IB 
Union Calendar No. 166 
109TH CONGRESS 
1ST SESSION H. R. 4297 
[Report No. 109–304] 
To provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006. 
IN THE HOUSE OF REPRESENTATIVES 
NOVEMBER 10, 2005 
Mr. THOMAS introduced the following bill; which was referred to the 
Committee on Ways and Means 
NOVEMBER 17, 2005 
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 November 10, 2005] 
A BILL 
To provide for reconciliation pursuant to section 201(b) of 
the concurrent resolution on the budget for fiscal year 2006. 
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 ‘‘Tax 
Relief Extension Reconciliation Act of 2005’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise 
expressly provided, whenever in this Act an amendment or 
repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal 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—EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006 
Sec. 101. Allowance of nonrefundable personal credits against regular and min-
imum tax liability. 
Sec. 102. Tax incentives for business activities on Indian reservations. 
Sec. 103. Work opportunity credit. 
Sec. 104. Welfare-to-work credit. 
Sec. 105. Deduction for corporate donations of computer technology and equip-
ment. 
Sec. 106. Availability of medical savings accounts. 
Sec. 107. 15-year cost recovery for leasehold improvements. 
Sec. 108. 15-year cost recovery for restaurant improvements. 
Sec. 109. Taxable income limit on percentage depletion for oil and natural gas 
produced from marginal properties. 
Sec. 110. District of Columbia Enterprise Zone. 
Sec. 111. Possession tax credit with respect to American Samoa. 
Sec. 112. Parity in the application of certain limits to mental health benefits. 
Sec. 113. Research credit. 
Sec. 114. Qualified Zone Academy Bonds. 
Sec. 115. Certain expenses of elementary and secondary school teachers. 
Sec. 116. Qualified tuition and related expenses. 
Sec. 117. State and local general sales taxes. 
TITLE II—EXTENSIONS OF CERTAIN PROVISIONS FOR 2 
ADDITIONAL YEARS AND OTHER MODIFICATIONS 
Sec. 201. Expensing of environmental remediation costs. 
Sec. 202. Controlled foreign corporations. 
Sec. 203. Capital gains and dividends rates. 
Sec. 204. Saver’s credit. 
Sec. 205. Increased expensing for small business. 
TITLE III—OTHER PROVISIONS 
Sec. 301. Clarification of taxation of certain settlement funds. 
Sec. 302. Modification of active business definition under section 355. 
Sec. 303. Veterans’ mortgage bonds.
Sec. 304. Capital gains treatment for certain self-created musical works. 
Sec. 305. Vessel tonnage limit. 
Sec. 306. Modification of special arbitrage rule for certain funds. 
TITLE I—EXTENSIONS OF CER-
TAIN PROVISIONS THROUGH 
2006 
SEC. 101. ALLOWANCE OF NONREFUNDABLE PERSONAL 
CREDITS AGAINST REGULAR AND MINIMUM 
TAX LIABILITY. 
(a) IN GENERAL.—Paragraph (2) of section 26(a) (re-
lating to special rule for taxable years 2000 through 2005) 
is amended— 
(1) in the text by striking ‘‘or 2005’’ and insert-
ing ‘‘2005, or 2006’’, and 
(2) in the heading by striking ‘‘2005’’ and insert-
ing ‘‘2006’’. 
(b) CONFORMING PROVISIONS.— 
(1) Subsection (i) of section 904 (relating to co-
ordination with nonrefundable personal credits) is 
amended by striking ‘‘or 2005’’ and inserting ‘‘2005, 
or 2006’’. 
(2) The amendments made by sections 201(b), 
202(f), and 618(b) of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 shall not apply to 
taxable years beginning during 2006.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2005. 
SEC. 102. TAX INCENTIVES FOR BUSINESS ACTIVITIES ON 
INDIAN RESERVATIONS. 
(a) INDIAN EMPLOYMENT TAX CREDIT.— 
(1) IN GENERAL.—Subsection (f) of section 45A 
(relating to termination) is amended by striking ‘‘De-
cember 31, 2005’’ and inserting ‘‘December 31, 2006’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to taxable years beginning 
after December 31, 2005. 
(b) ACCELERATED
DEPRECIATION
FOR
BUSINESS 
PROPERTY ON INDIAN RESERVATIONS.— 
(1) IN
GENERAL.—Paragraph (8) of section 
168(j) (relating to termination) is amended by strik-
ing ‘‘December 31, 2005’’ and inserting ‘‘December 
31, 2006’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply with respect to property 
placed in service after December 31, 2005. 
SEC. 103. WORK OPPORTUNITY CREDIT. 
(a) IN
GENERAL.—Subparagraph (B) of section 
51(c)(4) (relating to termination) is amended by striking 
‘‘December 31, 2005’’ and inserting ‘‘December 31, 2006’’.
(b) INCREASE IN AGE LIMIT FOR FOOD STAMP RE-
CIPIENTS.—Clause (i) of section 51(d)(8)(A) (relating to 
qualified food stamp recipient) is amended by striking ‘‘25’’ 
and inserting ‘‘35’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to individuals who begin work for the 
employer after December 31, 2005. 
SEC. 104. WELFARE-TO-WORK CREDIT. 
(a) IN GENERAL.—Subsection (f) of section 51A (relat-
ing to termination) is amended by striking ‘‘December 31, 
2005’’ and inserting ‘‘December 31, 2006’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to individuals who begin work for 
the employer after December 31, 2005. 
SEC. 105. DEDUCTION FOR CORPORATE DONATIONS OF 
COMPUTER TECHNOLOGY AND EQUIPMENT. 
(a) IN
GENERAL.—Subparagraph (G) of section 
170(e)(6) (relating to termination) is amended by striking 
‘‘December 31, 2005’’ and inserting ‘‘December 31, 2006’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to contributions made in taxable 
years beginning after December 31, 2005. 
SEC. 106. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Paragraphs (2) and (3)(B) of sec-
tion 220(i) (defining cut-off year) are each amended by
striking ‘‘2005’’ each place it appears in the text and head-
ings and inserting ‘‘2006’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (2) of section 220(j) is amend-
ed— 
(A) in the text by striking ‘‘or 2004’’ each 
place it appears and inserting ‘‘2004, or 2005’’, 
and 
(B) in the heading by striking ‘‘OR 2004’’ 
and inserting ‘‘2004, OR 2005’’. 
(2) Subparagraph (A) of section 220(j)(4) is 
amended by striking ‘‘and 2004’’ and inserting 
‘‘2004, and 2005’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on the date of the enactment of this 
Act. 
(d) TIME FOR FILING REPORTS, ETC.— 
(1) The report required by section 220(j)(4) of 
the Internal Revenue Code of 1986 to be made on Au-
gust 1, 2005, shall be treated as timely if made before 
the close of the 90-day period beginning on the date 
of the enactment of this Act. 
(2) The determination and publication required 
by section 220(j)(5) of such Code with respect to cal-
endar year 2005 shall be treated as timely if made be-
fore the close of the 120-day period beginning on the 
date of the enactment of this Act. If the determination 
under the preceding sentence is that 2005 is a cut-off 
year under section 220(i) of such Code, the cut-off 
date under such section 220(i) shall be the last day 
of such 120-day period. 
SEC. 107. 15-YEAR COST RECOVERY FOR LEASEHOLD IM-
PROVEMENTS. 
(a) IN GENERAL.—Clause (iv) of section 168(e)(3)(E) 
(relating to 15-year property) is amended by striking ‘‘Jan-
uary 1, 2006’’ and inserting ‘‘January 1, 2007’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to property placed in service after 
December 31, 2005. 
SEC. 108. 15-YEAR COST RECOVERY FOR RESTAURANT IM-
PROVEMENTS. 
(a) IN GENERAL.—Clause (v) of section 168(e)(3)(E) 
(relating to 15-year property) is amended by striking ‘‘Jan-
uary 1, 2006’’ and inserting ‘‘January 1, 2007’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to property placed in service after 
December 31, 2005.
SEC. 109. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE-
TION FOR OIL AND NATURAL GAS PRODUCED 
FROM MARGINAL PROPERTIES. 
(a) IN
GENERAL.—Subparagraph (H) of section 
613A(c)(6) (relating to oil and natural gas produced from 
marginal properties) is amended by striking ‘‘January 1, 
2006’’ and inserting ‘‘January 1, 2007’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
SEC. 110. DISTRICT OF COLUMBIA ENTERPRISE ZONE. 
(a) PERIOD FOR WHICH DESIGNATION APPLICABLE.— 
Subsection (f) of section 1400 (relating to time for which 
designation applicable) is amended by striking ‘‘December 
31, 2005’’ both places it appears and inserting ‘‘December 
31, 2006’’. 
(b) TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.— 
Subsection (b) of section 1400A (relating to period of appli-
cability) is amended by striking ‘‘December 31, 2005’’ and 
inserting ‘‘December 31, 2006’’. 
(c) ZERO PERCENT CAPITAL GAINS RATE.— 
(1) IN
GENERAL.—Subsection (b) of section 
1400B (relating to DC Zone Asset) is amended by 
striking ‘‘January 1, 2006’’ each place it appears and 
inserting ‘‘January 1, 2007’’. 
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (2) of section 1400B(e) (re-
lating to gain before 1998 and after 2010 not 
qualified) is amended— 
(i) by striking ‘‘December 31, 2010’’ 
and inserting ‘‘December 31, 2011’’, and 
(ii) by striking ‘‘2010’’ in the heading 
and inserting ‘‘2011’’. 
(B) Paragraph (2) of section 1400B(g) (re-
lating to sales and exchanges of interests in part-
nerships and S corporations which are DC Zone 
businesses) is amended by striking ‘‘December 
31, 2010’’ and inserting ‘‘December 31, 2011’’. 
(C) Subsection (d) of section 1400F (relat-
ing to certain rules to apply) is amended by 
striking ‘‘December 31, 2010’’ and inserting ‘‘De-
cember 31, 2011’’. 
(d) FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT 
OF COLUMBIA.—Subsection (i) of section 1400C (relating 
to application of section) is amended by striking ‘‘January 
1, 2006’’ and inserting ‘‘January 1, 2007’’. 
(e) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall 
take effect on January 1, 2006.
(2) 
TAX-EXEMPT
ECONOMIC
DEVELOPMENT 
BONDS.—The amendment made by subsection (b) 
shall apply to obligations issued after the date of the 
enactment of this Act. 
SEC. 111. POSSESSION TAX CREDIT WITH RESPECT TO 
AMERICAN SAMOA. 
(a) IN
GENERAL.—Subparagraph (A) of section 
936(j)(8) (relating to special rules for certain possessions) 
is amended by inserting before the period at the end the 
following: ‘‘(before January 1, 2007, in the case of Amer-
ican Samoa)’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
SEC. 112. 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, 2005’’ and inserting ‘‘December 31, 2006’’. 
(b) EFFECTIVE DATES.—The amendment made by 
subsection (a) shall take effect on the date of the enactment 
of this Act. 
SEC. 113. RESEARCH CREDIT. 
(a) EXTENSION.—
(1) IN GENERAL.—Subparagraph (B) of section 
41(h)(1) (relating to termination) is amended by 
striking ‘‘December 31, 2005’’ and inserting ‘‘Decem-
ber 31, 2006’’. 
(2) CONFORMING
AMENDMENT.—Subparagraph 
(D) of section 45C(b)(1) (relating to special rule) is 
amended by striking ‘‘December 31, 2005’’ and insert-
ing ‘‘December 31, 2006’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to amounts paid or in-
curred after December 31, 2005. 
(b) INCREASE
IN RATES
OF ALTERNATIVE INCRE-
MENTAL CREDIT.— 
(1) IN GENERAL.—Subparagraph (A) of section 
41(c)(4) (relating to election of alternative incre-
mental credit) is amended— 
(A) by striking ‘‘2.65 percent’’ and insert-
ing ‘‘3 percent’’, 
(B) by striking ‘‘3.2 percent’’ and inserting 
‘‘4 percent’’, and 
(C) by striking ‘‘3.75 percent’’ and insert-
ing ‘‘5 percent’’. 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years ending 
after the date of the enactment of this Act.
(c) ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED 
RESEARCH EXPENSES.— 
(1) IN GENERAL.—Subsection (c) of section 41 
(relating to base amount) is amended by redesig-
nating paragraphs (5) and (6) as paragraphs (6) and 
(7), respectively, and by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) ELECTION
OF
ALTERNATIVE
SIMPLIFIED 
CREDIT.— 
‘‘(A) IN GENERAL.—At the election of the 
taxpayer, the credit determined under subsection 
(a)(1) shall be equal to 12 percent of so much of 
the qualified research expenses for the taxable 
year as exceeds 50 percent of the average quali-
fied research expenses for the 3 taxable years pre-
ceding the taxable year for which the credit is 
being determined. 
‘‘(B) SPECIAL RULE IN CASE OF NO QUALI-
FIED RESEARCH EXPENSES IN ANY OF 3 PRE-
CEDING TAXABLE YEARS.— 
‘‘(i) TAXPAYERS TO WHICH SUBPARA-
GRAPH
APPLIES.—The credit under this 
paragraph shall be determined under this 
subparagraph if the taxpayer has no quali-
fied research expenses in any one of the 3
taxable years preceding the taxable year for 
which the credit is being determined. 
‘‘(ii) CREDIT RATE.—The credit deter-
mined under this subparagraph shall be 
equal to 6 percent of the qualified research 
expenses for the taxable year. 
‘‘(C) ELECTION.—An election under this 
paragraph shall apply to the taxable year for 
which made and all succeeding taxable years un-
less revoked with the consent of the Secretary. An 
election under this paragraph may not be made 
for any taxable year to which an election under 
paragraph (4) applies.’’. 
(2) COORDINATION WITH ELECTION OF ALTER-
NATIVE INCREMENTAL CREDIT.— 
(A) IN GENERAL.—Section 41(c)(4)(B) (re-
lating to election) is amended by adding at the 
end the following: ‘‘An election under this para-
graph may not be made for any taxable year to 
which an election under paragraph (5) applies.’’. 
(B) TRANSITION RULE.—In the case of an 
election under section 41(c)(4) of the Internal 
Revenue Code of 1986 which applies to the tax-
able year which includes the date of the enact-
ment of this Act, such election shall be treated as
revoked with the consent of the Secretary of the 
Treasury if the taxpayer makes an election 
under section 41(c)(5) of such Code (as added by 
subsection (a)) for such year. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years ending 
after the date of the enactment of this Act. 
SEC. 114. QUALIFIED ZONE ACADEMY BONDS. 
(a) IN GENERAL.—Paragraph (1) of section 1397E(e) 
(relating to national limit) is amended by striking ‘‘and 
2005’’ and inserting ‘‘2005, and 2006’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to obligations issued after December 
31, 2005. 
SEC. 115. CERTAIN EXPENSES OF ELEMENTARY AND SEC-
ONDARY 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 2005’’ 
and inserting ‘‘2005, or 2006’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to expenses paid or incurred in tax-
able years beginning after December 31, 2005.
SEC. 116. QUALIFIED TUITION AND RELATED EXPENSES. 
(a) IN GENERAL.—Subsection (e) of section 222 (relat-
ing to termination) is amended by striking ‘‘December 31, 
2005’’ and inserting ‘‘December 31, 2006’’. 
(b) LIMITATIONS.—Paragraph (2) of section 222(b) 
(relating to applicable dollar limit) is amended by striking 
subparagraphs (A) and (B), by redesignating subparagraph 
(C) as subparagraph (B), and by inserting before subpara-
graph (B) (as so redesignated) the following: 
‘‘(A) 2006.—In the case of a taxable year 
beginning in 2006, the applicable dollar amount 
shall be equal to— 
‘‘(i) in the case of a taxpayer whose 
adjusted gross income for the taxable year 
does not exceed $65,000 ($130,000 in the 
case of a joint return), $4,000, 
‘‘(ii) in the case of a taxpayer not de-
scribed in clause (i) whose adjusted gross 
income for the taxable year does not exceed 
$80,000 ($160,000 in the case of a joint re-
turn), $2,000, and 
‘‘(iii) in the case of any other tax-
payer, zero.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to payments made in taxable years be-
ginning after December 31, 2005.
SEC. 117. STATE AND LOCAL GENERAL SALES TAXES. 
(a) IN
GENERAL.—Subparagraph (I) of section 
164(b)(5) (relating to application of paragraph) is amend-
ed by striking ‘‘January 1, 2006’’ and inserting ‘‘January 
1, 2007’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
TITLE II—EXTENSIONS OF CER-
TAIN PROVISIONS FOR 2 AD-
DITIONAL YEARS AND OTHER 
MODIFICATIONS 
SEC. 201. EXPENSING OF ENVIRONMENTAL REMEDIATION 
COSTS. 
(a) EXTENSION OF TERMINATION DATE.—Subsection 
(h) of section 198 (relating to termination) is amended by 
striking ‘‘December 31, 2005’’ and inserting ‘‘December 31, 
2007’’. 
(b) PETROLEUM PRODUCTS TREATED AS HAZARDOUS 
SUBSTANCE.—Paragraph (1) of section 198(d) (relating to 
hazardous substance) 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 adding 
at the end the following new subparagraph: 
‘‘(C) any petroleum product (as defined in 
section 4612(a)(3)).’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to expenditures paid or incurred after 
December 31, 2005. 
SEC. 202. CONTROLLED FOREIGN CORPORATIONS. 
(a) SUBPART F EXCEPTION FOR ACTIVE FINANCING.— 
(1) EXEMPT
INSURANCE
INCOME.—Paragraph 
(10) of section 953(e) (relating to application) is 
amended— 
(A) by striking ‘‘January 1, 2007’’ and in-
serting ‘‘January 1, 2009’’, and 
(B) by striking ‘‘December 31, 2006’’ and 
inserting ‘‘December 31, 2008’’. 
(2) 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, 2007’’ and inserting ‘‘January 
1, 2009’’. 
(b) LOOK-THROUGH TREATMENT OF PAYMENTS BE-
TWEEN RELATED CONTROLLED FOREIGN CORPORATIONS 
UNDER
THE FOREIGN PERSONAL HOLDING COMPANY 
RULES.—Subsection (c) of section 954 (relating to foreign 
personal holding company income) is amended by adding 
at the end the following new paragraph: 
‘‘(6) LOOK-THRU
RULE
FOR
RELATED
CON-
TROLLED FOREIGN CORPORATIONS.—
‘‘(A) IN
GENERAL.—For purposes of this 
subsection, dividends, interest, rents, and royal-
ties received or accrued from a controlled foreign 
corporation which is a related person shall not 
be treated as foreign personal holding company 
income to the extent attributable or properly al-
locable (determined under rules similar to the 
rules of subparagraphs (C) and (D) of section 
904(d)(3)) to income of the related person which 
is not subpart F income. For purposes of this 
subparagraph, interest shall include factoring in-
come which is treated as income equivalent to 
interest for purposes of paragraph (1)(E). The 
Secretary shall prescribe such regulations as 
may be appropriate to prevent the abuse of the 
purposes of this paragraph. 
‘‘(B) 
APPLICATION.—Subparagraph 
(A) 
shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2005, and be-
fore January 1, 2009, and to taxable years of 
United States shareholders with or within which 
such taxable years of foreign corporations end.’’.
SEC. 203. CAPITAL GAINS AND DIVIDENDS RATES. 
Section 303 of the Jobs and Growth Tax Relief Rec-
onciliation Act of 2003 is amended by striking ‘‘December 
31, 2008’’ and inserting ‘‘December 31, 2010’’. 
SEC. 204. SAVER’S CREDIT. 
Subsection (h) of section 25B (relating to elective defer-
rals and IRA contributions by certain individuals) is 
amended by striking ‘‘December 31, 2006’’ and inserting 
‘‘December 31, 2008’’. 
SEC. 205. INCREASED EXPENSING FOR SMALL BUSINESS. 
Subsections 
(b)(1), 
(b)(2), 
(b)(5), 
(c)(2), 
and 
(d)(1)(A)(ii) of section 179(b) (relating to election to ex-
pense certain depreciable business assets) are each amended 
by striking ‘‘2008’’ and inserting ‘‘2010’’. 
TITLE III—OTHER PROVISIONS 
SEC. 301. CLARIFICATION OF TAXATION OF CERTAIN SET-
TLEMENT FUNDS. 
(a) IN GENERAL.—Subsection (g) of section 468B (re-
lating to clarification of taxation of certain funds) is 
amended to read as follows: 
‘‘(g) CLARIFICATION
OF
TAXATION
OF
CERTAIN 
FUNDS.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), nothing in any provision of law shall be 
construed as providing that an escrow account, settle-
ment fund, or similar fund is not subject to current
income tax. The Secretary shall prescribe regulations 
providing for the taxation of any such account or 
fund whether as a grantor trust or otherwise. 
‘‘(2) EXEMPTION FROM TAX FOR CERTAIN SET-
TLEMENT
FUNDS.—An escrow account, settlement 
fund, or similar fund shall be treated as beneficially 
owned by the United States and shall be exempt from 
taxation under this subtitle if— 
‘‘(A) it is established pursuant to a consent 
decree entered by a judge of a United States Dis-
trict Court, 
‘‘(B) it is created for the receipt of settle-
ment payments as directed by a government en-
tity for the sole purpose of resolving or satisfying 
one or more claims asserting liability under the 
Comprehensive Environmental Response, Com-
pensation, and Liability Act of 1980, 
‘‘(C) the authority and control over the ex-
penditure of funds therein (including the expend-
iture of contributions thereto and any net earn-
ings thereon) is with such government entity, 
and 
‘‘(D) upon termination, any remaining 
funds will be disbursed to such government enti-
ty for use in accordance with applicable law.
For purposes of this paragraph, the term ‘government 
entity’ means the United States, any State or polit-
ical subdivision thereof, the District of Columbia, any 
possession of the United States, and any agency or 
instrumentality of any of the foregoing. 
‘‘(3) TERMINATION.—Paragraph (2) shall not 
apply to accounts and funds established after Decem-
ber 31, 2010.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to accounts and funds established 
after the date of the enactment of this Act. 
SEC. 302. MODIFICATION OF ACTIVE BUSINESS DEFINITION 
UNDER SECTION 355. 
Subsection (b) of section 355 (defining active conduct 
of a trade or business) is amended by adding at the end 
the following new paragraph: 
‘‘(3) SPECIAL RULE RELATING TO ACTIVE BUSI-
NESS REQUIREMENT.— 
‘‘(A) IN GENERAL.—In the case of any dis-
tribution made after the date of the enactment of 
this paragraph and before December 31, 2010, a 
corporation shall be treated as meeting the re-
quirement of paragraph (2)(A) if and only if 
such corporation is engaged in the active conduct 
of a trade or business.
‘‘(B) AFFILIATED GROUP RULE.—For pur-
poses of subparagraph (A), all members of such 
corporation’s separate affiliated group shall be 
treated as one corporation. For purposes of the 
preceding sentence, a corporation’s separate af-
filiated group is the affiliated group which would 
be determined under section 1504(a) if such cor-
poration were the common parent and section 
1504(b) did not apply. 
‘‘(C) 
TRANSITION
RULE.—Subparagraph 
(A) shall not apply to any distribution pursuant 
to a transaction which is— 
‘‘(i) made pursuant to an agreement 
which was binding on the date of the enact-
ment of this paragraph and at all times 
thereafter, 
‘‘(ii) described in a ruling request sub-
mitted to the Internal Revenue Service on 
or before such date, or 
‘‘(iii) described on or before such date 
in a public announcement or in a filing 
with the Securities and Exchange Commis-
sion. 
The preceding sentence shall not apply if the dis-
tributing corporation elects not to have such sen-
tence apply to distributions of such corporation. 
Any such election, once made, shall be irrev-
ocable. 
‘‘(D) SPECIAL RULE FOR CERTAIN PRE-EN-
ACTMENT DISTRIBUTIONS.—For purposes of de-
termining the continued qualification under 
paragraph (2)(A) of distributions made before 
the date of the enactment of this paragraph as 
a result of an acquisition, disposition, or other 
restructuring after such date and before Decem-
ber 31, 2010, such distribution shall be treated as 
made after the date of the enactment of this 
paragraph for purposes of applying subpara-
graphs (A) through (C) of this paragraph.’’. 
SEC. 303. VETERANS’ MORTGAGE BONDS. 
(a) ALL VETERANS ELIGIBLE FOR STATE HOME LOAN 
PROGRAMS FUNDED BY QUALIFIED VETERANS’ MORTGAGE 
BONDS.— 
(1) IN
GENERAL.—Paragraph (4) of section 
143(l) (defining qualified veteran) is amended— 
(A) by striking ‘‘at some time before Janu-
ary 1, 1977’’ in subparagraph (A), and 
(B) by striking subparagraph (B) and in-
serting the following:
‘‘(B) who applied for the financing before 
the date 25 years after the last date on which 
such veteran left active service.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to financing provided 
after the date of the enactment of this Act. 
(b) REVISION OF STATE VETERANS LIMIT.— 
(1) IN GENERAL.—Subparagraph (B) of section 
143(l)(3) (relating to volume limitation) is amended 
to read as follows: 
‘‘(B) STATE VETERANS LIMIT.— 
‘‘(i) IN
GENERAL.—A State veterans 
limit for any calendar year is the amount 
equal to— 
‘‘(I) $53,750,000 for the State of 
Texas, 
‘‘(II) $66,250,000 for the State of 
California, 
‘‘(III) $25,000,000 for the State of 
Oregon, 
‘‘(IV) $25,000,000 for the State of 
Wisconsin, and 
‘‘(V) $25,000,000 for the State of 
Alaska.
‘‘(ii) PHASEIN.—In the case of cal-
endar years beginning before 2010, clause 
(i) shall be applied by substituting for each 
of the dollar amounts therein by the appli-
cable percentage. For purposes of the pre-
ceding sentence, the applicable percentage 
shall be determined in accordance with the 
following table: 
Applicable 
‘‘Calendar Year: 
percentage is: 
2006 ................................................................................................
20 percent
2007 ................................................................................................
40 percent
2008 ................................................................................................
60 percent
2009 ................................................................................................
80 percent. 
‘‘(iii) TERMINATION.—The State vet-
erans limit for any calendar year after 
2010 is zero.’’. 
(2) EFFECTIVE DATE.—The amendment made by 
this subsection shall apply to bonds issued after De-
cember 31, 2005. 
SEC. 304. CAPITAL GAINS TREATMENT FOR CERTAIN SELF- 
CREATED MUSICAL WORKS. 
(a) IN GENERAL.—Subsection (b) of section 1221 (re-
lating to capital asset defined) is amended by redesignating 
paragraph (3) as paragraph (4) and by inserting after 
paragraph (2) the following new paragraph: 
‘‘(3) SALE OR EXCHANGE OF SELF-CREATED MU-
SICAL WORKS.—At the election of the taxpayer, para-
graphs (1) and (3) of subsection (a) shall not apply 
with respect to any sale or exchange before January 
1, 2011, of musical compositions or copyrights in mu-
sical works by a taxpayer described in subsection 
(a)(3).’’. 
(b) LIMITATION ON CHARITABLE CONTRIBUTIONS.— 
Subparagraph (A) of section 170(e)(1) is amended by in-
serting ‘‘(determined without regard to section 1221(b)(3))’’ 
after ‘‘long-term capital gain’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to sales and exchanges in taxable years 
beginning after the date of the enactment of this Act. 
SEC. 305. VESSEL TONNAGE LIMIT. 
(a) IN GENERAL.—Paragraph (4) of section 1355(a) 
(relating to qualifying vessel) is amended by inserting 
‘‘(6,000, in the case of taxable years beginning after Decem-
ber 31, 2005, and ending before January 1, 2011)’’ after 
‘‘10,000’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2005. 
SEC. 306. MODIFICATION OF SPECIAL ARBITRAGE RULE 
FOR CERTAIN FUNDS. 
In the case of bonds issued after the date of the enact-
ment of this Act and before August 31, 2009—
(1) the requirement of paragraph (1) of section 
648 of the Deficit Reduction Act of 1984 (98 Stat. 
941) shall be treated as met with respect to the securi-
ties or obligations referred to in such section if such 
securities or obligations are held in a fund the annual 
distributions from which cannot exceed 7 percent of 
the average fair market value of the assets held in 
such fund except to the extent distributions are nec-
essary to pay debt service on the bond issue, and 
(2) paragraph (3) of such section shall be ap-
plied by substituting ‘‘distributions from’’ for ‘‘the in-
vestment earnings of’’ both places it appears.
Union Calendar No. 166 
109TH CONGRESS 
1ST SESSION 
H. R. 4297 
[Report No. 109–304] 
A BILL 
To provide for reconciliation pursuant to section 
201(b) of the concurrent resolution on the budget 
for fiscal year 2006. 
NOVEMBER 17, 2005 
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union, 
and ordered to be printed