‘‘(C) PERIOD
OF
NONQUALIFIED
USE.— 
For purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘period 
of nonqualified use’ means any period 
(other than the portion of any period pre-
ceding January 1, 2008) during which the 
property is not used as the principal resi-
dence of the taxpayer or the taxpayer’s 
spouse or former spouse. 
‘‘(ii) EXCEPTIONS.—The term ‘period 
of nonqualified use’ does not include— 
‘‘(I) any portion of the 5-year pe-
riod described in subsection (a) which 
is after the last date that such prop-
erty is used as the principal residence 
of the taxpayer or the taxpayer’s 
spouse, 
‘‘(II) any period (not to exceed 
an aggregate period of 10 years) dur-
ing which the taxpayer or the tax-
payer’s spouse is serving on qualified 
official extended duty (as defined in 
subsection (d)(9)(C)) described in 
clause (i), (ii), or (iii) of subsection 
(d)(9)(A), and
‘‘(III) any other period of tem-
porary absence (not to exceed an ag-
gregate period of 2 years) due to 
change of employment, health condi-
tions, or such other unforeseen cir-
cumstances as may be specified by the 
Secretary. 
‘‘(D) COORDINATION
WITH
RECOGNITION 
OF GAIN ATTRIBUTABLE TO DEPRECIATION.— 
For purposes of this paragraph— 
‘‘(i) subparagraph (A) shall be applied 
after the application of subsection (d)(6), 
and 
‘‘(ii) subparagraph (B) shall be ap-
plied without regard to any gain to which 
subsection (d)(6) applies.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to sales and exchanges after De-
cember 31, 2007. 
TITLE V—ADMINISTRATIVE 
PROVISIONS 
SEC. 501. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE 
DEBT COLLECTION CONTRACTS. 
(a) IN GENERAL.—Subchapter A of chapter 64 is 
amended by striking section 6306.
(b) CONFORMING AMENDMENTS.— 
(1) Subchapter B of chapter 76 is amended by 
striking section 7433A. 
(2) Section 7811 is amended by striking sub-
section (g). 
(3) Section 1203 of the Internal Revenue Serv-
ice Restructuring Act of 1998 is amended by strik-
ing subsection (e). 
(4) The table of sections for subchapter A of 
chapter 64 is amended by striking the item relating 
to section 6306. 
(5) The table of sections for subchapter B of 
chapter 76 is amended by striking the item relating 
to section 7433A. 
(c) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall take effect on the date of the en-
actment of this Act. 
(2) EXCEPTION
FOR
EXISTING
CONTRACTS, 
ETC.—The amendments made by this section shall 
not apply to any contract which was entered into be-
fore July 18, 2007, and is not renewed or extended 
on or after such date.
(3) UNAUTHORIZED CONTRACTS AND EXTEN-
SIONS TREATED AS VOID.—Any qualified tax collec-
tion contract (as defined in section 6306 of the In-
ternal Revenue Code of 1986, as in effect before its 
repeal) which is entered into on or after July 18, 
2007, and any extension or renewal on or after such 
date of any qualified tax collection contract (as so 
defined) shall be void. 
SEC. 502. DELAY OF APPLICATION OF WITHHOLDING RE-
QUIREMENT ON CERTAIN GOVERNMENTAL 
PAYMENTS FOR GOODS AND SERVICES. 
(a) IN GENERAL.—Subsection (b) of section 511 of 
the Tax Increase Prevention and Reconciliation Act of 
2005 is amended by striking ‘‘December 31, 2010’’ and 
inserting ‘‘December 31, 2011’’. 
(b) REPORT
TO
CONGRESS.—Not later than 6 
months after the date of the enactment of this Act, the 
Secretary of the Treasury shall submit to the Committee 
on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate a report with 
respect to the withholding requirements of section 3402(t) 
of the Internal Revenue Code of 1986, including a detailed 
analysis of—
(1) the problems, if any, which are anticipated 
in administering and complying with such require-
ments, 
(2) the burdens, if any, that such requirements 
will place on governments and businesses (taking 
into account such mechanisms as may be necessary 
to administer such requirements), and 
(3) the application of such requirements to 
small expenditures for services and goods by govern-
ments. 
SEC. 503. CLARIFICATION OF ENTITLEMENT OF VIRGIN IS-
LANDS RESIDENTS TO PROTECTIONS OF LIM-
ITATIONS ON ASSESSMENT AND COLLECTION 
OF TAX. 
(a) IN GENERAL.—Subsection (c) of section 932 (re-
lating to treatment of Virgin Islands residents) is amended 
by adding at the end the following new paragraph: 
‘‘(5) TREATMENT
OF
INCOME
TAX
RETURN 
FILED WITH VIRGIN ISLANDS.—An income tax re-
turn filed with the Virgin Islands by an individual 
claiming to be described in paragraph (1) for the 
taxable year shall be treated for purposes of subtitle 
F in the same manner as if such return were an in-
come tax return filed with the United States for 
such taxable year. The preceding sentence shall not
apply where such return is false or fraudulent with 
the intent to evade tax or otherwise is a willful at-
tempt in any manner to defeat or evade tax.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
1986. 
SEC. 504. REVISION OF TAX RULES ON EXPATRIATION. 
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 is amended by inserting after sec-
tion 877 the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—All property of a cov-
ered expatriate shall be treated as sold on the day 
before the expatriation date for its fair market 
value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(A) notwithstanding any other provision 
of this title, any gain arising from such sale 
shall be taken into account for the taxable year 
of the sale, and 
‘‘(B) any loss arising from such sale shall 
be taken into account for the taxable year of
the sale to the extent otherwise provided by this 
title, except that section 1091 shall not apply to 
any such loss. 
Proper adjustment shall be made in the amount of 
any gain or loss subsequently realized for gain or 
loss taken into account under the preceding sen-
tence, determined without regard to paragraph (3). 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN
GENERAL.—The amount which 
would (but for this paragraph) be includible in 
the gross income of any individual by reason of 
paragraph (1) shall be reduced (but not below 
zero) by $600,000. 
‘‘(B) ADJUSTMENT FOR INFLATION.— 
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2008, the dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which the tax-
able year begins, by substituting ‘cal-
endar year 2007’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(ii) ROUNDING.—If any amount as 
adjusted under clause (i) is not a multiple 
of $1,000, such amount shall be rounded 
to the nearest multiple of $1,000. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the 
application of this subsection with respect to any 
property treated as sold by reason of subsection (a), 
the time for payment of the additional tax attrib-
utable to such property shall be extended until the 
due date of the return for the taxable year in which 
such property is disposed of (or, in the case of prop-
erty disposed of in a transaction in which gain is not 
recognized in whole or in part, until such other date 
as the Secretary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT 
TO PROPERTY.—For purposes of paragraph (1), the 
additional tax attributable to any property is an 
amount which bears the same ratio to the additional 
tax imposed by this chapter for the taxable year 
solely by reason of subsection (a) as the gain taken 
into account under subsection (a) with respect to 
such property bears to the total gain taken into ac-
count under subsection (a) with respect to all prop-
erty to which subsection (a) applies. 
‘‘(3) TERMINATION OF EXTENSION.—The due 
date for payment of tax may not be extended under 
this subsection later than the due date for the re-
turn of tax imposed by this chapter for the taxable 
year which includes the date of death of the expa-
triate (or, if earlier, the time that the security pro-
vided with respect to the property fails to meet the 
requirements of paragraph (4), unless the taxpayer 
corrects such failure within the time specified by the 
Secretary). 
‘‘(4) SECURITY.— 
‘‘(A) IN GENERAL.—No election may be 
made under paragraph (1) with respect to any 
property unless adequate security is provided 
with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
any property shall be treated as adequate secu-
rity if— 
‘‘(i) it is a bond which is furnished to, 
and accepted by, the Secretary, which is 
conditioned on the payment of tax (and in-
terest thereon), and which meets the re-
quirements of section 6325, or 
‘‘(ii) it is another form of security for 
such payment (including letters of credit) 
that meets such requirements as the Sec-
retary may prescribe. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the 
taxpayer makes an irrevocable waiver of any right 
under any treaty of the United States which would 
preclude assessment or collection of any tax imposed 
by reason of this section. 
‘‘(6) ELECTIONS.—An election under paragraph 
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. 
‘‘(7) INTEREST.—For purposes of section 6601, 
the last date for the payment of tax shall be deter-
mined without regard to the election under this sub-
section. 
‘‘(c) EXCEPTION
FOR CERTAIN PROPERTY.—Sub-
section (a) shall not apply to— 
‘‘(1) any deferred compensation item (as de-
fined in subsection (d)(4)), 
‘‘(2) any specified tax deferred account (as de-
fined in subsection (e)(2)), and
‘‘(3) any interest in a nongrantor trust (as de-
fined in subsection (f)(3)). 
‘‘(d) TREATMENT
OF DEFERRED COMPENSATION 
ITEMS.— 
‘‘(1) WITHHOLDING
ON
ELIGIBLE
DEFERRED 
COMPENSATION ITEMS.— 
‘‘(A) IN GENERAL.—In the case of any eli-
gible deferred compensation item, the payor 
shall deduct and withhold from any taxable 
payment to a covered expatriate with respect to 
such item a tax equal to 30 percent thereof. 
‘‘(B) TAXABLE PAYMENT.—For purposes 
of subparagraph (A), the term ‘taxable pay-
ment’ means with respect to a covered expa-
triate any payment to the extent it would be in-
cludible in the gross income of the covered ex-
patriate if such expatriate continued to be sub-
ject to tax as a citizen or resident of the United 
States. A deferred compensation item shall be 
taken into account as a payment under the pre-
ceding sentence when such item would be so in-
cludible. 
‘‘(2) 
OTHER
DEFERRED
COMPENSATION 
ITEMS.—In the case of any deferred compensation
item which is not an eligible deferred compensation 
item— 
‘‘(A)(i) with respect to any deferred com-
pensation item to which clause (ii) does not 
apply, an amount equal to the present value of 
the covered expatriate’s accrued benefit shall be 
treated as having been received by such indi-
vidual on the day before the expatriation date 
as a distribution under the plan, and 
‘‘(ii) with respect to any deferred com-
pensation item referred to in paragraph (4)(D), 
the rights of the covered expatriate to such item 
shall be treated as becoming transferable and 
not subject to a substantial risk of forfeiture on 
the day before the expatriation date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
‘‘(C) appropriate adjustments shall be 
made to subsequent distributions from the plan 
to reflect such treatment. 
‘‘(3) 
ELIGIBLE
DEFERRED
COMPENSATION 
ITEMS.—For purposes of this subsection, the term 
‘eligible deferred compensation item’ means any de-
ferred compensation item with respect to which— 
‘‘(A) the payor of such item is—
‘‘(i) a United States person, or 
‘‘(ii) a person who is not a United 
States person but who elects to be treated 
as a United States person for purposes of 
paragraph (1) and meets such require-
ments as the Secretary may provide to en-
sure that the payor will meet the require-
ments of paragraph (1), and 
‘‘(B) the covered expatriate— 
‘‘(i) notifies the payor of his status as 
a covered expatriate, and 
‘‘(ii) makes an irrevocable waiver of 
any right to claim any reduction under any 
treaty with the United States in with-
holding on such item. 
‘‘(4) DEFERRED
COMPENSATION
ITEM.—For 
purposes of this subsection, the term ‘deferred com-
pensation item’ means— 
‘‘(A) any interest in a plan or arrangement 
described in section 219(g)(5), 
‘‘(B) any interest in a foreign pension plan 
or similar retirement arrangement or program, 
‘‘(C) any item of deferred compensation, 
and
‘‘(D) any property, or right to property, 
which the individual is entitled to receive in 
connection with the performance of services to 
the extent not previously taken into account 
under section 83 or in accordance with section 
83. 
‘‘(5) EXCEPTION.—Paragraphs (1) and (2) 
shall not apply to any deferred compensation item 
which is attributable to services performed outside 
the United States while the covered expatriate was 
not a citizen or resident of the United States. 
‘‘(6) SPECIAL RULES.— 
‘‘(A) 
APPLICATION
OF
WITHHOLDING 
RULES.—Rules similar to the rules of sub-
chapter B of chapter 3 shall apply for purposes 
of this subsection. 
‘‘(B) APPLICATION
OF
TAX.—Any item 
subject to the withholding tax imposed under 
paragraph (1) shall be subject to tax under sec-
tion 871. 
‘‘(C) COORDINATION WITH OTHER WITH-
HOLDING REQUIREMENTS.—Any item subject to 
withholding under paragraph (1) shall not be 
subject to withholding under section 1441 or 
chapter 24.
‘‘(e) TREATMENT OF SPECIFIED TAX DEFERRED AC-
COUNTS.— 
‘‘(1) ACCOUNT TREATED AS DISTRIBUTED.—In 
the case of any interest in a specified tax deferred 
account held by a covered expatriate on the day be-
fore the expatriation date— 
‘‘(A) the covered expatriate shall be treat-
ed as receiving a distribution of his entire inter-
est in such account on the day before the expa-
triation date, 
‘‘(B) no early distribution tax shall apply 
by reason of such treatment, and 
‘‘(C) appropriate adjustments shall be 
made to subsequent distributions from the ac-
count to reflect such treatment. 
‘‘(2) SPECIFIED
TAX
DEFERRED
ACCOUNT.— 
For purposes of paragraph (1), the term ‘specified 
tax deferred account’ means an individual retirement 
plan (as defined in section 7701(a)(37)) other than 
any arrangement described in subsection (k) or (p) 
of section 408, a qualified tuition program (as de-
fined in section 529), a Coverdell education savings 
account (as defined in section 530), a health savings 
account (as defined in section 223), and an Archer 
MSA (as defined in section 220).
‘‘(f) SPECIAL RULES FOR NONGRANTOR TRUSTS.— 
‘‘(1) IN GENERAL.—In the case of a distribu-
tion (directly or indirectly) of any property from a 
nongrantor trust to a covered expatriate— 
‘‘(A) the trustee shall deduct and withhold 
from such distribution an amount equal to 30 
percent of the taxable portion of the distribu-
tion, and 
‘‘(B) if the fair market value of such prop-
erty exceeds its adjusted basis in the hands of 
the trust, gain shall be recognized to the trust 
as if such property were sold to the expatriate 
at its fair market value. 
‘‘(2) TAXABLE PORTION.—For purposes of this 
subsection, the term ‘taxable portion’ means, with 
respect to any distribution, that portion of the dis-
tribution which would be includible in the gross in-
come of the covered expatriate if such expatriate 
continued to be subject to tax as a citizen or resi-
dent of the United States. 
‘‘(3) NONGRANTOR
TRUST.—For purposes of 
this subsection, the term ‘nongrantor trust’ means 
the portion of any trust that the individual is not 
considered the owner of under subpart E of part I 
of subchapter J. The determination under the pre-
ceding sentence shall be made immediately before 
the expatriation date. 
‘‘(4) SPECIAL
RULES
RELATING
TO
WITH-
HOLDING.—For purposes of this subsection— 
‘‘(A) rules similar to the rules of sub-
section (d)(6) shall apply, and 
‘‘(B) the covered expatriate shall be treat-
ed as having waived any right to claim any re-
duction under any treaty with the United 
States in withholding on any distribution to 
which paragraph (1)(A) applies. 
‘‘(5) 
APPLICATION.—This 
subsection 
shall 
apply to a nongrantor trust only if the covered expa-
triate was a beneficiary of the trust on the day be-
fore the expatriation date. 
‘‘(g) DEFINITIONS AND SPECIAL RULES RELATING 
TO EXPATRIATION.—For purposes of this section— 
‘‘(1) COVERED EXPATRIATE.— 
‘‘(A) IN GENERAL.—The term ‘covered ex-
patriate’ means an expatriate who meets the re-
quirements of subparagraph (A), (B), or (C) of 
section 877(a)(2). 
‘‘(B) EXCEPTIONS.—An individual shall 
not be treated as meeting the requirements of
subparagraph (A) or (B) of section 877(a)(2) 
if— 
‘‘(i) the individual— 
‘‘(I) became at birth a citizen of 
the United States and a citizen of an-
other country and, as of the expatria-
tion date, continues to be a citizen of, 
and is taxed as a resident of, such 
other country, and 
‘‘(II) has been a resident of the 
United States (as defined in section 
7701(b)(1)(A)(ii)) for not more than 
10 taxable years during the 15-tax-
able year period ending with the tax-
able year during which the expatria-
tion date occurs, or 
‘‘(ii)(I) the individual’s relinquishment 
of United States citizenship occurs before 
such individual attains age 181⁄2, and 
‘‘(II) the individual has been a resi-
dent of the United States (as so defined) 
for not more than 10 taxable years before 
the date of relinquishment. 
‘‘(C) COVERED
EXPATRIATES
ALSO
SUB-
JECT TO TAX AS CITIZENS OR RESIDENTS.—In
the case of any covered expatriate who is sub-
ject to tax as a citizen or resident of the United 
States for any period beginning after the expa-
triation date, such individual shall not be treat-
ed as a covered expatriate during such period 
for purposes of subsections (d)(1) and (f) and 
section 2801. 
‘‘(2) 
EXPATRIATE.—The 
term 
‘expatriate’ 
means— 
‘‘(A) any United States citizen who relin-
quishes his citizenship, and 
‘‘(B) any long-term resident of the United 
States who ceases to be a lawful permanent 
resident of the United States (within the mean-
ing of section 7701(b)(6)). 
‘‘(3) EXPATRIATION
DATE.—The term ‘expa-
triation date’ means— 
‘‘(A) the date an individual relinquishes 
United States citizenship, or 
‘‘(B) in the case of a long-term resident of 
the United States, the date on which the indi-
vidual ceases to be a lawful permanent resident 
of the United States (within the meaning of 
section 7701(b)(6)).
‘‘(4) RELINQUISHMENT
OF
CITIZENSHIP.—A 
citizen shall be treated as relinquishing his United 
States citizenship on the earliest of— 
‘‘(A) the date the individual renounces his 
United States nationality before a diplomatic or 
consular officer of the United States pursuant 
to paragraph (5) of section 349(a) of the Immi-
gration 
and 
Nationality 
Act 
(8 
U.S.C. 
1481(a)(5)), 
‘‘(B) the date the individual furnishes to 
the United States Department of State a signed 
statement 
of 
voluntary 
relinquishment 
of 
United States nationality confirming the per-
formance of an act of expatriation specified in 
paragraph (1), (2), (3), or (4) of section 349(a) 
of the Immigration and Nationality Act (8 
U.S.C. 1481(a)(1)–(4)), 
‘‘(C) the date the United States Depart-
ment of State issues to the individual a certifi-
cate of loss of nationality, or 
‘‘(D) the date a court of the United States 
cancels a naturalized citizen’s certificate of nat-
uralization. 
Subparagraph (A) or (B) shall not apply to any indi-
vidual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance 
to the individual of a certificate of loss of nationality 
by the United States Department of State. 
‘‘(5) LONG-TERM RESIDENT.—The term ‘long- 
term resident’ has the meaning given to such term 
by section 877(e)(2). 
‘‘(6) EARLY
DISTRIBUTION
TAX.—The term 
‘early distribution tax’ means any increase in tax im-
posed under section 72(t), 220(e)(4), 223(f)(4), 
409A(a)(1)(B), 529(c)(6), or 530(d)(4). 
‘‘(h) OTHER RULES.— 
‘‘(1) TERMINATION OF DEFERRALS, ETC.—In 
the case of any covered expatriate, notwithstanding 
any other provision of this title— 
‘‘(A) any time period for acquiring prop-
erty which would result in the reduction in the 
amount of gain recognized with respect to prop-
erty disposed of by the taxpayer shall terminate 
on the day before the expatriation date, and 
‘‘(B) any extension of time for payment of 
tax shall cease to apply on the day before the 
expatriation date and the unpaid portion of 
such tax shall be due and payable at the time 
and in the manner prescribed by the Secretary.
‘‘(2) STEP-UP IN BASIS.—Solely for purposes of 
determining any tax imposed by reason of subsection 
(a), property which was held by an individual on the 
date the individual first became a resident of the 
United States (within the meaning of section 
7701(b)) shall be treated as having a basis on such 
date of not less than the fair market value of such 
property on such date. The preceding sentence shall 
not apply if the individual elects not to have such 
sentence apply. Such an election, once made, shall 
be irrevocable. 
‘‘(3) COORDINATION WITH SECTION 684.—If the 
expatriation of any individual would result in the 
recognition of gain under section 684, this section 
shall be applied after the application of section 684. 
‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) TAX ON GIFTS AND BEQUESTS RECEIVED BY 
UNITED STATES CITIZENS AND RESIDENTS FROM EXPA-
TRIATES.— 
(1) IN GENERAL.—Subtitle B (relating to estate 
and gift taxes) is amended by inserting after chapter 
14 the following new chapter:
‘‘CHAPTER 15—GIFTS AND BEQUESTS 
FROM EXPATRIATES 
‘‘Sec. 2801. Imposition of tax. 
‘‘SEC. 2801. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—If, during any calendar year, any 
United States citizen or resident receives any covered gift 
or bequest, there is hereby imposed a tax equal to the 
product of— 
‘‘(1) the highest rate of tax specified in the 
table contained in section 2001(c) as in effect on the 
date of such receipt (or, if greater, the highest rate 
of tax specified in the table applicable under section 
2502(a) as in effect on the date), and 
‘‘(2) the value of such covered gift or bequest. 
‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im-
posed by subsection (a) on any covered gift or bequest 
shall be paid by the person receiving such gift or bequest. 
‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection 
(a) shall apply only to the extent that the value of covered 
gifts and bequests received by any person during the cal-
endar year exceeds $10,000. 
‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE 
TAX.—The tax imposed by subsection (a) on any covered 
gift or bequest shall be reduced by the amount of any gift
or estate tax paid to a foreign country with respect to such 
covered gift or bequest. 
‘‘(e) COVERED GIFT OR BEQUEST.— 
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, the term ‘covered gift or bequest’ means— 
‘‘(A) any property acquired by gift directly 
or indirectly from an individual who, at the 
time of such acquisition, is a covered expatriate, 
and 
‘‘(B) any property acquired directly or in-
directly by reason of the death of an individual 
who, immediately before such death, was a cov-
ered expatriate. 
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE 
SUBJECT TO ESTATE OR GIFT TAX.—Such term shall 
not include— 
‘‘(A) any property shown on a timely filed 
return of tax imposed by chapter 12 which is a 
taxable gift by the covered expatriate, and 
‘‘(B) any property included in the gross es-
tate of the covered expatriate for purposes of 
chapter 11 and shown on a timely filed return 
of tax imposed by chapter 11 of the estate of 
the covered expatriate. 
‘‘(3) TRANSFERS IN TRUST.—
‘‘(A) DOMESTIC TRUSTS.—In the case of a 
covered gift or bequest made to a domestic 
trust— 
‘‘(i) subsection (a) shall apply in the 
same manner as if such trust were a 
United States citizen, and 
‘‘(ii) the tax imposed by subsection (a) 
on such gift or bequest shall be paid by 
such trust. 
‘‘(B) FOREIGN TRUSTS.— 
‘‘(i) IN GENERAL.—In the case of a 
covered gift or bequest made to a foreign 
trust, subsection (a) shall apply to any dis-
tribution attributable to such gift or be-
quest from such trust (whether from in-
come or corpus) to a United States citizen 
or resident in the same manner as if such 
distribution were a covered gift or bequest. 
‘‘(ii) DEDUCTION FOR TAX PAID BY 
RECIPIENT.—There shall be allowed as a 
deduction under section 164 the amount of 
tax imposed by this section which is paid 
or accrued by a United States citizen or 
resident by reason of a distribution from a 
foreign trust, but only to the extent such
tax is imposed on the portion of such dis-
tribution which is included in the gross in-
come of such citizen or resident. 
‘‘(iii) ELECTION TO BE TREATED AS 
DOMESTIC TRUST.—Solely for purposes of 
this section, a foreign trust may elect to be 
treated as a domestic trust. Such an elec-
tion may be revoked with the consent of 
the Secretary. 
‘‘(f) COVERED EXPATRIATE.—For purposes of this 
section, the term ‘covered expatriate’ has the meaning 
given to such term by section 877A(g)(1).’’. 
(2) CLERICAL
AMENDMENT.—The table of 
chapters for subtitle B is amended by inserting after 
the item relating to chapter 14 the following new 
item: 
‘‘CHAPTER 15. GIFTS AND BEQUESTS FROM EXPATRIATES.’’. 
(c) DEFINITION
OF
TERMINATION
OF
UNITED 
STATES CITIZENSHIP.— 
(1) IN GENERAL.—Section 7701(a) is amended 
by adding at the end the following new paragraph: 
‘‘(50) TERMINATION OF UNITED STATES CITI-
ZENSHIP.— 
‘‘(A) IN
GENERAL.—An individual shall 
not cease to be treated as a United States cit-
izen before the date on which the individual’s
citizenship is treated as relinquished under sec-
tion 877A(g)(4). 
‘‘(B) DUAL CITIZENS.—Under regulations 
prescribed by the Secretary, subparagraph (A) 
shall not apply to an individual who became at 
birth a citizen of the United States and a cit-
izen of another country.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Paragraph (1) of section 877(e) is 
amended to read as follows: 
‘‘(1) IN GENERAL.—Any long-term resident of 
the United States who ceases to be a lawful perma-
nent resident of the United States (within the mean-
ing of section 7701(b)(6)) shall be treated for pur-
poses of this section and sections 2107, 2501, and 
6039G in the same manner as if such resident were 
a citizen of the United States who lost United States 
citizenship on the date of such cessation or com-
mencement.’’. 
(B) Paragraph (6) of section 7701(b) is 
amended by adding at the end the following 
flush sentence: 
‘‘An individual shall cease to be treated as a lawful 
permanent resident of the United States if such in-
dividual commences to be treated as a resident of a
foreign country under the provisions of a tax treaty 
between the United States and the foreign country, 
does not waive the benefits of such treaty applicable 
to residents of the foreign country, and notifies the 
Secretary of the commencement of such treatment.’’. 
(C) Section 7701 is amended by striking 
subsection (n) and by redesignating subsections 
(o) and (p) as subsections (n) and (o), respec-
tively. 
(d) INFORMATION
RETURNS.—Section 6039G is 
amended— 
(1) by inserting ‘‘or 877A’’ after ‘‘section 
877(b)’’ in subsection (a), and 
(2) by inserting ‘‘or 877A’’ after ‘‘section 
877(a)’’ in subsection (d). 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part II of subchapter N of chapter 1 
is amended by inserting after the item relating to section 
877 the following new item: 
‘‘Sec. 877A. Tax responsibilities of expatriation.’’. 
(f) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in this 
subsection, the amendments made by this section 
shall apply to expatriates (as defined in section 
877A(g) of the Internal Revenue Code of 1986, as 
added by this section) whose expatriation date (as so
defined) is on or after the date of the enactment of 
this Act. 
(2) GIFTS AND BEQUESTS.—Chapter 15 of the 
Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to covered gifts and bequests 
(as defined in section 2801 of such Code, as so 
added) received on or after the date of the enact-
ment of this Act, regardless of when the transferor 
expatriated. 
SEC. 505. REPEAL OF SUSPENSION OF CERTAIN PENALTIES 
AND INTEREST. 
(a) IN GENERAL.—Section 6404 is amended by strik-
ing subsection (g) and by redesignating subsection (h) as 
subsection (g). 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to notices provided by the Sec-
retary of the Treasury, or his delegate, after the date 
which is 6 months after the date of the enactment of the 
Small Business and Work Opportunity Tax Act of 2007. 
SEC. 506. UNUSED MERCHANDISE DRAWBACK. 
(a) IN GENERAL.—Section 313(j)(2) of the Tariff 
Act of 1930 (19 U.S.C. 1313(j)(2)) is amended by adding 
at the end the following: ‘‘For purposes of subparagraph 
(A) of this paragraph, wine of the same color having a 
price variation not to exceed 50 percent between the im-
ported wine and the exported wine shall be deemed to be 
commercially interchangeable.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply with respect to claims filed for 
drawback under section 313(j)(2) of the Tariff Act of 
1930 on or after the date of the enactment of this Act. 
TITLE VI—REVENUE 
PROVISIONS 
Subtitle A—Nonqualified Deferred 
Compensation 
From 
Certain 
Tax Indifferent Parties 
SEC. 
601. 
NONQUALIFIED 
DEFERRED 
COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
(a) IN GENERAL.—Subpart B of part II of sub-
chapter E of chapter 1 (relating to taxable year for which 
items of gross income included) is amended by inserting 
after section 457 the following new section: 
‘‘SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION 
FROM CERTAIN TAX INDIFFERENT PARTIES. 
‘‘(a) IN GENERAL.—Any compensation which is de-
ferred under a nonqualified deferred compensation plan of 
a nonqualified entity shall be taken into account for pur-
poses of this chapter when there is no substantial risk of 
forfeiture of the rights to such compensation.
‘‘(b) NONQUALIFIED ENTITY.—For purposes of this 
section, the term ‘nonqualified entity’ means— 
‘‘(1) any foreign corporation unless substan-
tially all of such income is— 
‘‘(A) effectively connected with the conduct 
of a trade or business in the United States, or 
‘‘(B) subject to a comprehensive foreign in-
come tax, and 
‘‘(2) any partnership unless substantially all of 
such income is allocated to persons other than— 
‘‘(A) foreign persons with respect to whom 
such income is not subject to a comprehensive 
foreign income tax, and 
‘‘(B) organizations which are exempt from 
tax under this title. 
‘‘(c) ASCERTAINABILITY
OF AMOUNTS
OF COM-
PENSATION.— 
‘‘(1) IN GENERAL.—If the amount of any com-
pensation is not ascertainable at the time that such 
compensation is otherwise to be taken into account 
under subsection (a)— 
‘‘(A) such amount shall be so taken into 
account when ascertainable, and 
‘‘(B) the tax imposed under this chapter 
for the taxable year in which such compensation
is taken into account under subparagraph (A) 
shall be increased by the sum of— 
‘‘(i) the amount of interest determined 
under paragraph (2), and 
‘‘(ii) an amount equal to 20 percent of 
the amount of such compensation. 
‘‘(2) INTEREST.—For purposes of paragraph 
(1)(B)(i), the interest determined under this para-
graph for any taxable year is the amount of interest 
at the underpayment rate under section 6621 plus 
1 percentage point on the underpayments that would 
have occurred had the deferred compensation been 
includible in gross income for the taxable year in 
which first deferred or, if later, the first taxable year 
in which such deferred compensation is not subject 
to a substantial risk of forfeiture. 
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.—The 
rights of a person to compensation shall be treated 
as subject to a substantial risk of forfeiture only if 
such person’s rights to such compensation are condi-
tioned upon the future performance of substantial 
services by any individual.
‘‘(2) COMPREHENSIVE FOREIGN INCOME TAX.— 
The term ‘comprehensive foreign income tax’ means, 
with respect to any foreign person, the income tax 
of a foreign country if— 
‘‘(A) such person is eligible for the benefits 
of a comprehensive income tax treaty between 
such foreign country and the United States, or 
‘‘(B) such person demonstrates to the sat-
isfaction of the Secretary that such foreign 
country has a comprehensive income tax. 
Such term shall not include any tax unless such tax 
includes rules for the deductibility of deferred com-
pensation which are similar to the rules of this title. 
‘‘(3) NONQUALIFIED
DEFERRED
COMPENSA-
TION PLAN.—The term ‘nonqualified deferred com-
pensation plan’ has the meaning given such term 
under section 409A(d), except that such term shall 
include any plan that provides a right to compensa-
tion based on the appreciation in value of a specified 
number of equity units of the service recipient. 
‘‘(4) APPLICATION OF RULES.—Rules similar to 
the rules of paragraphs (5) and (6) of section 
409A(d) shall apply. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions disregarding a substantial risk of forfeiture in cases 
where necessary to carry out the purposes of this sec-
tion.’’. 
(b) CONFORMING AMENDMENT.—Section 26(b)(2) is 
amended by striking ‘‘and’’ at the end of subparagraph 
(S), by striking the period at the end of subparagraph (T) 
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new subparagraph: 
‘‘(U) section 457A(c)(1)(B) (relating to as-
certainability of amounts of compensation).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
of subpart B of part II of subchapter E of chapter 1 is 
amended by inserting after the item relating to section 
457 the following new item: 
‘‘Sec. 457A. Nonqualified deferred compensation from certain tax indifferent 
parties.’’. 
(d) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to amounts deferred which 
are attributable to services performed after Decem-
ber 31, 2007. 
(2) APPLICATION TO EXISTING DEFERRALS.— 
In the case of any amount deferred to which the 
amendments made by this section do not apply solely
by reason of the fact that the amount is attributable 
to services performed before January 1, 2008, to the 
extent such amount is not includible in gross income 
in a taxable year beginning before 2017, such 
amounts shall be includible in gross income in the 
later of— 
(A) the last taxable year beginning before 
2017, or 
(B) the taxable year in which there is no 
substantial risk of forfeiture of the rights to 
such compensation (determined in the same 
manner as determined for purposes of section 
457A of the Internal Revenue Code of 1986, as 
added by this section). 
(3) ACCELERATED PAYMENTS.—No later than 
60 days after the date of the enactment of this Act, 
the Secretary shall issue guidance providing a lim-
ited period of time during which a nonqualified de-
ferred compensation arrangement attributable to 
services performed on or before December 31, 2007, 
may, without violating the requirements of section 
409A(a) of the Internal Revenue Code of 1986, be 
amended to conform the date of distribution to the 
date the amounts are required to be included in in-
come.