II
Calendar No. 496
107TH CONGRESS
2D SESSION
H.R. 7
[Report No. 107–211]
IN THE SENATE OF THE UNITED STATES
JULY 19, 2001
Received; read twice and referred to the Committee on Finance
JULY 16, 2002
Reported by Mr. BAUCUS, with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
AN ACT
To provide incentives for charitable contributions by individ-
uals and businesses, to improve the effectiveness and
efficiency of government program delivery to individuals
and families in need, and to enhance the ability of low-
income Americans to gain financial security by building
assets.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Community Solutions Act of 2001’’.
(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title; table of contents.
TITLE I—CHARITABLE GIVING INCENTIVES PACKAGE
Sec. 101. Deduction for portion of charitable contributions to be allowed to in-
dividuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts for chari-
table purposes.
Sec. 103. Increase in cap on corporate charitable contributions.
Sec. 104. Charitable deduction for contributions of food inventory.
Sec. 105. Reform of excise tax on net investment income of private foundations.
Sec. 106. Excise tax on unrelated business taxable income of charitable remain-
der trusts.
Sec. 107. Expansion of charitable contribution allowed for scientific property
used for research and for computer technology and equipment
used for educational purposes.
Sec. 108. Adjustment to basis of S corporation stock for certain charitable con-
tributions.
TITLE II—EXPANSION OF CHARITABLE CHOICE
Sec. 201. Provision of assistance under government programs by religious and
community organizations.
TITLE III—INDIVIDUAL DEVELOPMENT ACCOUNTS
Sec. 301. Additional qualified entities eligible to conduct projects under the As-
sets for Independence Act.
Sec. 302. Increase in limitation on net worth.
Sec. 303. Change in limitation on deposits for an individual.
Sec. 304. Elimination of limitation on deposits for a household.
Sec. 305. Extension of program.
Sec. 306. Conforming amendments.
Sec. 307. Applicability.
TITLE IV—CHARITABLE DONATIONS LIABILITY REFORM FOR IN-
KIND CORPORATE CONTRIBUTIONS
Sec. 401. Charitable donations liability reform for in-kind corporate contribu-
tions.
TITLE I—CHARITABLE GIVING
INCENTIVES PACKAGE
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CON-
TRIBUTIONS TO BE ALLOWED TO INDIVID-
UALS WHO DO NOT ITEMIZE DEDUCTIONS.
(a) IN GENERAL.—Section 170 of the Internal Rev-
enue Code of 1986 (relating to charitable, etc., contribu-
tions and gifts) is amended by redesignating subsection
(m) as subsection (n) and by inserting after subsection
(l) the following new subsection:
‘‘(m) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING
DEDUCTIONS.—
‘‘(1) IN GENERAL.—In the case of an individual
who does not itemize his deductions for the taxable
year, there shall be taken into account as a direct
charitable deduction under section 63 an amount
equal to the lesser of—
‘‘(A) the amount allowable under sub-
section (a) for the taxable year for cash con-
tributions, or
‘‘(B) the applicable amount.
‘‘(2) APPLICABLE AMOUNT.—For purposes of
paragraph (1), the applicable amount shall be deter-
mined as follows:
‘‘For taxable years
The applicable
beginning in:
amount is:
2002 and 2003 .............................................................
$25
2004, 2005, 2006 .........................................................
$50
2007, 2008, 2009 .........................................................
$75
2010 and thereafter .....................................................
$100.
In the case of a joint return, the applicable amount
is twice the applicable amount determined under the
preceding table.’’.
(b) DIRECT CHARITABLE DEDUCTION.—
(1) IN GENERAL.—Subsection (b) of section 63
of such Code is amended by striking ‘‘and’’ at the
end of paragraph (1), by striking the period at the
end of paragraph (2) and inserting ‘‘, and’’, and by
adding at the end thereof the following new para-
graph:
‘‘(3) the direct charitable deduction.’’.
(2) DEFINITION.—Section 63 of such Code is
amended by redesignating subsection (g) as sub-
section (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g) DIRECT CHARITABLE DEDUCTION.—For pur-
poses of this section, the term ‘direct charitable deduction’
means that portion of the amount allowable under section
170(a) which is taken as a direct charitable deduction for
the taxable year under section 170(m).’’.
(3) CONFORMING AMENDMENT.—Subsection (d)
of section 63 of such Code is amended by striking
‘‘and’’ at the end of paragraph (1), by striking the
period at the end of paragraph (2) and inserting ‘‘,
and’’, and by adding at the end thereof the following
new paragraph:
‘‘(3) the direct charitable deduction.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT
ACCOUNTS
FOR
CHARITABLE
PURPOSES.
(a) IN GENERAL.—Subsection (d) of section 408 of
the Internal Revenue Code of 1986 (relating to individual
retirement accounts) is amended by adding at the end the
following new paragraph:
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—No amount shall be
includible in gross income by reason of a quali-
fied charitable distribution.
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the
term ‘qualified charitable distribution’ means
any distribution from an individual retirement
account—
‘‘(i) which is made on or after the
date that the individual for whose benefit
the account is maintained has attained age
701⁄2, and
‘‘(ii) which is made directly by the
trustee—
‘‘(I) to an organization described
in section 170(c), or
‘‘(II) to a split-interest entity.
A distribution shall be treated as a qualified
charitable distribution only to the extent that
the distribution would be includible in gross in-
come without regard to subparagraph (A) and,
in the case of a distribution to a split-interest
entity, only if no person holds an income inter-
est in the amounts in the split-interest entity
attributable to such distribution other than one
or more of the following: the individual for
whose benefit such account is maintained, the
spouse of such individual, or any organization
described in section 170(c).
‘‘(C) CONTRIBUTIONS
MUST
BE
OTHER-
WISE
DEDUCTIBLE.—For
purposes
of
this
paragraph—
‘‘(i) DIRECT CONTRIBUTIONS.—A dis-
tribution to an organization described in
section 170(c) shall be treated as a quali-
fied charitable distribution only if a deduc-
tion for the entire distribution would be al-
lowable
under
section
170
(determined
without regard to subsection (b) thereof
and this paragraph).
‘‘(ii) SPLIT-INTEREST GIFTS.—A dis-
tribution to a split-interest entity shall be
treated as a qualified charitable distribu-
tion only if a deduction for the entire value
of the interest in the distribution for the
use of an organization described in section
170(c) would be allowable under section
170 (determined without regard to sub-
section (b) thereof and this paragraph).
‘‘(D) APPLICATION OF SECTION 72.—Not-
withstanding section 72, in determining the ex-
tent to which a distribution is a qualified chari-
table distribution, the entire amount of the dis-
tribution shall be treated as includible in gross
income without regard to subparagraph (A) to
the extent that such amount does not exceed
the aggregate amount which would be so includ-
ible if all amounts were distributed from all in-
dividual retirement accounts otherwise taken
into account in determining the inclusion on
such distribution under section 72. Proper ad-
justments shall be made in applying section 72
to other distributions in such taxable year and
subsequent taxable years.
‘‘(E) SPECIAL RULES FOR SPLIT-INTEREST
ENTITIES.—
‘‘(i)
CHARITABLE
REMAINDER
TRUSTS.—Distributions made from an in-
dividual retirement account to a trust de-
scribed in subparagraph (G)(ii)(I) shall be
treated as income described in section
664(b)(1) except to the extent that the
beneficiary of the individual retirement ac-
count notifies the trustee of the trust of
the amount which is not allocable to in-
come under subparagraph (D).
‘‘(ii) POOLED
INCOME
FUNDS.—No
amount shall be includible in the gross in-
come of a pooled income fund (as defined
in subparagraph (G)(ii)(II)) by reason of a
qualified charitable distribution to such
fund.
‘‘(iii)
CHARITABLE
GIFT
ANNU-
ITIES.—Qualified
charitable
distributions
made for a charitable gift annuity shall not
be treated as an investment in the con-
tract.
‘‘(F) DENIAL
OF
DEDUCTION.—Qualified
charitable distributions shall not be taken into
account in determining the deduction under sec-
tion 170.
‘‘(G) SPLIT-INTEREST ENTITY DEFINED.—
For purposes of this paragraph, the term ‘split-
interest entity’ means—
‘‘(i) a charitable remainder annuity
trust or a charitable remainder unitrust
(as such terms are defined in section
664(d)),
‘‘(ii) a pooled income fund (as defined
in section 642(c)(5)), and
‘‘(iii) a charitable gift annuity (as de-
fined in section 501(m)(5)).’’.
(b) MODIFICATIONS RELATING TO INFORMATION RE-
TURNS BY CERTAIN TRUSTS.—
(1) RETURNS.—Section 6034 of such Code (re-
lating to returns by trusts described in section
4947(a)(2) or claiming charitable deductions under
section 642(c)) is amended to read as follows:
‘‘SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION
4947(A)(2) OR CLAIMING CHARITABLE DEDUC-
TIONS UNDER SECTION 642(C).
‘‘(a) TRUSTS DESCRIBED IN SECTION 4947(a)(2).—
Every trust described in section 4947(a)(2) shall furnish
such information with respect to the taxable year as the
Secretary may by forms or regulations require.
‘‘(b) TRUSTS CLAIMING A CHARITABLE DEDUCTION
UNDER SECTION 642(c).—
‘‘(1) IN GENERAL.—Every trust not required to
file a return under subsection (a) but claiming a
charitable, etc., deduction under section 642(c) for
the taxable year shall furnish such information with
respect to such taxable year as the Secretary may by
forms or regulations prescribe, including:
‘‘(A) the amount of the charitable, etc., de-
duction taken under section 642(c) within such
year,
‘‘(B) the amount paid out within such year
which represents amounts for which charitable,
etc., deductions under section 642(c) have been
taken in prior years,
‘‘(C) the amount for which charitable, etc.,
deductions have been taken in prior years but
which has not been paid out at the beginning
of such year,
‘‘(D) the amount paid out of principal in
the current and prior years for charitable, etc.,
purposes,
‘‘(E) the total income of the trust within
such year and the expenses attributable thereto,
and
‘‘(F) a balance sheet showing the assets, li-
abilities, and net worth of the trust as of the
beginning of such year.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply in the case of a taxable year if all the net in-
come for such year, determined under the applicable
principles of the law of trusts, is required to be dis-
tributed currently to the beneficiaries. Paragraph (1)
shall not apply in the case of a trust described in
section 4947(a)(1).’’.
(2) INCREASE IN PENALTY RELATING TO FIL-
ING OF INFORMATION RETURN BY SPLIT-INTEREST
TRUSTS.—Paragraph (2) of section 6652(c) of such
Code (relating to returns by exempt organizations
and by certain trusts) is amended by adding at the
end the following new subparagraph:
‘‘(C)
SPLIT-INTEREST
TRUSTS.—In
the
case of a trust which is required to file a return
under section 6034(a), subparagraphs (A) and
(B) of this paragraph shall not apply and para-
graph (1) shall apply in the same manner as if
such return were required under section 6033,
except that—
‘‘(i) the 5 percent limitation in the
second sentence of paragraph (1)(A) shall
not apply,
‘‘(ii) in the case of any trust with
gross income in excess of $250,000, the
first sentence of paragraph (1)(A) shall be
applied by substituting ‘$100’ for ‘$20’,
and the second sentence thereof shall be
applied
by
substituting
‘$50,000’
for
‘$10,000’, and
‘‘(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
If the person required to file such return know-
ingly fails to file the return, such person shall
be personally liable for the penalty imposed
pursuant to this subparagraph.’’.
(3)
CONFIDENTIALITY
OF
NONCHARITABLE
BENEFICIARIES.—Subsection (b) of section 6104 of
such Code (relating to inspection of annual informa-
tion returns) is amended by adding at the end the
following new sentence: ‘‘In the case of a trust which
is required to file a return under section 6034(a),
this subsection shall not apply to information re-
garding beneficiaries which are not organizations de-
scribed in section 170(c).’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by
subsection (a) shall apply to taxable years beginning
after December 31, 2001.
(2) SUBSECTION (b).—The amendments made
by subsection (b) shall apply to returns for taxable
years beginning after December 31, 2001.
SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE
CONTRIBUTIONS.
(a) IN GENERAL.—Paragraph (2) of section 170(b)
of the Internal Revenue Code of 1986 (relating to corpora-
tions) is amended by striking ‘‘10 percent’’ and inserting
‘‘the applicable percentage’’.
(b) APPLICABLE PERCENTAGE.—Subsection (b) of
section 170 of such Code is amended by adding at the
end the following new paragraph:
‘‘(3) APPLICABLE PERCENTAGE DEFINED.—For
purposes of paragraph (2), the applicable percentage
shall be determined in accordance with the following
table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2002 through 2007 ......................................................
2008 .............................................................................
2009 .............................................................................
2010 and thereafter .....................................................
15.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 512(b)(10) and 805(b)(2)(A) of
such Code are each amended by striking ‘‘10 per-
cent’’ each place it occurs and inserting ‘‘the appli-
cable
percentage
(determined
under
section
170(b)(3))’’.
(2) Sections 545(b)(2) and 556(b)(2) of such
Code are each amended by striking ‘‘10-percent limi-
tation’’ and inserting ‘‘applicable percentage limita-
tion’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS
OF FOOD INVENTORY.
(a) IN GENERAL.—Paragraph (3) of section 170(e)
of the Internal Revenue Code of 1986 (relating to special
rule for certain contributions of inventory and other prop-
erty) is amended by redesignating subparagraph (C) as
subparagraph (D) and by inserting after subparagraph
(B) the following new subparagraph:
‘‘(C) SPECIAL RULE FOR CONTRIBUTIONS
OF FOOD INVENTORY.—
‘‘(i) GENERAL RULE.—In the case of
a charitable contribution of food, this para-
graph shall be applied—
‘‘(I) without regard to whether
the contribution is made by a C cor-
poration, and
‘‘(II) only for food that is appar-
ently wholesome food.
‘‘(ii) DETERMINATION OF FAIR MAR-
KET VALUE.—In the case of a qualified
contribution of apparently wholesome food
to which this paragraph applies and which,
solely by reason of internal standards of
the taxpayer or lack of market, cannot or
will not be sold, the fair market value of
such food shall be determined by taking
into account the price at which the same
or similar food items are sold by the tax-
payer at the time of the contribution (or,
if not so sold at such time, in the recent
past).
‘‘(iii)
APPARENTLY
WHOLESOME
FOOD.—For
purposes
of
this
subpara-
graph,
the
term
‘apparently
wholesome
food’ shall have the meaning given to such
term by section 22(b)(2) of the Bill Emer-
son Good Samaritan Food Donation Act
(42 U.S.C. 1791(b)(2)), as in effect on the
date of the enactment of this subpara-
graph.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
SEC. 105. REFORM OF EXCISE TAX ON NET INVESTMENT IN-
COME OF PRIVATE FOUNDATIONS.
(a) IN GENERAL.—Subsection (a) of section 4940 of
the Internal Revenue Code of 1986 (relating to excise tax
based on investment income) is amended by striking ‘‘2
percent’’ and inserting ‘‘1 percent’’.
(b) REPEAL OF REDUCTION IN TAX WHERE PRI-
VATE FOUNDATION MEETS CERTAIN DISTRIBUTION RE-
QUIREMENTS.—Section 4940 of such Code is amended by
striking subsection (e).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 106. EXCISE TAX ON UNRELATED BUSINESS TAXABLE
INCOME
OF
CHARITABLE
REMAINDER
TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 664 of
the Internal Revenue Code of 1986 (relating to exemption
from income taxes) is amended to read as follows:
‘‘(c) TAXATION OF TRUSTS.—
‘‘(1) INCOME TAX.—A charitable remainder an-
nuity trust and a charitable remainder unitrust
shall, for any taxable year, not be subject to any tax
imposed by this subtitle.
‘‘(2) EXCISE TAX.—
‘‘(A) IN GENERAL.—In the case of a chari-
table remainder annuity trust or a charitable
remainder unitrust that has unrelated business
taxable income (within the meaning of section
512, determined as if part III of subchapter F
applied to such trust) for a taxable year, there
is hereby imposed on such trust or unitrust an
excise tax equal to the amount of such unre-
lated business taxable income.
‘‘(B) CERTAIN RULES TO APPLY.—The tax
imposed by subparagraph (A) shall be treated
as imposed by chapter 42 for purposes of this
title other than subchapter E of chapter 42.
‘‘(C) CHARACTER OF DISTRIBUTIONS AND
COORDINATION WITH DISTRIBUTION REQUIRE-
MENTS.—The amounts taken into account in
determining unrelated business taxable income
(as defined in subparagraph (A)) shall not be
taken into account for purposes of—
‘‘(i) subsection (b),
‘‘(ii) determining the value of trust
assets under subsection (d)(2), and
‘‘(iii) determining income under sub-
section (d)(3).
‘‘(D)
TAX
COURT
PROCEEDINGS.—For
purposes of this paragraph, the references in
section 6212(c)(1) to section 4940 shall be
deemed to include references to this para-
graph.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
SEC. 107. EXPANSION OF CHARITABLE CONTRIBUTION AL-
LOWED
FOR
SCIENTIFIC
PROPERTY
USED
FOR RESEARCH AND FOR COMPUTER TECH-
NOLOGY AND EQUIPMENT USED FOR EDU-
CATIONAL PURPOSES.
(a) SCIENTIFIC PROPERTY USED FOR RESEARCH.—
Clause (ii) of section 170(e)(4)(B) of the Internal Revenue
Code of 1986 (defining qualified research contributions)
is amended by inserting ‘‘or assembled’’ after ‘‘con-
structed’’.
(b) COMPUTER TECHNOLOGY AND EQUIPMENT FOR
EDUCATIONAL
PURPOSES.—Clause
(ii)
of
section
170(e)(6)(B) of such Code is amended by inserting ‘‘or
assembled’’ after ‘‘constructed’’ and ‘‘or assembling’’ after
‘‘construction’’.
(c) CONFORMING AMENDMENT.—Subparagraph (D)
of section 170(e)(6) of such Code is amended by inserting
‘‘or assembled’’ after ‘‘constructed’’ and ‘‘or assembling’’
after ‘‘construction’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC.
108.
ADJUSTMENT
TO
BASIS
OF
S
CORPORATION
STOCK
FOR
CERTAIN
CHARITABLE
CON-
TRIBUTIONS.
(a) IN GENERAL.—Paragraph (1) of section 1367(a)
of such Code (relating to adjustments to basis of stock
of shareholders, etc.) is amended by striking ‘‘and’’ at the
end of subparagraph (B), by striking the period at the
end of subparagraph (C) and inserting ‘‘, and’’, and by
adding at the end the following new subparagraph:
‘‘(D) the excess of the amount of the
shareholder’s deduction for any charitable con-
tribution made by the S corporation over the
shareholder’s proportionate share of the ad-
justed basis of the property contributed.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE II—EXPANSION OF
CHARITABLE CHOICE
SEC.
201.
PROVISION
OF
ASSISTANCE
UNDER
GOVERN-
MENT PROGRAMS BY RELIGIOUS AND COM-
MUNITY ORGANIZATIONS.
Title XXIV of the Revised Statutes of the United
States is amended by inserting after section 1990 (42
U.S.C. 1994) the following:
‘‘SEC. 1991. CHARITABLE CHOICE.
‘‘(a) SHORT TITLE.—This section may be cited as the
‘Charitable Choice Act of 2001’.
‘‘(b) PURPOSES.—The purposes of this section are—
‘‘(1) to enable assistance to be provided to indi-
viduals and families in need in the most effective
and efficient manner;
‘‘(2) to supplement the Nation’s social service
capacity by facilitating the entry of new, and the ex-
pansion of existing, efforts by religious and other
community organizations in the administration and
distribution of government assistance under the gov-
ernment programs described in subsection (c)(4);
‘‘(3) to prohibit discrimination against religious
organizations on the basis of religion in the adminis-
tration and distribution of government assistance
under such programs;
‘‘(4) to allow religious organizations to partici-
pate in the administration and distribution of such
assistance without impairing the religious character
and autonomy of such organizations; and
‘‘(5) to protect the religious freedom of individ-
uals and families in need who are eligible for govern-
ment assistance, including expanding the possibility
of their being able to choose to receive services from
a religious organization providing such assistance.
‘‘(c) RELIGIOUS ORGANIZATIONS INCLUDED AS PRO-
VIDERS; DISCLAIMERS.—
‘‘(1) IN GENERAL.—
‘‘(A) INCLUSION.—For any program de-
scribed in paragraph (4) that is carried out by
the Federal Government, or by a State or local
government with Federal funds, the government
shall consider, on the same basis as other non-
governmental organizations, religious organiza-
tions to provide the assistance under the pro-
gram, and the program shall be implemented in
a manner that is consistent with the establish-
ment clause and the free exercise clause of the
first amendment to the Constitution.
‘‘(B) DISCRIMINATION PROHIBITED.—Nei-
ther the Federal Government, nor a State or
local government receiving funds under a pro-
gram described in paragraph (4), shall discrimi-
nate against an organization that provides as-
sistance under, or applies to provide assistance
under, such program on the basis that the orga-
nization is religious or has a religious character.
‘‘(2) FUNDS NOT AID TO RELIGION.—Federal,
State, or local government funds or other assistance
that is received by a religious organization for the
provision of services under this section constitutes
aid to individuals and families in need, the ultimate
beneficiaries of such services, and not support for re-
ligion or the organization’s religious beliefs or prac-
tices. Notwithstanding the provisions in this para-
graph, title VI of the Civil Rights Act of 1964 (42
U.S.C. 2000d et seq.) shall apply to organizations
receiving assistance funded under any program de-
scribed in subsection (c)(4).
‘‘(3)
FUNDS
NOT
ENDORSEMENT
OF
RELI-
GION.—The receipt by a religious organization of
Federal, State, or local government funds or other
assistance under this section is not an endorsement
by the government of religion or of the organiza-
tion’s religious beliefs or practices.
‘‘(4) PROGRAMS.—For purposes of this section,
a program is described in this paragraph—
‘‘(A) if it involves activities carried out
using Federal funds—
‘‘(i) related to the prevention and
treatment of juvenile delinquency and the
improvement of the juvenile justice system,
including programs funded under the Juve-
nile Justice and Delinquency Prevention
Act of 1974 (42 U.S.C. 5601 et seq.);
‘‘(ii) related to the prevention of crime
and assistance to crime victims and offend-
ers’ families, including programs funded
under title I of the Omnibus Crime Control
and Safe Streets Act of 1968 (42 U.S.C.
3701 et seq.);
‘‘(iii) related to the provision of assist-
ance under Federal housing statutes, in-
cluding the Community Development Block
Grant Program established under title I of
the Housing and Community Development
Act of 1974 (42 U.S.C. 5301 et seq.);
‘‘(iv) under subtitle B or D of title I
of the Workforce Investment Act of 1998
(29 U.S.C. 2801 et seq.);
‘‘(v) under the Older Americans Act
of 1965 (42 U.S.C. 3001 et seq.);
‘‘(vi) related to the intervention in
and prevention of domestic violence, in-
cluding programs under the Child Abuse
Prevention and Treatment Act (42 U.S.C.
5101 et seq.) or the Family Violence Pre-
vention and Services Act (42 U.S.C. 10401
et seq.);
‘‘(vii) related to hunger relief activi-
ties; or
‘‘(viii) under the Job Access and Re-
verse Commute grant program established
under section 3037 of the Federal Transit
Act of 1998 (49 U.S.C. 5309 note); or
‘‘(B)(i) if it involves activities to assist stu-
dents in obtaining the recognized equivalents of
secondary school diplomas and activities relat-
ing to nonschool hours programs, including pro-
grams under—
‘‘(I) chapter 3 of subtitle A of title II
of the Workforce Investment Act of 1998
(Public Law 105–220); or
‘‘(II) part I of title X of the Elemen-
tary and Secondary Education Act (20
U.S.C. 6301 et seq.); and
‘‘(ii) except as provided in subparagraph
(A) and clause (i), does not include activities
carried out under Federal programs providing
education to children eligible to attend elemen-
tary schools or secondary schools, as defined in
section 14101 of the Elementary and Secondary
Education Act of 1965 (20 U.S.C. 8801).
‘‘(d) ORGANIZATIONAL CHARACTER
AND AUTON-
OMY.—
‘‘(1) IN
GENERAL.—A religious organization
that provides assistance under a program described
in subsection (c)(4) shall have the right to retain its
autonomy from Federal, State, and local govern-
ments, including such organization’s control over the
definition, development, practice, and expression of
its religious beliefs.
‘‘(2) ADDITIONAL
SAFEGUARDS.—Neither the
Federal Government, nor a State or local govern-
ment with Federal funds, shall require a religious
organization, in order to be eligible to provide assist-
ance under a program described in subsection (c)(4),
to—
‘‘(A) alter its form of internal governance
or provisions in its charter documents; or
‘‘(B) remove religious art, icons, scripture,
or other symbols, or to change its name, be-
cause such symbols or names are of a religious
character.
‘‘(e) EMPLOYMENT PRACTICES.—A religious organi-
zation’s exemption provided under section 702 of the Civil
Rights Act of 1964 (42 U.S.C. 2000e–1) regarding em-
ployment practices shall not be affected by its participa-
tion in, or receipt of funds from, programs described in
subsection (c)(4), and any provision in such programs that
is inconsistent with or would diminish the exercise of an
organization’s autonomy recognized in section 702 or in
this section shall have no effect. Nothing in this section
alters the duty of a religious organization to comply with
the nondiscrimination provisions of title VII of the Civil
Rights Act of 1964 in the use of funds from programs
described in subsection (c)(4).
‘‘(f) EFFECT ON OTHER LAWS.—Nothing in this sec-
tion shall alter the duty of a religious organization receiv-
ing assistance or providing services under any program de-
scribed in subsection (c)(4) to comply with the non-
discrimination provisions in title VI of the Civil Rights Act
of 1964 (42 U.S.C. 2000d et seq.) (prohibiting discrimina-
tion on the basis of race, color, and national origin), title
IX of the Education Amendments of 1972 (20 U.S.C.
1681–1688) (prohibiting discrimination in education pro-
grams or activities on the basis of sex and visual impair-
ment), section 504 of the Rehabilitation Act of 1973 (29
U.S.C. 794) (prohibiting discrimination against otherwise
qualified disabled individuals), and the Age Discrimination
Act of 1975 (42 U.S.C. 6101–6107) (prohibiting discrimi-
nation on the basis of age).
‘‘(g) RIGHTS OF BENEFICIARIES OF ASSISTANCE.—
‘‘(1) IN GENERAL.—If an individual described
in paragraph (3) has an objection to the religious
character of the organization from which the indi-
vidual receives, or would receive, assistance funded
under any program described in subsection (c)(4),
the appropriate Federal, State, or local govern-
mental entity shall provide to such individual (if oth-
erwise eligible for such assistance) within a reason-
able period of time after the date of such objection,
assistance that—
‘‘(A) is an alternative that is accessible to
the individual and unobjectionable to the indi-
vidual on religious grounds; and
‘‘(B) has a value that is not less than the
value of the assistance that the individual would
have received from such organization.
‘‘(2) NOTICE.—The appropriate Federal, State,
or local governmental entity shall guarantee that no-
tice is provided to the individuals described in para-
graph (3) of the rights of such individuals under this
section.
‘‘(3) INDIVIDUAL
DESCRIBED.—An individual
described in this paragraph is an individual who re-
ceives or applies for assistance under a program de-
scribed in subsection (c)(4).
‘‘(h)
NONDISCRIMINATION
AGAINST
BENE-
FICIARIES.—
‘‘(1)
GRANTS
AND
COOPERATIVE
AGREE-
MENTS.—A religious organization providing assist-
ance through a grant or cooperative agreement
under a program described in subsection (c)(4) shall
not discriminate in carrying out the program against
an individual described in subsection (g)(3) on the
basis of religion, a religious belief, or a refusal to
hold a religious belief.
‘‘(2) INDIRECT FORMS OF ASSISTANCE.—A reli-
gious organization providing assistance through a
voucher, certificate, or other form of indirect assist-
ance under a program described in subsection (c)(4)
shall not deny an individual described in subsection
(g)(3) admission into such program on the basis of
religion, a religious belief, or a refusal to hold a reli-
gious belief.
‘‘(i) ACCOUNTABILITY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), a religious organization pro-
viding assistance under any program described in
subsection (c)(4) shall be subject to the same regula-
tions as other nongovernmental organizations to ac-
count in accord with generally accepted accounting
principles for the use of such funds and its perform-
ance of such programs.
‘‘(2) LIMITED AUDIT.—
‘‘(A) GRANTS AND COOPERATIVE AGREE-
MENTS.—A religious organization providing as-
sistance through a grant or cooperative agree-
ment under a program described in subsection
(c)(4) shall segregate government funds pro-
vided under such program into a separate ac-
count or accounts. Only the separate accounts
consisting of funds from the government shall
be subject to audit by the government.
‘‘(B) INDIRECT FORMS OF ASSISTANCE.—
A religious organization providing assistance
through a voucher, certificate, or other form of
indirect assistance under a program described
in subsection (c)(4) may segregate government
funds provided under such program into a sepa-
rate account or accounts. If such funds are so
segregated, then only the separate accounts
consisting of funds from the government shall
be subject to audit by the government.
‘‘(3) SELF
AUDIT.—A religious organization
providing services under any program described in
subsection (c)(4) shall conduct annually a self audit
for compliance with its duties under this section and
submit a copy of the self audit to the appropriate
Federal, State, or local government agency, along
with a plan to timely correct variances, if any, iden-
tified in the self audit.
‘‘(j) LIMITATIONS ON USE OF FUNDS; VOLUNTARI-
NESS.—No funds provided through a grant or cooperative
agreement to a religious organization to provide assistance
under any program described in subsection (c)(4) shall be
expended for sectarian instruction, worship, or proselytiza-
tion. If the religious organization offers such an activity,
it shall be voluntary for the individuals receiving services
and offered separate from the program funded under sub-
section (c)(4). A certificate shall be separately signed by
religious organizations, and filed with the government
agency that disburses the funds, certifying that the orga-
nization is aware of and will comply with this subsection.
‘‘(k) EFFECT ON STATE AND LOCAL FUNDS.—If a
State or local government contributes State or local funds
to carry out a program described in subsection (c)(4), the
State or local government may segregate the State or local
funds from the Federal funds provided to carry out the
program or may commingle the State or local funds with
the Federal funds. If the State or local government com-
mingles the State or local funds, the provisions of this sec-
tion shall apply to the commingled funds in the same man-
ner, and to the same extent, as the provisions apply to
the Federal funds.
‘‘(l) INDIRECT ASSISTANCE.—When consistent with
the purpose of a program described in subsection (c)(4),
the Secretary of the department administering the pro-
gram may direct the disbursement of some or all of the
funds, if determined by the Secretary to be feasible and
efficient, in the form of indirect assistance. For purposes
of this section, ‘indirect assistance’ constitutes assistance
in which an organization receiving funds through a vouch-
er, certificate, or other form of disbursement under this
section receives such funding only as a result of the private
choices of individual beneficiaries and no government en-
dorsement of any particular religion, or of religion gen-
erally, occurs.
‘‘(m) TREATMENT OF INTERMEDIATE GRANTORS.—
If a nongovernmental organization (referred to in this sub-
section as an ‘intermediate grantor’), acting under a grant
or other agreement with the Federal Government, or a
State or local government with Federal funds, is given the
authority under the agreement to select nongovernmental
organizations to provide assistance under the programs
described in subsection (c)(4), the intermediate grantor
shall have the same duties under this section as the gov-
ernment
when
selecting
or
otherwise
dealing
with
subgrantors, but the intermediate grantor, if it is a reli-
gious organization, shall retain all other rights of a reli-
gious organization under this section.
‘‘(n) COMPLIANCE.—A party alleging that the rights
of the party under this section have been violated by a
State or local government may bring a civil action for in-
junctive relief pursuant to section 1979 against the State
official or local government agency that has allegedly com-
mitted such violation. A party alleging that the rights of
the party under this section have been violated by the Fed-
eral Government may bring a civil action for injunctive
relief in Federal district court against the official or gov-
ernment agency that has allegedly committed such viola-
tion.
‘‘(o) TRAINING AND TECHNICAL ASSISTANCE FOR
SMALL NONGOVERNMENTAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—From amounts made avail-
able to carry out the purposes of the Office of Jus-
tice Programs (including any component or unit
thereof, including the Office of Community Oriented
Policing Services), funds are authorized to provide
training and technical assistance, directly or through
grants or other arrangements, in procedures relating
to potential application and participation in pro-
grams identified in subsection (c)(4) to small non-
governmental organizations, as determined by the
Attorney General, including religious organizations,
in an amount not to exceed $50 million annually.
‘‘(2) TYPES OF ASSISTANCE.—Such assistance
may include—
‘‘(A) assistance and information relative to
creating an organization described in section
501(c)(3) of the Internal Revenue Code of 1986
to operate identified programs;
‘‘(B) granting writing assistance which
may include workshops and reasonable guid-
ance;
‘‘(C) information and referrals to other
nongovernmental organizations that provide ex-
pertise in accounting, legal issues, tax issues,
program development, and a variety of other or-
ganizational areas; and
‘‘(D) information and guidance on how to
comply with Federal nondiscrimination provi-
sions including, but not limited to, title VI of
the Civil Rights Act of 1964 (42 U.S.C. 2000d
et seq.), title VII of the Civil Rights Act of
1964 (42 U.S.C. 2000e et seq.), the Fair Hous-
ing Act, as amended (42 U.S.C. 3601 et seq.),
title IX of the Education Amendments of 1972
(20 U.S.C. 1681–1688), section 504 of the Re-
habilitation Act of 1973 (29 U.S.C. 694), and
the Age Discrimination Act of 1975 (42 U.S.C.
6101–6107).
‘‘(3) RESERVATION OF FUNDS.—An amount of
no less than $5,000,000 shall be reserved under this
section. Small nongovernmental organizations may
apply for these funds to be used for assistance in
providing full and equal integrated access to individ-
uals with disabilities in programs under this title.
‘‘(4) PRIORITY.—In giving out the assistance
described in this subsection, priority shall be given
to
small
nongovernmental
organizations
serving
urban and rural communities.’’.
TITLE III—INDIVIDUAL
DEVELOPMENT ACCOUNTS
SEC. 301. ADDITIONAL QUALIFIED ENTITIES ELIGIBLE TO
CONDUCT
PROJECTS
UNDER
THE
ASSETS
FOR INDEPENDENCE ACT.
Section 404(7)(A)(iii)(I)(aa) of the Assets for Inde-
pendence Act (42 U.S.C. 604 note) is amended to read
as follows:
‘‘(aa)
a
federally
insured
credit union; or’’.
(42 U.S.C. 604 note) is amended by striking ‘‘demonstra-
tion’’ each place it appears:
(1) Section 403.
(2) Section 404(2).
(3) Section 405(a).
(4) Section 405(b).
(5) Section 405(c).
(6) Section 405(d).
(7) Section 405(e).
(8) Section 405(g).
(9) Section 406(a).
(10) Section 406(b).
(11) Section 407(b)(1)(A).
(12) Section 407(c)(1)(A).
(13) Section 407(c)(1)(B).
(14) Section 407(c)(1)(C).
(15) Section 407(c)(1)(D).
(16) Section 407(d).
(17) Section 408(a).
(18) Section 408(b).
(19) Section 409.
(20) Section 410(e).
(21) Section 411.
(22) Section 412(a).
(23) Section 412(b)(2).
(24) Section 412(c).
(25) Section 413(a).
(26) Section 413(b).
(27) Section 414(a).
(28) Section 414(b).
(29) Section 414(c).
(30) Section 414(d)(1).
(31) Section 414(d)(2).
(b) AMENDMENTS TO SUBSECTION HEADINGS.—The
heading of each of the following provisions of the Assets
for Independence Act (42 U.S.C. 604 note) is amended
by striking ‘‘DEMONSTRATION’’:
(1) Section 405(a).
(2) Section 406(a).
(3) Section 413(a).
(c) AMENDMENTS
TO SECTION HEADINGS.—The
headings of sections 406 and 411 of the Assets for Inde-
pendence Act (42 U.S.C. 604 note) are amended by strik-
ing ‘‘DEMONSTRATION’’.
SEC. 307. APPLICABILITY.
(a) IN GENERAL.—The amendments made by this
title shall apply to funds provided before, on or after the
date of the enactment of this Act.
(b) PRIOR AMENDMENTS.—The amendments made
by title VI of the Departments of Labor, Health and
Human Services, and Education, and Related Agencies
Appropriations Act, 2001 (as enacted into law by Public
Law 106–554) shall apply to funds provided before, on
or after the date of the enactment of such Act.
TITLE
IV—CHARITABLE
DONA-
TIONS
LIABILITY
REFORM
FOR
IN-KIND
CORPORATE
CONTRIBUTIONS
SEC.
401.
CHARITABLE
DONATIONS
LIABILITY
REFORM
FOR IN-KIND CORPORATE CONTRIBUTIONS.
(a) DEFINITIONS.—For purposes of this section:
(1) AIRCRAFT.—The term ‘‘aircraft’’ has the
meaning provided that term in section 40102(6) of
title 49, United States Code.
(2) BUSINESS
ENTITY.—The term ‘‘business
entity’’ means a firm, corporation, association, part-
nership, consortium, joint venture, or other form of
enterprise.
(3) EQUIPMENT.—The term ‘‘equipment’’ in-
cludes mechanical equipment, electronic equipment,
and office equipment.
(4) FACILITY.—The term ‘‘facility’’ means any
real property, including any building, improvement,
or appurtenance.
(5)
GROSS
NEGLIGENCE.—The
term
‘‘gross
negligence’’ means voluntary and conscious conduct
by a person with knowledge (at the time of the con-
duct) that the conduct is likely to be harmful to the
health or well-being of another person.
(6)
INTENTIONAL
MISCONDUCT.—The
term
‘‘intentional misconduct’’ means conduct by a person
with knowledge (at the time of the conduct) that the
conduct is harmful to the health or well-being of an-
other person.
(7) MOTOR VEHICLE.—The term ‘‘motor vehi-
cle’’ has the meaning provided that term in section
30102(6) of title 49, United States Code.
(8)
NONPROFIT
ORGANIZATION.—The
term
‘‘nonprofit organization’’ means—
(A) any organization described in section
501(c)(3) of the Internal Revenue Code of 1986
and exempt from tax under section 501(a) of
such Code; or
(B) any not-for-profit organization orga-
nized and conducted for public benefit and op-
erated
primarily
for
charitable,
civic,
edu-
cational, religious, welfare, or health purposes.
(9) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, any other territory or possession of the
United States, or any political subdivision of any
such State, territory, or possession.
(b) LIABILITY.—
(1) LIABILITY
OF
BUSINESS
ENTITIES
THAT
DONATE
EQUIPMENT
TO
NONPROFIT
ORGANIZA-
TIONS.—
(A) IN GENERAL.—Subject to subsection
(c), a business entity shall not be subject to
civil liability relating to any injury or death that
results from the use of equipment donated by a
business entity to a nonprofit organization.
(B) APPLICATION.—This paragraph shall
apply with respect to civil liability under Fed-
eral and State law.
(2) LIABILITY
OF
BUSINESS
ENTITIES
PRO-
VIDING USE OF FACILITIES TO NONPROFIT ORGANI-
ZATIONS.—
(A) IN GENERAL.—Subject to subsection
(c), a business entity shall not be subject to
civil liability relating to any injury or death oc-
curring at a facility of the business entity in
connection with a use of such facility by a non-
profit organization, if—
(i) the use occurs outside of the scope
of business of the business entity;
(ii) such injury or death occurs during
a period that such facility is used by the
nonprofit organization; and
(iii) the business entity authorized the
use of such facility by the nonprofit orga-
nization.
(B) APPLICATION.—This paragraph shall
apply—
(i) with respect to civil liability under
Federal and State law; and
(ii) regardless of whether a nonprofit
organization pays for the use of a facility.
(3) LIABILITY
OF
BUSINESS
ENTITIES
PRO-
VIDING USE OF A MOTOR VEHICLE OR AIRCRAFT.—
(A) IN GENERAL.—Subject to subsection
(c), a business entity shall not be subject to
civil liability relating to any injury or death oc-
curring as a result of the operation of aircraft
or a motor vehicle of a business entity loaned
to a nonprofit organization for use outside of
the scope of business of the business entity, if—
(i) such injury or death occurs during
a period that such motor vehicle or aircraft
is used by a nonprofit organization; and
(ii) the business entity authorized the
use by the nonprofit organization of motor
vehicle or aircraft that resulted in the in-
jury or death.
(B) APPLICATION.—This paragraph shall
apply—
(i) with respect to civil liability under
Federal and State law; and
(ii) regardless of whether a nonprofit
organization pays for the use of the air-
craft or motor vehicle.
(c) EXCEPTIONS.—Subsection (b) shall not apply to
an injury or death that results from an act or omission
of a business entity that constitutes gross negligence or
intentional misconduct.
(d) SUPERSEDING PROVISION.—
(1) IN
GENERAL.—Subject to paragraph (2)
and subsection (e), this title preempts the laws of
any State to the extent that such laws are incon-
sistent with this title, except that this title shall not
preempt any State law that provides additional pro-
tection for a business entity for an injury or death
described in a paragraph of subsection (b) with re-
spect to which the conditions specified in such para-
graph apply.
(2) LIMITATION.—Nothing in this title shall be
construed to supersede any Federal or State health
or safety law.
(e) ELECTION OF STATE REGARDING NONAPPLICA-
BILITY.—A provision of this title shall not apply to any
civil action in a State court against a business entity in
which all parties are citizens of the State if such State
enacts a statute—
(1) citing the authority of this section;
(2) declaring the election of such State that
such provision shall not apply to such civil action in
the State; and
(3) containing no other provisions.
(f) EFFECTIVE DATE.—This section shall apply to in-
juries (and deaths resulting therefrom) occurring on or
after the date of the enactment of this Act.
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘CARE Act of 2002’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; etc.
TITLE I—CHARITABLE GIVING INCENTIVES
Sec. 101. Deduction for portion of charitable contributions to be allowed to indi-
viduals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts for chari-
table purposes.
Sec. 103. Charitable deduction for contributions of food inventories.
Sec. 104. Charitable deduction for contributions of book inventories.
Sec. 105. Expansion of charitable contribution allowed for scientific property
used for research and for computer technology and equipment
used for educational purposes.
Sec. 106. Modifications to encourage contributions of capital gain real property
made for conservation purposes.
Sec. 107. Exclusion of 25 percent of gain on sales or exchanges of land or water
interests to eligible entities for conservation purposes.
Sec. 108. Tax exclusion for cost-sharing payments under Partners for Fish and
Wildlife Program.
Sec. 109. Adjustment to basis of S corporation stock for certain charitable con-
tributions.
Sec. 110. Enhanced deduction for charitable contribution of literary, musical, ar-
tistic, and scholarly compositions.
TITLE II—DISCLOSURE OF INFORMATION RELATING TO TAX-
EXEMPT ORGANIZATIONS
Sec. 201. Disclosure of written determinations.
Sec. 202. Disclosure of Internet web site and name under which organization does
business.
Sec. 203. Modification to reporting capital transactions.
Sec. 204. Disclosure that Form 990 is publicly available.
Sec. 205. Disclosure to State officials of proposed actions related to section 501(c)
organizations.
TITLE III—OTHER CHARITABLE AND EXEMPT ORGANIZATION
PROVISIONS
Sec. 301. Modification of excise tax on unrelated business taxable income of chari-
table remainder trusts.
Sec. 302. Modifications to section 512(b)(13).
Sec. 303. Simplification of lobbying expenditure limitation.
Sec. 304. Expedited review process for certain tax-exemption applications.
Sec. 305. Clarification of definition of church tax inquiry.
Sec. 306. Expansion of declaratory judgment remedy to tax-exempt organizations.
Sec. 307. Definition of convention or association of churches.
Sec. 308. Charitable contribution deduction for certain expenses incurred in sup-
port of Native Alaskan subsistence whaling.
Sec. 309. Payments by charitable organizations to victims of war on terrorism.
Sec. 310. Treatment of bonds issued to acquire standing timber on land subject
to conservation easement.
Sec. 311. Exemption from income tax for State-created organizations providing
property and casualty insurance for property for which such
coverage is otherwise unavailable.
Sec. 312. Modification of special arbitrage rule for certain funds.
Sec. 313. Matching grants to low-income taxpayer clinics for return preparation.
Sec. 314. Modification of scholarship foundation rules.
TITLE IV—SOCIAL SERVICES BLOCK GRANT
Sec. 401. Restoration of funds for the Social Services Block Grant.
Sec. 402. Restoration of authority to transfer up to 10 percent of TANF funds
to the Social Services Block Grant.
Sec. 403. Requirement to submit annual report on State activities.
TITLE V—INDIVIDUAL DEVELOPMENT ACCOUNTS
Sec. 501. Short title.
Sec. 502. Purposes.
Sec. 503. Definitions.
Sec. 504. Structure and administration of qualified individual development ac-
count programs.
Sec. 505. Procedures for opening and maintaining an individual development ac-
count and qualifying for matching funds.
Sec. 506. Deposits by qualified individual development account programs.
Sec. 507. Withdrawal procedures.
Sec. 508. Certification and termination of qualified individual development ac-
count programs.
Sec. 509. Reporting, monitoring, and evaluation.
Sec. 510. Authorization of appropriations.
Sec. 511. Matching funds for individual development accounts provided through
a tax credit for qualified financial institutions.
TITLE VI—REVENUE PROVISIONS
Subtitle A—Tax Shelter Transparency Requirements
PART I—TAXPAYER-RELATED PROVISIONS
Sec. 601. Penalty for failing to disclose reportable transaction.
Sec. 602. Accuracy-related penalties for listed transactions and other reportable
transactions having a significant tax avoidance purpose.
Sec. 603. Modifications of substantial understatement penalty for nonreportable
transactions.
Sec. 604. Tax shelter exception to confidentiality privileges relating to taxpayer
communications.
PART II—PROMOTER AND PREPARER RELATED PROVISIONS
SUBPART A—PROVISIONS RELATING TO REPORTABLE TRANSACTIONS
Sec. 611. Disclosure of reportable transactions.
Sec. 612. Modifications to penalty for failure to register tax shelters.
Sec. 613. Modification of penalty for failure to maintain lists of investors.
Sec. 614. Modification of actions to enjoin specified conduct related to tax shelters
and reportable transactions.
SUBPART B—OTHER PROMOTER AND PREPARER PROVISIONS
Sec. 621. Understatement of taxpayer’s liability by income tax return preparer.
Sec. 622. Penalty on failure to report interests in foreign financial accounts.
Sec. 623. Frivolous tax submissions.
Sec. 624. Regulation of individuals practicing before the Department of Treasury.
Sec. 625. Penalty on promoters of tax shelters.
PART III—OTHER PROVISIONS
Sec. 631. Affirmation of consolidated return regulation authority.
Subtitle B—Tax Treatment of Inversion Transactions
Sec. 641. Tax treatment of inverted corporate entities.
Subtitle C—Reinsurance Agreements
Sec. 651. Reinsurance of United States risks in foreign jurisdictions.
Subtitle D—Extension of Internal Revenue Service User Fees
Sec. 661. Extension of Internal Revenue Service user fees.
Subtitle E—Imposition of Customs User Fees
Sec. 671. Customs user fees.
TITLE I—CHARITABLE GIVING
INCENTIVES
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CON-
TRIBUTIONS TO BE ALLOWED TO INDIVID-
UALS WHO DO NOT ITEMIZE DEDUCTIONS.
(a) IN GENERAL.—Section 170 (relating to charitable,
etc., contributions and gifts) is amended by redesignating
subsection (m) as subsection (n) and by inserting after sub-
section (l) the following new subsection:
‘‘(m) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING
DEDUCTIONS.—In the case of an individual who does not
itemize deductions for any taxable year, there shall be taken
into account as a direct charitable deduction under section
63 an amount equal to the amount allowable under sub-
section (a) for the taxable year for cash contributions, but
only with respect to such contributions which exceed $250
($500 in the case of a joint return), but do not exceed $500
($1,000 in the case of a joint return).’’.
(b) DIRECT CHARITABLE DEDUCTION.—
(1) IN GENERAL.—Subsection (b) of section 63
(defining taxable income) is amended by striking
‘‘and’’ at the end of paragraph (1), by striking the pe-
riod at the end of paragraph (2) and inserting ‘‘,
and’’, and by adding at the end the following new
paragraph:
‘‘(3) the direct charitable deduction.’’.
(2) DEFINITION.—Section 63 is amended by re-
designating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new sub-
section:
‘‘(g) DIRECT CHARITABLE DEDUCTION.—For purposes
of this section, the term ‘direct charitable deduction’ means
that portion of the amount allowable under section 170(a)
which is taken as a direct charitable deduction for the tax-
able year under section 170(m).’’.
(3) CONFORMING AMENDMENT.—Subsection (d)
of section 63 is amended by striking ‘‘and’’ at the end
of paragraph (1), by striking the period at the end of
paragraph (2) and inserting ‘‘, and’’, and by adding
at the end the following new paragraph:
‘‘(3) the direct charitable deduction.’’.
(c) STUDY.—
(1) IN GENERAL.—The Secretary of the Treasury
shall study the effect of the amendments made by this
section on increased charitable giving and taxpayer
compliance, including a comparison of taxpayer com-
pliance by those who itemize their charitable con-
tributions with those who claim a direct charitable
deduction.
(2) REPORT.—By not later than December 31,
2003, the Secretary of the Treasury shall report on
the study required under paragraph (1) to the Com-
mittee on Finance of the Senate and the Committee
on Ways and Means of the House of Representatives.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001, and before January 1, 2004.
SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT ACCOUNTS FOR CHARITABLE PUR-
POSES.
(a) IN GENERAL.—Subsection (d) of section 408 (relat-
ing to individual retirement accounts) is amended by add-
ing at the end the following new paragraph:
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—No amount shall be in-
cludible in gross income by reason of a qualified
charitable distribution.
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the term
‘qualified charitable distribution’ means any dis-
tribution 
from 
an 
individual 
retirement
account—
‘‘(i) which is made directly by the
trustee—
‘‘(I) to an organization described
in section 170(c), or
‘‘(II) to a split-interest entity,
and
‘‘(ii) which is made on or after the
date that the individual for whose benefit
the account is maintained has attained—
‘‘(I) in the case of any distribu-
tion described in clause (i)(I), age
701⁄2, and
‘‘(II) in the case of any distribu-
tion described in clause (i)(II), age
591⁄2.
A distribution shall be treated as a qualified
charitable distribution only to the extent that the
distribution would be includible in gross income
without regard to subparagraph (A) and, in the
case of a distribution to a split-interest entity,
only if no person holds an income interest in the
amounts in the split-interest entity attributable
to such distribution other than one or more of
the following: the individual for whose benefit
such account is maintained, the spouse of such
individual, or any organization described in sec-
tion 170(c).
‘‘(C) CONTRIBUTIONS MUST BE OTHERWISE
DEDUCTIBLE.—For 
purposes 
of 
this
paragraph—
‘‘(i) DIRECT CONTRIBUTIONS.—A dis-
tribution to an organization described in
section 170(c) shall be treated as a qualified
charitable distribution only if a deduction
for the entire distribution would be allow-
able under section 170 (determined without
regard to subsection (b) thereof and this
paragraph).
‘‘(ii) SPLIT-INTEREST GIFTS.—A dis-
tribution to a split-interest entity shall be
‘‘(i) 
CHARITABLE
REMAINDER
TRUSTS.—Notwithstanding section 664(b),
distributions made from a trust described in
subparagraph (G)(i) shall be treated as or-
dinary income in the hands of the bene-
ficiary to whom is paid the annuity de-
scribed in section 664(d)(1)(A) or the pay-
ment described in section 664(d)(2)(A).
‘‘(ii) POOLED
INCOME
FUNDS.—No
amount shall be includible in the gross in-
come of a pooled income fund (as defined in
subparagraph (G)(ii)) by reason of a quali-
fied charitable distribution to such fund,
and all distributions from the fund which
are attributable to qualified charitable dis-
tributions shall be treated as ordinary in-
come to the beneficiary.
‘‘(iii) CHARITABLE GIFT ANNUITIES.—
Qualified charitable distributions made for
a charitable gift annuity shall not be treat-
ed as an investment in the contract.
‘‘(F) DENIAL
OF
DEDUCTION.—Qualified
charitable distributions shall not be taken into
account in determining the deduction under sec-
tion 170.
‘‘(G) SPLIT-INTEREST ENTITY DEFINED.—
For purposes of this paragraph, the term ‘split-
interest entity’ means—
‘‘(i) a charitable remainder annuity
trust or a charitable remainder unitrust (as
such terms are defined in section 664(d))
which must be funded exclusively by quali-
fied charitable distributions,
‘‘(ii) a pooled income fund (as defined
in section 642(c)(5)), but only if the fund
accounts separately for amounts attrib-
utable to qualified charitable distributions,
and
‘‘(iii) a charitable gift annuity (as de-
fined in section 501(m)(5)).’’.
(b) MODIFICATIONS RELATING TO INFORMATION RE-
TURNS BY CERTAIN TRUSTS.—
(1) RETURNS.—Section 6034 (relating to returns
by trusts described in section 4947(a)(2) or claiming
charitable deductions under section 642(c)) is amend-
ed to read as follows:
‘‘SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION
4947(a)(2) OR CLAIMING CHARITABLE DEDUC-
TIONS UNDER SECTION 642(c).
‘‘(a) TRUSTS DESCRIBED IN SECTION 4947(a)(2).—
Every trust described in section 4947(a)(2) shall furnish
such information with respect to the taxable year as the
Secretary may by forms or regulations require.
‘‘(b) TRUSTS CLAIMING A CHARITABLE DEDUCTION
UNDER SECTION 642(c).—
‘‘(1) IN GENERAL.—Every trust not required to
file a return under subsection (a) but claiming a
charitable, etc., deduction under section 642(c) for the
taxable year shall furnish such information with re-
spect to such taxable year as the Secretary may by
forms or regulations prescribe, including:
‘‘(A) the amount of the charitable, etc., de-
duction taken under section 642(c) within such
year,
‘‘(B) the amount paid out within such year
which represents amounts for which charitable,
etc., deductions under section 642(c) have been
taken in prior years,
‘‘(C) the amount for which charitable, etc.,
deductions have been taken in prior years but
which has not been paid out at the beginning of
such year,
‘‘(D) the amount paid out of principal in
the current and prior years for charitable, etc.,
purposes,
‘‘(E) the total income of the trust within
such year and the expenses attributable thereto,
and
‘‘(F) a balance sheet showing the assets, li-
abilities, and net worth of the trust as of the be-
ginning of such year.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply in the case of a taxable year if all the net in-
come for such year, determined under the applicable
principles of the law of trusts, is required to be dis-
tributed currently to the beneficiaries. Paragraph (1)
shall not apply in the case of a trust described in sec-
tion 4947(a)(1).’’.
(2) INCREASE IN PENALTY RELATING TO FILING
OF
INFORMATION
RETURN
BY
SPLIT-INTEREST
TRUSTS.—Paragraph (2) of section 6652(c) (relating
to returns by exempt organizations and by certain
trusts) is amended by adding at the end the following
new subparagraph:
‘‘(C) SPLIT-INTEREST TRUSTS.—In the case
of a trust which is required to file a return
under section 6034(a), subparagraphs (A) and
(B) of this paragraph shall not apply and para-
graph (1) shall apply in the same manner as if
such return were required under section 6033,
except that—
‘‘(i) the 5 percent limitation in the sec-
ond sentence of paragraph (1)(A) shall not
apply,
‘‘(ii) in the case of any trust with gross
income in excess of $250,000, the first sen-
tence of paragraph (1)(A) shall be applied
by substituting ‘$100’ for ‘$20’, and the sec-
ond sentence thereof shall be applied by sub-
stituting ‘$50,000’ for ‘$10,000’, and
‘‘(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person re-
quired to file such return knowingly fails to file
the return, such penalty shall also be imposed on
such person who shall be personally liable for
such penalty.’’.
(3) CONFIDENTIALITY OF NONCHARITABLE BENE-
FICIARIES.—Subsection (b) of section 6104 (relating
to inspection of annual information returns) is
amended by adding at the end the following new sen-
tence: ‘‘In the case of a trust which is required to file
a return under section 6034(a), this subsection shall
not apply to information regarding beneficiaries
which are not organizations described in section
170(c).’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by
subsection (a) shall apply to taxable years beginning
after December 31, 2002.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to returns for taxable years
beginning after December 31, 2002.
SEC. 103. CHARITABLE DEDUCTION FOR CONTRIBUTIONS
OF FOOD INVENTORIES.
(a) IN GENERAL.—Subsection (e) of section 170 (relat-
ing to certain contributions of ordinary income and capital
gain property) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(7) APPLICATION OF PARAGRAPH (3) TO CER-
TAIN CONTRIBUTIONS OF FOOD INVENTORY.—For pur-
poses of this section—
‘‘(A) EXTENSION TO INDIVIDUALS.—In the
case of a charitable contribution of apparently
wholesome food—
‘‘(i) paragraph (3)(A) shall be applied
without regard to whether the contribution
is made by a C corporation, and
‘‘(ii) in the case of a taxpayer other
than a C corporation, the aggregate amount
of such contributions from any trade or
business (or interest therein) of the taxpayer
for any taxable year which may be taken
into account under this section shall not ex-
ceed 10 percent of the taxpayer’s net income
from any such trade or business, computed
without regard to this section, for such tax-
able year.
‘‘(B) DETERMINATION
OF
BASIS.—If a
taxpayer—
‘‘(i) does not account for inventories
under section 471, and
‘‘(ii) is not required to capitalize indi-
rect costs under section 263A,
the taxpayer may elect, solely for purposes of
paragraph (3)(B), to treat the basis of any ap-
parently wholesome food as being equal to 25
percent of the fair market value of such food.
‘‘(C) DETERMINATION
OF
FAIR
MARKET
VALUE.—In the case of a charitable contribution
of apparently wholesome food which is a quali-
fied contribution (within the meaning of para-
graph (3), as modified by subparagraph (A) of
this paragraph) and which, solely by reason of
internal standards of the taxpayer or lack of
market, cannot or will not be sold, the fair mar-
ket 
value 
of 
such 
contribution 
shall 
be
determined—
‘‘(i) without regard to such internal
standards or such lack of market and
‘‘(ii) by taking into account the price
at which the same or substantially the same
food items are sold by the taxpayer at the
time of the contribution (or, if not so sold
at such time, in the recent past).
‘‘(D) APPARENTLY WHOLESOME FOOD.—For
purposes of this paragraph, the term ‘apparently
wholesome food’ has the meaning given such term
by section 22(b)(2) of the Bill Emerson Good Sa-
maritan 
Food 
Donation 
Act 
(42 
U.S.C.
1791(b)(2)), as in effect on the date of the enact-
ment of this paragraph.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS
OF BOOK INVENTORIES.
(a) IN GENERAL.—Section 170(e)(3) (relating to cer-
tain contributions of ordinary income and capital gain
property) is amended by redesignating subparagraph (C)
as subparagraph (D) and by inserting after subparagraph
(B) the following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
CONTRIBUTIONS
OF
BOOK
INVENTORY
FOR
EDUCATIONAL
PUR-
POSES.—
‘‘(i) CONTRIBUTIONS OF BOOK INVEN-
TORY.—In determining whether a qualified
book contribution is a qualified contribu-
tion, subparagraph (A) shall be applied
without regard to whether—
‘‘(I) the donee is an organization
described in the matter preceding
clause (i) of subparagraph (A), and
‘‘(II) the property is to be used by
the donee solely for the care of the ill,
the needy, or infants.
‘‘(ii) AMOUNT
OF
REDUCTION.—Not-
withstanding 
subparagraph 
(B), 
the
amount of the reduction determined under
paragraph (1)(A) shall not exceed the
amount by which the fair market value of
the contributed property (as determined by
the taxpayer using a bona fide published
market price for such book (using the same
printing and edition) published within 7
years preceding the contribution) exceeds
twice the basis of such property.
‘‘(iii) QUALIFIED
BOOK
CONTRIBU-
TION.—For purposes of this paragraph, the
term ‘qualified book contribution’ means a
charitable contribution of books, but only if
the requirements of clauses (iv) and (v) are
met.
‘‘(iv) IDENTITY
OF
DONEE.—The re-
quirement of this clause is met if the con-
tribution is to an organization—
‘‘(I) described in subclause (I) or
(III) of paragraph (6)(B)(i), or
‘‘(II) 
described 
in 
section
501(c)(3) and exempt from tax under
section 501(a) (other than a private
foundation, as defined in section
509(a), which is not an operating
foundation, as defined in section
4942(j)(3)), which is organized pri-
marily to make books available to the
general public at no cost or to operate
a literacy program.
‘‘(v) CERTIFICATION BY DONEE.—The
requirement of this clause is met if, in addi-
tion to the certifications required by sub-
paragraph (A) (as modified by this sub-
paragraph), the donee certifies in writing
that—
‘‘(I) the books are suitable, in
terms of currency, content, and quan-
tity, for use in the donee’s educational
programs, and
‘‘(II) the donee will use the books
in its educational programs.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 105. EXPANSION OF CHARITABLE CONTRIBUTION AL-
LOWED FOR SCIENTIFIC PROPERTY USED
FOR RESEARCH AND FOR COMPUTER TECH-
NOLOGY AND EQUIPMENT USED FOR EDU-
CATIONAL PURPOSES.
(a) SCIENTIFIC PROPERTY USED FOR RESEARCH.—
(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
170(e)(4)(B) (defining qualified research contribu-
tions) is amended by inserting ‘‘or assembled’’ after
‘‘constructed’’.
(2) CONFORMING AMENDMENT.—Clause (iii) of
section 170(e)(4)(B) is amended by inserting ‘‘or as-
sembling’’ after ‘‘construction’’.
(b) COMPUTER TECHNOLOGY AND EQUIPMENT FOR
EDUCATIONAL PURPOSES.—
(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
170(e)(6)(B) is amended by inserting ‘‘or assembled’’
after ‘‘constructed’’ and ‘‘or assembling’’ after ‘‘con-
struction’’.
(2) CONFORMING AMENDMENTS.—Subparagraph
(D) of section 170(e)(6) is amended by inserting ‘‘or
assembled’’ after ‘‘constructed’’ and ‘‘or assembling’’
after ‘‘construction’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 106. MODIFICATIONS TO ENCOURAGE CONTRIBUTIONS
OF CAPITAL GAIN REAL PROPERTY MADE FOR
CONSERVATION PURPOSES.
(a) IN GENERAL.—Section 170(h) (relating to quali-
fied conservation contribution) is amended by adding at the
end the following new paragraph:
‘‘(7) ADDITIONAL
INCENTIVES
FOR
QUALIFIED
CONSERVATION CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—In the case of any
qualified conservation contribution (as defined
in paragraph (1)) made by an individual—
‘‘(i) subparagraph (C) of subsection
(b)(1) shall not apply,
‘‘(ii) except as provided in subpara-
graph (B)(i), subsections (b)(1)(A) and
(d)(1) shall be applied separately with re-
spect to such contributions by treating ref-
erences to 50 percent of the taxpayer’s con-
tribution base as references to the amount of
such contributions reduced by the amount of
other contributions allowable under sub-
section (b)(1)(A), and
‘‘(iii) subparagraph (A) of subsection
(d)(1) shall be applied—
‘‘(I) by substituting ‘15 succeeding
taxable years’ for ‘5 succeeding taxable
years’, and
‘‘(II) by applying clause (ii) to
each of the 15 succeeding taxable years.
‘‘(B) SPECIAL RULES FOR ELIGIBLE FARM-
ERS AND RANCHERS.—
‘‘(i) IN GENERAL.—In the case of any
such contributions made by an eligible
farmer or rancher—
‘‘(I) if the taxpayer is an indi-
vidual, 
subsections 
(b)(1)(A) 
and
(d)(1) shall be applied separately with
respect to such contributions by sub-
stituting ‘the taxpayer’s contribution
base reduced by the amount of the de-
duction under subsection (a) for con-
tributions 
described 
in 
subsection
(b)(1)(A) (other than qualified con-
servation contributions)’ for ‘50 per-
cent of the taxpayer’s contribution
base’ each place it appears, and
‘‘(II) if the taxpayer is a corpora-
tion, subsections (b)(2) and (d)(2) shall
be applied separately with respect to
such contributions, subsection (b)(2)
shall be applied with respect to such
contributions as if such subsection did
not contain the words ‘10 percent of’
and as if subparagraph (A) thereof
read ‘the deduction under this section
for qualified conservation contribu-
tions’, and rules similar to the rules of
subparagraph (A)(iii) shall apply for
purposes of subsection (d)(2).
‘‘(ii) DEFINITION.—For purposes of
clause (i), the term ‘eligible farmer or
rancher’ means a taxpayer whose gross in-
come from the trade or business of farming
(within the meaning of section 2032A(e)(5))
is at least 51 percent of the taxpayer’s gross
income for the taxable year, and, in the case
of a C corporation, the stock of which is not
publicly traded on a recognized exchange.’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made in taxable years
beginning after December 31, 2002.
SEC. 107. EXCLUSION OF 25 PERCENT OF GAIN ON SALES
OR EXCHANGES OF LAND OR WATER INTER-
ESTS TO ELIGIBLE ENTITIES FOR CONSERVA-
TION PURPOSES.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 (relating to items specifically excluded from gross income)
is amended by inserting after section 121 the following new
section:
‘‘SEC. 121A. 25-PERCENT EXCLUSION OF GAIN ON SALES OR
EXCHANGES OF LAND OR WATER INTERESTS
TO ELIGIBLE ENTITIES FOR CONSERVATION
PURPOSES.
‘‘(a) EXCLUSION.—Gross income shall not include 25
percent of the qualifying gain from a conservation sale of
a long-held qualifying land or water interest.
‘‘(b) QUALIFYING
GAIN.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualifying gain’
means any gain which would be recognized as long-
term capital gain, reduced by the amount of any
long-term capital gain attributable to disqualified im-
provements.
‘‘(2) DISQUALIFIED
IMPROVEMENT.—For pur-
poses of paragraph (1), the term ‘disqualified im-
provement’ means any building, structure, or other
improvement, other than—
‘‘(A) any improvement which is described
in section 175(c)(1), determined—
‘‘(i) without regard to the requirements
that the taxpayer be engaged in farming,
and
‘‘(ii) without taking into account sub-
paragraphs (A) and (B) thereof, or
‘‘(B) any improvement which the Secretary
determines directly furthers conservation pur-
poses.
‘‘(3) SPECIAL RULE FOR SALES OF STOCK.—If
the long-held qualifying land or water interest is 1 or
more shares of stock in a qualifying land or water
corporation, the qualifying gain is equal to the lesser
of—
‘‘(A) the qualifying gain determined under
paragraph (1), or
‘‘(B) the product of—
‘‘(i) the percentage of such corpora-
tion’s stock which is transferred by the tax-
payer, times
‘‘(ii) the amount which would have
been the qualifying gain (determined under
paragraph (1)) if there had been a conserva-
tion sale by such corporation of all of its in-
terests in the land and water for a price
equal to the product of the fair market value
of such interests times the ratio of—
‘‘(I) the proceeds of the conserva-
tion sale of the stock, to
‘‘(II) the fair market value of the
stock which was the subject of the con-
servation sale.
‘‘(c) CONSERVATION SALE.—For purposes of this sec-
tion, the term ‘conservation sale’ means a sale or exchange
which meets the following requirements:
‘‘(1) TRANSFEREE IS AN ELIGIBLE ENTITY.—The
transferee of the long-held qualifying land or water
interest is an eligible entity.
‘‘(2) QUALIFYING
LETTER
OF
INTENT
RE-
QUIRED.—At the time of the sale or exchange, such
transferee provides the taxpayer with a qualifying let-
ter of intent.
‘‘(3) NONAPPLICATION TO CERTAIN SALES.—The
sale or exchange is not made pursuant to an order of
condemnation or eminent domain.
‘‘(4) CONTROLLING
INTEREST
IN
STOCK
SALE
REQUIRED.—In the case of the sale or exchange of
stock in a qualifying land or water corporation, at
the end of the taxpayer’s taxable year in which such
sale or exchange occurs, the transferee’s ownership of
stock in such corporation meets the requirements of
section 1504(a)(2) (determined by substituting ‘90
percent’ for ‘80 percent’ each place it appears).
‘‘(d) LONG-HELD QUALIFYING LAND OR WATER IN-
TEREST.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘long-held quali-
fying land or water interest’ means any qualifying
land or water interest owned by the taxpayer or a
member of the taxpayer’s family (as defined in sec-
tion 2032A(e)(2)) at all times during the 5-year pe-
riod ending on the date of the sale.
‘‘(2) QUALIFYING LAND OR WATER INTEREST.—
‘‘(A) IN
GENERAL.—The term ‘qualifying
land or water interest’ means a real property in-
terest which constitutes—
‘‘(i) a taxpayer’s entire interest in
land,
‘‘(ii) a taxpayer’s entire interest in
water rights,
‘‘(iii) a qualified real property interest
(as defined in section 170(h)(2)), or
‘‘(iv) stock in a qualifying land or
water corporation.
‘‘(B) ENTIRE INTEREST.—For purposes of
clause (i) or (ii) of subparagraph (A)—
‘‘(i) a partial interest in land or water
is not a taxpayer’s entire interest if an in-
terest in land or water was divided in order
to create such partial interest in order to
avoid the requirements of such clause or sec-
tion 170(f)(3)(A), and
‘‘(ii) a taxpayer’s entire interest in
certain land does not fail to satisfy sub-
paragraph (A)(i) solely because the tax-
payer has retained an interest in other
land, even if the other land is contiguous
with such certain land and was acquired by
the taxpayer along with such certain land
in a single conveyance.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) ELIGIBLE ENTITY.—The term ‘eligible enti-
ty’ means—
‘‘(A) a governmental unit referred to in sec-
tion 170(c)(1), or an agency or department
thereof operated primarily for 1 or more of the
conservation purposes specified in clause (i), (ii),
or (iii) of section 170(h)(4)(A), or
‘‘(B) an entity which is—
‘‘(i) 
described 
in 
section
170(b)(1)(A)(vi) or section 170(h)(3)(B),
and
‘‘(ii) organized and at all times oper-
ated primarily for 1 or more of the con-
servation purposes specified in clause (i),
(ii), or (iii) of section 170(h)(4)(A).
‘‘(2) QUALIFYING LETTER OF INTENT.—The term
‘qualifying letter of intent’ means a written letter of
intent which includes the following statement: ‘The
transferee’s intent is that this acquisition will serve 1
or more of the conservation purposes specified in
clause (i), (ii), or (iii) of section 170(h)(4)(A) of the
Internal Revenue Code of 1986, that the transferee’s
use of the property so acquired will be consistent with
section 170(h)(5) of such Code, and that the use of the
property will continue to be consistent with such sec-
tion, even if ownership or possession of such property
is subsequently transferred to another person.’
‘‘(3) QUALIFYING
LAND
OR
WATER
CORPORA-
TION.—The term ‘qualifying land or water corpora-
tion’ means a C corporation (as defined in section
1361(a)(2)) if, as of the date of the conservation
sale—
‘‘(A) the fair market value of the corpora-
tion’s interests in land or water held by the cor-
poration at all times during the preceding 5
years equals or exceeds 90 percent of the fair
market value of all of such corporation’s assets,
and
‘‘(B) not more than 50 percent of the total
fair market value of such corporation’s assets
consists of water rights or infrastructure related
to the delivery of water, or both.
‘‘(f) TAX ON SUBSEQUENT TRANSFERS OR REMOVALS
OF CONSERVATION RESTRICTIONS.—
‘‘(1) IN GENERAL.—A tax is hereby imposed on
any subsequent—
‘‘(A) transfer by an eligible entity of owner-
ship or possession, whether by sale, exchange, or
lease, of property acquired directly or indirectly
in—
‘‘(i) a conservation sale described in
subsection (a), or
‘‘(ii) a transfer described in clause (i),
(ii), or (iii) of paragraph (4)(A), or
‘‘(B) removal of a conservation restriction
contained in an instrument of conveyance of
such property.
‘‘(2) AMOUNT OF TAX.—The amount of tax im-
posed by paragraph (1) on any transfer or removal
shall be equal to the sum of—
‘‘(A) either—
‘‘(i) 20 percent of the fair market value
(determined at the time of the transfer) of
the property the ownership or possession of
which is transferred, or
‘‘(ii) 20 percent of the fair market
value (determined at the time immediately
after the removal) of the property upon
which the conservation restriction was re-
moved, plus
‘‘(B) the product of—
‘‘(i) the highest rate of tax specified in
section 11, times
‘‘(ii) any gain or income realized by
the transferor or person removing such re-
striction as a result of the transfer or re-
moval.
‘‘(3) LIABILITY.—The tax imposed by paragraph
(1) shall be paid—
‘‘(A) on any transfer, by the transferor, and
‘‘(B) on any removal of a conservation re-
striction contained in an instrument of convey-
ance, by the person removing such restriction.
‘‘(4) RELIEF FROM LIABILITY.—The person (oth-
erwise liable for any tax imposed by paragraph (1))
shall be relieved of liability for the tax imposed by
paragraph (1)—
‘‘(A) with respect to any transfer if—
‘‘(i) the transferee is an eligible entity
which provides such person, at the time of
transfer, a qualifying letter of intent,
‘‘(ii) the transferee is not an eligible
entity, it is established to the satisfaction of
the Secretary, that the transfer of ownership
or possession, as the case may be, will be
consistent with section 170(h)(5), and the
transferee provides such person, at the time
of transfer, a qualifying letter of intent, or
‘‘(iii) tax has previously been paid
under this subsection as a result of a prior
transfer of ownership or possession of the
same property, or
‘‘(B) with respect to any removal of a con-
servation restriction contained in an instrument
of conveyance, if it is established to the satisfac-
tion of the Secretary that the retention of the re-
striction was impracticable or impossible and
the proceeds continue to be used in a manner
consistent with 1 or more of the conservation
purposes specified in clause (i), (ii), or (iii) of
section 170(h)(4)(A).
‘‘(5) ADMINISTRATIVE
PROVISIONS.—For pur-
poses of subtitle F, the taxes imposed by this sub-
section shall be treated as excise taxes with respect to
which the deficiency procedures of such subtitle apply.
‘‘(6) REPORTING.—The Secretary may require
such reporting as may be necessary or appropriate to
further the purpose under this section that any con-
servation use be in perpetuity.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part III of subchapter B of chapter 1 is amended by insert-
ing after the item relating to section 121 the following new
item:
‘‘Sec. 121A. 25-percent exclusion of gain on sales or exchanges of
land or water interests to eligible entities for con-
servation purposes.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales or exchanges occurring after De-
cember 31, 2003, in taxable years ending after such date.
SEC. 108. TAX EXCLUSION FOR COST-SHARING PAYMENTS
UNDER PARTNERS FOR FISH AND WILDLIFE
PROGRAM.
(a) IN GENERAL.—Section 126(a) (relating to certain
cost-sharing payments) is amended by redesignating para-
graph (10) as paragraph (11) and by inserting after para-
graph (9) the following:
‘‘(10) The Partners for Fish and Wildlife Pro-
gram authorized by the Fish and Wildlife Act of 1956
(16 U.S.C. 742a et seq.).’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments received in taxable years
beginning after December 31, 2002.
SEC. 109. ADJUSTMENT TO BASIS OF S CORPORATION
STOCK 
FOR 
CERTAIN 
CHARITABLE 
CON-
TRIBUTIONS.
(a) IN GENERAL.—Paragraph (2) of section 1367(a)
(relating to adjustments to basis of stock of shareholders,
etc.) is amended by adding at the end the following new
flush sentence:
‘‘The decrease under subparagraph (B) by reason of
a charitable contribution (as defined in section
170(c)) of property shall be the amount equal to the
shareholder’s pro rata share of the adjusted basis of
such property.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made in taxable years
beginning after December 31, 2002.
SEC. 110. ENHANCED DEDUCTION FOR CHARITABLE CON-
TRIBUTION OF LITERARY, MUSICAL, ARTIS-
TIC, AND SCHOLARLY COMPOSITIONS.
(a) IN GENERAL.—Subsection (e) of section 170 (relat-
ing to certain contributions of ordinary income and capital
gain property), as amended by this Act, is amended by add-
ing at the end the following new paragraph:
‘‘(8) SPECIAL
RULE
FOR
CERTAIN
CONTRIBU-
TIONS OF LITERARY, MUSICAL, ARTISTIC, OR SCHOL-
ARLY COMPOSITIONS.—
‘‘(A) IN GENERAL.—In the case of a quali-
fied artistic charitable contribution—
‘‘(i) the amount of such contribution
taken into account under this section shall
be the fair market value of the property con-
tributed (determined at the time of such
contribution), and
‘‘(ii) no reduction in the amount of
such contribution shall be made under
paragraph (1).
‘‘(B) QUALIFIED
ARTISTIC
CHARITABLE
CONTRIBUTION.—For purposes of this para-
graph, the term ‘qualified artistic charitable con-
tribution’ means a charitable contribution of any
literary, musical, artistic, or scholarly composi-
tion, or similar property, or the copyright there-
on (or both), but only if—
‘‘(i) such property was created by the
personal efforts of the taxpayer making such
contribution no less than 18 months prior
to such contribution,
‘‘(ii) the taxpayer—
‘‘(I) has received a qualified ap-
praisal of the fair market value of such
property in accordance with the regu-
lations under this section, and
‘‘(II) attaches to the taxpayer’s
income tax return for the taxable year
in which such contribution was made a
copy of such appraisal,
‘‘(iii) the donee is an organization de-
scribed in subsection (b)(1)(A),
‘‘(iv) the use of such property by the
donee is related to the purpose or function
constituting the basis for the donee’s exemp-
tion under section 501 (or, in the case of a
governmental unit, to any purpose or func-
tion described under section 501(c)),
‘‘(v) the taxpayer receives from the
donee a written statement representing that
the donee’s use of the property will be in ac-
cordance with the provisions of clause (iv),
and
‘‘(vi) the written appraisal referred to
in clause (ii) includes evidence of the extent
(if any) to which property created by the
personal efforts of the taxpayer and of the
same type as the donated property is or has
been—
‘‘(I) owned, maintained, and dis-
played by organizations described in
subsection (b)(1)(A), and
‘‘(II) sold to or exchanged by per-
sons other than the taxpayer, donee, or
any related person (as defined in sec-
tion 465(b)(3)(C)).
‘‘(C) MAXIMUM
DOLLAR
LIMITATION; NO
CARRYOVER
OF
INCREASED
DEDUCTION.—The
increase in the deduction under this section by
reason of this paragraph for any taxable year—
‘‘(i) shall not exceed the artistic ad-
justed gross income of the taxpayer for such
taxable year, and
‘‘(ii) shall not be taken into account in
determining the amount which may be car-
ried from such taxable year under sub-
section (d).
‘‘(D) ARTISTIC ADJUSTED GROSS INCOME.—
For purposes of this paragraph, the term ‘artis-
tic adjusted gross income’ means that portion of
the adjusted gross income of the taxpayer for the
taxable year attributable to—
‘‘(i) income from the sale or use of
property created by the personal efforts of
the taxpayer which is of the same type as
the donated property, and
‘‘(ii) income from teaching, lecturing,
performing, or similar activity with respect
to property described in clause (i).
‘‘(E) PARAGRAPH NOT TO APPLY TO CER-
TAIN CONTRIBUTIONS.—Subparagraph (A) shall
not apply to any charitable contribution of any
letter, memorandum, or similar property which
was written, prepared, or produced by or for an
individual while the individual is an officer or
employee of any person (including any govern-
ment agency or instrumentality) unless such let-
ter, memorandum, or similar property is en-
tirely personal.
‘‘(F) COPYRIGHT
TREATED
AS
SEPARATE
PROPERTY
FOR
PARTIAL
INTEREST
RULE.—In
the case of a qualified artistic charitable con-
tribution, the tangible literary, musical, artistic,
or scholarly composition, or similar property
and the copyright on such work shall be treated
as separate properties for purposes of this para-
graph and subsection (f)(3).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made after December
31, 2002, in taxable years ending after such date.
TITLE II—DISCLOSURE OF IN-
FORMATION 
RELATING 
TO
TAX-EXEMPT ORGANIZATIONS
SEC. 201. DISCLOSURE OF WRITTEN DETERMINATIONS.
(a) IN GENERAL.—Section 6110(l) (relating to section
not to apply) is amended by striking all matter before sub-
paragraph (A) of paragraph (2) and inserting the fol-
lowing:
‘‘(l) SECTION NOT TO APPLY.—
‘‘(1) IN GENERAL.—This section shall not apply
to any matter to which section 6104 or 6105 applies,
except that this section shall apply to any written de-
termination and related background file document re-
lating to the tax-exempt status of an organization de-
scribed under subsection (c) or (d) of section 501 (in-
cluding any organization that has applied for tax-ex-
empt status under such subsection) which is not re-
quired to be disclosed by section 6104(a)(1)(A) but
which is within the scope of section 6104.
‘‘(2) ADDITIONAL MATTERS.—This section shall
not apply to any—’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to written determinations issued after
December 31, 2002.
SEC. 202. DISCLOSURE OF INTERNET WEB SITE AND NAME
UNDER WHICH ORGANIZATION DOES BUSI-
NESS.
(a) IN GENERAL.—Section 6033 (relating to returns
by exempt organizations) is amended by redesignating sub-
section (h) as subsection (i) and by inserting after sub-
section (g) the following new subsection:
‘‘(h) DISCLOSURE OF NAME UNDER WHICH ORGANI-
ZATION DOES BUSINESS AND ITS INTERNET WEB SITE.—
Any organization which is subject to the requirements of
subsection (a) shall include on the return required under
subsection (a)—
‘‘(1) any name under which such organization
operates or does business, and
‘‘(2) the Internet web site address (if any) of
such organization.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns filed after December 31, 2002.
SEC. 203. MODIFICATION TO REPORTING CAPITAL TRANS-
ACTIONS.
(a) REQUIREMENT OF SUMMARY REPORT.—Section
6033(c) (relating to additional provisions relating to pri-
vate foundations) is amended by adding at the end the fol-
lowing new sentence: ‘‘Any information included in an an-
nual return regarding the gain or loss from the sale or other
disposition of property which is required to be furnished
in order to calculate the tax on net investment income shall
also be reported in summary form with a notice that de-
tailed information is available upon request by the public.’’.
(b) DISCLOSURE
REQUIREMENT.—Section 6104(b)
(relating to inspection of annual information returns), as
amended by this Act, is amended by adding at the end the
following new sentences: ‘‘With respect to any private foun-
dation (as defined in section 509(a)), any information re-
garding the gain or loss from the sale or other disposition
of property which is required to be furnished in order to
calculate the tax on net investment income but which is
not in summary form is not required to be made available
to the public under this subsection except upon the explicit
request by a member of the public to the Secretary .’’.
(c) PUBLIC
INSPECTION
REQUIREMENT.—Section
6104(d) (relating to public inspection of certain annual re-
turns, applications for exemptions, and notices of status)
is amended by adding at the end the following new para-
graph:
‘‘(9) APPLICATION TO PRIVATE FOUNDATION CAP-
ITAL
TRANSACTION
INFORMATION.—With respect to
any private foundation (as defined in section 509(a)),
any information regarding the gain or loss from the
sale or other disposition of property which is required
to be furnished in order to calculate the tax on net
investment income but which is not in summary form
is not required to be made available to the public
under this subsection except upon the explicit request
by a member of the public to the private foundation
in the form and manner of a request described in
paragraph (1)(B).’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns filed after December 31, 2002.
SEC. 204. DISCLOSURE THAT FORM 990 IS PUBLICLY AVAIL-
ABLE.
(a) IN GENERAL.—The Commissioner of the Internal
Revenue shall notify the public in appropriate publications
or other materials of the extent to which an exempt organi-
zation’s Form 990, Form 990–EZ, or Form 990–PF is pub-
licly available.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to publications or other materials issued
or revised after the date of the enactment of this Act.
SEC. 205. DISCLOSURE TO STATE OFFICIALS OF PROPOSED
ACTIONS RELATED TO SECTION 501(c) ORGA-
NIZATIONS.
(a) IN GENERAL.—Subsection (c) of section 6104 is
amended by striking paragraph (2) and inserting the fol-
lowing new paragraphs:
‘‘(2) DISCLOSURE
OF
PROPOSED
ACTIONS
RE-
LATED TO CHARITABLE ORGANIZATIONS.—
‘‘(A) SPECIFIC NOTIFICATIONS.—In the case
of an organization to which paragraph (1) ap-
plies, the Secretary may disclose to the appro-
priate State officer—
‘‘(i) a notice of proposed refusal to rec-
ognize such organization as an organization
described in section 501(c)(3) or a notice of
proposed revocation of such organization’s
recognition as an organization exempt from
taxation,
‘‘(ii) the issuance of a letter of pro-
posed deficiency of tax imposed under sec-
tion 507 or chapter 41 or 42, and
‘‘(iii) the names and taxpayer identi-
fication numbers of organizations which
have applied for recognition as organiza-
tions described in section 501(c)(3).
‘‘(B) ADDITIONAL
DISCLOSURES.—Returns
and return information of organizations with re-
spect to which information is disclosed under
subparagraph (A) may be made available for in-
spection by or disclosed to an appropriate State
officer.
‘‘(C) PROCEDURES FOR DISCLOSURE.—In-
formation may be inspected or disclosed under
subparagraph (A) or (B) only—
‘‘(i) upon written request by an appro-
priate State officer, and
‘‘(ii) for the purpose of, and only to the
extent necessary in, the administration of
State laws regulating such organizations.
Such information may only be inspected by or
disclosed to representatives of the appropriate
State officer designated as the individuals who
are to inspect or to receive the returns or return
information under this paragraph on behalf of
such officer. Such representatives shall not in-
clude any independent contractor.
‘‘(D) DISCLOSURES
OTHER
THAN
BY
RE-
QUEST.—The Secretary may make available for
inspection or disclose returns and return infor-
mation of an organization to which paragraph
(1) applies to an appropriate State officer of
any State if the Secretary determines that such
inspection or disclosure may facilitate the resolu-
tion of Federal or State issues relating to the
tax-exempt status of such organization.
‘‘(3) DISCLOSURE WITH RESPECT TO CERTAIN
OTHER EXEMPT ORGANIZATIONS.—Upon written re-
quest by an appropriate State officer, the Secretary
may make available for inspection or disclosure re-
turns and return information of an organization de-
scribed in paragraph (2), (4), (6), (7), (8), (10), or
(13) of section 501(c) for the purpose of, and to the
extent necessary in, the administration of State laws
regulating the tax-exempt status of such organiza-
tions. Such information may be inspected only by or
disclosed only to representatives of the appropriate
State officer designated as the individuals who are to
inspect or to receive the returns or return information
under this paragraph on behalf of such officer. Such
representatives shall not include any independent
contractor.
‘‘(4) USE
IN
JUDICIAL
AND
ADMINISTRATIVE
PROCEEDINGS.—Returns and return information dis-
closed pursuant to this subsection may be disclosed in
civil administrative and judicial proceedings per-
taining to the enforcement of State laws regulating
such organizations in a manner prescribed by the
Secretary similar to that for tax administration pro-
ceedings under section 6103(h)(4).
‘‘(5) NO DISCLOSURE IF IMPAIRMENT.—Returns
and return information shall not be disclosed under
this subsection, or in any proceeding described in
paragraph (4), to the extent that the Secretary deter-
mines that such disclosure would seriously impair
Federal tax administration.
‘‘(6) 
DEFINITIONS.—For 
purposes 
of 
this
subsection—
‘‘(A) RETURN
AND
RETURN
INFORMA-
TION.—The terms ‘return’ and ‘return informa-
tion’ have the respective meanings given to such
terms by section 6103(b).
‘‘(B) APPROPRIATE
STATE
OFFICER.—The
term ‘appropriate State officer’ means—
‘‘(i) the State attorney general,
‘‘(ii) in the case of an organization to
which paragraph (1) applies, any other
State official charged with overseeing orga-
nizations of the type described in section
501(c)(3), and
‘‘(iii) in the case of an organization to
which paragraph (3) applies, the head of an
agency designated by the State attorney
general as having primary responsibility
for overseeing the tax-exempt status of such
organizations.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 6103 is amended—
(A) by inserting ‘‘or section 6104(c)’’ after
‘‘this section’’ in paragraph (2), and
(B) by striking ‘‘or subsection (n)’’ in para-
graph (3) and inserting ‘‘subsection (n), or sec-
tion 6104(c)’’.
(2) Subparagraph (A) of section 6103(p)(3) is
amended by inserting ‘‘and section 6104(c)’’ after
‘‘section’’ in the first sentence.
(3) Paragraph (4) of section 6103(p) is
amended—
(A) in the matter preceding subparagraph
(A), by striking ‘‘(16) or any other person de-
scribed in subsection (l)(16)’’ and inserting
‘‘(16), any other person described in subsection
(l)(16), or any appropriate State officer (as de-
fined in section 6104(c))’’, and
(B) in subparagraph (F), by striking ‘‘or
any other person described in subsection (l)(16)’’
and inserting ‘‘any other person described in
subsection (l)(16), or any appropriate State offi-
cer (as defined in section 6104(c))’’.
(4) The heading for paragraph (1) of section
6104(c) is amended by inserting ‘‘FOR CHARITABLE
ORGANIZATIONS’’.
(5) Paragraph (2) of section 7213(a) is amended
by inserting ‘‘or under section 6104(c)’’ after ‘‘6103’’.
(6) Paragraph (2) of section 7213A(a) is amend-
ed by inserting ‘‘or 6104(c)’’ after ‘‘6103’’.
(7) Paragraph (2) of section 7431(a) is amended
by inserting ‘‘(including any disclosure in violation
of section 6104(c))’’ after ‘‘6103’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act but shall not apply to requests made before such date.
TITLE III—OTHER CHARITABLE
AND EXEMPT ORGANIZATION
PROVISIONS
SEC. 301. MODIFICATION OF EXCISE TAX ON UNRELATED
BUSINESS TAXABLE INCOME OF CHARITABLE
REMAINDER TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 664 (relat-
ing to exemption from income taxes) is amended to read
as follows:
‘‘(c) TAXATION OF TRUSTS.—
‘‘(1) INCOME TAX.—A charitable remainder an-
nuity trust and a charitable remainder unitrust shall,
for any taxable year, not be subject to any tax im-
posed by this subtitle.
‘‘(2) EXCISE TAX.—
‘‘(A) IN GENERAL.—In the case of a chari-
table remainder annuity trust or a charitable re-
mainder unitrust which has unrelated business
taxable income (within the meaning of section
512, determined as if part III of subchapter F
applied to such trust) for a taxable year, there
is hereby imposed on such trust or unitrust an
excise tax equal to the amount of such unrelated
business taxable income.
‘‘(B) CERTAIN RULES TO APPLY.—The tax
imposed by subparagraph (A) shall be treated as
imposed by chapter 42 for purposes of this title
other than subchapter E of chapter 42.
‘‘(C) TAX COURT PROCEEDINGS.—For pur-
poses of this paragraph, the references in section
6212(c)(1) to section 4940 shall be deemed to in-
clude references to this paragraph.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 302. MODIFICATIONS TO SECTION 512(b)(13).
(a) IN GENERAL.—Paragraph (13) of section 512(b)
(relating to special rules for certain amounts received from
controlled entities) is amended by redesignating subpara-
graph (E) as subparagraph (F) and by inserting after sub-
paragraph (D) the following new subparagraph:
‘‘(E) PARAGRAPH TO APPLY ONLY TO EX-
CESS PAYMENTS.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall apply only to the portion of a speci-
fied payment received or accrued by the
controlling organization that exceeds the
amount which would have been paid or ac-
crued if such payment met the requirements
prescribed under section 482.
‘‘(ii) ADDITION TO TAX FOR VALUATION
MISSTATEMENTS.—The tax imposed by this
chapter on the controlling organization
shall be increased by an amount equal to 20
percent of the larger of—
‘‘(I) such excess determined with-
out regard to any amendment or sup-
plement to a return of tax, or
‘‘(II) such excess determined with
regard to all such amendments and
supplements.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall apply to payments received or accrued
after December 31, 2000.
(2) PAYMENTS SUBJECT TO BINDING CONTRACT
TRANSITION RULE.—If the amendments made by sec-
tion 1041 of the Taxpayer Relief Act of 1997 did not
apply to any amount received or accrued in the first
2 taxable years beginning on or after the date of the
enactment of the Taxpayer Relief Act of 1997 under
any contract described in subsection (b)(2) of such
section, such amendments also shall not apply to
amounts received or accrued under such contract be-
fore January 1, 2001.
SEC. 303. SIMPLIFICATION OF LOBBYING EXPENDITURE
LIMITATION.
(a) REPEAL OF GRASSROOTS EXPENDITURE LIMIT.—
Paragraph (1) of section 501(h) (relating to expenditures
by public charities to influence legislation) is amended to
read as follows:
‘‘(1) GENERAL RULE.—In the case of an organi-
zation to which this subsection applies, exemption
from taxation under subsection (a) shall be denied be-
cause a substantial part of the activities of such orga-
nization consists of carrying on propaganda, or oth-
erwise attempting, to influence legislation, but only if
such organization normally makes lobbying expendi-
tures in excess of the lobbying ceiling amount for such
organization for each taxable year.’’.
(b) 
EXCESS
LOBBYING
EXPENDITURES.—Section
4911(b) is amended to read as follows:
‘‘(b) EXCESS LOBBYING EXPENDITURES.—For pur-
poses of this section, the term ‘excess lobbying expenditures’
means, for a taxable year, the amount by which the lobbying
expenditures made by the organization during the taxable
year exceed the lobbying nontaxable amount for such orga-
nization for such taxable year.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 501(h)(2) is amended by striking
subparagraphs (C) and (D).
(2) Section 4911(c) is amended by striking para-
graphs (3) and (4).
(3) Paragraph (1)(A) of section 4911(f) is
amended by striking ‘‘limits of section 501(h)(1)
have’’ and inserting ‘‘limit of section 501(h)(1) has’’.
(4) Paragraph (1)(C) of section 4911(f) is
amended by striking ‘‘limits of section 501(h)(1) are’’
and inserting ‘‘limit of section 501(h)(1) is’’.
(5) Paragraphs (4)(A) and (4)(B) of section
4911(f) are each amended by striking ‘‘limits of sec-
tion 501(h)(1)’’ and inserting ‘‘limit of section
501(h)(1)’’.
(6) Paragraph (8) of section 6033(b) (relating to
certain organizations described in section 501(c)(3))
is amended by inserting ‘‘and’’ at the end of subpara-
graph (A) and by striking subparagraphs (C) and
(D).
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 304. EXPEDITED REVIEW PROCESS FOR CERTAIN TAX-
EXEMPTION APPLICATIONS.
(a) IN GENERAL.—The Secretary of the Treasury or
the Secretary’s delegate (in this section, referred to as the
‘‘Secretary’’) shall adopt procedures to expedite the consid-
eration of applications for exempt status under section
501(c)(3) of the Internal Revenue Code of 1986 filed after
December 31, 2002, by any organization that—
(1) is organized and operated for the primary
purpose of providing social services;
(2) is seeking a contract or grant under a Fed-
eral, State, or local program that provides funding
for social services programs;
(3) establishes that, under the terms and condi-
tions of the contract or grant program, an organiza-
tion is required to obtain such exempt status before
the organization is eligible to apply for a contract or
grant;
(4) includes with its exemption application a
copy of its completed Federal, State, or local contract
or grant application; and
(5) meets such other criteria as the Secretary
deems appropriate for expedited consideration.
The Secretary may prescribe other similar circumstances
in which such organizations may be entitled to expedited
consideration.
(b) WAIVER OF APPLICATION FEE FOR EXEMPT STA-
TUS.—Any organization that meets the conditions described
in subsection (a) (without regard to paragraph (3) of that
subsection) is entitled to a waiver of any fee for an applica-
tion for exempt status under section 501(c)(3) of the Inter-
nal Revenue Code of 1986 if the organization certifies that
the organization has had (or expects to have) average an-
nual gross receipts of not more than $50,000 during the
preceding 4 years (or, in the case of an organization not
in existence throughout the preceding 4 years, during such
organization’s first 4 years).
(c) SOCIAL SERVICES DEFINED.—For purposes of this
section—
(1) IN
GENERAL.—The term ‘‘social services’’
means services directed at helping people in need, re-
ducing poverty, improving outcomes of low-income
children, revitalizing low-income communities, and
empowering low-income families and low-income in-
dividuals to become self-sufficient, including—
(A) child care services, protective services
for children and adults, services for children and
adults in foster care, adoption services, services
related to the management and maintenance of
the home, day care services for adults, and serv-
ices to meet the special needs of children, older
100
individuals, and individuals with disabilities
(including physical, mental, or emotional dis-
abilities);
(B) transportation services;
(C) job training and related services, and
employment services;
(D) information, referral, and counseling
services;
(E) the preparation and delivery of meals,
and services related to soup kitchens or food
banks;
(F) health support services;
(G) literacy and mentoring programs;
(H) services for the prevention and treat-
ment of juvenile delinquency and substance
abuse, services for the prevention of crime and
the provision of assistance to the victims and the
families of criminal offenders, and services re-
lated to the intervention in, and prevention of,
domestic violence; and
(I) services related to the provision of assist-
ance for housing under Federal law.
(2) EXCLUSIONS.—The term does not include a
program having the purpose of delivering educational
assistance under the Elementary and Secondary Edu-
101
cation Act of 1965 (20 U.S.C. 6301 et seq.) or under
the Higher Education Act of 1965 (20 U.S.C. 1001 et
seq.).
SEC. 305. CLARIFICATION OF DEFINITION OF CHURCH TAX
INQUIRY.
Subsection (i) of section 7611 (relating to section not
to apply to criminal investigations, etc.) is amended by
striking ‘‘or’’ at the end of paragraph (4), by striking the
period at the end of paragraph (5) and inserting ‘‘, or’’,
and by inserting after paragraph (5) the following:
‘‘(6) information provided by the Secretary re-
lated to the standards for exemption from tax under
this title and the requirements under this title relat-
ing to unrelated business taxable income.’’.
SEC. 306. EXPANSION OF DECLARATORY JUDGMENT REM-
EDY TO TAX-EXEMPT ORGANIZATIONS.
(a) IN GENERAL.—Paragraph (1) of section 7428(a)
(relating to creation of remedy) is amended—
(1) in subparagraph (B) by inserting after
‘‘509(a))’’ the following: ‘‘or as a private operating
foundation (as defined in section 4942(j)(3))’’; and
(2) by amending subparagraph (C) to read as
follows:
‘‘(C) with respect to the initial qualification
or continuing qualification of an organization as
102
an organization described in section 501(c)
(other than paragraph (3)) which is exempt from
tax under section 501(a), or’’.
(b) COURT JURISDICTION.—Subsection (a) of section
7428 is amended in the material following paragraph (2)
by striking ‘‘United States Tax Court, the United States
Claims Court, or the district court of the United States for
the District of Columbia’’ and inserting the following:
‘‘United States Tax Court (in the case of any such deter-
mination or failure) or the United States Claims Court or
the district court of the United States for the District of
Columbia (in the case of a determination or failure with
respect to an issue referred to in subparagraph (A) or (B)
of paragraph (1)),’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to pleadings filed with respect to deter-
minations made after December 31, 2001.
SEC. 307. DEFINITION OF CONVENTION OR ASSOCIATION
OF CHURCHES.
Section 7701 (relating to definitions) is amended by
redesignating subsection (n) as subsection (o) and by insert-
ing after subsection (m) the following new subsection:
‘‘(n) CONVENTION OR ASSOCIATION OF CHURCHES.—
For purposes of this title, any organization which is other-
wise a convention or association of churches shall not fail
103
to so qualify merely because the membership of such organi-
zation includes individuals as well as churches or because
individuals have voting rights in such organization.’’.
SEC. 308. CHARITABLE CONTRIBUTION DEDUCTION FOR
CERTAIN EXPENSES INCURRED IN SUPPORT
OF NATIVE ALASKAN SUBSISTENCE WHALING.
(a) IN GENERAL.—Section 170 (relating to charitable,
etc., contributions and gifts), as amended by this Act, is
amended by redesignating subsection (n) as subsection (o)
and by inserting after subsection (m) the following new sub-
section:
‘‘(n) EXPENSES PAID BY CERTAIN WHALING CAPTAINS
IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE WHAL-
ING.—
‘‘(1) IN GENERAL.—In the case of an individual
who is recognized by the Alaska Eskimo Whaling
Commission as a whaling captain charged with the
responsibility of maintaining and carrying out sanc-
tioned whaling activities and who engages in such ac-
tivities during the taxable year, the amount described
in paragraph (2) (to the extent such amount does not
exceed $7,500 for the taxable year) shall be treated for
purposes of this section as a charitable contribution.
‘‘(2) AMOUNT DESCRIBED.—
104
‘‘(A) IN GENERAL.—The amount described
in this paragraph is the aggregate of the reason-
able and necessary whaling expenses paid by the
taxpayer during the taxable year in carrying out
sanctioned whaling activities.
‘‘(B) WHALING EXPENSES.—For purposes of
subparagraph (A), the term ‘whaling expenses’
includes expenses for—
‘‘(i) the acquisition and maintenance
of whaling boats, weapons, and gear used in
sanctioned whaling activities,
‘‘(ii) the supplying of food for the crew
and other provisions for carrying out such
activities, and
‘‘(iii) storage and distribution of the
catch from such activities.
‘‘(3) SANCTIONED
WHALING
ACTIVITIES.—For
purposes of this subsection, the term ‘sanctioned whal-
ing activities’ means subsistence bowhead whale hunt-
ing activities conducted pursuant to the management
plan of the Alaska Eskimo Whaling Commission.’’
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to expenses paid after December 31,
2002, in taxable years ending after such date.
105
SEC. 309. PAYMENTS BY CHARITABLE ORGANIZATIONS TO
VICTIMS OF WAR ON TERRORISM.
(a) IN GENERAL.—For purposes of the Internal Rev-
enue Code of 1986—
(1) payments made by an organization described
in section 501(c)(3) of such Code to a member of the
Armed Forces of the United States, or to an indi-
vidual of such member’s immediate family by reason
of the death, injury, wounding, or illness of such
member incurred as the result of the military response
of the United States to the terrorist attacks against
the United States on September 11, 2001, shall be
treated as related to the purpose or function consti-
tuting the basis for such organization’s exemption
under section 501 of such Code if such payments are
made using an objective formula which is consistently
applied, and
(2) in the case of a private foundation (as de-
fined in section 509 of such Code), any payment de-
scribed in paragraph (1) shall not be treated as made
to a disqualified person for purposes of section 4941
of such Code.
(b) EFFECTIVE DATE.—This section shall apply to
payments made after the date of the enactment of this Act
and before September 11, 2003.
106
SEC. 310. TREATMENT OF BONDS ISSUED TO ACQUIRE
STANDING TIMBER ON LAND SUBJECT TO
CONSERVATION EASEMENT.
(a) IN GENERAL.—Section 145 (defining qualified
501(c)(3) bond) is amended by redesignating subsection (e)
as subsection (f) and by inserting after subsection (d) the
following new subsection:
‘‘(e) BONDS ISSUED TO ACQUIRE STANDING TIMBER
ON LAND SUBJECT TO CONSERVATION EASEMENT.—
‘‘(1) IN GENERAL.—A bond to which this sub-
section applies shall not fail to be a qualified
501(c)(3) bond by reason of the sale, lease, or other
use of standing timber if—
‘‘(A) such sale, lease, or other use does not
constitute an unrelated trade or business (deter-
mined by applying section 513(a)),
‘‘(B) the bond is designated by the Secretary
for purposes of this subsection, and
‘‘(C) the bond otherwise meets the require-
ments of this subsection.
‘‘(2) BONDS TO WHICH SUBSECTION APPLIES.—
This subsection applies to bonds the proceeds of which
are used to acquire both land and any standing tim-
ber associated with such land from an unrelated per-
son if—
107
‘‘(A) such land is subject to a conservation
restriction which—
‘‘(i) is granted in perpetuity to an un-
related person which is a qualified organi-
zation (as defined in section 170(h)(3)),
‘‘(ii) meets the requirements of clause
(ii) or (iii)(II) of section 170(h)(4)(A), and
‘‘(iii) obligates the owner of such land
to pay the costs incurred by the holder of
the conservation restriction in monitoring
compliance with such restriction, and
‘‘(B) the seller irrevocably elects not to ex-
clude from income any gain on the sale under
section 121A.
‘‘(3) TREATMENT OF TIMBER, ETC.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the cost of any standing timber ac-
quired with proceeds of such bonds shall be treat-
ed as a cost of acquiring the land associated with
the standing timber and such land shall not be
treated as used for a private business use because
of the sale or lease of the standing timber to, or
other use of the standing timber by, an unrelated
person to the extent that such sale, lease, or other
108
use does not constitute an unrelated trade or
business, determined by applying section 513(a).
‘‘(B) APPLICATION OF BOND MATURITY LIM-
ITATION.—For purposes of section 147(b), the
land or standing timber acquired with proceeds
of such bonds shall have an economic life of 35
years.
‘‘(C) UNRELATED
PERSON.—For purposes
of this subsection, a person shall be treated as
unrelated to—
‘‘(i) an organization to which section
501 applies, if such person (or, if such per-
son is an individual, a member of such per-
son’s family) controls directly or indirectly
less than 20 percent of the governing body
of such organization,
‘‘(ii) a corporation, if such person
owns directly or indirectly less than 20 per-
cent of the value of the outstanding stock of
such corporation, or
‘‘(iii) a partnership, if such person
owns directly or indirectly less than 20 per-
cent of the capital interests or profit inter-
ests of such partnership.
109
‘‘(4) LIMITATION ON AMOUNT OF BONDS DES-
IGNATED.—
‘‘(A) IN GENERAL.—The aggregate amount
of bonds (including any bond (or series of bonds)
used to advance refund such bonds) which may
be designated for purposes of this subsection
under 
paragraph 
(1)(B) 
shall 
not 
exceed
$2,000,000,000.
‘‘(B) NO
DESIGNATION
AFTER
2005.—No
bonds may be so designated after 2005.
‘‘(C) ALLOCATION
OF
LIMITATION.—The
limitation described in subparagraph (A) shall
be allocated by the Secretary among 501(c)(3)
organizations based on criteria established by the
Secretary after consultation with appropriate
Federal, State, and local officials.
‘‘(D) TREATMENT OF CURRENT REFUNDING
BONDS.—Any bond (or series of bonds) issued to
refund a bond designated and issued before Jan-
uary 1, 2006, shall be treated as designated for
purposes of this subsection under paragraph
(1)(B) and shall not be taken into account in
applying subparagraph (A) or (B) of this para-
graph if—
110
‘‘(i) the amount of the refunding bond
does not exceed the outstanding amount of
the refunded bond, and
‘‘(ii) the net proceeds of the refunding
bond are used to redeem the refunded bond
not later than 90 days after the date of the
issuance of the refunding bond.
‘‘(5) TERMINATION.—This subsection shall not
apply to any bond (other than a refunding bond de-
scribed in paragraph (4)(D)) issued after December
31, 2005.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to bonds issued after September 30,
2002.
SEC. 311. EXEMPTION FROM INCOME TAX FOR STATE-CRE-
ATED 
ORGANIZATIONS 
PROVIDING 
PROP-
ERTY AND CASUALTY INSURANCE FOR PROP-
ERTY FOR WHICH SUCH COVERAGE IS OTHER-
WISE UNAVAILABLE.
(a) IN GENERAL.—Subsection (c) of section 501 (relat-
ing to exemption from tax on corporations, certain trusts,
etc.) is amended by adding at the end the following new
paragraph:
‘‘(29)(A) Any association created before January
1, 1999, by State law and organized and operated ex-
111
clusively to provide property and casualty insurance
coverage for windstorm, hail, and fire damage to
property located within the State for which the State
determines, through appropriate State action, that
such coverage in the authorized insurance market is
not reasonably available to a substantial number of
insurable real properties (and any successor associa-
tion) if—
‘‘(i) no part of the net earnings of which in-
ures to the benefit of any private shareholder or
individual,
‘‘(ii) except as provided in clause (v), no
part of the assets of which may be used for, or
diverted to, any purpose other than—
‘‘(I) to satisfy, in whole or in part, the
liability of the association for, or with re-
spect to, claims made on policies written by
the association,
‘‘(II) to invest in investments author-
ized by applicable law,
‘‘(III) to pay reasonable and necessary
administration expenses in connection with
the establishment and operation of the asso-
ciation and the processing of claims against
the association, or
112
‘‘(IV) to make remittances pursuant to
State law to be used by the State to provide
for the payment of claims on policies writ-
ten by the association, purchase reinsurance
covering losses under such policies, or to
support governmental programs to prepare
for or mitigate the effects of natural cata-
strophic events,
‘‘(iii) the State law governing the associa-
tion permits the association to levy assessments
on insurance companies authorized to sell prop-
erty and casualty insurance in the State, or on
property and casualty insurance policyholders
with insurable interests in property located in
the State to fund deficits of the association, in-
cluding the creation of reserves,
‘‘(iv) the plan of operation of the associa-
tion is subject to approval by the chief executive
officer or other official of the State, by the State
legislature, or both, and
‘‘(v) the assets of the association revert upon
dissolution to the State, the State’s designee, or
an entity designated by the State law governing
the association, or State law does not permit the
dissolution of the association.
113
‘‘(B)(i) An entity described in clause (ii) (and
any successor entity) shall be disregarded as a sepa-
rate entity and treated as part of the association de-
scribed in subparagraph (A) from which it receives
remittances described in clause (ii) if an election is
made within 30 days after the date that such associa-
tion is determined to be exempt from tax.
‘‘(ii) An entity is described in this clause if it
is an entity or fund created before January 1, 1999,
pursuant to State law and organized and operated
exclusively to receive, hold, and invest remittances
from an association described in subparagraph (A)
and exempt from tax under subsection (a), to make
disbursements to pay claims on insurance contracts
issued by such association, and to make disbursements
to support governmental programs to prepare for or
mitigate the effects of natural catastrophic events.’’.
(b) UNRELATED BUSINESS TAXABLE INCOME.—Sub-
section (a) of section 512 (relating to unrelated business
taxable income) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA-
TIONS DESCRIBED IN SECTION 501(c)(29)—In the case
of an organization described in section 501(c)(29), the
term ‘unrelated business taxable income’ means tax-
114
able income for a taxable year computed without the
application of section 501(c)(29) if at the end of the
immediately preceding taxable year the organization’s
net equity exceeded 15 percent of the total coverage in
force under insurance contracts issued by the organi-
zation and outstanding at the end of such preceding
year.’’.
(c) TRANSITIONAL RULE.—No income or gain shall be
recognized by an association as a result of a change in sta-
tus to that of an association described by section 501(c)(29)
of the Internal Revenue Code of 1986, as amended by sub-
section (a).
(d) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2002.
SEC. 312. MODIFICATION OF SPECIAL ARBITRAGE RULE
FOR CERTAIN FUNDS.
(a) IN GENERAL.—Paragraph (1) of section 648 of the
Deficit Reduction Act of 1984 is amended to read as follows:
‘‘(1) such securities or obligations are held in a
fund—
‘‘(A) which, except to the extent of the in-
vestment earnings on such securities or obliga-
tions, cannot be used, under State constitutional
or statutory restrictions continuously in effect
115
since October 9, 1969, through the date of issue
of the bond issue, to pay debt service on the bond
issue or to finance the facilities that are to be fi-
nanced with the proceeds of the bonds, or
‘‘(B) the annual distributions from which
cannot exceed 7 percent of the average fair mar-
ket value of the assets held in such fund except
to the extent distributions are necessary to pay
debt service on the bond issue,’’.
(b) CONFORMING AMENDMENT.—Section 648(3) of
such Act is amended by striking ‘‘the investment earnings
of’’ and inserting ‘‘distributions from’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 313. MATCHING GRANTS TO LOW-INCOME TAXPAYER
CLINICS FOR RETURN PREPARATION.
(a) IN GENERAL.—Chapter 77 (relating to miscella-
neous provisions) is amended by adding at the end the fol-
lowing new section:
‘‘SEC. 7527. ASSISTANCE FOR RETURN PREPARATION FOR
LOW-INCOME TAXPAYERS.
‘‘(a) IN GENERAL.—The Secretary may, subject to the
availability of appropriated funds, make grants to provide
matching funds to not-for-profit organizations described in
116
section 501(c) and exempt from taxation under section
501(a) which assist low-income taxpayers in tax return
preparation.
‘‘(b) AGGREGATE LIMITATION.—Unless otherwise pro-
vided by specific appropriation, the Secretary shall not al-
locate more than $10,000,000 per year (exclusive of costs
of administering the program) to grants under this section.
‘‘(c) REQUIREMENT OF MATCHING FUNDS.—A not-for-
profit organization must provide matching funds on a dol-
lar-for-dollar basis for all grants provided under this sec-
tion. Matching funds may include—
‘‘(1) the salary (including fringe benefits) of in-
dividuals performing tax return preparation services
for the organization; and
‘‘(2) the cost of equipment used by the organiza-
tion.
Indirect expenses, including general overhead of the organi-
zation, shall not be counted as matching funds.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 77 is amended by adding at the end the following
new item:
‘‘Sec. 7527. Assistance for return preparation for low-income tax-
payers.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
117
SEC. 314. MODIFICATION OF SCHOLARSHIP FOUNDATION
RULES.
In applying the limitations on the percentage of schol-
arship grants which may be awarded after December 31,
2002, to children of employees under Revenue Procedure
76–47, such percentage shall be increased to 35 percent of
the eligible applicants to be considered by the selection com-
mittee and to 20 percent of individuals eligible for the
grants, but only if the foundation awarding the grants dem-
onstrates that, in addition to meeting the other require-
ments of Revenue Procedure 76–47, it provides a com-
parable number and aggregate amount of grants during the
same program year to children who are not children of cur-
rent or former employees.
TITLE IV—SOCIAL SERVICES
BLOCK GRANT
SEC. 401. RESTORATION OF FUNDS FOR THE SOCIAL SERV-
ICES BLOCK GRANT.
(a) FINDINGS.—Congress makes the following findings:
(1) On August 22, 1996, the Personal Responsi-
bility and Work Opportunity Reconciliation Act of
1996 (Public Law 104–193; 110 Stat. 2105) was
signed into law.
(2) In enacting that law, Congress authorized
$2,800,000,000 for fiscal year 2003 and each fiscal
year thereafter to carry out the Social Services Block
118
Grant program established under title XX of the So-
cial Security Act (42 U.S.C. 1397 et seq.).
(b) RESTORATION OF FUNDS.—Section 2003(c)(11) of
the Social Security Act (42 U.S.C. 1397b(c)(11)) is amend-
ed by inserting ‘‘, except that, with respect to fiscal year
2003, the amount shall be $1,975,000,000, and with respect
to fiscal year 2004, the amount shall be $2,800,000,000’’
after ‘‘thereafter.’’.
SEC. 402. RESTORATION OF AUTHORITY TO TRANSFER UP
TO 10 PERCENT OF TANF FUNDS TO THE SO-
CIAL SERVICES BLOCK GRANT.
(a) IN GENERAL.—Section 404(d)(2) of the Social Se-
curity Act (42 U.S.C. 604(d)(2)) is amended to read as fol-
lows:
‘‘(2) LIMITATION ON AMOUNT TRANSFERABLE TO
TITLE XX PROGRAMS.—A State may use not more
than 10 percent of the amount of any grant made to
the State under section 403(a) for a fiscal year to
carry out State programs pursuant to title XX.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to amounts made available for fiscal
year 2003 and each fiscal year thereafter.
119
SEC. 403. REQUIREMENT TO SUBMIT ANNUAL REPORT ON
STATE ACTIVITIES.
(a) IN GENERAL.—Section 2006(c) of the Social Secu-
rity Act (42 U.S.C. 1397e(c)) is amended by adding at the
end the following: ‘‘The Secretary shall compile the infor-
mation submitted by the States and submit that informa-
tion to Congress on an annual basis.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to information submitted by States
under section 2006 of the Social Security Act (42 U.S.C.
1397e) with respect to fiscal year 2002 and each fiscal year
thereafter.
TITLE V—INDIVIDUAL
DEVELOPMENT ACCOUNTS
SEC. 501. SHORT TITLE.
This title may be cited as the ‘‘Savings for Working
Families Act of 2002’’.
SEC. 502. PURPOSES.
The purposes of this title are to provide for the estab-
lishment of individual development account programs that
will—
(1) provide individuals and families with lim-
ited means an opportunity to accumulate assets and
to enter the financial mainstream,
(2) promote education, homeownership, and the
development of small businesses,
120
(3) stabilize families and build communities,
and
(4) support continued United States economic
expansion.
SEC. 503. DEFINITIONS.
As used in this title:
(1) ELIGIBLE INDIVIDUAL.—
(A) IN GENERAL.—The term ‘‘eligible indi-
vidual’’ means, with respect to any taxable year,
an individual who—
(i) has attained the age of 18 but not
the age of 61 as of the last day of such tax-
able year,
(ii) is a citizen or lawful permanent
resident (within the meaning of section
7701(b)(6) of the Internal Revenue Code of
1986) of the United States as of the last day
of such taxable year,
(iii) was not a student (as defined in
section 151(c)(4) of such Code) for the im-
mediately preceding taxable year,
(iv) is not an individual with respect
to whom a deduction under section 151 of
such Code is allowable to another taxpayer
for a taxable year of the other taxpayer end-
121
ing during the immediately preceding tax-
able year of the individual,
(v) is not a taxpayer described in sec-
tion 1(d) of such Code for the immediately
preceding taxable year, and
(vi) is a taxpayer the modified ad-
justed gross income of whom for the imme-
diately preceding taxable year does not
exceed—
(I) $18,000, in the case of a tax-
payer described in section 1(c) of such
Code,
(II) $30,000, in the case of a tax-
payer described in section 1(b) of such
Code, and
(III) $38,000, in the case of a tax-
payer described in section 1(a) of such
Code.
(B) INFLATION ADJUSTMENT.—
(i) IN GENERAL.—In the case of any
taxable year beginning after 2004, each dol-
lar amount referred to in subparagraph
(A)(vi) shall be increased by an amount
equal to—
122
(I) such dollar amount, multiplied
by
(II) the cost-of-living adjustment
determined under section (1)(f)(3) of
the Internal Revenue Code of 1986 for
the calendar year in which the taxable
year begins, by substituting ‘‘2003’’ for
‘‘1992’’.
(ii) ROUNDING.—If any amount as ad-
justed under clause (i) is not a multiple of
$50, such amount shall be rounded to the
nearest multiple of $50.
(C) MODIFIED ADJUSTED GROSS INCOME.—
For purposes of subparagraph (A)(v), the term
‘‘modified adjusted gross income’’ means adjusted
gross income—
(i) determined without regard to sec-
tions 86, 893, 911, 931, and 933 of the In-
ternal Revenue Code of 1986, and
(ii) increased by the amount of interest
received or accrued by the taxpayer during
the taxable year which is exempt from tax.
(2) INDIVIDUAL
DEVELOPMENT
ACCOUNT.—The
term ‘‘Individual Development Account’’ means an
account established for an eligible individual as part
123
of a qualified individual development account pro-
gram, but only if the written governing instrument
creating the account meets the following requirements:
(A) The owner of the account is the indi-
vidual for whom the account was established.
(B) No contribution will be accepted unless
it is in cash.
(C) The trustee of the account is a qualified
financial institution.
(D) The assets of the account will not be
commingled with other property except in a com-
mon trust fund or common investment fund.
(E) Except as provided in section 507(b),
any amount in the account may be paid out
only for the purpose of paying the qualified ex-
penses of the account owner.
(3) PARALLEL ACCOUNT.—The term ‘‘parallel ac-
count’’ means a separate, parallel individual or
pooled account for all matching funds and earnings
dedicated to an Individual Development Account
owner as part of a qualified individual development
account program, the trustee of which is a qualified
financial institution.
(4) QUALIFIED
FINANCIAL
INSTITUTION.—The
term ‘‘qualified financial institution’’ means any per-
124
son authorized to be a trustee of any individual re-
tirement account under section 408(a)(2) of the Inter-
nal Revenue Code of 1986.
(5) QUALIFIED INDIVIDUAL DEVELOPMENT AC-
COUNT
PROGRAM.—The term ‘‘qualified individual
development account program’’ means a program es-
tablished upon approval of the Secretary under sec-
tion 504 after December 31, 2002, under which—
(A) Individual Development Accounts and
parallel accounts are held in trust by a qualified
financial institution, and
(B) additional activities determined by the
Secretary, in consultation with the Secretary of
Health and Human Services, as necessary to re-
sponsibly develop and administer accounts, in-
cluding recruiting, providing financial education
and other training to Account owners, and reg-
ular program monitoring, are carried out by the
qualified financial institution.
(6) QUALIFIED EXPENSE DISTRIBUTION.—
(A) IN GENERAL.—The term ‘‘qualified ex-
pense distribution’’ means any amount paid (in-
cluding through electronic payments) or distrib-
uted out of an Individual Development Account
125
or a parallel account established for an eligible
individual if such amount—
(i) is used exclusively to pay the quali-
fied expenses of the Individual Development
Account owner or such owner’s spouse or de-
pendents,
(ii) is paid by the qualified financial
institution—
(I) except as otherwise provided
in this clause, directly to the unrelated
third party to whom the amount is
due,
(II) in the case of any qualified
rollover, directly to another Individual
Development Account and parallel ac-
count, or
(III) in the case of a qualified
final distribution, directly to the
spouse, dependent, or other named ben-
eficiary of the deceased Account owner,
and
(iii) is paid after the Account owner
has completed a financial education course
if required under section 505(b).
(B) QUALIFIED EXPENSES.—
126
(i) IN GENERAL.—The term ‘‘qualified
expenses’’ means any of the following ex-
penses approved by the qualified financial
institution:
(I) Qualified higher education ex-
penses.
(II) Qualified first-time home-
buyer costs.
(III) Qualified business capital-
ization or expansion costs.
(IV) Qualified rollovers.
(V) Qualified final distribution.
(ii) QUALIFIED
HIGHER
EDUCATION
EXPENSES.—
(I) 
IN
GENERAL.—The 
term
‘‘qualified higher education expenses’’
has the meaning given such term by
section 529(e)(3) of the Internal Rev-
enue Code of 1986, determined by
treating the Account owner, the owner’s
spouse, or one or more of the owner’s
dependents as a designated beneficiary,
and reduced as provided in section
25A(g)(2) of such Code.
127
(II) COORDINATION WITH OTHER
BENEFITS.—The amount of expenses
which may be taken into account for
purposes of section 135, 529, or 530 of
such Code for any taxable year shall be
reduced by the amount of any qualified
higher education expenses taken into
account as qualified expense distribu-
tions during such taxable year.
(iii) QUALIFIED
FIRST-TIME
HOME-
BUYER COSTS.—The term ‘‘qualified first-
time homebuyer costs’’ means qualified ac-
quisition costs (as defined in section
72(t)(8)(C) of the Internal Revenue Code of
1986) with respect to a principal residence
(within the meaning of section 121 of such
Code) for a qualified first-time homebuyer
(as defined in section 72(t)(8)(D)(i) of such
Code).
(iv) QUALIFIED BUSINESS CAPITALIZA-
TION OR EXPANSION COSTS.—
(I) 
IN
GENERAL.—The 
term
‘‘qualified business capitalization or
expansion costs’’ means qualified ex-
penditures for the capitalization or ex-
128
pansion of a qualified business pursu-
ant to a qualified business plan.
(II) 
QUALIFIED
EXPENDI-
TURES.—The term ‘‘qualified expendi-
tures’’ means expenditures normally
associated with starting or expanding
a business and included in a qualified
business plan, including costs for cap-
ital, plant, and equipment, inventory
expenses, and attorney and accounting
fees.
(III) QUALIFIED BUSINESS.—The
term ‘‘qualified business’’ means any
business that does not contravene any
law.
(IV) 
QUALIFIED
BUSINESS
PLAN.—The term ‘‘qualified business
plan’’ means a business plan which
has been approved by the qualified fi-
nancial institution and which meets
such requirements as the Secretary
may specify.
(v) QUALIFIED ROLLOVERS.—The term
‘‘qualified rollover’’ means the complete dis-
tribution of the amounts in an Individual
129
Development Account and parallel account
to another Individual Development Account
and parallel account established in another
qualified financial institution for the ben-
efit of the Account owner.
(vi) 
QUALIFIED
FINAL
DISTRIBU-
TION.—The term ‘‘qualified final distribu-
tion’’ means, in the case of a deceased Ac-
count owner, the complete distribution of
the amounts in the Individual Development
Account and parallel account directly to the
spouse, any dependent, or other named ben-
eficiary of the deceased.
(7) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of the Treasury.
SEC. 504. STRUCTURE AND ADMINISTRATION OF QUALI-
FIED INDIVIDUAL DEVELOPMENT ACCOUNT
PROGRAMS.
(a) ESTABLISHMENT OF QUALIFIED INDIVIDUAL DE-
VELOPMENT ACCOUNT PROGRAMS.—Any qualified finan-
cial institution may apply to the Secretary for approval
to establish 1 or more qualified individual development ac-
count programs which meet the requirements of this title
and for an allocation of the Individual Development Ac-
130
count limitation under section 45G(i)(3) of the Internal
Revenue Code of 1986 with respect to such programs.
(b) BASIC PROGRAM STRUCTURE.—
(1) IN GENERAL.—All qualified individual devel-
opment account programs shall consist of the fol-
lowing 2 components for each participant:
(A) An Individual Development Account to
which an eligible individual may contribute cash
in accordance with section 505.
(B) A parallel account to which all match-
ing funds shall be deposited in accordance with
section 506.
(2) TAILORED IDA PROGRAMS.—A qualified fi-
nancial institution may tailor its qualified indi-
vidual development account program to allow match-
ing funds to be spent on 1 or more of the categories
of qualified expenses.
(c) COORDINATION WITH PUBLIC HOUSING AGENCY
INDIVIDUAL SAVINGS ACCOUNTS.—Section 3(e)(2) of the
United States Housing Act of 1937 (42 U.S.C. 1437a(e)(2))
is amended by inserting ‘‘or in any Individual Develop-
ment Account established under the Savings for Working
Families Act of 2002’’ after ‘‘subsection’’.
(d) TAX TREATMENT OF PARALLEL ACCOUNTS.—
131
(1) IN GENERAL.—Chapter 77 of the Internal
Revenue Code of 1986 (relating to miscellaneous pro-
visions) is amended by adding at the end the fol-
lowing new section:
‘‘SEC. 7525. TAX INCENTIVES FOR INDIVIDUAL DEVELOP-
MENT PARALLEL ACCOUNTS.
‘‘For purposes of this title—
‘‘(1) 
any 
account 
described 
in 
section
504(b)(1)(B) of the Savings for Working Families Act
of 2002 shall be exempt from taxation,
‘‘(2) except as provided in section 45G, no item
of income, expense, basis, gain, or loss with respect to
such an account may be taken into account, and
‘‘(3) any amount withdrawn from such an ac-
count shall not be includible in gross income.’’.
(2) CONFORMING AMENDMENT.—The table of sec-
tions for chapter 77 of such Code is amended by add-
ing at the end the following new item:
‘‘Sec. 7525. Tax incentives for individual development parallel ac-
counts.’’.
(e) COORDINATION OF CERTAIN EXPENSES.—Section
25A(g)(2) of the Internal Revenue Code of 1986 is amended
by striking ‘‘and’’ at the end of subparagraph (C), by strik-
ing the period at the end of subparagraph (D) and inserting
‘‘, and’’, and by adding at the end the following new sub-
paragraph:
132
‘‘(D) a qualified expense distribution with
respect to qualified higher education expenses
from an Individual Development Account or a
parallel account under section 507(a) of the Sav-
ings for Working Families Act of 2002.
SEC. 505. PROCEDURES FOR OPENING AND MAINTAINING
AN 
INDIVIDUAL 
DEVELOPMENT 
ACCOUNT
AND QUALIFYING FOR MATCHING FUNDS.
(a) OPENING AN ACCOUNT.—An eligible individual
may open an Individual Development Account with a
qualified financial institution upon certification that such
individual has never maintained any other Individual De-
velopment Account (other than an Individual Development
Account to be terminated by a qualified rollover).
(b) REQUIRED COMPLETION
OF FINANCIAL EDU-
CATION COURSE.—
(1) IN
GENERAL.—Before becoming eligible to
withdraw funds to pay for qualified expenses, owners
of Individual Development Accounts must complete 1
or more financial education courses specified in the
qualified individual development account program.
(2) 
STANDARD
AND
APPLICABILITY
OF
COURSE.—The Secretary, in consultation with rep-
resentatives of qualified individual development ac-
count programs and financial educators, shall not
133
later than January 1, 2004, establish minimum qual-
ity standards for the contents of financial education
courses and providers of such courses described in
paragraph (1) and a protocol to exempt individuals
from the requirement under paragraph (1) in the case
of hardship, lack of need, the attainment of age 61,
or a qualified final distribution.
(c) PROOF OF STATUS AS AN ELIGIBLE INDIVIDUAL.—
Federal income tax forms for the immediately preceding
taxable year and any other evidence of eligibility which
may be required by a qualified financial institution shall
be presented to such institution at the time of the establish-
ment of the Individual Development Account and in any
taxable year in which contributions are made to the Ac-
count to qualify for matching funds under section
506(b)(1)(A).
(d) SPECIAL RULE IN THE CASE OF MARRIED INDI-
VIDUALS.—For purposes of this title, if, with respect to any
taxable year, 2 married individuals file a Federal joint in-
come tax return, then not more than 1 of such individuals
may be treated as an eligible individual with respect to the
succeeding taxable year.
134
SEC. 506. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOP-
MENT ACCOUNT PROGRAMS.
(a) PARALLEL ACCOUNTS.—The qualified financial
institution shall deposit all matching funds for each Indi-
vidual Development Account into a parallel account at a
qualified financial institution.
(b) REGULAR DEPOSITS OF MATCHING FUNDS.—
(1) IN GENERAL.—Subject to paragraph (2), the
qualified financial institution shall deposit into the
parallel account with respect to each eligible indi-
vidual the following amounts:
(A) A dollar-for-dollar match for the first
$500 contributed by the eligible individual into
an Individual Development Account with respect
to any taxable year of such individual.
(B) Any matching funds provided by State,
local, or private sources in accordance with the
matching ratio set by those sources.
(2) TIMING
OF
DEPOSITS.—A deposit of the
amounts described in paragraph (1) shall be made
into a parallel account—
(A) in the case of amounts described in
paragraph (1)(A), not later than 30 days after
the end of the calendar quarter during which the
contribution described in such paragraph was
made, and
135
(B) in the case of amounts described in
paragraph (1)(B), not later than 2 business days
after such amounts were provided.
(3) CROSS REFERENCE.—
For allowance of tax credit for Individual Develop-
ment Account subsidies, including matching funds,
see section 45G of the Internal Revenue Code of 1986.
(c) DEPOSIT OF MATCHING FUNDS INTO INDIVIDUAL
DEVELOPMENT ACCOUNT OF INDIVIDUAL WHO HAS AT-
TAINED AGE 61.—In the case of an Individual Development
Account owner who attains the age of 61, the qualified fi-
nancial institution shall deposit the funds in the parallel
account with respect to such individual into the Individual
Development Account of such individual on the later of—
(1) the day which is the 1-year anniversary of
the deposit of such funds in the parallel account, or
(2) the first business day of the taxable year of
such individual following the taxable year in which
such individual attained age 61.
(d) UNIFORM ACCOUNTING REGULATIONS.—To ensure
proper recordkeeping and determination of the tax credit
under section 45G of the Internal Revenue Code of 1986,
the Secretary shall prescribe regulations with respect to ac-
counting for matching funds in the parallel accounts.
(e) REGULAR REPORTING OF ACCOUNTS.—Any quali-
fied financial institution shall report the balances in any
Individual Development Account and parallel account of an
136
individual on not less than an annual basis to such indi-
vidual.
SEC. 507. WITHDRAWAL PROCEDURES.
(a) WITHDRAWALS FOR QUALIFIED EXPENSES.—
(1) IN GENERAL.—An Individual Development
Account owner may withdraw funds in order to pay
qualified 
expense 
distributions 
from 
such
individual’s—
(A) Individual Development Account, but
only from funds which have been on deposit in
such Account for at least 1 year, and
(B) parallel account, but only—
(i) from matching funds which have
been on deposit in such parallel account for
at least 1 year,
(ii) from earnings in such parallel ac-
count, after all matching funds described in
clause (i) have been withdrawn, and
(iii) to the extent such withdrawal does
not result in a remaining balance in such
parallel account which is less than the re-
maining balance in the Individual Develop-
ment Account after such withdrawal.
(2) PROCEDURE.—Upon receipt of a withdrawal
request which meets the requirements of paragraph
137
(1), the qualified financial institution shall directly
transfer the funds electronically to the distributees de-
scribed in section 503(6)(A)(ii). If a distributee is not
equipped to receive funds electronically, the qualified
financial institution may issue such funds by paper
check to the distributee.
(b) WITHDRAWALS FOR NONQUALIFIED EXPENSES.—
An Individual Development Account owner may withdraw
any amount of funds from the Individual Development Ac-
count for purposes other than to pay qualified expense dis-
tributions, but if, after such withdrawal, the amount in the
parallel account of such owner (excluding earnings on
matching funds) exceeds the amount remaining in such In-
dividual Development Account, then such owner shall forfeit
from the parallel account the lesser of such excess or the
amount withdrawn.
(c) WITHDRAWALS FROM ACCOUNTS OF NONELIGIBLE
INDIVIDUALS.—If the individual for whose benefit an Indi-
vidual Development Account is established ceases to be an
eligible individual, such account shall remain an Indi-
vidual Development Account, but such individual shall not
be eligible for any further matching funds under section
506(b)(1)(A) for contributions which are made to the Ac-
count during any taxable year when such individual is not
an eligible individual.
138
(d) EFFECT OF PLEDGING ACCOUNT AS SECURITY.—
If, during any taxable year of the individual for whose ben-
efit an Individual Development Account is established, that
individual uses the Account, the individual’s parallel ac-
count, or any portion thereof as security for a loan, the
portion so used shall be treated as a withdrawal of such
portion from the Individual Development Account for pur-
poses other than to pay qualified expenses.
SEC. 508. CERTIFICATION AND TERMINATION OF QUALI-
FIED INDIVIDUAL DEVELOPMENT ACCOUNT
PROGRAMS.
(a) CERTIFICATION PROCEDURES.—Upon establishing
a qualified individual development account program under
section 504, a qualified financial institution shall certify
to the Secretary at such time and in such manner as may
be prescribed by the Secretary and accompanied by any
documentation required by the Secretary, that—
(1) the accounts described in subparagraphs (A)
and (B) of section 504(b)(1) are operating pursuant
to all the provisions of this title, and
(2) the qualified financial institution agrees to
implement an information system necessary to mon-
itor the cost and outcomes of the qualified individual
development account program.
139
(b) AUTHORITY TO TERMINATE QUALIFIED IDA PRO-
GRAM.—If the Secretary determines that a qualified finan-
cial institution under this title is not operating a qualified
individual development account program in accordance
with the requirements of this title (and has not implemented
any corrective recommendations directed by the Secretary),
the Secretary shall terminate such institution’s authority
to conduct the program. If the Secretary is unable to iden-
tify a qualified financial institution to assume the author-
ity to conduct such program, then any funds in a parallel
account established for the benefit of any individual under
such program shall be deposited into the Individual Devel-
opment Account of such individual as of the first day of
such termination.
SEC. 509. REPORTING, MONITORING, AND EVALUATION.
(a) RESPONSIBILITIES OF QUALIFIED FINANCIAL IN-
STITUTIONS.—
(1) IN GENERAL.—Each qualified financial in-
stitution that operates a qualified individual develop-
ment account program under section 504 shall report
annually to the Secretary within 90 days after the
end of each calendar year on—
(A) the number of individuals making con-
tributions into Individual Development Accounts
and the amounts contributed,
140
(B) the amounts contributed into Indi-
vidual Development Accounts by eligible individ-
uals and the amounts deposited into parallel ac-
counts for matching funds,
(C) the amounts withdrawn from Indi-
vidual Development Accounts and parallel ac-
counts, and the purposes for which such amounts
were withdrawn,
(D) the balances remaining in Individual
Development Accounts and parallel accounts,
and
(E) such other information needed to help
the Secretary monitor the effectiveness of the
qualified individual development account pro-
gram (provided in a non-individually-identifi-
able manner).
(2) ADDITIONAL REPORTING REQUIREMENTS.—
Each qualified financial institution that operates a
qualified individual development account program
under section 504 shall report at such time and in
such manner as the Secretary may prescribe any ad-
ditional information that the Secretary requires to be
provided for purposes of administering and super-
vising the qualified individual development account
program. This additional data may include, without
141
limitation, identifying information about Individual
Development Account owners, their Accounts, addi-
tions to the Accounts, and withdrawals from the Ac-
counts.
(b) RESPONSIBILITIES OF THE SECRETARY.—
(1) MONITORING PROTOCOL.—Not later than 12
months after the date of the enactment of this Act, the
Secretary, in consultation with the Secretary of
Health and Human Services, shall develop and im-
plement a protocol and process to monitor the cost
and outcomes of the qualified individual development
account programs established under section 504.
(2) ANNUAL
REPORTS.—For each year after
2003, the Secretary shall submit a progress report to
Congress on the status of such qualified individual de-
velopment account programs. Such report shall, to the
extent data are available, include from a representa-
tive sample of qualified individual development ac-
count programs information on—
(A) the characteristics of participants, in-
cluding age, gender, race or ethnicity, marital
status, number of children, employment status,
and monthly income,
142
(B) deposits, withdrawals, balances, uses of
Individual Development Accounts, and partici-
pant characteristics,
(C) the characteristics of qualified indi-
vidual development account programs, including
match rate, economic education requirements,
permissible uses of accounts, staffing of programs
in full time employees, and the total costs of pro-
grams, and
(D) process information on program imple-
mentation and administration, especially on
problems encountered and how problems were
solved.
(3) REAUTHORIZATION
REPORT
ON
COST
AND
OUTCOMES OF IDAS.—
(A) IN GENERAL.—Not later than July 1,
2008, the Secretary of the Treasury shall submit
a report to Congress and the chairmen and rank-
ing members of the Committee on Finance, the
Committee on Banking, Housing, and Urban Af-
fairs, and the Committee on Health, Education,
Labor, and Pensions of the Senate and the Com-
mittee on Ways and Means, the Committee on
Banking and Financial Services, and the Com-
mittee on Education and the Workforce of the
143
House of Representatives, in which the Secretary
shall—
(i) summarize the previously submitted
annual reports required under paragraph
(2),
(ii) from a representative sample of
qualified individual development account
programs, include an analysis of—
(I) the economic, social, and be-
havioral outcomes,
(II) the changes in savings rates,
asset holdings, and household debt, and
overall changes in economic stability,
(III) the changes in outlooks, atti-
tudes, and behavior regarding savings
strategies, investment, education, and
family,
(IV) the integration into the fi-
nancial mainstream, including de-
creased reliance on alternative finan-
cial services, and increase in acquisi-
tion of mainstream financial products,
and
144
(V) the involvement in civic af-
fairs, including neighborhood schools
and associations,
associated with participation in qualified
individual development account programs,
(iii) from a representative sample of
qualified individual development account
programs, include a comparison of outcomes
associated with such programs with out-
comes associated with other Federal Govern-
ment social and economic development pro-
grams, including asset building programs,
and
(iv) make recommendations regarding
the reauthorization of the qualified indi-
vidual 
development 
account 
programs,
including—
(I) recommendations regarding
reforms that will improve the cost and
outcomes of the such programs, includ-
ing the ability to help low income fam-
ilies save and accumulate productive
assets,
(II) recommendations regarding
the appropriate levels of subsidies to
145
provide effective incentives to financial
institutions and Account owners under
such programs, and
(III) recommendations regarding
how such programs should be inte-
grated into other Federal poverty re-
duction, asset building, and commu-
nity development policies and pro-
grams.
(B) AUTHORIZATION.—There is authorized
to be appropriated $2,500,000, for carrying out
the purposes of this paragraph.
(4) USE OF ACCOUNTS IN RURAL AREAS ENCOUR-
AGED.—The Secretary shall develop methods to en-
courage the use of Individual Development Accounts
in rural areas.
SEC. 510. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to the Secretary
$1,000,000 for fiscal year 2003 and for each fiscal year
through 2010, for the purposes of implementing this title,
including the reporting, monitoring, and evaluation re-
quired under section 509, to remain available until ex-
pended.
146
SEC. 511. MATCHING FUNDS FOR INDIVIDUAL DEVELOP-
MENT ACCOUNTS PROVIDED THROUGH A TAX
CREDIT FOR QUALIFIED FINANCIAL INSTITU-
TIONS.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 of the Internal Revenue Code of 1986 (relat-
ing to business related credits) is amended by adding at
the end the following new section:
‘‘SEC. 45G. INDIVIDUAL DEVELOPMENT ACCOUNT INVEST-
MENT CREDIT.
‘‘(a) DETERMINATION OF AMOUNT.—For purposes of
section 38, the individual development account investment
credit determined under this section with respect to any eli-
gible entity for any taxable year is an amount equal to
the individual development account investment provided by
such eligible entity during the taxable year under an indi-
vidual development account program established under sec-
tion 504 of the Savings for Working Families Act of 2002.
‘‘(b) APPLICABLE TAX.—For the purposes of this sec-
tion, the term ‘applicable tax’ means the excess (if any) of—
‘‘(1) the tax imposed under this chapter (other
than the taxes imposed under the provisions described
in subparagraphs (C) through (Q) of section
26(b)(2)), over
‘‘(2) the credits allowable under subpart B (other
than this section) and subpart D of this part.
147
‘‘(c) INDIVIDUAL DEVELOPMENT ACCOUNT INVEST-
MENT.—For purposes of this section, the term ‘individual
development account investment’ means, with respect to an
individual development account program in any taxable
year, an amount equal to the sum of—
‘‘(1) the aggregate amount of dollar-for-dollar
matches 
under 
such 
program 
under 
section
506(b)(1)(A) of the Savings for Working Families Act
of 2002 for such taxable year, plus
‘‘(2) $50 with respect to each Individual Devel-
opment Account maintained as of the end of such tax-
able year, with a balance of not less than $100 (other
than the taxable year in which such Account is
opened).
‘‘(d) ELIGIBLE ENTITY.—For purposes of this section,
except as provided in regulations, the term ‘eligible entity’
means a qualified financial institution.
‘‘(e) OTHER DEFINITIONS.—For purposes of this sec-
tion, any term used in this section and also in the Savings
for Working Families Act of 2002 shall have the meaning
given such term by such Act.
‘‘(f) DENIAL OF DOUBLE BENEFIT.—
‘‘(1) IN GENERAL.—No deduction or credit (other
than under this section) shall be allowed under this
chapter with respect to any expense which—
148
‘‘(A) is taken into account under subsection
(c)(1)(A) in determining the credit under this
section, or
‘‘(B) is attributable to the maintenance of
an Individual Development Account.
‘‘(2) DETERMINATION
OF
AMOUNT.—Solely for
purposes of paragraph (1)(B), the amount attrib-
utable to the maintenance of an Individual Develop-
ment Account shall be deemed to be the dollar amount
of the credit allowed under subsection (c)(l)(B) for
each taxable year such Individual Development Ac-
count is maintained.
‘‘(g) CREDIT MAY BE TRANSFERRED.—
‘‘(1) IN
GENERAL.—An eligible entity may
transfer any credit allowable to the eligible entity
under subsection (a) to any person other than to an-
other eligible entity which is exempt from tax under
this title. The determination as to whether a credit is
allowable shall be made without regard to the tax-ex-
empt status of the eligible entity.
‘‘(2) CONSENT
REQUIRED
FOR
REVOCATION.—
Any transfer under paragraph (1) may be revoked
only with the consent of the Secretary.
149
‘‘(h) REGULATIONS.—The Secretary may prescribe
such regulations as may be necessary or appropriate to
carry out this section, including
‘‘(1) such regulations as necessary to insure that
any credit described in subsection (g)(1) is claimed
once and not retransferred by a transferee, and
‘‘(2) regulations providing for a recapture of the
credit allowed under this section (notwithstanding
any termination date described in subsection (i)) in
cases where there is a forfeiture under section 507(b)
of the Savings for Working Families Act of 2002 in
a subsequent taxable year of any amount which was
taken into account in determining the amount of such
credit.
‘‘(i) APPLICATION OF SECTION.—
‘‘(1) IN GENERAL.—This section shall apply to
any expenditure made in any taxable year ending
after December 31, 2003, and beginning on or before
January 1, 2011, with respect to any Individual De-
velopment Account which—
‘‘(A) is opened before January 1, 2011, and
‘‘(B) as determined by the Secretary, when
added to all of the previously opened Individual
Development Accounts, does not exceed—
150
‘‘(i) 100,000 Accounts if opened after
December 31, 2003, and before January 1,
2007,
‘‘(ii) an additional 100,000 Accounts if
opened after December 31, 2006, and before
January 1, 2009, but only if, except as pro-
vided in paragraph (4), the total number of
Accounts described in clause (i) are opened
and the Secretary determines that such Ac-
counts are being reasonably and responsibly
administered, and
‘‘(iii) an additional 100,000 Accounts
if opened after December 31, 2008, and be-
fore January 1, 2011, but only if the total
number of Accounts described in clauses (i)
and (ii) are opened and the Secretary
makes a determination described in para-
graph (2).
Notwithstanding the preceding sentence, this section
shall apply to amounts which are described in sub-
section (c)(1)(A) and which are timely deposited into
a parallel account during the 30-day period following
the end of last taxable year beginning before January
1, 2011.
151
‘‘(2) DETERMINATION WITH RESPECT TO THIRD
GROUP OF ACCOUNTS.—A determination is described
in this paragraph if the Secretary determines that—
‘‘(A) substantially all of the previously
opened Accounts have been reasonably and re-
sponsibly administered prior to the date of the
determination,
‘‘(B) the individual development account
programs have increased net savings of partici-
pants in the programs,
‘‘(C) participants in the individual develop-
ment account programs have increased Federal
income tax liability and decreased utilization of
Federal assistance programs relative to similarly
situated individuals that did not participate in
the individual development account programs,
and
‘‘(D) the sum of the estimated increased
Federal tax liability and reduction of Federal
assistance program benefits to participants in
the individual development account programs is
greater than the cost of the individual develop-
ment account programs to the Federal govern-
ment.
152
‘‘(3) DETERMINATION OF LIMITATION.—The lim-
itation on the number of Individual Development Ac-
counts under paragraph (1)(B) shall be allocated by
the Secretary among qualified individual development
account programs selected by the Secretary and, in
the case of the limitation under clause (iii) of such
paragraph, shall be equally divided among the States.
‘‘(4) SPECIAL RULE IF SMALLER NUMBER OF AC-
COUNTS ARE OPENED.—For purposes of paragraph
(1)(B)(ii)—
‘‘(i) IN GENERAL.—If less than 100,000
Accounts are opened before January 1,
2007, such paragraph shall be applied by
substituting ‘‘applicable number of Ac-
counts’ for ‘100,000 Accounts’.
‘‘(ii) APPLICABLE NUMBER.—For pur-
poses of clause (i), the applicable number
equals the lesser of—
‘‘(I) 75,000, or
‘‘(II) 3 times the number of Ac-
counts 
opened 
before 
January 
1,
2007.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b) of the Internal Revenue Code of 1986 (relating to cur-
rent year business credit) is amended by striking ‘‘plus’’
153
at the end of paragraph (14), by striking the period at the
end of paragraph (15) and inserting ‘‘, plus’’, and by add-
ing at the end the following new paragraph:
‘‘(16) the individual development account invest-
ment credit determined under section 45G(a).’’.
(c) NO CARRYBACKS.—Subsection (d) of section 39 of
the Internal Revenue Code of 1986 (relating to carryback
and carryforward of unused credits) is amended by adding
at the end the following:
‘‘(11) NO CARRYBACK OF SECTION 45G CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the individual development account invest-
ment credit determined under section 45G may be
carried back to a taxable year ending before January
1, 2004.’’.
(d) CONFORMING AMENDMENT.—The table of sections
for subpart C of part IV of subchapter A of chapter 1 of
the Internal Revenue Code of 1986 is amended by adding
at the end the following new item:
‘‘Sec. 45G. Individual development account investment credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 2003.
154
TITLE VI—REVENUE
PROVISIONS
Subtitle A—Tax Shelter
Transparency Requirements
PART I—TAXPAYER-RELATED PROVISIONS
SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORT-
ABLE TRANSACTION.
(a) IN GENERAL.—Part I of subchapter B of chapter
68 (relating to assessable penalties) is amended by inserting
after section 6707 the following new section:
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT-
ABLE TRANSACTION INFORMATION WITH RE-
TURN OR STATEMENT.
‘‘(a) IMPOSITION OF PENALTY.—Any person who fails
to include on any return or statement any information with
respect to a reportable transaction which is required under
section 6011 to be included with such return or statement
shall pay a penalty in the amount determined under sub-
section (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amount of the penalty under
subsection (a) shall be $50,000.
155
‘‘(2) LISTED TRANSACTION.—The amount of the
penalty under subsection (a) with respect to a listed
transaction shall be $100,000.
‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES
AND HIGH NET WORTH INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of a failure
under subsection (a) by—
‘‘(i) a large entity, or
‘‘(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be
twice the amount determined without regard to
this paragraph.
‘‘(B) LARGE ENTITY.—For purposes of sub-
paragraph (A), the term ‘large entity’ means,
with respect to any taxable year, a person (other
than a natural person) with gross receipts in ex-
cess of $10,000,000 for the taxable year in which
the reportable transaction occurs or the pre-
ceding taxable year. Rules similar to the rules of
paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall
apply for purposes of this subparagraph.
‘‘(C) HIGH NET WORTH INDIVIDUAL.—The
term ‘high net worth individual’ means, with re-
spect to a reportable transaction, a natural per-
156
son whose net worth exceeds $2,000,000 imme-
diately before the transaction.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) REPORTABLE TRANSACTION.—The term ‘re-
portable transaction’ means any transaction with re-
spect to which information is required to be included
with a return or statement because, as determined
under regulations prescribed under section 6011, such
transaction is of a type which the Secretary deter-
mines as having a potential for tax avoidance or eva-
sion.
‘‘(2) LISTED TRANSACTION.—Except as provided
in regulations, the term ‘listed transaction’ means a
reportable transaction which is the same as, or simi-
lar to, a transaction specifically identified by the Sec-
retary as a tax avoidance transaction for purposes of
section 6011.
‘‘(d) AUTHORITY TO RESCIND PENALTY.—
‘‘(1) IN GENERAL.—The Commissioner of Inter-
nal Revenue may rescind all or any portion of any
penalty imposed by this section with respect to any
violation if—
‘‘(A) the violation is with respect to a re-
portable transaction other than a listed trans-
action,
157
‘‘(B) the person on whom the penalty is im-
posed has a history of complying with the re-
quirements of this title,
‘‘(C) it is shown that the violation is due to
an unintentional mistake of fact;
‘‘(D) imposing the penalty would be against
equity and good conscience, and
‘‘(E) rescinding the penalty would promote
compliance with the requirements of this title
and effective tax administration.
‘‘(2) DISCRETION.—The exercise of authority
under paragraph (1) shall be at the sole discretion of
the Commissioner and may be delegated only to the
head of the Office of Tax Shelter Analysis. The Com-
missioner, in his sole discretion, may establish a pro-
cedure to determine if a penalty should be referred to
the Commissioner or the head of such Office for a de-
termination under paragraph (1).
‘‘(3) NO
APPEAL.—Notwithstanding any other
provision of law, any determination under this sub-
section may not be reviewed in any administrative or
judicial proceeding.
‘‘(4) RECORDS.—If a penalty is rescinded under
paragraph (1), the Commissioner shall place in the
file in the Office of the Commissioner the opinion of
158
the Commissioner or the head of the Office of Tax
Shelter Analysis with respect to the determination,
including—
‘‘(A) the reasons for the rescission, and
‘‘(B) the amount of the penalty rescinded.
‘‘(5) REPORT.—The Commissioner shall each
year report to the Committee on Ways and Means of
the House of Representatives and the Committee on
Finance of the Senate—
‘‘(A) a summary of the total number and
aggregate amount of penalties imposed, and re-
scinded, under this section, and
‘‘(B) a description of each penalty rescinded
under this subsection and the reasons therefor.
‘‘(e) PENALTY REPORTED TO SEC.—In the case of a
person—
‘‘(1) which is required to file periodic reports
under section 13 or 15(d) of the Securities Exchange
Act of 1934 or is required to be consolidated with an-
other person for purposes of such reports, and
‘‘(2) which—
‘‘(A) is required to pay a penalty under
this section with respect to a listed transaction,
or
159
‘‘(B) is required to pay a penalty under sec-
tion 6662A with respect to any reportable trans-
action at a rate prescribed under section
6662A(c),
the requirement to pay such penalty shall be disclosed in
such reports filed by such person for such periods as the
Secretary shall specify. Failure to make a disclosure in ac-
cordance with the preceding sentence shall be treated as a
failure to which the penalty under subsection (b)(2) applies.
‘‘(f) COORDINATION WITH OTHER PENALTIES.—The
penalty imposed by this section is in addition to any pen-
alty imposed under section 6662.’’
(b) CONFORMING AMENDMENT.—The table of sections
for part I of subchapter B of chapter 68 is amended by
inserting after the item relating to section 6707 the fol-
lowing:
‘‘Sec. 6707A. Penalty for failure to include reportable transaction
information with return or statement.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns and statements the due date
for which is after the date of the enactment of this Act.
160
SEC. 
602. 
ACCURACY-RELATED 
PENALTY 
FOR 
LISTED
TRANSACTIONS AND OTHER REPORTABLE
TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) IN GENERAL.—Subchapter A of chapter 68 is
amended by inserting after section 6662 the following new
section:
‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY
ON UNDERSTATEMENTS WITH RESPECT TO
REPORTABLE TRANSACTIONS.
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a
reportable transaction understatement for any taxable year,
there shall be added to the tax an amount equal to 20 per-
cent of the amount of such understatement.
‘‘(b) 
REPORTABLE
TRANSACTION
UNDERSTATE-
MENT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘reportable trans-
action understatement’ means the sum of—
‘‘(A) the product of—
‘‘(i) the amount of the increase (if any)
in taxable income which results from a dif-
ference between the proper tax treatment of
an item to which this section applies and
the taxpayer’s treatment of such item (as
shown on the taxpayer’s return of tax), and
161
‘‘(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a tax-
payer which is a corporation), and
‘‘(B) the amount of the decrease (if any) in
the aggregate amount of credits determined
under subtitle A which results from a difference
between the taxpayer’s treatment of an item to
which this section applies (as shown on the tax-
payer’s return of tax) and the proper tax treat-
ment of such item.
For purposes of subparagraph (A), any reduction of
the excess of deductions allowed for the taxable year
over gross income for such year, and any reduction
in the amount of capital losses which would (without
regard to section 1211) be allowed for such year, shall
be treated as an increase in taxable income.
‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This
section shall apply to any item which is attributable
to—
‘‘(A) any listed transaction, and
‘‘(B) any reportable transaction (other than
a listed transaction) if a significant purpose of
such transaction is the avoidance or evasion of
Federal income tax.
162
‘‘(c) HIGHER PENALTIES FOR NONDISCLOSED LISTED
AND OTHER AVOIDANCE TRANSACTIONS.—If the require-
ment of section 6664(d)(2)(A) is not met with respect to
any portion of any reportable transaction understatement,
then subsection (a) shall be applied by substituting—
‘‘(1) ‘30 percent’ for ‘20 percent’ if such under-
statement is attributable to a listed transaction, and
‘‘(2) ‘25 percent’ for ‘20 percent’ in the case of
any other understatement.
‘‘(d) DEFINITIONS
OF
REPORTABLE
AND
LISTED
TRANSACTIONS.—For purposes of this section, the terms ‘re-
portable transaction’ and ‘listed transaction’ have the re-
spective meanings given to such terms by section 6707A(c).
‘‘(e) SPECIAL RULES.—
‘‘(1) COORDINATION WITH PENALTIES, ETC., ON
OTHER UNDERSTATEMENTS.—In the case of an under-
statement (as defined in section 6662(d)(2))—
‘‘(A) the amount of such understatement
(determined without regard to this paragraph)
shall be increased by the aggregate amount of re-
portable transaction understatements for pur-
poses of determining whether such understate-
ment is a substantial understatement under sec-
tion 6662(d)(1), but
163
‘‘(B) the addition to tax under section
6662(a) shall apply only to the excess of the
amount of the substantial understatement (if
any) after the application of subparagraph (A)
over the aggregate amount of reportable trans-
action understatements.
‘‘(2) COORDINATION WITH FRAUD PENALTY.—
‘‘(A) IN GENERAL.—References to an under-
payment in section 6663 shall be treated as in-
cluding references to a reportable transaction un-
derstatement.
‘‘(B) NO DOUBLE PENALTY.—This section
shall not apply to any portion of an understate-
ment on which a penalty is imposed under sec-
tion 6663.
‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—
Except as provided in regulations, in no event shall
any tax treatment included with an amendment or
supplement to a return of tax be taken into account
in determining the amount of any reportable trans-
action understatement if the amendment or supple-
ment is filed after the earlier of the date the taxpayer
is first contacted by the Secretary regarding the ex-
amination of the return or such other date as is speci-
fied by the Secretary.’’
164
(b) 
DETERMINATION
OF
OTHER
UNDERSTATE-
MENTS.—Subparagraph (A) of section 6662(d)(2) is
amended by adding at the end the following flush sentence:
‘‘The excess under the preceding sentence shall be
determined without regard to items to which sec-
tion 6662A applies.’’
(c) REASONABLE CAUSE EXCEPTION.—
(1) IN GENERAL.—Section 6664 is amended by
adding at the end the following new subsection:
‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORT-
ABLE TRANSACTION UNDERSTATEMENTS.—
‘‘(1) IN GENERAL.—No penalty shall be imposed
under section 6662A with respect to any portion of a
reportable transaction understatement if it is shown
that there was a reasonable cause for such portion
and that the taxpayer acted in good faith with respect
to such portion.
‘‘(2) SPECIAL RULES.—Paragraph (1) shall not
apply to any reportable transaction understatement
unless—
‘‘(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
165
‘‘(B) there is or was substantial authority
for such treatment, and
‘‘(C) the taxpayer reasonably believed that
such treatment was more likely than not the
proper treatment.
A taxpayer failing to adequately disclose in accord-
ance with section 6011 shall be treated as meeting the
requirements of subparagraph (A) if the penalty for
such failure was rescinded under section 6707A(d).
‘‘(3) RULES
RELATING
TO
REASONABLE
BE-
LIEF.—For purposes of paragraph (2)(C)—
‘‘(A) IN
GENERAL.—A taxpayer shall be
treated as having a reasonable belief with respect
to the tax treatment of an item only if such
belief—
‘‘(i) is based on the facts and law that
exist at the time the return of tax which in-
cludes such tax treatment is filed, and
‘‘(ii) relates solely to the taxpayer’s
chances of success on the merits of such
treatment and does not take into account
the possibility that a return will not be au-
dited, such treatment will not be raised on
audit, or such treatment will be resolved
through settlement if it is raised.
166
‘‘(B) CERTAIN OPINIONS MAY NOT BE RE-
LIED UPON.—
‘‘(i) IN
GENERAL.—An opinion of a
tax advisor may not be relied upon to estab-
lish the reasonable belief of a taxpayer if—
‘‘(I) the tax advisor is described
in clause (ii), or
‘‘(II) the opinion is described in
clause (iii).
‘‘(ii) DISQUALIFIED TAX ADVISORS.—A
tax advisor is described in this clause if the
tax advisor is a material advisor (within
the meaning of section 6111(b)(1)) who—
‘‘(I) participates in the organiza-
tion, management, promotion, or sale
of the transaction or is related (within
the meaning of section 267 or 707) to
any person who so participates,
‘‘(II) is compensated by another
material advisor with respect to the
transaction,
‘‘(III) has a fee arrangement with
respect to the transaction which is con-
tingent on all or part of the intended
167
tax benefits from the transaction being
sustained, or
‘‘(IV) as determined under regula-
tions prescribed by the Secretary, has a
continuing financial interest with re-
spect to the transaction.
‘‘(iii) DISQUALIFIED
OPINIONS.—For
purposes of clause (i), an opinion is dis-
qualified if the opinion—
‘‘(I) is based on unreasonable fac-
tual or legal assumptions (including
assumptions as to future events),
‘‘(II) unreasonably relies on rep-
resentations, statements, findings, or
agreements of the taxpayer or any
other person,
‘‘(III) does not identify and con-
sider all relevant facts, or
‘‘(IV) fails to meet any other re-
quirement as the Secretary may pre-
scribe.’’
(2) CONFORMING AMENDMENT.—The heading for
subsection (c) of section 6664 is amended by inserting
‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’.
(d) CONFORMING AMENDMENTS.—
168
(1) Subparagraph (C) of section 461(i)(3) is
amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ and
inserting ‘‘section 1274(b)(3)(C)’’.
(2) Paragraph (3) of section 1274(b) is
amended—
(A) by striking ‘‘(as defined in section
6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
‘‘(C) TAX SHELTER.—For purposes of sub-
paragraph (B), the term ‘tax shelter’ means—
‘‘(i) a partnership or other entity,
‘‘(ii) any investment plan or arrange-
ment, or
‘‘(iii) any other plan or arrangement,
if a significant purpose of such partnership, en-
tity, plan, or arrangement is the avoidance or
evasion of Federal income tax.’’
(3) Section 6662(d)(2) is amended by striking
subparagraphs (C) and (D).
(4) Section 6664(c)(1) is amended by striking
‘‘part’’ and inserting ‘‘section 6662 or 6663’’.
(5) Subsection (b) of section 7525 is amended by
striking ‘‘section 6662(d)(2)(C)(iii)’’ and inserting
‘‘section 1274(b)(3)(C)’’.
169
(6)(A) The heading for section 6662 is amended
to read as follows:
‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY
ON UNDERPAYMENTS.’’
(B) The table of sections for part II of sub-
chapter A of chapter 68 is amended by striking the
item relating to section 6662 and inserting the fol-
lowing new items:
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpay-
ments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understate-
ments with respect to reportable transactions.’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE-
MENT 
PENALTY 
FOR 
NONREPORTABLE
TRANSACTIONS.
(a) SUBSTANTIAL UNDERSTATEMENT
OF CORPORA-
TIONS.—Section 6662(d)(1)(B) (relating to special rule for
corporations) is amended to read as follows:
‘‘(B) SPECIAL RULE FOR CORPORATIONS.—
In the case of a corporation other than an S cor-
poration or a personal holding company (as de-
fined in section 542), there is a substantial un-
derstatement of income tax for any taxable year
170
if the amount of the understatement for the tax-
able year exceeds the lesser of—
‘‘(i) 10 percent of the tax required to
be shown on the return for the taxable year
(or, if greater, $10,000), or
‘‘(ii) $10,000,000.’’
(b) REDUCTION FOR UNDERSTATEMENT OF TAXPAYER
DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.—
(1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re-
lating to substantial authority) is amended to read as
follows:
‘‘(i) the tax treatment of any item by
the taxpayer if the taxpayer had reasonable
belief that the tax treatment was more likely
than not the proper treatment, or’’.
(2) CONFORMING AMENDMENT.—Section 6662(d)
is amended by adding at the end the following new
paragraph:
‘‘(3) SECRETARIAL LIST.—For purposes of this
subsection, section 6664(d)(2), and section 6694(a)(1),
the Secretary may prescribe a list of positions for
which the Secretary believes there is not substantial
authority or there is no reasonable belief that the tax
treatment is more likely than not the proper tax
treatment. Such list (and any revisions thereof) shall
171
be published in the Federal Register or the Internal
Revenue Bulletin.’’
(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. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY
PRIVILEGES RELATING TO TAXPAYER COM-
MUNICATIONS.
(a) IN GENERAL.—Section 7525(b) (relating to section
not to apply to communications regarding corporate tax
shelters) is amended to read as follows:
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS
REGARDING TAX SHELTERS.—The privilege under sub-
section (a) shall not apply to any written communication
which is—
‘‘(1) between a federally authorized tax practi-
tioner and—
‘‘(A) any person,
‘‘(B) any director, officer, employee, agent,
or representative of the person, or
‘‘(C) any other person holding a capital or
profits interest in the person, and
‘‘(2) in connection with the promotion of the di-
rect or indirect participation of the person in any tax
shelter (as defined in section 1274(b)(3)(C)).’’
172
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to communications made on or after the
date of the enactment of this Act.
PART II—PROMOTER AND PREPARER RELATED
PROVISIONS
Subpart A—Provisions Relating to Reportable
Transactions
SEC. 611. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended to read as follows:
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—Each material advisor with re-
spect to any reportable transaction shall make a return (in
such form as the Secretary may prescribe) setting forth—
‘‘(1) information identifying and describing the
transaction,
‘‘(2) information describing any potential tax
benefits expected to result from the transaction, and
‘‘(3) such other information as the Secretary
may prescribe.
Such return shall be filed not later than the date specified
by the Secretary.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) MATERIAL ADVISOR.—
173
‘‘(A) IN GENERAL.—The term ‘material ad-
visor’ means any person—
‘‘(i) who provides any material aid,
assistance, or advice with respect to orga-
nizing, promoting, selling, implementing, or
carrying out any reportable transaction,
and
‘‘(ii) who directly or indirectly derives
gross income in excess of the threshold
amount for such advice or assistance.
‘‘(B) THRESHOLD AMOUNT.—For purposes
of subparagraph (A), the threshold amount is—
‘‘(i) $50,000 in the case of a reportable
transaction substantially all of the tax bene-
fits from which are provided to natural per-
sons, and
‘‘(ii) $250,000 in any other case.
‘‘(2) REPORTABLE TRANSACTION.—The term ‘re-
portable transaction’ has the meaning given to such
term by section 6707A(c).
‘‘(c) REGULATIONS.—The Secretary may prescribe reg-
ulations which provide—
‘‘(1) that only 1 person shall be required to meet
the requirements of subsection (a) in cases in which
174
2 or more persons would otherwise be required to meet
such requirements,
‘‘(2) exemptions from the requirements of this
section, and
‘‘(3) such rules as may be necessary or appro-
priate to carry out the purposes of this section.’’
(b) CONFORMING AMENDMENTS.—
(1) The item relating to section 6111 in the table
of sections for subchapter B of chapter 61 is amended
to read as follows:
‘‘Sec. 6111. Disclosure of reportable transactions.’’
(2)(A) So much of section 6112 as precedes sub-
section (c) thereof is amended to read as follows:
‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANS-
ACTIONS MUST KEEP LISTS OF ADVISEES.
‘‘(a) IN GENERAL.—Each material advisor (as defined
in section 6111) with respect to any reportable transaction
(as defined in section 6707A(c)) shall maintain, in such
manner as the Secretary may by regulations prescribe, a
list—
‘‘(1) identifying each person with respect to
whom such advisor acted as such a material advisor
with respect to such transaction, and
‘‘(2) containing such other information as the
Secretary may by regulations require.
175
This section shall apply without regard to whether a mate-
rial advisor is required to file a return under section 6111
with regard to such transaction.’’
(B) Section 6112 is amended by redesignating
subsection (c) as subsection (b).
(C) Section 6112(b), as redesignated by subpara-
graph (B), is amended—
(i) by inserting ‘‘written’’ before ‘‘request’’
in paragraph (1)(A), and
(ii) by striking ‘‘shall prescribe’’ in para-
graph (2) and inserting ‘‘may prescribe’’.
(D) The item relating to section 6112 in the
table of sections for subchapter B of chapter 61 is
amended to read as follows:
‘‘Sec. 6112. Material advisors of reportable transactions must keep
lists of advisees.’’
(3)(A) The heading for section 6708 is amended
to read as follows:
‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES
WITH 
RESPECT 
TO 
REPORTABLE 
TRANS-
ACTIONS.’’
(B) The item relating to section 6708 in the
table of sections for part I of subchapter B of chapter
68 is amended to read as follows:
‘‘Sec. 6708. Failure to maintain lists of advisees with respect to re-
portable transactions.’’
176
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions with respect to which
material aid, assistance, or advice referred to in section
6111(b)(1)(A)(i) of the Internal Revenue Code of 1986 (as
added by this section) is provided after the date of the enact-
ment of this Act.
SEC. 612. MODIFICATIONS TO PENALTY FOR FAILURE TO
REGISTER TAX SHELTERS.
(a) IN GENERAL.—Section 6707 (relating to failure to
furnish information regarding tax shelters) is amended to
read as follows:
‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARD-
ING REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—If a person who is required to file
a return under section 6111(a) with respect to any report-
able transaction—
‘‘(1) fails to file such return on or before the date
prescribed therefor, or
‘‘(2) files false or incomplete information with
the Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return
in the amount determined under subsection (b).
‘‘(b) AMOUNT OF PENALTY.—
177
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the penalty imposed under subsection (a)
with respect to any failure shall be $50,000.
‘‘(2) LISTED TRANSACTIONS.—The penalty im-
posed under subsection (a) with respect to any listed
transaction shall be an amount equal to the greater
of—
‘‘(A) $200,000, or
‘‘(B) 50 percent of the gross income derived
by such person with respect to aid, assistance, or
advice which is provided with respect to the re-
portable transaction before the date the return
including the transaction is filed under section
6111.
Subparagraph (B) shall be applied by substituting
‘75 percent’ for ‘50 percent’ in the case of an inten-
tional failure or act described in subsection (a).
‘‘(c) REPORTABLE AND LISTED TRANSACTIONS.—The
terms ‘reportable transaction’ and ‘listed transaction’ have
the respective meanings given to such terms by section
6707A(c).
‘‘(d) RESCISSION AUTHORITY.—The provisions of sec-
tion 6707A(d) (relating to authority of Commissioner to re-
scind penalty) shall apply to any penalty imposed under
this section.’’
178
(b) CLERICAL AMENDMENT.—The item relating to sec-
tion 6707 in the table of sections for part I of subchapter
B of chapter 68 is amended by striking ‘‘tax shelters’’ and
inserting ‘‘reportable transactions’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns the due date for which is after
the date of the enactment of this Act.
SEC. 613. MODIFICATION OF PENALTY FOR FAILURE TO
MAINTAIN LISTS OF INVESTORS.
(a) IN GENERAL.—Subsection (a) of section 6708 is
amended to read as follows:
‘‘(a) IMPOSITION OF PENALTY.—
‘‘(1) IN GENERAL.—If any person who is re-
quired to maintain a list under section 6112(a) fails
to make such list available to the Secretary in accord-
ance with section 6112(b)(1)(A) within 20 business
days after the date of the Secretary’s request, such
person shall pay a penalty of $10,000 for each day
of such failure after such 20th day.
‘‘(2) REASONABLE CAUSE EXCEPTION.—No pen-
alty shall be imposed by paragraph (1) with respect
to the failure on any day if such failure is due to rea-
sonable cause.’’
179
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to requests made after the date of the
enactment of this Act.
SEC. 614. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN
CONDUCT RELATED TO TAX SHELTERS AND
REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 7408 (relating to action to
enjoin promoters of abusive tax shelters, etc.) is amended
by redesignating subsection (c) as subsection (d) and by
striking subsections (a) and (b) and inserting the following
new subsections:
‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil ac-
tion in the name of the United States to enjoin any person
from further engaging in specified conduct may be com-
menced at the request of the Secretary. Any action under
this section shall be brought in the district court of the
United States for the district in which such person resides,
has his principal place of business, or has engaged in speci-
fied conduct. The court may exercise its jurisdiction over
such action (as provided in section 7402(a)) separate and
apart from any other action brought by the United States
against such person.
‘‘(b) ADJUDICATION
AND DECREE.—In any action
under subsection (a), if the court finds—
180
‘‘(1) that the person has engaged in any specified
conduct, and
‘‘(2) that injunctive relief is appropriate to pre-
vent recurrence of such conduct,
the court may enjoin such person from engaging in such
conduct or in any other activity subject to penalty under
this title.
‘‘(c) SPECIFIED CONDUCT.—For purposes of this sec-
tion, the term ‘specified conduct’ means any action, or fail-
ure to take action, subject to penalty under section 6700,
6701, 6707, or 6708.’’
(b) CONFORMING AMENDMENTS.—
(1) The heading for section 7408 is amended to
read as follows:
‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RE-
LATED TO TAX SHELTERS AND REPORTABLE
TRANSACTIONS.’’
(2) The table of sections for subchapter A of
chapter 67 is amended by striking the item relating
to section 7408 and inserting the following new item:
‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and re-
portable transactions.’’
(c) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the day after the date of the en-
actment of this Act.
182
SEC. 622. PENALTY ON FAILURE TO REPORT INTERESTS IN
FOREIGN FINANCIAL ACCOUNTS.
(a) IN GENERAL.—Section 5321(a)(5) of title 31,
United States Code, is amended to read as follows:
‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION
VIOLATION.—
‘‘(A) PENALTY
AUTHORIZED.—The Sec-
retary of the Treasury may impose a civil money
penalty on any person who violates, or causes
any violation of, any provision of section 5314.
‘‘(B) AMOUNT OF PENALTY.—
‘‘(i) IN GENERAL.—Except as provided
in subparagraph (C), the amount of any
civil penalty imposed under subparagraph
(A) shall not exceed $5,000.
‘‘(ii) 
REASONABLE
CAUSE
EXCEP-
TION.—No penalty shall be imposed under
subparagraph (A) with respect to any viola-
tion if—
‘‘(I) such violation was due to
reasonable cause, and
‘‘(II) the amount of the trans-
action or the balance in the account at
the time of the transaction was prop-
erly reported.
183
‘‘(C) WILLFUL VIOLATIONS.—In the case of
any person willfully violating, or willfully caus-
ing any violation of, any provision of section
5314—
‘‘(i) the maximum penalty under sub-
paragraph (B)(i) shall be increased to the
greater of—
‘‘(I) $25,000, or
‘‘(II) the amount (not exceeding
$100,000) determined under subpara-
graph (D), and
‘‘(ii) subparagraph (B)(ii) shall not
apply.
‘‘(D) AMOUNT.—The amount determined
under this subparagraph is—
‘‘(i) in the case of a violation involving
a transaction, the amount of the trans-
action, or
‘‘(ii) in the case of a violation involv-
ing a failure to report the existence of an
account or any identifying information re-
quired to be provided with respect to an ac-
count, the balance in the account at the
time of the violation.’’
184
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to violations occurring after the date of
the enactment of this Act.
SEC. 623. 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.—
185
‘‘(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
186
‘‘(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