H. R. 4297—15
Section 355 (relating to distributions of stock and securities 
of a controlled corporation) is amended by adding at the end 
the following new subsection: 
‘‘(g) SECTION NOT TO APPLY TO DISTRIBUTIONS INVOLVING DIS-
QUALIFIED INVESTMENT CORPORATIONS.— 
‘‘(1) IN GENERAL.—This section (and so much of section 
356 as relates to this section) shall not apply to any distribution 
which is part of a transaction if— 
‘‘(A) either the distributing corporation or controlled 
corporation is, immediately after the transaction, a dis-
qualified investment corporation, and 
‘‘(B) any person holds, immediately after the trans-
action, a 50-percent or greater interest in any disqualified 
investment corporation, but only if such person did not 
hold such an interest in such corporation immediately 
before the transaction. 
‘‘(2) DISQUALIFIED
INVESTMENT
CORPORATION.—For pur-
poses of this subsection— 
‘‘(A) IN GENERAL.—The term ‘disqualified investment 
corporation’ means any distributing or controlled corpora-
tion if the fair market value of the investment assets 
of the corporation is— 
‘‘(i) in the case of distributions after the end of 
the 1-year period beginning on the date of the enact-
ment of this subsection, 2⁄3 or more of the fair market 
value of all assets of the corporation, and 
‘‘(ii) in the case of distributions during such 1-
year period, 3⁄4 or more of the fair market value of 
all assets of the corporation. 
‘‘(B) INVESTMENT ASSETS.— 
‘‘(i) IN
GENERAL.—Except as otherwise provided 
in this subparagraph, the term ‘investment assets’ 
means— 
‘‘(I) cash, 
‘‘(II) any stock or securities in a corporation, 
‘‘(III) any interest in a partnership, 
‘‘(IV) any debt instrument or other evidence 
of indebtedness, 
‘‘(V) any option, forward or futures contract, 
notional principal contract, or derivative, 
‘‘(VI) foreign currency, or 
‘‘(VII) any similar asset. 
‘‘(ii) EXCEPTION FOR ASSETS USED IN ACTIVE CON-
DUCT OF CERTAIN FINANCIAL TRADES OR BUSINESSES.—
Such term shall not include any asset which is held 
for use in the active and regular conduct of— 
‘‘(I) a lending or finance business (within the 
meaning of section 954(h)(4)), 
‘‘(II) a banking business through a bank (as 
defined in section 581), a domestic building and 
loan association (within the meaning of section 
7701(a)(19)), or any similar institution specified 
by the Secretary, or 
‘‘(III) an insurance business if the conduct of 
the business is licensed, authorized, or regulated 
by an applicable insurance regulatory body.
H. R. 4297—16
This clause shall only apply with respect to any busi-
ness if substantially all of the income of the business 
is derived from persons who are not related (within 
the meaning of section 267(b) or 707(b)(1)) to the person 
conducting the business. 
‘‘(iii) EXCEPTION
FOR
SECURITIES
MARKED
TO 
MARKET.—Such term shall not include any security 
(as defined in section 475(c)(2)) which is held by a 
dealer in securities and to which section 475(a) applies. 
‘‘(iv) STOCK OR SECURITIES IN A 20-PERCENT CON-
TROLLED ENTITY.— 
‘‘(I) IN GENERAL.—Such term shall not include 
any stock and securities in, or any asset described 
in subclause (IV) or (V) of clause (i) issued by, 
a corporation which is a 20-percent controlled 
entity with respect to the distributing or controlled 
corporation. 
‘‘(II) LOOK-THRU
RULE.—The distributing or 
controlled corporation shall, for purposes of 
applying this subsection, be treated as owning its 
ratable share of the assets of any 20-percent con-
trolled entity. 
‘‘(III) 20-PERCENT
CONTROLLED
ENTITY.—For 
purposes of this clause, the term ‘20-percent con-
trolled entity’ means, with respect to any distrib-
uting or controlled corporation, any corporation 
with respect to which the distributing or controlled 
corporation owns directly or indirectly stock 
meeting the requirements of section 1504(a)(2), 
except that such section shall be applied by sub-
stituting ‘20 percent’ for ‘80 percent’ and without 
regard to stock described in section 1504(a)(4). 
‘‘(v) INTERESTS IN CERTAIN PARTNERSHIPS.— 
‘‘(I) IN GENERAL.—Such term shall not include 
any interest in a partnership, or any debt 
instrument or other evidence of indebtedness, 
issued by the partnership, if 1 or more of the 
trades or businesses of the partnership are (or, 
without regard to the 5-year requirement under 
subsection (b)(2)(B), would be) taken into account 
by the distributing or controlled corporation, as 
the case may be, in determining whether the 
requirements of subsection (b) are met with respect 
to the distribution. 
‘‘(II) LOOK-THRU
RULE.—The distributing or 
controlled corporation shall, for purposes of 
applying this subsection, be treated as owning its 
ratable share of the assets of any partnership 
described in subclause (I). 
‘‘(3) 50-PERCENT OR GREATER INTEREST.—For purposes of 
this subsection— 
‘‘(A) IN
GENERAL.—The term ‘50-percent or greater 
interest’ has the meaning given such term by subsection 
(d)(4). 
‘‘(B) ATTRIBUTION
RULES.—The rules of section 318 
shall apply for purposes of determining ownership of stock 
for purposes of this paragraph.
H. R. 4297—17
‘‘(4) TRANSACTION.—For purposes of this subsection, the 
term ‘transaction’ includes a series of transactions. 
‘‘(5) REGULATIONS.—The Secretary shall prescribe such 
regulations as may be necessary to carry out, or prevent the 
avoidance of, the purposes of this subsection, including regula-
tions— 
‘‘(A) to carry out, or prevent the avoidance of, the 
purposes of this subsection in cases involving— 
‘‘(i) the use of related persons, intermediaries, 
pass-thru entities, options, or other arrangements, and 
‘‘(ii) the treatment of assets unrelated to the trade 
or business of a corporation as investment assets if, 
prior to the distribution, investment assets were used 
to acquire such unrelated assets, 
‘‘(B) which in appropriate cases exclude from the 
application of this subsection a distribution which does 
not have the character of a redemption which would be 
treated as a sale or exchange under section 302, and 
‘‘(C) which modify the application of the attribution 
rules applied for purposes of this subsection.’’. 
(b) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to distributions after the date of the enactment 
of this Act. 
(2) TRANSITION RULE.—The amendments made by this sec-
tion shall not apply to any distribution pursuant to a trans-
action which is— 
(A) made pursuant to an agreement which was binding 
on such date of enactment and at all times thereafter, 
(B) described in a ruling request submitted to the 
Internal Revenue Service on or before such date, or 
(C) described on or before such date in a public 
announcement or in a filing with the Securities and 
Exchange Commission. 
SEC. 508. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
FINANCING REQUIREMENTS. 
(a) STRENGTHENED REASONABLE EXPECTATION REQUIREMENT.—
Subparagraph (A) of section 149(f)(2) (relating to reasonable 
expectation requirement) is amended to read as follows: 
‘‘(A) IN GENERAL.—The requirements of this paragraph 
are met with respect to an issue if the issuer reasonably 
expects that— 
‘‘(i) as of the close of the 1-year period beginning 
on the date of issuance of the issue, at least 30 percent 
of the net proceeds of the issue (as of the close of 
such period) will have been used directly or indirectly 
to make or finance loans to ultimate borrowers, and 
‘‘(ii) as of the close of the 3-year period beginning 
on such date of issuance, at least 95 percent of the 
net proceeds of the issue (as of the close of such period) 
will have been so used.’’. 
(b) WRITTEN LOAN COMMITMENT AND REDEMPTION REQUIRE-
MENTS.—Section 149(f) (relating to treatment of certain pooled 
financing bonds) is amended by redesignating paragraphs (4) and 
(5) as paragraphs (6) and (7), respectively, and by inserting after 
paragraph (3) the following new paragraphs:
H. R. 4297—18
‘‘(4) WRITTEN LOAN COMMITMENT REQUIREMENT.— 
‘‘(A) IN GENERAL.—The requirement of this paragraph 
is met with respect to an issue if the issuer receives prior 
to issuance written loan commitments identifying the ulti-
mate potential borrowers of at least 30 percent of the 
net proceeds of such issue. 
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply 
with respect to any issuer which— 
‘‘(i) is a State (or an integral part of a State) 
issuing pooled financing bonds to make or finance loans 
to subordinate governmental units of such State, or 
‘‘(ii) is a State-created entity providing financing 
for water-infrastructure projects through the federally-
sponsored State revolving fund program. 
‘‘(5) REDEMPTION REQUIREMENT.—The requirement of this 
paragraph is met if to the extent that less than the percentage 
of the proceeds of an issue required to be used under clause 
(i) or (ii) of paragraph (2)(A) is used by the close of the period 
identified in such clause, the issuer uses an amount of proceeds 
equal to the excess of— 
‘‘(A) the amount required to be used under such clause, 
over 
‘‘(B) the amount actually used by the close of such 
period, 
to redeem outstanding bonds within 90 days after the end 
of such period.’’. 
(c) ELIMINATION OF DISREGARD OF POOLED BONDS IN DETER-
MINING ELIGIBILITY FOR SMALL ISSUER EXCEPTION TO ARBITRAGE 
REBATE.—Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
is amended by striking subclause (II) and by redesignating sub-
clauses (III) and (IV) as subclauses (II) and (III), respectively. 
(d) CONFORMING AMENDMENTS.— 
(1) Section 149(f)(1) is amended by striking ‘‘paragraphs 
(2) and (3)’’ and inserting ‘‘paragraphs (2), (3), (4), and (5)’’. 
(2) Section 149(f)(7)(B), as redesignated by subsection (b), 
is amended by striking ‘‘paragraph (4)(A)’’ and inserting ‘‘para-
graph (6)(A)’’. 
(3) Section 54(l)(2) is amended by striking ‘‘section 
149(f)(4)(A)’’ and inserting ‘‘section 149(f)(6)(A)’’. 
(e) EFFECTIVE DATE.—The amendments made by this section 
shall apply to bonds issued after the date of the enactment of 
this Act. 
SEC. 509. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
OFFERS-IN-COMPROMISE. 
(a) IN GENERAL.—Section 7122 (relating to compromises) is 
amended by redesignating subsections (c) and (d) as subsections 
(d) and (e), respectively, and by inserting after subsection (b) the 
following new subsection: 
‘‘(c) RULES FOR SUBMISSION OF OFFERS-IN-COMPROMISE.— 
‘‘(1) PARTIAL PAYMENT REQUIRED WITH SUBMISSION.— 
‘‘(A) LUMP-SUM OFFERS.— 
‘‘(i) IN GENERAL.—The submission of any lump-
sum offer-in-compromise shall be accompanied by the 
payment of 20 percent of the amount of such offer.
H. R. 4297—19
‘‘(ii) LUMP-SUM
OFFER-IN-COMPROMISE.—For pur-
poses of this section, the term ‘lump-sum offer-in-com-
promise’ means any offer of payments made in 5 or 
fewer installments. 
‘‘(B) PERIODIC PAYMENT OFFERS.— 
‘‘(i) IN GENERAL.—The submission of any periodic 
payment offer-in-compromise shall be accompanied by 
the payment of the amount of the first proposed install-
ment. 
‘‘(ii) FAILURE TO MAKE INSTALLMENT DURING PEND-
ENCY OF OFFER.—Any failure to make an installment 
(other than the first installment) due under such offer-
in-compromise during the period such offer is being 
evaluated by the Secretary may be treated by the 
Secretary as a withdrawal of such offer-in-compromise. 
‘‘(2) RULES OF APPLICATION.— 
‘‘(A) USE OF PAYMENT.—The application of any payment 
made under this subsection to the assessed tax or other 
amounts imposed under this title with respect to such 
tax may be specified by the taxpayer. 
‘‘(B) APPLICATION OF USER FEE.—In the case of any 
assessed tax or other amounts imposed under this title 
with respect to such tax which is the subject of an offer-
in-compromise to which this subsection applies, such tax 
or other amounts shall be reduced by any user fee imposed 
under this title with respect to such offer-in-compromise. 
‘‘(C) WAIVER
AUTHORITY.—The Secretary may issue 
regulations waiving any payment required under para-
graph (1) in a manner consistent with the practices estab-
lished in accordance with the requirements under sub-
section (d)(3).’’. 
(b) ADDITIONAL RULES RELATING TO TREATMENT OF OFFERS.— 
(1) UNPROCESSABLE OFFER IF PAYMENT REQUIREMENTS ARE 
NOT MET.—Paragraph (3) of section 7122(d) (relating to stand-
ards for evaluation of offers), as redesignated by subsection 
(a), is amended by striking ‘‘; and’’ at the end of subparagraph 
(A) and inserting a comma, by striking the period at the end 
of subparagraph (B) and inserting ‘‘, and’’, and by adding at 
the end the following new subparagraph: 
‘‘(C) any offer-in-compromise which does not meet the 
requirements of subparagraph (A)(i) or (B)(i), as the case 
may be, of subsection (c)(1) may be returned to the taxpayer 
as unprocessable.’’. 
(2) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN 
CERTAIN PERIOD.—Section 7122, as amended by subsection (a), 
is amended by adding at the end the following new subsection: 
‘‘(f) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN 
CERTAIN PERIOD.—Any offer-in-compromise submitted under this 
section shall be deemed to be accepted by the Secretary if such 
offer is not rejected by the Secretary before the date which is 
24 months after the date of the submission of such offer. For 
purposes of the preceding sentence, any period during which any 
tax liability which is the subject of such offer-in-compromise is 
in dispute in any judicial proceeding shall not be taken into account 
in determining the expiration of the 24-month period.’’. 
(c) CONFORMING AMENDMENT.—Section 6159(f) is amended by 
striking ‘‘section 7122(d)’’ and inserting ‘‘section 7122(e)’’.
H. R. 4297—20
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to offers-in-compromise submitted on and after the 
date which is 60 days after the date of the enactment of this 
Act. 
SEC. 510. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
INCOME IS TAXED AS IF PARENT’S INCOME. 
(a) IN GENERAL.—Section 1(g)(2)(A) (relating to child to whom 
subsection applies) is amended by striking ‘‘age 14’’ and inserting 
‘‘age 18’’. 
(b) TREATMENT OF DISTRIBUTIONS FROM QUALIFIED DISABILITY 
TRUSTS.—Section 1(g)(4) (relating to net unearned income) is 
amended by adding at the end the following new subparagraph: 
‘‘(C) TREATMENT
OF
DISTRIBUTIONS
FROM
QUALIFIED 
DISABILITY
TRUSTS.—For purposes of this subsection, in 
the case of any child who is a beneficiary of a qualified 
disability trust (as defined in section 642(b)(2)(C)(ii)), any 
amount included in the income of such child under sections 
652 and 662 during a taxable year shall be considered 
earned income of such child for such taxable year.’’. 
(c) CONFORMING AMENDMENT.—Section 1(g)(2) is amended by 
striking ‘‘and’’ at the end of subparagraph (A), by striking the 
period at the end of subparagraph (B) and inserting ‘‘, and’’, and 
by inserting after subparagraph (B) the following new subpara-
graph: 
‘‘(C) such child does not file a joint return for the 
taxable year.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2005. 
SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS 
MADE BY GOVERNMENT ENTITIES. 
(a) IN GENERAL.—Section 3402 is amended by adding at the 
end the following new subsection: 
‘‘(t) EXTENSION OF WITHHOLDING TO CERTAIN PAYMENTS MADE 
BY GOVERNMENT ENTITIES.— 
‘‘(1) GENERAL RULE.—The Government of the United States, 
every State, every political subdivision thereof, and every 
instrumentality of the foregoing (including multi-State agen-
cies) making any payment to any person providing any property 
or services (including any payment made in connection with 
a government voucher or certificate program which functions 
as a payment for property or services) shall deduct and withhold 
from such payment a tax in an amount equal to 3 percent 
of such payment. 
‘‘(2) PROPERTY AND SERVICES SUBJECT TO WITHHOLDING.—
Paragraph (1) shall not apply to any payment— 
‘‘(A) except as provided in subparagraph (B), which 
is subject to withholding under any other provision of this 
chapter or chapter 3, 
‘‘(B) which is subject to withholding under section 3406 
and from which amounts are being withheld under such 
section, 
‘‘(C) of interest, 
‘‘(D) for real property, 
‘‘(E) to any governmental entity subject to the require-
ments of paragraph (1), any tax-exempt entity, or any 
foreign government,
H. R. 4297—21
‘‘(F) made pursuant to a classified or confidential con-
tract described in section 6050M(e)(3), 
‘‘(G) made by a political subdivision of a State (or 
any instrumentality thereof) which makes less than 
$100,000,000 of such payments annually, 
‘‘(H) which is in connection with a public assistance 
or public welfare program for which eligibility is deter-
mined by a needs or income test, and 
‘‘(I) to any government employee not otherwise exclud-
able with respect to their services as an employee. 
‘‘(3) COORDINATION WITH OTHER SECTIONS.—For purposes 
of sections 3403 and 3404 and for purposes of so much of 
subtitle F (except section 7205) as relates to this chapter, 
payments to any person for property or services which are 
subject to withholding shall be treated as if such payments 
were wages paid by an employer to an employee.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to payments made after December 31, 2010. 
SEC. 512. CONVERSIONS TO ROTH IRAS. 
(a) REPEAL OF INCOME LIMITATIONS.— 
(1) IN GENERAL.—Paragraph (3) of section 408A(c) (relating 
to limits based on modified adjusted gross income) is amended 
by striking subparagraph (B) and redesignating subparagraphs 
(C) and (D) as subparagraphs (B) and (C), respectively. 
(2) CONFORMING
AMENDMENT.—Clause (i) of section 
408A(c)(3)(B) (as redesignated by paragraph (1)) is amended 
by striking ‘‘except that—’’ and all that follows and inserting 
‘‘except that any amount included in gross income under sub-
section (d)(3) shall not be taken into account, and’’. 
(b) ROLLOVERS TO A ROTH IRA FROM AN IRA OTHER THAN 
A ROTH IRA.— 
(1) IN
GENERAL.—Clause (iii) of section 408A(d)(3)(A) 
(relating to rollovers from an IRA other than a Roth IRA) 
is amended to read as follows: 
‘‘(iii) unless the taxpayer elects not to have this 
clause apply, any amount required to be included in 
gross income for any taxable year beginning in 2010 
by reason of this paragraph shall be so included ratably 
over the 2-taxable-year period beginning with the first 
taxable year beginning in 2011.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Clause (i) of section 408A(d)(3)(E) is amended to 
read as follows: 
‘‘(i) ACCELERATION OF INCLUSION.— 
‘‘(I) IN
GENERAL.—The amount otherwise 
required to be included in gross income for any 
taxable year beginning in 2010 or the first taxable 
year in the 2-year period under subparagraph 
(A)(iii) shall be increased by the aggregate distribu-
tions from Roth IRAs for such taxable year which 
are allocable under paragraph (4) to the portion 
of such qualified rollover contribution required to 
be included in gross income under subparagraph 
(A)(i). 
‘‘(II) LIMITATION
ON
AGGREGATE
AMOUNT 
INCLUDED.—The amount required to be included
H. R. 4297—22
in gross income for any taxable year under 
subparagraph (A)(iii) shall not exceed the aggre-
gate amount required to be included in gross 
income under subparagraph (A)(iii) for all taxable 
years in the 2-year period (without regard to sub-
clause (I)) reduced by amounts included for all 
preceding taxable years.’’. 
(B) The heading for section 408A(d)(3)(E) is amended 
by striking ‘‘4-YEAR’’ and inserting ‘‘2-YEAR’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2009. 
SEC. 513. REPEAL OF FSC/ETI BINDING CONTRACT RELIEF. 
(a) FSC PROVISIONS.—Paragraph (1) of section 5(c) of the FSC 
Repeal and Extraterritorial Income Exclusion Act of 2000 is 
amended by striking ‘‘which occurs—’’ and all that follows and 
inserting ‘‘which occurs before January 1, 2002.’’. 
(b) ETI PROVISIONS.—Section 101 of the American Jobs Cre-
ation Act of 2004 is amended by striking subsection (f). 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
SEC. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION 
TAKEN INTO ACCOUNT IN DETERMINING DEDUCTION 
FOR DOMESTIC PRODUCTION. 
(a) IN GENERAL.—Paragraph (2) of section 199(b) (relating to 
W-2 wages) is amended to read as follows: 
‘‘(2) W-2 WAGES.—For purposes of this section— 
‘‘(A) IN GENERAL.—The term ‘W-2 wages’ means, with 
respect to any person for any taxable year of such person, 
the sum of the amounts described in paragraphs (3) and 
(8) of section 6051(a) paid by such person with respect 
to employment of employees by such person during the 
calendar year ending during such taxable year. 
‘‘(B) LIMITATION TO WAGES ATTRIBUTABLE TO DOMESTIC 
PRODUCTION.—Such term shall not include any amount 
which is not properly allocable to domestic production gross 
receipts for purposes of subsection (c)(1). 
‘‘(C) RETURN
REQUIREMENT.—Such term shall not 
include any amount which is not properly included in a 
return filed with the Social Security Administration on 
or before the 60th day after the due date (including exten-
sions) for such return.’’. 
(b) SIMPLIFICATION OF RULES FOR DETERMINING W-2 WAGES 
OF PARTNERS AND S CORPORATION SHAREHOLDERS.— 
(1) IN
GENERAL.—Clause (iii) of section 199(d)(1)(A) is 
amended to read as follows: 
‘‘(iii) each partner or shareholder shall be treated 
for purposes of subsection (b) as having W-2 wages 
for the taxable year in an amount equal to such per-
son’s allocable share of the W-2 wages of the partner-
ship or S corporation for the taxable year (as deter-
mined under regulations prescribed by the Secretary).’’. 
(2) CONFORMING
AMENDMENT.—Paragraph (2) of section 
199(a) is amended by striking ‘‘and subsection (d)(1)’’.
H. R. 4297—23
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
SEC. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING 
ABROAD. 
(a) INFLATION
ADJUSTMENT
OF
FOREIGN
EARNED
INCOME 
LIMITATION.—Clause (ii) of section 911(b)(2)(D) (relating to inflation 
adjustment) is amended— 
(1) by striking ‘‘2007’’ and inserting ‘‘2005’’, and 
(2) by striking ‘‘2006’’ in subclause (II) and inserting ‘‘2004’’. 
(b) MODIFICATION OF HOUSING COST AMOUNT.— 
(1) MODIFICATION OF HOUSING COST FLOOR.—Clause (i) of 
section 911(c)(1)(B) is amended to read as follows: 
‘‘(i) 16 percent of the amount (computed on a daily 
basis) in effect under subsection (b)(2)(D) for the cal-
endar year in which such taxable year begins, multi-
plied by’’. 
(2) MAXIMUM AMOUNT OF EXCLUSION.— 
(A) IN GENERAL.—Subparagraph (A) of section 911(c)(1) 
is amended by inserting ‘‘to the extent such expenses do 
not exceed the amount determined under paragraph (2)’’ 
after ‘‘the taxable year’’. 
(B) LIMITATION.—Subsection (c) of section 911 is 
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after 
paragraph (1) the following new paragraph: 
‘‘(2) LIMITATION.— 
‘‘(A) IN GENERAL.—The amount determined under this 
paragraph is an amount equal to the product of— 
‘‘(i) 30 percent (adjusted as may be provided under 
subparagraph (B)) of the amount (computed on a daily 
basis) in effect under subsection (b)(2)(D) for the cal-
endar year in which the taxable year of the individual 
begins, multiplied by 
‘‘(ii) the number of days of such taxable year within 
the applicable period described in subparagraph (A) 
or (B) of subsection (d)(1). 
‘‘(B) REGULATIONS.—The Secretary may issue regula-
tions or other guidance providing for the adjustment of 
the percentage under subparagraph (A)(i) on the basis of 
geographic differences in housing costs relative to housing 
costs in the United States.’’. 
(C) CONFORMING AMENDMENTS.— 
(i) Section 911(d)(4) is amended by striking ‘‘and 
(c)(1)(B)(ii)’’ 
and 
inserting 
‘‘, 
(c)(1)(B)(ii), 
and 
(c)(2)(A)(ii)’’. 
(ii) Section 911(d)(7) is amended by striking ‘‘sub-
section (c)(3)’’ and inserting ‘‘subsection (c)(4)’’. 
(c) RATES
OF TAX APPLICABLE
TO NONEXCLUDED INCOME.—
Section 911 (relating to exclusion of certain income of citizens 
and residents of the United States living abroad) is amended by 
redesignating subsection (f) as subsection (g) and by inserting after 
subsection (e) the following new subsection: 
‘‘(f) DETERMINATION
OF
TAX
LIABILITY
ON
NONEXCLUDED 
AMOUNTS.—For purposes of this chapter, if any amount is excluded
H. R. 4297—24
from the gross income of a taxpayer under subsection (a) for any 
taxable year, then, notwithstanding section 1 or 55— 
‘‘(1) the tax imposed by section 1 on the taxpayer for 
such taxable year shall be equal to the excess (if any) of— 
‘‘(A) the tax which would be imposed by section 1 
for the taxable year if the taxpayer’s taxable income were 
increased by the amount excluded under subsection (a) 
for the taxable year, over 
‘‘(B) the tax which would be imposed by section 1 
for the taxable year if the taxpayer’s taxable income were 
equal to the amount excluded under subsection (a) for 
the taxable year, and 
‘‘(2) the tentative minimum tax under section 55 for such 
taxable year shall be equal to the excess (if any) of— 
‘‘(A) the amount which would be such tentative min-
imum tax for the taxable year if the taxpayer’s taxable 
excess were increased by the amount excluded under sub-
section (a) for the taxable year, over 
‘‘(B) the amount which would be such tentative min-
imum tax for the taxable year if the taxpayer’s taxable 
excess were equal to the amount excluded under subsection 
(a) for the taxable year. 
For purposes of this subsection, the amount excluded under sub-
section (a) shall be reduced by the aggregate amount of any deduc-
tions or exclusions disallowed under subsection (d)(6) with respect 
to such excluded amount.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2005. 
SEC. 516. TAX INVOLVEMENT OF ACCOMMODATION PARTIES IN TAX 
SHELTER TRANSACTIONS. 
(a) IMPOSITION OF EXCISE TAX.— 
(1) IN GENERAL.—Chapter 42 (relating to private founda-
tions and certain other tax-exempt organizations) is amended 
by adding at the end the following new subchapter: 
‘‘Subchapter F—Tax Shelter Transactions
‘‘Sec. 4965. Excise tax on certain tax-exempt entities entering into prohibited tax 
shelter transactions.
‘‘SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING 
INTO PROHIBITED TAX SHELTER TRANSACTIONS. 
‘‘(a) BEING A PARTY TO AND APPROVAL OF PROHIBITED TRANS-
ACTIONS.— 
‘‘(1) TAX-EXEMPT ENTITY.— 
‘‘(A) IN GENERAL.—If a transaction is a prohibited tax 
shelter transaction at the time any tax-exempt entity 
described in paragraph (1), (2), or (3) of subsection (c) 
becomes a party to the transaction, such entity shall pay 
a tax for the taxable year in which the entity becomes 
such a party and any subsequent taxable year in the 
amount determined under subsection (b)(1). 
‘‘(B) POST-TRANSACTION DETERMINATION.—If any tax-
exempt entity described in paragraph (1), (2), or (3) of 
subsection (c) is a party to a subsequently listed transaction 
at any time during a taxable year, such entity shall pay
H. R. 4297—25
a tax for such taxable year in the amount determined 
under subsection (b)(1). 
‘‘(2) ENTITY MANAGER.—If any entity manager of a tax-
exempt entity approves such entity as (or otherwise causes 
such entity to be) a party to a prohibited tax shelter transaction 
at any time during the taxable year and knows or has reason 
to know that the transaction is a prohibited tax shelter trans-
action, such manager shall pay a tax for such taxable year 
in the amount determined under subsection (b)(2). 
‘‘(b) AMOUNT OF TAX.— 
‘‘(1) ENTITY.—In the case of a tax-exempt entity— 
‘‘(A) IN GENERAL.—Except as provided in subparagraph 
(B), the amount of the tax imposed under subsection (a)(1) 
with respect to any transaction for a taxable year shall 
be an amount equal to the product of the highest rate 
of tax under section 11, and the greater of— 
‘‘(i) the entity’s net income (after taking into 
account any tax imposed by this subtitle (other than 
by this section) with respect to such transaction) for 
such taxable year which— 
‘‘(I) in the case of a prohibited tax shelter 
transaction (other than a subsequently listed 
transaction), is attributable to such transaction, 
or 
‘‘(II) in the case of a subsequently listed trans-
action, is attributable to such transaction and 
which is properly allocable to the period beginning 
on the later of the date such transaction is identi-
fied by guidance as a listed transaction by the 
Secretary or the first day of the taxable year, 
or 
‘‘(ii) 75 percent of the proceeds received by the 
entity for the taxable year which— 
‘‘(I) in the case of a prohibited tax shelter 
transaction (other than a subsequently listed 
transaction), are attributable to such transaction, 
or 
‘‘(II) in the case of a subsequently listed trans-
action, are attributable to such transaction and 
which are properly allocable to the period begin-
ning on the later of the date such transaction 
is identified by guidance as a listed transaction 
by the Secretary or the first day of the taxable 
year. 
‘‘(B) INCREASE IN TAX FOR CERTAIN KNOWING TRANS-
ACTIONS.—In the case of a tax-exempt entity which knew, 
or had reason to know, a transaction was a prohibited 
tax shelter transaction at the time the entity became a 
party to the transaction, the amount of the tax imposed 
under subsection (a)(1)(A) with respect to any transaction 
for a taxable year shall be the greater of— 
‘‘(i) 100 percent of the entity’s net income (after 
taking into account any tax imposed by this subtitle 
(other than by this section) with respect to the prohib-
ited tax shelter transaction) for such taxable year 
which is attributable to the prohibited tax shelter 
transaction, or
H. R. 4297—26
‘‘(ii) 75 percent of the proceeds received by the 
entity for the taxable year which are attributable to 
the prohibited tax shelter transaction. 
This subparagraph shall not apply to any prohibited tax 
shelter transaction to which a tax-exempt entity became 
a party on or before the date of the enactment of this 
section. 
‘‘(2) ENTITY MANAGER.—In the case of each entity manager, 
the amount of the tax imposed under subsection (a)(2) shall 
be $20,000 for each approval (or other act causing participation) 
described in subsection (a)(2). 
‘‘(c) TAX-EXEMPT ENTITY.—For purposes of this section, the 
term ‘tax-exempt entity’ means an entity which is— 
‘‘(1) described in section 501(c) or 501(d), 
‘‘(2) described in section 170(c) (other than the United 
States), 
‘‘(3) an Indian tribal government (within the meaning of 
section 7701(a)(40)), 
‘‘(4) described in paragraph (1), (2), or (3) of section 4979(e), 
‘‘(5) a program described in section 529, 
‘‘(6) an eligible deferred compensation plan described in 
section 457(b) which is maintained by an employer described 
in section 4457(e)(1)(A), or 
‘‘(7) an arrangement described in section 4973(a). 
‘‘(d) ENTITY MANAGER.—For purposes of this section, the term 
‘entity manager’ means— 
‘‘(1) in the case of an entity described in paragraph (1), 
(2), or (3) of subsection (c)— 
‘‘(A) the person with authority or responsibility similar 
to that exercised by an officer, director, or trustee of an 
organization, and 
‘‘(B) with respect to any act, the person having 
authority or responsibility with respect to such act, and 
‘‘(2) in the case of an entity described in paragraph (4), 
(5), (6), or (7) of subsection (c), the person who approves or 
otherwise causes the entity to be a party to the prohibited 
tax shelter transaction. 
‘‘(e) PROHIBITED TAX SHELTER TRANSACTION; SUBSEQUENTLY 
LISTED TRANSACTION.—For purposes of this section— 
‘‘(1) PROHIBITED TAX SHELTER TRANSACTION.— 
‘‘(A) IN
GENERAL.—The term ‘prohibited tax shelter 
transaction’ means— 
‘‘(i) any listed transaction, and 
‘‘(ii) any prohibited reportable transaction. 
‘‘(B) LISTED
TRANSACTION.—The term ‘listed trans-
action’ has the meaning given such term by section 
6707A(c)(2). 
‘‘(C) PROHIBITED REPORTABLE TRANSACTION.—The term 
‘prohibited reportable transaction’ means any confidential 
transaction or any transaction with contractual protection 
(as defined under regulations prescribed by the Secretary) 
which is a reportable transaction (as defined in section 
6707A(c)(1)). 
‘‘(2) SUBSEQUENTLY LISTED TRANSACTION.—The term ‘subse-
quently listed transaction’ means any transaction to which 
a tax-exempt entity is a party and which is determined by 
the Secretary to be a listed transaction at any time after
H. R. 4297—27
the entity has become a party to the transaction. Such term 
shall not include a transaction which is a prohibited reportable 
transaction at the time the entity became a party to the trans-
action. 
‘‘(f) REGULATORY AUTHORITY.—The Secretary is authorized to 
promulgate regulations which provide guidance regarding the deter-
mination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods, 
including before and after the listing of the transaction or the 
date which is 90 days after the date of the enactment of this 
section. 
‘‘(g) COORDINATION WITH OTHER TAXES AND PENALTIES.—The 
tax imposed by this section is in addition to any other tax, addition 
to tax, or penalty imposed under this title.’’. 
(2) CONFORMING AMENDMENT.—The table of subchapters 
for chapter 42 is amended by adding at the end the following 
new item:
‘‘SUBCHAPTER F. TAX SHELTER TRANSACTIONS.’’.
(b) DISCLOSURE REQUIREMENTS.— 
(1) DISCLOSURE
BY
ENTITY
TO
THE
INTERNAL
REVENUE 
SERVICE.— 
(A) IN GENERAL.—Section 6033(a) (relating to organiza-
tions required to file) is amended by redesignating para-
graph (2) as paragraph (3) and by inserting after paragraph 
(1) the following new paragraph: 
‘‘(2) BEING
A
PARTY
TO
CERTAIN
REPORTABLE
TRANS-
ACTIONS.—Every tax-exempt entity described in section 4965(c) 
shall file (in such form and manner and at such time as 
determined by the Secretary) a disclosure of— 
‘‘(A) such entity’s being a party to any prohibited tax 
shelter transaction (as defined in section 4965(e)), and 
‘‘(B) the identity of any other party to such transaction 
which is known by such tax-exempt entity.’’. 
(B) CONFORMING
AMENDMENT.—Section 6033(a)(1) is 
amended by striking ‘‘paragraph (2)’’ and inserting ‘‘para-
graph (3)’’. 
(2) DISCLOSURE BY OTHER TAXPAYERS TO THE TAX-EXEMPT 
ENTITY.—Section 6011 (relating to general requirement of 
return, statement, or list) is amended by redesignating sub-
section (g) as subsection (h) and by inserting after subsection 
(f) the following new subsection: 
‘‘(g) DISCLOSURE OF REPORTABLE TRANSACTION TO TAX-EXEMPT 
ENTITY.—Any taxable party to a prohibited tax shelter transaction 
(as defined in section 4965(e)(1)) shall by statement disclose to 
any tax-exempt entity (as defined in section 4965(c)) which is a 
party to such transaction that such transaction is such a prohibited 
tax shelter transaction.’’. 
(c) PENALTY FOR NONDISCLOSURE.— 
(1) IN GENERAL.—Section 6652(c) (relating to returns by 
exempt organizations and by certain trusts) is amended by 
redesignating paragraphs (3) and (4) as paragraphs (4) and 
(5), respectively, and by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) DISCLOSURE UNDER SECTION 6033(a)(2).— 
‘‘(A) PENALTY ON ENTITIES.—In the case of a failure 
to file a disclosure required under section 6033(a)(2), there 
shall be paid by the tax-exempt entity (the entity manager
H. R. 4297—28
in the case of a tax-exempt entity described in paragraph 
(4), (5), (6), or (7) of section 4965(c)) $100 for each day 
during which such failure continues. The maximum penalty 
under this subparagraph on failures with respect to any 
1 disclosure shall not exceed $50,000. 
‘‘(B) WRITTEN DEMAND.— 
‘‘(i) IN GENERAL.—The Secretary may make a writ-
ten demand on any entity or manager subject to pen-
alty under subparagraph (A) specifying therein a 
reasonable future date by which the disclosure shall 
be filed for purposes of this subparagraph. 
‘‘(ii) FAILURE TO COMPLY WITH DEMAND.—If any 
entity or manager fails to comply with any demand 
under clause (i) on or before the date specified in 
such demand, there shall be paid by such entity or 
manager failing to so comply $100 for each day after 
the expiration of the time specified in such demand 
during which such failure continues. The maximum 
penalty imposed under this subparagraph on all enti-
ties and managers for failures with respect to any 
1 disclosure shall not exceed $10,000. 
‘‘(C) DEFINITIONS.—Any term used in this section which 
is also used in section 4965 shall have the meaning given 
such term under section 4965.’’. 
(2) CONFORMING
AMENDMENT.—Paragraph (1) of section 
6652(c) is amended by striking ‘‘6033’’ each place it appears 
in the text and heading thereof and inserting ‘‘6033(a)(1)’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
ending after the date of the enactment of this Act, with respect 
to transactions before, on, or after such date, except that no 
tax under section 4965(a) of the Internal Revenue Code of 
1986 (as added by this section) shall apply with respect to 
income or proceeds that are properly allocable to any period 
ending on or before the date which is 90 days after such 
date of enactment.
H. R. 4297—29
(2) DISCLOSURE.—The amendments made by subsections 
(b) and (c) shall apply to disclosures the due date for which 
are after the date of the enactment of this Act.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.