283 
so added, shall be applied by substituting ‘‘20 
years’’ for ‘‘15 years’’. 
(3) SUBSECTION (c).—The amendments made 
by subsection (c) shall apply to distributions after 
the date of the enactment of this Act. 
SEC. 634. NO REDUCTION OF BASIS UNDER SECTION 734 IN 
STOCK HELD BY PARTNERSHIP IN COR-
PORATE PARTNER. 
(a) IN GENERAL.—Section 755 is amended by adding 
at the end the following new subsection: 
‘‘(c) NO ALLOCATION
OF BASIS DECREASE
TO 
STOCK OF CORPORATE PARTNER.—In making an alloca-
tion under subsection (a) of any decrease in the adjusted 
basis of partnership property under section 734(b)— 
‘‘(1) no allocation may be made to stock in a 
corporation (or any person related (within the mean-
ing of sections 267(b) and 707(b)(1)) to such cor-
poration) which is a partner in the partnership, and 
‘‘(2) any amount not allocable to stock by rea-
son of paragraph (1) shall be allocated under sub-
section (a) to other partnership property. 
Gain shall be recognized to the partnership to the extent 
that the amount required to be allocated under paragraph 
(2) to other partnership property exceeds the aggregate
284 
adjusted basis of such other property immediately before 
the allocation required by paragraph (2).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions after the date of 
the enactment of this Act. 
SEC. 635. REPEAL OF SPECIAL RULES FOR FASITS. 
(a) IN GENERAL.—Part V of subchapter M of chap-
ter 1 (relating to financial asset securitization investment 
trusts) is hereby repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (6) of section 56(g) is amended 
by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 
REMIC’’. 
(2) Clause (ii) of section 382(l)(4)(B) is amend-
ed by striking ‘‘a REMIC to which part IV of sub-
chapter M applies, or a FASIT to which part V of 
subchapter M applies,’’ and inserting ‘‘or a REMIC 
to which part IV of subchapter M applies,’’. 
(3) Paragraph (1) of section 582(c) is amended 
by striking ‘‘, and any regular interest in a 
FASIT,’’. 
(4) Subparagraph (E) of section 856(c)(5) is 
amended by striking the last sentence. 
(5)(A) Section 860G(a)(1) is amended by add-
ing at the end the following new sentence: ‘‘An inter-
285 
est shall not fail to qualify as a regular interest sole-
ly because the specified principal amount of the reg-
ular interest (or the amount of interest accrued on 
the regular interest) can be reduced as a result of 
the nonoccurrence of 1 or more contingent payments 
with respect to any reverse mortgage loan held by 
the REMIC if, on the startup day for the REMIC, 
the sponsor reasonably believes that all principal and 
interest due under the regular interest will be paid 
at or prior to the liquidation of the REMIC.’’. 
(B) The last sentence of section 860G(a)(3) is 
amended by inserting ‘‘, and any reverse mortgage 
loan (and each balance increase on such loan meet-
ing the requirements of subparagraph (A)(iii)) shall 
be treated as an obligation secured by an interest in 
real property’’ before the period at the end. 
(6) Paragraph (3) of section 860G(a) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (B), 
by striking ‘‘, and’’ at the end of subparagraph (C) 
and inserting a period, and by striking subparagraph 
(D). 
(7) Section 860G(a)(3), as amended by para-
graph (6), is amended by adding at the end the fol-
lowing new sentence: ‘‘For purposes of subparagraph 
(A), if more than 50 percent of the obligations
286 
transferred to, or purchased by, the REMIC are 
originated by the United States or any State (or any 
political subdivision, agency, or instrumentality of 
the United States or any State) and are principally 
secured by an interest in real property, then each 
obligation transferred to, or purchased by, the 
REMIC shall be treated as secured by an interest in 
real property.’’. 
(8)(A) Section 860G(a)(3)(A) is amended by 
striking ‘‘or’’ at the end of clause (i), by inserting 
‘‘or’’ at the end of clause (ii), and by inserting after 
clause (ii) the following new clause: 
‘‘(iii) represents an increase in the 
principal amount under the original terms 
of an obligation described in clause (i) or 
(ii) if such increase— 
‘‘(I) is attributable to an advance 
made to the obligor pursuant to the 
original terms of the obligation, 
‘‘(II) occurs after the startup 
day, and 
‘‘(III) 
is 
purchased 
by 
the 
REMIC pursuant to a fixed price con-
tract in effect on the startup day.’’.
287 
(B) Section 860G(a)(7)(B) is amended to read 
as follows: 
‘‘(B) QUALIFIED
RESERVE
FUND.—For 
purposes of subparagraph (A), the term ‘quali-
fied reserve fund’ means any reasonably re-
quired reserve to— 
‘‘(i) provide for full payment of ex-
penses of the REMIC or amounts due on 
regular interests in the event of defaults on 
qualified mortgages or lower than expected 
returns on cash flow investments, or 
‘‘(ii) provide a source of funds for the 
purchase of obligations described in clause 
(ii) or (iii) of paragraph (3)(A). 
The aggregate fair market value of the assets 
held in any such reserve shall not exceed 50 
percent of the aggregate fair market value of all 
of the assets of the REMIC on the startup day, 
and the amount of any such reserve shall be 
promptly and appropriately reduced to the ex-
tent the amount held in such reserve is no 
longer reasonably required for purposes speci-
fied in clause (i) or (ii) of this subparagraph.’’.
288 
(9) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’. 
(10) Clause (xi) of section 7701(a)(19)(C) is 
amended— 
(A) by striking ‘‘and any regular interest 
in a FASIT,’’, and 
(B) by striking ‘‘or FASIT’’ each place it 
appears. 
(11) Subparagraph (A) of section 7701(i)(2) is 
amended by striking ‘‘or a FASIT’’. 
(12) The table of parts for subchapter M of 
chapter 1 is amended by striking the item relating 
to part V. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall take effect on January 1, 2005. 
(2) EXCEPTION FOR EXISTING FASITS.—Para-
graph (1) shall not apply to any FASIT in existence 
on the date of the enactment of this Act to the ex-
tent that regular interests issued by the FASIT be-
fore such date continue to remain outstanding in ac-
cordance with the original terms of issuance.
289 
SEC. 636. LIMITATION ON TRANSFER OF BUILT-IN LOSSES 
ON REMIC RESIDUALS. 
(a) IN GENERAL.—Section 362 (relating to basis to 
corporations) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) LIMITATION
ON
TRANSFER
OF
BUILT-IN 
LOSSES ON REMIC RESIDUALS IN SECTION 351 TRANS-
ACTIONS.—If— 
‘‘(1) a residual interest (as defined in section 
860G(a)(2)) in a REMIC is transferred in any 
transaction which is described in subsection (a), and 
‘‘(2) the transferee’s adjusted basis in such re-
sidual interest would (but for this paragraph) exceed 
its fair market value immediately after such trans-
action, 
then, notwithstanding subsection (a), the transferee’s ad-
justed basis in such residual interest shall not exceed its 
fair market value (whether or not greater than zero) im-
mediately after such transaction.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to transactions after the date of 
the enactment of this Act.
290 
SEC. 637. CLARIFICATION OF BANKING BUSINESS FOR PUR-
POSES OF DETERMINING INVESTMENT OF 
EARNINGS IN UNITED STATES PROPERTY. 
(a) IN GENERAL.—Subparagraph (A) of section 
956(c)(2) is amended to read as follows: 
‘‘(A) obligations of the United States, 
money, or deposits with persons described in 
paragraph (4);’’. 
(b) ELIGIBLE PERSONS.—Section 956(c) (relating to 
exceptions to definition of United States property) is 
amended by adding at the end the following new para-
graph: 
‘‘(4) FINANCIAL SERVICES PROVIDERS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (2)(A), a person is described in this para-
graph if at least 80 percent of the person’s in-
come is from the active conduct of a banking 
business which is derived from persons who are 
not related persons. 
‘‘(B) SPECIAL
RULES.—For purposes of 
subparagraph (A) all related persons shall be 
treated as 1 person in applying the 80-percent 
test. 
‘‘(C) RELATED PERSON.—For purposes of 
this paragraph, a person is a related person to 
another person if—
291 
‘‘(i) the related person bears a rela-
tionship to such person specified in section 
267(b) or 707(b)(1), or 
‘‘(ii) such persons are members of the 
same controlled group of corporations (as 
defined in section 1563(a), except that 
‘more than 50 percent’ shall be substituted 
for ‘at least 80 percent’ each place it ap-
pears therein).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act. 
SEC. 638. ALTERNATIVE TAX FOR CERTAIN SMALL INSUR-
ANCE COMPANIES. 
(a) IN GENERAL.—Clause (i) of section 831(b)(2)(A) 
is amended by striking ‘‘$1,200,000’’ and inserting 
‘‘$1,890,000’’. 
(b) INFLATION ADJUSTMENT.—Paragraph (2) of sec-
tion 831(b) is amended by adding at the end the following 
new subparagraph: 
‘‘(C) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning in a calendar 
year after 2004, the $1,890,000 amount in sub-
paragraph (A) shall be increased by an amount 
equal to—
292 
‘‘(i) $1,890,000, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such 
calendar year by substituting ‘calendar 
year 2003’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof. 
If the amount as adjusted under the preceding 
sentence is not a multiple of $1,000, such 
amount shall be rounded to the next lowest 
multiple of $1,000.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 639. DENIAL OF DEDUCTION FOR INTEREST ON UN-
DERPAYMENTS ATTRIBUTABLE TO NONDIS-
CLOSED REPORTABLE TRANSACTIONS. 
(a) IN GENERAL.—Section 163 (relating to deduction 
for interest) is amended by redesignating subsection (m) 
as subsection (n) and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE 
TO NONDISCLOSED REPORTABLE TRANSACTIONS.—No 
deduction shall be allowed under this chapter for any in-
terest paid or accrued under section 6601 on any under-
payment of tax which is attributable to the portion of any
293 
reportable transaction understatement (as defined in sec-
tion 6662A(b)) with respect to which the requirement of 
section 6664(d)(2)(A) is not met.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions in taxable years 
beginning after the date of the enactment of this Act. 
SEC. 640. CLARIFICATION OF RULES FOR PAYMENT OF ES-
TIMATED TAX FOR CERTAIN DEEMED ASSET 
SALES. 
(a) IN GENERAL.—Paragraph (13) of section 338(h) 
(relating to tax on deemed sale not taken into account for 
estimated tax purposes) is amended by adding at the end 
the following: ‘‘The preceding sentence shall not apply 
with respect to a qualified stock purchase for which an 
election is made under paragraph (10).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to transactions occurring after 
the date of the enactment of this Act. 
SEC. 641. RECOGNITION OF GAIN FROM THE SALE OF A 
PRINCIPAL RESIDENCE ACQUIRED IN A LIKE- 
KIND EXCHANGE WITHIN 5 YEARS OF SALE. 
(a) IN GENERAL.—Section 121(d) (relating to special 
rules for exclusion of gain from sale of principal residence) 
is amended by adding at the end the following new para-
graph:
294 
‘‘(10) PROPERTY ACQUIRED IN LIKE-KIND EX-
CHANGE.—If a taxpayer acquired property in an ex-
change to which section 1031 applied, subsection (a) 
shall not apply to the sale or exchange of such prop-
erty if it occurs during the 5-year period beginning 
with the date of the acquisition of such property.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to sales or exchanges after the date 
of the enactment of this Act. 
SEC. 642. PREVENTION OF MISMATCHING OF INTEREST 
AND ORIGINAL ISSUE DISCOUNT DEDUC-
TIONS AND INCOME INCLUSIONS IN TRANS-
ACTIONS WITH RELATED FOREIGN PERSONS. 
(a) ORIGINAL ISSUE DISCOUNT.—Section 163(e)(3) 
(relating to special rule for original issue discount on obli-
gation held by related foreign person) is amended by re-
designating subparagraph (B) as subparagraph (C) and 
by inserting after subparagraph (A) the following new sub-
paragraph: 
‘‘(B) SPECIAL
RULE
FOR
CERTAIN
FOR-
EIGN ENTITIES.— 
‘‘(i) IN GENERAL.—In the case of any 
debt instrument having original issue dis-
count which is held by a related foreign 
person which is a foreign personal holding
295 
company (as defined in section 552), a 
controlled foreign corporation (as defined 
in section 957), or a passive foreign invest-
ment company (as defined in section 
1297), a deduction shall be allowable to 
the issuer with respect to such original 
issue discount for any taxable year before 
the taxable year in which paid only to the 
extent such original issue discount (re-
duced by properly allowable deductions and 
qualified 
deficits 
under 
section 
952(c)(1)(B)) is includible during such 
prior taxable year in the gross income of a 
United States person who owns (within the 
meaning of section 958(a)) stock in such 
corporation. 
‘‘(ii) SECRETARIAL AUTHORITY.—The 
Secretary may by regulation exempt trans-
actions from the application of clause (i), 
including any transaction which is entered 
into by a payor in the ordinary course of 
a trade or business in which the payor is 
predominantly engaged.’’. 
(b) 
INTEREST
AND
OTHER
DEDUCTIBLE 
AMOUNTS.—Section 267(a)(3) is amended—
296 
(1) by striking ‘‘The Secretary’’ and inserting: 
‘‘(A) IN GENERAL.—The Secretary’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(B) SPECIAL
RULE
FOR
CERTAIN
FOR-
EIGN ENTITIES.— 
‘‘(i) IN
GENERAL.—Notwithstanding 
subparagraph (A), in the case of any item 
payable to a foreign personal holding com-
pany (as defined in section 552), a con-
trolled foreign corporation (as defined in 
section 957), or a passive foreign invest-
ment company (as defined in section 
1297), a deduction shall be allowable to 
the payor with respect to such amount for 
any taxable year before the taxable year in 
which paid only to the extent that an 
amount attributable to such item (reduced 
by properly allowable deductions and quali-
fied deficits under section 952(c)(1)(B)) is 
includible during such prior taxable year in 
the gross income of a United States person 
who owns (within the meaning of section 
958(a)) stock in such corporation.
297 
‘‘(ii) SECRETARIAL AUTHORITY.—The 
Secretary may by regulation exempt trans-
actions from the application of clause (i), 
including any transaction which is entered 
into by a payor in the ordinary course of 
a trade or business in which the payor is 
predominantly engaged and in which the 
payment of the accrued amounts occurs 
within 81⁄2 months after accrual or within 
such other period as the Secretary may 
prescribe.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments accrued on or after 
the date of the enactment of this Act. 
SEC. 643. EXCLUSION FROM GROSS INCOME FOR INTEREST 
ON OVERPAYMENTS OF INCOME TAX BY INDI-
VIDUALS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross 
income) is amended by inserting after section 139A the 
following new section:
298 
‘‘SEC. 139B. EXCLUSION FROM GROSS INCOME FOR INTER-
EST ON OVERPAYMENTS OF INCOME TAX BY 
INDIVIDUALS. 
‘‘(a) IN GENERAL.—In the case of an individual, 
gross income shall not include interest paid under section 
6611 on any overpayment of tax imposed by this subtitle. 
‘‘(b) EXCEPTION.—Subsection (a) shall not apply in 
the case of a failure to claim items resulting in the over-
payment on the original return if the Secretary determines 
that the principal purpose of such failure is to take advan-
tage of subsection (a). 
‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED 
ADJUSTED GROSS INCOME.—For purposes of this title, 
interest not included in gross income under subsection (a) 
shall not be treated as interest which is exempt from tax 
for purposes of sections 32(i)(2)(B) and 6012(d) or any 
computation in which interest exempt from tax under this 
title is added to adjusted gross income.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part III of subchapter B of chapter 1 is amended by 
inserting after the item relating to section 139A the fol-
lowing new item: 
‘‘Sec. 139B. Exclusion from gross income for interest on over-
payments of income tax by individuals.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to interest received in calendar
299 
years beginning after the date of the enactment of this 
Act. 
SEC. 644. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS. 
(a) IN GENERAL.—Subchapter A of chapter 67 (re-
lating to interest on underpayments) is amended by add-
ing at the end the following new section: 
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS, 
ETC. 
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN 
AS PAYMENT OF TAX.—A taxpayer may make a cash de-
posit with the Secretary which may be used by the Sec-
retary to pay any tax imposed under subtitle A or B or 
chapter 41, 42, 43, or 44 which has not been assessed 
at the time of the deposit. Such a deposit shall be made 
in such manner as the Secretary shall prescribe. 
‘‘(b) NO INTEREST IMPOSED.—To the extent that 
such deposit is used by the Secretary to pay tax, for pur-
poses of section 6601 (relating to interest on underpay-
ments), the tax shall be treated as paid when the deposit 
is made. 
‘‘(c) RETURN OF DEPOSIT.—Except in a case where 
the Secretary determines that collection of tax is in jeop-
ardy, the Secretary shall return to the taxpayer any
300 
amount of the deposit (to the extent not used for a pay-
ment of tax) which the taxpayer requests in writing. 
‘‘(d) PAYMENT OF INTEREST.— 
‘‘(1) IN
GENERAL.—For purposes of section 
6611 (relating to interest on overpayments), a de-
posit which is returned to a taxpayer shall be treated 
as a payment of tax for any period to the extent 
(and only to the extent) attributable to a disputable 
tax for such period. Under regulations prescribed by 
the Secretary, rules similar to the rules of section 
6611(b)(2) shall apply. 
‘‘(2) DISPUTABLE TAX.— 
‘‘(A) IN GENERAL.—For purposes of this 
section, the term ‘disputable tax’ means the 
amount of tax specified at the time of the de-
posit as the taxpayer’s reasonable estimate of 
the maximum amount of any tax attributable to 
disputable items. 
‘‘(B) SAFE
HARBOR
BASED
ON
30-DAY 
LETTER.—In the case of a taxpayer who has 
been issued a 30-day letter, the maximum 
amount of tax under subparagraph (A) shall 
not be less than the amount of the proposed de-
ficiency specified in such letter.
301 
‘‘(3) OTHER
DEFINITIONS.—For purposes of 
paragraph (2)— 
‘‘(A) DISPUTABLE ITEM.—The term ‘dis-
putable item’ means any item of income, gain, 
loss, deduction, or credit if the taxpayer— 
‘‘(i) has a reasonable basis for its 
treatment of such item, and 
‘‘(ii) reasonably believes that the Sec-
retary also has a reasonable basis for dis-
allowing the taxpayer’s treatment of such 
item. 
‘‘(B) 30-DAY LETTER.—The term ‘30-day 
letter’ means the first letter of proposed defi-
ciency which allows the taxpayer an opportunity 
for administrative review in the Internal Rev-
enue Service Office of Appeals. 
‘‘(4) RATE OF INTEREST.—The rate of interest 
allowable under this subsection shall be the Federal 
short-term rate determined under section 6621(b), 
compounded daily. 
‘‘(e) USE OF DEPOSITS.— 
‘‘(1) PAYMENT OF TAX.—Except as otherwise 
provided by the taxpayer, deposits shall be treated 
as used for the payment of tax in the order depos-
ited.
302 
‘‘(2) RETURNS
OF
DEPOSITS.—Deposits shall 
be treated as returned to the taxpayer on a last-in, 
first-out basis.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for subchapter A of chapter 67 is amended by adding at 
the end the following new item: 
‘‘Sec. 6603. Deposits made to suspend running of interest on po-
tential underpayments, etc.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to deposits made after the 
date of the enactment of this Act. 
(2) COORDINATION
WITH
DEPOSITS
MADE 
UNDER REVENUE PROCEDURE 84–58.—In the case of 
an amount held by the Secretary of the Treasury or 
his delegate on the date of the enactment of this Act 
as a deposit in the nature of a cash bond deposit 
pursuant to Revenue Procedure 84–58, the date that 
the taxpayer identifies such amount as a deposit 
made pursuant to section 6603 of the Internal Rev-
enue Code (as added by this Act) shall be treated as 
the date such amount is deposited for purposes of 
such section 6603. 
SEC. 645. PARTIAL PAYMENT OF TAX LIABILITY IN IN-
STALLMENT AGREEMENTS. 
(a) IN GENERAL.—
303 
(1) Section 6159(a) (relating to authorization 
of agreements) is amended— 
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, 
and 
(B) by inserting ‘‘full or partial’’ after ‘‘fa-
cilitate’’. 
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in cer-
tain cases) is amended in the matter preceding para-
graph (1) by inserting ‘‘full’’ before ‘‘payment’’. 
(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT 
AGREEMENTS EVERY TWO YEARS.—Section 6159 is 
amended by redesignating subsections (d) and (e) as sub-
sections (e) and (f), respectively, and inserting after sub-
section (c) the following new subsection: 
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY 
TWO YEARS.—In the case of an agreement entered into 
by the Secretary under subsection (a) for partial collection 
of a tax liability, the Secretary shall review the agreement 
at least once every 2 years.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to agreements entered into on or 
after the date of the enactment of this Act.
304 
SEC. 646. AFFIRMATION OF CONSOLIDATED RETURN REGU-
LATION AUTHORITY. 
(a) IN GENERAL.—Section 1502 is amended by add-
ing at the end the following new sentence: ‘‘In carrying 
out the preceding sentence, the Secretary may prescribe 
rules that are different from the provisions of chapter 1 
that would apply if such corporations filed separate re-
turns.’’. 
(b) RESULT NOT OVERTURNED.—Notwithstanding 
the amendment made by subsection (a), the Internal Rev-
enue Code of 1986 shall be construed by treating Treasury 
Regulation § 1.1502-20(c)(1)(iii) (as in effect on January 
1, 2001) as being inapplicable to the factual situation in 
Rite Aid Corporation and Subsidiary Corporations v. 
United States, 255 F.3d 1357 (Fed. Cir. 2001). 
(c) EFFECTIVE DATE.—This section, and the amend-
ment made by this section, shall apply to taxable years 
beginning before, on, or after the date of the enactment 
of this Act. 
Part III—Leasing 
SEC. 647. REFORM OF TAX TREATMENT OF CERTAIN LEAS-
ING ARRANGEMENTS. 
(a) CLARIFICATION OF RECOVERY PERIOD FOR TAX- 
EXEMPT USE PROPERTY SUBJECT TO LEASE.—Subpara-
graph (A) of section 168(g)(3) (relating to special rules 
for determining class life) is amended by inserting ‘‘(not-
305 
withstanding any other subparagraph of this paragraph)’’ 
after ‘‘shall’’. 
(b) LIMITATION
ON DEPRECIATION PERIOD
FOR 
SOFTWARE LEASED
TO TAX-EXEMPT ENTITY.—Para-
graph (1) of section 167(f) is amended by adding at the 
end the following new subparagraph: 
‘‘(C) TAX-EXEMPT
USE
PROPERTY
SUB-
JECT TO LEASE.—In the case of computer soft-
ware which would be tax-exempt use property 
as defined in subsection (h) of section 168 if 
such section applied to computer software, the 
useful life under subparagraph (A) shall not be 
less than 125 percent of the lease term (within 
the meaning of section 168(i)(3)).’’. 
(c) LEASE TERM TO INCLUDE RELATED SERVICE 
CONTRACTS.—Subparagraph (A) of section 168(i)(3) (re-
lating to lease term) is amended by striking ‘‘and’’ at the 
end of clause (i), by redesignating clause (ii) as clause 
(iii), and by inserting after clause (i) the following new 
clause: 
‘‘(ii) the term of a lease shall include 
the term of any service contract or similar 
arrangement (whether or not treated as a 
lease under section 7701(e))—
306 
‘‘(I) which is part of the same 
transaction (or series of related trans-
actions) which includes the lease, and 
‘‘(II) which is with respect to the 
property subject to the lease or sub-
stantially similar property, and’’. 
(d) EXPANSION OF SHORT-TERM LEASE EXEMPTION 
FOR
QUALIFIED
TECHNOLOGICAL
EQUIPMENT.—Sub-
paragraph (A) of section 168(h)(3) is amended by adding 
at the end the following new sentence: ‘‘Notwithstanding 
subsection (i)(3)(A)(i), in determining a lease term for 
purposes of the preceding sentence, there shall not be 
taken into account any option of the lessee to renew at 
the fair market value rent determined at the time of re-
newal; except that the aggregate period not taken into ac-
count by reason of this sentence shall not exceed 24 
months.’’. 
SEC. 648. LIMITATION ON DEDUCTIONS ALLOCABLE TO 
PROPERTY 
USED 
BY 
GOVERNMENTS 
OR 
OTHER TAX-EXEMPT ENTITIES. 
(a) IN GENERAL.—Subpart C of part II of sub-
chapter E of chapter 1 (relating to taxable year for which 
deductions taken) is amended by adding at the end the 
following new section:
307 
‘‘SEC. 470. LIMITATION ON DEDUCTIONS ALLOCABLE TO 
PROPERTY 
USED 
BY 
GOVERNMENTS 
OR 
OTHER TAX-EXEMPT ENTITIES. 
‘‘(a) LIMITATION ON LOSSES.—Except as otherwise 
provided in this section, a tax-exempt use loss for any tax-
able year shall not be allowed. 
‘‘(b) DISALLOWED LOSS CARRIED TO NEXT YEAR.— 
Any tax-exempt use loss with respect to any tax-exempt 
use property which is disallowed under subsection (a) for 
any taxable year shall be treated as a deduction with re-
spect to such property in the next taxable year. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) TAX-EXEMPT USE LOSS.—The term ‘tax- 
exempt use loss’ means, with respect to any taxable 
year, the amount (if any) by which— 
‘‘(A) the sum of— 
‘‘(i) the aggregate deductions (other 
than interest) directly allocable to a tax-ex-
empt use property, plus 
‘‘(ii) the aggregate deductions for in-
terest properly allocable to such property, 
exceed 
‘‘(B) the aggregate income from such 
property. 
‘‘(2) TAX-EXEMPT USE PROPERTY.—The term 
‘tax-exempt use property’ has the meaning given to
308 
such term by section 168(h) (without regard to 
paragraphs (1)(C) and (3) thereof and determined 
as if property described in section 167(f)(1)(B) were 
tangible property). Such term shall not include prop-
erty which would (but for this sentence) be tax-ex-
empt use property solely by reason of section 
168(h)(6) if any credit is allowable under section 42 
or 47 with respect to such property. 
‘‘(d) EXCEPTION FOR CERTAIN LEASES.—This sec-
tion shall not apply to any lease of property which meets 
the requirements of all of the following paragraphs: 
‘‘(1) AVAILABILITY OF FUNDS.— 
‘‘(A) IN
GENERAL.—A lease of property 
meets the requirements of this paragraph if (at 
any time during the lease term) not more than 
an allowable amount of funds are— 
‘‘(i) subject to any arrangement re-
ferred to in subparagraph (B), or 
‘‘(ii) set aside or expected to be set 
aside, 
to or for the benefit of the lessor or any lender, 
or to or for the benefit of the lessee to satisfy 
the lessee’s obligations or options under the 
lease. For purposes of clause (ii), funds shall be 
treated as set aside or expected to be set aside
309 
only if a reasonable person would conclude, 
based on the facts and circumstances, that such 
funds are set aside or expected to be set aside. 
‘‘(B) ARRANGEMENTS.—The arrangements 
referred to in this subparagraph include a de-
feasance arrangement, a loan by the lessee to 
the lessor or any lender, a deposit arrangement, 
a letter of credit collateralized with cash or cash 
equivalents, a payment undertaking agreement, 
prepaid rent (within the meaning of the regula-
tions under section 467), a sinking fund ar-
rangement, a guaranteed investment contract, 
financial guaranty insurance, and any similar 
arrangement (whether or not such arrangement 
provides credit support). 
‘‘(C) ALLOWABLE AMOUNT.— 
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the 
term ‘allowable amount’ means an amount 
equal to 20 percent of the lessor’s adjusted 
basis in the property at the time the lease 
is entered into. 
‘‘(ii) HIGHER AMOUNT PERMITTED IN 
CERTAIN CASES.—To the extent provided 
in regulations, a higher percentage shall be
310 
permitted under clause (i) where necessary 
because of the credit-worthiness of the les-
see. In no event may such regulations per-
mit a percentage of more than 50 percent. 
‘‘(iii) OPTION
TO
PURCHASE
OTHER 
THAN AT FAIR MARKET VALUE.—If under 
the lease the lessee has the option to pur-
chase the property for a fixed price or for 
other than the fair market value of the 
property (determined at the time of exer-
cise), the allowable amount at the time 
such option may be exercised may not ex-
ceed 50 percent of the price at which such 
option may be exercised. 
‘‘(iv) NO
ALLOWABLE
AMOUNT
FOR 
CERTAIN ARRANGEMENTS.—The allowable 
amount shall be zero with respect to any 
arrangement which involves— 
‘‘(I) a loan from the lessee to the 
lessor or a lender, 
‘‘(II) any deposit received, letter 
of credit issued, or payment under-
taking agreement entered into by a 
lender otherwise involved in the trans-
action, or
311 
‘‘(III) in the case of a trans-
action which involves a lender, any 
credit support made available to the 
lessor in which any such lender does 
not have a claim that is senior to the 
lessor. 
For purposes of subclause (I), the term 
‘loan’ shall not include any amount treated 
as a loan under section 467 with respect to 
a section 467 rental agreement. 
‘‘(2) LESSOR MUST MAKE SUBSTANTIAL EQUITY 
INVESTMENT.— 
‘‘(A) IN
GENERAL.—A lease of property 
meets the requirements of this paragraph if— 
‘‘(i) the lessor— 
‘‘(I) has at the time the lease is 
entered into an unconditional at-risk 
equity investment (as determined by 
the Secretary) in the property of at 
least 20 percent of the lessor’s ad-
justed basis in the property as of that 
time, and 
‘‘(II) maintains such investment 
throughout the term of the lease, and
312 
‘‘(ii) the fair market value of the 
property at the end of the lease term is 
reasonably expected to be equal to at least 
20 percent of such basis. 
‘‘(B) RISK
OF
LOSS.—For purposes of 
clause (ii), the fair market value at the end of 
the lease term shall be reduced to the extent 
that a person other than the lessor bears a risk 
of loss in the value of the property. 
‘‘(C) PARAGRAPH
NOT
TO
APPLY
TO 
SHORT-TERM
LEASES.—This paragraph shall 
not apply to any lease with a lease term of 5 
years or less. 
‘‘(3) LESSEE MAY NOT BEAR MORE THAN MINI-
MAL RISK OF LOSS.— 
‘‘(A) IN
GENERAL.—A lease of property 
meets the requirements of this paragraph if 
there is no arrangement under which the lessee 
bears— 
‘‘(i) any portion of the loss that would 
occur if the fair market value of the leased 
property were 25 percent less than its rea-
sonably expected fair market value at the 
time the lease is terminated, or
313 
‘‘(ii) more than 50 percent of the loss 
that would occur if the fair market value 
of the leased property at the time the lease 
is terminated were zero. 
‘‘(B) EXCEPTION.—The Secretary may by 
regulations provide that the requirements of 
this paragraph are not met where the lessee 
bears more than a minimal risk of loss. 
‘‘(C) PARAGRAPH
NOT
TO
APPLY
TO 
SHORT-TERM
LEASES.—This paragraph shall 
not apply to any lease with a lease term of 5 
years or less. 
‘‘(e) SPECIAL RULES.— 
‘‘(1) TREATMENT
OF
FORMER
TAX-EXEMPT 
USE PROPERTY.— 
‘‘(A) IN
GENERAL.—In the case of any 
former tax-exempt use property— 
‘‘(i) any deduction allowable under 
subsection (b) with respect to such prop-
erty for any taxable year shall be allowed 
only to the extent of any net income (with-
out regard to such deduction) from such 
property for such taxable year, and 
‘‘(ii) any portion of such unused de-
duction remaining after application of
314 
clause (i) shall be treated as a deduction 
allowable under subsection (b) with respect 
to such property in the next taxable year. 
‘‘(B) FORMER
TAX-EXEMPT
USE
PROP-
ERTY.—For purposes of this subsection, the 
term ‘former tax-exempt use property’ means 
any property which— 
‘‘(i) is not tax-exempt use property for 
the taxable year, but 
‘‘(ii) was tax-exempt use property for 
any prior taxable year. 
‘‘(2) DISPOSITION
OF
ENTIRE
INTEREST
IN 
PROPERTY.—If during the taxable year a taxpayer 
disposes of the taxpayer’s entire interest in tax-ex-
empt use property (or former tax-exempt use prop-
erty), rules similar to the rules of section 469(g) 
shall apply for purposes of this section. 
‘‘(3) COORDINATION WITH SECTION 469.—This 
section shall be applied before the application of sec-
tion 469. 
‘‘(4) COORDINATION WITH SECTIONS 1031 AND 
1033.— 
‘‘(A) IN GENERAL.—Sections 1031(a) and 
1033(a) shall not apply if—
315 
‘‘(i) the exchanged or converted prop-
erty is tax-exempt use property subject to 
a lease which was entered into before 
March 13, 2004, and which would not have 
met the requirements of subsection (d) had 
such requirements been in effect when the 
lease was entered into, or 
‘‘(ii) the replacement property is tax- 
exempt use property subject to a lease 
which does not meet the requirements of 
subsection (d). 
‘‘(B) ADJUSTED
BASIS.—In the case of 
property acquired by the lessor in a transaction 
to which section 1031 or 1033 applies, the ad-
justed basis of such property for purposes of 
this section shall be equal to the lesser of— 
‘‘(i) the fair market value of the prop-
erty as of the beginning of the lease term, 
or 
‘‘(ii) the amount which would be the 
lessor’s adjusted basis if such sections did 
not apply to such transaction. 
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
316 
‘‘(1) RELATED
PARTIES.—The terms ‘lessor’, 
‘lessee’, and ‘lender’ each include any related party 
(within the meaning of section 197(f)(9)(C)(i)). 
‘‘(2) LEASE TERM.—The term ‘lease term’ has 
the meaning given to such term by section 168(i)(3). 
‘‘(3) LENDER.—The term ‘lender’ means, with 
respect to any lease, a person that makes a loan to 
the lessor which is secured (or economically similar 
to being secured) by the lease or the leased property. 
‘‘(4) LOAN.—The term ‘loan’ includes any simi-
lar arrangement. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the provisions of this section, including regula-
tions which— 
‘‘(1) allow in appropriate cases the aggregation 
of property subject to the same lease, and 
‘‘(2) provide for the determination of the alloca-
tion of interest expense for purposes of this sec-
tion.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for subpart C of part II of subchapter E of chapter 
1 is amended by adding at the end the following new item: 
‘‘Sec. 470. Limitation on deductions allocable to property used by 
governments or other tax-exempt entities.’’.
317 
SEC. 649. EFFECTIVE DATE. 
(a) IN GENERAL.—Except as provided in this section, 
the amendments made by this part shall apply to leases 
entered into after March 12, 2004. 
(b) EXCEPTION.— 
(1) IN GENERAL.—The amendments made by 
this part shall not apply to qualified transportation 
property. 
(2) QUALIFIED TRANSPORTATION PROPERTY.— 
For purposes of paragraph (1), the term ‘‘qualified 
transportation property’’ means domestic property 
subject to a lease with respect to which a formal ap-
plication— 
(A) was submitted for approval to the Fed-
eral Transit Administration (an agency of the 
Department of Transportation) after June 30, 
2003, and before March 13, 2004, 
(B) is approved by the Federal Transit Ad-
ministration before January 1, 2005, and 
(C) includes a description of such property 
and the value of such property. 
(3) EXCHANGES AND CONVERSION OF TAX-EX-
EMPT USE PROPERTY.—Section 470(e)(4) of the In-
ternal Revenue Code of 1986, as added by this sec-
tion, shall apply to property exchanged or converted 
after the date of the enactment of this Act.
318 
Subtitle C—Reduction of Fuel Tax 
Evasion 
SEC. 651. EXEMPTION FROM CERTAIN EXCISE TAXES FOR 
MOBILE MACHINERY. 
(a) EXEMPTION FROM TAX ON HEAVY TRUCKS AND 
TRAILERS SOLD AT RETAIL.— 
(1) IN GENERAL.—Section 4053 (relating to ex-
emptions) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) MOBILE MACHINERY.—Any vehicle which 
consists of a chassis— 
‘‘(A) to which there has been permanently 
mounted (by welding, bolting, riveting, or other 
means) machinery or equipment to perform a 
construction, manufacturing, processing, farm-
ing, mining, drilling, timbering, or similar oper-
ation if the operation of the machinery or 
equipment is unrelated to transportation on or 
off the public highways, 
‘‘(B) which has been specially designed to 
serve only as a mobile carriage and mount (and 
a power source, where applicable) for the par-
ticular machinery or equipment involved, wheth-
er or not such machinery or equipment is in op-
eration, and
319 
‘‘(C) which, by reason of such special de-
sign, could not, without substantial structural 
modification, be used as a component of a vehi-
cle designed to perform a function of trans-
porting any load other than that particular ma-
chinery or equipment or similar machinery or 
equipment requiring such a specially designed 
chassis.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall take effect on the day after 
the date of the enactment of this Act. 
(b) EXEMPTION FROM TAX ON USE OF CERTAIN VE-
HICLES.— 
(1) IN GENERAL.—Section 4483 (relating to ex-
emptions) is amended by redesignating subsection 
(g) as subsection (h) and by inserting after sub-
section (f) the following new subsection: 
‘‘(g) EXEMPTION FOR MOBILE MACHINERY.—No tax 
shall be imposed by section 4481 on the use of any vehicle 
described in section 4053(8).’’. 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall take effect on the day after 
the date of the enactment of this Act. 
(c) EXEMPTION FROM TAX ON TIRES.—
320 
(1) 
IN
GENERAL.—Section 
4072(b)(2) 
is 
amended by adding at the end the following flush 
sentence: ‘‘Such term shall not include tires of a 
type used exclusively on vehicles described in section 
4053(8).’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall take effect on the day after 
the date of the enactment of this Act. 
(d) REFUND OF FUEL TAXES.— 
(1) IN GENERAL.—Section 6421(e)(2) (defining 
off-highway business use) is amended by adding at 
the end the following new subparagraph: 
‘‘(C) USES IN MOBILE MACHINERY.— 
‘‘(i) IN
GENERAL.—The term ‘off- 
highway business use’ shall include any use 
in a vehicle which meets the requirements 
described in clause (ii). 
‘‘(ii) REQUIREMENTS
FOR
MOBILE 
MACHINERY.—The requirements described 
in this clause are— 
‘‘(I) the design-based test, and 
‘‘(II) the use-based test. 
‘‘(iii) DESIGN-BASED TEST.—For pur-
poses of clause (ii)(I), the design-based
321 
test is met if the vehicle consists of a chas-
sis— 
‘‘(I) to which there has been per-
manently mounted (by welding, bolt-
ing, riveting, or other means) machin-
ery or equipment to perform a con-
struction, manufacturing, processing, 
farming, mining, drilling, timbering, 
or similar operation if the operation of 
the machinery or equipment is unre-
lated to transportation on or off the 
public highways, 
‘‘(II) which has been specially de-
signed to serve only as a mobile car-
riage and mount (and a power source, 
where applicable) for the particular 
machinery or equipment involved, 
whether or not such machinery or 
equipment is in operation, and 
‘‘(III) which, by reason of such 
special design, could not, without sub-
stantial structural modification, be 
used as a component of a vehicle de-
signed to perform a function of trans-
porting any load other than that par-
322 
ticular machinery or equipment or 
similar machinery or equipment re-
quiring such a specially designed chas-
sis. 
‘‘(iv) USE-BASED
TEST.—For pur-
poses of clause (ii)(II), the use-based test 
is met if the use of the vehicle on public 
highways was less than 7,500 miles during 
the taxpayer’s taxable year.’’. 
(2) NO
TAX-FREE
SALES.—Subsection (b) of 
section 4082, as amended by section 652, is amend-
ed by inserting before the period at the end ‘‘and 
such term shall not include any use described in sec-
tion 6421(e)(2)(C)’’. 
(3) ANNUAL REFUND OF TAX PAID.—Section 
6427(i)(2) (relating to exceptions) is amended by 
adding at the end the following new subparagraph: 
‘‘(C) NONAPPLICATION OF PARAGRAPH.— 
This paragraph shall not apply to any fuel used 
solely in any off-highway business use described 
in section 6421(e)(2)(C).’’. 
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after the date of the enactment of this Act.
323 
SEC. 652. TAXATION OF AVIATION-GRADE KEROSENE. 
(a) RATE OF TAX.— 
(1) IN GENERAL.—Subparagraph (A) of section 
4081(a)(2) is amended by striking ‘‘and’’ at the end 
of clause (ii), by striking the period at the end of 
clause (iii) and inserting ‘‘, and’’, and by adding at 
the end the following new clause: 
‘‘(iv) in the case of aviation-grade ker-
osene, 21.8 cents per gallon.’’. 
(2) COMMERCIAL AVIATION.—Paragraph (2) of 
section 4081(a) is amended by adding at the end the 
following new subparagraph: 
‘‘(C) TAXES IMPOSED ON FUEL USED IN 
COMMERCIAL AVIATION.—In the case of avia-
tion-grade kerosene which is removed from any 
refinery or terminal directly into the fuel tank 
of an aircraft for use in commercial aviation, 
the rate of tax under subparagraph (A)(iv) shall 
be 4.3 cents per gallon.’’. 
(3) CERTAIN
REFUELER
TRUCKS, TANKERS, 
AND TANK WAGONS TREATED AS TERMINAL.—Sub-
section (a) of section 4081 is amended by adding at 
the end the following new paragraph: 
‘‘(3) CERTAIN
REFUELER
TRUCKS, TANKERS, 
AND TANK WAGONS TREATED AS TERMINAL.—
324 
‘‘(A) IN GENERAL.—In the case of avia-
tion-grade kerosene which is removed from any 
terminal directly into the fuel tank of an air-
craft (determined without regard to any re-
fueler truck, tanker, or tank wagon which meets 
the requirements of subparagraph (B)), a re-
fueler truck, tanker, or tank wagon shall be 
treated as part of such terminal if— 
‘‘(i) such truck, tanker, or wagon 
meets the requirements of subparagraph 
(B) with respect to an airport, and 
‘‘(ii) except in the case of exigent cir-
cumstances identified by the Secretary in 
regulations, no vehicle registered for high-
way use is loaded with aviation-grade ker-
osene at such terminal. 
‘‘(B) REQUIREMENTS.—A refueler truck, 
tanker, or tank wagon meets the requirements 
of this subparagraph with respect to an airport 
if such truck, tanker, or wagon— 
‘‘(i) is loaded with aviation-grade ker-
osene at such terminal located within such 
airport and delivers such kerosene only 
into aircraft at such airport,
325 
‘‘(ii) has storage tanks, hose, and cou-
pling equipment designed and used for the 
purposes of fueling aircraft, 
‘‘(iii) is not registered for highway 
use, and 
‘‘(iv) is operated by— 
‘‘(I) the terminal operator of 
such terminal, or 
‘‘(II) a person that makes a daily 
accounting to such terminal operator 
of each delivery of fuel from such 
truck, tanker, or wagon. 
‘‘(C) REPORTING.—The Secretary shall re-
quire under section 4101(d) reporting by such 
terminal operator of— 
‘‘(i) any information obtained under 
subparagraph (B)(iv)(II), and 
‘‘(ii) any similar information main-
tained by such terminal operator with re-
spect to deliveries of fuel made by trucks, 
tankers, or wagons operated by such ter-
minal operator.’’. 
(4) LIABILITY
FOR
TAX
ON
AVIATION-GRADE 
KEROSENE USED IN COMMERCIAL AVIATION.—Sub-
332 
(I) Section 6427(j)(1) is amended by strik-
ing ‘‘, 4081, and 4091’’ and inserting ‘‘and 
4081’’. 
(J)(i) Section 6427(l)(1) is amended to 
read as follows: 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection and in subsection (k), if any 
diesel fuel or kerosene on which tax has been im-
posed by section 4041 or 4081 is used by any person 
in a nontaxable use, the Secretary shall pay (without 
interest) to the ultimate purchaser of such fuel an 
amount equal to the aggregate amount of tax im-
posed on such fuel under section 4041 or 4081, as 
the case may be, reduced by any payment made to 
the ultimate vendor under paragraph (4)(B).’’. 
(ii) Paragraph (5)(B) of section 6427(l) is 
amended by striking ‘‘Paragraph (1)(A) shall 
not apply to kerosene’’ and inserting ‘‘Para-
graph (1) shall not apply to kerosene (other 
than aviation-grade kerosene)’’. 
(K) 
Subparagraph 
(B) 
of 
section 
6724(d)(1) is amended by striking clause (xv) 
and by redesignating the succeeding clauses ac-
cordingly.
362 
continuous period of not less than 12 
months, or 
‘‘(ii) is, by reason of any medically de-
terminable physical or mental impairment 
which can be expected to result in death or 
can be expected to last for a continuous 
period of not less than 12 months, receiv-
ing income replacement benefits for a pe-
riod of not less than 3 months under an 
accident and health plan covering employ-
ees of the participant’s employer. 
‘‘(3) ACCELERATION
OF
BENEFITS.—The re-
quirements of this paragraph are met if the plan 
does not permit the acceleration of the time or 
schedule of any payment under the plan, except as 
provided in regulations by the Secretary. 
‘‘(4) ELECTIONS.— 
‘‘(A) IN GENERAL.—The requirements of 
this paragraph are met if the requirements of 
subparagraphs (B) and (C) are met. 
‘‘(B) INITIAL DEFERRAL DECISION.—The 
requirements of this subparagraph are met if 
the plan provides that compensation for services 
performed during a taxable year may be de-
ferred at the participant’s election only if the