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the excess of the amount includible in gross in-
come under subparagraph (A) over any portion
of such amount to which this subparagraph pre-
viously applied.
‘‘(C) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS BY PLAN.—For purposes of this title,
a retirement plan to which this paragraph ap-
plies, and any person acting on the plan’s behalf,
shall treat any subsequent distribution described
in subparagraph (B) in the same manner as
such distribution would be treated without re-
gard to this paragraph.
‘‘(D) APPLICABLE PLANS.—This paragraph
shall apply to—
‘‘(i) any qualified retirement plan (as
defined in section 4974(c)),
‘‘(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an el-
igible 
employer 
described 
in 
section
457(e)(1)(A), and
‘‘(iii) to the extent provided in regula-
tions, any foreign pension plan or similar
retirement arrangements or programs.
‘‘(e) DEFINITIONS.—For purposes of this section—
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‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes citizenship, and
‘‘(B) any long-term resident of the United
States who—
‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) commences to be treated as a resi-
dent of a foreign country under the provi-
sions of a tax treaty between the United
States and the foreign country and who
does not waive the benefits of such treaty
applicable to residents of the foreign coun-
try.
‘‘(2) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event described
in clause (i) or (ii) of paragraph (1)(B).
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‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A cit-
izen shall be treated as relinquishing United States
citizenship on the earliest of—
‘‘(A) the date the individual renounces such
individual’s United States nationality before a
diplomatic or consular officer of the United
States pursuant to paragraph (5) of section
349(a) of the Immigration and Nationality Act
(8 U.S.C. 1481(a)(5)),
‘‘(B) the date the individual furnishes to the
United States Department of State a signed
statement of voluntary relinquishment of United
States nationality confirming the performance of
an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Im-
migration and Nationality Act (8 U.S.C.
1481(a)(1)–(4)),
‘‘(C) the date the United States Department
of State issues to the individual a certificate of
loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of natu-
ralization.
Subparagraph (A) or (B) shall not apply to any in-
dividual unless the renunciation or voluntary relin-
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quishment is subsequently approved by the issuance to
the individual of a certificate of loss of nationality by
the United States Department of State.
‘‘(4) LONG-TERM
RESIDENT.—The term ‘long-
term resident’ has the meaning given to such term by
section 877(e)(2).
‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’
INTERESTS IN TRUST.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust on the day
before the expatriation date—
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a sep-
arate share in the trust, and
‘‘(C)(i) such separate share shall be treated
as a separate trust consisting of the assets allo-
cable to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets on the day before the expa-
triation date for their fair market value and as
having distributed all of its assets to the indi-
vidual as of such time, and
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‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii). In determining the
amount of such distribution, proper adjustments shall
be made for liabilities of the trust allocable to an in-
dividual’s share in the trust.
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
‘‘(A) IN GENERAL.—If the trust interest de-
scribed in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such in-
terest a tax in the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of tax
under subparagraph (A)(ii) shall be equal to the
lesser of—
‘‘(i) the highest rate of tax imposed by
section 1(e) for the taxable year which in-
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cludes the day before the expatriation date,
multiplied by the amount of the distribu-
tion, or
‘‘(ii) the balance in the deferred tax ac-
count immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th
day preceding the distribution.
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)—
‘‘(i) OPENING BALANCE.—The opening
balance in a deferred tax account with re-
spect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
with respect to the trust interest if such
gain had been included in gross income
under subsection (a).
‘‘(ii) INCREASE
FOR
INTEREST.—The
balance in the deferred tax account shall be
increased by the amount of interest deter-
mined (on the balance in the account at the
time the interest accrues), for periods after
the 90th day after the expatriation date, by
using the rates and method applicable
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under section 6621 for underpayments of
tax for such periods, except that section
6621(a)(2) shall be applied by substituting
‘5 percentage points’ for ‘3 percentage
points’ in subparagraph (B) thereof.
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced—
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any dis-
tribution to the person holding the
trust interest, and
‘‘(II) in the case of a person hold-
ing a nonvested interest, to the extent
provided in regulations, by the amount
of taxes imposed by subparagraph (A)
on distributions from the trust with re-
spect to nonvested interests not held by
such person.
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For
purposes of this paragraph, the allocable expa-
triation gain with respect to any beneficiary’s
interest in a trust is the amount of gain which
would be allocable to such beneficiary’s vested
and nonvested interests in the trust if the bene-
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ficiary held directly all assets allocable to such
interests.
‘‘(E) TAX DEDUCTED AND WITHHELD.—
‘‘(i) IN GENERAL.—The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribu-
tion to which it relates.
‘‘(ii) EXCEPTION WHERE FAILURE TO
WAIVE TREATY RIGHTS.—If an amount may
not be deducted and withheld under clause
(i) by reason of the distributee failing to
waive any treaty right with respect to such
distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expa-
triate disposes of an interest in a qualified trust,
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or a covered expatriate holding an interest in a
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the day before the expatria-
tion date were the date of such cessation,
disposition, or death, whichever is applica-
ble, or
‘‘(ii) the balance in the tax deferred ac-
count immediately before such date.
Such tax shall be imposed on the trust and each
trustee shall be personally liable for the amount
of such tax and any other beneficiary of the trust
shall be entitled to recover from the covered expa-
triate or the estate the amount of such tax im-
posed on the other beneficiary.
‘‘(G) DEFINITIONS AND SPECIAL RULES.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust which is de-
scribed in section 7701(a)(30)(E).
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
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as of the day before the expatriation date, is
vested in the beneficiary.
‘‘(iii) 
NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
trust which is not a vested interest. Such
interest shall be determined by assuming the
maximum exercise of discretion in favor of
the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
account, and the timing of such adjust-
ments, in order to ensure that gain is taxed
only once.
‘‘(v) COORDINATION WITH RETIREMENT
PLAN
RULES.—This subsection shall not
apply to an interest in a trust which is
part of a retirement plan to which sub-
section (d)(2) applies.
‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER-
EST IN TRUST.—
‘‘(A) DETERMINATIONS UNDER PARAGRAPH
(1).—For purposes of paragraph (1), a bene-
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ficiary’s interest in a trust shall be based upon
all relevant facts and circumstances, including
the terms of the trust instrument and any letter
of wishes or similar document, historical pat-
terns of trust distributions, and the existence of
and functions performed by a trust protector or
any similar adviser.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a
beneficiary of a trust is a corporation, part-
nership, trust, or estate, the shareholders,
partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this
section.
‘‘(ii) TAXPAYER RETURN POSITION.—A
taxpayer shall clearly indicate on its in-
come tax return—
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a dif-
ferent methodology to determine such
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beneficiary’s trust interest under this
section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the case
of any covered expatriate, notwithstanding any other provi-
sion of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate on the day
before the expatriation date, and
‘‘(2) any extension of time for payment of tax
shall cease to apply on the day before the expatriation
date and the unpaid portion of such tax shall be due
and payable at the time and in the manner pre-
scribed by the Secretary.
‘‘(h) IMPOSITION OF TENTATIVE TAX.—
‘‘(1) IN GENERAL.—If an individual is required
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a tax
in an amount equal to the amount of tax which
would be imposed if the taxable year were a short tax-
able year ending on the expatriation date.
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after the
expatriation date.
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‘‘(3) TREATMENT OF TAX.—Any tax paid under
paragraph (1) shall be treated as a payment of the
tax imposed by this chapter for the taxable year to
which subsection (a) applies.
‘‘(4) DEFERRAL OF TAX.—The provisions of sub-
section (b) shall apply to the tax imposed by this sub-
section to the extent attributable to gain includible in
gross income by reason of this section.
‘‘(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS.—
‘‘(1) IMPOSITION OF LIEN.—
‘‘(A) IN GENERAL.—If a covered expatriate
makes an election under subsection (a)(4) or (b)
which results in the deferral of any tax imposed
by reason of subsection (a), the deferred amount
(including any interest, additional amount, ad-
dition to tax, assessable penalty, and costs at-
tributable to the deferred amount) shall be a lien
in favor of the United States on all property of
the expatriate located in the United States (with-
out regard to whether this section applies to the
property).
‘‘(B) DEFERRED AMOUNT.—For purposes of
this subsection, the deferred amount is the
amount of the increase in the covered expatri-
ate’s income tax which, but for the election under
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subsection (a)(4) or (b), would have occurred by
reason of this section for the taxable year includ-
ing the expatriation date.
‘‘(2) PERIOD OF LIEN.—The lien imposed by this
subsection shall arise on the expatriation date and
continue until—
‘‘(A) the liability for tax by reason of this
section is satisfied or has become unenforceable
by reason of lapse of time, or
‘‘(B) it is established to the satisfaction of
the Secretary that no further tax liability may
arise by reason of this section.
‘‘(3) CERTAIN RULES APPLY.—The rules set forth
in paragraphs (1), (3), and (4) of section 6324A(d)
shall apply with respect to the lien imposed by this
subsection as if it were a lien imposed by section
6324A.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS
RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS
FROM EXPATRIATES.—Section 102 (relating to gifts, etc.
not included in gross income) is amended by adding at the
end the following new subsection:
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‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—
‘‘(1) IN GENERAL.—Subsection (a) shall not ex-
clude from gross income the value of any property ac-
quired by gift, bequest, devise, or inheritance from a
covered expatriate after the expatriation date. For
purposes of this subsection, any term used in this sub-
section which is also used in section 877A shall have
the same meaning as when used in section 877A.
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE
SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1)
shall not apply to any property if either—
‘‘(A) the gift, bequest, devise, or inheritance
is—
‘‘(i) shown on a timely filed return of
tax imposed by chapter 12 as a taxable gift
by the covered expatriate, or
‘‘(ii) included in the gross estate of the
covered expatriate for purposes of chapter
11 and shown on a timely filed return of
tax imposed by chapter 11 of the estate of
the covered expatriate, or
‘‘(B) no such return was timely filed but no
such return would have been required to be filed
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even if the covered expatriate were a citizen or
long-term resident of the United States.’’.
(c) DEFINITION OF TERMINATION OF UNITED STATES
CITIZENSHIP.—Section 7701(a) is amended by adding at
the end the following new paragraph:
‘‘(49) TERMINATION OF UNITED STATES CITIZEN-
SHIP.—
‘‘(A) IN GENERAL.—An individual shall not
cease to be treated as a United States citizen be-
fore the date on which the individual’s citizen-
ship is treated as relinquished under section
877A(e)(3).
‘‘(B) DUAL
CITIZENS.—Under regulations
prescribed by the Secretary, subparagraph (A)
shall not apply to an individual who became at
birth a citizen of the United States and a citizen
of another country.’’.
(d) INELIGIBILITY
FOR
VISA
OR
ADMISSION
TO
UNITED STATES.—
(1) IN GENERAL.—Section 212(a)(10)(E) of the
Immigration 
and 
Nationality 
Act 
(8 
U.S.C.
1182(a)(10)(E)) is amended to read as follows:
‘‘(E) FORMER
CITIZENS
NOT
IN
COMPLI-
ANCE
WITH
EXPATRIATION
REVENUE
PROVI-
SIONS.—Any alien who is a former citizen of the
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United States who relinquishes United States
citizenship (within the meaning of section
877A(e)(3) of the Internal Revenue Code of 1986)
and who is not in compliance with section 877A
of such Code (relating to expatriation) is inad-
missible.’’.
(2) AVAILABILITY OF INFORMATION.—
(A) IN GENERAL.—Section 6103(l) (relating
to disclosure of returns and return information
for purposes other than tax administration) is
amended by adding at the end the following new
paragraph:
‘‘(21) DISCLOSURE TO DENY VISA OR ADMISSION
TO CERTAIN EXPATRIATES.—Upon written request of
the Attorney General or the Attorney General’s dele-
gate, the Secretary shall disclose whether an indi-
vidual is in compliance with section 877A (and if not
in compliance, any items of noncompliance) to offi-
cers and employees of the Federal agency responsible
for administering section 212(a)(10)(E) of the Immi-
gration and Nationality Act solely for the purpose of,
and to the extent necessary in, administering such
section 212(a)(10)(E).’’.
(B) SAFEGUARDS.—Section 6103(p)(4) (re-
lating to safeguards) is amended by striking ‘‘or
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(20)’’ each place it appears and inserting ‘‘(20),
or (21)’’.
(3) EFFECTIVE DATES.—The amendments made
by this subsection shall apply to individuals who re-
linquish United States citizenship on or after the date
of the enactment of this Act.
(e) CONFORMING AMENDMENTS.—
(1) Section 877 is amended by adding at the end
the following new subsection:
‘‘(h) APPLICATION.—This section shall not apply to an
expatriate (as defined in section 877A(e)) whose expatria-
tion date (as so defined) occurs on or after the date of the
enactment of this subsection.’’.
(2) Section 2107 is amended by adding at the
end the following new subsection:
‘‘(f) APPLICATION.—This section shall not apply to
any expatriate subject to section 877A.’’.
(3) Section 2501(a)(3) is amended by adding at
the end the following new subparagraph:
‘‘(C) APPLICATION.—This paragraph shall
not apply to any expatriate subject to section
877A.’’.
(4) Section 6039G(a) is amended by inserting
‘‘or 877A’’ after ‘‘section 877(b)’’.
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(5) The second sentence of section 6039G(d) is
amended by inserting ‘‘or who relinquishes United
States citizenship (within the meaning of section
877A(e)(3))’’ after ‘‘section 877(a))’’.
(f) CLERICAL AMENDMENT.—The table of sections for
subpart A of part II of subchapter N of chapter 1 is amend-
ed by inserting after the item relating to section 877 the
following new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section shall
apply to expatriates (within the meaning of section
877A(e) of the Internal Revenue Code of 1986, as
added by this section) whose expatriation date (as so
defined) occurs on or after the date of the enactment
of this Act.
(2) GIFTS AND BEQUESTS.—Section 102(d) of
the Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to gifts and bequests received
on or after the date of the enactment of this Act, from
an individual or the estate of an individual whose ex-
patriation date (as so defined) occurs after such date.
(3) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(2) of the Internal Revenue
Code of 1986, as added by this section, shall in no
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event occur before the 90th day after the date of the
enactment of this Act.
Subtitle F—Miscellaneous
Provisions
SEC. 451. TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT INSTRUMENTS.
(a) IN GENERAL.—Section 1275(d) (relating to regula-
tion authority) is amended—
(1) by striking ‘‘The Secretary’’ and inserting
the following:
‘‘(1) IN GENERAL.—The Secretary’’, and
(2) by adding at the end the following new para-
graph:
‘‘(2) TREATMENT OF CONTINGENT PAYMENT CON-
VERTIBLE DEBT.—
‘‘(A) IN GENERAL.—In the case of a debt in-
strument which—
‘‘(i) is convertible into stock of the
issuing corporation, into stock or debt of a
related party (within the meaning of section
267(b) or 707(b)(1)), or into cash or other
property in an amount equal to the approx-
imate value of such stock or debt, and
‘‘(ii) provides for contingent payments,
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any regulations which require original issue dis-
count to be determined by reference to the com-
parable yield of a noncontingent fixed-rate debt
instrument shall be applied as if the regulations
require that such comparable yield be determined
by reference to a noncontingent fixed-rate debt
instrument which is convertible into stock.
‘‘(B) SPECIAL RULE.—For purposes of sub-
paragraph (A), the comparable yield shall be de-
termined without taking into account the yield
resulting from the conversion of a debt instru-
ment into stock.’’.
(b) CROSS REFERENCE.—Section 163(e)(6) (relating
to cross references) is amended by adding at the end the
following:
‘‘For the treatment of contingent payment
convertible debt, see section 1275(d)(2).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to debt instruments issued on or after
the date of the enactment of this Act.
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SEC. 452. GRANT OF TREASURY REGULATORY AUTHORITY
TO ADDRESS FOREIGN TAX CREDIT TRANS-
ACTIONS INVOLVING INAPPROPRIATE SEPA-
RATION OF FOREIGN TAXES FROM RELATED
FOREIGN INCOME.
(a) IN GENERAL.—Section 901 (relating to taxes of
foreign countries and of possessions of United States) is
amended by redesignating subsection (m) as subsection (n)
and by inserting after subsection (l) the following new sub-
section:
‘‘(m) REGULATIONS.—The Secretary may prescribe
regulations disallowing a credit under subsection (a) for all
or a portion of any foreign tax, or allocating a foreign tax
among 2 or more persons, in cases where the foreign tax
is imposed on any person in respect of income of another
person or in other cases involving the inappropriate separa-
tion of the foreign tax from the related foreign income.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions entered into after the
date of the enactment of this Act.
SEC. 453. REPEAL OF SPECIAL PROPERTY EXCEPTION TO
LEASING PROVISIONS OF THE AMERICAN
JOBS CREATION ACT OF 2004.
(a) IN GENERAL.—Section 849(b) of the American
Jobs Creation Act of 2004 is amended by striking para-
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graphs (1) and (2), by redesignating paragraphs (3) and
(4) as paragraphs (1) and (2), respectively.
(b) LEASES TO FOREIGN ENTITIES.—Section 849(b)
of the American Jobs Creation Act of 2004, as amended by
subsection (a), is amended by adding at the end the fol-
lowing new paragraph:
‘‘(3) LEASES TO FOREIGN ENTITIES.—In the case
of tax-exempt use property leased to a tax-exempt en-
tity which is a foreign person or entity, the amend-
ments made by this part shall apply to taxable years
beginning after December 31, 2005, with respect to
leases entered into on or before March 12, 2004.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect as if included in the enactment of
the American Jobs Creation Act of 2004.
SEC. 454. APPLICATION OF EARNINGS STRIPPING RULES TO
PARTNERS WHICH ARE CORPORATIONS.
(a) IN GENERAL.—Section 163(j) (relating to limita-
tion on deduction for interest on certain indebtedness) is
amended by redesignating paragraph (8) as paragraph (9)
and by inserting after paragraph (7) the following new
paragraph:
‘‘(8) TREATMENT OF CORPORATE PARTNERS.—
Except to the extent provided by regulations, in ap-
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plying this subsection to a corporation which owns
(directly or indirectly) an interest in a partnership—
‘‘(A) such corporation’s distributive share of
interest income paid or accrued to such partner-
ship shall be treated as interest income paid or
accrued to such corporation,
‘‘(B) such corporation’s distributive share of
interest paid or accrued by such partnership
shall be treated as interest paid or accrued by
such corporation, and
‘‘(C) such corporation’s share of the liabil-
ities of such partnership shall be treated as li-
abilities of such corporation.’’.
(b) ADDITIONAL REGULATORY AUTHORITY.—Section
163(j)(9) (relating to regulations), as redesignated by sub-
section (a), is amended by striking ‘‘and’’ at the end of sub-
paragraph (B), by striking the period at the end of subpara-
graph (C) and inserting ‘‘, and’’, and by adding at the end
the following new subparagraph:
‘‘(D) regulations providing for the realloca-
tion of shares of partnership indebtedness, or dis-
tributive shares of the partnership’s interest in-
come or interest expense, as may be appropriate
to carry out the purposes of this subsection.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning on or after
the date of the enactment of this Act.
SEC. 455. LIMITATION OF EMPLOYER DEDUCTION FOR CER-
TAIN ENTERTAINMENT EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 274(e) (re-
lating to expenses treated as compensation) is amended to
read as follows:
‘‘(2) EXPENSES TREATED AS COMPENSATION.—
Expenses for goods, services, and facilities, to the ex-
tent that the expenses do not exceed the amount of the
expenses which are treated by the taxpayer, with re-
spect to the recipient of the entertainment, amuse-
ment, or recreation, as compensation to an employee
on the taxpayer’s return of tax under this chapter
and as wages to such employee for purposes of chapter
24 (relating to withholding of income tax at source on
wages).’’.
(b) PERSONS NOT EMPLOYEES.—Paragraph (9) of sec-
tion 274(e) is amended by striking ‘‘to the extent that the
expenses are includible in the gross income’’ and inserting
‘‘to the extent that the expenses do not exceed the amount
of the expenses which are includible in the gross income’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenses incurred after the date of
the enactment of this Act.
SEC. 456. INCREASE IN AGE OF MINOR CHILDREN WHOSE
UNEARNED INCOME IS TAXED AS IF PARENT’S
INCOME.
(a) IN GENERAL.—Section 1(g)(2)(A) (relating to
child to whom subsection applies) is amended by striking
‘‘age 14’’ and inserting ‘‘age 18’’.
(b) TREATMENT OF DISTRIBUTIONS FROM QUALIFIED
DISABILITY TRUSTS.—Section 1(g)(4) (relating to net un-
earned income) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(C) TREATMENT OF DISTRIBUTIONS FROM
QUALIFIED
DISABILITY
TRUSTS.—For purposes
of this subsection, in the case of any child who
is a beneficiary of a qualified disability trust (as
defined in section 642(b)(2)(C)(ii)), any amount
included in the income of such child under sec-
tions 652 and 662 during a taxable year shall be
considered earned income of such child for such
taxable year.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2005.
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SEC. 457. LOAN AND REDEMPTION REQUIREMENTS ON
POOLED FINANCING REQUIREMENTS.
(a) STRENGTHENED REASONABLE EXPECTATION RE-
QUIREMENT.—Subparagraph (A) of section 149(f)(2) (relat-
ing to reasonable expectation requirement) is amended to
read as follows:
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to an issue
if the issuer reasonably expects that—
‘‘(i) as of the close of the 1-year period
beginning on the date of issuance of the
issue, at least 50 percent of the net proceeds
of the issue (as of the close of such period)
will have been used directly or indirectly to
make or finance loans to ultimate bor-
rowers, and
‘‘(ii) as of the close of the 3-year period
beginning on such date of issuance, at least
95 percent of the net proceeds of the issue
(as of the close of such period) will have
been so used.’’.
(b) WRITTEN LOAN COMMITMENT AND REDEMPTION
REQUIREMENTS.—Section 149(f) (relating to treatment of
certain pooled financing bonds) is amended by redesig-
nating paragraphs (4) and (5) as paragraphs (6) and (7),
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respectively, and by inserting after paragraph (3) the fol-
lowing new paragraphs:
‘‘(4) WRITTEN
LOAN
COMMITMENT
REQUIRE-
MENT.—
‘‘(A) IN GENERAL.—The requirement of this
paragraph is met with respect to an issue if the
issuer receives prior to issuance written loan
commitments identifying the ultimate potential
borrowers of at least 50 percent of the net pro-
ceeds of such issue.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply with respect to any issuer which is a
State (or an integral part of a State) issuing
pooled financing bonds to make or finance loans
to subordinate governmental units of such State
or to State-created entities providing financing
for water-infrastructure projects through the fed-
erally-sponsored State revolving fund program.
‘‘(5) REDEMPTION REQUIREMENT.—The require-
ment of this paragraph is met if to the extent that less
than the percentage of the proceeds of an issue re-
quired to be used under clause (i) or (ii) of paragraph
(2)(A) is used by the close of the period identified in
such clause, the issuer uses an amount of proceeds
equal to the excess of—
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‘‘(A) the amount required to be used under
such clause, over
‘‘(B) the amount actually used by the close
of such period,
‘‘to redeem outstanding bonds within 90 days
after the end of such period.’’.
(c) ELIMINATION OF DISREGARD OF POOLED BONDS
IN DETERMINING ELIGIBILITY FOR SMALL ISSUER EXCEP-
TION
TO ARBITRAGE REBATE.—Section 148(f)(4)(D)(ii)
(relating to aggregation of issuers) is amended by striking
subclause (II) and by redesignating subclauses (III) and
(IV) as subclauses (II) and (III), respectively.
(d) CONFORMING AMENDMENTS.—
(1) Section 149(f)(1) is amended by striking
‘‘paragraphs (2) and (3)’’ and inserting ‘‘paragraphs
(2), (3), (4), and (5)’’.
(2) Section 149(f)(7)(B), as redesignated by sub-
section (b), is amended by striking ‘‘paragraph
(4)(A)’’ and inserting ‘‘paragraph (6)(A)’’.
(3) Section 54(l)(2) is amended by striking ‘‘sec-
tion 
149(f)(4)(A)’’ 
and 
inserting 
‘‘section
149(f)(6)(A)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to bonds issued after the date of the en-
actment of this Act.
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SEC. 458. REPORTING OF INTEREST ON TAX-EXEMPT
BONDS.
(a) IN GENERAL.—Section 6049(b)(2) (relating to ex-
ceptions) is amended by striking subparagraph (B) and by
redesignating subparagraphs (C) and (D) as subparagraphs
(B) and (C), respectively.
(b) 
CONFORMING
AMENDMENT.—Section
6049(b)(2)(C), as redesignated by subsection (a), is amend-
ed by striking ‘‘subparagraph (C)’’ and inserting ‘‘subpara-
graph (B)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to interest earned after December 31,
2005.
SEC. 459. MODIFICATION OF CREDIT FOR PRODUCING FUEL
FROM A NONCONVENTIONAL SOURCE.
(a) TAXABLE YEARS ENDING BEFORE 2006.—
(1) MODIFICATION OF PHASEOUT.—
(A) IN
GENERAL.—Section 29(b)(1)(A) is
amended by inserting ‘‘the calendar year pre-
ceding’’ before ‘‘the calendar year’’.
(B) CONFORMING
AMENDMENTS.—Section
29(b)((2) is amended—
(i) by striking ‘‘The’’ and inserting
‘‘With respect to any calendar year, the’’,
and
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(ii) by striking ‘‘for the calendar year
in which the sale occurs’’ and inserting ‘‘for
such calendar year’’.
(2) NO INFLATION ADJUSTMENT FOR THE CRED-
IT AMOUNT IN 2005.—Section 29(b)(2), as amended by
paragraph (1), is amended by adding at the end the
following new sentence: ‘‘This paragraph shall not
apply with respect to the $3 amount in subsection (a)
for calendar year 2005 and the amount in effect
under subsection (a) for sales in such calendar year
shall be the amount which was in effect for sales in
calendar year 2004.’’.
(b) TAXABLE YEARS ENDING AFTER 2005.—
(1) MODIFICATION OF PHASEOUT.—
(A) IN GENERAL.—Section 45K(b)(1)(A) is
amended by inserting ‘‘the calendar year pre-
ceding’’ before ‘‘the calendar year’’.
(B) CONFORMING
AMENDMENTS.—Section
45K(b)((2) is amended—
(i) by striking ‘‘The’’ and inserting
‘‘With respect to any calendar year, the’’,
and
(ii) by striking ‘‘for the calendar year
in which the sale occurs’’ and inserting ‘‘for
such calendar year’’.
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(2) NO INFLATION ADJUSTMENT FOR THE CRED-
IT
AMOUNT
IN
2005, 
2006, 
AND
2007.—Section
45K(b)(2), as amended by paragraph (1), is amended
by adding at the end the following new sentence:
‘‘This paragraph shall not apply with respect to the
$3 amount in subsection (a) for calendar years 2005,
2006, and 2007 and the amount in effect under sub-
section (a) for sales in each such calendar year shall
be the amount which was in effect for sales in cal-
endar year 2004.’’.
(3) TREATMENT OF COKE AND COKE GAS.—
(A) NONAPPLICATION OF PHASEOUT.—Sec-
tion 45K(g)(2) is amended by adding at the end
the following new subparagraph:
‘‘(D) NONAPPLICATION
OF
PHASEOUT.—
Subsection (b)(1) shall not apply.’’.
(B) APPLICATION
OF
INFLATION
ADJUST-
MENT.—Section 45K(g)(2)(B) is amended by in-
serting ‘‘and the last sentence of subsection (b)(2)
shall not apply.’’.
(C) CLARIFICATION OF QUALIFYING FACIL-
ITY.—Section 45K(g)(1) is amended by inserting
‘‘(other than from petroleum based products)’’
after ‘‘coke or coke gas’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to fuel sold after December 31, 2004.
SEC. 460. MODIFICATION OF INDIVIDUAL ESTIMATED TAX
SAFE HARBOR.
(a) IN GENERAL.—Clause (i) of section 6654(d)(1)(C)
is amended by striking ‘‘substituting’’ and all that follows
through ‘‘1997.’’ and inserting ‘‘substituting ‘110 percent
(120 percent if the preceding taxable year begins in 2005)’
for ‘100 percent’.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply with respect to any installment payment
for taxable years beginning after December 31, 2005.
SEC. 461. REVALUATION OF LIFO INVENTORIES OF LARGE
INTEGRATED OIL COMPANIES.
(a) GENERAL RULE.—Notwithstanding any other pro-
vision of law, if a taxpayer is an applicable integrated oil
company for its last taxable year ending in calendar year
2005, the taxpayer shall—
(1) increase, effective as of the close of such tax-
able year, the value of each historic LIFO layer of in-
ventories of crude oil, natural gas, or any other petro-
leum product (within the meaning of section 4611) by
the layer adjustment amount, and
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(2) decrease its cost of goods sold for such taxable
year by the aggregate amount of the increases under
paragraph (1).
If the aggregate amount of the increases under paragraph
(1) exceed the taxpayer’s cost of goods sold for such taxable
year, the taxpayer’s gross income for such taxable year shall
be increased by the amount of such excess.
(b) LAYER ADJUSTMENT AMOUNT.—For purposes of
this section—
(1) IN GENERAL.—The term ‘‘layer adjustment
amount’’ means, with respect to any historic LIFO
layer, the product of—
(A) $18.75, and
(B) the number of barrels of crude oil (or in
the case of natural gas or other petroleum prod-
ucts, the number of barrel-of-oil equivalents) rep-
resented by the layer.
(2) BARREL-OF-OIL
EQUIVALENT.—The term
‘‘barrel-of-oil equivalent’’ has the meaning given such
term by section 29(d)(5) (as in effect before its redes-
ignation by the Energy Tax Incentives Act of 2005).
(c) APPLICATION OF REQUIREMENT.—
(1) NO CHANGE IN METHOD OF ACCOUNTING.—
Any adjustment required by this section shall not be
treated as a change in method of accounting.
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(2) UNDERPAYMENTS OF ESTIMATED TAX.—No
addition to the tax shall be made under section 6655
of the Internal Revenue Code of 1986 (relating to fail-
ure by corporation to pay estimated tax) with respect
to any underpayment of an installment required to be
paid with respect to the taxable year described in sub-
section (a) to the extent such underpayment was cre-
ated or increased by this section.
(d) APPLICABLE INTEGRATED OIL COMPANY.—For
purposes of this section, the term ‘‘applicable integrated oil
company’’ means an integrated oil company (as defined in
section 291(b)(4) of the Internal Revenue Code of 1986)
which has an average daily worldwide production of crude
oil of at least 500,000 barrels for the taxable year and which
had gross receipts in excess of $1,000,000,000 for its last
taxable year ending during calendar year 2005. For pur-
poses of this subsection all persons treated as a single em-
ployer under subsections (a) and (b) of section 52 of the
Internal Revenue Code of 1986 shall be treated as 1 person
and, in the case of a short taxable year, the rule under sec-
tion 448(c)(3)(B) shall apply.
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SEC. 462. ELIMINATION OF AMORTIZATION OF GEOLOGICAL
AND 
GEOPHYSICAL 
EXPENDITURES 
FOR
MAJOR INTEGRATED OIL COMPANIES.
(a) IN GENERAL.—Section 167(h) is amended by add-
ing at the end the following new paragraph:
‘‘(5) NONAPPLICATION
TO
MAJOR
INTEGRATED
OIL
COMPANIES.—This subsection shall not apply
with respect to any expenses paid or incurred for any
taxable year by any integrated oil company (as de-
fined in section 291(b)(4)) which has an average
daily worldwide production of crude oil of at least
500,000 barrels for such taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect as if included in the amendment
made by section 1329(a) of the Energy Policy Act of 2005.
SEC. 463. VALUATION OF EMPLOYEE PERSONAL USE OF
NONCOMMERCIAL AIRCRAFT.
(a) IN GENERAL.—For purposes of Federal income tax
inclusion, the value of any employee personal use of non-
commercial aircraft shall equal the excess (if any) of—
(1) greater of—
(A) the fair market value of such use, or
(B) the actual cost of such use (including
all fixed and variable costs), over
(2) any amount paid by or on behalf of such em-
ployee for such use.
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(b) EFFECTIVE DATE.—Subsection (a) shall apply to
use after the date of the enactment of this Act.
SEC. 464. APPLICATION OF FIRPTA TO REGULATED INVEST-
MENT COMPANIES.
(a) 
IN
GENERAL.—Subclause 
(II) 
of 
section
897(h)(4)(A)(i) (defining qualified investment entity) is
amended by inserting ‘‘which is a United States real prop-
erty holding corporation or which would be a United States
real property holding corporation if the exceptions provided
in subsections (c)(3) and (h)(2) did not apply to interests
in any real estate investment trust or regulated investment
company’’ after ‘‘regulated investment company’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to distributions with respect to taxable
years beginning after December 31, 2004.
SEC. 465. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE
TO FIRPTA GAINS.
(a) QUALIFIED INVESTMENT ENTITY.—
(1) 
IN
GENERAL.—Section 
897(h)(1) 
is
amended—
(A) by striking ‘‘a nonresident alien indi-
vidual or a foreign corporation’’ in the first sen-
tence and inserting ‘‘a nonresident alien indi-
vidual, a foreign corporation, or other qualified
investment entity’’,
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(B) by striking ‘‘such nonresident alien in-
dividual or foreign corporation’’ in the first sen-
tence and inserting ‘‘such nonresident alien indi-
vidual, foreign corporation, or other qualified in-
vestment entity’’, and
(C) by striking the second sentence and in-
serting the following new sentence: ‘‘Notwith-
standing the preceding sentence, any distribution
by a qualified investment entity to a nonresident
alien, a foreign corporation, or other qualified
investment entity with respect to any class of
stock which is regularly traded on an established
securities market located in the United States
shall not be treated as gain recognized from the
sale or exchange of a United States real property
interest if the shareholder did not own more than
5 percent of such class of stock at any time dur-
ing the 1 year period ending on the date of such
distribution.’’.
(2) APPLICATION AFTER 2007.—Clause (ii) of sec-
tion 897(h)(4)(A) is amended by adding at the end
the following new sentence: ‘‘Notwithstanding the pre-
ceding sentence, an entity described in clause (i)(II)
shall be treated as a qualified investment entity for
purposes of applying paragraph (1) in any case in
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which a real estate investment trust makes a distribu-
tion to an entity described in clause (i)(II).’’.
(b) TREATMENT OF CERTAIN DISTRIBUTIONS AS DIVI-
DENDS.—
(1) IN GENERAL.—Section 852(b)(3) (relating to
capital gains) is amended by adding at the end the
following new subparagraph:
‘‘(E) CERTAIN DISTRIBUTIONS.—In the case
of a distribution to which section 897 does not
apply by reason of the second sentence of section
897(h)(1), the amount of such distribution which
would be included in computing long-term cap-
ital gains for the shareholder under subpara-
graph (B) or (D) (without regard to this sub-
paragraph)—
‘‘(i) shall not be included in computing
such shareholder’s long-term capital gains,
and
‘‘(ii) shall be included in such share-
holder’s gross income as a dividend from the
regulated investment company.’’.
(2) 
CONFORMING
AMENDMENT.—Section
871(k)(2) (relating to short-term capital gain divi-
dends) is amended by adding at the end the following
new subparagraph:
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‘‘(E) CERTAIN DISTRIBUTIONS.—In the case
of a distribution to which section 897 does not
apply by reason of the second sentence of section
897(h)(1), the amount which would be treated as
a short-term capital gain dividend to the share-
holder (without regard to this subparagraph)—
‘‘(i) shall not be treated as a short-term
capital gain dividend, and
‘‘(ii) shall be included in such share-
holder’s gross income as a dividend from the
regulated investment company.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years of qualified investment entities
beginning after the date of the enactment of this Act.
(2) DIVIDENDS.—The amendments made by sub-
section (b) shall apply to dividends with respect to
taxable years of regulated investment companies be-
ginning after December 31, 2004.
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SEC. 466. PREVENTION OF AVOIDANCE OF TAX ON INVEST-
MENTS OF FOREIGN PERSONS IN UNITED
STATES REAL PROPERTY THROUGH WASH
SALE TRANSACTIONS.
(a) IN GENERAL.—Section 897(h) of the Internal Rev-
enue Code of 1986 (relating to special rules in certain in-
vestment entities) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3)
the following new paragraph:
‘‘(4) TREATMENT
OF
CERTAIN
WASH
SALE
TRANSACTIONS.—
‘‘(A) IN GENERAL.—If an interest in a do-
mestically controlled qualified investment entity
is disposed of in an applicable wash sale trans-
action, the taxpayer shall, for purposes of this
section, be treated as having gain from the sale
or exchange of a United States real property in-
terest in an amount equal to the portion of the
distribution described in subparagraph (B) with
respect to such interest which, but for the dis-
position, would have been treated by the tax-
payer as gain from the sale or exchange of a
United States real property interest under para-
graph (1).
‘‘(B) APPLICABLE
WASH
SALES
TRANS-
ACTION.—For purposes of this paragraph—
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‘‘(i) IN GENERAL.—The term ‘applica-
ble wash sales transaction’ means any
transaction (or series of transactions) under
which a nonresident alien individual or for-
eign corporation—
‘‘(I) disposes of an interest in a
domestically controlled qualified in-
vestment entity during the 30-day pe-
riod preceding a distribution which is
to be made with respect to the interest
and any portion of which, but for the
disposition, would have been treated by
the taxpayer as gain from the sale or
exchange of a United States real prop-
erty interest under paragraph (1), and
‘‘(II) acquires an identical inter-
est in such entity during the 60-day
period beginning with the 1st day of
the 30-day period described in sub-
clause (I).
For purposes of subclause (II), a non-
resident alien individual or foreign corpora-
tion shall be treated as having acquired any
interest acquired by a person related (with-
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in the meaning of section 465(b)(3)(C)) to
the individual or corporation.
‘‘(ii) EXCEPTION
WHERE
DISTRIBU-
TION ACTUALLY RECEIVED.—A transaction
shall not be treated as an applicable wash
sales transaction if the nonresident alien in-
dividual or foreign corporation receives the
distribution described in clause (i)(I) with
respect to either the interest which was dis-
posed of, or acquired, in the transaction.
‘‘(iii) EXCEPTION FOR CERTAIN PUB-
LICLY TRADED STOCK.—A transaction shall
not be treated as an applicable wash sales
transaction if it involves the disposition of
any class of stock in a qualified investment
entity which is regularly traded on an es-
tablished securities market within the
United States but only if the nonresident
alien individual or foreign corporation did
not own more than 5 percent of such class
of stock at any time during the 1-year pe-
riod ending on the date of the distribution
described in clause (i)(I).’’.
(b) NO WITHHOLDING REQUIRED.—Section 1445(b) of
the Internal Revenue Code of 1986 (relating to exemptions)
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is amended by adding at the end the following new para-
graph:
‘‘(8) APPLICABLE WASH SALES TRANSACTIONS.—
No person shall be required to deduct and withhold
any amount under subsection (a) with respect to a
disposition which is treated as a disposition of a
United States real property interest solely by reason
of section 897(h)(4).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to dispositions after December 31, 2005,
in taxable years ending after such date.
SEC. 467. MODIFICATIONS TO RULES RELATING TO TAX-
ATION OF DISTRIBUTIONS OF STOCK AND SE-
CURITIES OF A CONTROLLED CORPORATION.
(a) MODIFICATION OF ACTIVE BUSINESS DEFINITION
UNDER SECTION 355.—
(1) IN GENERAL.—Section 355(b) (defining ac-
tive conduct of a trade or business) is amended by
adding at the end the following new paragraph:
‘‘(3) SPECIAL RULES RELATING TO ACTIVE BUSI-
NESS REQUIREMENT.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining whether a corporation meets the require-
ment of paragraph (2)(A), all members of such
corporation’s separate affiliated group shall be
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treated as 1 corporation. For purposes of the pre-
ceding sentence, the term ‘separate affiliated
group’ means, with respect to any corporation,
the affiliated group which would be determined
under section 1504(a) if such corporation were
the common parent and section 1504(b) did not
apply.
‘‘(B) CONTROL.—For purposes of para-
graph (2)(D), all distributee corporations which
are members of the same affiliated group (as de-
fined in section 1504(a) without regard to sec-
tion 1504(b)) shall be treated as 1 distributee
corporation.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (A) of section 355(b)(2)
is amended to read as follows:
‘‘(A) it is engaged in the active conduct of
a trade or business,’’.
(B) Section 355(b)(2) of such Code is
amended by striking the last sentence.
(3) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply—
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(i) to distributions after the date of the
enactment of this Act, and before January
1, 2010, and
(ii) for purposes of determining the
continued 
qualification 
under 
section
355(b)(2)(A) of the Internal Revenue Code
of 1986 (as amended by paragraph (2)(A))
of distributions made before such date, as a
result of an acquisition, disposition, or
other restructuring after such date and be-
fore January 1, 2010.
(B) TRANSITION
RULE.—The amendments
made by this subsection shall not apply to any
distribution pursuant to a transaction which
is—
(i) made pursuant to an agreement
which was binding on such date of enact-
ment and at all times thereafter,
(ii) described in a ruling request sub-
mitted to the Internal Revenue Service on
or before such date, or
(iii) described on or before such date in
a public announcement or in a filing with
the Securities and Exchange Commission.
(C) ELECTIONS.—
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(i) OUT OF TRANSITION RELIEF.—Sub-
paragraph (B) shall not apply if the dis-
tributing corporation elects not to have such
subparagraph apply to distributions of such
corporation. Any such election, once made,
shall be irrevocable.
(ii) APPLICATION TO PRIOR DISTRIBU-
TIONS.—Subparagraph (A)(ii) shall not
apply to a distributing or controlled cor-
poration if the corporation elects not to
have such subparagraph apply to such cor-
poration. Any such election, once made,
shall be irrevocable.
(b) SECTION 355 NOT TO APPLY TO DISTRIBUTIONS
IF THE DISTRIBUTING OR CONTROLLED CORPORATION IS
A DISQUALIFIED INVESTMENT CORPORATION.—
(1) IN GENERAL.—Section 355 (relating to dis-
tributions of stock and securities of a controlled cor-
poration) is amended by adding at the end the fol-
lowing new subsection:
‘‘(g) SECTION NOT TO APPLY TO DISTRIBUTIONS IN-
VOLVING DISQUALIFIED INVESTMENT CORPORATIONS.—
‘‘(1) IN GENERAL.—This section (and so much of
section 356 as relates to this section) shall not apply
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to any distribution which is part of a transaction
if—
‘‘(A) either the distributing corporation or
controlled corporation is, immediately after the
transaction, a disqualified investment corpora-
tion, and
‘‘(B) any person holds, immediately after
the transaction, a 50-percent or greater interest
in any disqualified investment corporation, but
only if such person did not hold such an interest
in such corporation immediately before the
transaction.
‘‘(2) 
DISQUALIFIED
INVESTMENT
CORPORA-
TION.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘disqualified
investment corporation’ means any distributing
or controlled corporation if the fair market value
of the investment assets of the corporation is 75
percent or more of the fair market value of all
assets of the corporation.
‘‘(B) INVESTMENT ASSETS.—
‘‘(i) IN GENERAL.—Except as otherwise
provided in this subparagraph, the term
‘investment assets’ means—
‘‘(I) cash,
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‘‘(II) any stock or securities in a
corporation,
‘‘(III) any interest in a partner-
ship,
‘‘(IV) any debt instrument or
other evidence of indebtedness,
‘‘(V) any option, forward or fu-
tures contract, notional principal con-
tract, or derivative,
‘‘(VI) foreign currency, or
‘‘(VII) any similar asset.
‘‘(ii) EXCEPTION FOR ASSETS USED IN
ACTIVE
CONDUCT
OF
CERTAIN
FINANCIAL
TRADES OR BUSINESSES.—Such term shall
not include any asset which is held for use
in the active and regular conduct of—
‘‘(I) a lending or finance business
(within 
the 
meaning 
of 
section
954(h)(4)),
‘‘(II) a banking business through
a bank (as defined in section 581), a
domestic building and loan association
(within 
the 
meaning 
of 
section
7701(a)(19)), or any similar institu-
tion specified by the Secretary, or
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‘‘(III) an insurance business if the
conduct of the business is licensed, au-
thorized, or regulated by an applicable
insurance regulatory body.
This clause shall only apply with respect to
any business if substantially all of the in-
come of the business is derived from persons
who are not related (within the meaning of
section 267(b) or 707(b)(1)) to the person
conducting the business.
‘‘(iii) EXCEPTION
FOR
SECURITIES
MARKED TO MARKET.—Such term shall not
include any security (as defined in section
475(c)(2)) which is held by a dealer in secu-
rities and to which section 475(a) applies.
‘‘(iv) STOCK OR SECURITIES IN A 25-
PERCENT CONTROLLED ENTITY.—
‘‘(I) IN
GENERAL.—Such term
shall not include any stock and securi-
ties in, or any asset described in sub-
clause (IV) or (V) of clause (i) issued
by, a corporation which is a 25-percent
controlled entity with respect to the
distributing or controlled corporation.
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‘‘(II) 
LOOK-THRU
RULE.—The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any 25-
percent controlled entity.
‘‘(III) 25-PERCENT
CONTROLLED
ENTITY.—For purposes of this clause,
the term ‘25-percent controlled entity’
means, with respect to any distributing
or controlled corporation, any corpora-
tion with respect to which the distrib-
uting or controlled corporation owns
directly or indirectly stock meeting the
requirements of section 1504(a)(2), ex-
cept that such section shall be applied
by substituting ‘25 percent’ for ‘80 per-
cent’ and without regard to stock de-
scribed in section 1504(a)(4).
‘‘(v) INTERESTS IN CERTAIN PARTNER-
SHIPS.—
‘‘(I) IN
GENERAL.—Such term
shall not include any interest in a
partnership, or any debt instrument or
other evidence of indebtedness, issued
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by the partnership, if 1 or more of the
trades or businesses of the partnership
are (or, without regard to the 5-year
requirement 
under 
subsection
(b)(2)(B), would be) taken into account
by the distributing or controlled cor-
poration, as the case may be, in deter-
mining whether the requirements of
subsection (b) are met with respect to
the distribution.
‘‘(II) 
LOOK-THRU
RULE.—The
distributing or controlled corporation
shall, for purposes of applying this
subsection, be treated as owning its
ratable share of the assets of any part-
nership described in subclause (I).
‘‘(3) 50-PERCENT OR GREATER INTEREST.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘50-percent or
greater interest’ has the meaning given such term
by subsection (d)(4).
‘‘(B) ATTRIBUTION
RULES.—The rules of
section 318 shall apply for purposes of deter-
mining ownership of stock for purposes of this
paragraph.
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‘‘(4) TRANSACTION.—For purposes of this sub-
section, the term ‘transaction’ includes a series of
transactions.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out, or prevent the avoidance of, the purposes of this
subsection, including regulations—
‘‘(A) to carry out, or prevent the avoidance
of, the purposes of this subsection in cases
involving—
‘‘(i) the use of related persons, inter-
mediaries, pass-thru entities, options, or
other arrangements, and
‘‘(ii) the treatment of assets unrelated
to the trade or business of a corporation as
investment assets if, prior to the distribu-
tion, investment assets were used to acquire
such unrelated assets,
‘‘(B) which in appropriate cases exclude
from the application of this subsection a dis-
tribution which does not have the character of a
redemption which would be treated as a sale or
exchange under section 302, and
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‘‘(C) which modify the application of the at-
tribution rules applied for purposes of this sub-
section.’’.
(2) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to distributions
after the date of the enactment of this Act.
(B) TRANSITION
RULE.—The amendments
made by this subsection shall not apply to any
distribution pursuant to a transaction which
is—
(i) made pursuant to an agreement
which was binding on such date of enact-
ment and at all times thereafter,
(ii) described in a ruling request sub-
mitted to the Internal Revenue Service on
or before such date, or
(iii) described on or before such date in
a public announcement or in a filing with
the Securities and Exchange Commission.
SEC. 468. AMORTIZATION OF EXPENSES INCURRED IN CRE-
ATING OR ACQUIRING MUSIC OR MUSIC
COPYRIGHTS.
(a) IN GENERAL.—Section 263A (relating to capital-
ization and inclusion in inventory costs of certain expenses)
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is amended by redesignating subsection (i) as subsection (j)
and by adding after subsection (h) the following new sub-
section:
‘‘(i) SPECIAL RULES FOR CERTAIN MUSICAL WORKS
AND COPYRIGHTS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any expense is paid or incurred by the
taxpayer in creating or acquiring any musical
composition 
(including 
any 
accompanying
words) or any copyright with respect to a musi-
cal composition, and
‘‘(B) such expense is required to be capital-
ized under this section,
then, notwithstanding section 167(g), the amount cap-
italized shall be amortized ratably over the 5-year pe-
riod beginning with the month in which the composi-
tion or copyright was acquired (or, in the case of ex-
penses paid or incurred in connection with the cre-
ation of a musical composition, the 5-taxable-year pe-
riod beginning with the taxable year in which the ex-
penses were paid or incurred).
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to any expense—
‘‘(A) which is a qualified creative expense
under subsection (h),
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‘‘(B) to which a simplified procedure estab-
lished under subsection (j)(2) applies,
‘‘(C) which is an amortizable section 197
intangible (as defined in section 197(c)), or
‘‘(D) which, without regard to this section,
would not be allowable as a deduction.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenses paid or incurred after De-
cember 31, 2005, in taxable years ending after such date.
SEC. 469. CREDIT TO HOLDERS OF RURAL RENAISSANCE
BONDS.
(a) IN GENERAL.—Subpart H of part IV of subchapter
A of chapter 1 (relating to credits against tax) is amended
by adding at the end the following new section:
‘‘SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE
BONDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax-
payer who holds a rural renaissance bond on a credit allow-
ance date of such bond, which occurs during the taxable
year, there shall be allowed as a credit against the tax im-
posed by this chapter for such taxable year an amount equal
to the sum of the credits determined under subsection (b)
with respect to credit allowance dates during such year on
which the taxpayer holds such bond.
‘‘(b) AMOUNT OF CREDIT.—
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‘‘(1) IN GENERAL.—The amount of the credit de-
termined under this subsection with respect to any
credit allowance date for a rural renaissance bond is
25 percent of the annual credit determined with re-
spect to such bond.
‘‘(2) ANNUAL CREDIT.—The annual credit deter-
mined with respect to any rural renaissance bond is
the product of—
‘‘(A) the credit rate determined by the Sec-
retary under paragraph (3) for the day on which
such bond was sold, multiplied by
‘‘(B) the outstanding face amount of the
bond.
‘‘(3) DETERMINATION.—For purposes of para-
graph (2), with respect to any rural renaissance bond,
the Secretary shall determine daily or caused to be
determined daily a credit rate which shall apply to
the first day on which there is a binding, written con-
tract for the sale or exchange of the bond. The credit
rate for any day is the credit rate which the Sec-
retary or the Secretary’s designee estimates will per-
mit the issuance of rural renaissance bonds with a
specified maturity or redemption date without dis-
count and without interest cost to the qualified issuer.
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‘‘(4) CREDIT ALLOWANCE DATE.—For purposes
of this section, the term ‘credit allowance date’
means—
‘‘(A) March 15,
‘‘(B) June 15,
‘‘(C) September 15, and
‘‘(D) December 15.
Such term also includes the last day on which the
bond is outstanding.
‘‘(5) SPECIAL RULE FOR ISSUANCE AND REDEMP-
TION.—In the case of a bond which is issued during
the 3-month period ending on a credit allowance date,
the amount of the credit determined under this sub-
section with respect to such credit allowance date
shall be a ratable portion of the credit otherwise deter-
mined based on the portion of the 3-month period
during which the bond is outstanding. A similar rule
shall apply when the bond is redeemed or matures.
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for any taxable year
shall not exceed the excess of—
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by section
55, over
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‘‘(2) the sum of the credits allowable under this
part (other than subpart C).
‘‘(d) RURAL RENAISSANCE BOND.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘rural renaissance
bond’ means any bond issued as part of an issue if—
‘‘(A) the bond is issued by a qualified
issuer,
‘‘(B) 95 percent or more of the proceeds
from the sale of such issue are to be used for cap-
ital expenditures incurred for 1 or more quali-
fied projects,
‘‘(C) the qualified issuer designates such
bond for purposes of this section and the bond is
in registered form, and
‘‘(D) the issue meets the requirements of
subsections (e) and (h).
‘‘(2) 
QUALIFIED
PROJECT; 
SPECIAL
USE
RULES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
project’ means 1 or more projects described in
subparagraph (B) located in a rural area.
‘‘(B) PROJECTS DESCRIBED.—A project de-
scribed in this subparagraph is—
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‘‘(i) a water or waste treatment
project,
‘‘(ii) an affordable housing project,
‘‘(iii) a community facility project, in-
cluding hospitals, fire and police stations,
and nursing and assisted-living facilities,
‘‘(iv) a value-added agriculture or re-
newable energy facility project for agricul-
tural producers or farmer-owned entities,
including any project to promote the pro-
duction, processing, or retail sale of ethanol
(including fuel at least 85 percent of the
volume of which consists of ethanol), bio-
diesel, animal waste, biomass, raw commod-
ities, or wind as a fuel,
‘‘(v) a distance learning or telemedi-
cine project,
‘‘(vi) a rural utility infrastructure
project, including any electric or telephone
system,
‘‘(vii) a project to expand broadband
technology,
‘‘(viii) a rural teleworks project, and