322 
‘‘(ii) so much of the rate of tax speci-
fied in section 4081(a)(2)(A)(iv) as does not 
exceed 4.3 cents per gallon. 
‘‘(B) PAYMENT TO ULTIMATE, REGISTERED 
VENDOR.—With respect to aviation-grade ker-
osene, if the ultimate purchaser of such kerosene 
waives (at such time and in such form and man-
ner as the Secretary shall prescribe) the right to 
payment under paragraph (1) and assigns such 
right to the ultimate vendor, then the Secretary 
shall pay the amount which would be paid under 
paragraph (1) to such ultimate vendor, but only 
if such ultimate vendor— 
‘‘(i) is registered under section 4101, 
and 
‘‘(ii) meets the requirements of sub-
paragraph (A), (B), or (D) of section 
6416(a)(1).’’. 
(2) TIME FOR FILING CLAIMS.—Subparagraph 
(A) of section 6427(i)(4) is amended— 
(A) by striking ‘‘subsection (l)(5)’’ both 
places it appears and inserting ‘‘paragraph 
(4)(B) or (5) of subsection (l)’’, and 
(B) by striking ‘‘the preceding sentence’’ 
and inserting ‘‘subsection (l)(5)’’.
323 
(3) CONFORMING
AMENDMENT.—Subparagraph 
(B) of section 6427(l)(2) is amended to read as fol-
lows: 
‘‘(B) in the case of aviation-grade ker-
osene— 
‘‘(i) any use which is exempt from the 
tax imposed by section 4041(c) other than 
by reason of a prior imposition of tax, or 
‘‘(ii) any use in commercial aviation 
(within the meaning of section 4083(b)).’’. 
(d) REPEAL
OF
PRIOR
TAXATION
OF
AVIATION 
FUEL.— 
(1) IN GENERAL.—Part III of subchapter A of 
chapter 32 is amended by striking subpart B and by 
redesignating subpart C as subpart B. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 4041(c) is amended to read as 
follows: 
‘‘(c) AVIATION-GRADE KEROSENE.— 
‘‘(1) IN GENERAL.—There is hereby imposed a 
tax upon aviation-grade kerosene— 
‘‘(A) sold by any person to an owner, lessee, 
or other operator of an aircraft for use in such 
aircraft, or
324 
‘‘(B) used by any person in an aircraft un-
less there was a taxable sale of such fuel under 
subparagraph (A). 
‘‘(2) 
EXEMPTION
FOR
PREVIOUSLY
TAXED 
FUEL.—No tax shall be imposed by this subsection on 
the sale or use of any aviation-grade kerosene if tax 
was imposed on such liquid under section 4081 and 
the tax thereon was not credited or refunded. 
‘‘(3) RATE OF TAX.—The rate of tax imposed by 
this subsection shall be the rate of tax specified in sec-
tion 4081(a)(2)(A)(iv) which is in effect at the time 
of such sale or use.’’. 
(B) Section 4041(d)(2) is amended by strik-
ing ‘‘section 4091’’ and inserting ‘‘section 4081’’. 
(C) Section 4041 is amended by striking 
subsection (e). 
(D) Section 4041 is amended by striking 
subsection (i). 
(E) Sections 4101(a), 4103, 4221(a), and 
6206 are each amended by striking ‘‘, 4081, or 
4091’’ and inserting ‘‘or 4081’’. 
(F) Section 6416(b)(2) is amended by strik-
ing ‘‘4091 or’’. 
(G) Section 6416(b)(3) is amended by strik-
ing ‘‘or 4091’’ each place it appears.
325 
(H) Section 6416(d) is amended by striking 
‘‘or to the tax imposed by section 4091 in the 
case of refunds described in section 4091(d)’’. 
(I) Section 6427(j)(1) is amended by strik-
ing ‘‘, 4081, and 4091’’ and inserting ‘‘and 
4081’’. 
(J)(i) Section 6427(l)(1) is amended to read 
as follows: 
‘‘(1) IN GENERAL.—Except as otherwise provided 
in this subsection and in subsection (k), if any diesel 
fuel or kerosene on which tax has been imposed by 
section 4041 or 4081 is used by any person in a non-
taxable use, the Secretary shall pay (without interest) 
to the ultimate purchaser of such fuel an amount 
equal to the aggregate amount of tax imposed on such 
fuel under section 4041 or 4081, as the case may be, 
reduced by any payment made to the ultimate vendor 
under paragraph (4)(B).’’. 
(ii) Paragraph (5)(B) of section 6427(l) is 
amended by striking ‘‘Paragraph (1)(A) shall 
not apply to kerosene’’ and inserting ‘‘Para-
graph (1) shall not apply to kerosene (other than 
aviation-grade kerosene)’’.
326 
(K) Subparagraph (B) of section 6724(d)(1) 
is amended by striking clause (xv) and by redes-
ignating the succeeding clauses accordingly. 
(L) Paragraph (2) of section 6724(d) is 
amended by striking subparagraph (W) and by 
redesignating the succeeding subparagraphs ac-
cordingly. 
(M) Paragraph (1) of section 9502(b) is 
amended by adding ‘‘and’’ at the end of subpara-
graph (B) and by striking subparagraphs (C) 
and (D) and inserting the following new sub-
paragraph: 
‘‘(C) section 4081 with respect to aviation 
gasoline and aviation-grade kerosene, and’’. 
(N) The last sentence of section 9502(b) is 
amended to read as follows: 
‘‘There shall not be taken into account under paragraph 
(1) so much of the taxes imposed by section 4081 as are 
determined at the rate specified in section 4081(a)(2)(B).’’. 
(O) Subsection (b) of section 9508 is 
amended by striking paragraph (3) and by re-
designating paragraphs (4) and (5) as para-
graphs (3) and (4), respectively.
327 
(P) Section 9508(c)(2)(A) is amended by 
striking ‘‘sections 4081 and 4091’’ and inserting 
‘‘section 4081’’. 
(Q) The table of subparts for part III of 
subchapter A of chapter 32 is amended to read 
as follows: 
‘‘Subpart A. Motor and aviation fuels. 
‘‘Subpart B. Special provisions applicable to fuels tax.’’. 
(R) The heading for subpart A of part III 
of subchapter A of chapter 32 is amended to read 
as follows: 
‘‘Subpart A—Motor and Aviation Fuels’’. 
(S) The heading for subpart B of part III 
of subchapter A of chapter 32, as redesignated by 
paragraph (1), is amended to read as follows: 
‘‘Subpart B—Special Provisions Applicable to Fuels 
Tax’’. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to aviation-grade kerosene removed, en-
tered, or sold after September 30, 2004. 
(f) FLOOR STOCKS TAX.— 
(1) IN GENERAL.—There is hereby imposed on 
aviation-grade kerosene held on October 1, 2004, by 
any person a tax equal to— 
(A) the tax which would have been imposed 
before such date on such kerosene had the amend-
328 
ments made by this section been in effect at all 
times before such date, reduced by 
(B) the tax imposed before such date under 
section 4091 of the Internal Revenue Code of 
1986, as in effect on the day before the date of 
the enactment of this Act. 
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.— 
(A) LIABILITY FOR TAX.—The person hold-
ing the kerosene on October 1, 2004, to which the 
tax imposed by paragraph (1) applies shall be 
liable for such tax. 
(B) METHOD AND TIME FOR PAYMENT.— 
The tax imposed by paragraph (1) shall be paid 
at such time and in such manner as the Sec-
retary of the Treasury (or the Secretary’s dele-
gate) shall prescribe, including the nonapplica-
tion of such tax on de minimis amounts of ker-
osene. 
(3) TRANSFER OF FLOOR STOCK TAX REVENUES 
TO TRUST FUNDS.—For purposes of determining the 
amount transferred to any trust fund, the tax im-
posed by this subsection shall be treated as imposed 
by section 4081 of the Internal Revenue Code of 
1986—
329 
(A) at the Leaking Underground Storage 
Tank Trust Fund financing rate under such sec-
tion to the extent of 0.1 cents per gallon, and 
(B) 
at 
the 
rate 
under 
section 
4081(a)(2)(A)(iv) to the extent of the remainder. 
(4) HELD BY A PERSON.—For purposes of this 
section, kerosene shall be considered as held by a per-
son if title thereto has passed to such person (whether 
or not delivery to the person has been made). 
(5) OTHER LAWS APPLICABLE.—All provisions of 
law, including penalties, applicable with respect to 
the tax imposed by section 4081 of such Code shall, 
insofar as applicable and not inconsistent with the 
provisions of this subsection, apply with respect to the 
floor stock tax imposed by paragraph (1) to the same 
extent as if such tax were imposed by such section. 
SEC. 653. DYE INJECTION EQUIPMENT. 
(a) IN GENERAL.—Section 4082(a)(2) (relating to ex-
emptions for diesel fuel and kerosene) is amended by insert-
ing ‘‘by mechanical injection’’ after ‘‘indelibly dyed’’. 
(b) DYE INJECTOR SECURITY.—Not later than 180 
days after the date of the enactment of this Act, the Sec-
retary of the Treasury shall issue regulations regarding me-
chanical dye injection systems described in the amendment
330 
made by subsection (a), and such regulations shall include 
standards for making such systems tamper resistant. 
(c) PENALTY FOR TAMPERING WITH OR FAILING TO 
MAINTAIN SECURITY REQUIREMENTS
FOR MECHANICAL 
DYE INJECTION SYSTEMS.— 
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is amend-
ed by adding after section 6715 the following new sec-
tion: 
‘‘SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN 
SECURITY REQUIREMENTS FOR MECHANICAL 
DYE INJECTION SYSTEMS. 
‘‘(a) IMPOSITION OF PENALTY— 
‘‘(1) TAMPERING.—If any person tampers with a 
mechanical dye injection system used to indelibly dye 
fuel for purposes of section 4082, such person shall 
pay a penalty in addition to the tax (if any). 
‘‘(2) FAILURE TO MAINTAIN SECURITY REQUIRE-
MENTS.—If any operator of a mechanical dye injec-
tion system used to indelibly dye fuel for purposes of 
section 4082 fails to maintain the security standards 
for such system as established by the Secretary, then 
such operator shall pay a penalty in addition to the 
tax (if any).
331 
‘‘(b) AMOUNT OF PENALTY.—The amount of the pen-
alty under subsection (a) shall be— 
‘‘(1) for each violation described in paragraph 
(1), the greater of— 
‘‘(A) $25,000, or 
‘‘(B) $10 for each gallon of fuel involved, 
and 
‘‘(2) for each— 
‘‘(A) failure to maintain security standards 
described in paragraph (2), $1,000, and 
‘‘(B) failure to correct a violation described 
in paragraph (2), $1,000 per day for each day 
after which such violation was discovered or such 
person should have reasonably known of such 
violation. 
‘‘(c) JOINT AND SEVERAL LIABILITY.— 
‘‘(1) IN
GENERAL.—If a penalty is imposed 
under this section on any business entity, each officer, 
employee, or agent of such entity or other contracting 
party who willfully participated in any act giving 
rise to such penalty shall be jointly and severally lia-
ble with such entity for such penalty. 
‘‘(2) AFFILIATED GROUPS.—If a business entity 
described in paragraph (1) is part of an affiliated 
group (as defined in section 1504(a)), the parent cor-
332 
poration of such entity shall be jointly and severally 
liable with such entity for the penalty imposed under 
this section.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 is 
amended by adding after the item related to section 
6715 the following new item: 
‘‘Sec. 6715A. Tampering with or failing to maintain security re-
quirements for mechanical dye injection systems.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
subsections (a) and (c) shall take effect on the 180th day 
after the date on which the Secretary issues the regulations 
described in subsection (b). 
SEC. 654. AUTHORITY TO INSPECT ON-SITE RECORDS. 
(a) IN GENERAL.—Section 4083(d)(1)(A) (relating to 
administrative authority), as previously amended by this 
Act, is amended by striking ‘‘and’’ at the end of clause (i) 
and by inserting after clause (ii) the following new clause: 
‘‘(iii) inspecting any books and records 
and any shipping papers pertaining to such 
fuel, and’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on the date of the enactment of this 
Act.
333 
SEC. 655. REGISTRATION OF PIPELINE OR VESSEL OPERA-
TORS REQUIRED FOR EXEMPTION OF BULK 
TRANSFERS TO REGISTERED TERMINALS OR 
REFINERIES. 
(a) IN GENERAL.—Section 4081(a)(1)(B) (relating to 
exemption for bulk transfers to registered terminals or refin-
eries) is amended— 
(1) by inserting ‘‘by pipeline or vessel’’ after 
‘‘transferred in bulk’’, and 
(2) by inserting ‘‘, the operator of such pipeline 
or vessel,’’ after ‘‘the taxable fuel’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on October 1, 2004. 
(c) PUBLICATION OF REGISTERED PERSONS.—Begin-
ning on July 1, 2004, the Secretary of the Treasury (or 
the Secretary’s delegate) shall periodically publish a current 
list of persons registered under section 4101 of the Internal 
Revenue Code of 1986 who are required to register under 
such section. 
SEC. 656. DISPLAY OF REGISTRATION. 
(a) IN GENERAL.—Subsection (a) of section 4101 (re-
lating to registration) is amended— 
(1) by striking ‘‘Every’’ and inserting the fol-
lowing: 
‘‘(1) IN GENERAL.—Every’’, and
334 
(2) by adding at the end the following new para-
graph: 
‘‘(2) DISPLAY OF REGISTRATION.—Every oper-
ator of a vessel required by the Secretary to register 
under this section shall display proof of registration 
through an electronic identification device prescribed 
by the Secretary on each vessel used by such operator 
to transport any taxable fuel.’’. 
(b) CIVIL PENALTY FOR FAILURE TO DISPLAY REG-
ISTRATION.— 
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is amend-
ed by inserting after section 6716 the following new 
section: 
‘‘SEC. 6717. FAILURE TO DISPLAY TAX REGISTRATION ON 
VESSELS. 
‘‘(a) FAILURE TO DISPLAY REGISTRATION.—Every 
operator of a vessel who fails to display proof of registration 
pursuant to section 4101(a)(2) shall pay a penalty of $500 
for each such failure. With respect to any vessel, only one 
penalty shall be imposed by this section during any cal-
endar month. 
‘‘(b) MULTIPLE VIOLATIONS.—In determining the pen-
alty under subsection (a) on any person, subsection (a) shall 
be applied by increasing the amount in subsection (a) by
335 
the product of such amount and the aggregate number of 
penalties (if any) imposed with respect to prior months by 
this section on such person (or a related person or any pred-
ecessor of such person or related person). 
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty 
shall be imposed under this section with respect to any fail-
ure if it is shown that such failure is due to reasonable 
cause.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 is 
amended by inserting after the item relating to sec-
tion 6716 the following new item: 
‘‘Sec. 6717. Failure to display tax registration on vessels.’’. 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendments made by 
subsection (a) shall take effect on October 1, 2004. 
(2) SUBSECTION (b).—The amendments made by 
subsection (b) shall apply to penalties imposed after 
September 30, 2004. 
SEC. 657. PENALTIES FOR FAILURE TO REGISTER AND FAIL-
URE TO REPORT. 
(a) INCREASED PENALTY.—Subsection (a) of section 
7272 (relating to penalty for failure to register) is amended 
by inserting ‘‘($10,000 in the case of a failure to register 
under section 4101)’’ after ‘‘$50’’.
336 
(b) INCREASED CRIMINAL PENALTY.—Section 7232 
(relating to failure to register under section 4101, false rep-
resentations of registration status, etc.) is amended by strik-
ing ‘‘$5,000’’ and inserting ‘‘$10,000’’. 
(c) ASSESSABLE PENALTY FOR FAILURE TO REG-
ISTER.— 
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is amend-
ed by inserting after section 6717 the following new 
section: 
‘‘SEC. 6718. FAILURE TO REGISTER. 
‘‘(a) FAILURE TO REGISTER.—Every person who is 
required to register under section 4101 and fails to do so 
shall pay a penalty in addition to the tax (if any). 
‘‘(b) AMOUNT OF PENALTY.—The amount of the pen-
alty under subsection (a) shall be— 
‘‘(1) $10,000 for each initial failure to register, 
and 
‘‘(2) $1,000 for each day thereafter such person 
fails to register. 
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty 
shall be imposed under this section with respect to any fail-
ure if it is shown that such failure is due to reasonable 
cause.’’.
337 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 is 
amended by inserting after the item relating to sec-
tion 6717 the following new item: 
‘‘Sec. 6718. Failure to register.’’. 
(d) ASSESSABLE PENALTY
FOR FAILURE TO RE-
PORT.— 
(1) IN GENERAL.—Part II of subchapter B of 
chapter 68 (relating to assessable penalties) is amend-
ed by adding at the end the following new section: 
‘‘SEC. 6725. FAILURE TO REPORT INFORMATION UNDER 
SECTION 4101. 
‘‘(a) IN GENERAL.—In the case of each failure de-
scribed in subsection (b) by any person with respect to a 
vessel or facility, such person shall pay a penalty of $10,000 
in addition to the tax (if any). 
‘‘(b) FAILURES SUBJECT TO PENALTY.—For purposes 
of subsection (a), the failures described in this subsection 
are— 
‘‘(1) any failure to make a report under section 
4101(d) on or before the date prescribed therefor, and 
‘‘(2) any failure to include all of the information 
required to be shown on such report or the inclusion 
of incorrect information. 
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty 
shall be imposed under this section with respect to any fail-
338 
ure if it is shown that such failure is due to reasonable 
cause.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 68 is 
amended by adding at the end the following new item: 
‘‘Sec. 6725. Failure to report information under section 4101.’’. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to penalties imposed after September 30, 
2004. 
SEC. 658. COLLECTION FROM CUSTOMS BOND WHERE IM-
PORTER NOT REGISTERED. 
(a) TAX AT POINT OF ENTRY WHERE IMPORTER NOT 
REGISTERED.—Subpart B of part III of subchapter A of 
chapter 32, as redesignated by section 652(d), is amended 
by adding after section 4103 the following new section: 
‘‘SEC. 4104. COLLECTION FROM CUSTOMS BOND WHERE IM-
PORTER NOT REGISTERED. 
‘‘(a) IN GENERAL.—The importer of record shall be 
jointly and severally liable for the tax imposed by section 
4081(a)(1)(A)(iii) if, under regulations prescribed by the 
Secretary, any other person that is not a person who is 
registered under section 4101 is liable for such tax. 
‘‘(b) COLLECTION FROM CUSTOMS BOND.—If any tax 
for which any importer of record is liable under subsection 
(a), or for which any importer of record that is not a person 
registered under section 4101 is otherwise liable, is not paid
339 
on or before the last date prescribed for payment, the Sec-
retary may collect such tax from the Customs bond posted 
with respect to the importation of the taxable fuel to which 
the tax relates. For purposes of determining the jurisdiction 
of any court of the United States or any agency of the 
United States, any action by the Secretary described in the 
preceding sentence shall be treated as an action to collect 
the tax from a bond described in section 4101(b)(1) and 
not as an action to collect from a bond relating to the im-
portation of merchandise.’’. 
(b) CONFORMING AMENDMENT.—The table of sections 
for subpart B of part III of subchapter A of chapter 32, 
as redesignated by section 652(d), is amended by adding 
after the item related to section 4103 the following new 
item: 
‘‘Sec. 4104. Collection from Customs bond where importer not reg-
istered.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply with respect to fuel entered after Sep-
tember 30, 2004. 
SEC. 659. MODIFICATIONS OF TAX ON USE OF CERTAIN VE-
HICLES. 
(a) PRORATION OF TAX WHERE VEHICLE SOLD.— 
(1) IN GENERAL.—Subparagraph (A) of section 
4481(c)(2) (relating to where vehicle destroyed or sto-
len) is amended by striking ‘‘destroyed or stolen’’ both
341 
SEC. 660. MODIFICATION OF ULTIMATE VENDOR REFUND 
CLAIMS WITH RESPECT TO FARMING. 
(a) IN GENERAL.— 
(1) REFUNDS.—Section 6427(l) is amended by 
adding at the end the following new paragraph: 
‘‘(6) REGISTERED VENDORS PERMITTED TO AD-
MINISTER CERTAIN CLAIMS FOR REFUND OF DIESEL 
FUEL AND KEROSENE SOLD TO FARMERS.— 
‘‘(A) IN GENERAL.—In the case of diesel fuel 
or kerosene used on a farm for farming purposes 
(within the meaning of section 6420(c)), para-
graph (1) shall not apply to the aggregate 
amount of such diesel fuel or kerosene if such 
amount does not exceed 250 gallons (as deter-
mined under subsection (i)(5)(A)(iii)). 
‘‘(B) PAYMENT TO ULTIMATE VENDOR.—The 
amount which would (but for subparagraph (A)) 
have been paid under paragraph (1) with respect 
to any fuel shall be paid to the ultimate vendor 
of such fuel, if such vendor— 
‘‘(i) is registered under section 4101, 
and 
‘‘(ii) meets the requirements of sub-
paragraph (A), (B), or (D) of section 
6416(a)(1).’’.
343 
(3) CONFORMING AMENDMENTS.— 
(A) Section 6427(l)(5)(A) is amended to 
read as follows: 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply to diesel fuel or kerosene used by a 
State or local government.’’. 
(B) The heading for section 6427(l)(5) is 
amended by striking ‘‘FARMERS AND’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to fuels sold for nontaxable use after the 
date of the enactment of this Act. 
SEC. 661. DEDICATION OF REVENUES FROM CERTAIN PEN-
ALTIES TO THE HIGHWAY TRUST FUND. 
(a) IN GENERAL.—Subsection (b) of section 9503 (re-
lating to transfer to Highway Trust Fund of amounts 
equivalent to certain taxes) is amended by redesignating 
paragraph (5) as paragraph (6) and inserting after para-
graph (4) the following new paragraph: 
‘‘(5) CERTAIN PENALTIES.—There are hereby ap-
propriated to the Highway Trust Fund amounts 
equivalent to the penalties paid under sections 6715, 
6715A, 6717, 6718, 6725, 7232, and 7272 (but only 
with regard to penalties under such section related to 
failure to register under section 4101).’’. 
(b) CONFORMING AMENDMENTS.—
344 
(1) The heading of subsection (b) of section 9503 
is amended by inserting ‘‘AND PENALTIES’’ after 
‘‘TAXES’’. 
(2) The heading of paragraph (1) of section 
9503(b) is amended by striking ‘‘IN GENERAL’’ and 
inserting ‘‘CERTAIN TAXES’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to penalties assessed after October 1, 
2004. 
SEC. 662. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE 
VENDORS. 
(a) IN GENERAL.—Paragraph (4) of section 6416(a) 
(relating to abatements, credits, and refunds) is amended 
to read as follows: 
‘‘(4) REGISTERED ULTIMATE VENDOR TO ADMIN-
ISTER CREDITS AND REFUNDS OF GASOLINE TAX.— 
‘‘(A) IN
GENERAL.—For purposes of this 
subsection, if an ultimate vendor purchases any 
gasoline on which tax imposed by section 4081 
has been paid and sells such gasoline to an ulti-
mate purchaser described in subparagraph (C) 
or (D) of subsection (b)(2) (and such gasoline is 
for a use described in such subparagraph), such 
ultimate vendor shall be treated as the person 
(and the only person) who paid such tax, but
345 
only if such ultimate vendor is registered under 
section 4101. For purposes of this subparagraph, 
if the sale of gasoline is made by means of a 
credit card, the person extending the credit to the 
ultimate purchaser shall be deemed to be the ulti-
mate vendor. 
‘‘(B) TIMING
OF
CLAIMS.—The procedure 
and timing of any claim under subparagraph 
(A) shall be the same as for claims under section 
6427(i)(4), except that the rules of section 
6427(i)(3)(B) regarding electronic claims shall 
not apply unless the ultimate vendor has cer-
tified to the Secretary for the most recent quarter 
of the taxable year that all ultimate purchasers 
of the vendor covered by such claim are certified 
and entitled to a refund under subparagraph (C) 
or (D) of subsection (b)(2).’’. 
(b) CREDIT CARD PURCHASES OF DIESEL FUEL OR 
KEROSENE BY STATE AND LOCAL GOVERNMENTS.—Section 
6427(l)(5)(C) (relating to nontaxable uses of diesel fuel, ker-
osene, and aviation fuel) is amended by adding at the end 
the following new flush sentence: ‘‘For purposes of this sub-
paragraph, if the sale of diesel fuel or kerosene is made by 
means of a credit card, the person extending the credit to
346 
the ultimate purchaser shall be deemed to be the ultimate 
vendor.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on October 1, 2004. 
SEC. 663. TWO-PARTY EXCHANGES. 
(a) IN GENERAL.—Subpart B of part III of subchapter 
A of chapter 32, as amended by this Act, is amended by 
adding after section 4104 the following new section: 
‘‘SEC. 4105. TWO-PARTY EXCHANGES. 
‘‘(a) IN GENERAL.—In a two-party exchange, the de-
livering person shall not be liable for the tax imposed under 
section 4081(a)(1)(A)(ii). 
‘‘(b) TWO-PARTY EXCHANGE.—The term ‘two-party 
exchange’ means a transaction, other than a sale, in which 
taxable fuel is transferred from a delivering person reg-
istered under section 4101 as a taxable fuel registrant fuel 
to a receiving person who is so registered where all of the 
following occur: 
‘‘(1) The transaction includes a transfer from the 
delivering person, who holds the inventory position 
for taxable fuel in the terminal as reflected in the 
records of the terminal operator. 
‘‘(2) The exchange transaction occurs before or 
contemporaneous with completion of removal across 
the rack from the terminal by the receiving person.
347 
‘‘(3) The terminal operator in its books and 
records treats the receiving person as the person that 
removes the taxable fuel across the terminal rack for 
purposes of reporting the transaction to the Secretary. 
‘‘(4) The transaction is the subject of a written 
contract.’’. 
(b) CONFORMING AMENDMENT.—The table of sections 
for subpart B of part III of subchapter A of chapter 32, 
as amended by this Act, is amended by adding after the 
item relating to section 4104 the following new item: 
‘‘Sec. 4105. Two-party exchanges.’’. 
(c) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on the date of the enactment of this 
Act. 
SEC. 664. SIMPLIFICATION OF TAX ON TIRES. 
(a) IN GENERAL.—Subsection (a) of section 4071 is 
amended to read as follows: 
‘‘(a) IMPOSITION AND RATE OF TAX.—There is hereby 
imposed on taxable tires sold by the manufacturer, pro-
ducer, or importer thereof a tax at the rate of 9.4 cents (4.7 
cents in the case of a biasply tire) for each 10 pounds so 
much of the maximum rated load capacity thereof as ex-
ceeds 3,500 pounds.’’ 
(b) TAXABLE TIRE.—Section 4072 is amended by re-
designating subsections (a) and (b) as subsections (b) and
348 
(c), respectively, and by inserting before subsection (b) (as 
so redesignated) the following new subsection: 
‘‘(a) TAXABLE TIRE.—For purposes of this chapter, 
the term ‘taxable tire’ means any tire of the type used on 
highway vehicles if wholly or in part made of rubber and 
if marked pursuant to Federal regulations for highway 
use.’’ 
(c) EXEMPTION FOR TIRES SOLD TO DEPARTMENT OF 
DEFENSE.—Section 4073 is amended to read as follows: 
‘‘SEC. 4073. EXEMPTIONS. 
‘‘The tax imposed by section 4071 shall not apply to 
tires sold for the exclusive use of the Department of Defense 
or the Coast Guard.’’ 
(d) CONFORMING AMENDMENTS.— 
(1) Section 4071 is amended by striking sub-
section (c) and by moving subsection (e) after sub-
section (b) and redesignating subsection (e) as sub-
section (c). 
(2) The item relating to section 4073 in the table 
of sections for part II of subchapter A of chapter 32 
is amended to read as follows: 
‘‘Sec. 4073. Exemptions.’’ 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to sales in calendar years beginning 
more than 30 days after the date of the enactment of this 
Act.
349 
Subtitle D—Nonqualified Deferred 
Compensation Plans 
SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COM-
PENSATION PLANS. 
(a) IN GENERAL.—Subpart A of part I of subchapter 
D of chapter 1 is amended by adding at the end the fol-
lowing new section: 
‘‘SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED 
COMPENSATION UNDER NONQUALIFIED DE-
FERRED COMPENSATION PLANS. 
‘‘(a) RULES RELATING TO CONSTRUCTIVE RECEIPT.— 
‘‘(1) IN GENERAL.— 
‘‘(A) GROSS
INCOME
INCLUSION.—In the 
case of a nonqualified deferred compensation 
plan, all compensation deferred under the plan 
for all taxable years (to the extent not subject to 
a substantial risk of forfeiture and not pre-
viously included in gross income) shall be in-
cludible in gross income for the taxable year un-
less at all times during the taxable year the plan 
meets the requirements of paragraphs (2), (3), 
and (4) and is operated in accordance with such 
requirements.
350 
‘‘(B) INTEREST ON TAX LIABILITY PAYABLE 
WITH RESPECT TO PREVIOUSLY DEFERRED COM-
PENSATION.— 
‘‘(i) IN GENERAL.—If compensation is 
required to be included in gross income 
under subparagraph (A) for a taxable year, 
the tax imposed by this chapter for such 
taxable year shall be increased by the 
amount of interest determined under clause 
(ii). 
‘‘(ii) 
INTEREST.—For 
purposes 
of 
clause (i), the interest determined under 
this clause for any taxable year is the 
amount of interest at the underpayment 
rate plus 1 percentage point on the under-
payments that would have occurred had the 
deferred compensation been includible in 
gross income for the taxable year in which 
first deferred or, if later, the first taxable 
year in which such deferred compensation is 
not subject to a substantial risk of for-
feiture. 
‘‘(2) DISTRIBUTIONS.— 
‘‘(A) IN
GENERAL.—The requirements of 
this paragraph are met if the plan provides that
351 
compensation deferred under the plan may not 
be distributed earlier than— 
‘‘(i) separation from service as deter-
mined by the Secretary (except as provided 
in subparagraph (B)(i)), 
‘‘(ii) the date the participant becomes 
disabled (within the meaning of subpara-
graph (C)), 
‘‘(iii) death, 
‘‘(iv) a specified time (or pursuant to 
a fixed schedule) specified under the plan at 
the date of the deferral of such compensa-
tion, 
‘‘(v) to the extent provided by the Sec-
retary, a change in the ownership or effec-
tive control of the corporation, or in the 
ownership of a substantial portion of the as-
sets of the corporation, or 
‘‘(vi) the occurrence of an unforeseeable 
emergency. 
‘‘(B) SPECIAL RULES.— 
‘‘(i) SPECIFIED
EMPLOYEES.—In the 
case of specified employees, the requirement 
of subparagraph (A)(i) is met only if dis-
tributions may not be made earlier than 6
352 
months after the date of separation from 
service. For purposes of the preceding sen-
tence, a specified employee is a key em-
ployee (as defined in section 416(i)) of a 
corporation the stock in which is publicly 
traded on an established securities market 
or otherwise. 
‘‘(ii) UNFORESEEABLE EMERGENCY.— 
For purposes of subparagraph (A)(vi)— 
‘‘(I) IN GENERAL.—The term ‘un-
foreseeable emergency’ means a severe 
financial hardship to the participant 
resulting from a sudden and unex-
pected illness or accident of the partici-
pant, the participant’s spouse, or a de-
pendent (as defined in section 152(a)) 
of the participant, loss of the partici-
pant’s property due to casualty, or 
other similar extraordinary and un-
foreseeable circumstances arising as a 
result of events beyond the control of 
the participant. 
‘‘(II) LIMITATION
ON
DISTRIBU-
TIONS.—The requirement of subpara-
graph (A)(vi) is met only if, as deter-
353 
mined under regulations of the Sec-
retary, the amounts distributed with 
respect to an emergency do not exceed 
the amounts necessary to satisfy such 
emergency plus amounts necessary to 
pay taxes reasonably anticipated as a 
result of the distribution, after taking 
into account the extent to which such 
hardship is or may be relieved through 
reimbursement or compensation by in-
surance or otherwise or by liquidation 
of the participant’s assets (to the extent 
the liquidation of such assets would not 
itself cause severe financial hardship). 
‘‘(C) DISABLED.—For purposes of subpara-
graph (A)(ii), a participant shall be considered 
disabled if the participant— 
‘‘(i) is unable to engage in any sub-
stantial gainful activity by reason of any 
medically determinable physical or mental 
impairment which can be expected to result 
in death or can be expected to last for a 
continuous period of not less than 12 
months, or
354 
‘‘(ii) is, by reason of any medically de-
terminable physical or mental impairment 
which can be expected to result in death or 
can be expected to last for a continuous pe-
riod of not less than 12 months, receiving 
income replacement benefits for a period of 
not less than 3 months under an accident 
and health plan covering employees of the 
participant’s employer. 
‘‘(3) ACCELERATION OF BENEFITS.—The require-
ments of this paragraph are met if the plan does not 
permit the acceleration of the time or schedule of any 
payment under the plan, except as provided in regu-
lations by the Secretary. 
‘‘(4) ELECTIONS.— 
‘‘(A) IN
GENERAL.—The requirements of 
this paragraph are met if the requirements of 
subparagraphs (B) and (C) are met. 
‘‘(B) INITIAL
DEFERRAL
DECISION.—The 
requirements of this subparagraph are met if the 
plan provides that compensation for services per-
formed during a taxable year may be deferred at 
the participant’s election only if the election to 
defer such compensation is made not later than 
the close of the preceding taxable year or at such
355 
other time as provided in regulations. In the case 
of the first year in which a participant becomes 
eligible to participate in the plan, such election 
may be made with respect to services to be per-
formed subsequent to the election within 30 days 
after the date the participant becomes eligible to 
participate in such plan. 
‘‘(C) CHANGES IN TIME AND FORM OF DIS-
TRIBUTION.—The requirements of this subpara-
graph are met if, in the case of a plan which 
permits under a subsequent election a delay in 
a payment or a change in the form of pay-
ment— 
‘‘(i) the plan requires that such election 
may not take effect until at least 12 months 
after the date on which the election is made, 
‘‘(ii) in the case an election related to 
a payment not described in clause (ii), (iii), 
or (vi) of paragraph (2)(A), the plan re-
quires that the first payment with respect to 
which such election is made be deferred for 
a period of not less than 5 years from the 
date such payment would otherwise have 
been made, and
356 
‘‘(iii) the plan requires that any elec-
tion related to a payment described in 
paragraph (2)(A)(iv) may not be made less 
than 12 months prior to the date of the first 
scheduled payment under such paragraph. 
‘‘(b) RULES RELATING TO FUNDING.— 
‘‘(1) OFFSHORE PROPERTY IN A TRUST.—In the 
case of assets set aside (directly or indirectly) in a 
trust (or other arrangement determined by the Sec-
retary) for purposes of paying deferred compensation 
under a nonqualified deferred compensation plan, for 
purposes of section 83 such assets shall be treated as 
property transferred in connection with the perform-
ance of services whether or not such assets are avail-
able to satisfy claims of general creditors— 
‘‘(A) at the time set aside if such assets are 
located outside of the United States, or 
‘‘(B) at the time transferred if such assets 
are subsequently transferred outside of the 
United States. 
‘‘(2) EMPLOYER’S FINANCIAL HEALTH.—In the 
case of compensation deferred under a nonqualified 
deferred compensation plan, there is a transfer of 
property within the meaning of section 83 with re-
spect to such compensation as of the earlier of—
357 
‘‘(A) the date on which the plan first pro-
vides that assets will become restricted to the 
provision of benefits under the plan in connec-
tion with a change in the employer’s financial 
health, or 
‘‘(B) the date on which assets are so re-
stricted. 
‘‘(3) INCOME INCLUSION FOR OFFSHORE TRUSTS 
AND EMPLOYER’S FINANCIAL HEALTH.—For each tax-
able year that assets treated as transferred under this 
subsection remain set aside in a trust or other ar-
rangement subject to paragraph (1) or (2), any in-
crease in value in, or earnings with respect to, such 
assets shall be treated as an additional transfer of 
property under this subsection (to the extent not pre-
viously included in income). 
‘‘(4) INTEREST ON TAX LIABILITY PAYABLE WITH 
RESPECT TO TRANSFERRED PROPERTY.— 
‘‘(A) IN
GENERAL.—If amounts are re-
quired to be included in gross income by reason 
of paragraph (1) or (2) for a taxable year, the 
tax imposed by this chapter for such taxable year 
shall be increased by the amount of interest de-
termined under subparagraph (B).
358 
‘‘(B) INTEREST.—The interest determined 
under this subparagraph for any taxable year is 
the amount of interest at the underpayment rate 
plus 1 percentage point on the underpayments 
that would have occurred had the amounts so re-
quired to be included in gross income by para-
graph (1) or (2) been includible in gross income 
for the taxable year in which first deferred or, if 
later, the first taxable year in which such de-
ferred compensation is not subject to a substan-
tial risk of forfeiture. 
‘‘(c) NO INFERENCE ON EARLIER INCOME INCLUSION 
OR REQUIREMENT OF LATER INCLUSION.—Nothing in this 
section shall be construed to prevent the inclusion of 
amounts in gross income under any other provision of this 
chapter or any other rule of law earlier than the time pro-
vided in this section. Any amount included in gross income 
under this section shall not be required to be included in 
gross income under any other provision of this chapter or 
any other rule of law later than the time provided in this 
section. 
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—For 
purposes of this section— 
‘‘(1) NONQUALIFIED DEFERRED COMPENSATION 
PLAN.—The term ‘nonqualified deferred compensation
359 
plan’ means any plan that provides for the deferral 
of compensation, other than— 
‘‘(A) a qualified employer plan, and 
‘‘(B) any bona fide vacation leave, sick 
leave, compensatory time, disability pay, or 
death benefit plan. 
‘‘(2) QUALIFIED
EMPLOYER
PLAN.—The term 
‘qualified employer plan’ means— 
‘‘(A) any plan, contract, pension, account, 
or trust described in subparagraph (A) or (B) of 
section 219(g)(5), and 
‘‘(B) any eligible deferred compensation 
plan (within the meaning of section 457(b)) of 
an employer described in section 457(e)(1)(A). 
‘‘(3) PLAN INCLUDES ARRANGEMENTS, ETC.—The 
term ‘plan’ includes any agreement or arrangement, 
including an agreement or arrangement that includes 
one person. 
‘‘(4) SUBSTANTIAL RISK OF FORFEITURE.—The 
rights of a person to compensation are subject to a 
substantial risk of forfeiture if such person’s rights to 
such compensation are conditioned upon the future 
performance of substantial services by any individual. 
‘‘(5) TREATMENT OF EARNINGS.—References to 
deferred compensation shall be treated as including
360 
references to income (whether actual or notional) at-
tributable to such compensation or such income. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section, including regula-
tions— 
‘‘(1) providing for the determination of amounts 
of deferral in the case of a nonqualified deferred com-
pensation plan which is a defined benefit plan, 
‘‘(2) relating to changes in the ownership and 
control of a corporation or assets of a corporation for 
purposes of subsection (a)(2)(A)(v), 
‘‘(3) exempting arrangements from the applica-
tion of subsection (b) if such arrangements will not 
result in an improper deferral of United States tax 
and will not result in assets being effectively beyond 
the reach of creditors, 
‘‘(4) defining financial health for purposes of 
subsection (b)(2), and 
‘‘(5) disregarding a substantial risk of forfeiture 
in cases where necessary to carry out the purposes of 
this section.’’. 
(b) W–2 FORMS.— 
(1) IN GENERAL.—Subsection (a) of section 6051 
(relating to receipts for employees) is amended by
361 
striking ‘‘and’’ at the end of paragraph (11), by strik-
ing the period at the end of paragraph (12) and in-
serting ‘‘, and’’, and by inserting after paragraph 
(12) the following new paragraph: 
‘‘(13) the total amount of deferrals under a non-
qualified deferred compensation plan (within the 
meaning of section 409A(d)).’’. 
(2) THRESHOLD.—Subsection (a) of section 6051 
is amended by adding at the end the following: ‘‘In 
the case of the amounts required to be shown by para-
graph (13), the Secretary (by regulation) may estab-
lish a minimum amount of deferrals below which 
paragraph (13) does not apply and may provide that 
paragraph (13) does not apply with respect to 
amounts of deferrals which are not reasonably ascer-
tainable.’’. 
(c) CONFORMING AND CLERICAL AMENDMENTS.— 
(1) Section 414(b) is amended by inserting 
‘‘409A,’’ after ‘‘408(p),’’. 
(2) Section 414(c) is amended by inserting 
‘‘409A,’’ after ‘‘408(p),’’. 
(3) The table of sections for such subpart A of 
part I of subchapter D of chapter 1 is amended by 
adding at the end the following new item: 
‘‘Sec. 409A. Inclusion in gross income of deferred compensation 
under nonqualified deferred compensation plans.’’.
362 
(d) EFFECTIVE DATE.— 
(1) IN
GENERAL.—The amendments made by 
this section shall apply to amounts deferred after 
June 3, 2004. 
(2) CERTAIN AMOUNTS DEFERRED IN 2004 UNDER 
CERTAIN IRREVOCABLE ELECTIONS AND BINDING AR-
RANGEMENTS.—The amendments made by this section 
shall not apply to amounts deferred after June 3, 
2004, and before January 1, 2005, pursuant to an ir-
revocable election or binding arrangement made before 
June 4, 2004. 
(3) EARNINGS ATTRIBUTABLE TO AMOUNT PRE-
VIOUSLY DEFERRED.—The amendments made by this 
section shall apply to earnings on deferred compensa-
tion only to the extent that such amendments apply 
to such compensation. 
(e) GUIDANCE RELATING TO CHANGE OF OWNERSHIP 
OR CONTROL.—Not later than 90 days after the date of the 
enactment of this Act, the Secretary of the Treasury shall 
issue guidance on what constitutes a change in ownership 
or effective control for purposes of section 409A of the Inter-
nal Revenue Code of 1986, as added by this section. 
(f) GUIDANCE RELATING TO TERMINATION OF CER-
TAIN EXISTING ARRANGEMENTS.—Not later than 90 days 
after the date of the enactment of this Act, the Secretary
363 
of the Treasury shall issue guidance providing a limited 
period during which an individual participating in a non-
qualified deferred compensation plan adopted before June 
4, 2004, may, without violating the requirements of para-
graphs (2), (3), and (4) of section 409A(a)(2) of the Internal 
Revenue Code of 1986 (as added by this section), terminate 
participation or cancel an outstanding deferral election 
with regard to amounts earned after June 3, 2004, if such 
amounts are includible in income as earned. 
Subtitle E—Other Revenue 
Provisions 
SEC. 681. QUALIFIED TAX COLLECTION CONTRACTS. 
(a) CONTRACT REQUIREMENTS.— 
(1) IN GENERAL.—Subchapter A of chapter 64 
(relating to collection) is amended by adding at the 
end the following new section: 
‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS. 
‘‘(a) IN GENERAL.—Nothing in any provision of law 
shall be construed to prevent the Secretary from entering 
into a qualified tax collection contract. 
‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.—For 
purposes of this section, the term ‘qualified tax collection 
contract’ means any contract which— 
‘‘(1) is for the services of any person (other than 
an officer or employee of the Treasury Department)—
364 
‘‘(A) to locate and contact any taxpayer 
specified by the Secretary, 
‘‘(B) to request full payment from such tax-
payer of an amount of Federal tax specified by 
the Secretary and, if such request cannot be met 
by the taxpayer, to offer the taxpayer an install-
ment agreement providing for full payment of 
such amount during a period not to exceed 5 
years, and 
‘‘(C) to obtain financial information speci-
fied by the Secretary with respect to such tax-
payer, 
‘‘(2) prohibits each person providing such serv-
ices under such contract from committing any act or 
omission which employees of the Internal Revenue 
Service are prohibited from committing in the per-
formance of similar services, 
‘‘(3) prohibits subcontractors from— 
‘‘(A) having contacts with taxpayers, 
‘‘(B) providing quality assurance services, 
and 
‘‘(C) composing debt collection notices, and 
‘‘(4) permits subcontractors to perform other 
services only with the approval of the Secretary.
365 
‘‘(c) FEES.—The Secretary may retain and use an 
amount not in excess of 25 percent of the amount collected 
under any qualified tax collection contract for the costs of 
services performed under such contract. The Secretary shall 
keep adequate records regarding amounts so retained and 
used. The amount credited as paid by any taxpayer shall 
be determined without regard to this subsection. 
‘‘(d) NO FEDERAL LIABILITY.—The United States 
shall not be liable for any act or omission of any person 
performing services under a qualified tax collection con-
tract. 
‘‘(e) APPLICATION OF FAIR DEBT COLLECTION PRAC-
TICES ACT.—The provisions of the Fair Debt Collection 
Practices Act (15 U.S.C. 1692 et seq.) shall apply to any 
qualified tax collection contract, except to the extent super-
seded by section 6304, section 7602(c), or by any other pro-
vision of this title. 
‘‘(f) CROSS REFERENCES.— 
‘‘(1) For damages for certain unauthorized collec-
tion actions by persons performing services under a 
qualified tax collection contract, see section 7433A. 
‘‘(2) For application of Taxpayer Assistance Orders 
to persons performing services under a qualified tax 
collection contract, see section 7811(a)(4).’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 7809(a) is amended by insert-
ing ‘‘6306,’’ before ‘‘7651’’.
366 
(B) The table of sections for subchapter A of 
chapter 64 is amended by adding at the end the 
following new item: 
‘‘Sec. 6306. Qualified Tax Collection Contracts.’’. 
(b) CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES 
UNDER QUALIFIED TAX COLLECTION CONTRACTS.— 
(1) IN GENERAL.—Subchapter B of chapter 76 
(relating to proceedings by taxpayers and third par-
ties) is amended by inserting after section 7433 the 
following new section: 
‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
COLLECTION ACTIONS BY PERSONS PER-
FORMING SERVICES UNDER QUALIFIED TAX 
COLLECTION CONTRACTS. 
‘‘(a) IN GENERAL.—Subject to the modifications pro-
vided by subsection (b), section 7433 shall apply to the acts 
and omissions of any person performing services under a 
qualified tax collection contract (as defined in section 
6306(b)) to the same extent and in the same manner as 
if such person were an employee of the Internal Revenue 
Service. 
‘‘(b) MODIFICATIONS.—For purposes of subsection 
(a)— 
‘‘(1) Any civil action brought under section 7433 
by reason of this section shall be brought against the
367 
person who entered into the qualified tax collection 
contract with the Secretary and shall not be brought 
against the United States. 
‘‘(2) Such person and not the United States shall 
be liable for any damages and costs determined in 
such civil action. 
‘‘(3) Such civil action shall not be an exclusive 
remedy with respect to such person. 
‘‘(4) Subsections (c), (d)(1), and (e) of section 
7433 shall not apply.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subchapter B of chapter 76 is amended by 
inserting after the item relating to section 7433 the 
following new item: 
‘‘Sec. 7433A. Civil damages for certain unauthorized collection ac-
tions by persons performing services under qualified 
tax collection contracts.’’. 
(c) APPLICATION OF TAXPAYER ASSISTANCE ORDERS 
TO PERSONS PERFORMING SERVICES UNDER A QUALIFIED 
TAX COLLECTION CONTRACT.—Section 7811 (relating to 
taxpayer assistance orders) is amended by adding at the 
end the following new subsection: 
‘‘(g) APPLICATION TO PERSONS PERFORMING SERV-
ICES UNDER A QUALIFIED TAX COLLECTION CONTRACT.— 
Any order issued or action taken by the National Taxpayer 
Advocate pursuant to this section shall apply to persons 
performing services under a qualified tax collection contract
368 
(as defined in section 6306(b)) to the same extent and in 
the same manner as such order or action applies to the Sec-
retary.’’. 
(d) INELIGIBILITY OF INDIVIDUALS WHO COMMIT MIS-
CONDUCT TO PERFORM UNDER CONTRACT.—Section 1203 
of the Internal Revenue Service Restructuring Act of 1998 
(relating to termination of employment for misconduct) is 
amended by adding at the end the following new subsection: 
‘‘(e) INDIVIDUALS PERFORMING SERVICES UNDER A 
QUALIFIED TAX COLLECTION CONTRACT.—An individual 
shall cease to be permitted to perform any services under 
any qualified tax collection contract (as defined in section 
6306(b) of the Internal Revenue Code of 1986) if there is 
a final determination by the Secretary of the Treasury 
under such contract that such individual committed any 
act or omission described under subsection (b) in connection 
with the performance of such services.’’. 
(e) EFFECTIVE DATE.—The amendments made to this 
section shall take effect on the date of the enactment of this 
Act. 
SEC. 682. TREATMENT OF CHARITABLE CONTRIBUTIONS OF 
PATENTS AND SIMILAR PROPERTY. 
(a) IN
GENERAL.—Subparagraph (B) of section 
170(e)(1) is amended by striking ‘‘or’’ at the end of clause
369 
(i), by adding ‘‘or’’ at the end of clause (ii), and by insert-
ing after clause (ii) the following new clause: 
‘‘(iii) of any patent, copyright (other 
than a copyright described in section 
1221(a)(3) or 1231(b)(1)(C)), trademark, 
trade name, trade secret, know-how, soft-
ware (other than software described in sec-
tion 197(e)(3)(A)(i)), or similar property, 
or applications or registrations of such 
property,’’. 
(b) CERTAIN DONEE INCOME FROM INTELLECTUAL 
PROPERTY TREATED AS AN ADDITIONAL CHARITABLE CON-
TRIBUTION.—Section 170 is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following new subsection: 
‘‘(m) CERTAIN DONEE INCOME FROM INTELLECTUAL 
PROPERTY TREATED AS AN ADDITIONAL CHARITABLE CON-
TRIBUTION.— 
‘‘(1) TREATMENT
AS
ADDITIONAL
CONTRIBU-
TION.—In the case of a taxpayer who makes a quali-
fied intellectual property contribution, the deduction 
allowed under subsection (a) for each taxable year of 
the taxpayer ending on or after the date of such con-
tribution shall be increased (subject to the limitations 
under subsection (b)) by the applicable percentage of
370 
qualified donee income with respect to such contribu-
tion which is properly allocable to such year under 
this subsection. 
‘‘(2) REDUCTION IN ADDITIONAL DEDUCTIONS TO 
EXTENT OF INITIAL DEDUCTION.—With respect to any 
qualified intellectual property contribution, the de-
duction allowed under subsection (a) shall be in-
creased under paragraph (1) only to the extent that 
the aggregate amount of such increases with respect to 
such contribution exceed the amount allowed as a de-
duction under subsection (a) with respect to such con-
tribution determined without regard to this sub-
section. 
‘‘(3) QUALIFIED DONEE INCOME.—For purposes 
of this subsection, the term ‘qualified donee income’ 
means any net income received by or accrued to the 
donee which is properly allocable to the qualified in-
tellectual property. 
‘‘(4) ALLOCATION OF QUALIFIED DONEE INCOME 
TO TAXABLE YEARS OF DONOR.—For purposes of this 
subsection, qualified donee income shall be treated as 
properly allocable to a taxable year of the donor if 
such income is received by or accrued to the donee for 
the taxable year of the donee which ends within or 
with such taxable year of the donor.
371 
‘‘(5) 10-YEAR LIMITATION.—Income shall not be 
treated as properly allocable to qualified intellectual 
property for purposes of this subsection if such income 
is received by or accrued to the donee after the 10- 
year period beginning on the date of the contribution 
of such property. 
‘‘(6) BENEFIT LIMITED TO LIFE OF INTELLEC-
TUAL
PROPERTY.—Income shall not be treated as 
properly allocable to qualified intellectual property 
for purposes of this subsection if such income is re-
ceived by or accrued to the donee after the expiration 
of the legal life of such property. 
‘‘(7) APPLICABLE
PERCENTAGE.—For purposes 
of this subsection, the term ‘applicable percentage’ 
means the percentage determined under the following 
table which corresponds to a taxable year of the donor 
ending on or after the date of the qualified intellectual 
property contribution: 
‘‘Taxable Year of Donor 
Ending on or After 
Applicable 
Date of Contribution: 
Percentage: 
1st ..............................................................................................................
100
2nd .............................................................................................................
100
3rd .............................................................................................................
4th ..............................................................................................................
5th ..............................................................................................................
6th ..............................................................................................................
7th ..............................................................................................................
8th ..............................................................................................................
9th ..............................................................................................................
10th ............................................................................................................
11th ............................................................................................................
12th ............................................................................................................
10.
372 
‘‘(8) QUALIFIED INTELLECTUAL PROPERTY CON-
TRIBUTION.—For purposes of this subsection, the term 
‘qualified intellectual property contribution’ means 
any charitable contribution of qualified intellectual 
property— 
‘‘(A) the amount of which taken into ac-
count under this section is reduced by reason of 
subsection (e)(1), and 
‘‘(B) with respect to which the donor in-
forms the donee at the time of such contribution 
that the donor intends to treat such contribution 
as a qualified intellectual property contribution 
for purposes of this subsection and section 
6050L. 
‘‘(9) QUALIFIED INTELLECTUAL PROPERTY.—For 
purposes of this subsection, the term ‘qualified intel-
lectual property’ means property described in sub-
section (e)(1)(B)(iii) (other than property contributed 
to or for the use of an organization described in sub-
section (e)(1)(B)(ii)). 
‘‘(10) OTHER SPECIAL RULES.— 
‘‘(A) APPLICATION
OF
LIMITATIONS
ON 
CHARITABLE
CONTRIBUTIONS.—Any 
increase 
under this subsection of the deduction provided 
under subsection (a) shall be treated for purposes
373 
of subsection (b) as a deduction which is attrib-
utable to a charitable contribution to the donee 
to which such increase relates. 
‘‘(B) 
NET
INCOME
DETERMINED
BY 
DONEE.—The net income taken into account 
under paragraph (3) shall not exceed the amount 
of 
such 
income 
reported 
under 
section 
6050L(b)(1). 
‘‘(C) DEDUCTION LIMITED TO 12 TAXABLE 
YEARS.—Except as may be provided under sub-
paragraph (D)(i), this subsection shall not apply 
with respect to any qualified intellectual prop-
erty contribution for any taxable year of the 
donor after the 12th taxable year of the donor 
which ends on or after the date of such contribu-
tion. 
‘‘(D) REGULATIONS.—The Secretary may 
issue regulations or other guidance to carry out 
the purposes of this subsection, including regula-
tions or guidance— 
‘‘(i) modifying the application of this 
subsection in the case of a donor or donee 
with a short taxable year, and 
‘‘(ii) providing for the determination 
of an amount to be treated as net income of
374 
the donee which is properly allocable to 
qualified intellectual property in the case of 
a donee who uses such property to further 
a purpose or function constituting the basis 
of the donee’s exemption under section 501 
(or, in the case of a governmental unit, any 
purpose described in section 170(c)) and 
does not possess a right to receive any pay-
ment from a third party with respect to 
such property.’’. 
(c) REPORTING REQUIREMENTS.— 
(1) IN GENERAL.—Section 6050L (relating to re-
turns relating to certain dispositions of donated prop-
erty) is amended to read as follows: 
‘‘SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED 
PROPERTY. 
‘‘(a) DISPOSITIONS OF DONATED PROPERTY.— 
‘‘(1) IN GENERAL.—If the donee of any chari-
table deduction property sells, exchanges, or otherwise 
disposes of such property within 2 years after its re-
ceipt, the donee shall make a return (in accordance 
with forms and regulations prescribed by the Sec-
retary) showing— 
‘‘(A) the name, address, and TIN of the 
donor,
375 
‘‘(B) a description of the property, 
‘‘(C) the date of the contribution, 
‘‘(D) the amount received on the disposi-
tion, and 
‘‘(E) the date of such disposition. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) CHARITABLE DEDUCTION PROPERTY.— 
The term ‘charitable deduction property’ means 
any property (other than publicly traded securi-
ties) contributed in a contribution for which a 
deduction was claimed under section 170 if the 
claimed value of such property (plus the claimed 
value of all similar items of property donated by 
the donor to 1 or more donees) exceeds $5,000. 
‘‘(B) PUBLICLY TRADED SECURITIES.—The 
term ‘publicly traded securities’ means securities 
for which (as of the date of the contribution) 
market quotations are readily available on an es-
tablished securities market. 
‘‘(b) QUALIFIED INTELLECTUAL PROPERTY CONTRIBU-
TIONS.— 
‘‘(1) IN GENERAL.—Each donee with respect to a 
qualified intellectual property contribution shall make 
a return (at such time and in such form and manner
376 
as the Secretary may by regulations prescribe) with 
respect to each specified taxable year of the donee 
showing— 
‘‘(A) the name, address, and TIN of the 
donor, 
‘‘(B) a description of the qualified intellec-
tual property contributed, 
‘‘(C) the date of the contribution, and 
‘‘(D) the amount of net income of the donee 
for the taxable year which is properly allocable 
to the qualified intellectual property (determined 
without regard to paragraph (10)(B) of section 
170(m) and with the modifications described in 
paragraphs (5) and (6) of such section). 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—Terms used in this sub-
section which are also used in section 170(m) 
have the respective meanings given such terms in 
such section. 
‘‘(B) SPECIFIED TAXABLE YEAR.—The term 
‘specified taxable year’ means, with respect to 
any qualified intellectual property contribution, 
any taxable year of the donee any portion of
377 
which is part of the 10-year period beginning on 
the date of such contribution. 
‘‘(c) STATEMENT TO BE FURNISHED TO DONORS.— 
Every person making a return under subsection (a) or (b) 
shall furnish a copy of such return to the donor at such 
time and in such manner as the Secretary may by regula-
tions prescribe.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subpart A of part II of subchapter A of 
chapter 61 is amended by striking the item relating 
to section 6050L and inserting the following new 
item: 
‘‘Sec. 6050L. Returns relating to certain donated property.’’. 
(d) COORDINATION
WITH
APPRAISAL
REQUIRE-
MENTS.—Subclause (I) of section 170(f)(11)(A)(ii), as 
added by section 683, is amended by inserting ‘‘subsection 
(e)(1)(B)(iii) or’’ before ‘‘section 1221(a)(1)’’. 
(e) ANTI-ABUSE RULES.—The Secretary of the Treas-
ury may prescribe such regulations or other guidance as 
may be necessary or appropriate to prevent the avoidance 
of the purposes of section 170(e)(1)(B)(iii) of the Internal 
Revenue Code of 1986 (as added by subsection (a)), includ-
ing preventing— 
(1) the circumvention of the reduction of the 
charitable deduction by embedding or bundling the 
patent or similar property as part of a charitable
378 
contribution of property that includes the patent or 
similar property, 
(2) the manipulation of the basis of the property 
to increase the amount of the charitable deduction 
through the use of related persons, pass-thru entities, 
or other intermediaries, or through the use of any 
provision of law or regulation (including the consoli-
dated return regulations), and 
(3) a donor from changing the form of the patent 
or similar property to property of a form for which 
different deduction rules would apply. 
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to contributions made after June 3, 
2004. 
SEC. 683. INCREASED REPORTING FOR NONCASH CHARI-
TABLE CONTRIBUTIONS. 
(a) IN GENERAL.—Subsection (f) of section 170 (relat-
ing to disallowance of deduction in certain cases and spe-
cial rules) is amended by adding after paragraph (10) the 
following new paragraph: 
‘‘(11) QUALIFIED APPRAISAL AND OTHER DOCU-
MENTATION FOR CERTAIN CONTRIBUTIONS.— 
‘‘(A) IN GENERAL.— 
‘‘(i) DENIAL OF DEDUCTION.—In the 
case of an individual, partnership, or cor-
379 
poration, no deduction shall be allowed 
under subsection (a) for any contribution of 
property for which a deduction of more 
than $500 is claimed unless such person 
meets the requirements of subparagraphs 
(B), (C), and (D), as the case may be, with 
respect to such contribution. 
‘‘(ii) EXCEPTIONS.— 
‘‘(I) 
READILY
VALUED
PROP-
ERTY.—Subparagraphs (C) and (D) 
shall not apply to cash, property de-
scribed in section 1221(a)(1), and pub-
licly traded securities (as defined in 
section 6050L(a)(2)(B)). 
‘‘(II) 
REASONABLE
CAUSE.— 
Clause (i) shall not apply if it is 
shown that the failure to meet such re-
quirements is due to reasonable cause 
and not to willful neglect. 
‘‘(B) PROPERTY
DESCRIPTION
FOR
CON-
TRIBUTIONS OF MORE THAN $500.—In the case of 
contributions of property for which a deduction 
of more than $500 is claimed, the requirements 
of this subparagraph are met if the individual, 
partnership or corporation includes with the re-
380 
turn for the taxable year in which the contribu-
tion is made a description of such property and 
such other information as the Secretary may re-
quire. The requirements of this subparagraph 
shall not apply to a C corporation which is not 
a personal service corporation or a closely held 
C corporation. 
‘‘(C) QUALIFIED APPRAISAL FOR CONTRIBU-
TIONS OF MORE THAN $5,000.—In the case of con-
tributions of property for which a deduction of 
more than $5,000 is claimed, the requirements of 
this subparagraph are met if the individual, 
partnership, or corporation obtains a qualified 
appraisal of such property and attaches to the 
return for the taxable year in which such con-
tribution is made such information regarding 
such property and such appraisal as the Sec-
retary may require. 
‘‘(D) SUBSTANTIATION FOR CONTRIBUTIONS 
OF MORE THAN $500,000.—In the case of contribu-
tions of property for which a deduction of more 
than $500,000 is claimed, the requirements of 
this subparagraph are met if the individual, 
partnership, or corporation attaches to the re-
381 
turn for the taxable year a qualified appraisal of 
such property. 
‘‘(E) QUALIFIED APPRAISAL.—For purposes 
of this paragraph, the term ‘qualified appraisal’ 
means, with respect to any property, an ap-
praisal of such property which is treated for 
purposes of this paragraph as a qualified ap-
praisal under regulations or other guidance pre-
scribed by the Secretary. 
‘‘(F) AGGREGATION OF SIMILAR ITEMS OF 
PROPERTY.—For purposes of determining thresh-
olds under this paragraph, property and all 
similar items of property donated to 1 or more 
donees shall be treated as 1 property. 
‘‘(G) SPECIAL RULE FOR PASS-THRU ENTI-
TIES.—In the case of a partnership or S cor-
poration, this paragraph shall be applied at the 
entity level, except that the deduction shall be de-
nied at the partner or shareholder level. 
‘‘(H) REGULATIONS.—The Secretary may 
prescribe such regulations as may be necessary 
or appropriate to carry out the purposes of this 
paragraph, including regulations that may pro-
vide that some or all of the requirements of this 
paragraph do not apply in appropriate cases.’’.
382 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to contributions made after June 3, 
2004. 
SEC. 684. DONATIONS OF MOTOR VEHICLES, BOATS, AND 
AIRCRAFT. 
(a) IN GENERAL.—Subsection (f) of section 170 (relat-
ing to disallowance of deduction in certain cases and spe-
cial rules) is amended by adding after paragraph (11) the 
following new paragraph: 
‘‘(12) CONTRIBUTIONS
OF
MOTOR
VEHICLES, 
BOATS, AND AIRCRAFT.— 
‘‘(A) IN GENERAL.—Except as provided in 
regulations or other guidance, in the case of a 
contribution of a specified vehicle to which para-
graph (8) applies, no deduction shall be allowed 
under subsection (a) for such contribution unless 
the taxpayer obtains a qualified appraisal of the 
specified vehicle on or before the date of such 
contribution. 
‘‘(B) EXCEPTION
FOR
INVENTORY
PROP-
ERTY.—Subparagraph (A) shall not apply to 
property 
which 
is 
described 
in 
section 
1221(a)(1).
383 
‘‘(C) SPECIFIED VEHICLE.—For purposes of 
this paragraph, the term ‘specified vehicle’ 
means any— 
‘‘(i) motor vehicle manufactured pri-
marily for use on public streets, roads, and 
highways, 
‘‘(ii) boat, or 
‘‘(iii) aircraft. 
‘‘(D) QUALIFIED APPRAISAL.—For purposes 
of this paragraph, the term ‘qualified appraisal’ 
means any appraisal which is treated for pur-
poses of this paragraph as a qualified appraisal 
under regulations or other guidance prescribed 
by the Secretary. 
‘‘(E) 
REGULATIONS
OR
OTHER
GUID-
ANCE.—The Secretary shall prescribe such regu-
lations or other guidance as may be necessary to 
carry out the purposes of this paragraph.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to contributions made after June 
3, 2004. 
SEC. 685. EXTENSION OF AMORTIZATION OF INTANGIBLES 
TO SPORTS FRANCHISES. 
(a) IN GENERAL.—Section 197(e) (relating to excep-
tions to definition of section 197 intangible) is amended
384 
by striking paragraph (6) and by redesignating paragraphs 
(7) and (8) as paragraphs (6) and (7), respectively. 
(b) CONFORMING AMENDMENTS.— 
(1)(A) Section 1056 (relating to basis limitation 
for player contracts transferred in connection with 
the sale of a franchise) is repealed. 
(B) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the 
item relating to section 1056. 
(2) Section 1245(a) (relating to gain from dis-
position of certain depreciable property) is amended 
by striking paragraph (4). 
(3) Section 1253 (relating to transfers of fran-
chises, trademarks, and trade names) is amended by 
striking subsection (e). 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall 
apply to property acquired after the date of the enact-
ment of this Act. 
(2) SECTION
1245.—The amendment made by 
subsection (b)(2) shall apply to franchises acquired 
after the date of the enactment of this Act.
385 
SEC. 686. MODIFICATION OF CONTINUING LEVY ON PAY-
MENTS TO FEDERAL VENDERS. 
(a) IN GENERAL.—Section 6331(h) (relating to con-
tinuing levy on certain payments) is amended by adding 
at the end the following new paragraph: 
‘‘(3) INCREASE
IN
LEVY
FOR
CERTAIN
PAY-
MENTS.—Paragraph (1) shall be applied by sub-
stituting ‘100 percent’ for ‘15 percent’ in the case of 
any specified payment due to a vendor of goods or 
services sold or leased to the Federal Government.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on the date of the enactment of this 
Act. 
SEC. 687. MODIFICATION OF STRADDLE RULES. 
(a) RULES RELATING TO IDENTIFIED STRADDLES.— 
(1) IN GENERAL.—Subparagraph (A) of section 
1092(a)(2) (relating to special rule for identified 
straddles) is amended to read as follows: 
‘‘(A) IN
GENERAL.—In the case of any 
straddle which is an identified straddle— 
‘‘(i) paragraph (1) shall not apply 
with respect to identified positions com-
prising the identified straddle, 
‘‘(ii) if there is any loss with respect to 
any identified position of the identified 
straddle, the basis of each of the identified
386 
offsetting positions in the identified straddle 
shall be increased by an amount which 
bears the same ratio to the loss as the unrec-
ognized gain with respect to such offsetting 
position bears to the aggregate unrecognized 
gain with respect to all such offsetting posi-
tions, and 
‘‘(iii) any loss described in clause (ii) 
shall not otherwise be taken into account for 
purposes of this title.’’. 
(2) 
IDENTIFIED
STRADDLE.—Section 
1092(a)(2)(B) (defining identified straddle) is amend-
ed— 
(A) by striking clause (ii) and inserting the 
following: 
‘‘(ii) to the extent provided by regula-
tions, the value of each position of which (in 
the hands of the taxpayer immediately be-
fore the creation of the straddle) is not less 
than the basis of such position in the hands 
of the taxpayer at the time the straddle is 
created, and’’, and 
(B) by adding at the end the following new 
flush sentence:
387 
‘‘The Secretary shall prescribe regulations which 
specify the proper methods for clearly identifying 
a straddle as an identified straddle (and the po-
sitions comprising such straddle), which specify 
the rules for the application of this section for a 
taxpayer which fails to properly identify the po-
sitions of an identified straddle, and which 
specify the ordering rules in cases where a tax-
payer disposes of less than an entire position 
which is part of an identified straddle.’’. 
(3) UNRECOGNIZED
GAIN.—Section 1092(a)(3) 
(defining unrecognized gain) is amended by redesig-
nating subparagraph (B) as subparagraph (C) and 
by inserting after subparagraph (A) the following new 
subparagraph: 
‘‘(B) 
SPECIAL
RULE
FOR
IDENTIFIED 
STRADDLES.—For 
purposes 
of 
paragraph 
(2)(A)(ii), the unrecognized gain with respect to 
any identified offsetting position shall be the ex-
cess of the fair market value of the position at 
the time of the determination over the fair mar-
ket value of the position at the time the taxpayer 
identified the position as a position in an identi-
fied straddle.’’.
388 
(4) 
CONFORMING
AMENDMENT.—Section 
1092(c)(2) is amended by striking subparagraph (B) 
and by redesignating subparagraph (C) as subpara-
graph (B). 
(b) 
PHYSICALLY
SETTLED
POSITIONS.—Section 
1092(d) (relating to definitions and special rules) is amend-
ed by adding at the end the following new paragraph: 
‘‘(8) SPECIAL RULES FOR PHYSICALLY SETTLED 
POSITIONS.—For purposes of subsection (a), if a tax-
payer settles a position which is part of a straddle by 
delivering property to which the position relates (and 
such position, if terminated, would result in a real-
ization of a loss), then such taxpayer shall be treated 
as if such taxpayer— 
‘‘(A) terminated the position for its fair 
market value immediately before the settlement, 
and 
‘‘(B) sold the property so delivered by the 
taxpayer at its fair market value.’’. 
(c) REPEAL OF STOCK EXCEPTION.— 
(1) IN
GENERAL.—Paragraph (3) of section 
1092(d) (relating to definitions and special rules) is 
amended to read as follows: 
‘‘(3) SPECIAL RULES FOR STOCK.—For purposes 
of paragraph (1)—
389 
‘‘(A) IN
GENERAL.—The term ‘personal 
property’ includes— 
‘‘(i) any stock which is a part of a 
straddle at least 1 of the offsetting positions 
of which is a position with respect to such 
stock or substantially similar or related 
property, or 
‘‘(ii) any stock of a corporation formed 
or availed of to take positions in personal 
property which offset positions taken by any 
shareholder. 
‘‘(B) RULE
FOR
APPLICATION.—For pur-
poses of determining whether subsection (e) ap-
plies to any transaction with respect to stock de-
scribed in subparagraph (A)(ii), all includible 
corporations of an affiliated group (within the 
meaning of section 1504(a)) shall be treated as 
1 taxpayer.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1258(d)(1) is amended by striking ‘‘; except that the 
term ‘personal property’ shall include stock’’. 
(d) HOLDING PERIOD FOR DIVIDEND EXCLUSION.—The 
last sentence of section 246(c) is amended by inserting: ‘‘, 
other than a qualified covered call option to which section 
1092(f) applies’’ before the period at the end.