776
anty Corporation, if, for each of the 3 plan 
years prior to the date of the enactment of 
that Act, the plan would have been a mul-
tiemployer plan but for the election under 
paragraph (5), and 
‘‘(ii) a plan that meets the criteria in 
subparagraph (A) and (B) of paragraph 
(1) of this subsection or that is described 
in subparagraph (E) may, pursuant to pro-
cedures prescribed by the Pension Benefit 
Guaranty Corporation, elect to be a multi-
employer plan, if—
‘‘(I) for each of the 3 plan years 
immediately before the date of enact-
ment of the Pension Protection Act of 
2006, the plan has met those criteria 
or is so described, 
‘‘(II) substantially all of the 
plan’s employer contributions for each 
of those plan years were made or re-
quired to be made by organizations 
that were exempt from tax under sec-
tion 501, and 
‘‘(III) the plan was established 
prior to September 2, 1974.
777
‘‘(B) An election under this paragraph 
shall be effective for all purposes under this Act 
and under the Employee Retirement Income Se-
curity Act of 1974, starting with the first plan 
year ending after the date of the enactment of 
the Pension Protection Act of 2006. 
‘‘(C) Once made, an election under this 
paragraph shall be irrevocable, except that a 
plan described in subparagraph (A)(ii) shall 
cease to be a multiemployer plan as of the plan 
year beginning immediately after the first plan 
year for which the majority of its employer con-
tributions were made or required to be made by 
organizations that were not exempt from tax 
under section 501. 
‘‘(D) The fact that a plan makes an elec-
tion under subparagraph (A)(ii) does not imply 
that the plan was not a multiemployer plan 
prior to the date of the election or would not be 
a multiemployer plan without regard to the 
election. 
‘‘(E) A plan is described in this subpara-
graph if it is a plan—
‘‘(i) that was established in Chicago, 
Illinois, on August 12, 1881; and
778
‘‘(ii) sponsored by an organization de-
scribed in section 501(c)(5) and exempt 
from tax under section 501(a).’’. 
SEC. 1107. PROVISIONS RELATING TO PLAN AMENDMENTS. 
(a) IN GENERAL.—If this section applies to any pen-
sion plan or contract amendment—
(1) such pension plan or contract shall be treat-
ed as being operated in accordance with the terms 
of the plan during the period described in subsection 
(b)(2)(A), and 
(2) except as provided by the Secretary of the 
Treasury, such pension plan shall not fail to meet 
the requirements of section 411(d)(6) of the Internal 
Revenue Code of 1986 and section 204(g) of the 
Employee Retirement Income Security Act of 1974 
by reason of such amendment. 
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to 
any amendment to any pension plan or annuity con-
tract which is made—
(A) pursuant to any amendment made by 
this Act or pursuant to any regulation issued by 
the Secretary of the Treasury or the Secretary 
of Labor under this Act, and
779
(B) on or before the last day of the first 
plan year beginning on or after January 1, 
2009. 
In the case of a governmental plan (as defined in 
section 414(d) of the Internal Revenue Code of 
1986), this paragraph shall be applied by sub-
stituting ‘‘2011’’ for ‘‘2009’’. 
(2) CONDITIONS.—This section shall not apply 
to any amendment unless—
(A) during the period—
(i) beginning on the date the legisla-
tive or regulatory amendment described in 
paragraph (1)(A) takes effect (or in the 
case of a plan or contract amendment not 
required by such legislative or regulatory 
amendment, the effective date specified by 
the plan), and 
(ii) ending on the date described in 
paragraph (1)(B) (or, if earlier, the date 
the plan or contract amendment is adopt-
ed), the plan or contract is operated as if 
such plan or contract amendment were in 
effect; and 
(B) such plan or contract amendment ap-
plies retroactively for such period.
780
TITLE XII—PROVISIONS RELAT-
ING TO EXEMPT ORGANIZA-
TIONS 
Subtitle A—Charitable Giving 
Incentives 
SEC. 1201. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL 
RETIREMENT PLANS FOR CHARITABLE PUR-
POSES. 
(a) IN GENERAL.—Subsection (d) of section 408 (re-
lating to individual retirement accounts) is amended by 
adding at the end the following new paragraph: 
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—So much of the aggre-
gate amount of qualified charitable distributions 
with respect to a taxpayer made during any 
taxable year which does not exceed $100,000 
shall not be includible in gross income of such 
taxpayer for such taxable year. 
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the 
term ‘qualified charitable distribution’ means 
any distribution from an individual retirement 
plan (other than a plan described in subsection 
(k) or (p))—
781
‘‘(i) which is made directly by the 
trustee to an organization described in sec-
tion 170(b)(1)(A) (other than any organi-
zation described in section 509(a)(3) or 
any fund or account described in section 
4966(d)(2)), and 
‘‘(ii) which is made on or after the 
date that the individual for whose benefit 
the plan is maintained has attained age 
701⁄2. 
A distribution shall be treated as a qualified 
charitable distribution only to the extent that 
the distribution would be includible in gross in-
come without regard to subparagraph (A). 
‘‘(C) CONTRIBUTIONS
MUST
BE
OTHER-
WISE DEDUCTIBLE.—For purposes of this para-
graph, a distribution to an organization de-
scribed in subparagraph (B)(i) shall be treated 
as a qualified charitable distribution only if a 
deduction for the entire distribution would be 
allowable under section 170 (determined with-
out regard to subsection (b) thereof and this 
paragraph). 
‘‘(D) APPLICATION OF SECTION 72.—Not-
withstanding section 72, in determining the ex-
782
tent to which a distribution is a qualified chari-
table distribution, the entire amount of the dis-
tribution shall be treated as includible in gross 
income without regard to subparagraph (A) to 
the extent that such amount does not exceed 
the aggregate amount which would have been so 
includible if all amounts distributed from all in-
dividual retirement plans were treated as 1 con-
tract under paragraph (2)(A) for purposes of 
determining the inclusion of such distribution 
under section 72. Proper adjustments shall be 
made in applying section 72 to other distribu-
tions in such taxable year and subsequent tax-
able years. 
‘‘(E) DENIAL
OF
DEDUCTION.—Qualified 
charitable distributions which are not includible 
in gross income pursuant to subparagraph (A) 
shall not be taken into account in determining 
the deduction under section 170. 
‘‘(F) TERMINATION.—This paragraph shall 
not apply to distributions made in taxable years 
beginning after December 31, 2007.’’. 
(b) MODIFICATIONS RELATING TO INFORMATION RE-
TURNS BY CERTAIN TRUSTS.—
783
(1) RETURNS.—Section 6034 (relating to re-
turns by trusts described in section 4947(a)(2) or 
claiming charitable deductions under section 642(c)) 
is amended to read as follows: 
‘‘SEC. 6034. RETURNS BY CERTAIN TRUSTS. 
‘‘(a) SPLIT-INTEREST TRUSTS.—Every trust de-
scribed in section 4947(a)(2) shall furnish such informa-
tion with respect to the taxable year as the Secretary may 
by forms or regulations require. 
‘‘(b) TRUSTS CLAIMING CERTAIN CHARITABLE DE-
DUCTIONS.—
‘‘(1) IN GENERAL.—Every trust not required to 
file a return under subsection (a) but claiming a de-
duction under section 642(c) for the taxable year 
shall furnish such information with respect to such 
taxable year as the Secretary may by forms or regu-
lations prescribe, including—
‘‘(A) the amount of the deduction taken 
under section 642(c) within such year, 
‘‘(B) the amount paid out within such year 
which represents amounts for which deductions 
under section 642(c) have been taken in prior 
years,
784
‘‘(C) the amount for which such deductions 
have been taken in prior years but which has 
not been paid out at the beginning of such year, 
‘‘(D) the amount paid out of principal in 
the current and prior years for the purposes de-
scribed in section 642(c), 
‘‘(E) the total income of the trust within 
such year and the expenses attributable thereto, 
and 
‘‘(F) a balance sheet showing the assets, li-
abilities, and net worth of the trust as of the 
beginning of such year. 
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 
apply to a trust for any taxable year if—
‘‘(A) all the net income for such year, de-
termined under the applicable principles of the 
law of trusts, is required to be distributed cur-
rently to the beneficiaries, or 
‘‘(B) the trust is described in section 
4947(a)(1).’’. 
(2) INCREASE IN PENALTY RELATING TO FIL-
ING OF INFORMATION RETURN BY SPLIT-INTEREST 
TRUSTS.—Paragraph (2) of section 6652(c) (relating 
to returns by exempt organizations and by certain
785
trusts) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) SPLIT-INTEREST
TRUSTS.—In the 
case of a trust which is required to file a return 
under section 6034(a), subparagraphs (A) and 
(B) of this paragraph shall not apply and para-
graph (1) shall apply in the same manner as if 
such return were required under section 6033, 
except that—
‘‘(i) the 5 percent limitation in the 
second sentence of paragraph (1)(A) shall 
not apply, 
‘‘(ii) in the case of any trust with 
gross income in excess of $250,000, the 
first sentence of paragraph (1)(A) shall be 
applied by substituting ‘$100’ for ‘$20’, 
and the second sentence thereof shall be 
applied by substituting ‘$50,000’ for 
‘$10,000’, and 
‘‘(iii) the third sentence of paragraph 
(1)(A) shall be disregarded. 
In addition to any penalty imposed on the trust 
pursuant to this subparagraph, if the person re-
quired to file such return knowingly fails to file 
the return, such penalty shall also be imposed
786
on such person who shall be personally liable 
for such penalty.’’. 
(3) CONFIDENTIALITY
OF
NONCHARITABLE 
BENEFICIARIES.—Subsection (b) of section 6104 
(relating to inspection of annual information re-
turns) is amended by adding at the end the fol-
lowing new sentence: ‘‘In the case of a trust which 
is required to file a return under section 6034(a), 
this subsection shall not apply to information re-
garding beneficiaries which are not organizations de-
scribed in section 170(c).’’. 
(4) CLERICAL AMENDMENT.—The item in the 
table of sections for subpart A of part III of sub-
chapter A of chapter 61 relating to section 6034 is 
amended to read as follows:
‘‘Sec. 6034. Returns by certain trusts.’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made 
by subsection (a) shall apply to distributions made 
in taxable years beginning after December 31, 2005. 
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to returns for taxable 
years beginning after December 31, 2006.
787
SEC. 1202. EXTENSION OF MODIFICATION OF CHARITABLE 
DEDUCTION FOR CONTRIBUTIONS OF FOOD 
INVENTORY. 
(a) IN GENERAL.—Section 170(e)(3)(C)(iv) (relating 
to termination) is amended by striking ‘‘2005’’ and insert-
ing ‘‘2007’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made after De-
cember 31, 2005. 
SEC. 1203. BASIS ADJUSTMENT TO STOCK OF S CORPORA-
TION CONTRIBUTING PROPERTY. 
(a) IN GENERAL.—Paragraph (2) of section 1367(a) 
(relating to adjustments to basis of stock of shareholders, 
etc.) is amended by adding at the end the following new 
flush sentence: 
‘‘The decrease under subparagraph (B) by reason of 
a charitable contribution (as defined in section 
170(c)) of property shall be the amount equal to the 
shareholder’s pro rata share of the adjusted basis of 
such property. The preceding sentence shall not 
apply to contributions made in taxable years begin-
ning after December 31, 2007.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in taxable 
years beginning after December 31, 2005.
788
SEC. 1204. EXTENSION OF MODIFICATION OF CHARITABLE 
DEDUCTION FOR CONTRIBUTIONS OF BOOK 
INVENTORY. 
(a) IN GENERAL.—Section 170(e)(3)(D)(iv) (relating 
to termination) is amended by striking ‘‘2005’’ and insert-
ing ‘‘2007’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made after De-
cember 31, 2005. 
SEC. 1205. MODIFICATION OF TAX TREATMENT OF CERTAIN 
PAYMENTS TO CONTROLLING EXEMPT ORGA-
NIZATIONS. 
(a) IN GENERAL.—Paragraph (13) of section 512(b) 
(relating to special rules for certain amounts received from 
controlled entities) is amended by redesignating subpara-
graph (E) as subparagraph (F) and by inserting after sub-
paragraph (D) the following new subparagraph: 
‘‘(E) PARAGRAPH TO APPLY ONLY TO CER-
TAIN EXCESS PAYMENTS.—
‘‘(i) IN GENERAL.—Subparagraph (A) 
shall apply only to the portion of a quali-
fying specified payment received or accrued 
by the controlling organization that ex-
ceeds the amount which would have been 
paid or accrued if such payment met the 
requirements prescribed under section 482.
789
‘‘(ii) ADDITION
TO
TAX
FOR
VALU-
ATION MISSTATEMENTS.—The tax imposed 
by this chapter on the controlling organiza-
tion shall be increased by an amount equal 
to 20 percent of the larger of—
‘‘(I) such excess determined with-
out regard to any amendment or sup-
plement to a return of tax, or 
‘‘(II) such excess determined 
with regard to all such amendments 
and supplements. 
‘‘(iii) QUALIFYING
SPECIFIED
PAY-
MENT.—The term ‘qualifying specified 
payment’ means a specified payment which 
is made pursuant to—
‘‘(I) a binding written contract in 
effect on the date of the enactment of 
this subparagraph, or 
‘‘(II) a contract which is a re-
newal, under substantially similar 
terms, of a contract described in sub-
clause (I). 
‘‘(iv) TERMINATION.—This subpara-
graph shall not apply to payments received 
or accrued after December 31, 2007.’’.
790
(b) REPORTING.—
(1) IN GENERAL.—Section 6033 (relating to re-
turns by exempt organizations) is amended by redes-
ignating subsection (h) as subsection (i) and by in-
serting after subsection (g) the following new sub-
section: 
‘‘(h) CONTROLLING ORGANIZATIONS.—Each control-
ling organization (within the meaning of section 
512(b)(13)) which is subject to the requirements of sub-
section (a) shall include on the return required under sub-
section (a)—
‘‘(1) any interest, annuities, royalties, or rents 
received from each controlled entity (within the 
meaning of section 512(b)(13)), 
‘‘(2) any loans made to each such controlled en-
tity, and 
‘‘(3) any transfers of funds between such con-
trolling organization and each such controlled enti-
ty.’’. 
(2) REPORT
TO
CONGRESS.—Not later than 
January 1, 2009, the Secretary of the Treasury 
shall submit to the Committee on Finance of the 
Senate and the Committee on Ways and Means of 
the House of Representatives a report on the effec-
tiveness of the Internal Revenue Service in admin-
791
istering the amendments made by subsection (a) and 
on the extent to which payments by controlled enti-
ties (within the meaning of section 512(b)(13) of the 
Internal Revenue Code of 1986) to controlling orga-
nizations (within the meaning of section 512(b)(13) 
of such Code) meet the requirements under section 
482 of such Code. Such report shall include the re-
sults of any audit of any controlling organization or 
controlled entity and recommendations relating to 
the tax treatment of payments from controlled enti-
ties to controlling organizations. 
(c) EFFECTIVE DATE.—
(1) SUBSECTION (a).—The amendments made 
by subsection (a) shall apply to payments received or 
accrued after December 31, 2005. 
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to returns the due date 
(determined without regard to extensions) of which 
is after the date of the enactment of this Act. 
SEC. 1206. ENCOURAGEMENT OF CONTRIBUTIONS OF CAP-
ITAL GAIN REAL PROPERTY MADE FOR CON-
SERVATION PURPOSES. 
(a) IN GENERAL.—
(1) INDIVIDUALS.—Paragraph (1) of section 
170(b) (relating to percentage limitations) is amend-
792
ed by redesignating subparagraphs (E) and (F) as 
subparagraphs (F) and (G), respectively, and by in-
serting after subparagraph (D) the following new 
subparagraph: 
‘‘(E) CONTRIBUTIONS OF QUALIFIED CON-
SERVATION CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—Any qualified con-
servation contribution (as defined in sub-
section (h)(1)) shall be allowed to the ex-
tent the aggregate of such contributions 
does not exceed the excess of 50 percent of 
the taxpayer’s contribution base over the 
amount of all other charitable contribu-
tions allowable under this paragraph. 
‘‘(ii) CARRYOVER.—If the aggregate 
amount of contributions described in clause 
(i) exceeds the limitation of clause (i), such 
excess shall be treated (in a manner con-
sistent with the rules of subsection (d)(1)) 
as a charitable contribution to which clause 
(i) applies in each of the 15 succeeding 
years in order of time. 
‘‘(iii) COORDINATION
WITH
OTHER 
SUBPARAGRAPHS.—For purposes of apply-
ing this subsection and subsection (d)(1),
793
contributions described in clause (i) shall 
not be treated as described in subpara-
graph (A), (B), (C), or (D) and such sub-
paragraphs shall apply without regard to 
such contributions. 
‘‘(iv) SPECIAL RULE FOR CONTRIBU-
TION OF PROPERTY USED IN AGRICULTURE 
OR LIVESTOCK PRODUCTION.—
‘‘(I) IN GENERAL.—If the indi-
vidual is a qualified farmer or rancher 
for the taxable year for which the con-
tribution is made, clause (i) shall be 
applied by substituting ‘100 percent’ 
for ‘50 percent’. 
‘‘(II) EXCEPTION.—Subclause (I) 
shall not apply to any contribution of 
property made after the date of the 
enactment of this subparagraph which 
is used in agriculture or livestock pro-
duction (or available for such produc-
tion) unless such contribution is sub-
ject to a restriction that such property 
remain available for such production. 
This subparagraph shall be applied 
separately with respect to property to
794
which subclause (I) does not apply by 
reason of the preceding sentence prior 
to its application to property to which 
subclause (I) does apply. 
‘‘(v) DEFINITION.—For purposes of 
clause (iv), the term ‘qualified farmer or 
rancher’ means a taxpayer whose gross in-
come from the trade or business of farm-
ing 
(within 
the 
meaning 
of 
section 
2032A(e)(5)) is greater than 50 percent of 
the taxpayer’s gross income for the taxable 
year. 
‘‘(vi) TERMINATION.—This subpara-
graph shall not apply to any contribution 
made in taxable years beginning after De-
cember 31, 2007.’’. 
(2) CORPORATIONS.—Paragraph (2) of section 
170(b) is amended to read as follows: 
‘‘(2) CORPORATIONS.—In the case of a corpora-
tion—
‘‘(A) IN GENERAL.—The total deductions 
under subsection (a) for any taxable year (other 
than for contributions to which subparagraph 
(B) applies) shall not exceed 10 percent of the 
taxpayer’s taxable income.
795
‘‘(B) QUALIFIED
CONSERVATION
CON-
TRIBUTIONS BY CERTAIN CORPORATE FARMERS 
AND RANCHERS.—
‘‘(i) IN GENERAL.—Any qualified con-
servation contribution (as defined in sub-
section (h)(1))—
‘‘(I) which is made by a corpora-
tion which, for the taxable year during 
which the contribution is made, is a 
qualified farmer or rancher (as de-
fined in paragraph (1)(E)(v)) and the 
stock of which is not readily tradable 
on an established securities market at 
any time during such year, and 
‘‘(II) which, in the case of con-
tributions made after the date of the 
enactment of this subparagraph, is a 
contribution of property which is used 
in agriculture or livestock production 
(or available for such production) and 
which is subject to a restriction that 
such property remain available for 
such production, 
shall be allowed to the extent the aggregate 
of such contributions does not exceed the
796
excess of the taxpayer’s taxable income 
over the amount of charitable contributions 
allowable under subparagraph (A). 
‘‘(ii) CARRYOVER.—If the aggregate 
amount of contributions described in clause 
(i) exceeds the limitation of clause (i), such 
excess shall be treated (in a manner con-
sistent with the rules of subsection (d)(2)) 
as a charitable contribution to which clause 
(i) applies in each of the 15 succeeding 
years in order of time. 
‘‘(iii) TERMINATION.—This subpara-
graph shall not apply to any contribution 
made in taxable years beginning after De-
cember 31, 2007. 
‘‘(C) TAXABLE INCOME.—For purposes of 
this paragraph, taxable income shall be com-
puted without regard to—
‘‘(i) this section, 
‘‘(ii) part VIII (except section 248), 
‘‘(iii) any net operating loss carryback 
to the taxable year under section 172, 
‘‘(iv) section 199, and 
‘‘(v) any capital loss carryback to the 
taxable year under section 1212(a)(1).’’.
797
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 170(d) is amended 
by striking ‘‘subsection (b)(2)’’ each place it appears 
and inserting ‘‘subsection (b)(2)(A)’’. 
(2) Section 545(b)(2) is amended by striking 
‘‘and (D)’’ and inserting ‘‘(D), and (E)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions made in taxable 
years beginning after December 31, 2005. 
SEC. 1207. EXCISE TAXES EXEMPTION FOR BLOOD COL-
LECTOR ORGANIZATIONS. 
(a) EXEMPTION FROM IMPOSITION
OF SPECIAL 
FUELS TAX.—Section 4041(g) (relating to other exemp-
tions) is amended by striking ‘‘and’’ at the end of para-
graph (3), by striking the period in paragraph (4) and 
inserting ‘‘; and’’, and by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) with respect to the sale of any liquid to a 
qualified blood collector organization (as defined in 
section 7701(a)(49)) for such organization’s exclu-
sive use in the collection, storage, or transportation 
of blood.’’. 
(b) EXEMPTION FROM MANUFACTURERS EXCISE 
TAX.—
798
(1) IN GENERAL.—Section 4221(a) (relating to 
certain tax-free sales) is amended by striking ‘‘or’’ 
at the end of paragraph (4), by adding ‘‘or’’ at the 
end of paragraph (5), and by inserting after para-
graph (5) the following new paragraph: 
‘‘(6) to a qualified blood collector organization 
(as defined in section 7701(a)(49)) for such organi-
zation’s exclusive use in the collection, storage, or 
transportation of blood,’’. 
(2) NO
EXEMPTION
WITH
RESPECT
TO
VAC-
CINES
AND
RECREATIONAL
EQUIPMENT.—Section 
4221(a) is amended by adding at the end the fol-
lowing new sentence: ‘‘In the case of taxes imposed 
by subchapter C or D, paragraph (6) shall not 
apply.’’. 
(3) CONFORMING AMENDMENTS.—
(A) The second sentence of section 
4221(a) is amended by striking ‘‘Paragraphs 
(4) and (5)’’ and inserting ‘‘Paragraphs (4), 
(5), and (6)’’. 
(B) Section 6421(c) is amended by strik-
ing ‘‘or (5)’’ and inserting ‘‘(5), or (6)’’. 
(c) EXEMPTION
FROM
COMMUNICATION
EXCISE 
TAX.—
799
(1) IN GENERAL.—Section 4253 (relating to ex-
emptions) is amended by redesignating subsection 
(k) as subsection (l) and inserting after subsection 
(j) the following new subsection: 
‘‘(k) EXEMPTION
FOR
QUALIFIED
BLOOD
COL-
LECTOR ORGANIZATIONS.—Under regulations provided by 
the Secretary, no tax shall be imposed under section 4251 
on any amount paid by a qualified blood collector organi-
zation (as defined in section 7701(a)(49)) for services or 
facilities furnished to such organization.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
4253(l), as redesignated by paragraph (1), is 
amended by striking ‘‘or (j)’’ and inserting ‘‘(j), or 
(k)’’. 
(d) EXEMPTION FROM TAX ON HEAVY VEHICLES.—
Section 4483 is amended by redesignating subsection (h) 
as subsection (i) and by inserting after subsection (g) the 
following new subsection: 
‘‘(h) EXEMPTION FOR VEHICLES USED IN BLOOD 
COLLECTION.—
‘‘(1) IN GENERAL.—No tax shall be imposed by 
section 4481 on the use of any qualified blood col-
lector vehicle by a qualified blood collector organiza-
tion.
800
‘‘(2) QUALIFIED
BLOOD
COLLECTOR
VEHI-
CLE.—For purposes of this subsection, the term 
‘qualified blood collector vehicle’ means a vehicle at 
least 80 percent of the use of which during the prior 
taxable period was by a qualified blood collector or-
ganization in the collection, storage, or transpor-
tation of blood. 
‘‘(3) SPECIAL
RULE
FOR
VEHICLES
FIRST 
PLACED IN SERVICE IN A TAXABLE PERIOD.—In the 
case of a vehicle first placed in service in a taxable 
period, a vehicle shall be treated as a qualified blood 
collector vehicle for such taxable period if such quali-
fied blood collector organization certifies to the Sec-
retary that the organization reasonably expects at 
least 80 percent of the use of such vehicle by the or-
ganization during such taxable period will be in the 
collection, storage, or transportation of blood. 
‘‘(4) QUALIFIED BLOOD COLLECTOR ORGANIZA-
TION.—The term ‘qualified blood collector organiza-
tion’ has the meaning given such term by section 
7701(a)(49).’’. 
(e) CREDIT OR REFUND FOR CERTAIN TAXES ON 
SALES AND SERVICES.—
(1) DEEMED OVERPAYMENT.—
801
(A) IN GENERAL.—Section 6416(b)(2) is 
amended by redesignating subparagraphs (E) 
and (F) as subparagraphs (F) and (G), respec-
tively, and by inserting after subparagraph (D) 
the following new subparagraph: 
‘‘(E) sold to a qualified blood collector or-
ganization (as defined in section 7701(a)(49)) 
for such organization’s exclusive use in the col-
lection, storage, or transportation of blood;’’. 
(B) NO CREDIT OR REFUND FOR VACCINES 
OR
RECREATIONAL
EQUIPMENT.—Section 
6416(b)(2) is amended by adding at the end the 
following new sentence: ‘‘In the case of taxes 
imposed by subchapter C or D of chapter 32, 
subparagraph (E) shall not apply.’’. 
(C) CONFORMING AMENDMENTS.—Section 
6416(b)(2) is amended—
(i) by striking ‘‘Subparagraphs (C) 
and (D)’’ in the second sentence and in-
serting ‘‘Subparagraphs (C), (D), and 
(E)’’. 
(ii) by striking ‘‘(B), (C), and (D)’’ 
and inserting ‘‘(B), (C), (D), and (E)’’. 
(2) SALES OF TIRES.—Section 6416(b)(4)(B) is 
amended by striking ‘‘or’’ at the end of clause (i),
802
by striking the period at the end of clause (ii) and 
inserting ‘‘, or’’, and by adding after clause (ii) the 
following: 
‘‘(iii) sold to a qualified blood collector 
organization for its exclusive use in con-
nection with a vehicle the organization cer-
tifies will be primarily used in the collec-
tion, storage, or transportation of blood.’’. 
(f) DEFINITION OF QUALIFIED BLOOD COLLECTOR 
ORGANIZATION.—Section 7701(a) is amended by inserting 
at the end the following new paragraph: 
‘‘(49) QUALIFIED BLOOD COLLECTOR ORGANI-
ZATION.—The term ‘qualified blood collector organi-
zation’ means an organization which is—
‘‘(A) described in section 501(c)(3) and ex-
empt from tax under section 501(a), 
‘‘(B) primarily engaged in the activity of 
the collection of human blood, 
‘‘(C) registered with the Secretary for pur-
poses of excise tax exemptions, and 
‘‘(D) registered by the Food and Drug Ad-
ministration to collect blood.’’. 
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall take effect on January 1, 2007.
803
(2) SUBSECTION (d).—The amendment made 
by subsection (d) shall apply to taxable periods be-
ginning on or after July 1, 2007. 
Subtitle B—Reforming Exempt 
Organizations 
PART 1—GENERAL REFORMS 
SEC. 1211. REPORTING ON CERTAIN ACQUISITIONS OF IN-
TERESTS 
IN 
INSURANCE 
CONTRACTS 
IN 
WHICH CERTAIN EXEMPT ORGANIZATIONS 
HOLD AN INTEREST. 
(a) REPORTING REQUIREMENTS.—
(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61 (relating to information 
concerning transactions with other persons), as 
amended by this Act, is amended by adding at the 
end the following new section: 
‘‘SEC. 6050V. RETURNS RELATING TO APPLICABLE INSUR-
ANCE CONTRACTS IN WHICH CERTAIN EX-
EMPT ORGANIZATIONS HOLD INTERESTS. 
‘‘(a) IN GENERAL.—Each applicable exempt organi-
zation which makes a reportable acquisition shall make the 
return described in subsection (c). 
‘‘(b) TIME FOR MAKING RETURN.—Any applicable 
exempt organization required to make a return under sub-
804
section (a) shall file such return at such time as may be 
established by the Secretary. 
‘‘(c) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary pre-
scribes, 
‘‘(2) contains the name, address, and taxpayer 
identification number of the applicable exempt orga-
nization and the issuer of the applicable insurance 
contract, and 
‘‘(3) contains such other information as the 
Secretary may prescribe. 
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) REPORTABLE
ACQUISITION.—The term 
‘reportable acquisition’ means the acquisition by an 
applicable exempt organization of a direct or indirect 
interest in any applicable insurance contract in any 
case in which such acquisition is a part of a struc-
tured transaction involving a pool of such contracts. 
‘‘(2) APPLICABLE INSURANCE CONTRACT.—
‘‘(A) IN GENERAL.—The term ‘applicable 
insurance contract’ means any life insurance, 
annuity, or endowment contract with respect to 
which both an applicable exempt organization 
and a person other than an applicable exempt
805
organization have directly or indirectly held an 
interest in the contract (whether or not at the 
same time). 
‘‘(B) EXCEPTIONS.—Such term shall not 
include a life insurance, annuity, or endowment 
contract if—
‘‘(i) all persons directly or indirectly 
holding any interest in the contract (other 
than applicable exempt organizations) have 
an insurable interest in the insured under 
the contract independent of any interest of 
an applicable exempt organization in the 
contract, 
‘‘(ii) the sole interest in the contract 
of an applicable exempt organization or 
each person other than an applicable ex-
empt organization is as a named bene-
ficiary, or 
‘‘(iii) the sole interest in the contract 
of each person other than an applicable ex-
empt organization is—
‘‘(I) as a beneficiary of a trust 
holding an interest in the contract, 
but only if the person’s designation as 
such beneficiary was made without
806
consideration and solely on a purely 
gratuitous basis, or 
‘‘(II) as a trustee who holds an 
interest in the contract in a fiduciary 
capacity solely for the benefit of appli-
cable exempt organizations or persons 
otherwise described in subclause (I) or 
clause (i) or (ii). 
‘‘(3) APPLICABLE
EXEMPT
ORGANIZATION.—
The term ‘applicable exempt organization’ means—
‘‘(A) an organization described in section 
170(c), 
‘‘(B) an organization described in section 
168(h)(2)(A)(iv), or 
‘‘(C) an organization not described in 
paragraph (1) or (2) which is described in sec-
tion 2055(a) or section 2522(a). 
‘‘(e) TERMINATION.—This section shall not apply to 
reportable acquisitions occurring after the date which is 
2 years after the date of the enactment of this section.’’. 
(2) CONFORMING AMENDMENT.—The table of 
sections for subpart B of part III of subchapter A 
of chapter 61 is amended by adding at the end the 
following new item:
‘‘Sec. 6050V. Returns relating to applicable insurance contracts in which cer-
tain exempt organizations hold interests.’’.
807
(b) PENALTIES.—
(1) IN GENERAL.—Subparagraph (B) of section 
6724(d)(1), as amended by this Act, is amended by 
redesignating clauses (xiv) through (xix) as clauses 
(xv) through (xx) and by inserting after clause (xiii) 
the following new clause: 
‘‘(xiv) section 6050V (relating to re-
turns relating to applicable insurance con-
tracts in which certain exempt organiza-
tions hold interests),’’. 
(2) 
INTENTIONAL
DISREGARD.—Section 
6721(e)(2) is amended by striking ‘‘or’’ at the end 
of subparagraph (B), by striking ‘‘and’’ at the end 
of subparagraph (C) and inserting ‘‘or’’, and by add-
ing at the end the following new subparagraph: 
‘‘(D) in the case of a return required to be 
filed under section 6050V, 10 percent of the 
value of the benefit of any contract with respect 
to which information is required to be included 
on the return, and’’. 
(c) STUDY.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall undertake a study on—
(A) the use by tax exempt organizations of 
applicable insurance contracts (as defined under
808
section 6050V(d)(2) of the Internal Revenue 
Code of 1986, as added by subsection (a)) for 
the purpose of sharing the benefits of the orga-
nization’s insurable interest in individuals in-
sured under such contracts with investors, and 
(B) whether such activities are consistent 
with the tax exempt status of such organiza-
tions. 
(2) REPORT.—Not later than 30 months after 
the date of the enactment of this Act, the Secretary 
of the Treasury shall report on the study conducted 
under paragraph (1) to the Committee on Finance 
of the Senate and the Committee on Ways and 
Means of the House of Representatives. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to acquisitions of contracts after 
the date of enactment of this Act. 
SEC. 1212. INCREASE IN PENALTY EXCISE TAXES RELATING 
TO PUBLIC CHARITIES, SOCIAL WELFARE OR-
GANIZATIONS, AND PRIVATE FOUNDATIONS. 
(a) TAXES ON SELF-DEALING AND EXCESS BENEFIT 
TRANSACTIONS.—
(1) IN GENERAL.—Section 4941(a) (relating to 
initial taxes) is amended—
809
(A) in paragraph (1), by striking ‘‘5 per-
cent’’ and inserting ‘‘10 percent’’, and 
(B) in paragraph (2), by striking ‘‘21⁄2 
percent’’ and inserting ‘‘5 percent’’. 
(2) INCREASED LIMITATION FOR MANAGERS ON 
SELF-DEALING.—Section 4941(c)(2) is amended by 
striking ‘‘$10,000’’ each place it appears in the text 
and heading thereof and inserting ‘‘$20,000’’. 
(3) INCREASED LIMITATION FOR MANAGERS ON 
EXCESS
BENEFIT
TRANSACTIONS.—Section 
4958(d)(2) is amended by striking ‘‘$10,000’’ and 
inserting ‘‘$20,000’’. 
(b) TAXES ON FAILURE TO DISTRIBUTE INCOME.—
Section 4942(a) (relating to initial tax) is amended by 
striking ‘‘15 percent’’ and inserting ‘‘30 percent’’. 
(c) TAXES ON EXCESS BUSINESS HOLDINGS.—Sec-
tion 4943(a)(1) (relating to imposition) is amended by 
striking ‘‘5 percent’’ and inserting ‘‘10 percent’’. 
(d) TAXES ON INVESTMENTS WHICH JEOPARDIZE 
CHARITABLE PURPOSE.—
(1) IN GENERAL.—Section 4944(a) (relating to 
initial taxes) is amended by striking ‘‘5 percent’’ 
both places it appears and inserting ‘‘10 percent’’. 
(2) INCREASED LIMITATION FOR MANAGERS.—
Section 4944(d)(2) is amended—
810
(A) by striking ‘‘$5,000,’’ and inserting 
‘‘$10,000,’’, and 
(B) by striking ‘‘$10,000.’’ and inserting 
‘‘$20,000.’’. 
(e) TAXES ON TAXABLE EXPENDITURES.—
(1) IN GENERAL.—Section 4945(a) (relating to 
initial taxes) is amended—
(A) in paragraph (1), by striking ‘‘10 per-
cent’’ and inserting ‘‘20 percent’’, and 
(B) in paragraph (2), by striking ‘‘21⁄2 
percent’’ and inserting ‘‘5 percent’’. 
(2) INCREASED LIMITATION FOR MANAGERS.—
Section 4945(c)(2) is amended—
(A) by striking ‘‘$5,000,’’ and inserting 
‘‘$10,000,’’, and 
(B) by striking ‘‘$10,000.’’ and inserting 
‘‘$20,000.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act.
811
SEC. 1213. REFORM OF CHARITABLE CONTRIBUTIONS OF 
CERTAIN EASEMENTS IN REGISTERED HIS-
TORIC DISTRICTS AND REDUCED DEDUCTION 
FOR PORTION OF QUALIFIED CONSERVATION 
CONTRIBUTION ATTRIBUTABLE TO REHA-
BILITATION CREDIT. 
(a) SPECIAL RULES WITH RESPECT TO BUILDINGS 
IN REGISTERED HISTORIC DISTRICTS.—
(1) IN
GENERAL.—Paragraph (4) of section 
170(h) (relating to definition of conservation pur-
pose) is amended by redesignating subparagraph (B) 
as subparagraph (C) and by inserting after subpara-
graph (A) the following new subparagraph: 
‘‘(B) SPECIAL RULES WITH RESPECT TO 
BUILDINGS
IN
REGISTERED
HISTORIC
DIS-
TRICTS.—In the case of any contribution of a 
qualified real property interest which is a re-
striction with respect to the exterior of a build-
ing described in subparagraph (C)(ii), such con-
tribution shall not be considered to be exclu-
sively for conservation purposes unless—
‘‘(i) such interest—
‘‘(I) includes a restriction which 
preserves the entire exterior of the 
building (including the front, sides, 
rear, and height of the building), and
812
‘‘(II) prohibits any change in the 
exterior of the building which is incon-
sistent with the historical character of 
such exterior, 
‘‘(ii) the donor and donee enter into a 
written agreement certifying, under pen-
alty of perjury, that the donee—
‘‘(I) is a qualified organization 
(as defined in paragraph (3)) with a 
purpose of environmental protection, 
land conservation, open space preser-
vation, or historic preservation, and 
‘‘(II) has the resources to man-
age and enforce the restriction and a 
commitment to do so, and 
‘‘(iii) in the case of any contribution 
made in a taxable year beginning after the 
date of the enactment of this subpara-
graph, the taxpayer includes with the tax-
payer’s return for the taxable year of the 
contribution—
‘‘(I) a qualified appraisal (within 
the meaning of subsection (f)(11)(E)) 
of the qualified property interest,
813
‘‘(II) photographs of the entire 
exterior of the building, and 
‘‘(III) a description of all restric-
tions on the development of the build-
ing.’’. 
(b) DISALLOWANCE
OF DEDUCTION
FOR STRUC-
TURES
AND
LAND
IN
REGISTERED
HISTORIC
DIS-
TRICTS.—Subparagraph (C) of section 170(h)(4), as re-
designated by subsection (a), is amended—
(1) by striking ‘‘any building, structure, or land 
area which’’, 
(2) by inserting ‘‘any building, structure, or 
land area which’’ before ‘‘is listed’’ in clause (i), and 
(3) by inserting ‘‘any building which’’ before ‘‘is 
located’’ in clause (ii). 
(c) FILING FEE FOR CERTAIN CONTRIBUTIONS.—
Subsection (f) of section 170 (relating to disallowance of 
deduction in certain cases and special rules) is amended 
by adding at the end the following new paragraph: 
‘‘(13) CONTRIBUTIONS OF CERTAIN INTERESTS 
IN BUILDINGS LOCATED IN REGISTERED HISTORIC 
DISTRICTS.—
‘‘(A) IN GENERAL.—No deduction shall be 
allowed with respect to any contribution de-
scribed in subparagraph (B) unless the tax-
814
payer includes with the return for the taxable 
year of the contribution a $500 filing fee. 
‘‘(B) CONTRIBUTION DESCRIBED.—A con-
tribution is described in this subparagraph if 
such contribution is a qualified conservation 
contribution (as defined in subsection (h)) 
which is a restriction with respect to the exte-
rior of a building described in subsection 
(h)(4)(C)(ii) and for which a deduction is 
claimed in excess of $10,000. 
‘‘(C) DEDICATION OF FEE.—Any fee col-
lected under this paragraph shall be used for 
the enforcement of the provisions of subsection 
(h).’’. 
(d) REDUCED DEDUCTION FOR PORTION OF QUALI-
FIED CONSERVATION CONTRIBUTION ATTRIBUTABLE TO 
THE REHABILITATION CREDIT.—Subsection (f) of section 
170, as amended by subsection (c), is amended by adding 
at the end the following new paragraph: 
‘‘(14) REDUCTION
FOR
AMOUNTS
ATTRIB-
UTABLE TO REHABILITATION CREDIT.—In the case 
of any qualified conservation contribution (as de-
fined in subsection (h)), the amount of the deduction 
allowed under this section shall be reduced by an
815
amount which bears the same ratio to the fair mar-
ket value of the contribution as—
‘‘(A) the sum of the credits allowed to the 
taxpayer under section 47 for the 5 preceding 
taxable years with respect to any building which 
is a part of such contribution, bears to 
‘‘(B) the fair market value of the building 
on the date of the contribution.’’. 
(e) EFFECTIVE DATES.—
(1) SPECIAL RULES FOR BUILDINGS IN REG-
ISTERED
HISTORIC
DISTRICTS.—The amendments 
made by subsection (a) shall apply to contributions 
made after July 25, 2006. 
(2) DISALLOWANCE OF DEDUCTION FOR STRUC-
TURES
AND
LAND; REDUCTION
FOR
REHABILITA-
TION
CREDIT.—The amendments made by sub-
sections (b) and (d) shall apply to contributions 
made after the date of the enactment of this Act. 
(3) FILING
FEE.—The amendment made by 
subsection (c) shall apply to contributions made 180 
days after the date of the enactment of this Act. 
SEC. 1214. CHARITABLE CONTRIBUTIONS OF TAXIDERMY 
PROPERTY. 
(a) DENIAL OF LONG-TERM CAPITAL GAIN.—Sub-
paragraph (B) of section 170(e)(1) is amended by striking
816
‘‘or’’ at the end of clause (ii), by inserting ‘‘or’’ at the 
end of clause (iii), and by inserting after clause (iii) the 
following new clause: 
‘‘(iv) of any taxidermy property which 
is contributed by the person who prepared, 
stuffed, or mounted the property or by any 
person who paid or incurred the cost of 
such preparation, stuffing, or mounting,’’. 
(b) TREATMENT OF BASIS.—Subsection (f) of section 
170, as amended by this Act, is amended by adding at 
the end the following new paragraph: 
‘‘(15) SPECIAL RULE FOR TAXIDERMY PROP-
ERTY.—
‘‘(A) BASIS.—For purposes of this section 
and notwithstanding section 1012, in the case 
of a charitable contribution of taxidermy prop-
erty which is made by the person who prepared, 
stuffed, or mounted the property or by any per-
son who paid or incurred the cost of such prep-
aration, stuffing, or mounting, only the cost of 
the preparing, stuffing, or mounting shall be in-
cluded in the basis of such property. 
‘‘(B) TAXIDERMY
PROPERTY.—For pur-
poses of this section, the term ‘taxidermy prop-
erty’ means any work of art which—
817
‘‘(i) is the reproduction or preserva-
tion of an animal, in whole or in part, 
‘‘(ii) is prepared, stuffed, or mounted 
for purposes of recreating one or more 
characteristics of such animal, and 
‘‘(iii) contains a part of the body of 
the dead animal.’’. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made after July 
25, 2006. 
SEC. 1215. RECAPTURE OF TAX BENEFIT FOR CHARITABLE 
CONTRIBUTIONS OF EXEMPT USE PROPERTY 
NOT USED FOR AN EXEMPT USE. 
(a) RECAPTURE OF DEDUCTION ON CERTAIN SALES 
OF EXEMPT USE PROPERTY.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section 
170(e)(1)(B) (related to certain contributions of or-
dinary income and capital gain property) is amended 
to read as follows: 
‘‘(i) of tangible personal property—
‘‘(I) if the use by the donee is 
unrelated to the purpose or function 
constituting the basis for its exemp-
tion under section 501 (or, in the case 
of a governmental unit, to any pur-
818
pose or function described in sub-
section (c)), or 
‘‘(II) which is applicable property 
(as defined in paragraph (7)(C)) 
which is sold, exchanged, or otherwise 
disposed of by the donee before the 
last day of the taxable year in which 
the contribution was made and with 
respect to which the donee has not 
made a certification in accordance 
with paragraph (7)(D),’’. 
(2) DISPOSITIONS AFTER CLOSE OF TAXABLE 
YEAR.—Section 170(e) is amended by adding at the 
end the following new paragraph: 
‘‘(7) RECAPTURE OF DEDUCTION ON CERTAIN 
DISPOSITIONS OF EXEMPT USE PROPERTY.—
‘‘(A) IN GENERAL.—In the case of an ap-
plicable disposition of applicable property, there 
shall be included in the income of the donor of 
such property for the taxable year of such 
donor in which the applicable disposition occurs 
an amount equal to the excess (if any) of—
‘‘(i) the amount of the deduction al-
lowed to the donor under this section with 
respect to such property, over
819
‘‘(ii) the donor’s basis in such prop-
erty at the time such property was contrib-
uted. 
‘‘(B) APPLICABLE DISPOSITION.—For pur-
poses of this paragraph, the term ‘applicable 
disposition’ means any sale, exchange, or other 
disposition by the donee of applicable prop-
erty—
‘‘(i) after the last day of the taxable 
year of the donor in which such property 
was contributed, and 
‘‘(ii) before the last day of the 3-year 
period beginning on the date of the con-
tribution of such property, 
unless the donee makes a certification in ac-
cordance with subparagraph (D). 
‘‘(C) APPLICABLE
PROPERTY.—For pur-
poses of this paragraph, the term ‘applicable 
property’ means charitable deduction property 
(as defined in section 6050L(a)(2)(A))—
‘‘(i) which is tangible personal prop-
erty the use of which is identified by the 
donee as related to the purpose or function 
constituting the basis of the donee’s ex-
emption under section 501, and
820
‘‘(ii) for which a deduction in excess 
of the donor’s basis is allowed. 
‘‘(D) 
CERTIFICATION.—A 
certification 
meets the requirements of this subparagraph if 
it is a written statement which is signed under 
penalty of perjury by an officer of the donee or-
ganization and—
‘‘(i) which—
‘‘(I) certifies that the use of the 
property by the donee was related to 
the purpose or function constituting 
the basis for the donee’s exemption 
under section 501, and 
‘‘(II) describes how the property 
was used and how such use furthered 
such purpose or function, or 
‘‘(ii) which—
‘‘(I) states the intended use of 
the property by the donee at the time 
of the contribution, and 
‘‘(II) certifies that such intended 
use has become impossible or infeasi-
ble to implement.’’.
821
(b) REPORTING REQUIREMENTS.—Paragraph (1) of 
section 6050L(a) (relating to returns relating to certain 
dispositions of donated property) is amended—
(1) by striking ‘‘2 years’’ and inserting ‘‘3 
years’’, and 
(2) by striking ‘‘and’’ at the end of subpara-
graph (D), by striking the period at the end of sub-
paragraph (E) and inserting a comma, and by in-
serting at the end the following: 
‘‘(F) a description of the donee’s use of the 
property, and 
‘‘(G) a statement indicating whether the 
use of the property was related to the purpose 
or function constituting the basis for the 
donee’s exemption under section 501. 
In any case in which the donee indicates that the 
use of applicable property (as defined in section 
170(e)(7)(C)) was related to the purpose or function 
constituting the basis for the exemption of the donee 
under section 501 under subparagraph (G), the 
donee shall include with the return the certification 
described in section 170(e)(7)(D) if such certifi-
cation is made under section 170(e)(7).’’. 
(c) PENALTY.—
822
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is 
amended by inserting after section 6720A the fol-
lowing new section: 
‘‘SEC. 6720B. FRAUDULENT IDENTIFICATION OF EXEMPT 
USE PROPERTY. 
‘‘In addition to any criminal penalty provided by law, 
any person who identifies applicable property (as defined 
in section 170(e)(7)(C)) as having a use which is related 
to a purpose or function constituting the basis for the 
donee’s exemption under section 501 and who knows that 
such property is not intended for such a use shall pay a 
penalty of $10,000.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part I of subchapter B of chapter 68 is 
amended by adding after the item relating to section 
6720A the following new item:
‘‘Sec. 6720B. Fraudulent identification of exempt use property.’’.
(d) EFFECTIVE DATE.—
(1) RECAPTURE.—The amendments made by 
subsection (a) shall apply to contributions after Sep-
tember 1, 2006. 
(2) REPORTING.—The amendments made by 
subsection (b) shall apply to returns filed after Sep-
tember 1, 2006.
823
(3) PENALTY.—The amendments made by sub-
section (c) shall apply to identifications made after 
the date of the enactment of this Act. 
SEC. 1216. LIMITATION OF DEDUCTION FOR CHARITABLE 
CONTRIBUTIONS OF CLOTHING AND HOUSE-
HOLD ITEMS. 
(a) IN GENERAL.—Subsection (f) of section 170, as 
amended by this Act, is amended by adding at the end 
the following new paragraph: 
‘‘(16) CONTRIBUTIONS
OF
CLOTHING
AND 
HOUSEHOLD ITEMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual, partnership, or corporation, no deduc-
tion shall be allowed under subsection (a) for 
any contribution of clothing or a household item 
unless such clothing or household item is in 
good used condition or better. 
‘‘(B) ITEMS
OF
MINIMAL
VALUE.—Not-
withstanding subparagraph (A), the Secretary 
may by regulation deny a deduction under sub-
section (a) for any contribution of clothing or a 
household item which has minimal monetary 
value. 
‘‘(C) EXCEPTION
FOR
CERTAIN
PROP-
ERTY.—Subparagraphs (A) and (B) shall not
824
apply to any contribution of a single item of 
clothing or a household item for which a deduc-
tion of more than $500 is claimed if the tax-
payer includes with the taxpayer’s return a 
qualified appraisal with respect to the property. 
‘‘(D) HOUSEHOLD ITEMS.—For purposes 
of this paragraph—
‘‘(i) IN GENERAL.—The term ‘house-
hold items’ includes furniture, furnishings, 
electronics, appliances, linens, and other 
similar items. 
‘‘(ii) EXCLUDED ITEMS.—Such term 
does not include—
‘‘(I) food, 
‘‘(II) paintings, antiques, and 
other objects of art, 
‘‘(III) jewelry and gems, and 
‘‘(IV) collections. 
‘‘(E) 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 
denied at the partner or shareholder level.’’.
825
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made after the 
date of enactment of this Act. 
SEC. 1217. MODIFICATION OF RECORDKEEPING REQUIRE-
MENTS 
FOR 
CERTAIN 
CHARITABLE 
CON-
TRIBUTIONS. 
(a) RECORDKEEPING
REQUIREMENT.—Subsection 
(f) of section 170, as amended by this Act, is amended 
by adding at the end the following new paragraph: 
‘‘(17) RECORDKEEPING.—No deduction shall be 
allowed under subsection (a) for any contribution of 
a cash, check, or other monetary gift unless the 
donor maintains as a record of such contribution a 
bank record or a written communication from the 
donee showing the name of the donee organization, 
the date of the contribution, and the amount of the 
contribution.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in taxable 
years beginning after the date of the enactment of this 
Act. 
SEC. 1218. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN 
TANGIBLE PERSONAL PROPERTY. 
(a) INCOME TAX.—Section 170 (relating to chari-
table, etc., contributions and gifts) is amended by redesig-
826
nating subsection (o) as subsection (p) and by inserting 
after subsection (n) the following new subsection: 
‘‘(o) SPECIAL RULES FOR FRACTIONAL GIFTS.—
‘‘(1) DENIAL
OF
DEDUCTION
IN
CERTAIN 
CASES.—
‘‘(A) IN GENERAL.—No deduction shall be 
allowed for a contribution of an undivided por-
tion of a taxpayer’s entire interest in tangible 
personal property unless all interest in the 
property is held immediately before such con-
tribution by—
‘‘(i) the taxpayer, or 
‘‘(ii) the taxpayer and the donee. 
‘‘(B) EXCEPTIONS.—The Secretary may, 
by regulation, provide for exceptions to sub-
paragraph (A) in cases where all persons who 
hold an interest in the property make propor-
tional contributions of an undivided portion of 
the entire interest held by such persons. 
‘‘(2) VALUATION OF SUBSEQUENT GIFTS.—In 
the case of any additional contribution, the fair mar-
ket value of such contribution shall be determined by 
using the lesser of—
827
‘‘(A) the fair market value of the property 
at the time of the initial fractional contribution, 
or 
‘‘(B) the fair market value of the property 
at the time of the additional contribution. 
‘‘(3) RECAPTURE OF DEDUCTION IN CERTAIN 
CASES; ADDITION TO TAX.—
‘‘(A) RECAPTURE.—The Secretary shall 
provide for the recapture of the amount of any 
deduction allowed under this section (plus inter-
est) with respect to any contribution of an undi-
vided portion of a taxpayer’s entire interest in 
tangible personal property—
‘‘(i) in any case in which the donor 
does not contribute all of the remaining in-
terest in such property to the donee (or, if 
such donee is no longer in existence, to any 
person described in section 170(c)) before 
the earlier of—
‘‘(I) the date that is 10 years 
after the date of the initial fractional 
contribution, or 
‘‘(II) the date of the death of the 
donor, and
828
‘‘(ii) in any case in which the donee 
has not, during the period beginning on 
the date of the initial fractional contribu-
tion and ending on the date described in 
clause (i)—
‘‘(I) had substantial physical pos-
session of the property, and 
‘‘(II) used the property in a use 
which is related to a purpose or func-
tion constituting the basis for the or-
ganizations’ exemption under section 
501. 
‘‘(B) ADDITION TO TAX.—The tax imposed 
under this chapter for any taxable year for 
which there is a recapture under subparagraph 
(A) shall be increased by 10 percent of the 
amount so recaptured. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means any chari-
table contribution by the taxpayer of any inter-
est in property with respect to which the tax-
payer has previously made an initial fractional 
contribution.
829
‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any taxpayer, the first 
charitable contribution of an undivided portion 
of the taxpayer’s entire interest in any tangible 
personal property.’’. 
(b) ESTATE TAX.—Section 2055 (relating to trans-
fers for public, charitable, and religious uses) is amended 
by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection: 
‘‘(g) VALUATION OF SUBSEQUENT GIFTS.—
‘‘(1) IN GENERAL.—In the case of any addi-
tional contribution, the fair market value of such 
contribution shall be determined by using the lesser 
of—
‘‘(A) the fair market value of the property 
at the time of the initial fractional contribution, 
or 
‘‘(B) the fair market value of the property 
at the time of the additional contribution. 
‘‘(2) DEFINITIONS.—For purposes of this para-
graph—
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means a bequest, 
legacy, devise, or transfer described in sub-
830
section (a) of any interest in a property with re-
spect to which the decedent had previously 
made an initial fractional contribution. 
‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any decedent, any chari-
table contribution of an undivided portion of 
the decedent’s entire interest in any tangible 
personal property for which a deduction was al-
lowed under section 170.’’. 
(c) GIFT TAX.—Section 2522 (relating to charitable 
and similar gifts) is amended by redesignating subsection 
(e) as subsection (f) and by inserting after subsection (d) 
the following new subsection: 
‘‘(e) SPECIAL RULES FOR FRACTIONAL GIFTS.—
‘‘(1) DENIAL
OF
DEDUCTION
IN
CERTAIN 
CASES.—
‘‘(A) IN GENERAL.—No deduction shall be 
allowed for a contribution of an undivided por-
tion of a taxpayer’s entire interest in tangible 
personal property unless all interest in the 
property is held immediately before such con-
tribution by—
‘‘(i) the taxpayer, or 
‘‘(ii) the taxpayer and the donee.
831
‘‘(B) EXCEPTIONS.—The Secretary may, 
by regulation, provide for exceptions to sub-
paragraph (A) in cases where all persons who 
hold an interest in the property make propor-
tional contributions of an undivided portion of 
the entire interest held by such persons. 
‘‘(2) VALUATION OF SUBSEQUENT GIFTS.—In 
the case of any additional contribution, the fair mar-
ket value of such contribution shall be determined by 
using the lesser of—
‘‘(A) the fair market value of the property 
at the time of the initial fractional contribution, 
or 
‘‘(B) the fair market value of the property 
at the time of the additional contribution. 
‘‘(3) RECAPTURE OF DEDUCTION IN CERTAIN 
CASES; ADDITION TO TAX.—
‘‘(A) IN
GENERAL.—The Secretary shall 
provide for the recapture of an amount equal to 
any deduction allowed under this section (plus 
interest) with respect to any contribution of an 
undivided portion of a taxpayer’s entire interest 
in tangible personal property—
‘‘(i) in any case in which the donor 
does not contribute all of the remaining in-
832
terest in such property to the donee (or, if 
such donee is no longer in existence, to any 
person described in section 170(c)) before 
the earlier of—
‘‘(I) the date that is 10 years 
after the date of the initial fractional 
contribution, or 
‘‘(II) the date of the death of the 
donor, and 
‘‘(ii) in any case in which the donee 
has not, during the period beginning on 
the date of the initial fractional contribu-
tion and ending on the date described in 
clause (i)—
‘‘(I) had substantial physical pos-
session of the property, and 
‘‘(II) used the property in a use 
which is related to a purpose or func-
tion constituting the basis for the or-
ganizations’ exemption under section 
501. 
‘‘(B) ADDITION TO TAX.—The tax imposed 
under this chapter for any taxable year for 
which there is a recapture under subparagraph
833
(A) shall be increased by 10 percent of the 
amount so recaptured. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means any gift 
for which a deduction is allowed under sub-
section (a) or (b) of any interest in a property 
with respect to which the donor has previously 
made an initial fractional contribution. 
‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any donor, the first gift 
of an undivided portion of the donor’s entire in-
terest in any tangible personal property for 
which a deduction is allowed under subsection 
(a) or (b).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions, bequests, and 
gifts made after the date of the enactment of this Act. 
SEC. 1219. PROVISIONS RELATING TO SUBSTANTIAL AND 
GROSS OVERSTATEMENTS OF VALUATIONS. 
(a) MODIFICATION OF THRESHOLDS FOR SUBSTAN-
TIAL AND GROSS VALUATION MISSTATEMENTS.—
834
(1) 
SUBSTANTIAL
VALUATION 
MISSTATEMENT.—
(A) INCOME TAXES.—Subparagraph (A) of 
section 6662(e)(1) (relating to substantial valu-
ation misstatement under chapter 1) is amend-
ed by striking ‘‘200 percent’’ and inserting 
‘‘150 percent’’. 
(B) ESTATE AND GIFT TAXES.—Paragraph 
(1) of section 6662(g) is amended by striking 
‘‘50 percent’’ and inserting ‘‘65 percent’’. 
(2) GROSS VALUATION MISSTATEMENT.—
(A) INCOME TAXES.—Clauses (i) and (ii) 
of section 6662(h)(2)(A) (relating to increase in 
penalty 
in 
case 
of 
gross 
valuation 
misstatements) are amended to read as follows: 
‘‘(i) in paragraph (1)(A), ‘200 per-
cent’ for ‘150 percent’, 
‘‘(ii) in paragraph (1)(B)(i)—
‘‘(I) ‘400 percent’ for ‘200 per-
cent’, and 
‘‘(II) ‘25 percent’ for ‘50 per-
cent’, and’’. 
(B) ESTATE AND GIFT TAXES.—Subpara-
graph (C) of section 6662(h)(2) is amended by
835
striking ‘‘ ‘25 percent’ for ‘50 percent’ ’’ and in-
serting ‘‘ ‘40 percent’ for ‘65 percent’ ’’. 
(3) ELIMINATION OF REASONABLE CAUSE EX-
CEPTION
FOR
GROSS
MISSTATEMENTS.—Section 
6664(c)(2) (relating to reasonable cause exception 
for underpayments) is amended by striking ‘‘para-
graph (1) shall not apply unless’’ and inserting 
‘‘paragraph (1) shall not apply. The preceding sen-
tence shall not apply to a substantial valuation over-
statement under chapter 1 if’’. 
(b) PENALTY ON APPRAISERS WHOSE APPRAISALS 
RESULT
IN
SUBSTANTIAL
OR
GROSS
VALUATION 
MISSTATEMENTS.—
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is 
amended by inserting after section 6695 the fol-
lowing new section: 
‘‘SEC. 
6695A. 
SUBSTANTIAL 
AND 
GROSS 
VALUATION 
MISSTATEMENTS ATTRIBUTABLE TO INCOR-
RECT APPRAISALS. 
‘‘(a) IMPOSITION OF PENALTY.—If—
‘‘(1) a person prepares an appraisal of the 
value of property and such person knows, or reason-
ably should have known, that the appraisal would be
836
used in connection with a return or a claim for re-
fund, and 
‘‘(2) the claimed value of the property on a re-
turn or claim for refund which is based on such ap-
praisal 
results 
in 
a 
substantial 
valuation 
misstatement under chapter 1 (within the meaning 
of 
section 
6662(e)), 
or 
a 
gross 
valuation 
misstatement (within the meaning of section 
6662(h)), with respect to such property, then such 
person shall pay a penalty in the amount determined 
under subsection (b). 
‘‘(b) AMOUNT OF PENALTY.—The amount of the 
penalty imposed under subsection (a) on any person with 
respect to an appraisal shall be equal to the lesser of—
‘‘(1) the greater of—
‘‘(A) 10 percent of the amount of the un-
derpayment (as defined in section 6664(a)) at-
tributable to the misstatement described in sub-
section (a)(2), or 
‘‘(B) $1,000, or 
‘‘(2) 125 percent of the gross income received 
by the person described in subsection (a)(1) from 
the preparation of the appraisal. 
‘‘(c) EXCEPTION.—No penalty shall be imposed 
under subsection (a) if the person establishes to the satis-
837
faction of the Secretary that the value established in the 
appraisal was more likely than not the proper value.’’. 
(2) RULES APPLICABLE TO PENALTY.—Section 
6696 (relating to rules applicable with respect to 
sections 6694 and 6695) is amended—
(A) by striking ‘‘6694 and 6695’’ each 
place it appears in the text and heading thereof 
and inserting ‘‘6694, 6695, and 6695A’’, and 
(B) by striking ‘‘6694 or 6695’’ each place 
it appears in the text and inserting ‘‘6694, 
6695, or 6695A’’. 
(3) CONFORMING AMENDMENT.—The table of 
sections for part I of subchapter B of chapter 68 is 
amended by striking the item relating to section 
6696 and inserting the following new items:
‘‘Sec. 6695A. Substantial and gross valuation misstatements attributable to in-
correct appraisals. 
‘‘Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 6695A.’’.
(c) QUALIFIED APPRAISERS AND APPRAISALS.—
(1) IN GENERAL.—Subparagraph (E) of section 
170(f)(11) is amended to read as follows: 
‘‘(E) QUALIFIED
APPRAISAL
AND
AP-
PRAISER.—For purposes of this paragraph—
‘‘(i) 
QUALIFIED
APPRAISAL.—The 
term ‘qualified appraisal’ means, with re-
spect to any property, an appraisal of such 
property which—
838
‘‘(I) is treated for purposes of 
this paragraph as a qualified ap-
praisal under regulations or other 
guidance prescribed by the Secretary, 
and 
‘‘(II) is conducted by a qualified 
appraiser in accordance with generally 
accepted appraisal standards and any 
regulations or other guidance pre-
scribed under subclause (I). 
‘‘(ii) QUALIFIED APPRAISER.—Except 
as provided in clause (iii), the term ‘quali-
fied appraiser’ means an individual who—
‘‘(I) has earned an appraisal des-
ignation from a recognized profes-
sional appraiser organization or has 
otherwise met minimum education 
and experience requirements set forth 
in regulations prescribed by the Sec-
retary, 
‘‘(II) regularly performs apprais-
als for which the individual receives 
compensation, and 
‘‘(III) meets such other require-
ments as may be prescribed by the
839
Secretary in regulations or other guid-
ance. 
‘‘(iii) SPECIFIC APPRAISALS.—An in-
dividual shall not be treated as a qualified 
appraiser with respect to any specific ap-
praisal unless—
‘‘(I) the individual demonstrates 
verifiable education and experience in 
valuing the type of property subject to 
the appraisal, and 
‘‘(II) the individual has not been 
prohibited from practicing before the 
Internal Revenue Service by the Sec-
retary under section 330(c) of title 
31, United States Code, at any time 
during the 3-year period ending on 
the date of the appraisal.’’. 
(2) REASONABLE
CAUSE
EXCEPTION.—Sub-
paragraphs (B) and (C) of section 6664(c)(3) are 
amended to read as follows: 
‘‘(B) QUALIFIED
APPRAISAL.—The term 
‘qualified appraisal’ has the meaning given such 
term by section 170(f)(11)(E)(i).
840
‘‘(C) QUALIFIED
APPRAISER.—The term 
‘qualified appraiser’ has the meaning given such 
term by section 170(f)(11)(E)(ii).’’. 
(d) DISCIPLINARY ACTIONS AGAINST APPRAISERS.—
Section 330(c) of title 31, United States Code, is amended 
by striking ‘‘with respect to whom a penalty has been as-
sessed under section 6701(a) of the Internal Revenue 
Code of 1986’’. 
(e) EFFECTIVE DATES.—
(1) MISSTATEMENT
PENALTIES.—Except as 
provided in paragraph (3), the amendments made by 
subsection (a) shall apply to returns filed after the 
date of the enactment of this Act. 
(2) APPRAISER
PROVISIONS.—Except as pro-
vided in paragraph (3), the amendments made by 
subsections (b), (c), and (d) shall apply to appraisals 
prepared with respect to returns or submissions filed 
after the date of the enactment of this Act. 
(3) 
SPECIAL
RULE
FOR
CERTAIN
EASE-
MENTS.—In the case of a contribution of a qualified 
real property interest which is a restriction with re-
spect to the exterior of a building described in sec-
tion 170(h)(4)(C)(ii) of the Internal Revenue Code 
of 1986, and an appraisal with respect to the con-
tribution, the amendments made by subsections (a)
841
and (b) shall apply to returns filed after July 25, 
2006. 
SEC. 1220. ADDITIONAL STANDARDS FOR CREDIT COUN-
SELING ORGANIZATIONS. 
(a) IN GENERAL.—Section 501 (relating to exemp-
tion from tax on corporations, certain trusts, etc.) is 
amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new 
subsection: 
‘‘(q) SPECIAL RULES FOR CREDIT COUNSELING OR-
GANIZATIONS.—
‘‘(1) IN GENERAL.—An organization with re-
spect to which the provision of credit counseling 
services is a substantial purpose shall not be exempt 
from tax under subsection (a) unless such organiza-
tion is described in paragraph (3) or (4) of sub-
section (c) and such organization is organized and 
operated in accordance with the following require-
ments: 
‘‘(A) The organization—
‘‘(i) provides credit counseling services 
tailored to the specific needs and cir-
cumstances of consumers, 
‘‘(ii) makes no loans to debtors (other 
than loans with no fees or interest) and