserting ‘‘Treatment’’.
(d) REPEAL OF REFORESTATION CREDIT.—
(1) IN GENERAL.—Section 46 (relating to amount of credit)
is amended—
(A) by adding ‘‘and’’ at the end of paragraph (1),
(B) by striking ‘‘, and’’ at the end of paragraph (2)
and inserting a period, and
(C) by striking paragraph (3).
(2) CONFORMING AMENDMENTS.—
(A) Section 48 is amended—
(i) by striking subsection (b),
(ii) by striking ‘‘this subsection’’ in paragraph (5)
of subsection (a) and inserting ‘‘subsection (a)’’, and
(iii) by redesignating such paragraph (5) as sub-
section (b).
(B) The heading for section 48 is amended by striking
‘‘; REFORESTATION CREDIT’’.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of chapter
1 is amended by striking ‘‘, reforestation credit’’.
(D) Section 50(c)(3) is amended by striking ‘‘or reforest-
ation credit’’.
H. R. 4520—59
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to expenditures paid or incurred after
the date of the enactment of this Act.
Subtitle C—Incentives for Small
Manufacturers
SEC. 331. NET INCOME FROM PUBLICLY TRADED PARTNERSHIPS
TREATED AS QUALIFYING INCOME OF REGULATED
INVESTMENT COMPANIES.
(a) IN GENERAL.—Paragraph (2) of section 851(b) (defining regu-
lated 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 respect to secu-
rities loans (as defined in section 512(a)(5)), and gains
from the sale or other disposition of stock or securities
(as defined in 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 contracts) derived with respect to its
business of investing in such stock, securities, or currencies,
and
‘‘(B) net 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 partnership 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)).’’.
(d) DEFINITION
OF QUALIFIED PUBLICLY TRADED PARTNER-
SHIP.—Section 851 is amended by adding at the end the following
new subsection:
‘‘(h) QUALIFIED PUBLICLY TRADED PARTNERSHIP.—For purposes
of this section, the term ‘qualified publicly traded partnership’
means a publicly traded partnership described in section 7704(b)
other than a partnership 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.—Subparagraph (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 Government securi-
ties or the securities of other regulated investment
companies) of any one issuer,
H. R. 4520—60
‘‘(ii) the securities (other than the securities of
other regulated investment companies) of two or more
issuers which the taxpayer controls and which are
determined, under regulations prescribed by the Sec-
retary, 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 REGU-
LATED INVESTMENT COMPANIES.—Subsection (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
paragraph:
‘‘(4) APPLICATION TO REGULATED INVESTMENT COMPANIES.—
For purposes of this section, a regulated investment company
(as defined in section 851) holding an interest in a qualified
publicly traded 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 interest.’’.
(h) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 332. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND
ARROWS.
(a) BOWS.—Paragraph (1) of section 4161(b) (relating to bows)
is amended to read as follows:
‘‘(1) BOWS.—
‘‘(A) IN
GENERAL.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a peak draw weight of 30 pounds or more,
a tax equal to 11 percent of the price for which so sold.
‘‘(B) ARCHERY EQUIPMENT.—There is hereby imposed
on the sale by the manufacturer, producer, or importer—
‘‘(i) of any part or accessory suitable for inclusion
in or attachment to a bow described in subparagraph
(A), and
‘‘(ii) of any quiver or broadhead suitable for use
with an arrow described in paragraph (2),
a tax equal to 11 percent of the price for which so sold.’’.
(b) ARROWS.—Subsection (b) of section 4161 (relating to bows
and arrows, etc.) is amended by redesignating paragraph (3) as
paragraph (4) and inserting after paragraph (2) the following:
‘‘(3) ARROWS.—
‘‘(A) IN
GENERAL.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
arrow, a tax equal to 12 percent of the price for which
so sold.
‘‘(B) EXCEPTION.—In the case of any arrow of which
the shaft or any other component has been previously
taxed under paragraph (1) or (2)—
‘‘(i) section 6416(b)(3) shall not apply, and
‘‘(ii) the tax imposed by subparagraph (A) shall
be an amount equal to the excess (if any) of—
‘‘(I) the amount of tax imposed by this para-
graph (determined without regard to this subpara-
graph), over
H. R. 4520—61
‘‘(II) the amount of tax paid with respect to
the tax imposed under paragraph (1) or (2) on
such shaft or component.
‘‘(C) ARROW.—For purposes of this paragraph, the term
‘arrow’ means any shaft described in paragraph (2) to which
additional components are attached.’’.
(c) 
CONFORMING
AMENDMENTS.—Section 
4161(b)(2) 
is
amended—
(1) by inserting ‘‘(other than broadheads)’’ after ‘‘point’’,
and
(2) by striking ‘‘ARROWS.—’’ in the heading and inserting
‘‘ARROW COMPONENTS.—’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to articles sold by the manufacturer, producer, or
importer after the date which is 30 days after the date of the
enactment of this Act.
SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.
(a) IN GENERAL.—Subsection (a) of section 4161 (relating to
sport fishing equipment) is amended by redesignating paragraph
(3) as paragraph (4) and by inserting after paragraph (2) the fol-
lowing new paragraph:
‘‘(3) 3 PERCENT RATE OF TAX FOR TACKLE BOXES.—In the
case of fishing tackle boxes, paragraph (1) shall be applied
by substituting ‘3 percent’ for ‘10 percent’.’’.
(b) EFFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importer
after December 31, 2004.
SEC. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.
(a) NOT TREATED AS SPORT FISHING EQUIPMENT.—Subsection
(a) of section 4162 (relating to sport fishing equipment defined)
is amended by inserting ‘‘and’’ at the end of paragraph (8), by
striking ‘‘, and’’ at the end of paragraph (9) and inserting a period,
and by striking paragraph (10).
(b) CONFORMING AMENDMENT.—Section 4162 is amended by
striking subsection (b) and by redesignating subsection (c) as sub-
section (b).
(c) EFFECTIVE DATE.—The amendments made this section shall
apply to articles sold by the manufacturer, producer, or importer
after December 31, 2004.
SEC. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN
EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN
SUBSISTENCE WHALING.
(a) IN GENERAL.—Section 170 (relating to charitable, etc., con-
tributions and gifts), as amended by this Act, is amended by redesig-
nating subsection (n) as subsection (o) and by inserting after sub-
section (m) the following new subsection:
‘‘(n) EXPENSES PAID BY CERTAIN WHALING CAPTAINS IN SUPPORT
OF NATIVE ALASKAN SUBSISTENCE WHALING.—
‘‘(1) IN
GENERAL.—In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as a
whaling captain charged with the responsibility of maintaining
and carrying out sanctioned whaling activities and who engages
in such activities during the taxable year, the amount described
in paragraph (2) (to the extent such amount does not exceed
H. R. 4520—62
$10,000 for the taxable year) shall be treated for purposes
of this section as a charitable contribution.
‘‘(2) AMOUNT DESCRIBED.—
‘‘(A) IN GENERAL.—The amount described in this para-
graph is the aggregate of the reasonable and necessary
whaling expenses paid by the taxpayer during the taxable
year in carrying out sanctioned whaling activities.
‘‘(B) WHALING
EXPENSES.—For purposes of subpara-
graph (A), the term ‘whaling expenses’ includes expenses
for—
‘‘(i) the acquisition and maintenance of whaling
boats, weapons, and gear used in sanctioned whaling
activities,
‘‘(ii) the supplying of food for the crew and other
provisions for carrying out such activities, and
‘‘(iii) storage and distribution of the catch from
such activities.
‘‘(3) SANCTIONED WHALING ACTIVITIES.—For purposes of this
subsection, the term ‘sanctioned whaling activities’ means
subsistence bowhead whale hunting activities conducted pursu-
ant to the management plan of the Alaska Eskimo Whaling
Commission.
‘‘(4) SUBSTANTIATION OF EXPENSES.—The Secretary shall
issue guidance requiring that the taxpayer substantiate the
whaling expenses for which a deduction is claimed under this
subsection, including by maintaining appropriate written
records with respect to the time, place, date, amount, and
nature of the expense, as well as the taxpayer’s eligibility
for such deduction, and that (to the extent provided by the
Secretary) such substantiation be provided as part of the tax-
payer’s return of tax.’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to contributions made after December 31, 2004.
SEC. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIR-
CRAFT.
(a) AIRCRAFT TREATED AS QUALIFIED PROPERTY.—
(1) IN
GENERAL.—Paragraph (2) of section 168(k) is
amended by redesignating subparagraphs (C) through (F) as
subparagraphs (D) through (G), 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 transpor-
tation property (as defined in subparagraph (B)(iii))
other than for agricultural or firefighting purposes,
‘‘(iii) which is purchased and on which such pur-
chaser, 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 period exceeding
4 months, and
‘‘(II) a cost exceeding $200,000.’’.
H. R. 4520—63
(2) PLACED
IN
SERVICE
DATE.—Clause (iv) of section
168(k)(2)(A) is amended by striking ‘‘subparagraph (B)’’ and
inserting ‘‘subparagraphs (B) and (C)’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 168(k)(2)(B) is amended by adding at the end
the following new clause:
‘‘(iv) 
APPLICATION
OF
SUBPARAGRAPH.—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 ‘‘para-
graph (2)(C)’’ and inserting ‘‘paragraph (2)(D)’’.
(3) Section 168(k)(4)(B)(iii) is amended by inserting ‘‘and
paragraph (2)(C)’’ after ‘‘of this paragraph)’’.
(4) Section 168(k)(4)(C) is amended by striking ‘‘subpara-
graphs (B) and (D)’’ and inserting ‘‘subparagraphs (B), (C),
and (E)’’.
(5) Section 168(k)(4)(D) is amended by striking ‘‘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 amendments made by section
101 of the Job Creation and Worker Assistance Act of 2002.
SEC. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS
DEPRECIATION PROPERTY.
(a) IN GENERAL.—Subclause (II) of section 168(k)(2)(E)(iii)
(relating to syndication), as amended by the Working Families
Tax Relief Act of 2004 and as redesignated by this Act, is amended
by inserting before the comma at the end the following: ‘‘(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)’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to property sold after June 4, 2004.
SEC. 338. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING
WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR
REGULATIONS.
(a) IN GENERAL.—Part VI of subchapter B of chapter 1 (relating
to itemized deductions for individuals and corporations) is amended
by inserting after section 179A the following new section:
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COM-
PLYING WITH ENVIRONMENTAL PROTECTION AGENCY
SULFUR REGULATIONS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a small busi-
ness refiner (as defined in section 45H(c)(1)) which elects the
application of this section, there shall be allowed as a deduction
an amount equal to 75 percent of qualified capital costs (as defined
in section 45H(c)(2)) which are paid or incurred by the taxpayer
during the taxable year.
‘‘(b) REDUCED PERCENTAGE.—In the case of a small business
refiner with average daily domestic refinery runs for the 1-year
period ending on December 31, 2002, in excess of 155,000 barrels,
the number of percentage points described in subsection (a) shall
be reduced (not below zero) by the product of such number (before
H. R. 4520—64
the application of this subsection) and the ratio of such excess
to 50,000 barrels.
‘‘(c) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of
such property taken into account under subsection (a).
‘‘(2) ORDINARY INCOME RECAPTURE.—For purposes of section
1245, the amount of the deduction allowable under subsection
(a) with respect to any property which is of a character subject
to the allowance for depreciation shall be treated as a deduction
allowed for depreciation under section 167.’’.
‘‘(d) COORDINATION WITH OTHER PROVISIONS.—Section 280B
shall not apply to amounts which are treated as expenses under
this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ‘‘or’’ at the end of subparagraph (G), by striking
the period at the end of subparagraph (H) and inserting ‘‘,
or’’, and by adding at the end the following new subparagraph:
‘‘(I) expenditures for which a deduction is allowed
under section 179B.’’.
(2) Section 263A(c)(3) is amended by inserting ‘‘179B,’’ after
‘‘section’’.
(3) Section 312(k)(3)(B) is amended by striking ‘‘or 179A’’
each place it appears in the heading and text and inserting
‘‘179A, or 179B’’.
(4) Section 1016(a) is amended by striking ‘‘and’’ at the
end of paragraph (28), by striking the period at the end of
paragraph (29) and inserting ‘‘, and’’, and by inserting after
paragraph (29) the following new paragraph:
‘‘(30) to the extent provided in section 179B(c).’’.
(5) Paragraphs (2)(C) and (3)(C) of section 1245(a) are
each amended by inserting ‘‘179B,’’ after ‘‘179A,’’.
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by inserting
after the item relating to section 179A the following new item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying with Envi-
ronmental Protection Agency sulfur regulations.’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to expenses paid or incurred after December 31, 2002,
in taxable years ending after such date.
SEC. 339. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended by
this Act, is amended by inserting after section 45G the following
new section:
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
‘‘(a) IN GENERAL.—For purposes of section 38, the amount of
the low sulfur diesel fuel production credit determined under this
section with respect to any facility of a small business refiner
is an amount equal to 5 cents for each gallon of low sulfur diesel
fuel produced during the taxable year by such small business refiner
at such facility.
‘‘(b) MAXIMUM CREDIT.—
H. R. 4520—65
‘‘(1) IN GENERAL.—The aggregate credit determined under
subsection (a) for any taxable year with respect to any facility
shall not exceed—
‘‘(A) 25 percent of the qualified capital costs incurred
by the small business refiner with respect to such facility,
reduced by
‘‘(B) the aggregate credits determined under this sec-
tion for all prior taxable years with respect to such facility.
‘‘(2) REDUCED PERCENTAGE.—In the case of a small business
refiner with average daily domestic refinery runs for the 1-
year period ending on December 31, 2002, in excess of 155,000
barrels, the number of percentage points described in paragraph
(1) shall be reduced (not below zero) by the product of such
number (before the application of this paragraph) and the ratio
of such excess to 50,000 barrels.
‘‘(c) DEFINITIONS
AND SPECIAL RULE.—For purposes of this
section—
‘‘(1) SMALL BUSINESS REFINER.—The term ‘small business
refiner’ means, with respect to any taxable year, a refiner
of crude oil—
‘‘(A) with respect to which not more than 1,500 individ-
uals are engaged in the refinery operations of the business
on any day during such taxable year, and
‘‘(B) the average daily domestic refinery run or average
retained production of which for all facilities of the taxpayer
for the 1-year period ending on December 31, 2002, did
not exceed 205,000 barrels.
‘‘(2) QUALIFIED CAPITAL COSTS.—The term ‘qualified capital
costs’ means, with respect to any facility, those costs paid
or incurred during the applicable period for compliance with
the applicable EPA regulations with respect to such facility,
including expenditures for the construction of new process oper-
ation units or the dismantling and reconstruction of existing
process units to be used in the production of low sulfur diesel
fuel, associated adjacent or offsite equipment (including tank-
age, catalyst, and power supply), engineering, construction
period interest, and sitework.
‘‘(3) APPLICABLE EPA REGULATIONS.—The term ‘applicable
EPA regulations’ means the Highway Diesel Fuel Sulfur Con-
trol Requirements of the Environmental Protection Agency.
‘‘(4) APPLICABLE
PERIOD.—The term ‘applicable period’
means, with respect to any facility, the period beginning on
January 1, 2003, and ending on the earlier of the date which
is 1 year after the date on which the taxpayer must comply
with the applicable EPA regulations with respect to such facility
or December 31, 2009.
‘‘(5) LOW SULFUR DIESEL FUEL.—The term ‘low sulfur diesel
fuel’ means diesel fuel with a sulfur content of 15 parts per
million or less.
‘‘(d) REDUCTION
IN BASIS.—For purposes of this subtitle, if
a credit is determined under this section for any expenditure with
respect to any property, the increase in basis of such property
which would (but for this subsection) result from such expenditure
shall be reduced by the amount of the credit so determined.
‘‘(e) SPECIAL RULE FOR DETERMINATION OF REFINERY RUNS.—
For purposes this section and section 179B(b), in the calculation
of average daily domestic refinery run or retained production, only
H. R. 4520—66
refineries which on April 1, 2003, were refineries of the refiner
or a related person (within the meaning of section 613A(d)(3)),
shall be taken into account.
‘‘(f) CERTIFICATION.—
‘‘(1) REQUIRED.—No credit shall be allowed unless, not later
than the date which is 30 months after the first day of the
first taxable year in which the low sulfur diesel fuel production
credit is determined with respect to a facility, the small busi-
ness refiner obtains certification from the Secretary, after con-
sultation with the Administrator of the Environmental Protec-
tion Agency, that the taxpayer’s qualified capital costs with
respect to such facility will result in compliance with the
applicable EPA regulations.
‘‘(2) CONTENTS OF APPLICATION.—An application for certifi-
cation shall include relevant information regarding unit capac-
ities and operating characteristics sufficient for the Secretary,
after consultation with the Administrator of the Environmental
Protection Agency, to determine that such qualified capital
costs are necessary for compliance with the applicable EPA
regulations.
‘‘(3) REVIEW PERIOD.—Any application shall be reviewed
and notice of certification, if applicable, shall be made within
60 days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such certification
within such period, the taxpayer may presume the certification
to be issued until so notified.
‘‘(4) STATUTE OF LIMITATIONS.—With respect to the credit
allowed under this section—
‘‘(A) the statutory period for the assessment of any
deficiency attributable to such credit shall not expire before
the end of the 3-year period ending on the date that the
review period described in paragraph (3) ends with respect
to the taxpayer, and
‘‘(B) such deficiency may be assessed before the expira-
tion of such 3-year period notwithstanding the provisions
of any other law or rule of law which would otherwise
prevent such assessment.
‘‘(g) COOPERATIVE ORGANIZATIONS.—
‘‘(1) APPORTIONMENT OF CREDIT.—
‘‘(A) IN
GENERAL.—In the case of a cooperative
organization described in section 1381(a), any portion of
the credit determined under subsection (a) for the taxable
year may, at the election of the organization, be apportioned
among patrons eligible to share in patronage dividends
on the basis of the quantity or value of business done
with or for such patrons for the taxable year.
‘‘(B) FORM
AND
EFFECT
OF
ELECTION.—An election
under subparagraph (A) for any taxable year shall be made
on a timely filed return for such year. Such election, once
made, shall be irrevocable for such taxable year.
‘‘(2) TREATMENT OF ORGANIZATIONS AND PATRONS.—
‘‘(A) ORGANIZATIONS.—The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
‘‘(B) PATRONS.—The amount of the credit apportioned
to patrons pursuant to paragraph (1) shall be included
H. R. 4520—67
in the amount determined under subsection (a) for the
first taxable year of each patron ending on or after the
last day of the payment period (as defined in section
1382(d)) for the taxable year of the organization or, if
earlier, for the taxable year of each patron ending on or
after the date on which the patron receives notice from
the cooperative of the apportionment.
‘‘(3) SPECIAL RULE.—If the amount of a credit which has
been apportioned to any patron under this subsection is
decreased for any reason—
‘‘(A) such amount shall not increase the tax imposed
on such patron, and
‘‘(B) the tax imposed by this chapter on such organiza-
tion shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as
tax imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes of
section 55.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT.—Sub-
section (b) of section 38 (relating to general business credit), as
amended by this Act, is amended by striking ‘‘plus’’ at the end
of paragraph (16), by striking the period at the end of paragraph
(17) and inserting ‘‘, plus’’, and by inserting after paragraph (17)
the following new paragraph:
‘‘(18) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.
(c) DENIAL
OF DOUBLE BENEFIT.—Section 280C (relating to
certain expenses for which credits are allowable) is amended by
adding at the end the following new subsection:
‘‘(d) LOW SULFUR DIESEL FUEL PRODUCTION CREDIT.—No deduc-
tion shall be allowed for that portion of the expenses otherwise
allowable as a deduction for the taxable year which is equal to
the amount of the credit determined for the taxable year under
section 45H(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating to adjust-
ments to basis), as amended by this Act, is amended by striking
‘‘and’’ at the end of paragraph (29), by striking the period at the
end of paragraph (30) and inserting ‘‘, and’’, and by inserting after
paragraph (30) the following new paragraph:
‘‘(31) in the case of a facility with respect to which a
credit was allowed under section 45H, to the extent provided
in section 45H(d).’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.—Sec-
tion 196(c) (defining qualified business credits), as amended by
this Act, is amended by striking ‘‘and’’ at the end of paragraph
(10), by striking the period at the end of paragraph (11) and
inserting ‘‘, and’’, and by adding after paragraph (11) the following
new paragraph:
‘‘(12) the low sulfur diesel fuel production credit determined
under section 45H(a).’’.
(e) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after the item relating to section
45G the following new item:
‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.
H. R. 4520—68
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to expenses paid or incurred after December 31, 2002,
in taxable years ending after such date.
SEC. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) IN GENERAL.—Section 144(a)(4) (relating to $10,000,000
limit in certain cases) is amended by adding at the end the following
new subparagraph:
‘‘(G) ADDITIONAL
CAPITAL
EXPENDITURES
NOT
TAKEN
INTO ACCOUNT.—With respect to bonds issued after Sep-
tember 30, 2009, in addition to any capital expenditure
described in subparagraph (C), capital expenditures of not
to exceed $10,000,000 shall not be taken into account for
purposes of applying subparagraph (A)(ii).’’.
(b) CONFORMING AMENDMENT.—Subparagraph (F) of section
144(a)(4) is amended by adding at the end the following new sen-
tence: ‘‘This subparagraph shall not apply to bonds issued after
September 30, 2009.’’.
SEC. 341. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business credits), as amended by this Act,
is amended by inserting after section 45H the following:
‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL
WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38, the marginal
well production credit for any taxable year is an amount equal
to the product of—
‘‘(1) the credit amount, and
‘‘(2) the qualified credit oil production and the qualified
natural gas production which is attributable to the taxpayer.
‘‘(b) CREDIT AMOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil production,
and
‘‘(B) 50 cents per 1,000 cubic feet of qualified natural
gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES INCREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents amounts under
paragraph (1) shall each be reduced (but not below zero)
by an amount which bears the same ratio to such amount
(determined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applicable reference
price over $15 ($1.67 for qualified natural gas produc-
tion), bears to
‘‘(ii) $3 ($0.33 for qualified natural gas production).
The applicable reference price for a taxable year is the
reference price of the calendar year preceding the calendar
year in which the taxable year begins.
‘‘(B) INFLATION ADJUSTMENT.—In the case of any tax-
able year beginning in a calendar year after 2005, each
of the dollar amounts contained in subparagraph (A) shall
be increased to an amount equal to such dollar amount
multiplied by the inflation adjustment factor for such cal-
endar year (determined under section 43(b)(3)(B) by sub-
stituting ‘2004’ for ‘1990’).
H. R. 4520—69
‘‘(C) REFERENCE
PRICE.—For purposes of this para-
graph, the term ‘reference price’ means, with respect to
any calendar year—
‘‘(i) in the case of qualified crude oil production,
the 
reference 
price 
determined 
under 
section
29(d)(2)(C), and
‘‘(ii) in the case of qualified natural gas production,
the Secretary’s estimate of the annual average well-
head price per 1,000 cubic feet for all domestic natural
gas.
‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRODUCTION.—
For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘qualified crude oil production’
and ‘qualified natural gas production’ mean domestic crude
oil or natural gas which is produced from a qualified marginal
well.
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION WHICH MAY
QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural gas produced
during any taxable year from any well shall not be treated
as qualified crude oil production or qualified natural gas
production to the extent production from the well during
the taxable year exceeds 1,095 barrels or barrel-of-oil
equivalents (as defined in section 29(d)(5)).
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the case of a short
taxable year, the limitations under this paragraph
shall be proportionately reduced to reflect the ratio
which the number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION ENTIRE YEAR.—
In the case of a well which is not capable of production
during each day of a taxable year, the limitations
under this paragraph applicable to the well shall be
proportionately reduced to reflect the ratio which the
number of days of production bears to the total number
of days in the taxable year.
‘‘(3) DEFINITIONS.—
‘‘(A) QUALIFIED MARGINAL WELL.—The term ‘qualified
marginal well’ means a domestic well—
‘‘(i) the production from which during the taxable
year is treated as marginal production under section
613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production of not more
than 25 barrel-of-oil equivalents (as so defined),
and
‘‘(II) produces water at a rate not less than
95 percent of total well effluent.
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude oil’, ‘natural
gas’, ‘domestic’, and ‘barrel’ have the meanings given such
terms by section 613A(e).
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAXPAYER.—In the
case of a qualified marginal well in which there is more than
one owner of operating interests in the well and the crude
H. R. 4520—70
oil or natural gas production exceeds the limitation under sub-
section (c)(2), qualifying crude oil production or qualifying nat-
ural gas production attributable to the taxpayer shall be deter-
mined on the basis of the ratio which taxpayer’s revenue
interest in the production bears to the aggregate of the revenue
interests of all operating interest owners in the production.
‘‘(2) OPERATING INTEREST REQUIRED.—Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
‘‘(3) 
PRODUCTION
FROM
NONCONVENTIONAL
SOURCES
EXCLUDED.—In the case of production from a qualified marginal
well which is eligible for the credit allowed under section 29
for the taxable year, no credit shall be allowable under this
section unless the taxpayer elects not to claim the credit under
section 29 with respect to the well.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section 38(b), as
amended by this Act, is amended by striking ‘‘plus’’ at the end
of paragraph (17), by striking the period at the end of paragraph
(18) and inserting ‘‘, plus’’, and by inserting after paragraph (18)
the following:
‘‘(19) the marginal oil and gas well production credit deter-
mined under section 45I(a).’’.
(c) CARRYBACK.—Subsection (a) of section 39 (relating to
carryback and carryforward of unused credits generally) is amended
by adding at the end the following:
‘‘(3) 5-YEAR CARRYBACK FOR MARGINAL OIL AND GAS WELL
PRODUCTION CREDIT.—Notwithstanding subsection (d), in the
case of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied separately from the
business credit (other than the marginal oil and gas well
production credit),
‘‘(B) paragraph (1) shall be applied by substituting
‘5 taxable years’ for ‘1 taxable years’ in subparagraph (A)
thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘25 taxable years’ for ‘21 taxable
years’ in subparagraph (A) thereof, and
‘‘(ii) by substituting ‘24 taxable years’ for ‘20 tax-
able years’ in subparagraph (B) thereof.’’.
(d) CLERICAL AMENDMENT.—The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after section 45H the following:
‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to production in taxable years beginning after December
31, 2004.
H. R. 4520—71
TITLE 
IV—TAX 
REFORM 
AND 
SIM-
PLIFICATION FOR UNITED STATES
BUSINESSES
SEC. 401. INTEREST EXPENSE ALLOCATION RULES.
(a) ELECTION TO ALLOCATE
ON WORLDWIDE BASIS.—Section
864 is amended by redesignating subsection (f) as subsection (g)
and by inserting after subsection (e) the following new subsection:
‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ON WORLDWIDE
BASIS.—For purposes of this subchapter, at the election of the
worldwide affiliated group—
‘‘(1) 
ALLOCATION
AND
APPORTIONMENT
OF
INTEREST
EXPENSE.—
‘‘(A) IN GENERAL.—The taxable income of each domestic
corporation which is a member of a worldwide affiliated
group shall be determined by allocating and apportioning
interest expense of each member as if all members of
such group were a single corporation.
‘‘(B) TREATMENT OF WORLDWIDE AFFILIATED GROUP.—
The taxable income of the domestic members of a worldwide
affiliated group from sources outside the United States
shall be determined by allocating and apportioning the
interest expense of such domestic members to such income
in an amount equal to the excess (if any) of—
‘‘(i) the total interest expense of the worldwide
affiliated group multiplied by the ratio which the for-
eign assets of the worldwide affiliated group bears
to all the assets of the worldwide affiliated group,
over
‘‘(ii) the interest expense of all foreign corporations
which are members of the worldwide affiliated group
to the extent such interest expense of such foreign
corporations would have been allocated and appor-
tioned to foreign source income if this subsection were
applied to a group consisting of all the foreign corpora-
tions in such worldwide affiliated group.
‘‘(C) WORLDWIDE AFFILIATED GROUP.—For purposes of
this paragraph, the term ‘worldwide affiliated group’ means
a group consisting of—
‘‘(i) the includible members of an affiliated group
(as defined in section 1504(a), determined without
regard to paragraphs (2) and (4) of section 1504(b)),
and
‘‘(ii) all controlled foreign corporations in which
such members in the aggregate meet the ownership
requirements of section 1504(a)(2) either directly or
indirectly through applying paragraph (2) of section
958(a) or through applying rules similar to the rules
of such paragraph to stock owned directly or indirectly
by domestic partnerships, trusts, or estates.
‘‘(2) 
ALLOCATION
AND
APPORTIONMENT
OF
OTHER
EXPENSES.—Expenses other than interest which are not directly
allocable or apportioned to any specific income producing
activity shall be allocated and apportioned as if all members
of the affiliated group were a single corporation. For purposes
H. R. 4520—72
of the preceding sentence, the term ‘affiliated group’ has the
meaning given such term by section 1504 (determined without
regard to paragraph (4) of section 1504(b)).
‘‘(3) TREATMENT OF TAX-EXEMPT ASSETS; BASIS OF STOCK
IN
NONAFFILIATED
10-PERCENT
OWNED
CORPORATIONS.—The
rules of paragraphs (3) and (4) of subsection (e) shall apply
for purposes of this subsection, except that paragraph (4) shall
be applied on a worldwide affiliated group basis.
‘‘(4) TREATMENT OF CERTAIN FINANCIAL INSTITUTIONS.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), any
corporation described in subparagraph (B) shall be treated
as an includible corporation for purposes of section 1504
only for purposes of applying this subsection separately
to corporations so described.
‘‘(B) DESCRIPTION.—A corporation is described in this
subparagraph if—
‘‘(i) such corporation is a financial institution
described in section 581 or 591,
‘‘(ii) the business of such financial institution is
predominantly with persons other than related persons
(within the meaning of subsection (d)(4)) or their cus-
tomers, and
‘‘(iii) such financial institution is required by State
or Federal law to be operated separately from any
other entity which is not such an institution.
‘‘(C) TREATMENT
OF
BANK
AND
FINANCIAL
HOLDING
COMPANIES.—To the extent provided in regulations—
‘‘(i) a bank holding company (within the meaning
of section 2(a) of the Bank Holding Company Act of
1956 (12 U.S.C. 1841(a)),
‘‘(ii) a financial holding company (within the
meaning of section 2(p) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841(p)), and
‘‘(iii) any subsidiary of a financial institution
described in section 581 or 591, or of any such bank
or financial holding company, if such subsidiary is
predominantly engaged (directly or indirectly) in the
active conduct of a banking, financing, or similar busi-
ness,
shall be treated as a corporation described in subparagraph
(B).
‘‘(5) ELECTION TO EXPAND FINANCIAL INSTITUTION GROUP
OF WORLDWIDE GROUP.—
‘‘(A) IN GENERAL.—If a worldwide affiliated group elects
the application of this subsection, all financial corporations
which—
‘‘(i) are members of such worldwide affiliated
group, but
‘‘(ii) are not corporations described in paragraph
(4)(B),
shall be treated as described in paragraph (4)(B) for pur-
poses of applying paragraph (4)(A). This subsection (other
than this paragraph) shall apply to any such group in
the same manner as this subsection (other than this para-
graph) applies to the pre-election worldwide affiliated group
of which such group is a part.