IB 
Union Calendar No. 271 
110TH CONGRESS 
1ST SESSION H. R. 3996 
[Report No. 110–431] 
To amend the Internal Revenue Code of 1986 to extend certain expiring 
provisions, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
OCTOBER 30, 2007 
Mr. RANGEL introduced the following bill; which was referred to the 
Committee on Ways and Means 
NOVEMBER 6, 2007 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on October 30, 2007] 
A BILL 
To amend the Internal Revenue Code of 1986 to extend 
certain expiring provisions, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Temporary Tax Relief Act of 2007’’. 
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(b) REFERENCE.—Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is ex-
pressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title, etc. 
TITLE I—AMT RELIEF 
Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal 
credits. 
Sec. 102. Extension of increased alternative minimum tax exemption amount. 
Sec. 103. Increase of AMT refundable credit amount for individuals with long- 
term unused credits for prior year minimum tax liability, etc. 
TITLE II—ADDITIONAL INDIVIDUAL TAX RELIEF 
Sec. 201. Refundable child credit. 
Sec. 202. Additional standard deduction for real property taxes for nonitemizers. 
TITLE III—ONE-YEAR EXTENDERS 
Subtitle A—Extenders Primarily Affecting Individuals 
Sec. 301. Deduction for State and local sales taxes. 
Sec. 302. Deduction of qualified tuition and related expenses. 
Sec. 303. Treatment of certain dividends of regulated investment companies. 
Sec. 304. Parity in the application of certain limits to mental health benefits. 
Sec. 305. Qualified conservation contributions. 
Sec. 306. Tax-free distributions from individual retirement plans for charitable 
purposes. 
Sec. 307. Deduction for certain expenses of elementary and secondary school 
teachers. 
Sec. 308. Election to include combat pay as earned income for purposes of earned 
income tax credit. 
Sec. 309. Modification of mortgage revenue bonds for veterans. 
Sec. 310. Distributions from retirement plans to individuals called to active duty. 
Sec. 311. Stock in RIC for purposes of determining estates of nonresidents not 
citizens. 
Sec. 312. Qualified investment entities. 
Sec. 313. State legislators’ travel expenses away from home. 
Subtitle B—Extenders Primarily Affecting Businesses 
Sec. 321. Research credit. 
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Sec. 322. Indian employment credit. 
Sec. 323. New markets tax credit. 
Sec. 324. Railroad track maintenance. 
Sec. 325. Fifteen-year straight-line cost recovery for qualified leasehold improve-
ments and qualified restaurant property. 
Sec. 326. Seven-year cost recovery period for motorsports racing track facility. 
Sec. 327. Accelerated depreciation for business property on Indian reservation. 
Sec. 328. Expensing of environmental remediation costs. 
Sec. 329. Deduction allowable with respect to income attributable to domestic pro-
duction activities in Puerto Rico. 
Sec. 330. Modification of tax treatment of certain payments to controlling exempt 
organizations. 
Sec. 331. Extension and modification of credit to holders of qualified zone acad-
emy bonds. 
Sec. 332. Tax incentives for investment in the District of Columbia. 
Sec. 333. Extension of economic development credit for American Samoa. 
Sec. 334. Enhanced charitable deduction for contributions of food inventory. 
Sec. 335. Enhanced charitable deduction for contributions of book inventory to 
public schools. 
Sec. 336. Enhanced deduction for qualified computer contributions. 
Sec. 337. Basis adjustment to stock of S corporations making charitable contribu-
tions of property. 
Sec. 338. Extension of work opportunity tax credit for Hurricane Katrina em-
ployees. 
Subtitle C—Other Extenders 
Sec. 341. Disclosure for combined employment tax reporting. 
Sec. 342. Disclosure of return information to apprise appropriate officials of ter-
rorist activities. 
Sec. 343. Disclosure upon request of information relating to terrorist activities. 
Sec. 344. Disclosure of return information to carry out income contingent repay-
ment of student loans. 
Sec. 345. Authority for undercover operations. 
Sec. 346. Increase in limit on cover over of rum excise tax to Puerto Rico and 
the Virgin Islands. 
Sec. 347. Disclosure of return information for certain veterans programs. 
TITLE IV—MORTGAGE FORGIVENESS DEBT RELIEF 
Sec. 401. Discharges of indebtedness on principal residence excluded from gross 
income. 
Sec. 402. Long-term extension of deduction for mortgage insurance premiums. 
Sec. 403. Alternative tests for qualifying as cooperative housing corporation. 
Sec. 404. Gain from sale of principal residence allocated to nonqualified use not 
excluded from income. 
TITLE V—ADMINISTRATIVE PROVISIONS 
Sec. 501. Repeal of authority to enter into private debt collection contracts. 
Sec. 502. Delay of application of withholding requirement on certain govern-
mental payments for goods and services. 
Sec. 503. Clarification of entitlement of Virgin Islands residents to protections of 
limitations on assessment and collection of tax. 
Sec. 504. Revision of tax rules on expatriation. 
Sec. 505. Repeal of suspension of certain penalties and interest. 
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Sec. 506. Unused merchandise drawback. 
TITLE VI—REVENUE PROVISIONS 
Subtitle A—Nonqualified Deferred Compensation From Certain Tax Indifferent 
Parties 
Sec. 601. Nonqualified deferred compensation from certain tax indifferent parties. 
Subtitle B—Provisions Related to Certain Investment Partnerships 
Sec. 611. Income of partners for performing investment management services 
treated as ordinary income received for performance of services. 
Sec. 612. Indebtedness incurred by a partnership in acquiring securities and 
commodities not treated as acquisition indebtedness for organi-
zations which are partners with limited liability. 
Sec. 613. Application to partnership interests and tax sharing agreements of rule 
treating certain gain on sales between related persons as ordi-
nary income. 
Subtitle C—Other Provisions 
Sec. 621. Delay in application of worldwide allocation of interest. 
Sec. 622. Broker reporting of customer’s basis in securities transactions. 
Sec. 623. Modification of penalty for failure to file partnership returns. 
Sec. 624. Penalty for failure to file S corporation returns. 
Sec. 625. Time for payment of corporate estimated taxes. 
TITLE I—AMT RELIEF 
SEC. 101. EXTENSION OF ALTERNATIVE MINIMUM TAX RE-
LIEF 
FOR 
NONREFUNDABLE 
PERSONAL 
CREDITS. 
(a) IN GENERAL.—Paragraph (2) of section 26(a) (re-
lating to special rule for taxable years 2000 through 2006) 
is amended— 
(1) by striking ‘‘or 2006’’ and inserting ‘‘2006, 
or 2007’’, and 
(2) by striking ‘‘2006’’ in the heading thereof and 
inserting ‘‘2007’’. 
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(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 102. EXTENSION OF INCREASED ALTERNATIVE MIN-
IMUM TAX EXEMPTION AMOUNT. 
(a) IN GENERAL.—Paragraph (1) of section 55(d) (re-
lating to exemption amount) is amended— 
(1) by striking ‘‘($62,550 in the case of taxable 
years beginning in 2006)’’ in subparagraph (A) and 
inserting ‘‘($66,250 in the case of taxable years begin-
ning in 2007)’’, and 
(2) by striking ‘‘($42,500 in the case of taxable 
years beginning in 2006)’’ in subparagraph (B) and 
inserting ‘‘($44,350 in the case of taxable years begin-
ning in 2007)’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2006. 
SEC. 103. INCREASE OF AMT REFUNDABLE CREDIT AMOUNT 
FOR INDIVIDUALS WITH LONG-TERM UNUSED 
CREDITS FOR PRIOR YEAR MINIMUM TAX LI-
ABILITY, ETC. 
(a) IN GENERAL.—Paragraph (2) of section 53(e) of 
the Internal Revenue Code of 1986 is amended to read as 
follows: 
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spect to such underpayment which is outstanding on 
such date of enactment), is hereby abated. No credit 
shall be allowed under this section with respect to any 
amount abated under this paragraph. 
‘‘(2) INCREASE IN CREDIT FOR CERTAIN INTER-
EST AND PENALTIES ALREADY PAID.—Any interest or 
penalty paid before the date of the enactment of this 
subsection which would (but for such payment) have 
been abated under paragraph (1) shall be treated for 
purposes of this section as an amount of adjusted net 
minimum tax imposed for the taxable year of the un-
derpayment to which such interest or penalty re-
lates.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendment made by this section shall 
apply to taxable years beginning after December 31, 
2006. 
(2) ABATEMENT.—Section 53(f)(1) of the Inter-
nal Revenue Code of 1986, as added by subsection (b), 
shall take effect on the date of the enactment of this 
Act. 
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TITLE II—ADDITIONAL 
INDIVIDUAL TAX RELIEF 
SEC. 201. REFUNDABLE CHILD CREDIT. 
(a) MODIFICATION OF THRESHOLD AMOUNT.—Clause 
(i) of section 24(d)(1)(B) is amended by inserting ‘‘($8,500 
in the case of taxable years beginning in 2008)’’ after 
‘‘$10,000’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2007. 
SEC. 202. ADDITIONAL STANDARD DEDUCTION FOR REAL 
PROPERTY TAXES FOR NONITEMIZERS. 
(a) IN GENERAL.—Section 63(c)(1) (defining standard 
deduction) is amended by striking ‘‘and’’ at the end of sub-
paragraph (A), by striking the period at the end of subpara-
graph (B) and inserting ‘‘, and’’, and by adding at the end 
the following new subparagraph: 
‘‘(C) in the case of any taxable year begin-
ning in 2008, the real property tax deduction.’’. 
(b) DEFINITION.—Section 63(c) is amended by adding 
at the end the following new paragraph: 
‘‘(8) REAL
PROPERTY
TAX
DEDUCTION.—For 
purposes of paragraph (1), the real property tax de-
duction is so much of the amount of State and local 
real property taxes (within the meaning of section 
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164) paid or accrued by the taxpayer during the tax-
able year which do not exceed $350 ($700 in the case 
of a joint return).’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2007. 
TITLE III—ONE-YEAR 
EXTENDERS 
Subtitle A—Extenders Primarily 
Affecting Individuals 
SEC. 301. DEDUCTION FOR STATE AND LOCAL SALES TAXES. 
(a) IN
GENERAL.—Subparagraph (I) of section 
164(b)(5) is amended by striking ‘‘January 1, 2008’’ and 
inserting ‘‘January 1, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2007. 
SEC. 302. DEDUCTION OF QUALIFIED TUITION AND RE-
LATED EXPENSES. 
(a) IN GENERAL.—Subsection (e) of section 222 (relat-
ing to termination) is amended by striking ‘‘December 31, 
2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2007. 
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SEC. 303. TREATMENT OF CERTAIN DIVIDENDS OF REGU-
LATED INVESTMENT COMPANIES. 
(a) INTEREST-RELATED DIVIDENDS.—Subparagraph 
(C) of section 871(k)(1) (defining interest-related dividend) 
is amended by striking ‘‘December 31, 2007’’ and inserting 
‘‘December 31, 2008’’. 
(b) SHORT-TERM CAPITAL GAIN DIVIDENDS.—Sub-
paragraph (C) of section 871(k)(2) (defining short-term 
capital gain dividend) is amended by striking ‘‘December 
31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to dividends with respect to taxable 
years of regulated investment companies beginning after 
December 31, 2007. 
SEC. 304. PARITY IN THE APPLICATION OF CERTAIN LIMITS 
TO MENTAL HEALTH BENEFITS. 
(a) IN GENERAL.—Paragraph (3) of section 9812(f) 
(relating to application of section) is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to benefits for services furnished after 
December 31, 2007. 
SEC. 305. QUALIFIED CONSERVATION CONTRIBUTIONS. 
(a) IN GENERAL.—Clause (vi) of section 170(b)(1)(E) 
(relating to termination) is amended by striking ‘‘December 
31, 2007’’ and inserting ‘‘December 31, 2008’’. 
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(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to contributions made in taxable years 
beginning after December 31, 2007. 
SEC. 306. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT PLANS FOR CHARITABLE PUR-
POSES. 
(a) IN
GENERAL.—Subparagraph (F) of section 
408(d)(8) (relating to termination) is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to distributions made in taxable years 
beginning after December 31, 2007. 
SEC. 307. DEDUCTION FOR CERTAIN EXPENSES OF ELEMEN-
TARY AND SECONDARY SCHOOL TEACHERS. 
(a) IN
GENERAL.—Subparagraph (D) of section 
62(a)(2) (relating to certain expenses of elementary and sec-
ondary school teachers) is amended by striking ‘‘or 2007’’ 
and inserting ‘‘2007, or 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2007. 
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SEC. 308. ELECTION TO INCLUDE COMBAT PAY AS EARNED 
INCOME FOR PURPOSES OF EARNED INCOME 
TAX CREDIT. 
(a) 
IN
GENERAL.—Subclause 
(II) 
of 
section 
32(c)(2)(B)(vi) (defining earned income) is amended by 
striking ‘‘January 1, 2008’’ and inserting ‘‘January 1, 
2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years ending after December 
31, 2007. 
SEC. 309. MODIFICATION OF MORTGAGE REVENUE BONDS 
FOR VETERANS. 
(a) QUALIFIED MORTGAGE BONDS USED TO FINANCE 
RESIDENCES FOR VETERANS WITHOUT REGARD TO FIRST- 
TIME HOMEBUYER REQUIREMENT.—Subparagraph (D) of 
section 143(d)(2) (relating to exceptions) is amended by 
striking ‘‘January 1, 2008’’ and inserting ‘‘January 1, 
2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to bonds issued after December 31, 2007. 
SEC. 310. DISTRIBUTIONS FROM RETIREMENT PLANS TO IN-
DIVIDUALS CALLED TO ACTIVE DUTY. 
(a) IN GENERAL.—Clause (iv) of section 72(t)(2)(G) 
is amended by striking ‘‘December 31, 2007’’ and inserting 
‘‘January 1, 2009’’. 
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(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to individuals ordered or called to active 
duty on or after December 31, 2007. 
SEC. 311. STOCK IN RIC FOR PURPOSES OF DETERMINING 
ESTATES OF NONRESIDENTS NOT CITIZENS. 
(a) IN GENERAL.—Paragraph (3) of section 2105(d) 
(relating to stock in a RIC) is amended by striking ‘‘Decem-
ber 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to decedents dying after December 31, 
2007. 
SEC. 312. QUALIFIED INVESTMENT ENTITIES. 
(a) IN GENERAL.—Clause (ii) of section 897(h)(4)(A) 
(relating to termination) is amended by striking ‘‘December 
31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on January 1, 2008. 
SEC. 313. STATE LEGISLATORS’ TRAVEL EXPENSES AWAY 
FROM HOME. 
(a) IN GENERAL.—Paragraph (2) of section 162(h) 
(relating to legislative days) is amended by adding at the 
end the following flush sentence: ‘‘In the case of taxable 
years beginning in 2008, a legislature shall be treated for 
purposes of this paragraph as in session on any day in 
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striking ‘‘December 31, 2007’’ and inserting ‘‘December 31, 
2008’’. 
(b) TECHNICAL AMENDMENT RELATED TO SECTION 
1203 OF THE PENSION PROTECTION ACT OF 2006.—Sub-
section (d) of section 1366 is amended by adding at the 
end the following new paragraph: 
‘‘(4) APPLICATION
OF
LIMITATION
ON
CHARI-
TABLE CONTRIBUTIONS.—In the case of any chari-
table contribution of property to which the second 
sentence of section 1367(a)(2) applies, paragraph (1) 
shall not apply to the extent of the excess (if any) 
of— 
‘‘(A) the shareholder’s pro rata share of such 
contribution, over 
‘‘(B) the shareholder’s pro rata share of the 
adjusted basis of such property.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall 
apply to contributions made in taxable years begin-
ning after December 31, 2007. 
(2) TECHNICAL AMENDMENT.—The amendment 
made by subsection (b) shall take effect as if included 
in the provision of the Pension Protection Act of 2006 
to which it relates. 
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SEC. 338. EXTENSION OF WORK OPPORTUNITY TAX CREDIT 
FOR HURRICANE KATRINA EMPLOYEES. 
(a) IN GENERAL.—Paragraph (1) of section 201(b) of 
the Katrina Emergency Tax Relief Act of 2005 is amended 
by striking ‘‘2-year’’ and inserting ‘‘3-year’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to individuals hired after August 
27, 2007. 
Subtitle C—Other Extenders 
SEC. 341. DISCLOSURE FOR COMBINED EMPLOYMENT TAX 
REPORTING. 
(a) IN
GENERAL.—Subparagraph (B) of section 
6103(d)(5) (relating to termination) is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to disclosures after December 31, 2007. 
SEC. 342. DISCLOSURE OF RETURN INFORMATION TO AP-
PRISE 
APPROPRIATE 
OFFICIALS 
OF 
TER-
RORIST ACTIVITIES. 
(a) IN GENERAL.—Clause (iv) of section 6103(i)(3)(C) 
(relating to termination) is amended by striking ‘‘December 
31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to disclosures after December 31, 2007. 
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SEC. 343. DISCLOSURE UPON REQUEST OF INFORMATION 
RELATING TO TERRORIST ACTIVITIES. 
(a) IN
GENERAL.—Subparagraph (E) of section 
6103(i)(7) (relating to termination) is amended by striking 
‘‘December 31, 2007’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to disclosures after December 31, 2007. 
SEC. 344. DISCLOSURE OF RETURN INFORMATION TO 
CARRY OUT INCOME CONTINGENT REPAY-
MENT OF STUDENT LOANS. 
(a) IN
GENERAL.—Subparagraph (D) of section 
6103(l)(13) (relating to termination) is amended by strik-
ing ‘‘December 31, 2007’’ and inserting ‘‘December 31, 
2008’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to requests made after December 31, 
2007. 
SEC. 345. AUTHORITY FOR UNDERCOVER OPERATIONS. 
(a) IN GENERAL.—Paragraph (6) of section 7608(c) 
(relating to application of section) is amended by striking 
‘‘January 1, 2008’’ each place it appears and inserting 
‘‘January 1, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on January 1, 2008. 
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SEC. 346. INCREASE IN LIMIT ON COVER OVER OF RUM EX-
CISE TAX TO PUERTO RICO AND THE VIRGIN 
ISLANDS. 
(a) IN GENERAL.—Paragraph (1) of section 7652(f) is 
amended by striking ‘‘January 1, 2008’’ and inserting 
‘‘January 1, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to distilled spirits brought into the 
United States after December 31, 2007. 
SEC. 347. DISCLOSURE OF RETURN INFORMATION FOR CER-
TAIN VETERANS PROGRAMS. 
(a) IN GENERAL.—The last sentence of paragraph (7) 
of section 6103(l) is amended by striking ‘‘September 30, 
2008’’ and inserting ‘‘December 31, 2008’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to requests made after September 
30, 2008. 
TITLE IV—MORTGAGE 
FORGIVENESS DEBT RELIEF 
SEC. 401. DISCHARGES OF INDEBTEDNESS ON PRINCIPAL 
RESIDENCE 
EXCLUDED 
FROM 
GROSS 
IN-
COME. 
(a) IN GENERAL.—Paragraph (1) of section 108(a) is 
amended by striking ‘‘or’’ at the end of subparagraph (C), 
by striking the period at the end of subparagraph (D) and 
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inserting ‘‘, or’’, and by inserting after subparagraph (D) 
the following new subparagraph: 
‘‘(E) the indebtedness discharged is quali-
fied principal residence indebtedness.’’. 
(b) SPECIAL RULES RELATING TO QUALIFIED PRIN-
CIPAL RESIDENCE INDEBTEDNESS.—Section 108 is amend-
ed by adding at the end the following new subsection: 
‘‘(h) SPECIAL RULES RELATING TO QUALIFIED PRIN-
CIPAL RESIDENCE INDEBTEDNESS.— 
‘‘(1) BASIS REDUCTION.—The amount excluded 
from gross income by reason of subsection (a)(1)(E) 
shall be applied to reduce (but not below zero) the 
basis of the principal residence of the taxpayer. 
‘‘(2) QUALIFIED PRINCIPAL RESIDENCE INDEBT-
EDNESS.—For purposes of this section, the term 
‘qualified principal residence indebtedness’ means ac-
quisition indebtedness (within the meaning of section 
163(h)(3)(B), applied by substituting ‘$2,000,000 
($1,000,000’ for ‘$1,000,000 ($500,000’ in clause (ii) 
thereof) with respect to the principal residence of the 
taxpayer. 
‘‘(3) EXCEPTION FOR CERTAIN DISCHARGES NOT 
RELATED
TO
TAXPAYER’S
FINANCIAL
CONDITION.— 
Subsection (a)(1)(E) shall not apply to the discharge 
of a loan if the discharge is on account of services 
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performed for the lender or any other factor not di-
rectly related to a decline in the value of the residence 
or to the financial condition of the taxpayer. 
‘‘(4) ORDERING
RULE.—If any loan is dis-
charged, in whole or in part, and only a portion of 
such loan is qualified principal residence indebted-
ness, subsection (a)(1)(E) shall apply only to so much 
of the amount discharged as exceeds the amount of the 
loan (as determined immediately before such dis-
charge) which is not qualified principal residence in-
debtedness. 
‘‘(5) PRINCIPAL
RESIDENCE.—For purposes of 
this subsection, the term ‘principal residence’ has the 
same meaning as when used in section 121.’’. 
(c) COORDINATION.— 
(1) Subparagraph (A) of section 108(a)(2) is 
amended by striking ‘‘and (D)’’ and inserting ‘‘(D), 
and (E)’’. 
(2) Paragraph (2) of section 108(a) is amended 
by adding at the end the following new subparagraph: 
‘‘(C) PRINCIPAL
RESIDENCE
EXCLUSION 
TAKES PRECEDENCE OVER INSOLVENCY EXCLU-
SION UNLESS ELECTED OTHERWISE.—Paragraph 
(1)(B) shall not apply to a discharge to which 
paragraph (1)(E) applies unless the taxpayer 
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elects to apply paragraph (1)(B) in lieu of para-
graph (1)(E).’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to discharges of indebtedness on or after 
January 1, 2007. 
SEC. 402. LONG-TERM EXTENSION OF DEDUCTION FOR 
MORTGAGE INSURANCE PREMIUMS. 
(a) IN
GENERAL.—Subparagraph (E) of section 
163(h)(3) (relating to mortgage insurance premiums treat-
ed as interest) is amended by striking clauses (iii) and (iv) 
and inserting the following new clause: 
‘‘(iii) APPLICATION.—Clause (i) shall 
not apply with respect to any mortgage in-
surance contract issued before January 1, 
2007, or after December 31, 2014.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to contracts issued after December 
31, 2006. 
SEC. 403. ALTERNATIVE TESTS FOR QUALIFYING AS COOP-
ERATIVE HOUSING CORPORATION. 
(a) IN
GENERAL.—Subparagraph (D) of section 
216(b)(1) (defining cooperative housing corporation) is 
amended to read as follows: 
‘‘(D) meeting 1 or more of the following re-
quirements for the taxable year in which the 
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taxes and interest described in subsection (a) are 
paid or incurred: 
‘‘(i) 80 percent or more of the corpora-
tion’s gross income for such taxable year is 
derived from tenant-stockholders. 
‘‘(ii) At all times during such taxable 
year, 80 percent or more of the total square 
footage of the corporation’s property is used 
or available for use by the tenant-stock-
holders for residential purposes or purposes 
ancillary to such residential use. 
‘‘(iii) 90 percent or more of the ex-
penditures of the corporation paid or in-
curred during such taxable year are paid or 
incurred for the acquisition, construction, 
management, maintenance, or care of the 
corporation’s property for the benefit of the 
tenant-stockholders.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years ending after the date 
of the enactment of this Act. 
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SEC. 404. GAIN FROM SALE OF PRINCIPAL RESIDENCE AL-
LOCATED TO NONQUALIFIED USE NOT EX-
CLUDED FROM INCOME. 
(a) IN GENERAL.—Subsection (b) of section 121 (relat-
ing to limitations) is amended by adding at the end the 
following new paragraph: 
‘‘(4) EXCLUSION OF GAIN ALLOCATED TO NON-
QUALIFIED USE.— 
‘‘(A) IN GENERAL.—Subsection (a) shall not 
apply to so much of the gain from the sale or ex-
change of property as is allocated to periods of 
nonqualified use. 
‘‘(B) GAIN ALLOCATED TO PERIODS OF NON-
QUALIFIED USE.—For purposes of subparagraph 
(A), gain shall be allocated to periods of non-
qualified use based on the ratio which— 
‘‘(i) the aggregate periods of non-
qualified use during the period such prop-
erty was owned by the taxpayer, bears to 
‘‘(ii) the period such property was 
owned by the taxpayer. 
‘‘(C) PERIOD OF NONQUALIFIED USE.—For 
purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘period of 
nonqualified use’ means any period (other 
than the portion of any period preceding 
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January 1, 2008) during which the prop-
erty is not used as the principal residence 
of the taxpayer or the taxpayer’s spouse or 
former spouse. 
‘‘(ii) EXCEPTIONS.—The term ‘period 
of nonqualified use’ does not include— 
‘‘(I) any portion of the 5-year pe-
riod described in subsection (a) which 
is after the last date that such property 
is used as the principal residence of the 
taxpayer or the taxpayer’s spouse, 
‘‘(II) any period (not to exceed an 
aggregate period of 10 years) during 
which the taxpayer or the taxpayer’s 
spouse is serving on qualified official 
extended duty (as defined in subsection 
(d)(9)(C)) described in clause (i), (ii), 
or (iii) of subsection (d)(9)(A), and 
‘‘(III) any other period of tem-
porary absence (not to exceed an aggre-
gate period of 2 years) due to change 
of employment, health conditions, or 
such other unforeseen circumstances as 
may be specified by the Secretary. 
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‘‘(D) COORDINATION WITH RECOGNITION OF 
GAIN
ATTRIBUTABLE
TO
DEPRECIATION.—For 
purposes of this paragraph— 
‘‘(i) subparagraph (A) shall be applied 
after the application of subsection (d)(6), 
and 
‘‘(ii) subparagraph (B) shall be ap-
plied without regard to any gain to which 
subsection (d)(6) applies.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to sales and exchanges after December 
31, 2007. 
TITLE V—ADMINISTRATIVE 
PROVISIONS 
SEC. 501. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE 
DEBT COLLECTION CONTRACTS. 
(a) IN GENERAL.—Subchapter A of chapter 64 is 
amended by striking section 6306. 
(b) CONFORMING AMENDMENTS.— 
(1) Subchapter B of chapter 76 is amended by 
striking section 7433A. 
(2) Section 7811 is amended by striking sub-
section (g). 
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(3) Section 1203 of the Internal Revenue Service 
Restructuring Act of 1998 is amended by striking 
subsection (e). 
(4) The table of sections for subchapter A of 
chapter 64 is amended by striking the item relating 
to section 6306. 
(5) The table of sections for subchapter B of 
chapter 76 is amended by striking the item relating 
to section 7433A. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided 
in this subsection, the amendments made by this sec-
tion shall take effect on the date of the enactment of 
this Act. 
(2) EXCEPTION
FOR
EXISTING
CONTRACTS, 
ETC.—The amendments made by this section shall not 
apply to any contract which was entered into before 
July 18, 2007, and is not renewed or extended on or 
after such date. 
(3) UNAUTHORIZED
CONTRACTS
AND
EXTEN-
SIONS TREATED AS VOID.—Any qualified tax collec-
tion contract (as defined in section 6306 of the Inter-
nal Revenue Code of 1986, as in effect before its re-
peal) which is entered into on or after July 18, 2007, 
and any extension or renewal on or after such date 
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of any qualified tax collection contract (as so defined) 
shall be void. 
SEC. 502. DELAY OF APPLICATION OF WITHHOLDING RE-
QUIREMENT ON CERTAIN GOVERNMENTAL 
PAYMENTS FOR GOODS AND SERVICES. 
(a) IN GENERAL.—Subsection (b) of section 511 of the 
Tax Increase Prevention and Reconciliation Act of 2005 is 
amended by striking ‘‘December 31, 2010’’ and inserting 
‘‘December 31, 2011’’. 
(b) REPORT TO CONGRESS.—Not later than 6 months 
after the date of the enactment of this Act, the Secretary 
of the Treasury shall submit to the Committee on Ways and 
Means of the House of Representatives and the Committee 
on Finance of the Senate a report with respect to the with-
holding requirements of section 3402(t) of the Internal Rev-
enue Code of 1986, including a detailed analysis of— 
(1) the problems, if any, which are anticipated 
in administering and complying with such require-
ments, 
(2) the burdens, if any, that such requirements 
will place on governments and businesses (taking into 
account such mechanisms as may be necessary to ad-
minister such requirements), and 
(3) the application of such requirements to small 
expenditures for services and goods by governments. 
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SEC. 503. CLARIFICATION OF ENTITLEMENT OF VIRGIN IS-
LANDS RESIDENTS TO PROTECTIONS OF LIM-
ITATIONS ON ASSESSMENT AND COLLECTION 
OF TAX. 
(a) IN GENERAL.—Subsection (c) of section 932 (relat-
ing to treatment of Virgin Islands residents) is amended 
by adding at the end the following new paragraph: 
‘‘(5) TREATMENT OF INCOME TAX RETURN FILED 
WITH VIRGIN ISLANDS.—An income tax return filed 
with the Virgin Islands by an individual claiming to 
be described in paragraph (1) for the taxable year 
shall be treated for purposes of subtitle F in the same 
manner as if such return were an income tax return 
filed with the United States for such taxable year. 
The preceding sentence shall not apply where such re-
turn is false or fraudulent with the intent to evade 
tax or otherwise is a willful attempt in any manner 
to defeat or evade tax.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to taxable years beginning after 1986. 
SEC. 504. REVISION OF TAX RULES ON EXPATRIATION. 
(a) IN GENERAL.—Subpart A of part II of subchapter 
N of chapter 1 is amended by inserting after section 877 
the following new section: 
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‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—All property of a cov-
ered expatriate shall be treated as sold on the day be-
fore the expatriation date for its fair market value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(A) notwithstanding any other provision of 
this title, any gain arising from such sale shall 
be taken into account for the taxable year of the 
sale, and 
‘‘(B) any loss arising from such sale shall 
be taken into account for the taxable year of the 
sale to the extent otherwise provided by this title, 
except that section 1091 shall not apply to any 
such loss. 
Proper adjustment shall be made in the amount of 
any gain or loss subsequently realized for gain or loss 
taken into account under the preceding sentence, de-
termined without regard to paragraph (3). 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN
GENERAL.—The amount which 
would (but for this paragraph) be includible in 
the gross income of any individual by reason of 
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paragraph (1) shall be reduced (but not below 
zero) by $600,000. 
‘‘(B) ADJUSTMENT FOR INFLATION.— 
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2008, the dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjustment 
determined under section 1(f)(3) for 
the calendar year in which the taxable 
year begins, by substituting ‘calendar 
year 2007’ for ‘calendar year 1992’ in 
subparagraph (B) thereof. 
‘‘(ii) ROUNDING.—If any amount as 
adjusted under clause (i) is not a multiple 
of $1,000, such amount shall be rounded to 
the nearest multiple of $1,000. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty treated as sold by reason of subsection (a), the 
time for payment of the additional tax attributable to 
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such property shall be extended until the due date of 
the return for the taxable year in which such property 
is disposed of (or, in the case of property disposed of 
in a transaction in which gain is not recognized in 
whole or in part, until such other date as the Sec-
retary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT TO 
PROPERTY.—For purposes of paragraph (1), the addi-
tional tax attributable to any property is an amount 
which bears the same ratio to the additional tax im-
posed by this chapter for the taxable year solely by 
reason of subsection (a) as the gain taken into ac-
count under subsection (a) with respect to such prop-
erty bears to the total gain taken into account under 
subsection (a) with respect to all property to which 
subsection (a) applies. 
‘‘(3) TERMINATION
OF
EXTENSION.—The due 
date for payment of tax may not be extended under 
this subsection later than the due date for the return 
of tax imposed by this chapter for the taxable year 
which includes the date of death of the expatriate (or, 
if earlier, the time that the security provided with re-
spect to the property fails to meet the requirements of 
paragraph (4), unless the taxpayer corrects such fail-
ure within the time specified by the Secretary). 
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‘‘(4) SECURITY.— 
‘‘(A) IN
GENERAL.—No election may be 
made under paragraph (1) with respect to any 
property unless adequate security is provided 
with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
any property shall be treated as adequate secu-
rity if— 
‘‘(i) it is a bond which is furnished to, 
and accepted by, the Secretary, which is 
conditioned on the payment of tax (and in-
terest thereon), and which meets the require-
ments of section 6325, or 
‘‘(ii) it is another form of security for 
such payment (including letters of credit) 
that meets such requirements as the Sec-
retary may prescribe. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election 
may be made under paragraph (1) unless the tax-
payer makes an irrevocable waiver of any right under 
any treaty of the United States which would preclude 
assessment or collection of any tax imposed by reason 
of this section. 
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‘‘(6) ELECTIONS.—An election under paragraph 
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. 
‘‘(7) INTEREST.—For purposes of section 6601, 
the last date for the payment of tax shall be deter-
mined without regard to the election under this sub-
section. 
‘‘(c) EXCEPTION
FOR
CERTAIN
PROPERTY.—Sub-
section (a) shall not apply to— 
‘‘(1) any deferred compensation item (as defined 
in subsection (d)(4)), 
‘‘(2) any specified tax deferred account (as de-
fined in subsection (e)(2)), and 
‘‘(3) any interest in a nongrantor trust (as de-
fined in subsection (f)(3)). 
‘‘(d) TREATMENT
OF
DEFERRED
COMPENSATION 
ITEMS.— 
‘‘(1) WITHHOLDING
ON
ELIGIBLE
DEFERRED 
COMPENSATION ITEMS.— 
‘‘(A) IN GENERAL.—In the case of any eligi-
ble deferred compensation item, the payor shall 
deduct and withhold from any taxable payment 
to a covered expatriate with respect to such item 
a tax equal to 30 percent thereof. 
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‘‘(B) TAXABLE PAYMENT.—For purposes of 
subparagraph (A), the term ‘taxable payment’ 
means with respect to a covered expatriate any 
payment to the extent it would be includible in 
the gross income of the covered expatriate if such 
expatriate continued to be subject to tax as a cit-
izen or resident of the United States. A deferred 
compensation item shall be taken into account as 
a payment under the preceding sentence when 
such item would be so includible. 
‘‘(2) 
OTHER
DEFERRED
COMPENSATION 
ITEMS.—In the case of any deferred compensation 
item which is not an eligible deferred compensation 
item— 
‘‘(A)(i) with respect to any deferred com-
pensation item to which clause (ii) does not 
apply, an amount equal to the present value of 
the covered expatriate’s accrued benefit shall be 
treated as having been received by such indi-
vidual on the day before the expatriation date as 
a distribution under the plan, and 
‘‘(ii) with respect to any deferred compensa-
tion item referred to in paragraph (4)(D), the 
rights of the covered expatriate to such item shall 
be treated as becoming transferable and not sub-
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ject to a substantial risk of forfeiture on the day 
before the expatriation date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
‘‘(C) appropriate adjustments shall be made 
to subsequent distributions from the plan to re-
flect such treatment. 
‘‘(3) 
ELIGIBLE
DEFERRED
COMPENSATION 
ITEMS.—For purposes of this subsection, the term ‘eli-
gible deferred compensation item’ means any deferred 
compensation item with respect to which— 
‘‘(A) the payor of such item is— 
‘‘(i) a United States person, or 
‘‘(ii) a person who is not a United 
States person but who elects to be treated as 
a United States person for purposes of 
paragraph (1) and meets such requirements 
as the Secretary may provide to ensure that 
the payor will meet the requirements of 
paragraph (1), and 
‘‘(B) the covered expatriate— 
‘‘(i) notifies the payor of his status as 
a covered expatriate, and 
‘‘(ii) makes an irrevocable waiver of 
any right to claim any reduction under any 
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treaty with the United States in with-
holding on such item. 
‘‘(4) DEFERRED COMPENSATION ITEM.—For pur-
poses of this subsection, the term ‘deferred compensa-
tion item’ means— 
‘‘(A) any interest in a plan or arrangement 
described in section 219(g)(5), 
‘‘(B) any interest in a foreign pension plan 
or similar retirement arrangement or program, 
‘‘(C) any item of deferred compensation, 
and 
‘‘(D) any property, or right to property, 
which the individual is entitled to receive in con-
nection with the performance of services to the 
extent not previously taken into account under 
section 83 or in accordance with section 83. 
‘‘(5) EXCEPTION.—Paragraphs (1) and (2) shall 
not apply to any deferred compensation item which 
is attributable to services performed outside the 
United States while the covered expatriate was not a 
citizen or resident of the United States. 
‘‘(6) SPECIAL RULES.— 
‘‘(A) 
APPLICATION
OF
WITHHOLDING 
RULES.—Rules similar to the rules of subchapter 
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B of chapter 3 shall apply for purposes of this 
subsection. 
‘‘(B) APPLICATION OF TAX.—Any item sub-
ject to the withholding tax imposed under para-
graph (1) shall be subject to tax under section 
871. 
‘‘(C) COORDINATION
WITH
OTHER
WITH-
HOLDING REQUIREMENTS.—Any item subject to 
withholding under paragraph (1) shall not be 
subject to withholding under section 1441 or 
chapter 24. 
‘‘(e) TREATMENT OF SPECIFIED TAX DEFERRED AC-
COUNTS.— 
‘‘(1) ACCOUNT TREATED AS DISTRIBUTED.—In 
the case of any interest in a specified tax deferred ac-
count held by a covered expatriate on the day before 
the expatriation date— 
‘‘(A) the covered expatriate shall be treated 
as receiving a distribution of his entire interest 
in such account on the day before the expatria-
tion date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
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‘‘(C) appropriate adjustments shall be made 
to subsequent distributions from the account to 
reflect such treatment. 
‘‘(2) SPECIFIED TAX DEFERRED ACCOUNT.—For 
purposes of paragraph (1), the term ‘specified tax de-
ferred account’ means an individual retirement plan 
(as defined in section 7701(a)(37)) other than any ar-
rangement described in subsection (k) or (p) of section 
408, a qualified tuition program (as defined in sec-
tion 529), a Coverdell education savings account (as 
defined in section 530), a health savings account (as 
defined in section 223), and an Archer MSA (as de-
fined in section 220). 
‘‘(f) SPECIAL RULES FOR NONGRANTOR TRUSTS.— 
‘‘(1) IN GENERAL.—In the case of a distribution 
(directly or indirectly) of any property from a non-
grantor trust to a covered expatriate— 
‘‘(A) the trustee shall deduct and withhold 
from such distribution an amount equal to 30 
percent of the taxable portion of the distribution, 
and 
‘‘(B) if the fair market value of such prop-
erty exceeds its adjusted basis in the hands of the 
trust, gain shall be recognized to the trust as if 
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such property were sold to the expatriate at its 
fair market value. 
‘‘(2) TAXABLE PORTION.—For purposes of this 
subsection, the term ‘taxable portion’ means, with re-
spect to any distribution, that portion of the distribu-
tion which would be includible in the gross income of 
the covered expatriate if such expatriate continued to 
be subject to tax as a citizen or resident of the United 
States. 
‘‘(3) NONGRANTOR TRUST.—For purposes of this 
subsection, the term ‘nongrantor trust’ means the por-
tion of any trust that the individual is not considered 
the owner of under subpart E of part I of subchapter 
J. The determination under the preceding sentence 
shall be made immediately before the expatriation 
date. 
‘‘(4) SPECIAL
RULES
RELATING
TO
WITH-
HOLDING.—For purposes of this subsection— 
‘‘(A) rules similar to the rules of subsection 
(d)(6) shall apply, and 
‘‘(B) the covered expatriate shall be treated 
as having waived any right to claim any reduc-
tion under any treaty with the United States in 
withholding on any distribution to which para-
graph (1)(A) applies. 
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‘‘(5) APPLICATION.—This subsection shall apply 
to a nongrantor trust only if the covered expatriate 
was a beneficiary of the trust on the day before the 
expatriation date. 
‘‘(g) DEFINITIONS AND SPECIAL RULES RELATING TO 
EXPATRIATION.—For purposes of this section— 
‘‘(1) COVERED EXPATRIATE.— 
‘‘(A) IN GENERAL.—The term ‘covered expa-
triate’ means an expatriate who meets the re-
quirements of subparagraph (A), (B), or (C) of 
section 877(a)(2). 
‘‘(B) EXCEPTIONS.—An individual shall 
not be treated as meeting the requirements of 
subparagraph (A) or (B) of section 877(a)(2) 
if— 
‘‘(i) the individual— 
‘‘(I) became at birth a citizen of 
the United States and a citizen of an-
other country and, as of the expatria-
tion date, continues to be a citizen of, 
and is taxed as a resident of, such 
other country, and 
‘‘(II) has been a resident of the 
United States (as defined in section 
7701(b)(1)(A)(ii)) for not more than 
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10 taxable years during the 15-taxable 
year period ending with the taxable 
year during which the expatriation 
date occurs, or 
‘‘(ii)(I) the individual’s relinquishment 
of United States citizenship occurs before 
such individual attains age 181⁄2, and 
‘‘(II) the individual has been a resi-
dent of the United States (as so defined) for 
not more than 10 taxable years before the 
date of relinquishment. 
‘‘(C) COVERED EXPATRIATES ALSO SUBJECT 
TO
TAX
AS
CITIZENS
OR
RESIDENTS.—In the 
case of any covered expatriate who is subject to 
tax as a citizen or resident of the United States 
for any period beginning after the expatriation 
date, such individual shall not be treated as a 
covered expatriate during such period for pur-
poses of subsections (d)(1) and (f) and section 
2801. 
‘‘(2) 
EXPATRIATE.—The 
term 
‘expatriate’ 
means— 
‘‘(A) any United States citizen who relin-
quishes his citizenship, and 
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‘‘(B) any long-term resident of the United 
States who ceases to be a lawful permanent resi-
dent of the United States (within the meaning of 
section 7701(b)(6)). 
‘‘(3) 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 on which the indi-
vidual ceases to be a lawful permanent resident 
of the United States (within the meaning of sec-
tion 7701(b)(6)). 
‘‘(4) RELINQUISHMENT OF CITIZENSHIP.—A cit-
izen shall be treated as relinquishing his United 
States citizenship on the earliest of— 
‘‘(A) the date the individual renounces his 
United States nationality before a diplomatic or 
consular officer of the United States pursuant to 
paragraph (5) of section 349(a) of the Immigra-
tion 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 
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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-
quishment is subsequently approved by the issuance to 
the individual of a certificate of loss of nationality by 
the United States Department of State. 
‘‘(5) LONG-TERM
RESIDENT.—The term ‘long- 
term resident’ has the meaning given to such term by 
section 877(e)(2). 
‘‘(6) EARLY
DISTRIBUTION
TAX.—The term 
‘early distribution tax’ means any increase in tax im-
posed under section 72(t), 220(e)(4), 223(f)(4), 
409A(a)(1)(B), 529(c)(6), or 530(d)(4). 
‘‘(h) OTHER RULES.— 
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‘‘(1) TERMINATION OF DEFERRALS, ETC.—In the 
case of any covered expatriate, notwithstanding any 
other provision of this title— 
‘‘(A) any time period for acquiring prop-
erty which would result in the reduction in the 
amount of gain recognized with respect to prop-
erty disposed of by the taxpayer shall terminate 
on the day before the expatriation date, and 
‘‘(B) any extension of time for payment of 
tax shall cease to apply on the day before the ex-
patriation date and the unpaid portion of such 
tax shall be due and payable at the time and in 
the manner prescribed by the Secretary. 
‘‘(2) STEP-UP IN BASIS.—Solely for purposes of 
determining any tax imposed by reason of subsection 
(a), property which was held by an individual on the 
date the individual first became a resident of the 
United States (within the meaning of section 7701(b)) 
shall be treated as having a basis on such date of not 
less than the fair market value of such property on 
such date. The preceding sentence shall not apply if 
the individual elects not to have such sentence apply. 
Such an election, once made, shall be irrevocable. 
‘‘(3) COORDINATION WITH SECTION 684.—If the 
expatriation of any individual would result in the 
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recognition of gain under section 684, this section 
shall be applied after the application of section 684. 
‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) TAX
ON GIFTS
AND BEQUESTS RECEIVED
BY 
UNITED STATES CITIZENS AND RESIDENTS FROM EXPA-
TRIATES.— 
(1) IN GENERAL.—Subtitle B (relating to estate 
and gift taxes) is amended by inserting after chapter 
14 the following new chapter: 
‘‘CHAPTER 15—GIFTS AND BEQUESTS 
FROM EXPATRIATES 
‘‘Sec. 2801. Imposition of tax. 
‘‘SEC. 2801. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—If, during any calendar year, any 
United States citizen or resident receives any covered gift 
or bequest, there is hereby imposed a tax equal to the prod-
uct of— 
‘‘(1) the highest rate of tax specified in the table 
contained in section 2001(c) as in effect on the date 
of such receipt (or, if greater, the highest rate of tax 
specified in the table applicable under section 2502(a) 
as in effect on the date), and 
‘‘(2) the value of such covered gift or bequest. 
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‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im-
posed by subsection (a) on any covered gift or bequest shall 
be paid by the person receiving such gift or bequest. 
‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection (a) 
shall apply only to the extent that the value of covered gifts 
and bequests received by any person during the calendar 
year exceeds $10,000. 
‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE 
TAX.—The tax imposed by subsection (a) on any covered 
gift or bequest shall be reduced by the amount of any gift 
or estate tax paid to a foreign country with respect to such 
covered gift or bequest. 
‘‘(e) COVERED GIFT OR BEQUEST.— 
‘‘(1) IN GENERAL.—For purposes of this chapter, 
the term ‘covered gift or bequest’ means— 
‘‘(A) any property acquired by gift directly 
or indirectly from an individual who, at the 
time of such acquisition, is a covered expatriate, 
and 
‘‘(B) any property acquired directly or in-
directly by reason of the death of an individual 
who, immediately before such death, was a cov-
ered expatriate. 
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‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE 
SUBJECT TO ESTATE OR GIFT TAX.—Such term shall 
not include— 
‘‘(A) any property shown on a timely filed 
return of tax imposed by chapter 12 which is a 
taxable gift by the covered expatriate, and 
‘‘(B) any property included in the gross es-
tate 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. 
‘‘(3) TRANSFERS IN TRUST.— 
‘‘(A) DOMESTIC TRUSTS.—In the case of a 
covered gift or bequest made to a domestic 
trust— 
‘‘(i) subsection (a) shall apply in the 
same manner as if such trust were a United 
States citizen, and 
‘‘(ii) the tax imposed by subsection (a) 
on such gift or bequest shall be paid by such 
trust. 
‘‘(B) FOREIGN TRUSTS.— 
‘‘(i) IN GENERAL.—In the case of a 
covered gift or bequest made to a foreign 
trust, subsection (a) shall apply to any dis-
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tribution attributable to such gift or bequest 
from such trust (whether from income or 
corpus) to a United States citizen or resi-
dent in the same manner as if such dis-
tribution were a covered gift or bequest. 
‘‘(ii) DEDUCTION FOR TAX PAID BY RE-
CIPIENT.—There shall be allowed as a de-
duction under section 164 the amount of tax 
imposed by this section which is paid or ac-
crued by a United States citizen or resident 
by reason of a distribution from a foreign 
trust, but only to the extent such tax is im-
posed on the portion of such distribution 
which is included in the gross income of 
such citizen or resident. 
‘‘(iii) ELECTION TO BE TREATED AS 
DOMESTIC TRUST.—Solely for purposes of 
this section, a foreign trust may elect to be 
treated as a domestic trust. Such an election 
may be revoked with the consent of the Sec-
retary. 
‘‘(f) COVERED EXPATRIATE.—For purposes of this sec-
tion, the term ‘covered expatriate’ has the meaning given 
to such term by section 877A(g)(1).’’. 
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(2) CLERICAL AMENDMENT.—The table of chap-
ters for subtitle B is amended by inserting after the 
item relating to chapter 14 the following new item: 
‘‘CHAPTER 15. GIFTS AND BEQUESTS FROM EXPATRIATES.’’. 
(c) DEFINITION OF TERMINATION OF UNITED STATES 
CITIZENSHIP.— 
(1) IN GENERAL.—Section 7701(a) is amended 
by adding at the end the following new paragraph: 
‘‘(50) 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(g)(4). 
‘‘(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.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (1) of section 877(e) is 
amended to read as follows: 
‘‘(1) IN GENERAL.—Any long-term resident of 
the United States who ceases to be a lawful perma-
nent resident of the United States (within the mean-
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ing of section 7701(b)(6)) shall be treated for purposes 
of this section and sections 2107, 2501, and 6039G in 
the same manner as if such resident were a citizen of 
the United States who lost United States citizenship 
on the date of such cessation or commencement.’’. 
(B) Paragraph (6) of section 7701(b) is 
amended by adding at the end the following flush 
sentence: 
‘‘An individual shall cease to be treated as a lawful 
permanent resident of the United States if such indi-
vidual commences to be treated as a resident of a for-
eign country under the provisions of a tax treaty be-
tween the United States and the foreign country, does 
not waive the benefits of such treaty applicable to 
residents of the foreign country, and notifies the Sec-
retary of the commencement of such treatment.’’. 
(C) Section 7701 is amended by striking 
subsection (n) and by redesignating subsections 
(o) and (p) as subsections (n) and (o), respec-
tively. 
(d) INFORMATION
RETURNS.—Section 6039G is 
amended— 
(1) by inserting ‘‘or 877A’’ after ‘‘section 877(b)’’ 
in subsection (a), and 
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(2) by inserting ‘‘or 877A’’ after ‘‘section 
877(a)’’ in subsection (d). 
(e) 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.’’. 
(f) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this 
subsection, the amendments made by this section shall 
apply to expatriates (as defined in section 877A(g) of 
the Internal Revenue Code of 1986, as added by this 
section) whose expatriation date (as so defined) is on 
or after the date of the enactment of this Act. 
(2) GIFTS AND BEQUESTS.—Chapter 15 of the 
Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to covered gifts and bequests 
(as defined in section 2801 of such Code, as so added) 
received on or after the date of the enactment of this 
Act, regardless of when the transferor expatriated. 
SEC. 505. REPEAL OF SUSPENSION OF CERTAIN PENALTIES 
AND INTEREST. 
(a) IN GENERAL.—Section 6404 is amended by strik-
ing subsection (g) and by redesignating subsection (h) as 
subsection (g). 
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