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(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to debt instruments issued after Feb-
ruary 13, 2003.
SEC. 325. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269.
(a) IN GENERAL.—Subsection (a) of section 269 (relat-
ing to acquisitions made to evade or avoid income tax) is
amended to read as follows:
‘‘(a) IN GENERAL.—If—
‘‘(1)(A) any person acquires stock in a corpora-
tion, or
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis
of such property, in the hands of the acquiring cor-
poration, is determined by reference to the basis in
the hands of the transferor corporation, and
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal
income tax by securing the benefit of a deduction,
credit, or other allowance,
then the Secretary may disallow such deduction, credit, or
other allowance.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to stock and property acquired after
February 13, 2003.
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SEC. 326. MODIFICATIONS OF CERTAIN RULES RELATING
TO CONTROLLED FOREIGN CORPORATIONS.
(a) LIMITATION ON EXCEPTION FROM PFIC RULES
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED
FOREIGN
CORPORATIONS.—Paragraph (2) of section
1297(e) (relating to passive investment company) is amend-
ed by adding at the end the following flush sentence:
‘‘Such term shall not include any period if there is
only a remote likelihood of an inclusion in gross in-
come under section 951(a)(1)(A)(i) of subpart F in-
come of such corporation for such period.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years on controlled foreign
corporation beginning after February 13, 2003, and to tax-
able years of United States shareholder in which or with
which such taxable years of controlled foreign corporations
end.
SEC. 327. CONTROLLED ENTITIES INELIGIBLE FOR REIT
STATUS.
(a) IN GENERAL.—Subsection (a) of section 856 (relat-
ing to definition of real estate investment trust) is amended
by striking ‘‘and’’ at the end of paragraph (6), by redesig-
nating paragraph (7) as paragraph (8), and by inserting
after paragraph (6) the following new paragraph:
‘‘(7) which is not a controlled entity (as defined
in subsection (l)); and’’.
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(b) CONTROLLED ENTITY.—Section 856 is amended by
adding at the end the following new subsection:
‘‘(l) CONTROLLED ENTITY.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(7), an entity is a controlled entity if, at any time
during the taxable year, one person (other than a
qualified entity)—
‘‘(A) in the case of a corporation, owns
stock—
‘‘(i) possessing at least 50 percent of
the total voting power of the stock of such
corporation, or
‘‘(ii) having a value equal to at least
50 percent of the total value of the stock of
such corporation, or
‘‘(B) in the case of a trust, owns beneficial
interests in the trust which would meet the re-
quirements of subparagraph (A) if such interests
were stock.
‘‘(2) QUALIFIED ENTITY.—For purposes of para-
graph (1), the term ‘qualified entity’ means—
‘‘(A) any real estate investment trust, and
‘‘(B) any partnership in which one real es-
tate investment trust owns at least 50 percent of
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the capital and profits interests in the partner-
ship.
‘‘(3) ATTRIBUTION RULES.—For purposes of this
paragraphs (1) and (2)—
‘‘(A) IN
GENERAL.—Rules similar to the
rules of subsections (d)(5) and (h)(3) shall apply;
except that section 318(a)(3)(C) shall not be ap-
plied under such rules to treat stock owned by a
qualified entity as being owned by a person
which is not a qualified entity.
‘‘(B) STAPLED ENTITIES.—A group of enti-
ties which are stapled entities (as defined in sec-
tion 269B(c)(2)) shall be treated as one person.
‘‘(4) EXCEPTION FOR CERTAIN NEW REITS.—
‘‘(A) IN GENERAL.—The term ‘controlled en-
tity’ shall not include an incubator REIT.
‘‘(B) 
INCUBATOR
REIT.—A 
corporation
shall be treated as an incubator REIT for any
taxable year during the eligibility period if it
meets all the following requirements for such
year:
‘‘(i) The corporation elects to be treated
as an incubator REIT.
‘‘(ii) The corporation has only voting
common stock outstanding.
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‘‘(iii) Not more than 50 percent of the
corporation’s real estate assets consist of
mortgages.
‘‘(iv) From not later than the begin-
ning of the last half of the second taxable
year, at least 10 percent of the corporation’s
capital is provided by lenders or equity in-
vestors who are unrelated to the corpora-
tion’s largest shareholder.
‘‘(v) The corporation annually in-
creases the value of its real estate assets by
at least 10 percent.
‘‘(vi) The directors of the corporation
adopt a resolution setting forth an intent to
engage in a going public transaction.
No election may be made with respect to any
REIT if an election under this subsection was in
effect for any predecessor of such REIT.
‘‘(C) ELIGIBILITY PERIOD.—
‘‘(i) IN GENERAL.—The eligibility pe-
riod (for which an incubator REIT election
can be made) begins with the REIT’s second
taxable year and ends at the close of the
REIT’s third taxable year, except that the
REIT may, subject to clauses (ii), (iii), and
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(iv), elect to extend such period for an addi-
tional 2 taxable years.
‘‘(ii) GOING PUBLIC TRANSACTION.—A
REIT may not elect to extend the eligibility
period under clause (i) unless it enters into
an agreement with the Secretary that if it
does not engage in a going public trans-
action by the end of the extended eligibility
period, it shall pay Federal income taxes
for the 2 years of the extended eligibility pe-
riod as if it had not made an incubator
REIT election and had ceased to qualify as
a REIT for those 2 taxable years.
‘‘(iii) RETURNS, INTEREST, AND
NO-
TICE.—
‘‘(I) RETURNS.—In the event the
corporation ceases to be treated as a
REIT by operation of clause (ii), the
corporation shall file any appropriate
amended returns reflecting the change
in status within 3 months of the close
of the extended eligibility period.
‘‘(II) INTEREST.—Interest shall be
payable on any tax imposed by reason
of clause (ii) for any taxable year but,
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unless there was a finding under sub-
paragraph (D), no substantial under-
payment penalties shall be imposed.
‘‘(III) NOTICE.—The corporation
shall, at the same time it files its re-
turns under subclause (I), notify its
shareholders and any other persons
whose tax position is, or may reason-
ably be expected to be, affected by the
change in status so they also may file
any appropriate amended returns to
conform their tax treatment consistent
with the corporation’s loss of REIT
status.
‘‘(IV) REGULATIONS.—The Sec-
retary shall provide appropriate regu-
lations setting forth transferee liability
and other provisions to ensure collec-
tion of tax and the proper administra-
tion of this provision.
‘‘(iv) Clauses (ii) and (iii) shall not
apply if the corporation allows its incu-
bator REIT status to lapse at the end of the
initial 2-year eligibility period without en-
gaging in a going public transaction if the
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corporation is not a controlled entity as of
the beginning of its fourth taxable year. In
such a case, the corporation’s directors may
still be liable for the penalties described in
subparagraph (D) during the eligibility pe-
riod.
‘‘(D) SPECIAL PENALTIES.—If the Secretary
determines that an incubator REIT election was
filed for a principal purpose other than as part
of a reasonable plan to undertake a going public
transaction, an excise tax of $20,000 shall be im-
posed on each of the corporation’s directors for
each taxable year for which an election was in
effect.
‘‘(E) GOING
PUBLIC
TRANSACTION.—For
purposes of this paragraph, a going public trans-
action means—
‘‘(i) a public offering of shares of the
stock of the incubator REIT;
‘‘(ii) a transaction, or series of trans-
actions, that results in the stock of the incu-
bator REIT being regularly traded on an
established securities market and that re-
sults in at least 50 percent of such stock
being held by shareholders who are unre-
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lated to persons who held such stock before
it began to be so regularly traded; or
‘‘(iii) any transaction resulting in
ownership of the REIT by 200 or more per-
sons (excluding the largest single share-
holder) who in the aggregate own at least 50
percent of the stock of the REIT.
For the purposes of this subparagraph, the rules
of paragraph (3) shall apply in determining the
ownership of stock.
‘‘(F) DEFINITIONS.—The term ‘established
securities market’ shall have the meaning set
forth in the regulations under section 897.’’.
(c) CONFORMING AMENDMENT.—Paragraph (2) of sec-
tion 856(h) is amended by striking ‘‘and (6)’’ each place
it appears and inserting ‘‘, (6), and (7)’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years ending after
May 8, 2003.
(2) EXCEPTION FOR EXISTING CONTROLLED EN-
TITIES.—The amendments made by this section shall
not apply to any entity which is a controlled entity
(as defined in section 856(l) of the Internal Revenue
Code of 1986, as added by this section) as of May 8,
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2003, which is a real estate investment trust for the
taxable year which includes such date, and which has
significant business assets or activities as of such
date. For purposes of the preceding sentence, an enti-
ty shall be treated as such a controlled entity on May
8, 2003, if it becomes such an entity after such date
in a transaction—
(A) made pursuant to a written agreement
which was binding on such date and at all times
thereafter, or
(B) described on or before such date in a fil-
ing with the Securities and Exchange Commis-
sion required solely by reason of the transaction.
Subtitle C—Other Corporate
Governance Provisions
PART I—GENERAL PROVISIONS
SEC. 331. AFFIRMATION OF CONSOLIDATED RETURN REGU-
LATION AUTHORITY.
(a) IN GENERAL.—Section 1502 (relating to consoli-
dated return regulations) is amended by adding at the end
the following new sentence: ‘‘In prescribing such regula-
tions, the Secretary may prescribe rules applicable to cor-
porations filing consolidated returns under section 1501
that are different from other provisions of this title that
would apply if such corporations filed separate returns.’’.
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(b) RESULT
NOT
OVERTURNED.—Notwithstanding
subsection (a), the Internal Revenue Code of 1986 shall be
construed by treating Treasury regulation § 1.1502–
20(c)(1)(iii) (as in effect on January 1, 2001) as being in-
applicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to taxable years beginning before, on, or after
the date of the enactment of this Act.
SEC. 332. SIGNING OF CORPORATE TAX RETURNS BY CHIEF
EXECUTIVE OFFICER.
(a) IN GENERAL.—Section 6062 (relating to signing
of corporation returns) is amended by striking the first sen-
tence and inserting the following new sentence: ‘‘The return
of a corporation with respect to income shall be signed by
the chief executive officer of such corporation (or other such
officer of the corporation as the Secretary may designate
if the corporation does not have a chief executive officer).
The preceding sentence shall not apply to any return of a
regulated investment company (within the meaning of sec-
tion 851).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to returns filed after the date of the en-
actment of this Act.
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SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN-
ALTIES, AND OTHER AMOUNTS.
(a) IN GENERAL.—Subsection (f) of section 162 (relat-
ing to trade or business expenses) is amended to read as
follows:
‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no deduction otherwise allowable shall be
allowed under this chapter for any amount paid or
incurred (whether by suit, agreement, or otherwise)
to, or at the direction of, a government or entity de-
scribed in paragraph (3) in relation to the violation
of any law or the investigation or inquiry into the
potential violation of any law.
‘‘(2) EXCEPTION
FOR
AMOUNTS
CONSTITUTING
RESTITUTION.—Paragraph (1) shall not apply to any
amount which the taxpayer establishes constitutes res-
titution for damage or harm caused by the violation
of any law or the potential violation of any law. This
paragraph shall not apply to any amount paid or in-
curred as reimbursement to the government or entity
for the costs of any investigation or litigation.
‘‘(3) CERTAIN NONGOVERNMENTAL REGULATORY
ENTITIES.—An entity is described in this paragraph
if it is—