183 
‘‘(2) RESTRICTED
BANK
DIRECTOR
STOCK.— 
For purposes of this subsection, the term ‘restricted 
bank director stock’ means stock in a bank (as de-
fined in section 581) or a depository institution 
holding company (as defined in section 3(w)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 
1813(w)(1)), if such stock— 
‘‘(A) is required to be held by an individual 
under applicable Federal or State law in order 
to permit such individual to serve as a director, 
and 
‘‘(B) is subject to an agreement with such 
bank or company (or a corporation which con-
trols (within the meaning of section 368(c)) 
such bank or company) pursuant to which the 
holder is required to sell back such stock (at 
the same price as the individual acquired such 
stock) upon ceasing to hold the office of direc-
tor. 
‘‘(3) CROSS REFERENCE.— 
‘‘For treatment of certain distributions with respect to restricted bank director 
stock, see section 1368(f).’’. 
(b) DISTRIBUTIONS.—Section 1368 (relating to dis-
tributions) is amended by adding at the end the following 
new subsection: 
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‘‘(f) RESTRICTED BANK DIRECTOR STOCK.—If a di-
rector receives a distribution (not in part or full payment 
in exchange for stock) from an S corporation with respect 
to any restricted bank director stock (as defined in section 
1361(f)), the amount of such distribution— 
‘‘(1) shall be includible in gross income of the 
director, and 
‘‘(2) shall be deductible by the corporation for 
the taxable year of such corporation in which or with 
which ends the taxable year in which such amount 
in included in the gross income of the director.’’. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2006. 
(2) SPECIAL RULE FOR TREATMENT AS SECOND 
CLASS OF STOCK.—In the case of any taxable year 
beginning after December 31, 1996, restricted bank 
director stock (as defined in section 1361(f) of the 
Internal Revenue Code of 1986, as added by this 
section) shall not be taken into account in deter-
mining whether an S corporation has more than 1 
class of stock. 
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185 
SEC. 7233. SPECIAL RULE FOR BANK REQUIRED TO 
CHANGE FROM THE RESERVE METHOD OF 
ACCOUNTING ON BECOMING S CORPORA-
TION. 
(a) IN GENERAL.—Section 1361, as amended by this 
Act, is amended by adding at the end the following new 
subsection: 
‘‘(g) SPECIAL RULE
FOR BANK REQUIRED TO 
CHANGE FROM THE RESERVE METHOD OF ACCOUNTING 
ON BECOMING S CORPORATION.—In the case of a bank 
which changes from the reserve method of accounting for 
bad debts described in section 585 or 593 for its first tax-
able year for which an election under section 1362(a) is 
in effect, the bank may elect to take into account any ad-
justments under section 481 by reason of such change for 
the taxable year immediately preceding such first taxable 
year.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 7234. TREATMENT OF THE SALE OF INTEREST IN A 
QUALIFIED SUBCHAPTER S SUBSIDIARY. 
(a) IN GENERAL.—Subparagraph (C) of section 
1361(b)(3) (relating to treatment of terminations of quali-
fied subchapter S subsidiary status) is amended— 
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186 
(1) by striking ‘‘For purposes of this title,’’ and 
inserting the following: 
‘‘(i) IN
GENERAL.—For purposes of 
this title,’’, and 
(2) by inserting at the end the following new 
clause: 
‘‘(ii) TERMINATION
BY
REASON
OF 
SALE OF STOCK.—If the failure to meet 
the requirements of subparagraph (B) is 
by reason of the sale of stock of a corpora-
tion which is a qualified subchapter S sub-
sidiary, the sale of such stock shall be 
treated as if— 
‘‘(I) the sale were a sale of an 
undivided interest in the assets of 
such corporation (based on the per-
centage of the corporation’s stock 
sold), and 
‘‘(II) the sale were followed by an 
acquisition by such corporation of all 
of its assets (and the assumption by 
such corporation of all of its liabil-
ities) in a transaction to which section 
351 applies.’’. 
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187 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006 . 
SEC. 7235. ELIMINATION OF ALL EARNINGS AND PROFITS 
ATTRIBUTABLE TO PRE-1983 YEARS FOR CER-
TAIN CORPORATIONS. 
In the case of a corporation which is— 
(1) described in section 1311(a)(1) of the Small 
Business Job Protection Act of 1996, and 
(2) not described in section 1311(a)(2) of such 
Act, 
the amount of such corporation’s accumulated earnings 
and profits (for the first taxable year beginning after the 
date of the enactment of this Act) shall be reduced by an 
amount equal to the portion (if any) of such accumulated 
earnings and profits which were accumulated in any tax-
able year beginning before January 1, 1983, for which 
such corporation was an electing small business corpora-
tion under subchapter S of the Internal Revenue Code of 
1986. 
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188 
SEC. 7236. DEDUCTIBILITY OF INTEREST EXPENSE ON IN-
DEBTEDNESS INCURRED BY AN ELECTING 
SMALL BUSINESS TRUST TO ACQUIRE S COR-
PORATION STOCK. 
(a) IN GENERAL.—Subparagraph (C) of section 
641(c)(2) (relating to modifications) is amended by insert-
ing after clause (iii) the following new clause: 
‘‘(iv) Any interest expense paid or ac-
crued on indebtedness incurred to acquire 
stock in an S corporation.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
PART 2—REVENUE PROVISIONS 
SEC. 7241. INCREASE IN AGE OF CHILDREN WHOSE UN-
EARNED INCOME IS TAXED AS IF PARENT’S 
INCOME. 
(a) IN GENERAL.—Subparagraph (A) of section 
1(g)(2) (relating to child to whom subsection applies) is 
amended to read as follows: 
‘‘(A) such child— 
‘‘(i) has not attained age 18 before 
the close of the taxable year, or 
‘‘(ii)(I) has attained age 18 before the 
close of the taxable year and meets the age 
requirements of section 152(c)(3) (deter-
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189 
mined without regard to subparagraph (B) 
thereof), and 
‘‘(II) whose earned income (as defined 
in section 911(d)(2)) for such taxable year 
does not exceed one-half of the amount of 
the individual’s support (within the mean-
ing of section 152(c)(1)(D) after the appli-
cation of section 152(f)(5) (without regard 
to subparagraph (A) thereof)) for such 
taxable year,’’. 
(b) CONFORMING AMENDMENT.—Subsection (g) of 
section 1 is amended by striking ‘‘MINOR’’ in the heading 
thereof. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 7242. SUSPENSION OF CERTAIN PENALTIES AND IN-
TEREST. 
(a) IN GENERAL.—Paragraphs (1)(A) and (3)(A) of 
section 6404(g) are each amended by striking ‘‘18-month 
period’’ and inserting ‘‘36-month period’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to notices provided by the Sec-
retary of the Treasury, or his delegate, after the date 
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190 
which is 6 months after the date of the enactment of this 
Act. 
SEC. 7243. MODIFICATION OF COLLECTION DUE PROCESS 
PROCEDURES FOR EMPLOYMENT TAX LI-
ABILITIES. 
(a) IN GENERAL.—Section 6330(f) (relating to jeop-
ardy and State refund collection) is amended— 
(1) by striking ‘‘; or’’ at the end of paragraph 
(1) and inserting a comma, 
(2) by adding ‘‘or’’ at the end of paragraph (2), 
and 
(3) by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) the Secretary has served a disqualified em-
ployment tax levy,’’. 
(b) DISQUALIFIED EMPLOYMENT TAX LEVY.—Sec-
tion 6330 of such Code (relating to notice and opportunity 
for hearing before levy) is amended by adding at the end 
the following new subsection: 
‘‘(h) DISQUALIFIED EMPLOYMENT TAX LEVY.—For 
purposes of subsection (f), a disqualified employment tax 
levy is any levy in connection with the collection of employ-
ment taxes for any taxable period if the person subject 
to the levy (or any predecessor thereof) requested a hear-
ing under this section with respect to unpaid employment 
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taxes arising in the most recent 2-year period before the 
beginning of the taxable period with respect to which the 
levy is served. For purposes of the preceding sentence, the 
term ‘employment taxes’ means any taxes under chapter 
21, 22, 23, or 24.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to levies served on or after the date 
that is 120 days after the date of the enactment of this 
Act. 
SEC. 7244. PERMANENT EXTENSION OF IRS USER FEES. 
Section 7528 (relating to Internal Revenue Service 
user fees) is amended by striking subsection (c). 
SEC. 7245. INCREASE IN PENALTY FOR BAD CHECKS AND 
MONEY ORDERS. 
(a) IN GENERAL.—Section 6657 (relating to bad 
checks) is amended— 
(1) by striking ‘‘$750’’ and inserting ‘‘$1,250’’, 
and 
(2) by striking ‘‘$15’’ and inserting ‘‘$25’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section apply to checks or money orders received after 
the date of the enactment of this Act. 
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192 
SEC. 7246. UNDERSTATEMENT OF TAXPAYER LIABILITY BY 
RETURN PREPARERS. 
(a) APPLICATION OF RETURN PREPARER PENALTIES 
TO ALL TAX RETURNS.— 
(1) DEFINITION OF TAX RETURN PREPARER.— 
Paragraph (36) of section 7701(a) (relating to in-
come tax preparer) is amended— 
(A) by striking ‘‘income’’ each place it ap-
pears in the heading and the text, and 
(B) in subparagraph (A), by striking ‘‘sub-
title A’’ each place it appears and inserting 
‘‘this title’’. 
(2) CONFORMING AMENDMENTS.— 
(A)(i) Section 6060 is amended by striking 
‘‘INCOME TAX RETURN PREPARERS’’ in the 
heading and inserting ‘‘TAX
RETURN
PRE-
PARERS’’. 
(ii) Section 6060(a) is amended— 
(I) by striking ‘‘an income tax return 
preparer’’ each place it appears and insert-
ing ‘‘a tax return preparer’’, 
(II) by striking ‘‘each income tax re-
turn preparer’’ and inserting ‘‘each tax re-
turn preparer’’, and 
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(III) by striking ‘‘another income tax 
return preparer’’ and inserting ‘‘another 
tax return preparer’’. 
(iii) The item relating to section 6060 in 
the table of sections for subpart F of part III 
of subchapter A of chapter 61 is amended by 
striking ‘‘income tax return preparers’’ and in-
serting ‘‘tax return preparers’’. 
(iv) Subpart F of part III of subchapter A 
of chapter 61 is amended by striking ‘‘Income 
Tax Return Preparers’’ in the heading 
and inserting ‘‘Tax Return Preparers’’. 
(v) The item relating to subpart F in the 
table of subparts for part III of subchapter A 
of chapter 61 is amended by striking ‘‘income 
tax return preparers’’ and inserting ‘‘tax return 
preparers’’. 
(B) Section 6103(k)(5) is amended— 
(i) by striking ‘‘income tax return pre-
parer’’ each place it appears and inserting 
‘‘tax return preparer’’, and 
(ii) by striking ‘‘income tax return 
preparers’’ each place it appears and in-
serting ‘‘tax return preparers’’. 
(C)(i) Section 6107 is amended— 
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