In the Senate of the United States,
February 2, 2006.
Resolved, That the bill from the House of Representa-
tives (H.R. 4297) entitled ‘‘An Act to provide for reconcili-
ation pursuant to section 201(b) of the concurrent resolution
on the budget for fiscal year 2006.’’, do pass with the fol-
lowing
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Tax
Relief Act of 2005’’.
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(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 consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I—EXTENSION OF EXPIRING PROVISIONS
Sec. 101. Extension of increased expensing for small business.
Sec. 102. Credit for elective deferrals and IRA contributions.
Sec. 103. Above-the-line deduction for higher education.
Sec. 104. Extension and modification of new markets tax credit.
Sec. 105. Election to deduct State and local general sales taxes.
Sec. 106. Extension and increase in minimum tax relief to individuals.
Sec. 107. Allowance of nonrefundable personal credits against regular and alter-
native minimum tax liability.
Sec. 108. Extension and modification of research credit.
Sec. 109. Work opportunity tax credit and welfare-to-work credit.
Sec. 110. Qualified zone academy bonds.
Sec. 111. Deduction for corporate donations of computer technology and equip-
ment.
Sec. 112. Above-the-line deduction for certain expenses of elementary and sec-
ondary school teachers.
Sec. 113. Expensing of brownfields remediation costs.
Sec. 114. Tax incentives for investment in the District of Columbia.
Sec. 115. Indian employment tax credit.
Sec. 116. Accelerated depreciation for business property on Indian reservation.
Sec. 117. Fifteen-year straight-line cost recovery for qualified leasehold improve-
ments and qualified restaurant improvements.
Sec. 118. Extension of full credit for qualified electric vehicles.
Sec. 119. Application of EGTRRA sunset to this title.
TITLE II—PROVISIONS RELATING TO CHARITABLE DONATIONS
Subtitle A—Charitable Giving Incentives
Sec. 201. Charitable deduction for nonitemizers.
Sec. 202. Tax-free distributions from individual retirement plans for charitable
purposes.
Sec. 203. Modification of charitable deduction for contributions of food inventory.
Sec. 204. Basis adjustment to stock of S corporation contributing property.
Sec. 205. Modification of charitable deduction for contributions of book inventory.
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Sec. 206. Modification of tax treatment of certain payments to controlling exempt
organizations and public disclosure of information relating to
unrelated business income.
Sec. 207. Encouragement of contributions of capital gain real property made for
conservation purposes.
Sec. 208. Enhanced deduction for charitable contribution of literary, musical, ar-
tistic, and scholarly compositions.
Sec. 209. Mileage reimbursements to charitable volunteers excluded from gross in-
come.
Sec. 210. Alternative percentage limitation for corporate charitable contributions
to the mathematics and science partnership program.
Subtitle B—Reforming Charitable Organizations
PART I—GENERAL REFORMS
Sec. 211. Tax involvement by exempt organizations in tax shelter transactions.
Sec. 212. Excise tax on certain acquisitions of interests in insurance contracts in
which certain exempt organizations hold an interest.
Sec. 213. Increase in penalty excise taxes on public charities, social welfare orga-
nizations, and private foundations.
Sec. 214. Reform of charitable contributions of certain easements on buildings in
registered historic districts.
Sec. 215. Charitable contributions of taxidermy property.
Sec. 216. Recapture of tax benefit for charitable contributions of exempt use prop-
erty not used for an exempt use.
Sec. 217. Limitation of deduction for charitable contributions of clothing and
household items.
Sec. 218. Modification of recordkeeping requirements for certain charitable con-
tributions.
Sec. 219. Contributions of fractional interests in tangible personal property.
Sec. 220. Provisions relating to substantial and gross overstatements of valuations
of charitable deduction property.
Sec. 221. Additional standards for credit counseling organizations.
Sec. 222. Expansion of the base of tax on private foundation net investment in-
come.
Sec. 223. Definition of convention or association of churches.
Sec. 224. Notification requirement for entities not currently required to file.
Sec. 225. Disclosure to State officials of proposed actions related to exempt orga-
nizations.
PART II—IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS
Sec. 231. Excise tax on sponsoring organizations of donor advised funds for fail-
ure to meet distribution requirements.
Sec. 232. Prohibited transactions.
Sec. 233. Treatment of charitable contribution deductions to donor advised funds.
Sec. 234. Returns of, and applications for recognition by, sponsoring organiza-
tions.
PART III—IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS
Sec. 241. Requirements for supporting organizations.
Sec. 242. Excise tax on supporting organizations for failure to meet distribution
requirements.
Sec. 243. Excess benefit transactions.
Sec. 244. Excess business holdings of supporting organizations.
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Sec. 245. Treatment of amounts paid to supporting organizations by private
foundations.
Sec. 246. Returns of supporting organizations.
TITLE III—MISCELLANEOUS PROVISIONS
Sec. 301. Restructuring of New York Liberty Zone tax credits.
Sec. 302. Modification to S corporation passive investment income rules.
Sec. 303. Modification of effective date of disregard of certain capital expendi-
tures for purposes of qualified small issue bonds.
Sec. 304. Premiums for mortgage insurance.
Sec. 305. Sense of the Senate on use of no-bid contracting by Federal Emergency
Management Agency.
Sec. 306. Sense of Congress regarding Doha Round.
Sec. 307. Modification of bond rule.
Sec. 308. Treatment of certain stock option plans under nonqualified deferred
compensation rules.
Sec. 309. Sense of the Senate regarding the dedication of excess funds.
Sec. 310. Modification of treatment of loans to qualified continuing care facili-
ties.
Sec. 311. Exclusion of gain from sale of a principal residence by certain employ-
ees of the intelligence community.
Sec. 312. Sense of the Senate regarding the permanent extension of EGTRRA and
JGTRRA provisions relating to child tax credit.
Sec. 313. Partial expensing for advanced mine safety equipment.
Sec. 314. Mine rescue team training tax credit.
Sec. 315. Funding for veterans health care and disability compensation and hos-
pital infrastructure for veterans.
Sec. 316. Sense of the Senate regarding protecting middle-class families from the
alternative minimum tax.
TITLE IV—REVENUE OFFSET PROVISIONS
Subtitle A—Provisions Designed To Curtail Tax Shelters
Sec. 401. Understatement of taxpayer’s liability by income tax return preparer.
Sec. 402. Frivolous tax submissions.
Sec. 403. Penalty for promoting abusive tax shelters.
Sec. 404. Penalty for aiding and abetting the understatement of tax liability.
Subtitle B—Economic Substance Doctrine
Sec. 411. Clarification of economic substance doctrine.
Sec. 412. Penalty for understatements attributable to transactions lacking eco-
nomic substance, etc.
Sec. 413. Denial of deduction for interest on underpayments attributable to non-
economic substance transactions.
Subtitle C—Improvements in Efficiency and Safeguards in Internal Revenue
Service Collection
Sec. 421. Waiver of user fee for installment agreements using automated with-
drawals.
Sec. 422. Termination of installment agreements.
Sec. 423. Partial payments required with submission of offers-in-compromise.
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Subtitle D—Penalties and Fines
Sec. 431. Increase in criminal monetary penalty limitation for the underpayment
or overpayment of tax due to fraud.
Sec. 432. Doubling of certain penalties, fines, and interest on underpayments re-
lated to certain offshore financial arrangements.
Sec. 433. Denial of deduction for certain fines, penalties, and other amounts.
Sec. 434. Denial of deduction for punitive damages.
Sec. 435. Increase in penalty for bad checks and money orders.
Subtitle E—Provisions To Discourage Expatriation
Sec. 441. Tax treatment of inverted entities.
Sec. 442. Revision of tax rules on expatriation of individuals.
Subtitle F—Miscellaneous Provisions
Sec. 451. Treatment of contingent payment convertible debt instruments.
Sec. 452. Grant of Treasury regulatory authority to address foreign tax credit
transactions involving inappropriate separation of foreign taxes
from related foreign income.
Sec. 453. Repeal of special property exception to leasing provisions of the Amer-
ican Jobs Creation Act of 2004.
Sec. 454. Application of earnings stripping rules to partners which are corpora-
tions.
Sec. 455. Limitation of employer deduction for certain entertainment expenses.
Sec. 456. Increase in age of minor children whose unearned income is taxed as
if parent’s income.
Sec. 457. Loan and redemption requirements on pooled financing requirements.
Sec. 458. Reporting of interest on tax-exempt bonds.
Sec. 459. Modification of credit for producing fuel from a nonconventional source.
Sec. 460. Modification of individual estimated tax safe harbor.
Sec. 461. Revaluation of LIFO inventories of large integrated oil companies.
Sec. 462. Elimination of amortization of geological and geophysical expenditures
for major integrated oil companies.
Sec. 463. Valuation of employee personal use of noncommercial aircraft.
Sec. 464. Application of FIRPTA to regulated investment companies.
Sec. 465. Treatment of distributions attributable to FIRPTA gains.
Sec. 466. Prevention of avoidance of tax on investments of foreign persons in
United States real property through wash sale transactions.
Sec. 467. Modifications to rules relating to taxation of distributions of stock and
securities of a controlled corporation.
Sec. 468. Amortization of expenses incurred in creating or acquiring music or
music copyrights.
Sec. 469. Credit to holders of rural renaissance bonds.
Sec. 470. Modifications of foreign tax credit rules applicable to large integrated
oil companies which are dual capacity taxpayers.
Sec. 471. Disability preference program for tax collection contracts.
TITLE V—COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
Sec. 501. Sunset of certain provisions and amendments.
TITLE VI—STRENGTHENING AMERICA’S MILITARY
Sec. 601. Short title.
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Subtitle A—Military Funding
Sec. 602. Funding for military operations.
TITLE I—EXTENSION OF
EXPIRING PROVISIONS
SEC. 101. EXTENSION OF INCREASED EXPENSING FOR
SMALL BUSINESS.
Section 179 is amended by striking ‘‘2008’’ each place
it appears and inserting ‘‘2010’’.
SEC. 102. CREDIT FOR ELECTIVE DEFERRALS AND IRA CON-
TRIBUTIONS.
Section 25B(h) is amended by striking ‘‘2006’’ and in-
serting ‘‘2009’’.
SEC. 103. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDU-
CATION.
(a) IN GENERAL.—Section 222(e) is amended by strik-
ing ‘‘2005’’and inserting ‘‘2009’’.
(b) 
CONFORMING
AMENDMENTS.—Section
222(b)(2)(B) is amended—
(1) by striking ‘‘a taxable year beginning in
2004 or 2005’’ and inserting ‘‘any taxable year begin-
ning after 2003’’, and
(2) by striking ‘‘2004 AND 2005’’ and inserting
‘‘AFTER 2003’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2005.
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SEC. 104. EXTENSION AND MODIFICATION OF NEW MAR-
KETS TAX CREDIT.
(a) EXTENSION.—Section 45D(f)(1)(D) is amended by
striking ‘‘and 2007’’ and inserting ‘‘, 2007, and 2008’’.
(b) REGULATIONS REGARDING NON-METROPOLITAN
COUNTIES.—Section 45D(i) is amended by striking ‘‘and’’
at the end of paragraph (4), by striking the period at the
end of paragraph (5) and inserting ‘‘, and’’, and by adding
at the end by the following new paragraph:
‘‘(6) which ensure that non-metropolitan coun-
ties receive a proportional allocation of qualified eq-
uity investments.’’.
SEC. 105. ELECTION TO DEDUCT STATE AND LOCAL GEN-
ERAL SALES TAXES.
(a) IN GENERAL.—Section 164(b)(5)(I) is amended by
striking ‘‘2006’’ and inserting ‘‘2008’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2005.
SEC. 106. EXTENSION AND INCREASE IN MINIMUM TAX RE-
LIEF TO INDIVIDUALS.
(a) IN GENERAL.—Section 55(d)(1) is amended—
(1) by striking ‘‘$58,000’’ and all that follows
through ‘‘2005’’ in subparagraph (A) and inserting
‘‘$62,550 in the case of taxable years beginning in
2006’’, and
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(2) by striking ‘‘$40,250’’ and all that follows
through ‘‘2005’’ in subparagraph (B) and inserting
‘‘$42,500 in the case of taxable years beginning in
2006’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2005.
SEC. 107. ALLOWANCE OF NONREFUNDABLE PERSONAL
CREDITS AGAINST REGULAR AND ALTER-
NATIVE MINIMUM TAX LIABILITY.
(a) IN GENERAL.—Paragraph (2) of section 26(a) is
amended—
(1) by striking ‘‘2005’’ in the heading thereof and
inserting ‘‘2007’’, and
(2) by striking ‘‘or 2005’’ and inserting ‘‘2005,
2006, or 2007’’.
(b) CONFORMING PROVISIONS.—
(1) Section 30B(g) is amended by adding at the
end the following new paragraph:
‘‘(3) SPECIAL
RULE
FOR
2006
AND
2007.—For
purposes of any taxable year beginning during 2006
or 2007, the credit allowed under subsection (a) (after
the application of paragraph (1)) shall not exceed the
excess of—
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‘‘(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
‘‘(B) the sum of the credits allowable under
subpart A and this subpart (other than this sec-
tion and section 30C).’’.
(2) Section 30C(d) is amended by adding at the
end the following new paragraph:
‘‘(3) SPECIAL
RULE
FOR
2006
AND
2007.—For
purposes of any taxable year beginning during 2006
or 2007, the credit allowed under subsection (a) (after
the application of paragraph (1)) shall not exceed the
excess of—
‘‘(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
‘‘(B) the sum of the credits allowable under
subpart A and this subpart (other than this sec-
tion).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2005.
SEC. 108. EXTENSION AND MODIFICATION OF RESEARCH
CREDIT.
(a) EXTENSION.—
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(1) IN GENERAL.—Section 41(h)(1)(B) is amend-
ed by striking ‘‘2005’’ and inserting ‘‘2007’’.
(2) 
CONFORMING
AMENDMENT.—Section
45C(b)(1)(D) is amended by striking ‘‘2005’’ and in-
serting ‘‘2007’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 2005.
(b) INCREASE
IN RATES
OF ALTERNATIVE INCRE-
MENTAL CREDIT.—Subparagraph (A) of section 41(c)(4)
(relating to election of alternative incremental credit) is
amended—
(1) by striking ‘‘2.65 percent’’ and inserting ‘‘3
percent’’,
(2) by striking ‘‘3.2 percent’’ and inserting ‘‘4
percent’’, and
(3) by striking ‘‘3.75 percent’’ and inserting ‘‘5
percent’’.
(c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED
RESEARCH EXPENSES.—
(1) IN GENERAL.—Subsection (c) of section 41
(relating to base amount) is amended by redesig-
nating paragraphs (5) and (6) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (4)
the following new paragraph: