105 
SEC. 237. BASIS ADJUSTMENT TO STOCK OF S CORPORA-
TIONS 
MAKING 
CHARITABLE 
CONTRIBU-
TIONS OF PROPERTY. 
(a) IN GENERAL.—The last sentence of section 
1367(a)(2) is amended by striking ‘‘December 31, 2007’’ 
and inserting ‘‘December 31, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in taxable 
years beginning after December 31, 2007. 
SEC. 238. WORK OPPORTUNITY TAX CREDIT FOR HURRI-
CANE 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 ‘‘4-year’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to individuals hired after August 
27, 2007. 
SEC. 239. SUBPART F EXCEPTION FOR ACTIVE FINANCING 
INCOME. 
(a) EXEMPT INSURANCE INCOME.—Paragraph (10) 
of section 953(e) (relating to application) is amended— 
(1) by striking ‘‘January 1, 2009’’ and insert-
ing ‘‘January 1, 2010’’, and 
(2) by striking ‘‘December 31, 2008’’ and in-
serting ‘‘December 31, 2009’’. 
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106 
(b) EXCEPTION TO TREATMENT AS FOREIGN PER-
SONAL HOLDING COMPANY INCOME.—Paragraph (9) of 
section 954(h) (relating to application) is amended by 
striking ‘‘January 1, 2009’’ and inserting ‘‘January 1, 
2010’’. 
SEC. 240. LOOK-THRU RULE FOR RELATED CONTROLLED 
FOREIGN CORPORATIONS. 
(a) IN GENERAL.—Subparagraph (C) of section 
954(c)(6) (relating to application) is amended by striking 
‘‘January 1, 2009’’ and inserting ‘‘January 1, 2010’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2008, and to taxable 
years of United States shareholders with or within which 
such taxable years of foreign corporations end. 
SEC. 241. EXPENSING FOR CERTAIN QUALIFIED FILM AND 
TELEVISION PRODUCTIONS. 
(a) IN GENERAL.—Subsection (f) of section 181 is 
amended by striking ‘‘December 31, 2008’’ and inserting 
‘‘December 31, 2009’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to productions commencing after 
December 31, 2008. 
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107 
Subtitle C—Other Extensions 
SEC. 251. AUTHORITY TO DISCLOSE INFORMATION RE-
LATED TO TERRORIST ACTIVITIES MADE 
PERMANENT. 
(a) IN GENERAL.—Subparagraph (C) of section 
6103(i)(3) is amended by striking clause (iv). 
(b) DISCLOSURE ON REQUEST.—Paragraph (7) of 
section 6103(i) is amended by striking subparagraph (E). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to disclosures after the date of the 
enactment of this Act. 
SEC. 252. AUTHORITY FOR UNDERCOVER OPERATIONS 
MADE PERMANENT. 
(a) IN GENERAL.—Subsection (c) of section 7608 is 
amended by striking paragraph (6). 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on January 1, 2008. 
SEC. 253. 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, 2010’’. 
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108 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distilled spirits brought into the 
United States after December 31, 2007. 
TITLE III—ADDITIONAL TAX RE-
LIEF 
AND 
OTHER 
PROVI-
SIONS 
SEC. 301. 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 2009)’’ 
after ‘‘$10,000’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 302. PROVISIONS RELATED TO FILM AND TELEVISION 
PRODUCTIONS. 
(a) MODIFICATION
OF LIMITATION
ON EXPENS-
ING.—Subparagraph (A) of section 181(a)(2) is amended 
to read as follows: 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply to so much of the aggregate cost of 
any qualified film or television production as ex-
ceeds $15,000,000.’’. 
(b) MODIFICATIONS TO DEDUCTION FOR DOMESTIC 
ACTIVITIES.— 
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109 
(1) DETERMINATION
OF
W-2
WAGES.—Para-
graph (2) of section 199(b) is amended by adding at 
the end the following new subparagraph: 
‘‘(D) SPECIAL
RULE
FOR
QUALIFIED 
FILM.—In the case of a qualified film, such 
term shall include compensation for services 
performed in the United States by actors, pro-
duction personnel, directors, and producers.’’. 
(2) DEFINITION
OF
QUALIFIED
FILM.—Para-
graph (6) of section 199(c) is amended by adding at 
the end the following: ‘‘A qualified film shall include 
any copyrights, trademarks, or other intangibles 
with respect to such film. The methods and means 
of distributing a qualified film shall not affect the 
availability of the deduction under this section.’’. 
(3) PARTNERSHIPS.—Subparagraph (A) of sec-
tion 199(d)(1) 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 each partner of a 
partnership, or shareholder of an S cor-
poration, who owns (directly or indirectly) 
at least 20 percent of the capital interests 
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110 
in such partnership or of the stock of such 
S corporation— 
‘‘(I) such partner or shareholder 
shall be treated as having engaged di-
rectly in any film produced by such 
partnership or S corporation, and 
‘‘(II) such partnership or S cor-
poration shall be treated as having en-
gaged directly in any film produced by 
such partner or shareholder.’’. 
(c) 
CONFORMING
AMENDMENT.—Section 
181(d)(3)(A) is amended by striking ‘‘actors’’ and all that 
follows and inserting ‘‘actors, production personnel, direc-
tors, and producers.’’. 
(d) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2007. 
(2) EXPENSING.—The amendments made by 
subsection (a) shall apply to qualified film and tele-
vision productions commencing after December 31, 
2007. 
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111 
SEC. 303. EXEMPTION FROM EXCISE TAX FOR CERTAIN AR-
ROWS DESIGNED FOR USE BY CHILDREN. 
(a) IN GENERAL.—Paragraph (2) of section 4161(b) 
(relating to arrows) is amended by redesignating subpara-
graph (B) as subparagraph (C) and by inserting after sub-
paragraph (A) the following new subparagraph: 
‘‘(B) EXEMPTION
FOR
CERTAIN
ARROW 
SHAFTS.—Subparagraph (A) shall not apply to 
any shaft measuring 5⁄16 of an inch or less in 
diameter and consisting of either— 
‘‘(i) all fiberglass and hollow, or 
‘‘(ii) all natural wood, 
with no laminations or artificial means of en-
hancing the spine of such shaft (whether sold 
separately or incorporated as part of a finished 
or unfinished product) of a type used in the 
manufacture of any arrow which after its as-
sembly is not suitable for use with a bow de-
scribed in paragraph (1)(A).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to shafts first sold after the date 
of enactment of this Act. 
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112 
SEC. 304. MODIFICATION OF PENALTY ON UNDERSTATE-
MENT OF TAXPAYER’S LIABILITY BY TAX RE-
TURN PREPARER. 
(a) IN GENERAL.—Subsection (a) of section 6694 
(relating to understatement due to unreasonable positions) 
is amended to read as follows: 
‘‘(a) UNDERSTATEMENT DUE
TO UNREASONABLE 
POSITIONS.— 
‘‘(1) IN GENERAL.—If a tax return preparer— 
‘‘(A) prepares any return or claim of re-
fund with respect to which any part of an un-
derstatement of liability is due to a position de-
scribed in paragraph (2), and 
‘‘(B) knew (or reasonably should have 
known) of the position, 
such tax return preparer shall pay a penalty with re-
spect to each such return or claim in an amount 
equal to the greater of $1,000 or 50 percent of the 
income derived (or to be derived) by the tax return 
preparer with respect to the return or claim. 
‘‘(2) UNREASONABLE POSITION.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, a position is de-
scribed in this paragraph unless there is or was 
substantial authority for the position. 
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113 
‘‘(B) DISCLOSED POSITIONS.—If the posi-
tion was disclosed as provided in section 
6662(d)(2)(B)(ii)(I) and is not a position to 
which subparagraph (C) applies, the position is 
described in this paragraph unless there is a 
reasonable basis for the position. 
‘‘(C) REPORTABLE TRANSACTIONS.—If the 
position is with respect to a reportable trans-
action to which section 6662A applies, the posi-
tion is described in this paragraph unless it is 
reasonable to believe that the position would 
more likely than not be sustained on its merits. 
‘‘(3) REASONABLE
CAUSE
EXCEPTION.—No 
penalty shall be imposed under this subsection if it 
is shown that there is reasonable cause for the un-
derstatement and the tax return preparer acted in 
good faith.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply— 
(1) in the case of a position other than a posi-
tion described in subparagraph (C) of section 
6694(a)(2) of the Internal Revenue Code of 1986 
(as amended by this section), to returns prepared 
after May 25, 2007, and 
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114 
(2) in the case of a position described in such 
subparagraph (C), to returns prepared for taxable 
years beginning after the date of the enactment of 
this Act. 
TITLE IV—REVENUE 
PROVISIONS 
SEC. 401. LIMITATION OF DEDUCTION FOR INCOME AT-
TRIBUTABLE TO DOMESTIC PRODUCTION OF 
OIL, GAS, OR PRIMARY PRODUCTS THEREOF. 
(a) IN GENERAL.—Section 199(d) is amended by re-
designating paragraph (9) as paragraph (10) and by in-
serting after paragraph (8) the following new paragraph: 
‘‘(9) SPECIAL RULE FOR TAXPAYERS WITH OIL 
RELATED
QUALIFIED
PRODUCTION
ACTIVITIES
IN-
COME.— 
‘‘(A) IN GENERAL.—If a taxpayer has oil 
related qualified production activities income for 
any taxable year beginning after 2009, the 
amount otherwise allowable as a deduction 
under subsection (a) shall be reduced by 3 per-
cent of the least of— 
‘‘(i) the oil related qualified produc-
tion activities income of the taxpayer for 
the taxable year, 
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115 
‘‘(ii) the qualified production activities 
income of the taxpayer for the taxable 
year, or 
‘‘(iii) 
taxable 
income 
(determined 
without regard to this section). 
‘‘(B) OIL
RELATED
QUALIFIED
PRODUC-
TION
ACTIVITIES
INCOME.—For purposes of 
this paragraph, the term ‘oil related qualified 
production activities income’ means for any tax-
able year the qualified production activities in-
come which is attributable to the production, 
refining, processing, transportation, or distribu-
tion of oil, gas, or any primary product thereof 
during such taxable year. 
‘‘(C) PRIMARY PRODUCT.—For purposes of 
this paragraph, the term ‘primary product’ has 
the same meaning as when used in section 
927(a)(2)(C), as in effect before its repeal.’’. 
(b) CONFORMING AMENDMENT.—Section 199(d)(2) 
(relating to application to individuals) is amended by 
striking ‘‘subsection (a)(1)(B)’’ and inserting ‘‘subsections 
(a)(1)(B) and (d)(9)(A)(iii)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
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116 
SEC. 402. ELIMINATION OF THE DIFFERENT TREATMENT 
OF FOREIGN OIL AND GAS EXTRACTION IN-
COME AND FOREIGN OIL RELATED INCOME 
FOR PURPOSES OF THE FOREIGN TAX CRED-
IT. 
(a) IN GENERAL.—Subsections (a) and (b) of section 
907 (relating to special rules in case of foreign oil and 
gas income) are amended to read as follows: 
‘‘(a) REDUCTION IN AMOUNT ALLOWED AS FOREIGN 
TAX UNDER SECTION 901.—In applying section 901, the 
amount of any foreign oil and gas taxes paid or accrued 
(or deemed to have been paid) during the taxable year 
which would (but for this subsection) be taken into ac-
count for purposes of section 901 shall be reduced by the 
amount (if any) by which the amount of such taxes ex-
ceeds the product of— 
‘‘(1) the amount of the combined foreign oil 
and gas income for the taxable year, 
‘‘(2) multiplied by— 
‘‘(A) in the case of a corporation, the per-
centage which is equal to the highest rate of tax 
specified under section 11(b), or 
‘‘(B) in the case of an individual, a frac-
tion the numerator of which is the tax against 
which the credit under section 901(a) is taken 
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117 
and the denominator of which is the taxpayer’s 
entire taxable income. 
‘‘(b) COMBINED FOREIGN OIL AND GAS INCOME; 
FOREIGN OIL AND GAS TAXES.—For purposes of this sec-
tion— 
‘‘(1) COMBINED
FOREIGN
OIL
AND
GAS
IN-
COME.—The term ‘combined foreign oil and gas in-
come’ means, with respect to any taxable year, the 
sum of— 
‘‘(A) foreign oil and gas extraction income, 
and 
‘‘(B) foreign oil related income. 
‘‘(2) FOREIGN OIL AND GAS TAXES.—The term 
‘foreign oil and gas taxes’ means, with respect to 
any taxable year, the sum of— 
‘‘(A) oil and gas extraction taxes, and 
‘‘(B) any income, war profits, and excess 
profits taxes paid or accrued (or deemed to 
have been paid or accrued under section 902 or 
960) during the taxable year with respect to 
foreign oil related income (determined without 
regard to subsection (c)(4)) or loss which would 
be taken into account for purposes of section 
901 without regard to this section.’’. 
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118 
(b) RECAPTURE
OF
FOREIGN
OIL
AND
GAS 
LOSSES.—Paragraph (4) of section 907(c) (relating to re-
capture of foreign oil and gas extraction losses by re-
characterizing later extraction income) is amended to read 
as follows: 
‘‘(4) RECAPTURE
OF
FOREIGN
OIL
AND
GAS 
LOSSES
BY
RECHARACTERIZING
LATER
COMBINED 
FOREIGN OIL AND GAS INCOME.— 
‘‘(A) IN GENERAL.—The combined foreign 
oil and gas income of a taxpayer for a taxable 
year (determined without regard to this para-
graph) shall be reduced— 
‘‘(i) first by the amount determined 
under subparagraph (B), and 
‘‘(ii) then by the amount determined 
under subparagraph (C). 
The aggregate amount of such reductions shall 
be treated as income (from sources without the 
United States) which is not combined foreign 
oil and gas income. 
‘‘(B) REDUCTION FOR PRE-2009 FOREIGN 
OIL
EXTRACTION
LOSSES.—The 
reduction 
under this paragraph shall be equal to the less-
er of— 
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119 
‘‘(i) the foreign oil and gas extraction 
income of the taxpayer for the taxable year 
(determined without regard to this para-
graph), or 
‘‘(ii) the excess of— 
‘‘(I) the aggregate amount of for-
eign oil extraction losses for preceding 
taxable years beginning after Decem-
ber 31, 1982, and before January 1, 
2009, over 
‘‘(II) so much of such aggregate 
amount as was recharacterized under 
this paragraph (as in effect before 
and after the date of the enactment of 
the Renewable Energy and Job Cre-
ation Tax Act of 2008) for preceding 
taxable years beginning after Decem-
ber 31, 1982. 
‘‘(C) REDUCTION FOR POST-2008 FOREIGN 
OIL
AND
GAS
LOSSES.—The reduction under 
this paragraph shall be equal to the lesser of— 
‘‘(i) the combined foreign oil and gas 
income of the taxpayer for the taxable year 
(determined without regard to this para-
graph), reduced by an amount equal to the 
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120 
reduction under subparagraph (A) for the 
taxable year, or 
‘‘(ii) the excess of— 
‘‘(I) the aggregate amount of for-
eign oil and gas losses for preceding 
taxable years beginning after Decem-
ber 31, 2008, over 
‘‘(II) so much of such aggregate 
amount as was recharacterized under 
this paragraph for preceding taxable 
years beginning after December 31, 
2008. 
‘‘(D) FOREIGN
OIL
AND
GAS
LOSS
DE-
FINED.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, the term ‘foreign oil and 
gas loss’ means the amount by which— 
‘‘(I) the gross income for the tax-
able year from sources without the 
United States and its possessions 
(whether or not the taxpayer chooses 
the benefits of this subpart for such 
taxable year) taken into account in 
determining the combined foreign oil 
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121 
and gas income for such year, is ex-
ceeded by 
‘‘(II) the sum of the deductions 
properly 
apportioned 
or 
allocated 
thereto. 
‘‘(ii) NET
OPERATING
LOSS
DEDUC-
TION
NOT
TAKEN
INTO
ACCOUNT.—For 
purposes of clause (i), the net operating 
loss deduction allowable for the taxable 
year under section 172(a) shall not be 
taken into account. 
‘‘(iii) EXPROPRIATION AND CASUALTY 
LOSSES NOT TAKEN INTO ACCOUNT.—For 
purposes of clause (i), there shall not be 
taken into account— 
‘‘(I) any foreign expropriation 
loss (as defined in section 172(h) (as 
in effect on the day before the date of 
the enactment of the Revenue Rec-
onciliation Act of 1990)) for the tax-
able year, or 
‘‘(II) any loss for the taxable 
year which arises from fire, storm, 
shipwreck, or other casualty, or from 
theft, 
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122 
to the extent such loss is not compensated 
for by insurance or otherwise. 
‘‘(iv) 
FOREIGN
OIL
EXTRACTION 
LOSS.—For 
purposes 
of 
subparagraph 
(B)(ii)(I), foreign oil extraction losses shall 
be determined under this paragraph as in 
effect on the day before the date of the en-
actment of the Renewable Energy and Job 
Creation Tax Act of 2008.’’. 
(c) CARRYBACK AND CARRYOVER OF DISALLOWED 
CREDITS.—Section 907(f) (relating to carryback and car-
ryover of disallowed credits) is amended— 
(1) by striking ‘‘oil and gas extraction taxes’’ 
each place it appears and inserting ‘‘foreign oil and 
gas taxes’’, and 
(2) by adding at the end the following new 
paragraph: 
‘‘(4) TRANSITION
RULES
FOR
PRE-2009
AND 
2009 DISALLOWED CREDITS.— 
‘‘(A) PRE-2009 CREDITS.—In the case of 
any unused credit year beginning before Janu-
ary 1, 2009, this subsection shall be applied to 
any unused oil and gas extraction taxes carried 
from such unused credit year to a year begin-
ning after December 31, 2008— 
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123 
‘‘(i) by substituting ‘oil and gas ex-
traction taxes’ for ‘foreign oil and gas 
taxes’ each place it appears in paragraphs 
(1), (2), and (3), and 
‘‘(ii) by computing, for purposes of 
paragraph (2)(A), the limitation under 
subparagraph (A) for the year to which 
such taxes are carried by substituting ‘for-
eign oil and gas extraction income’ for ‘for-
eign oil and gas income’ in subsection (a). 
‘‘(B) 2009 CREDITS.—In the case of any 
unused credit year beginning in 2009, the 
amendments made to this subsection by the Re-
newable Energy and Job Creation Tax Act of 
2008 shall be treated as being in effect for any 
preceding year beginning before January 1, 
2009, solely for purposes of determining how 
much of the unused foreign oil and gas taxes 
for such unused credit year may be deemed 
paid or accrued in such preceding year.’’. 
(d) CONFORMING AMENDMENT.—Section 6501(i) is 
amended by striking ‘‘oil and gas extraction taxes’’ and 
inserting ‘‘foreign oil and gas taxes’’. 
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