(ii) APPLICABLE 2006 PERCENTAGE.—
The term ‘‘applicable 2006 percentage’’ 
means the number of days in the specified 
transitional taxable year before January 1, 
2007, divided by the number of days in 
such taxable year. 
(iii) APPLICABLE 2007 PERCENTAGE.—
The term ‘‘applicable 2007 percentage’’ 
means the number of days in the specified 
transitional taxable year after December 31, 
2006, divided by the number of days in 
such taxable year. 
(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: 
‘‘(5) ELECTION
OF
ALTERNATIVE
SIMPLIFIED 
CREDIT.—
‘‘(A) IN GENERAL.—At the election of the 
taxpayer, the credit determined under subsection 
(a)(1) shall be equal to 12 percent of so much of 
the qualified research expenses for the taxable
year as exceeds 50 percent of the average quali-
fied research expenses for the 3 taxable years pre-
ceding the taxable year for which the credit is 
being determined. 
‘‘(B) SPECIAL RULE IN CASE OF NO QUALI-
FIED RESEARCH EXPENSES IN ANY OF 3 PRE-
CEDING TAXABLE YEARS.—
‘‘(i) TAXPAYERS TO WHICH SUBPARA-
GRAPH
APPLIES.—The credit under this 
paragraph shall be determined under this 
subparagraph if the taxpayer has no quali-
fied research expenses in any one of the 3 
taxable years preceding the taxable year for 
which the credit is being determined. 
‘‘(ii) CREDIT RATE.—The credit deter-
mined under this subparagraph shall be 
equal to 6 percent of the qualified research 
expenses for the taxable year. 
‘‘(C) ELECTION.—An election under this 
paragraph shall apply to the taxable year for 
which made and all succeeding taxable years un-
less revoked with the consent of the Secretary. An 
election under this paragraph may not be made 
for any taxable year to which an election under 
paragraph (4) applies.’’.
(2) TRANSITION RULE FOR DEEMED REVOCATION 
OF ELECTION OF ALTERNATIVE INCREMENTAL CRED-
IT.—In the case of an election under section 41(c)(4) 
of the Internal Revenue Code of 1986 which applies 
to the taxable year which includes January 1, 2007, 
such election shall be treated as revoked with the con-
sent of the Secretary of the Treasury if the taxpayer 
makes an election under section 41(c)(5) of such Code 
(as added by this subsection) for such year. 
(3) EFFECTIVE DATE.—Except as provided in 
paragraph (4), the amendments made by this sub-
section shall apply to taxable years ending after De-
cember 31, 2006. 
(4) TRANSITION RULE FOR NONCALENDAR TAX-
ABLE YEARS.—
(A) IN GENERAL.—In the case of a specified 
transitional taxable year for which an election 
under section 41(c)(5) of the Internal Revenue 
Code of 1986 (as added by this subsection) ap-
plies, the credit determined under section 
41(a)(1) of such Code shall be equal to the sum 
of—
(i) the applicable 2006 percentage mul-
tiplied by the amount determined under sec-
tion 41(a)(1) of such Code (as in effect for
taxable years ending on December 31, 
2006), plus 
(ii) the applicable 2007 percentage 
multiplied by the amount determined under 
section 41(c)(5) of such Code (as in effect 
for taxable years ending on January 1, 
2007). 
(B) DEFINITIONS
AND
SPECIAL
RULES.—
For purposes of subparagraph (A)—
(i) DEFINITIONS.—Terms used in this 
paragraph which are also used in subsection 
(b)(3) shall have the respective meanings 
given such terms in such subsection. 
(ii) DUAL
ELECTIONS
PERMITTED.—
Elections under paragraphs (4) and (5) of 
section 41(c) of such Code may both apply 
for the specified transitional taxable year. 
(iii) DEFERRAL OF DEEMED ELECTION 
REVOCATION.—Any election under section 
41(c)(4) of the Internal Revenue Code of 
1986 treated as revoked under paragraph 
(2) shall be treated as revoked for the tax-
able year after the specified transitional 
taxable year.
SEC. 105. WORK OPPORTUNITY TAX CREDIT AND WELFARE-
TO-WORK CREDIT. 
(a) IN GENERAL.—Sections 51(c)(4)(B) and 51A(f) 
are each amended by striking ‘‘2005’’ and inserting ‘‘2007’’. 
(b) ELIGIBILITY OF EX-FELONS DETERMINED WITH-
OUT REGARD TO FAMILY INCOME.—Paragraph (4) of sec-
tion 51(d) is amended by adding ‘‘and’’ at the end of sub-
paragraph (A), by striking ‘‘, and’’ at the end of subpara-
graph (B) and inserting a period, and by striking all that 
follows subparagraph (B). 
(c) INCREASE IN MAXIMUM AGE FOR ELIGIBILITY OF 
FOOD
STAMP
RECIPIENTS.—Clause 
(i) 
of 
section 
51(d)(8)(A) is amended by striking ‘‘25’’ and inserting 
‘‘40’’. 
(d) EXTENSION OF PAPERWORK FILING DEADLINE.—
Section 51(d)(12)(A)(ii)(II) is amended by striking ‘‘21st 
day’’ and inserting ‘‘28th day’’. 
(e) CONSOLIDATION OF WORK OPPORTUNITY CREDIT 
WITH WELFARE-TO-WORK CREDIT.—
(1) IN
GENERAL.—Paragraph (1) of section 
51(d) is amended by striking ‘‘or’’ at the end of sub-
paragraph (G), by striking the period at the end of 
subparagraph (H) and inserting ‘‘, or’’, and by add-
ing at the end the following new subparagraph: 
‘‘(I) a long-term family assistance recipi-
ent.’’.
(2) LONG-TERM
FAMILY
ASSISTANCE
RECIPI-
ENT.—Subsection (d) of section 51 is amended by re-
designating paragraphs (10) through (12) as para-
graphs (11) through (13), respectively, and by insert-
ing after paragraph (9) the following new paragraph: 
‘‘(10) LONG-TERM FAMILY ASSISTANCE RECIPI-
ENT.—The term ‘long-term family assistance recipi-
ent’ means any individual who is certified by the des-
ignated local agency—
‘‘(A) as being a member of a family receiv-
ing assistance under a IV–A program (as defined 
in paragraph (2)(B)) for at least the 18-month 
period ending on the hiring date, 
‘‘(B)(i) as being a member of a family re-
ceiving such assistance for 18 months beginning 
after August 5, 1997, and 
‘‘(ii) as having a hiring date which is not 
more than 2 years after the end of the earliest 
such 18-month period, or 
‘‘(C)(i) as being a member of a family 
which ceased to be eligible for such assistance by 
reason of any limitation imposed by Federal or 
State law on the maximum period such assist-
ance is payable to a family, and
‘‘(ii) as having a hiring date which is not 
more than 2 years after the date of such ces-
sation.’’. 
(3) INCREASED
CREDIT
FOR
EMPLOYMENT
OF 
LONG-TERM
FAMILY
ASSISTANCE
RECIPIENTS.—Sec-
tion 51 is amended by inserting after subsection (d) 
the following new subsection: 
‘‘(e) CREDIT FOR SECOND-YEAR WAGES FOR EMPLOY-
MENT OF LONG-TERM FAMILY ASSISTANCE RECIPIENTS.—
‘‘(1) IN GENERAL.—With respect to the employ-
ment of a long-term family assistance recipient—
‘‘(A) the amount of the work opportunity 
credit determined under this section for the tax-
able year shall include 50 percent of the qualified 
second-year wages for such year, and 
‘‘(B) in lieu of applying subsection (b)(3), 
the amount of the qualified first-year wages, and 
the amount of qualified second-year wages, which 
may be taken into account with respect to such 
a recipient shall not exceed $10,000 per year. 
‘‘(2) QUALIFIED
SECOND-YEAR
WAGES.—For 
purposes of this subsection, the term ‘qualified second-
year wages’ means qualified wages—
‘‘(A) which are paid to a long-term family 
assistance recipient, and
‘‘(B) which are attributable to service ren-
dered during the 1-year period beginning on the 
day after the last day of the 1-year period with 
respect to such recipient determined under sub-
section (b)(2). 
‘‘(3) SPECIAL RULES FOR AGRICULTURAL AND 
RAILWAY LABOR.—If such recipient is an employee to 
whom subparagraph (A) or (B) of subsection (h)(1) 
applies, rules similar to the rules of such subpara-
graphs shall apply except that—
‘‘(A) such subparagraph (A) shall be ap-
plied by substituting ‘$10,000’ for ‘$6,000’, and 
‘‘(B) such subparagraph (B) shall be ap-
plied by substituting ‘$833.33’ for ‘$500’.’’. 
(4) REPEAL
OF
SEPARATE
WELFARE-TO-WORK 
CREDIT.—
(A) IN GENERAL.—Section 51A is hereby 
repealed. 
(B) CLERICAL AMENDMENT.—The table of 
sections for subpart F of part IV of subchapter 
A of chapter 1 is amended by striking the item 
relating to section 51A. 
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to individuals who begin work for the employer 
after December 31, 2005. 
(2) CONSOLIDATION.—The amendments made by 
subsections (b), (c), (d), and (e) shall apply to indi-
viduals who begin work for the employer after Decem-
ber 31, 2006. 
SEC. 106. ELECTION TO INCLUDE COMBAT PAY AS EARNED 
INCOME FOR PURPOSES OF EARNED INCOME 
CREDIT. 
(a) IN
GENERAL.—Section 32(c)(2)(B)(vi)(II) is 
amended by striking ‘‘2007’’ and inserting ‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 107. EXTENSION AND MODIFICATION OF QUALIFIED 
ZONE ACADEMY BONDS. 
(a) IN GENERAL.—Paragraph (1) of section 1397E(e) 
is amended by striking ‘‘and 2005’’ and inserting ‘‘2005, 
2006, and 2007’’. 
(b) SPECIAL RULES RELATING TO EXPENDITURES, 
ARBITRAGE, AND REPORTING.—
(1) IN GENERAL.—Section 1397E is amended—
(A) in subsection (d)(1), by striking ‘‘and’’ 
at the end of subparagraph (C)(iii), by striking 
the period at the end of subparagraph (D) and
inserting ‘‘, and’’, and by adding at the end the 
following new subparagraph: 
‘‘(E) the issue meets the requirements of 
subsections (f), (g), and (h).’’, and 
(B) by redesignating subsections (f), (g), 
(h), and (i) as subsection (i), (j), (k), and (l), re-
spectively, and by inserting after subsection (e) 
the following new subsections: 
‘‘(f) SPECIAL RULES RELATING TO EXPENDITURES.—
‘‘(1) IN GENERAL.—An issue shall be treated as 
meeting the requirements of this subsection if, as of 
the date of issuance, the issuer reasonably expects—
‘‘(A) at least 95 percent of the proceeds from 
the sale of the issue are to be spent for 1 or more 
qualified purposes with respect to qualified zone 
academies within the 5-year period beginning on 
the date of issuance of the qualified zone acad-
emy bond, 
‘‘(B) a binding commitment with a third 
party to spend at least 10 percent of the proceeds 
from the sale of the issue will be incurred within 
the 6-month period beginning on the date of 
issuance of the qualified zone academy bond, and
‘‘(C) such purposes will be completed with 
due diligence and the proceeds from the sale of 
the issue will be spent with due diligence. 
‘‘(2) EXTENSION OF PERIOD.—Upon submission 
of a request prior to the expiration of the period de-
scribed in paragraph (1)(A), the Secretary may ex-
tend such period if the issuer establishes that the fail-
ure to satisfy the 5-year requirement is due to reason-
able cause and the related purposes will continue to 
proceed with due diligence. 
‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT OF 
BOND PROCEEDS WITHIN 5 YEARS.—To the extent that 
less than 95 percent of the proceeds of such issue are 
expended by the close of the 5-year period beginning 
on the date of issuance (or if an extension has been 
obtained under paragraph (2), by the close of the ex-
tended period), the issuer shall redeem all of the non-
qualified bonds within 90 days after the end of such 
period. For purposes of this paragraph, the amount 
of the nonqualified bonds required to be redeemed 
shall be determined in the same manner as under sec-
tion 142. 
‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—An 
issue shall be treated as meeting the requirements of this
subsection if the issuer satisfies the arbitrage requirements 
of section 148 with respect to proceeds of the issue. 
‘‘(h) REPORTING.—Issuers of qualified academy zone 
bonds shall submit reports similar to the reports required 
under section 149(e).’’. 
(2) 
CONFORMING
AMENDMENTS.—Sections 
54(l)(3)(B) and 1400N(l)(7)(B)(ii) are each amended 
by striking ‘‘section 1397E(i)’’ and inserting ‘‘section 
1397E(l)’’. 
(c) EFFECTIVE DATES.—
(1) EXTENSION.—The amendment made by sub-
section (a) shall apply to obligations issued after De-
cember 31, 2005. 
(2) SPECIAL RULES.—The amendments made by 
subsection (b) shall apply to obligations issued after 
the date of the enactment of this Act pursuant to allo-
cations of the national zone academy bond limitation 
for calendar years after 2005. 
SEC. 108. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EX-
PENSES OF ELEMENTARY AND SECONDARY 
SCHOOL TEACHERS. 
(a) IN
GENERAL.—Subparagraph (D) of section 
62(a)(2) is amended by striking ‘‘or 2005’’ and inserting 
‘‘2005, 2006, or 2007’’.
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2005. 
SEC. 109. EXTENSION AND EXPANSION OF EXPENSING OF 
BROWNFIELDS REMEDIATION COSTS. 
(a) EXTENSION.—Subsection (h) of section 198 is 
amended by striking ‘‘2005’’ and inserting ‘‘2007’’. 
(b) EXPANSION.—Section 198(d)(1) (defining haz-
ardous substance) is amended by striking ‘‘and’’ at the end 
of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ‘‘, and’’, and by adding 
at the end the following new subparagraph: 
‘‘(C) any petroleum product (as defined in 
section 4612(a)(3)).’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to expenditures paid or incurred after 
December 31, 2005. 
SEC. 110. TAX INCENTIVES FOR INVESTMENT IN THE DIS-
TRICT OF COLUMBIA. 
(a) DESIGNATION OF ZONE.—
(1) IN GENERAL.—Subsection (f) of section 1400 
is amended by striking ‘‘2005’’ both places it appears 
and inserting ‘‘2007’’.
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to periods beginning 
after December 31, 2005. 
(b) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.—
(1) IN
GENERAL.—Subsection (b) of section 
1400A is amended by striking ‘‘2005’’ and inserting 
‘‘2007’’. 
(2) EFFECTIVE DATE.—The amendment made by 
this subsection shall apply to bonds issued after De-
cember 31, 2005. 
(c) ZERO PERCENT CAPITAL GAINS RATE.—
(1) IN
GENERAL.—Subsection (b) of section 
1400B is amended by striking ‘‘2006’’ each place it 
appears and inserting ‘‘2008’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 1400B(e)(2) is amended—
(i) by striking ‘‘2010’’ and inserting 
‘‘2012’’, and 
(ii) by striking ‘‘2010’’ in the heading 
thereof and inserting ‘‘2012’’. 
(B) Section 1400B(g)(2) is amended by 
striking ‘‘2010’’ and inserting ‘‘2012’’. 
(C) Section 1400F(d) is amended by strik-
ing ‘‘2010’’ and inserting ‘‘2012’’. 
(3) EFFECTIVE DATES.—
(A) EXTENSION.—The amendments made 
by paragraph (1) shall apply to acquisitions 
after December 31, 2005. 
(B) 
CONFORMING
AMENDMENTS.—The 
amendments made by paragraph (2) shall take 
effect on the date of the enactment of this Act. 
(d) FIRST-TIME HOMEBUYER CREDIT.—
(1) IN
GENERAL.—Subsection (i) of section 
1400C is amended by striking ‘‘2006’’ and inserting 
‘‘2008’’. 
(2) EFFECTIVE DATE.—The amendment made by 
this subsection shall apply to property purchased 
after December 31, 2005. 
SEC. 111. INDIAN EMPLOYMENT TAX CREDIT. 
(a) IN GENERAL.—Section 45A(f) is amended by strik-
ing ‘‘2005’’ and inserting ‘‘2007’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2005. 
SEC. 112. ACCELERATED DEPRECIATION FOR BUSINESS 
PROPERTY ON INDIAN RESERVATIONS. 
(a) IN GENERAL.—Section 168(j)(8) is amended by 
striking ‘‘2005’’ and inserting ‘‘2007’’.
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to property placed in service after De-
cember 31, 2005. 
SEC. 113. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY 
FOR QUALIFIED LEASEHOLD IMPROVEMENTS 
AND QUALIFIED RESTAURANT PROPERTY. 
(a) IN GENERAL.—Clauses (iv) and (v) of section 
168(e)(3)(E) are each amended by striking ‘‘2006’’ and in-
serting ‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to property placed in service after 
December 31, 2005. 
SEC. 114. COVER OVER OF TAX ON DISTILLED SPIRITS. 
(a) IN GENERAL.—Section 7652(f)(1) is amended by 
striking ‘‘2006’’ and inserting ‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to articles brought into the United 
States after December 31, 2005. 
SEC. 115. PARITY IN APPLICATION OF CERTAIN LIMITS TO 
MENTAL HEALTH BENEFITS. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.—Section 9812(f)(3) is amended by striking 
‘‘2006’’ and inserting ‘‘2007’’. 
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—Section 712(f) of the Em-
ployee Retirement Income Security Act of 1974 (29 U.S.C. 
1185a(f)) is amended by striking ‘‘2006’’ and inserting 
‘‘2007’’. 
(c) AMENDMENT TO THE PUBLIC HEALTH SERVICE 
ACT.—Section 2705(f) of the Public Health Service Act (42 
U.S.C. 300gg–5(f)) is amended by striking ‘‘2006’’and in-
serting ‘‘2007’’. 
SEC. 116. CORPORATE DONATIONS OF SCIENTIFIC PROP-
ERTY USED FOR RESEARCH AND OF COM-
PUTER TECHNOLOGY AND EQUIPMENT. 
(a) EXTENSION
OF COMPUTER TECHNOLOGY
AND 
EQUIPMENT DONATION.—
(1) 
IN
GENERAL.—Section 
170(e)(6)(G) 
is 
amended by striking ‘‘2005’’ and inserting ‘‘2007’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to contributions made in 
taxable years beginning after December 31, 2005. 
(b) EXPANSION OF CHARITABLE CONTRIBUTION AL-
LOWED FOR SCIENTIFIC PROPERTY USED FOR RESEARCH 
AND FOR COMPUTER TECHNOLOGY AND EQUIPMENT USED 
FOR EDUCATIONAL PURPOSES.—
(1) SCIENTIFIC
PROPERTY
USED
FOR
RE-
SEARCH.—
(A) IN
GENERAL.—Clause (ii) of section 
170(e)(4)(B) (defining qualified research con-
tributions) is amended by inserting ‘‘or assem-
bled’’ after ‘‘constructed’’. 
(B) 
CONFORMING
AMENDMENT.—Clause 
(iii) of section 170(e)(4)(B) is amended by in-
serting ‘‘or assembly’’ after ‘‘construction’’. 
(2) COMPUTER
TECHNOLOGY
AND
EQUIPMENT 
FOR EDUCATIONAL PURPOSES.—
(A) IN
GENERAL.—Clause (ii) of section 
170(e)(6)(B) is amended by inserting ‘‘or assem-
bled’’ after ‘‘constructed’’ and ‘‘or assembling’’ 
after ‘‘construction’’. 
(B) CONFORMING
AMENDMENT.—Subpara-
graph (D) of section 170(e)(6) is amended by in-
serting ‘‘or assembled’’ after ‘‘constructed’’ and 
‘‘or assembly’’ after ‘‘construction’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2005. 
SEC. 117. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Paragraphs (2) and (3)(B) of sec-
tion 220(i) are each amended by striking ‘‘2005’’ each place 
it appears in the text and headings and inserting ‘‘2007’’. 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 220(j) is amend-
ed—
(A) in the text by striking ‘‘or 2004’’ each 
place it appears and inserting ‘‘2004, 2005, or 
2006’’, and 
(B) in the heading by striking ‘‘OR 2004’’ 
and inserting ‘‘2004, 2005, OR 2006’’ . 
(2) Subparagraph (A) of section 220(j)(4) is 
amended by striking ‘‘and 2004’’ and inserting 
‘‘2004, 2005, and 2006’’. 
(c) TIME FOR FILING REPORTS, ETC.—
(1) The report required by section 220(j)(4) of 
the Internal Revenue Code of 1986 to be made on Au-
gust 1, 2005, or August 1, 2006, as the case may be, 
shall be treated as timely if made before the close of 
the 90-day period beginning on the date of the enact-
ment of this Act. 
(2) The determination and publication required 
by section 220(j)(5) of such Code with respect to cal-
endar year 2005 or calendar year 2006, as the case 
may be, shall be treated as timely if made before the 
close of the 120-day period beginning on the date of 
the enactment of this Act. If the determination under 
the preceding sentence is that 2005 or 2006 is a cut-
off year under section 220(i) of such Code, the cut-off 
date under such section 220(i) shall be the last day 
of such 120-day period.
SEC. 118. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE-
TION FOR OIL AND NATURAL GAS PRODUCED 
FROM MARGINAL PROPERTIES. 
(a) IN GENERAL.—Section 613A(c)(6)(H) is amended 
by striking ‘‘2006’’ and inserting ‘‘2008’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
SEC. 119. AMERICAN SAMOA ECONOMIC DEVELOPMENT 
CREDIT. 
(a) IN GENERAL.—For purposes of section 30A of the 
Internal Revenue Code of 1986, a domestic corporation 
shall be treated as a qualified domestic corporation to which 
such section applies if such corporation—
(1) is an existing credit claimant with respect to 
American Samoa, and 
(2) elected the application of section 936 of the 
Internal Revenue Code of 1986 for its last taxable 
year beginning before January 1, 2006. 
(b) SPECIAL RULES FOR APPLICATION OF SECTION.—
The following rules shall apply in applying section 30A of 
the Internal Revenue Code of 1986 for purposes of this sec-
tion: 
(1) AMOUNT OF CREDIT.—Notwithstanding sec-
tion 30A(a)(1) of such Code, the amount of the credit 
determined under section 30A(a)(1) of such Code for
any taxable year shall be the amount determined 
under section 30A(d) of such Code, except that section 
30A(d) shall be applied without regard to paragraph 
(3) thereof. 
(2) SEPARATE APPLICATION.—In applying sec-
tion 30A(a)(3) of such Code in the case of a corpora-
tion treated as a qualified domestic corporation by 
reason of this section, section 30A of such Code (and 
so much of section 936 of such Code as relates to such 
section 30A) shall be applied separately with respect 
to American Samoa. 
(3) FOREIGN TAX CREDIT ALLOWED.—Notwith-
standing section 30A(e) of such Code, the provisions 
of section 936(c) of such Code shall not apply with re-
spect to the credit allowed by reason of this section. 
(c) DEFINITIONS.—For purposes of this section, any 
term which is used in this section which is also used in 
section 30A or 936 of such Code shall have the same mean-
ing given such term by such section 30A or 936. 
(d) APPLICATION OF SECTION.—Notwithstanding sec-
tion 30A(h) or section 936(j) of such Code, this section (and 
so much of section 30A and section 936 of such Code as 
relates to this section) shall apply to the first two taxable 
years of a corporation to which subsection (a) applies which 
begin after December 31, 2005, and before January 1, 2008.
SEC. 120. EXTENSION OF BONUS DEPRECIATION FOR CER-
TAIN QUALIFIED GULF OPPORTUNITY ZONE 
PROPERTY. 
(a) IN GENERAL.—Subsection (d) of section 1400N is 
amended by adding at the end the following new paragraph: 
‘‘(6) EXTENSION FOR CERTAIN PROPERTY.—
‘‘(A) IN GENERAL.—In the case of any spec-
ified Gulf Opportunity Zone extension property, 
paragraph (2)(A) shall be applied without re-
gard to clause (v) thereof. 
‘‘(B) SPECIFIED GULF OPPORTUNITY ZONE 
EXTENSION
PROPERTY.—For purposes of this 
paragraph, the term ‘specified Gulf Opportunity 
Zone extension property’ means property—
‘‘(i) substantially all of the use of 
which is in one or more specified portions 
of the GO Zone, and 
‘‘(ii) which is—
‘‘(I) nonresidential real property 
or residential rental property which is 
placed in service by the taxpayer on or 
before December 31, 2010, or 
‘‘(II) in the case of a taxpayer 
who places a building described in sub-
clause (I) in service on or before De-
cember 31, 2010, property described in
section 168(k)(2)(A)(i) if substantially 
all of the use of such property is in 
such building and such property is 
placed in service by the taxpayer not 
later than 90 days after such building 
is placed in service. 
‘‘(C) SPECIFIED
PORTIONS
OF
THE
GO 
ZONE.—For purposes of this paragraph, the term 
‘specified portions of the GO Zone’ means those 
portions of the GO Zone which are in any coun-
ty or parish which is identified by the Secretary 
as being a county or parish in which hurricanes 
occurring during 2005 damaged (in the aggre-
gate) more than 60 percent of the housing units 
in such county or parish which were occupied 
(determined according to the 2000 Census). 
‘‘(D) ONLY PRE-JANUARY 1, 2010, BASIS OF 
REAL PROPERTY ELIGIBLE FOR ADDITIONAL AL-
LOWANCE.—In the case of property which is 
qualified Gulf Opportunity Zone property solely 
by reason of subparagraph (B)(ii)(I), paragraph 
(1) shall apply only to the extent of the adjusted 
basis thereof attributable to manufacture, con-
struction, or production before January 1, 
2010.’’.
(b) EXTENSION NOT APPLICABLE TO INCREASED SEC-
TION 179 EXPENSING.—Paragraph (2) of section 1400N(e) 
is amended by inserting ‘‘without regard to subsection 
(d)(6)’’ after ‘‘subsection (d)(2)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect as if included in section 101 of the 
Gulf Opportunity Zone Act of 2005. 
SEC. 121. AUTHORITY FOR UNDERCOVER OPERATIONS. 
Paragraph (6) of section 7608(c) (relating to applica-
tion of section) is amended by striking ‘‘2007’’ both places 
it appears and inserting ‘‘2008’’. 
SEC. 122. DISCLOSURES OF CERTAIN TAX RETURN INFOR-
MATION. 
(a) DISCLOSURES TO FACILITATE COMBINED EMPLOY-
MENT TAX REPORTING.—
(1) IN GENERAL.—Subparagraph (B) of section 
6103(d)(5) (relating to termination) is amended by 
striking ‘‘2006’’ and inserting ‘‘2007’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to disclosures after Decem-
ber 31, 2006. 
(b) DISCLOSURES RELATING TO TERRORIST ACTIVI-
TIES.—
(1) 
IN
GENERAL.—Clause 
(iv) 
of 
section 
6103(i)(3)(C) and subparagraph (E) of section
6103(i)(7) are each amended by striking ‘‘2006’’ and 
inserting ‘‘2007’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to disclosures after De-
cember 31, 2006. 
(c) DISCLOSURES RELATING TO STUDENT LOANS.—
(1) IN GENERAL.—Subparagraph (D) of section 
6103(l)(13) (relating to termination) is amended by 
striking ‘‘2006’’ and inserting ‘‘2007’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to requests made after De-
cember 31, 2006. 
SEC. 123. SPECIAL RULE FOR ELECTIONS UNDER EXPIRED 
PROVISIONS. 
(a) RESEARCH CREDIT ELECTIONS.—In the case of 
any taxable year ending after December 31, 2005, and be-
fore the date of the enactment of this Act, any election under 
section 41(c)(4) or section 280C(c)(3)(C) of the Internal 
Revenue Code of 1986 shall be treated as having been timely 
made for such taxable year if such election is made not later 
than the later of April 15, 2007, or such time as the Sec-
retary of the Treasury, or his designee, may specify. Such 
election shall be made in the manner prescribed by such 
Secretary or designee.
(b) OTHER ELECTIONS.—Except as otherwise provided 
by such Secretary or designee, a rule similar to the rule 
of subsection (a) shall apply with respect to elections under 
any other expired provision of the Internal Revenue Code 
of 1986 the applicability of which is extended by reason 
of the amendments made by this title. 
TITLE II—ENERGY TAX 
PROVISIONS 
SEC. 201. CREDIT FOR ELECTRICITY PRODUCED FROM CER-
TAIN RENEWABLE RESOURCES. 
Subsection (d) of section 45 is amended by striking 
‘‘January 1, 2008’’ each place it appears and inserting 
‘‘January 1, 2009’’. 
SEC. 202. CREDIT TO HOLDERS OF CLEAN RENEWABLE EN-
ERGY BONDS. 
(a) IN GENERAL.—Section 54 is amended—
(1) by striking ‘‘$800,000,000’’ in subsection 
(f)(1) and inserting ‘‘$1,200,000,000’’, 
(2) by striking ‘‘$500,000,000’’ in subsection 
(f)(2) and inserting ‘‘$750,000,000’’, and 
(3) by striking ‘‘December 31, 2007’’ in sub-
section (m) and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by 
paragraphs (1) and (3) of subsection (a) shall apply 
to bonds issued after December 31, 2006. 
(2) ALLOCATIONS.—The amendment made by 
subsection (a)(2) shall apply to allocations or re-
allocations after December 31, 2006. 
SEC. 203. PERFORMANCE STANDARDS FOR SULFUR DIOX-
IDE REMOVAL IN ADVANCED COAL-BASED 
GENERATION TECHNOLOGY UNITS DESIGNED 
TO USE SUBBITUMINOUS COAL. 
(a) IN GENERAL.—Paragraph (1) of section 48A(f) 
(relating to advanced coal-based generation technology) is 
amended by adding at the end the following new flush sen-
tence: 
‘‘For purposes of the performance requirement speci-
fied for the removal of SO2 in the table contained in 
subparagraph (B), the SO2 removal design level in 
the case of a unit designed for the use of feedstock sub-
stantially all of which is subbituminous coal shall be 
99 percent SO2 removal or the achievement of an 
emission level of 0.04 pounds or less of SO2 per mil-
lion Btu, determined on a 30-day average.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take apply with respect to applications for cer-
tification under section 48A(d)(2) of the Internal Revenue 
Code of 1986 submitted after October 2, 2006. 
SEC. 204. DEDUCTION FOR ENERGY EFFICIENT COMMER-
CIAL BUILDINGS. 
Subsection (h) of section 179D is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
SEC. 205. CREDIT FOR NEW ENERGY EFFICIENT HOMES. 
Subsection (g) of section 45L is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
SEC. 206. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT 
PROPERTY. 
(a) EXTENSION.—Subsection (g) of section 25D is 
amended by striking ‘‘December 31, 2007’’ and inserting 
‘‘December 31, 2008’’. 
(b) CLARIFICATION OF TERM.—
(1) 
Subsections 
(a)(1), 
(b)(1)(A), 
and 
(e)(4)(A)(i) of section 25D are each amended by strik-
ing ‘‘qualified photovoltaic property expenditures’’ 
and inserting ‘‘qualified solar electric property ex-
penditures’’. 
(2) Section 25D(d)(2) is amended—
(A) by striking ‘‘qualified photovoltaic 
property expenditure’’ and inserting ‘‘qualified 
solar electric property expenditure’’, and
(B) in the heading by striking ‘‘QUALIFIED 
PHOTOVOLTAIC
PROPERTY
EXPENDITURE’’ and 
inserting ‘‘QUALIFIED
SOLAR
ELECTRIC
PROP-
ERTY EXPENDITURE’’. 
SEC. 207. ENERGY CREDIT. 
Section 48 is amended—
(1) by striking ‘‘January 1, 2008’’ both places it 
appears and inserting ‘‘January 1, 2009’’, and 
(2) by striking ‘‘December 31, 2007’’ both places 
it appears and inserting ‘‘December 31, 2008’’. 
SEC. 208. SPECIAL RULE FOR QUALIFIED METHANOL OR 
ETHANOL FUEL. 
(a) 
EXTENSION.—Subparagraph 
(D) 
of 
section 
4041(b)(2) is amended by striking ‘‘October 1, 2007’’ and 
inserting ‘‘January 1, 2009’’. 
(b) 
APPLICABLE
BLENDER
RATE.—Section 
4041(b)(2)(C)(ii) is amended by striking ‘‘2007’’ and in-
serting ‘‘2008’’. 
(c) CLERICAL AMENDMENT.—The heading for section 
4041(b)(2)(B) is amended to read as follows: ‘‘QUALIFIED 
METHANOL AND ETHANOL FUEL PRODUCED FROM COAL’’.
SEC. 209. SPECIAL DEPRECIATION ALLOWANCE FOR CEL-
LULOSIC BIOMASS ETHANOL PLANT PROP-
ERTY. 
(a) IN GENERAL.—Section 168 (relating to accelerated 
cost recovery system) is amended by adding at the end the 
following: 
‘‘(l) SPECIAL ALLOWANCE FOR CELLULOSIC BIOMASS 
ETHANOL PLANT PROPERTY.—
‘‘(1) ADDITIONAL ALLOWANCE.—In the case of 
any qualified cellulosic biomass ethanol plant prop-
erty—
‘‘(A) the depreciation deduction provided by 
section 167(a) for the taxable year in which such 
property is placed in service shall include an al-
lowance equal to 50 percent of the adjusted basis 
of such property, and 
‘‘(B) the adjusted basis of such property 
shall be reduced by the amount of such deduction 
before computing the amount otherwise allowable 
as a depreciation deduction under this chapter 
for such taxable year and any subsequent taxable 
year. 
‘‘(2) QUALIFIED CELLULOSIC BIOMASS ETHANOL 
PLANT PROPERTY.—The term ‘qualified cellulosic bio-
mass ethanol plant property’ means property of a 
character subject to the allowance for depreciation—
‘‘(A) which is used in the United States 
solely to produce cellulosic biomass ethanol, 
‘‘(B) the original use of which commences 
with the taxpayer after the date of the enactment 
of this subsection, 
‘‘(C) which is acquired by the taxpayer by 
purchase (as defined in section 179(d)) after the 
date of the enactment of this subsection, but only 
if no written binding contract for the acquisition 
was in effect on or before the date of the enact-
ment of this subsection, and 
‘‘(D) which is placed in service by the tax-
payer before January 1, 2013. 
‘‘(3) CELLULOSIC BIOMASS ETHANOL.—For pur-
poses of this subsection, the term ‘cellulosic biomass 
ethanol’ means ethanol produced by enzymatic hy-
drolysis of any lignocellulosic or hemicellulosic matter 
that is available on a renewable or recurring basis. 
‘‘(4) EXCEPTIONS.—
‘‘(A) ALTERNATIVE
DEPRECIATION
PROP-
ERTY.—Such term shall not include any prop-
erty described in section 168(k)(2)(D)(i). 
‘‘(B) TAX-EXEMPT
BOND-FINANCED
PROP-
ERTY.—Such term shall not include any prop-
erty any portion of which is financed with the
proceeds of any obligation the interest on which 
is exempt from tax under section 103. 
‘‘(C) ELECTION OUT.—If a taxpayer makes 
an election under this subparagraph with respect 
to any class of property for any taxable year, 
this subsection shall not apply to all property in 
such class placed in service during such taxable 
year. 
‘‘(5) SPECIAL RULES.—For purposes of this sub-
section, rules similar to the rules of subparagraph (E) 
of section 168(k)(2) shall apply, except that such sub-
paragraph shall be applied—
‘‘(A) by substituting ‘the date of the enact-
ment of subsection (l)’ for ‘September 10, 2001’ 
each place it appears therein, 
‘‘(B) by substituting ‘January 1, 2013’ for 
‘January 1, 2005’ in clause (i) thereof, and 
‘‘(C) by substituting ‘qualified cellulosic bio-
mass ethanol plant property’ for ‘qualified prop-
erty’ in clause (iv) thereof. 
‘‘(6) ALLOWANCE
AGAINST
ALTERNATIVE
MIN-
IMUM
TAX.—For purposes of this subsection, rules 
similar to the rules of section 168(k)(2)(G) shall 
apply.
‘‘(7) RECAPTURE.—For purposes of this sub-
section, rules similar to the rules under section 
179(d)(10) shall apply with respect to any qualified 
cellulosic biomass ethanol plant property which ceases 
to be qualified cellulosic biomass ethanol plant prop-
erty. 
‘‘(8) DENIAL OF DOUBLE BENEFIT.—Paragraph 
(1) shall not apply to any qualified cellulosic biomass 
ethanol plant property with respect to which an elec-
tion has been made under section 179C (relating to 
election to expense certain refineries).’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to property placed in service after the 
date of the enactment of this Act in taxable years ending 
after such date. 
SEC. 210. EXPENDITURES PERMITTED FROM THE LEAKING 
UNDERGROUND 
STORAGE 
TANK 
TRUST 
FUND. 
(a) IN GENERAL.—Subsection (c) of section 9508 is 
amended—
(1) by striking ‘‘section 9003(h)’’ and inserting 
‘‘sections 9003(h), 9003(i), 9003(j), 9004(f), 9005(c), 
9010, 9011, 9012, and 9013’’, and
(2) by striking ‘‘Superfund Amendments and Re-
authorization Act of 1986’’ and inserting ‘‘Public 
Law 109–168’’. 
(b) CONFORMING AMENDMENTS.—Section 9014(2) of 
the Solid Waste Disposal Act is amended by striking 
‘‘Fund, notwithstanding section 9508(c)(1) of the Internal 
Revenue Code of 1986’’ and inserting ‘‘Fund’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on the date of the enactment of this 
Act. 
SEC. 211. TREATMENT OF COKE AND COKE GAS. 
(a) 
NONAPPLICATION
OF
PHASEOUT.—Section 
45K(g)(2) is amended by adding at the end the following 
new subparagraph: 
‘‘(D) NONAPPLICATION
OF
PHASEOUT.—
Subsection (b)(1) shall not apply.’’. 
(b) CLARIFICATION OF QUALIFYING FACILITY.—Sec-
tion 45K(g)(1) is amended by inserting ‘‘(other than from 
petroleum based products)’’ after ‘‘coke or coke gas’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect as if included in section 1321 of 
the Energy Policy Act of 2005.
TITLE III—HEALTH SAVINGS 
ACCOUNTS 
SEC. 301. SHORT TITLE. 
This title may be cited as the ‘‘Health Opportunity 
Patient Empowerment Act of 2006’’. 
SEC. 302. FSA AND HRA TERMINATIONS TO FUND HSAS. 
(a) IN GENERAL.—Section 106 (relating to contribu-
tions by employer to accident and health plans) is amended 
by adding at the end the following new subsection: 
‘‘(e) FSA 
AND
HRA TERMINATIONS
TO
FUND 
HSAS.—
‘‘(1) IN GENERAL.—A plan shall not fail to be 
treated as a health flexible spending arrangement or 
health reimbursement arrangement under this section 
or section 105 merely because such plan provides for 
a qualified HSA distribution. 
‘‘(2) QUALIFIED HSA DISTRIBUTION.—The term 
‘qualified HSA distribution’ means a distribution 
from a health flexible spending arrangement or health 
reimbursement arrangement to the extent that such 
distribution—
‘‘(A) does not exceed the lesser of the balance 
in such arrangement on September 21, 2006, or 
as of the date of such distribution, and
‘‘(B) is contributed by the employer directly 
to the health savings account of the employee be-
fore January 1, 2012. 
Such term shall not include more than 1 distribution 
with respect to any arrangement. 
‘‘(3) ADDITIONAL TAX FOR FAILURE TO MAIN-
TAIN HIGH DEDUCTIBLE HEALTH PLAN COVERAGE.—
‘‘(A) IN GENERAL.—If, at any time during 
the testing period, the employee is not an eligible 
individual, then the amount of the qualified 
HSA distribution—
‘‘(i) shall be includible in the gross in-
come of the employee for the taxable year in 
which occurs the first month in the testing 
period for which such employee is not an el-
igible individual, and 
‘‘(ii) the tax imposed by this chapter 
for such taxable year on the employee shall 
be increased by 10 percent of the amount 
which is so includible. 
‘‘(B) 
EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Clauses (i) and (ii) of subparagraph 
(A) shall not apply if the employee ceases to be 
an eligible individual by reason of the death of
the employee or the employee becoming disabled 
(within the meaning of section 72(m)(7)). 
‘‘(4) DEFINITIONS
AND
SPECIAL
RULES.—For 
purposes of this subsection—
‘‘(A) TESTING PERIOD.—The term ‘testing 
period’ means the period beginning with the 
month in which the qualified HSA distribution 
is contributed to the health savings account and 
ending on the last day of the 12th month fol-
lowing such month. 
‘‘(B) ELIGIBLE INDIVIDUAL.—The term ‘eli-
gible individual’ has the meaning given such 
term by section 223(c)(1). 
‘‘(C) TREATMENT AS ROLLOVER CONTRIBU-
TION.—A qualified HSA distribution shall be 
treated as a rollover contribution described in 
section 223(f)(5). 
‘‘(5) TAX TREATMENT RELATING TO DISTRIBU-
TIONS.—For purposes of this title—
‘‘(A) IN GENERAL.—A qualified HSA dis-
tribution shall be treated as a payment described 
in subsection (d). 
‘‘(B) COMPARABILITY EXCISE TAX.—
‘‘(i) IN GENERAL.—Except as provided 
in clause (ii), section 4980G shall not apply 
to qualified HSA distributions. 
‘‘(ii) FAILURE TO OFFER TO ALL EM-
PLOYEES.—In the case of a qualified HSA 
distribution to any employee, the failure to 
offer such distribution to any eligible indi-
vidual covered under a high deductible 
health plan of the employer shall (notwith-
standing section 4980G(d)) be treated for 
purposes of section 4980G as a failure to 
meet the requirements of section 4980G(b).’’. 
(b) CERTAIN FSA COVERAGE DISREGARDED COV-
ERAGE.—Subparagraph (B) of section 223(c)(1) (relating 
to certain coverage disregarded) is amended by striking 
‘‘and’’ at the end of clause (i), by striking the period at 
the end of clause (ii) and inserting ‘‘, and’’, and by insert-
ing after clause (ii) the following new clause: 
‘‘(iii) for taxable years beginning after 
December 31, 2006, coverage under a health 
flexible spending arrangement during any 
period immediately following the end of a 
plan year of such arrangement during 
which unused benefits or contributions re-
maining at the end of such plan year may
be paid or reimbursed to plan participants 
for qualified benefit expenses incurred dur-
ing such period if—
‘‘(I) the balance in such arrange-
ment at the end of such plan year is 
zero, or 
‘‘(II) the individual is making a 
qualified HSA distribution (as defined 
in section 106(e)) in an amount equal 
to the remaining balance in such ar-
rangement as of the end of such plan 
year, in accordance with rules pre-
scribed by the Secretary.’’. 
(c) APPLICATION OF SECTION.—
(1) SUBSECTION (a).—The amendment made by 
subsection (a) shall apply to distributions on or after 
the date of the enactment of this Act. 
(2) SUBSECTION (b).—The amendment made by 
subsection (b) shall take effect on the date of the en-
actment of this Act. 
SEC. 303. REPEAL OF ANNUAL DEDUCTIBLE LIMITATION ON 
HSA CONTRIBUTIONS. 
(a) IN GENERAL.—Paragraph (2) of section 223(b) 
(relating to monthly limitation) is amended—
(1) in subparagraph (A) by striking ‘‘the lesser 
of—’’ and all that follows and inserting ‘‘$2,250.’’, 
and 
(2) in subparagraph (B) by striking ‘‘the lesser 
of—’’ and all that follows and inserting ‘‘$4,500.’’. 
(b) 
CONFORMING
AMENDMENT.—Section 
223(d)(1)(A)(ii)(I) is amended by striking ‘‘subsection 
(b)(2)(B)(ii)’’ and inserting ‘‘subsection (b)(2)(B)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 304. MODIFICATION OF COST-OF-LIVING ADJUSTMENT. 
Paragraph (1) of section 223(g) (relating to cost-of-liv-
ing adjustment) is amended by adding at the end the fol-
lowing new flush sentence: 
‘‘In the case of adjustments made for any taxable year 
beginning after 2007, section 1(f)(4) shall be applied 
for purposes of this paragraph by substituting ‘March 
31’ for ‘August 31’, and the Secretary shall publish 
the adjusted amounts under subsections (b)(2) and 
(c)(2)(A) for taxable years beginning in any calendar 
year no later than June 1 of the preceding calendar 
year.’’.
SEC. 305. CONTRIBUTION LIMITATION NOT REDUCED FOR 
PART-YEAR COVERAGE. 
(a) INCREASE IN LIMIT FOR INDIVIDUALS BECOMING 
ELIGIBLE
INDIVIDUALS
AFTER
BEGINNING
OF
THE 
YEAR.—Subsection (b) of section 223 (relating to limita-
tions) is amended by adding at the end the following new 
paragraph: 
‘‘(8) INCREASE IN LIMIT FOR INDIVIDUALS BE-
COMING ELIGIBLE INDIVIDUALS AFTER THE BEGIN-
NING OF THE YEAR.—
‘‘(A) IN GENERAL.—For purposes of com-
puting the limitation under paragraph (1) for 
any taxable year, an individual who is an eligi-
ble individual during the last month of such tax-
able year shall be treated—
‘‘(i) as having been an eligible indi-
vidual during each of the months in such 
taxable year, and 
‘‘(ii) as having been enrolled, during 
each of the months such individual is treat-
ed as an eligible individual solely by reason 
of clause (i), in the same high deductible 
health plan in which the individual was en-
rolled for the last month of such taxable 
year.
‘‘(B) FAILURE TO MAINTAIN HIGH DEDUCT-
IBLE HEALTH PLAN COVERAGE.—
‘‘(i) IN
GENERAL.—If, at any time 
during the testing period, the individual is 
not an eligible individual, then—
‘‘(I) gross income of the indi-
vidual for the taxable year in which 
occurs the first month in the testing 
period for which such individual is not 
an eligible individual is increased by 
the aggregate amount of all contribu-
tions to the health savings account of 
the individual which could not have 
been made but for subparagraph (A), 
and 
‘‘(II) the tax imposed by this 
chapter for any taxable year on the in-
dividual shall be increased by 10 per-
cent of the amount of such increase. 
‘‘(ii) EXCEPTION FOR DISABILITY OR 
DEATH.—Subclauses (I) and (II) of clause 
(i) shall not apply if the individual ceased 
to be an eligible individual by reason of the 
death of the individual or the individual be-
coming disabled (within the meaning of sec-
tion 72(m)(7)). 
‘‘(iii) TESTING
PERIOD.—The term 
‘testing period’ means the period beginning 
with the last month of the taxable year re-
ferred to in subparagraph (A) and ending 
on the last day of the 12th month following 
such month.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 306. EXCEPTION TO REQUIREMENT FOR EMPLOYERS 
TO MAKE COMPARABLE HEALTH SAVINGS AC-
COUNT CONTRIBUTIONS. 
(a) IN GENERAL.—Section 4980G (relating to failure 
of employer to make comparable health savings account con-
tributions) is amended by adding at the end the following 
new subsection: 
‘‘(d) EXCEPTION.—For purposes of applying section 
4980E to a contribution to a health savings account of an 
employee who is not a highly compensated employee (as de-
fined in section 414(q)), highly compensated employees shall 
not be treated as comparable participating employees.’’.
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 307. ONE-TIME DISTRIBUTION FROM INDIVIDUAL RE-
TIREMENT PLANS TO FUND HSAS. 
(a) IN GENERAL.—Subsection (d) of section 408 (relat-
ing to taxability of beneficiary of employees’ trust) is 
amended by adding at the end the following new paragraph: 
‘‘(9) DISTRIBUTION FOR HEALTH SAVINGS AC-
COUNT FUNDING.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is an eligible individual (as defined 
in section 223(c)) and who elects the application 
of this paragraph for a taxable year, gross in-
come of the individual for the taxable year does 
not include a qualified HSA funding distribu-
tion to the extent such distribution is otherwise 
includible in gross income. 
‘‘(B) QUALIFIED HSA FUNDING DISTRIBU-
TION.—For purposes of this paragraph, the term 
‘qualified HSA funding distribution’ means a 
distribution from an individual retirement plan 
(other than a plan described in subsection (k) or 
(p)) of the employee to the extent that such dis-
tribution is contributed to the health savings ac-
count of the individual in a direct trustee-to-
trustee transfer. 
‘‘(C) LIMITATIONS.—
‘‘(i) MAXIMUM DOLLAR LIMITATION.—
The amount excluded from gross income by 
subparagraph (A) shall not exceed the excess 
of—
‘‘(I) the annual limitation under 
section 223(b) computed on the basis of 
the type of coverage under the high de-
ductible health plan covering the indi-
vidual at the time of the qualified 
HSA funding distribution, over 
‘‘(II) in the case of a distribution 
described in clause (ii)(II), the amount 
of the earlier qualified HSA funding 
distribution. 
‘‘(ii) ONE-TIME TRANSFER.—
‘‘(I) IN GENERAL.—Except as pro-
vided in subclause (II), an individual 
may make an election under subpara-
graph (A) only for one qualified HSA 
funding distribution during the life-
time of the individual. Such an elec-
tion, once made, shall be irrevocable.
‘‘(II) CONVERSION
FROM
SELF-
ONLY
TO
FAMILY
COVERAGE.—If a 
qualified HSA funding distribution is 
made during a month in a taxable 
year during which an individual has 
self-only coverage under a high deduct-
ible health plan as of the first day of 
the month, the individual may elect to 
make an additional qualified HSA 
funding distribution during a subse-
quent month in such taxable year dur-
ing which the individual has family 
coverage under a high deductible health 
plan as of the first day of the subse-
quent month. 
‘‘(D) FAILURE TO MAINTAIN HIGH DEDUCT-
IBLE HEALTH PLAN COVERAGE.—
‘‘(i) IN
GENERAL.—If, at any time 
during the testing period, the individual is 
not an eligible individual, then the aggre-
gate amount of all contributions to the 
health savings account of the individual 
made under subparagraph (A)—
‘‘(I) shall be includible in the 
gross income of the individual for the
taxable year in which occurs the first 
month in the testing period for which 
such individual is not an eligible indi-
vidual, and 
‘‘(II) the tax imposed by this 
chapter for any taxable year on the in-
dividual shall be increased by 10 per-
cent of the amount which is so includ-
ible. 
‘‘(ii) EXCEPTION FOR DISABILITY OR 
DEATH.—Subclauses (I) and (II) of clause 
(i) shall not apply if the individual ceased 
to be an eligible individual by reason of the 
death of the individual or the individual be-
coming disabled (within the meaning of sec-
tion 72(m)(7)). 
‘‘(iii) TESTING
PERIOD.—The term 
‘testing period’ means the period beginning 
with the month in which the qualified HSA 
funding distribution is contributed to a 
health savings account and ending on the 
last day of the 12th month following such 
month. 
‘‘(E) APPLICATION
OF
SECTION
72.—Not-
withstanding section 72, in determining the ex-
tent to which an amount is treated as otherwise 
includible in gross income for purposes of sub-
paragraph (A), the aggregate amount distributed 
from an individual retirement plan shall be 
treated as includible in gross income to the ex-
tent that such amount does not exceed the aggre-
gate amount which would have been so includible 
if all amounts from all individual retirement 
plans were distributed. Proper adjustments shall 
be made in applying section 72 to other distribu-
tions in such taxable year and subsequent tax-
able years.’’. 
(b) COORDINATION WITH LIMITATION ON CONTRIBU-
TIONS TO HSAS.—Section 223(b)(4) (relating to coordina-
tion with other contributions) is amended by striking ‘‘and’’ 
at the end of subparagraph (A), by striking the period at 
the end of subparagraph (B) and inserting ‘‘, and’’, and 
by inserting after subparagraph (B) the following new sub-
paragraph: 
‘‘(C) the aggregate amount contributed to 
health savings accounts of such individual for 
such taxable year under section 408(d)(9) (and 
such amount shall not be allowed as a deduction 
under subsection (a)).’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
TITLE IV—OTHER PROVISIONS 
SEC. 401. DEDUCTION ALLOWABLE WITH RESPECT TO IN-
COME ATTRIBUTABLE TO DOMESTIC PRODUC-
TION ACTIVITIES IN PUERTO RICO. 
(a) IN GENERAL.—Subsection (d) of section 199 (relat-
ing to definitions and special rules) is amended by redesig-
nating paragraph (8) as paragraph (9) and by inserting 
after paragraph (7) the following new paragraph: 
‘‘(8) TREATMENT
OF
ACTIVITIES
IN
PUERTO 
RICO.—
‘‘(A) IN GENERAL.—In the case of any tax-
payer with gross receipts for any taxable year 
from sources within the Commonwealth of Puerto 
Rico, if all of such receipts are taxable under sec-
tion 1 or 11 for such taxable year, then for pur-
poses of determining the domestic production 
gross receipts of such taxpayer for such taxable 
year under subsection (c)(4), the term ‘United 
States’ shall include the Commonwealth of Puer-
to Rico. 
‘‘(B) SPECIAL RULE FOR APPLYING WAGE 
LIMITATION.—In the case of any taxpayer de-
scribed in subparagraph (A), for purposes of ap-
plying the limitation under subsection (b) for 
any taxable year, the determination of W–2 
wages of such taxpayer shall be made without re-
gard to any exclusion under section 3401(a)(8) 
for remuneration paid for services performed in 
Puerto Rico. 
‘‘(C) TERMINATION.—This paragraph shall 
apply only with respect to the first 2 taxable 
years of the taxpayer beginning after December 
31, 2005, and before January 1, 2008.’’. 
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
SEC. 402. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABIL-
ITY MADE REFUNDABLE AFTER PERIOD OF 
YEARS. 
(a) IN GENERAL.—Section 53 (relating to credit for 
prior year minimum tax liability) is amended by adding 
at the end the following new subsection: 
‘‘(e) SPECIAL RULE FOR INDIVIDUALS WITH LONG-
TERM UNUSED CREDITS.—
‘‘(1) IN GENERAL.—If an individual has a long-
term unused minimum tax credit for any taxable 
year beginning before January 1, 2013, the amount
determined under subsection (c) for such taxable year 
shall not be less than the AMT refundable credit 
amount for such taxable year. 
‘‘(2) AMT REFUNDABLE CREDIT AMOUNT.—For 
purposes of paragraph (1)—
‘‘(A) IN GENERAL.—The term ‘AMT refund-
able credit amount’ means, with respect to any 
taxable year, the amount equal to the greater 
of—
‘‘(i) the lesser of—
‘‘(I) $5,000, or 
‘‘(II) the amount of long-term un-
used minimum tax credit for such tax-
able year, or 
‘‘(ii) 20 percent of the amount of such 
credit. 
‘‘(B) PHASEOUT
OF
AMT
REFUNDABLE 
CREDIT AMOUNT.—
‘‘(i) IN GENERAL.—In the case of an 
individual whose adjusted gross income for 
any taxable year exceeds the threshold 
amount (within the meaning of section 
151(d)(3)(C)), the AMT refundable credit 
amount determined under subparagraph 
(A) for such taxable year shall be reduced
by the applicable percentage (within the 
meaning of section 151(d)(3)(B)). 
‘‘(ii) ADJUSTED GROSS INCOME.—For 
purposes of clause (i), adjusted gross income 
shall be determined without regard to sec-
tions 911, 931, and 933. 
‘‘(3) LONG-TERM UNUSED MINIMUM TAX CRED-
IT.—
‘‘(A) IN
GENERAL.—For purposes of this 
subsection, the term ‘long-term unused minimum 
tax credit’ means, with respect to any taxable 
year, the portion of the minimum tax credit de-
termined under subsection (b) attributable to the 
adjusted net minimum tax for taxable years be-
fore the 3rd taxable year immediately preceding 
such taxable year. 
‘‘(B) 
FIRST-IN, 
FIRST-OUT
ORDERING 
RULE.—For purposes of subparagraph (A), cred-
its shall be treated as allowed under subsection 
(a) on a first-in, first-out basis. 
‘‘(4) CREDIT
REFUNDABLE.—For purposes of 
this title (other than this section), the credit allowed 
by reason of this subsection shall be treated as if it 
were allowed under subpart C.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 6211(b)(4)(A) is amended by striking 
‘‘and 34’’ and inserting ‘‘34, and 53(e)’’. 
(2) Paragraph (2) of section 1324(b) of title 31, 
United States Code, is amended by inserting ‘‘or 
53(e)’’ after ‘‘section 35’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 403. RETURNS REQUIRED IN CONNECTION WITH CER-
TAIN OPTIONS. 
(a) IN GENERAL.—So much of section 6039(a) as fol-
lows paragraph (2) is amended to read as follows: 
‘‘shall, for such calendar year, make a return at such time 
and in such manner, and setting forth such information, 
as the Secretary may by regulations prescribe.’’. 
(b) STATEMENTS
TO PERSONS WITH RESPECT
TO 
WHOM INFORMATION IS FURNISHED.—Section 6039 is 
amended by redesignating subsections (b) and (c) as sub-
section (c) and (d), respectively, and by inserting after sub-
section (a) the following new subsection: 
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS 
WITH RESPECT TO WHOM INFORMATION IS REPORTED.—
Every corporation making a return under subsection (a) 
shall furnish to each person whose name is set forth in such 
return a written statement setting forth such information
as the Secretary may by regulations prescribe. The written 
statement required under the preceding sentence shall be 
furnished to such person on or before January 31 of the 
year following the calendar year for which the return under 
subsection (a) was made.’’. 
(c) CONFORMING AMENDMENTS.—
(1) Section 6724(d)(1)(B) is amended by strik-
ing ‘‘or’’ at the end of clause (xvii), by striking ‘‘and’’ 
at the end of clause (xviii) and inserting ‘‘or’’, and 
by adding at the end the following new clause: 
‘‘(xix) section 6039(a) (relating to re-
turns required with respect to certain op-
tions), and’’. 
(2) Section 6724(d)(2)(B) is amended by strik-
ing 
‘‘section 
6039(a)’’ 
and 
inserting 
‘‘section 
6039(b)’’. 
(3) The heading of section 6039 and the item re-
lating to such section in the table of sections of sub-
part A of part III of subchapter A of chapter 61 of 
such Code are each amended by striking ‘‘Informa-
tion’’ and inserting ‘‘Returns’’. 
(4) The heading of subsection (a) of section 6039 
is amended by striking ‘‘FURNISHING OF INFORMA-
TION’’ and inserting ‘‘REQUIREMENT
OF REPORT-
ING’’.
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to calendar years beginning after the 
date of the enactment of this Act. 
SEC. 404. PARTIAL EXPENSING FOR ADVANCED MINE SAFE-
TY EQUIPMENT. 
(a) IN GENERAL.—Part VI of subchapter B of chapter 
1 is amended by inserting after section 179D the following 
new section: 
‘‘SEC. 179E. ELECTION TO EXPENSE ADVANCED MINE SAFE-
TY EQUIPMENT. 
‘‘(a) TREATMENT AS EXPENSES.—A taxpayer may 
elect to treat 50 percent of the cost of any qualified ad-
vanced mine safety equipment property as an expense 
which is not chargeable to capital account. Any cost so 
treated shall be allowed as a deduction for the taxable year 
in which the qualified advanced mine safety equipment 
property is placed in service. 
‘‘(b) ELECTION.—
‘‘(1) IN GENERAL.—An election under this sec-
tion for any taxable year shall be made on the tax-
payer’s return of the tax imposed by this chapter for 
the taxable year. Such election shall specify the ad-
vanced mine safety equipment property to which the 
election applies and shall be made in such manner as 
the Secretary may by regulations prescribe.
‘‘(2) ELECTION
IRREVOCABLE.—Any election 
made under this section may not be revoked except 
with the consent of the Secretary. 
‘‘(c) QUALIFIED ADVANCED MINE SAFETY EQUIPMENT 
PROPERTY.—For purposes of this section, the term ‘quali-
fied advanced mine safety equipment property’ means any 
advanced mine safety equipment property for use in any 
underground mine located in the United States—
‘‘(1) the original use of which commences with 
the taxpayer, and 
‘‘(2) which is placed in service by the taxpayer 
after the date of the enactment of this section. 
‘‘(d) ADVANCED MINE SAFETY EQUIPMENT PROP-
ERTY.—For purposes of this section, the term ‘advanced 
mine safety equipment property’ means any of the fol-
lowing: 
‘‘(1) Emergency communication technology or 
device which is used to allow a miner to maintain 
constant communication with an individual who is 
not in the mine. 
‘‘(2) Electronic identification and location device 
which allows an individual who is not in the mine 
to track at all times the movements and location of 
miners working in or at the mine.
‘‘(3) Emergency oxygen-generating, self-rescue 
device which provides oxygen for at least 90 minutes. 
‘‘(4) Pre-positioned supplies of oxygen which (in 
combination with self-rescue devices) can be used to 
provide each miner on a shift, in the event of an acci-
dent or other event which traps the miner in the mine 
or otherwise necessitates the use of such a self-rescue 
device, the ability to survive for at least 48 hours. 
‘‘(5) Comprehensive atmospheric monitoring sys-
tem which monitors the levels of carbon monoxide, 
methane, and oxygen that are present in all areas of 
the mine and which can detect smoke in the case of 
a fire in a mine. 
‘‘(e) COORDINATION WITH SECTION 179.—No expendi-
tures shall be taken into account under subsection (a) with 
respect to the portion of the cost of any property specified 
in an election under section 179. 
‘‘(f) REPORTING.—No deduction shall be allowed under 
subsection (a) to any taxpayer for any taxable year unless 
such taxpayer files with the Secretary a report containing 
such information with respect to the operation of the mines 
of the taxpayer as the Secretary shall require. 
‘‘(g) TERMINATION.—This section shall not apply to 
property placed in service after December 31, 2008.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1) is amended by striking 
‘‘or’’ at the end of subparagraph (J), by striking the 
period at the end of subparagraph (K) and inserting 
‘‘, or’’, and by inserting after subparagraph (K) the 
following new subparagraph: 
‘‘(L) expenditures for which a deduction is 
allowed under section 179E.’’. 
(2) Section 312(k)(3)(B) is amended by striking 
‘‘or 179D’’ each place it appears in the heading and 
text thereof and inserting ‘‘179D, or 179E’’. 
(3) Paragraphs (2)(C) and (3)(C) of section 
1245(a) are each amended by inserting ‘‘179E,’’ after 
‘‘179D,’’. 
(4) The table of sections for part VI of sub-
chapter B of chapter 1 is amended by inserting after 
the item relating to section 179D the following new 
item:
‘‘Sec. 179E. Election to expense advanced mine safety equipment.’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to costs paid or incurred after the date 
of the enactment of this Act. 
SEC. 405. MINE RESCUE TEAM TRAINING TAX CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of subchapter 
A of chapter 1 (relating to business related credits) is 
amended by adding at the end the following new section:
‘‘SEC. 45N. MINE RESCUE TEAM TRAINING CREDIT. 
‘‘(a) AMOUNT OF CREDIT.—For purposes of section 38, 
the mine rescue team training credit determined under this 
section with respect to each qualified mine rescue team em-
ployee of an eligible employer for any taxable year is an 
amount equal to the lesser of—
‘‘(1) 20 percent of the amount paid or incurred 
by the taxpayer during the taxable year with respect 
to the training program costs of such qualified mine 
rescue team employee (including wages of such em-
ployee while attending such program), or 
‘‘(2) $10,000. 
‘‘(b) QUALIFIED MINE RESCUE TEAM EMPLOYEE.—
For purposes of this section, the term ‘qualified mine rescue 
team employee’ means with respect to any taxable year any 
full-time employee of the taxpayer who is—
‘‘(1) a miner eligible for more than 6 months of 
such taxable year to serve as a mine rescue team 
member as a result of completing, at a minimum, an 
initial 20-hour course of instruction as prescribed by 
the Mine Safety and Health Administration’s Office 
of Educational Policy and Development, or 
‘‘(2) a miner eligible for more than 6 months of 
such taxable year to serve as a mine rescue team 
member by virtue of receiving at least 40 hours of re-
fresher training in such instruction.
‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this sec-
tion, the term ‘eligible employer’ means any taxpayer which 
employs individuals as miners in underground mines in 
the United States. 
‘‘(d) WAGES.—For purposes of this section, the term 
‘wages’ has the meaning given to such term by subsection 
(b) of section 3306 (determined without regard to any dollar 
limitation contained in such section). 
‘‘(e) TERMINATION.—This section shall not apply to 
taxable years beginning after December 31, 2008.’’. 
(b) CREDIT MADE PART
OF GENERAL BUSINESS 
CREDIT.—Section 38(b) is amended by striking ‘‘and’’ at 
the end of paragraph (29), by striking the period at the 
end of paragraph (30) and inserting ‘‘, plus’’, and by add-
ing at the end the following new paragraph: 
‘‘(31) the mine rescue team training credit deter-
mined under section 45N(a).’’. 
(c) NO DOUBLE BENEFIT.—Section 280C is amended 
by adding at the end the following new subsection: 
‘‘(e) MINE RESCUE TEAM TRAINING CREDIT.—No de-
duction shall be allowed for that portion of the expenses oth-
erwise allowable as a deduction for the taxable year which 
is equal to the amount of the credit determined for the tax-
able year under section 45N(a).’’.
(d) CLERICAL AMENDMENT.—The table of sections for 
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following new item:
‘‘Sec. 45N. Mine rescue team training credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2005. 
SEC. 406. WHISTLEBLOWER REFORMS. 
(a) AWARDS TO WHISTLEBLOWERS.—
(1) IN GENERAL.—Section 7623 (relating to ex-
penses of detection of underpayments and fraud, etc.) 
is amended—
(A) by striking ‘‘The Secretary’’ and insert-
ing ‘‘(a) IN GENERAL.—The Secretary’’, 
(B) by striking ‘‘and’’ at the end of para-
graph (1) and inserting ‘‘or’’, 
(C) by striking ‘‘(other than interest)’’, and 
(D) by adding at the end the following new 
subsection: 
‘‘(b) AWARDS TO WHISTLEBLOWERS.—
‘‘(1) IN
GENERAL.—If the Secretary proceeds 
with any administrative or judicial action described 
in subsection (a) based on information brought to the 
Secretary’s attention by an individual, such indi-
vidual shall, subject to paragraph (2), receive as an 
award at least 15 percent but not more than 30 per-
cent of the collected proceeds (including penalties, in-
terest, additions to tax, and additional amounts) re-
sulting from the action (including any related ac-
tions) or from any settlement in response to such ac-
tion. The determination of the amount of such award 
by the Whistleblower Office shall depend upon the ex-
tent to which the individual substantially contributed 
to such action. 
‘‘(2) AWARD
IN
CASE
OF
LESS
SUBSTANTIAL 
CONTRIBUTION.—
‘‘(A) IN GENERAL.—In the event the action 
described in paragraph (1) is one which the 
Whistleblower Office determines to be based prin-
cipally on disclosures of specific allegations 
(other than information provided by the indi-
vidual described in paragraph (1)) resulting 
from a judicial or administrative hearing, from 
a governmental report, hearing, audit, or inves-
tigation, or from the news media, the Whistle-
blower Office may award such sums as it con-
siders appropriate, but in no case more than 10 
percent of the collected proceeds (including pen-
alties, interest, additions to tax, and additional 
amounts) resulting from the action (including 
any related actions) or from any settlement in
response to such action, taking into account the 
significance of the individual’s information and 
the role of such individual and any legal rep-
resentative of such individual in contributing to 
such action. 
‘‘(B) 
NONAPPLICATION
OF
PARAGRAPH 
WHERE INDIVIDUAL IS ORIGINAL SOURCE OF IN-
FORMATION.—Subparagraph (A) shall not apply 
if the information resulting in the initiation of 
the action described in paragraph (1) was origi-
nally provided by the individual described in 
paragraph (1). 
‘‘(3) REDUCTION IN OR DENIAL OF AWARD.—If 
the Whistleblower Office determines that the claim for 
an award under paragraph (1) or (2) is brought by 
an individual who planned and initiated the actions 
that led to the underpayment of tax or actions de-
scribed in subsection (a)(2), then the Whistleblower 
Office may appropriately reduce such award. If such 
individual is convicted of criminal conduct arising 
from the role described in the preceding sentence, the 
Whistleblower Office shall deny any award. 
‘‘(4) APPEAL OF AWARD DETERMINATION.—Any 
determination regarding an award under paragraph 
(1), (2), or (3) may, within 30 days of such deter-
mination, be appealed to the Tax Court (and the Tax 
Court shall have jurisdiction with respect to such 
matter). 
‘‘(5) APPLICATION OF THIS SUBSECTION.—This 
subsection shall apply with respect to any action—
‘‘(A) against any taxpayer, but in the case 
of any individual, only if such individual’s gross 
income exceeds $200,000 for any taxable year 
subject to such action, and 
‘‘(B) if the tax, penalties, interest, additions 
to tax, and additional amounts in dispute exceed 
$2,000,000. 
‘‘(6) ADDITIONAL RULES.—
‘‘(A) NO CONTRACT NECESSARY.—No con-
tract with the Internal Revenue Service is nec-
essary for any individual to receive an award 
under this subsection. 
‘‘(B) REPRESENTATION.—Any individual 
described in paragraph (1) or (2) may be rep-
resented by counsel. 
‘‘(C) SUBMISSION
OF
INFORMATION.—No 
award may be made under this subsection based 
on information submitted to the Secretary unless 
such information is submitted under penalty of 
perjury.’’.
(2) ASSIGNMENT TO SPECIAL TRIAL JUDGES.—
(A) IN GENERAL.—Section 7443A(b) (relat-
ing to proceedings which may be assigned to spe-
cial trial judges) is amended by striking ‘‘and’’ 
at the end of paragraph (5), by redesignating 
paragraph (6) as paragraph (7), and by insert-
ing after paragraph (5) the following new para-
graph: 
‘‘(6) any proceeding under section 7623(b)(4), 
and’’. 
(B) 
CONFORMING
AMENDMENT.—Section 
7443A(c) is amended by striking ‘‘or (5)’’ and 
inserting ‘‘(5), or (6)’’. 
(3) DEDUCTION
ALLOWED
WHETHER
OR
NOT 
TAXPAYER ITEMIZES.—Subsection (a) of section 62 
(relating to general rule defining adjusted gross in-
come) is amended by inserting after paragraph (20) 
the following new paragraph: 
‘‘(21) ATTORNEYS FEES RELATING TO AWARDS 
TO
WHISTLEBLOWERS.—Any deduction allowable 
under this chapter for attorney fees and court costs 
paid by, or on behalf of, the taxpayer in connection 
with any award under section 7623(b) (relating to 
awards to whistleblowers). The preceding sentence 
shall not apply to any deduction in excess of the
amount includible in the taxpayer’s gross income for 
the taxable year on account of such award.’’. 
(b) WHISTLEBLOWER OFFICE.—
(1) IN GENERAL.—Not later than the date which 
is 12 months after the date of the enactment of this 
Act, the Secretary of the Treasury shall issue guid-
ance for the operation of a whistleblower program to 
be administered in the Internal Revenue Service by 
an office to be known as the ‘‘Whistleblower Office’’ 
which—
(A) shall at all times operate at the direc-
tion of the Commissioner of Internal Revenue 
and coordinate and consult with other divisions 
in the Internal Revenue Service as directed by 
the Commissioner of Internal Revenue, 
(B) shall analyze information received from 
any individual described in section 7623(b) of 
the Internal Revenue Code of 1986 and either in-
vestigate the matter itself or assign it to the ap-
propriate Internal Revenue Service office, and 
(C) in its sole discretion, may ask for addi-
tional assistance from such individual or any 
legal representative of such individual. 
(2) REQUEST FOR ASSISTANCE.—The guidance 
issued under paragraph (1) shall specify that any as-
sistance requested under paragraph (1)(C) shall be 
under the direction and control of the Whistleblower 
Office or the office assigned to investigate the matter 
under paragraph (1)(A). No individual or legal rep-
resentative whose assistance is so requested may by 
reason of such request represent himself or herself as 
an employee of the Federal Government. 
(c) REPORT BY SECRETARY.—The Secretary of the 
Treasury shall each year conduct a study and report to 
Congress on the use of section 7623 of the Internal Revenue 
Code of 1986, including—
(1) an analysis of the use of such section during 
the preceding year and the results of such use, and 
(2) any legislative or administrative rec-
ommendations regarding the provisions of such sec-
tion and its application. 
(d) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to information provided on or 
after the date of the enactment of this Act. 
SEC. 407. FRIVOLOUS TAX SUBMISSIONS. 
(a) CIVIL PENALTIES.—Section 6702 is amended to 
read as follows: 
‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 
‘‘(a) CIVIL
PENALTY
FOR
FRIVOLOUS
TAX
RE-
TURNS.—A person shall pay a penalty of $5,000 if—
‘‘(1) such person files what purports to be a re-
turn of a tax imposed by this title but which—
‘‘(A) does not contain information on which 
the substantial correctness of the self-assessment 
may be judged, or 
‘‘(B) contains information that on its face 
indicates that the self-assessment is substantially 
incorrect, and 
‘‘(2) the conduct referred to in paragraph (1)—
‘‘(A) is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c), or 
‘‘(B) reflects a desire to delay or impede the 
administration of Federal tax laws. 
‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB-
MISSIONS.—
‘‘(1) IMPOSITION OF PENALTY.—Except as pro-
vided in paragraph (3), any person who submits a 
specified frivolous submission shall pay a penalty of 
$5,000. 
‘‘(2) SPECIFIED
FRIVOLOUS
SUBMISSION.—For 
purposes of this section—
‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—
The term ‘specified frivolous submission’ means
a specified submission if any portion of such 
submission—
‘‘(i) is based on a position which the 
Secretary has identified as frivolous under 
subsection (c), or 
‘‘(ii) reflects a desire to delay or im-
pede the administration of Federal tax 
laws. 
‘‘(B) SPECIFIED
SUBMISSION.—The term 
‘specified submission’ means—
‘‘(i) a request for a hearing under—
‘‘(I) section 6320 (relating to no-
tice and opportunity for hearing upon 
filing of notice of lien), or 
‘‘(II) section 6330 (relating to no-
tice and opportunity for hearing before 
levy), and 
‘‘(ii) an application under—
‘‘(I) section 6159 (relating to 
agreements for payment of tax liability 
in installments), 
‘‘(II) section 7122 (relating to 
compromises), or 
‘‘(III) section 7811 (relating to 
taxpayer assistance orders).
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with notice 
that a submission is a specified frivolous submission 
and such person withdraws such submission within 
30 days after such notice, the penalty imposed under 
paragraph (1) shall not apply with respect to such 
submission. 
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of posi-
tions which the Secretary has identified as being frivolous 
for purposes of this subsection. The Secretary shall not in-
clude in such list any position that the Secretary deter-
mines 
meets 
the 
requirement 
of 
section 
6662(d)(2)(B)(ii)(II). 
‘‘(d) REDUCTION OF PENALTY.—The Secretary may 
reduce the amount of any penalty imposed under this sec-
tion if the Secretary determines that such reduction would 
promote compliance with and administration of the Federal 
tax laws. 
‘‘(e) PENALTIES
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalties imposed by this section shall be in 
addition to any other penalty provided by law.’’. 
(b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS BEFORE LEVY.—
(1) FRIVOLOUS REQUESTS DISREGARDED.—Sec-
tion 6330 (relating to notice and opportunity for 
hearing before levy) is amended by adding at the end 
the following new subsection: 
‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—Not-
withstanding any other provision of this section, if the Sec-
retary determines that any portion of a request for a hear-
ing under this section or section 6320 meets the requirement 
of clause (i) or (ii) of section 6702(b)(2)(A), then the Sec-
retary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further admin-
istrative or judicial review.’’. 
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS 
ISSUES AT HEARING.—Section 6330(c)(4) is amend-
ed—
(A) by striking ‘‘(A)’’ and inserting 
‘‘(A)(i)’’; 
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 
(C) by striking the period at the end of the 
first sentence and inserting ‘‘; or’’; and 
(D) by inserting after subparagraph (A)(ii) 
(as so redesignated) the following: 
‘‘(B) the issue meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A).’’.
(3) 
STATEMENT
OF
GROUNDS.—Section 
6330(b)(1) is amended by striking ‘‘under subsection 
(a)(3)(B)’’ and inserting ‘‘in writing under subsection 
(a)(3)(B) and states the grounds for the requested 
hearing’’. 
(c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR-
INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is 
amended—
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under 
subsection (a)(3)(B) and states the grounds for the re-
quested hearing’’, and 
(2) in subsection (c), by striking ‘‘and (e)’’ and 
inserting ‘‘(e), and (g)’’. 
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR 
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end 
the following new subsection: 
‘‘(f) FRIVOLOUS SUBMISSIONS, ETC.—Notwithstanding 
any other provision of this section, if the Secretary deter-
mines that any portion of an application for an offer-in-
compromise or installment agreement submitted under this 
section or section 6159 meets the requirement of clause (i) 
or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative 
or judicial review.’’. 
(e) CLERICAL AMENDMENT.—The table of sections for 
part I of subchapter B of chapter 68 is amended by striking 
the item relating to section 6702 and inserting the following 
new item:
‘‘Sec. 6702. Frivolous tax submissions.’’.
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to submissions made and issues raised 
after the date on which the Secretary first prescribes a list 
under section 6702(c) of the Internal Revenue Code of 1986, 
as amended by subsection (a). 
SEC. 408. ADDITION OF MENINGOCOCCAL AND HUMAN 
PAPILLOMAVIRUS VACCINES TO LIST OF TAX-
ABLE VACCINES. 
(a) MENINGOCOCCAL VACCINE.—Section 4132(a)(1) 
(defining taxable vaccine) is amended by adding at the end 
the following new subparagraph: 
‘‘(O) Any meningococcal vaccine.’’. 
(b) 
HUMAN
PAPILLOMAVIRUS
VACCINE.—Section 
4132(a)(1), as amended by subsection (a), is amended by 
adding at the end the following new subparagraph: 
‘‘(P) Any vaccine against the human 
papillomavirus.’’. 
(c) EFFECTIVE DATE.—
(1) SALES, ETC.—The amendments made by this 
section shall apply to sales and uses on or after the 
first day of the first month which begins more than 
4 weeks after the date of the enactment of this Act. 
(2) DELIVERIES.—For purposes of paragraph 
(1) and section 4131 of the Internal Revenue Code of 
1986, in the case of sales on or before the effective date 
described in such paragraph for which delivery is 
made after such date, the delivery date shall be con-
sidered the sale date. 
SEC. 409. CLARIFICATION OF TAXATION OF CERTAIN SET-
TLEMENT FUNDS MADE PERMANENT. 
(a) IN GENERAL.—Subsection (g) of section 468B is 
amended by striking paragraph (3). 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect as if included in section 201 of the 
Tax Increase Prevention and Reconciliation Act of 2005. 
SEC. 410. MODIFICATION OF ACTIVE BUSINESS DEFINITION 
UNDER SECTION 355 MADE PERMANENT. 
(a) IN GENERAL.—Subparagraphs (A) and (D) of sec-
tion 355(b)(3) are each amended by striking ‘‘and on or 
before December 31, 2010’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall take effect as if included in section 202 of the 
Tax Increase Prevention and Reconciliation Act of 2005.
SEC. 411. REVISION OF STATE VETERANS LIMIT MADE PER-
MANENT. 
(a) IN
GENERAL.—Subparagraph (B) of section 
143(l)(3) is amended by striking clause (iv). 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect as if included in section 203 of the 
Tax Increase Prevention and Reconciliation Act of 2005. 
SEC. 412. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-
CREATED MUSICAL WORKS MADE PERMA-
NENT. 
(a) IN GENERAL.—Paragraph (3) of section 1221(b) 
is amended by striking ‘‘before January 1, 2011,’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect as if included in section 204 of the 
Tax Increase Prevention and Reconciliation Act of 2005. 
SEC. 413. REDUCTION IN MINIMUM VESSEL TONNAGE 
WHICH QUALIFIES FOR TONNAGE TAX MADE 
PERMANENT. 
(a) IN GENERAL.—Paragraph (4) of section 1355(a) 
is amended by striking ‘‘10,000 (6,000, in the case of tax-
able years beginning after December 31, 2005, and ending 
before January 1, 2011)’’ and inserting ‘‘6,000’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect as if included in section 205 of the 
Tax Increase Prevention and Reconciliation Act of 2005.
SEC. 414. MODIFICATION OF SPECIAL ARBITRAGE RULE 
FOR CERTAIN FUNDS MADE PERMANENT. 
(a) IN GENERAL.—Section 206 of the Tax Increase 
Prevention and Reconciliation Act of 2005 is amended by 
striking ‘‘and before August 31, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect as if included in section 206 of the 
Tax Increase Prevention and Reconciliation Act of 2005. 
SEC. 415. GREAT LAKES DOMESTIC SHIPPING TO NOT DIS-
QUALIFY VESSEL FROM TONNAGE TAX. 
(a) IN GENERAL.—Section 1355 (relating to defini-
tions and special rules) is amended by redesignating sub-
section (g) as subsection (h) and by inserting after sub-
section (f) the following new subsection: 
‘‘(g) GREAT LAKES DOMESTIC SHIPPING TO NOT DIS-
QUALIFY VESSEL.—
‘‘(1) IN GENERAL.—If the electing corporation 
elects (at such time and in such manner as the Sec-
retary may require) to apply this subsection for any 
taxable year to any qualifying vessel which is used in 
qualified zone domestic trade during the taxable 
year—
‘‘(A) solely for purposes of subsection (a)(4), 
such use shall be treated as use in United States 
foreign trade (and not as use in United States 
domestic trade), and
‘‘(B) subsection (f) shall not apply with re-
spect to such vessel for such taxable year. 
‘‘(2) EFFECT OF TEMPORARILY OPERATING VES-
SEL IN UNITED STATES DOMESTIC TRADE.—In the 
case of a qualifying vessel to which this subsection ap-
plies—
‘‘(A) IN GENERAL.—An electing corporation 
shall be treated as using such vessel in qualified 
zone domestic trade during any period of tem-
porary use in the United States domestic trade 
(other than qualified zone domestic trade) if the 
electing corporation gives timely notice to the 
Secretary stating—
‘‘(i) that it temporarily operates or has 
operated in the United States domestic 
trade (other than qualified zone domestic 
trade) a qualifying vessel which had been 
used in the United States foreign trade or 
qualified zone domestic trade, and 
‘‘(ii) its intention to resume operation 
of the vessel in the United States foreign 
trade or qualified zone domestic trade. 
‘‘(B) NOTICE.—Notice shall be deemed time-
ly if given not later than the due date (including 
extensions) for the corporation’s tax return for
the taxable year in which the temporary ces-
sation begins. 
‘‘(C) PERIOD DISREGARD IN EFFECT.—The 
period of temporary use under subparagraph (A) 
continues until the earlier of the date of which—
‘‘(i) the electing corporation abandons 
its intention to resume operations of the 
vessel in the United States foreign trade or 
qualified zone domestic trade, or 
‘‘(ii) the electing corporation resumes 
operation of the vessel in the United States 
foreign trade or qualified zone domestic 
trade. 
‘‘(D) NO DISREGARD IF DOMESTIC TRADE 
USE EXCEEDS 30 DAYS.—Subparagraph (A) shall 
not apply to any qualifying vessel which is oper-
ated in the United States domestic trade (other 
than qualified zone domestic trade) for more 
than 30 days during the taxable year. 
‘‘(3) ALLOCATION OF INCOME AND DEDUCTIONS 
TO QUALIFYING SHIPPING ACTIVITIES.—In the case of 
a qualifying vessel to which this subsection applies, 
the Secretary shall prescribe rules for the proper allo-
cation of income, expenses, losses, and deductions be-
tween the qualified shipping activities and the other 
activities of such vessel. 
‘‘(4) QUALIFIED ZONE DOMESTIC TRADE.—For 
purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified 
zone domestic trade’ means the transportation of 
goods or passengers between places in the quali-
fied zone if such transportation is in the United 
States domestic trade. 
‘‘(B) QUALIFIED ZONE.—The term ‘quali-
fied zone’ means the Great Lakes Waterway and 
the St. Lawrence Seaway.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act. 
SEC. 416. USE OF QUALIFIED MORTGAGE BONDS TO FI-
NANCE RESIDENCES FOR VETERANS WITH-
OUT REGARD TO FIRST-TIME HOMEBUYER RE-
QUIREMENT. 
(a) IN GENERAL.—Section 143(d)(2) (relating to ex-
ceptions to 3-year requirement) is amended by striking 
‘‘and’’ at the end of subparagraph (B), by adding ‘‘and’’ 
at the end of subparagraph (C), and by inserting after sub-
paragraph (C) the following new subparagraph:
100
‘‘(D) in the case of bonds issued after the 
date of the enactment of this subparagraph and 
before January 1, 2008, financing of any resi-
dence for a veteran (as defined in section 101 of 
title 38, United States Code), if such veteran has 
not previously qualified for and received such fi-
nancing by reason of this subparagraph,’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to bonds issued after the date of the en-
actment of this Act. 
SEC. 417. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
RESIDENCE BY CERTAIN EMPLOYEES OF THE 
INTELLIGENCE COMMUNITY. 
(a) IN
GENERAL.—Subparagraph (A) of section 
121(d)(9) (relating to exclusion of gain from sale of prin-
cipal residence) is amended by striking ‘‘duty’’ and all that 
follows and inserting ‘‘duty—
‘‘(i) as a member of the uniformed 
services, 
‘‘(ii) as a member of the Foreign Serv-
ice of the United States, or 
‘‘(iii) as an employee of the intelligence 
community.’’. 
(b) EMPLOYEE OF INTELLIGENCE COMMUNITY DE-
FINED.—Subparagraph (C) of section 121(d)(9) is amended
101
by redesignating clause (iv) as clause (v) and by inserting 
after clause (iii) the following new clause: 
‘‘(iv) EMPLOYEE
OF
INTELLIGENCE 
COMMUNITY.—The term ‘employee of the in-
telligence community’ means an employee 
(as defined by section 2105 of title 5, 
United States Code) of—
‘‘(I) the Office of the Director of 
National Intelligence, 
‘‘(II) 
the 
Central 
Intelligence 
Agency, 
‘‘(III) 
the 
National 
Security 
Agency, 
‘‘(IV) 
the 
Defense 
Intelligence 
Agency, 
‘‘(V) the National Geospatial-In-
telligence Agency, 
‘‘(VI) the National Reconnais-
sance Office, 
‘‘(VII) any other office within the 
Department of Defense for the collec-
tion of specialized national intelligence 
through reconnaissance programs, 
‘‘(VIII) any of the intelligence ele-
ments of the Army, the Navy, the Air
102
Force, the Marine Corps, the Federal 
Bureau of Investigation, the Depart-
ment of Treasury, the Department of 
Energy, and the Coast Guard, 
‘‘(IX) the Bureau of Intelligence 
and Research of the Department of 
State, or 
‘‘(X) any of the elements of the 
Department of Homeland Security 
concerned with the analyses of foreign 
intelligence information.’’. 
(c) SPECIAL RULE.—Subparagraph (C) of section 
121(d)(9), as amended by subsection (b), is amended by 
adding at the end the following new clause: 
‘‘(vi) SPECIAL RULE RELATING TO IN-
TELLIGENCE COMMUNITY.—An employee of 
the intelligence community shall not be 
treated as serving on qualified extended 
duty unless such duty is at a duty station 
located outside the United States.’’. 
(d) CONFORMING AMENDMENT.—The heading for sec-
tion 121(d)(9) is amended to read as follows: ‘‘UNIFORMED 
SERVICES, FOREIGN SERVICE, AND INTELLIGENCE COMMU-
NITY’’.
103
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to sales or exchanges after the date of 
the enactment of this Act and before January 1, 2011. 
SEC. 418. SALE OF PROPERTY BY JUDICIAL OFFICERS. 
(a) IN GENERAL.—Section 1043(b) (relating to the 
sale of property to comply with conflict-of-interest require-
ments) is amended—
(1) in paragraph (1)—
(A) in subparagraph (A), by inserting ‘‘, or 
a judicial officer,’’ after ‘‘an officer or employee 
of the executive branch’’; and 
(B) in subparagraph (B), by inserting ‘‘ju-
dicial canon,’’ after ‘‘any statute, regulation, 
rule,’’; 
(2) in paragraph (2)—
(A) in subparagraph (A), by inserting ‘‘ju-
dicial canon,’’ after ‘‘any Federal conflict of in-
terest statute, regulation, rule,’’; and 
(B) in subparagraph (B), by inserting after 
‘‘the Director of the Office of Government Eth-
ics,’’ the following: ‘‘in the case of executive 
branch officers or employees, or by the Judicial 
Conference of the United States (or its designee), 
in the case of judicial officers,’’; and
104
(3) in paragraph (5)(B), by inserting ‘‘judicial 
canon,’’ after ‘‘any statute, regulation, rule,’’. 
(b) JUDICIAL OFFICER DEFINED.—Section 1043(b) is 
amended by adding at the end the following new paragraph: 
‘‘(6) JUDICIAL OFFICER.—The term ‘judicial of-
ficer’ means the Chief Justice of the United States, the 
Associate Justices of the Supreme Court, and the 
judges of the United States courts of appeals, United 
States district courts, including the district courts in 
Guam, the Northern Mariana Islands, and the Virgin 
Islands, Court of Appeals for the Federal Circuit, 
Court of International Trade, Tax Court, Court of 
Federal Claims, Court of Appeals for Veterans 
Claims, United States Court of Appeals for the Armed 
Forces, and any court created by Act of Congress, the 
judges of which are entitled to hold office during good 
behavior.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to sales after the date of enactment of 
this Act. 
SEC. 419. PREMIUMS FOR MORTGAGE INSURANCE. 
(a) IN GENERAL.—Section 163(h)(3) (relating to 
qualified residence interest) is amended by adding at the 
end the following new subparagraph:
105
‘‘(E) MORTGAGE
INSURANCE
PREMIUMS 
TREATED AS INTEREST.—
‘‘(i) IN GENERAL.—Premiums paid or 
accrued for qualified mortgage insurance by 
a taxpayer during the taxable year in con-
nection with acquisition indebtedness with 
respect to a qualified residence of the tax-
payer shall be treated for purposes of this 
section as interest which is qualified resi-
dence interest. 
‘‘(ii) PHASEOUT.—The amount other-
wise treated as interest under clause (i) 
shall be reduced (but not below zero) by 10 
percent of such amount for each $1,000 
($500 in the case of a married individual 
filing a separate return) (or fraction there-
of) that the taxpayer’s adjusted gross in-
come for the taxable year exceeds $100,000 
($50,000 in the case of a married indi-
vidual filing a separate return). 
‘‘(iii) LIMITATION.—Clause (i) shall 
not apply with respect to any mortgage in-
surance contracts issued before January 1, 
2007.
106
‘‘(iv) TERMINATION.—Clause (i) shall 
not apply to amounts—
‘‘(I) paid or accrued after Decem-
ber 31, 2007, or 
‘‘(II) properly allocable to any pe-
riod after such date.’’. 
(b) DEFINITION
AND
SPECIAL
RULES.—Section 
163(h)(4) (relating to other definitions and special rules) 
is amended by adding at the end the following new subpara-
graphs: 
‘‘(E) QUALIFIED MORTGAGE INSURANCE.—
The 
term 
‘qualified 
mortgage 
insurance’ 
means—
‘‘(i) mortgage insurance provided by 
the Veterans Administration, the Federal 
Housing Administration, or the Rural 
Housing Administration, and 
‘‘(ii) private mortgage insurance (as 
defined by section 2 of the Homeowners 
Protection Act of 1998 (12 U.S.C. 4901), as 
in effect on the date of the enactment of this 
subparagraph). 
‘‘(F) SPECIAL RULES FOR PREPAID QUALI-
FIED MORTGAGE INSURANCE.—Any amount paid 
by the taxpayer for qualified mortgage insurance
107
that is properly allocable to any mortgage the 
payment of which extends to periods that are 
after the close of the taxable year in which such 
amount is paid shall be chargeable to capital ac-
count and shall be treated as paid in such peri-
ods to which so allocated. No deduction shall be 
allowed for the unamortized balance of such ac-
count if such mortgage is satisfied before the end 
of its term. The preceding sentences shall not 
apply to amounts paid for qualified mortgage 
insurance provided by the Veterans Administra-
tion or the Rural Housing Administration.’’. 
(c) INFORMATION RETURNS RELATING TO MORTGAGE 
INSURANCE.—Section 6050H (relating to returns relating 
to mortgage interest received in trade or business from indi-
viduals) is amended by adding at the end the following new 
subsection: 
‘‘(h) RETURNS RELATING TO MORTGAGE INSURANCE 
PREMIUMS.—
‘‘(1) IN
GENERAL.—The Secretary may pre-
scribe, by regulations, that any person who, in the 
course of a trade or business, receives from any indi-
vidual premiums for mortgage insurance aggregating 
$600 or more for any calendar year, shall make a re-
turn with respect to each such individual. Such re-
108
turn shall be in such form, shall be made at such 
time, and shall contain such information as the Sec-
retary may prescribe. 
‘‘(2) STATEMENT TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return 
under paragraph (1) shall furnish to each individual 
with respect to whom a return is made a written 
statement showing such information as the Secretary 
may prescribe. Such written statement shall be fur-
nished on or before January 31 of the year following 
the calendar year for which the return under para-
graph (1) was required to be made. 
‘‘(3) SPECIAL RULES.—For purposes of this sub-
section—
‘‘(A) rules similar to the rules of subsection 
(c) shall apply, and 
‘‘(B) 
the 
term 
‘mortgage 
insurance’ 
means—
‘‘(i) mortgage insurance provided by 
the Veterans Administration, the Federal 
Housing Administration, or the Rural 
Housing Administration, and 
‘‘(ii) private mortgage insurance (as 
defined by section 2 of the Homeowners
109
Protection Act of 1998 (12 U.S.C. 4901), as 
in effect on the date of the enactment of this 
subsection).’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to amounts paid or accrued after Decem-
ber 31, 2006. 
SEC. 420. MODIFICATION OF REFUNDS FOR KEROSENE 
USED IN AVIATION. 
(a) IN GENERAL.—Paragraph (4) of section 6427(l) 
(relating to nontaxable uses of diesel fuel and kerosene) is 
amended to read as follows: 
‘‘(4) REFUNDS FOR KEROSENE USED IN AVIA-
TION.—
‘‘(A) KEROSENE
USED
IN
COMMERCIAL 
AVIATION.—In the case of kerosene used in com-
mercial aviation (as defined in section 4083(b)) 
(other than supplies for vessels or aircraft within 
the meaning of section 4221(d)(3)), paragraph 
(1) shall not apply to so much of the tax imposed 
by section 4041 or 4081, as the case may be, as 
is attributable to—
‘‘(i) the Leaking Underground Storage 
Tank Trust Fund financing rate imposed 
by such section, and
110
‘‘(ii) so much of the rate of tax speci-
fied 
in 
section 
4041(c) 
or 
4081(a)(2)(A)(iii), as the case may be, as 
does not exceed 4.3 cents per gallon. 
‘‘(B) KEROSENE USED IN NONCOMMERCIAL 
AVIATION.—In the case of kerosene used in avia-
tion that is not commercial aviation (as so de-
fined) (other than any use which is exempt from 
the tax imposed by section 4041(c) other than by 
reason of a prior imposition of tax), paragraph 
(1) shall not apply to—
‘‘(i) any tax imposed by subsection (c) 
or (d)(2) of section 4041, and 
‘‘(ii) so much of the tax imposed by 
section 4081 as is attributable to—
‘‘(I) the Leaking Underground 
Storage Tank Trust Fund financing 
rate imposed by such section, and 
‘‘(II) so much of the rate of tax 
specified in section 4081(a)(2)(A)(iii) 
as does not exceed the rate specified in 
section 4081(a)(2)(C)(ii). 
‘‘(C) PAYMENTS TO ULTIMATE, REGISTERED 
VENDOR.—
111
‘‘(i) IN GENERAL.—With respect to any 
kerosene used in aviation (other than ker-
osene described in clause (ii) or kerosene to 
which paragraph (5) applies), if the ulti-
mate purchaser of such kerosene waives (at 
such time and in such form and manner as 
the Secretary shall prescribe) the right to 
payment under paragraph (1) and assigns 
such right to the ultimate vendor, then the 
Secretary shall pay the amount which 
would be paid under paragraph (1) to such 
ultimate vendor, but only if such ultimate 
vendor—
‘‘(I) is registered under section 
4101, and 
‘‘(II) meets the requirements of 
subparagraph (A), (B), or (D) of sec-
tion 6416(a)(1). 
‘‘(ii) PAYMENTS FOR KEROSENE USED 
IN
NONCOMMERCIAL
AVIATION.—The 
amount which would be paid under para-
graph (1) with respect to any kerosene to 
which subparagraph (B) applies shall be 
paid only to the ultimate vendor of such
112
kerosene. A payment shall be made to such 
vendor if such vendor—
‘‘(I) is registered under section 
4101, and 
‘‘(II) meets the requirements of 
subparagraph (A), (B), or (D) of sec-
tion 6416(a)(1).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 6427(l) is amended by striking para-
graph (5) and by redesignating paragraph (6) as 
paragraph (5). 
(2) Section 4082(d)(2)(B) is amended by strik-
ing ‘‘section 6427(l)(6)(B)’’ and inserting ‘‘section 
6427(l)(5)(B)’’. 
(3) Section 6427(i)(4)(A) is amended—
(A) by striking ‘‘paragraph (4)(B), (5), or 
(6)’’ each place it appears and inserting ‘‘para-
graph (4)(C) or (5)’’, and 
(B) by striking ‘‘(l)(5), and (l)(6)’’ and in-
serting ‘‘(l)(4)(C)(ii), and (l)(5)’’. 
(4) Section 6427(l)(1) is amended by striking 
‘‘paragraph 
(4)(B)’’ 
and 
inserting 
‘‘paragraph 
(4)(C)(i)’’. 
(5) Section 9502(d) is amended—