197
‘‘(B) the highest rate of tax specified in sec-
tion 11(b)(1).
The credit allowed by section 901 may be taken into
account under the preceding sentence only to the ex-
tent of the product of such highest rate and the
amount of taxable income from sources without the
United States that is not inversion gain.
‘‘(3) SPECIAL RULES FOR PARTNERSHIPS.—In
the case of an acquired entity which is a
partnership—
‘‘(A) the limitations of this subsection shall
apply at the partner rather than the partnership
level,
‘‘(B) the inversion gain of any partner for
any taxable year shall be equal to the sum of—
‘‘(i) the partner’s distributive share of
inversion gain of the partnership for such
taxable year, plus
‘‘(ii) income or gain required to be rec-
ognized for the taxable year by the partner
under section 367(a), 741, or 1001, or
under any other provision of chapter 1, by
reason of the transfer during the applicable
period of any partnership interest of the
198
partner in such partnership to the foreign
incorporated entity, and
‘‘(C) the highest rate of tax specified in the
rate schedule applicable to the partner under
chapter 1 shall be substituted for the rate of tax
under paragraph (2)(B).
‘‘(4) INVERSION GAIN.—For purposes of this sec-
tion, the term ‘inversion gain’ means any income or
gain required to be recognized under section 304,
311(b), 367, 1001, or 1248, or under any other provi-
sion of chapter 1, by reason of the transfer during the
applicable period of stock or other properties by an
acquired entity—
‘‘(A) as part of the acquisition described in
subsection (a)(2)(A) to which subsection (b) ap-
plies, or
‘‘(B) after such acquisition to a foreign re-
lated person.
The Secretary may provide that income or gain from
the sale of inventories or other transactions in the or-
dinary course of a trade or business shall not be treat-
ed as inversion gain under subparagraph (B) to the
extent the Secretary determines such treatment would
not be inconsistent with the purposes of this section.
199
‘‘(5) COORDINATION WITH SECTION 172 AND MIN-
IMUM TAX.—Rules similar to the rules of paragraphs
(3) and (4) of section 860E(a) shall apply for pur-
poses of this section.
‘‘(6) STATUTE OF LIMITATIONS.—
‘‘(A) IN
GENERAL.—The statutory period
for the assessment of any deficiency attributable
to the inversion gain of any taxpayer for any
pre-inversion year shall not expire before the ex-
piration of 3 years from the date the Secretary
is notified by the taxpayer (in such manner as
the Secretary may prescribe) of the acquisition
described in subsection (a)(2)(A) to which such
gain relates and such deficiency may be assessed
before the expiration of such 3-year period not-
withstanding the provisions of any other law or
rule of law which would otherwise prevent such
assessment.
‘‘(B) PRE-INVERSION YEAR.—For purposes
of subparagraph (A), the term ‘pre-inversion
year’ means any taxable year if—
‘‘(i) any portion of the applicable pe-
riod is included in such taxable year, and
200
‘‘(ii) such year ends before the taxable
year in which the acquisition described in
subsection (a)(2)(A) is completed.
‘‘(d) SPECIAL
RULES
APPLICABLE
TO
RELATED
PARTY TRANSACTIONS.—
‘‘(1) ANNUAL APPLICATION FOR AGREEMENTS ON
RETURN POSITIONS.—
‘‘(A) IN GENERAL.—Each acquired entity to
which subsection (b) applies shall file with the
Secretary an application for an approval agree-
ment under subparagraph (D) for each taxable
year which includes a portion of the applicable
period. Such application shall be filed at such
time and manner, and shall contain such infor-
mation, as the Secretary may prescribe.
‘‘(B) SECRETARIAL
ACTION.—Within 90
days of receipt of an application under subpara-
graph (A) (or such longer period as the Secretary
and entity may agree upon), the Secretary
shall—
‘‘(i) enter into an agreement described
in subparagraph (D) for the taxable year
covered by the application,
‘‘(ii) notify the entity that the Sec-
retary has determined that the application
201
was filed in good faith and substantially
complies with the requirements for the ap-
plication under subparagraph (A), or
‘‘(iii) notify the entity that the Sec-
retary has determined that the application
was not filed in good faith or does not sub-
stantially comply with such requirements.
If the Secretary fails to act within the time pre-
scribed under the preceding sentence, the entity
shall be treated for purposes of this paragraph as
having received notice under clause (ii).
‘‘(C) FAILURES
TO
COMPLY.—If an ac-
quired entity fails to file an application under
subparagraph (A), or the acquired entity receives
a notice under subparagraph (B)(iii), for any
taxable year, then for such taxable year—
‘‘(i) there shall not be allowed any de-
duction, or addition to basis or cost of goods
sold, for amounts paid or incurred, or losses
incurred, by reason of a transaction between
the acquired entity and a foreign related
person,
‘‘(ii) any transfer or license of intan-
gible property (as defined in section
936(h)(3)(B)) between the acquired entity
202
and a foreign related person shall be dis-
regarded, and
‘‘(iii) any cost-sharing arrangement
between the acquired entity and a foreign
related person shall be disregarded.
‘‘(D) APPROVAL
AGREEMENT.—For pur-
poses of subparagraph (A), the term ‘approval
agreement’ means a prefiling, advance pricing,
or other agreement specified by the Secretary
which contains such provisions as the Secretary
determines necessary to ensure that the require-
ments of sections 163(j), 267(a)(3), 482, and 845,
and any other provision of this title applicable
to transactions between related persons and spec-
ified by the Secretary, are met.
‘‘(2) MODIFICATIONS OF LIMITATION ON INTER-
EST DEDUCTION.—In the case of an acquired entity
to which subsection (b) applies, section 163(j) shall be
applied—
‘‘(A) without regard to paragraph (2)(A)(ii)
thereof, and
‘‘(B) by substituting ‘25 percent’ for ‘50
percent’ each place it appears in paragraph
(2)(B) thereof.
203
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘(1) RULES FOR APPLICATION OF SUBSECTION
(a)(2).—In applying subsection (a)(2) for purposes of
subsections (a) and (b), the following rules shall
apply:
‘‘(A) 
CERTAIN
STOCK
DISREGARDED.—
There shall not be taken into account in deter-
mining ownership for purposes of subsection
(a)(2)(B)—
‘‘(i) stock held by members of the ex-
panded affiliated group which includes the
foreign incorporated entity, or
‘‘(ii) stock of such entity which is sold
in a public offering related to the acquisi-
tion described in subsection (a)(2)(A).
‘‘(B) PLAN DEEMED IN CERTAIN CASES.—If
a foreign incorporated entity acquires directly or
indirectly substantially all of the properties of a
domestic corporation or partnership during the
4-year period beginning on the date which is 2
years before the ownership requirements of sub-
section (a)(2)(B) are met, such actions shall be
treated as pursuant to a plan.
204
‘‘(C) CERTAIN TRANSFERS DISREGARDED.—
The transfer of properties or liabilities (includ-
ing by contribution or distribution) shall be dis-
regarded if such transfers are part of a plan a
principal purpose of which is to avoid the pur-
poses of this section.
‘‘(D) SPECIAL RULE FOR RELATED PART-
NERSHIPS.—For purposes of applying subsection
(a)(2) to the acquisition of a domestic partner-
ship, except as provided in regulations, all part-
nerships which are under common control (with-
in the meaning of section 482) shall be treated
as 1 partnership.
‘‘(E) TREATMENT
OF
CERTAIN
RIGHTS.—
The Secretary shall prescribe such regulations as
may be necessary—
‘‘(i) to treat warrants, options, con-
tracts to acquire stock, convertible debt in-
struments, and other similar interests as
stock, and
‘‘(ii) to treat stock as not stock.
‘‘(2) EXPANDED AFFILIATED GROUP.—The term
‘expanded affiliated group’ means an affiliated group
as defined in section 1504(a) but without regard to
section 1504(b), except that section 1504(a) shall be
205
applied by substituting ‘more than 50 percent’ for ‘at
least 80 percent’ each place it appears.
‘‘(3) FOREIGN
INCORPORATED
ENTITY.—The
term ‘foreign incorporated entity’ means any entity
which is, or but for subsection (a)(1) would be, treated
as a foreign corporation for purposes of this title.
‘‘(4) FOREIGN RELATED PERSON.—The term ‘for-
eign related person’ means, with respect to any ac-
quired entity, a foreign person which—
‘‘(A) bears a relationship to such entity de-
scribed in section 267(b) or 707(b), or
‘‘(B) is under the same common control
(within the meaning of section 482) as such enti-
ty.
‘‘(5) SUBSEQUENT ACQUISITIONS BY UNRELATED
DOMESTIC
CORPORATIONS.—Subject to such condi-
tions, limitations, and exceptions as the Secretary
may prescribe, if, after an acquisition described in
subsection (a)(2)(A) to which subsection (b) applies—
‘‘(A) a domestic corporation stock of which
is traded on an established securities market ac-
quires directly or indirectly substantially all of
the properties of an acquired entity,
‘‘(B) before such acquisition such domestic
corporation did not have a relationship described
206
in section 267(b) or 707(b), and was not under
common control (within the meaning of section
482), with such entity, or any member of an ex-
panded affiliated group including such entity,
and
‘‘(C) after such acquisition such acquired
entity does not have such a relationship and was
not under such common control with any mem-
ber of the expanded affiliated group which before
such acquisition included such entity,
then this section shall cease to apply to such entity.
‘‘(f) REGULATIONS.—The Secretary shall provide such
regulations as are necessary to carry out this section, in-
cluding regulations providing for such adjustments to the
application of this section as are necessary to prevent the
avoidance of the purposes of this section, including the
avoidance of such purposes through—
‘‘(1) the use of related persons, pass-through or
other noncorporate entities, or other intermediaries,
or
‘‘(2) transactions designed to have persons cease
to be (or not become) members of expanded affiliated
groups or related persons.’’
(b) TREATMENT OF AGREEMENTS.—
(1) CONFIDENTIALITY.—
207
(A) TREATMENT
AS
RETURN
INFORMA-
TION.—Section 6103(b)(2) (relating to return in-
formation) is amended by striking ‘‘and’’ at the
end of subparagraph (C), by inserting ‘‘and’’ at
the end of subparagraph (D), and by inserting
after subparagraph (D) the following new sub-
paragraph:
‘‘(E) any approval agreement under section
7874(d)(1) to which any preceding subparagraph
does not apply and any background information
related to the agreement or any application for
the agreement,’’.
(B) EXCEPTION FROM PUBLIC INSPECTION
AS
WRITTEN
DETERMINATION.—Section
6110(b)(1)(B) is amended by striking ‘‘or (D)’’
and inserting ‘‘, (D), or (E)’’.
(2) REPORTING.—The Secretary of the Treasury
shall include with any report on advance pricing
agreements required to be submitted after the date of
the enactment of this Act under section 521(b) of the
Ticket to Work and Work Incentives Improvement Act
of 1999 (Public Law 106–170) a report regarding ap-
proval agreements under section 7874(d)(1) of the In-
ternal Revenue Code of 1986. Such report shall in-
clude information similar to the information required
208
with respect to advance pricing agreements and shall
be treated for confidentiality purposes in the same
manner as the reports on advance pricing agreements
are treated under section 521(b)(3) of such Act.
(c) INFORMATION REPORTING.—The Secretary of the
Treasury shall exercise the Secretary’s authority under the
Internal Revenue Code of 1986 to require entities involved
in transactions to which section 7874 of such Code (as
added by subsection (a)) applies to report to the Secretary,
shareholders, partners, and such other persons as the Sec-
retary may prescribe such information as is necessary to
ensure the proper tax treatment of such transactions.
(d) CONFORMING AMENDMENT.—The table of sections
for subchapter C of chapter 80 is amended by adding at
the end the following new item:
‘‘Sec. 7874. Rules relating to inverted corporate entities.’’
Subtitle C—Reinsurance
Agreements
SEC. 651. REINSURANCE OF UNITED STATES RISKS IN FOR-
EIGN JURISDICTIONS.
(a) IN GENERAL.—Section 845(a) (relating to alloca-
tion in case of reinsurance agreement involving tax avoid-
ance or evasion) is amended by striking ‘‘source and char-
acter’’ and inserting ‘‘amount, source, or character’’.
209
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to any risk reinsured after April 11,
2002.
Subtitle D—Extension of Internal
Revenue Service User Fees
SEC. 661. EXTENSION OF INTERNAL REVENUE SERVICE
USER FEES.
(a) IN GENERAL.—Chapter 77 (relating to miscella-
neous provisions) is amended by adding at the end the fol-
lowing new section:
‘‘SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.
‘‘(a) GENERAL RULE.—The Secretary shall establish
a program requiring the payment of user fees for—
‘‘(1) requests to the Internal Revenue Service for
ruling letters, opinion letters, and determination let-
ters, and
‘‘(2) other similar requests.
‘‘(b) PROGRAM CRITERIA.—
‘‘(1) IN GENERAL.—The fees charged under the
program required by subsection (a)—
‘‘(A) shall vary according to categories (or
subcategories) established by the Secretary,
‘‘(B) shall be determined after taking into
account the average time for (and difficulty of)
210
complying with requests in each category (and
subcategory), and
‘‘(C) shall be payable in advance.
‘‘(2) EXEMPTIONS, ETC.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide for such exemptions (and reduced fees)
under such program as the Secretary determines
to be appropriate.
‘‘(B) EXEMPTION FOR CERTAIN REQUESTS
REGARDING
PENSION
PLANS.—The Secretary
shall not require payment of user fees under such
program for requests for determination letters
with respect to the qualified status of a pension
benefit plan maintained solely by 1 or more eli-
gible employers or any trust which is part of the
plan. The preceding sentence shall not apply to
any request—
‘‘(i) made after the later of—
‘‘(I) the fifth plan year the pen-
sion benefit plan is in existence, or
‘‘(II) the end of any remedial
amendment period with respect to the
plan beginning within the first 5 plan
years, or
211
‘‘(ii) made by the sponsor of any proto-
type or similar plan which the sponsor in-
tends to market to participating employers.
‘‘(C) DEFINITIONS AND SPECIAL RULES.—
For purposes of subparagraph (B)—
‘‘(i) PENSION
BENEFIT
PLAN.—The
term ‘pension benefit plan’ means a pen-
sion, profit-sharing, stock bonus, annuity,
or employee stock ownership plan.
‘‘(ii) ELIGIBLE EMPLOYER.—The term
‘eligible employer’ means an eligible em-
ployer 
(as 
defined 
in 
section
408(p)(2)(C)(i)(I)) which has at least 1 em-
ployee who is not a highly compensated em-
ployee (as defined in section 414(q)) and is
participating in the plan. The determina-
tion of whether an employer is an eligible
employer under subparagraph (B) shall be
made as of the date of the request described
in such subparagraph.
‘‘(iii) DETERMINATION
OF
AVERAGE
FEES CHARGED.—For purposes of any de-
termination of average fees charged, any re-
quest to which subparagraph (B) applies
shall not be taken into account.
212
‘‘(3) AVERAGE FEE REQUIREMENT.—The average
fee charged under the program required by subsection
(a) shall not be less than the amount determined
under the following table:
Average
‘‘Category
Fee
Employee plan ruling and opinion ..............................................
$250
Exempt organization ruling .........................................................
$350
Employee plan determination ......................................................
$300
Exempt organization determination ............................................
$275
Chief counsel ruling .......................................................................
$200.
‘‘(c) TERMINATION.—No fee shall be imposed under
this section with respect to requests made after June 30,
2008.’’
(b) CONFORMING AMENDMENTS.—
(1) The table of sections for chapter 77 is amend-
ed by adding at the end the following new item:
‘‘Sec. 7527. Internal Revenue Service user fees.’’.
(2) Section 10511 of the Revenue Act of 1987 is
repealed.
(3) Section 620 of the Economic Growth and
Tax Relief Reconciliation Act of 2001 is repealed.
(c) LIMITATIONS.—Notwithstanding any other provi-
sion of law, any fees collected pursuant to section 7527 of
the Internal Revenue Code of 1986, as added by subsection
(a), shall not be expended by the Internal Revenue Service
unless provided by an appropriations Act.
213
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to requests made after the date of the
enactment of this Act.
Subtitle E—Imposition of Customs
User Fees
SEC. 671. CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is
amended by striking ‘‘September 30, 2003’’ and inserting
‘‘June 30, 2008’’.
Calendar No. 496
107TH CONGRESS
2D SESSION
H. R. 7
[Report No. 107–211]
AN ACT
To provide incentives for charitable contributions
by individuals and businesses, to improve the ef-
fectiveness and efficiency of government program
delivery to individuals and families in need, and
to enhance the ability of low-income Americans
to gain financial security by building assets.
JULY 16, 2002
Reported with an amendment