I 
110TH CONGRESS 
1ST SESSION H. R. 3970 
To amend the Internal Revenue Code of 1986 to provide additional tax 
relief to low and moderate income individuals, to repeal the individual 
alternative minimum tax, to reform the corporate income tax, and for 
other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
OCTOBER 25, 2007 
Mr. RANGEL introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
additional tax relief to low and moderate income individ-
uals, to repeal the individual alternative minimum tax, 
to reform the corporate income tax, and for other pur-
poses. 
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 Reduction and Reform Act of 2007’’. 
(b) REFERENCE.—Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is 
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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 In-
ternal 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—INDIVIDUAL TAX PROVISIONS 
Subtitle A—Individual Tax Relief 
PART 1—GENERAL TAX REDUCTIONS 
Sec. 1001. Increase in standard deduction. 
Sec. 1002. Modification of earned income credit amount for individuals with no 
qualifying children. 
Sec. 1003. Change in refundable child credit. 
PART 2—AMT RELIEF 
SUBPART A—AMT EXTENSION FOR 2007 
Sec. 1011. Extension of alternative minimum tax relief for nonrefundable per-
sonal credits. 
Sec. 1012. Extension of increased alternative minimum tax exemption amount. 
SUBPART B—REPEAL OF THE INDIVIDUAL AMT 
Sec. 1021. Repeal of alternative minimum tax on individuals. 
Sec. 1022. Limitation of benefits of individual AMT repeal. 
Sec. 1023. High income individuals subject to overall limitation on itemized de-
ductions and phaseout of deductions for personal exemptions. 
Sec. 1024. Modification of 2-percent floor on miscellaneous itemized deductions. 
SUBPART C—CONFORMING AMENDMENTS 
Sec. 1031. Conforming amendments, etc. 
Subtitle B—Other Reforms 
PART 1—PROVISIONS RELATED TO CERTAIN INVESTMENT PARTNERSHIPS 
Sec. 1201. Income of partners for performing investment management services 
treated as ordinary income received for performance of serv-
ices. 
Sec. 1202. Nonqualified deferred compensation for investment services. 
Sec. 1203. Indebtedness incurred by a partnership in acquiring securities and 
commodities not treated as acquisition indebtedness for organi-
zations which are partners with limited liability. 
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Sec. 1204. Application to partnership interests and tax sharing agreements of 
rule treating certain gain on sales between related persons as 
ordinary income. 
PART 2—SELF-EMPLOYMENT TAX TREATMENT OF CERTAIN INTEREST 
HOLDERS IN SERVICE PROVIDING ENTITIES 
Sec. 1211. Certain service providing S corporation shareholders and partners 
subject to self-employment taxes. 
PART 3—BROKER REPORTING OF CUSTOMER’S BASIS IN SECURITIES 
TRANSACTIONS 
Sec. 1221. Broker reporting of customer’s basis in securities transactions. 
TITLE II—ONE-YEAR EXTENDERS 
Sec. 2001. Research credit. 
Sec. 2002. Indian employment credit. 
Sec. 2003. New markets tax credit. 
Sec. 2004. Railroad track maintenance. 
Sec. 2005. Mortgage insurance premiums treated as interest. 
Sec. 2006. Deduction for State and local sales taxes. 
Sec. 2007. Fifteen-year straight-line cost recovery for qualified leasehold im-
provements and qualified restaurant property. 
Sec. 2008. Seven-year cost recovery period for motorsports racing track facility. 
Sec. 2009. Accelerated depreciation for business property on Indian reservation. 
Sec. 2010. Expensing of environmental remediation costs. 
Sec. 2011. Deduction allowable with respect to income attributable to domestic 
production activities in Puerto Rico. 
Sec. 2012. Deduction of qualified tuition and related expenses. 
Sec. 2013. Modification of tax treatment of certain payments to controlling ex-
empt organizations. 
Sec. 2014. Treatment of certain dividends of regulated investment companies. 
Sec. 2015. Extension and modification of credit to holders of qualified zone 
academy bonds. 
Sec. 2016. Tax incentives for investment in the District of Columbia. 
Sec. 2017. Disclosure for combined employment tax reporting. 
Sec. 2018. Disclosure of return information to apprise appropriate officials of 
terrorist activities. 
Sec. 2019. Disclosure upon request of information relating to terrorist activi-
ties. 
Sec. 2020. Disclosure of return information to carry out income contingent re-
payment of student loans. 
Sec. 2021. Authority for undercover operations. 
Sec. 2022. Increase in limit on cover over of rum excise tax to Puerto Rico and 
the Virgin Islands. 
Sec. 2023. Parity in the application of certain limits to mental health benefits. 
Sec. 2024. Extension of economic development credit for American Samoa. 
Sec. 2025. Qualified conservation contributions. 
Sec. 2026. Enhanced charitable deduction for contributions of food inventory. 
Sec. 2027. Enhanced charitable deduction for contributions of book inventory 
to public schools. 
Sec. 2028. Enhanced deduction for qualified computer contributions. 
Sec. 2029. Tax-free distributions from individual retirement plans for chari-
table purposes. 
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Sec. 2030. Basis adjustment to stock of S corporations making charitable con-
tributions of property. 
Sec. 2031. Deduction for certain expenses of elementary and secondary school 
teachers. 
Sec. 2032. Election to include combat pay as earned income for purposes of 
earned income tax credit. 
Sec. 2033. Modification of mortgage revenue bonds for veterans. 
Sec. 2034. Distributions from retirement plans to individuals called to active 
duty. 
Sec. 2035. Stock in RIC for purposes of determining estates of nonresidents 
not citizens. 
Sec. 2036. Qualified investment entities. 
Sec. 2037. Disclosure of return information for certain veterans programs. 
TITLE III—CORPORATE TAX REFORM 
Subtitle A—Corporate Rate Reduction 
Sec. 3001. Reduction in top corporate marginal rate. 
Subtitle B—Repeal of Deduction for Income Attributable to Domestic 
Production Activities 
Sec. 3101. Repeal of deduction for income attributable to domestic production 
activities. 
Subtitle C—Provisions Related to Foreign Source Income 
Sec. 3201. Allocation of expenses and taxes on basis of repatriation of foreign 
income. 
Sec. 3202. Foreign currency conversion for determination of foreign taxes and 
foreign corporation’s earnings and profits. 
Sec. 3203. Repeal of worldwide allocation of interest. 
Sec. 3204. Limitation on treaty benefits for certain deductible payments. 
Subtitle D—Modification of Accounting Rules 
Sec. 3301. Repeal of last-in, first-out method of inventory. 
Sec. 3302. Repeal of lower of cost or market method of inventory. 
Sec. 3303. Special rule for service providers on accrual method not applicable 
to C corporations. 
Subtitle E—Modification to Expensing and Depreciation Rules 
Sec. 3401. Small business expensing provisions made permanent. 
Sec. 3402. Amortization of goodwill and other intangibles. 
Subtitle F—Codification of Economic Substance Doctrine 
Sec. 3501. Codification of economic substance doctrine. 
Sec. 3502. Penalties for underpayments. 
Subtitle G—Modifications to Deductions for Dividends Received 
Sec. 3601. Modifications to deductions for dividends received. 
Subtitle H—Other Provisions 
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Sec. 3701. Recognition of ordinary income on sale or exercise of stock option 
in S corporation with an ESOP. 
Sec. 3702. Termination of special rules for domestic international sales cor-
porations. 
Sec. 3703. Treatment of securities of a controlled corporation exchanged for as-
sets in certain reorganizations. 
TITLE I—INDIVIDUAL TAX 
PROVISIONS 
Subtitle A—Individual Tax Relief 
PART 1—GENERAL TAX REDUCTIONS 
SEC. 1001. INCREASE IN STANDARD DEDUCTION. 
(a) IN GENERAL.—Paragraph (1) of section 63(c) 
(defining standard deduction) 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 fol-
lowing: 
‘‘(C) the additional amount.’’. 
(b) ADDITIONAL AMOUNT.—Subsection (c) of section 
63 (defining standard deduction) is amended by adding 
at the end the following new paragraph: 
‘‘(8) ADDITIONAL AMOUNT.—For purposes of 
paragraph (1), the additional amount is— 
‘‘(A) 200 percent of the amount in effect 
under subparagraph (C) for the taxable year in 
the case of a joint return or a surviving spouse 
(as defined in section 2(a)), 
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‘‘(B) $625 in the case of a head of house-
hold (as defined in section 2(b)), and 
‘‘(C) $425 in any other case.’’. 
(c) ADJUSTMENT FOR INFLATION.— 
(1) IN GENERAL.—Section 63(c)(4) (relating to 
adjustments for inflation) is amended— 
(A) in the matter preceding subparagraph 
(A) by striking ‘‘or (5)’’ and inserting ‘‘(5), 
(8)(B), or (8)(C)’’, and 
(B) in subparagraph (B) by striking ‘‘and’’ 
at the end of clause (i), by striking the period 
at the end of clause (ii) and inserting ‘‘, and’’, 
and by inserting after clause (ii) the following 
new clause: 
‘‘(iii) ‘calendar year 2007’ in the case 
of the dollar amounts contained in para-
graph (8)(B) or (8)(C).’’. 
(2) ROUNDING.—Section 1(f)(6) (relating to 
rounding) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) SPECIAL RULE FOR STANDARD DE-
DUCTION ADDITIONAL AMOUNT.—In the case of 
an increase with respect to section 63(c)(8) by 
reason of section 63(c)(4), subparagraph (A) 
shall be applied by substituting ‘$25’ for ‘$50’ 
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each place it appears and subparagraph (B) 
shall not apply.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 1002. MODIFICATION OF EARNED INCOME CREDIT 
AMOUNT FOR INDIVIDUALS WITH NO QUALI-
FYING CHILDREN. 
(a) INCREASE IN CREDIT PERCENTAGE AND PHASE-
OUT PERCENTAGE FOR INDIVIDUALS WITH NO CHIL-
DREN.—The table contained in subparagraph (A) of sec-
tion 32(b)(1) is amended by striking ‘‘7.65’’ each place 
it appears and inserting ‘‘15.3’’. 
(b) INCREASE IN BEGINNING PHASEOUT AMOUNT.— 
(1) IN GENERAL.—The table contained in sub-
paragraph (A) of section 32(b)(2) is amended by 
striking ‘‘$5,280’’ and inserting ‘‘$10,900’’. 
(2) INFLATION
ADJUSTMENT.—Subparagraph 
(B) of section 32(j)(1) is amended— 
(A) by striking ‘‘and’’ at the end of clause 
(i), by redesignating clause (ii) as clause (iii), 
and by inserting after clause (i) the following 
new clause: 
‘‘(ii) in the case of the $10,900 
amount in subsection (b)(2)(A), by sub-
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stituting ‘calendar year 2007’ for ‘calendar 
year 1992’ in subparagraph (B) thereof, 
and’’, and 
(B) in clause (i) by inserting ‘‘except as 
provided in clause (ii),’’ before ‘‘in the case of’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 1003. CHANGE IN REFUNDABLE CHILD CREDIT. 
(a) MODIFICATION
OF
THRESHOLD
AMOUNT.— 
Clause (i) of section 24(d)(1)(B) is amended by striking 
‘‘$10,000’’ and inserting ‘‘$8,500’’. 
(b) REPEAL
OF
INFLATION
ADJUSTMENT
TO 
EARNED INCOME BASE.—Subsection (d) of section 24 (re-
lating to portion of credit refundable) is amended by strik-
ing paragraph (3). 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2007. 
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PART 2—AMT RELIEF 
Subpart A—AMT Extension for 2007 
SEC. 1011. EXTENSION OF ALTERNATIVE MINIMUM TAX RE-
LIEF 
FOR 
NONREFUNDABLE 
PERSONAL 
CREDITS. 
(a) IN GENERAL.—Paragraph (2) of section 26(a) 
(relating to special rule for taxable years 2000 through 
2006) is amended— 
(1) by striking ‘‘or 2006’’ and inserting ‘‘2006, 
or 2007’’, and 
(2) by striking ‘‘2006’’ in the heading thereof 
and inserting ‘‘2007’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 1012. EXTENSION OF INCREASED ALTERNATIVE MIN-
IMUM TAX EXEMPTION AMOUNT. 
(a) IN GENERAL.—Paragraph (1) of section 55(d) 
(relating to exemption amount) is amended— 
(1) by striking ‘‘($62,550 in the case of taxable 
years beginning in 2006)’’ in subparagraph (A) and 
inserting ‘‘($64,950 in the case of taxable years be-
ginning in 2007)’’, and 
(2) by striking ‘‘($42,500 in the case of taxable 
years beginning in 2006)’’ in subparagraph (B) and 
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‘‘SEC. 55A. LIMITATION OF BENEFITS OF INDIVIDUAL AMT 
REPEAL. 
‘‘(a) GENERAL RULE.—In the case of a taxpayer 
other than a corporation, there is hereby imposed (in addi-
tion to any other tax imposed by this subtitle) a tax equal 
to the sum of— 
‘‘(1) 4 percent of so much of modified adjusted 
gross income as exceeds the initial threshold 
amount, plus 
‘‘(2) 0.6 percent of so much of modified ad-
justed gross income as exceeds $250,000 ($500,000 
in the case of a joint return or a surviving spouse 
(as defined in section 2(a)). 
‘‘(b) INITIAL THRESHOLD AMOUNT.—For purposes 
of this section— 
‘‘(1) IN GENERAL.—The term ‘initial threshold 
amount’ means— 
‘‘(A) in the case of a joint return or a sur-
viving spouse (as defined in section 2(a)), the 
greater of— 
‘‘(i) the amount which the Secretary 
estimates is the lowest adjusted gross in-
come level (rounded to the nearest multiple 
of $10,000) above which at least 90 per-
cent of married individuals filing a joint 
return would (but for the repeal of such 
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tax) be affected by the alternative min-
imum tax for their first taxable year begin-
ning in 2008, or 
‘‘(ii) $200,000, 
‘‘(B) in the case of any married individual 
filing a separate return, 1⁄2 of the amount de-
termined under subparagraph (A), and 
‘‘(C) in any other case, 3⁄4 of the amount 
determined under subparagraph (A). 
‘‘(2) 
CITIZENS
AND
RESIDENTS
LIVING 
ABROAD.—The initial threshold amount determined 
under paragraph (1) shall be decreased by any 
amount excluded from the taxpayer’s gross income 
under section 911. 
‘‘(c) MODIFIED ADJUSTED GROSS INCOME.—For 
purposes of this section, the term ‘modified adjusted gross 
income’ means adjusted gross income reduced by any de-
duction allowed for investment interest (as defined in sec-
tion 163(d)). 
‘‘(d) NONRESIDENT ALIEN.—In the case of a non-
resident alien individual, only amounts taken into account 
in connection with the tax imposed under section 871(b) 
shall be taken into account under this section. 
‘‘(e) INFLATION ADJUSTMENTS.— 
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‘‘(1) IN GENERAL.—In the case of taxable years 
beginning after 2008, the amount in effect under 
subsection (b)(1)(A) for taxable years beginning in 
2008 shall be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, by sub-
stituting ‘calendar year 2007’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple of $5,000, 
such amount shall be rounded to the next lowest 
multiple of $5,000. 
‘‘(f) MARITAL STATUS.—For purposes of this section, 
marital status shall be determined under section 7703.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (A) 
of section 26(b)(2) is amended by striking ‘‘section 55’’ 
and inserting ‘‘sections 55 and 55A’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
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SEC. 1023. HIGH INCOME INDIVIDUALS SUBJECT TO OVER-
ALL LIMITATION ON ITEMIZED DEDUCTIONS 
AND PHASEOUT OF DEDUCTIONS FOR PER-
SONAL EXEMPTIONS. 
(a) OVERALL LIMITATION
ON ITEMIZED DEDUC-
TIONS.—Section 68 (relating to overall limitation on 
itemized deductions) is amended by striking subsections 
(f) and (g) and inserting the following new subsection: 
‘‘(f) PHASEOUT OF LIMITATION.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
whose adjusted gross income is not more than 
$250,000 ($500,000 in the case of a joint return or 
a surviving spouse (as defined in section 2(a))— 
‘‘(A) in the case of any taxable year begin-
ning in 2008 or 2009, the reduction under sub-
section (a) shall be equal to 1⁄3 of the amount 
which would (but for this subsection) be the 
amount of such reduction, and 
‘‘(B) in the case of any taxable year begin-
ning after 2009, subsection (a) shall not apply. 
‘‘(2) PHASEOUT BASED ON INCOME.— 
‘‘(A) IN GENERAL.—In the case of a tax-
payer whose adjusted gross income is more 
than $250,000 ($500,000 in the case of a joint 
return or a surviving spouse (as defined in sec-
tion 2(a)), the reduction under subsection (a) 
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shall be equal to the applicable fraction of the 
amount which would (but for this subsection) 
be the amount of such reduction. 
‘‘(B) APPLICABLE
FRACTION.—For pur-
poses of subparagraph (A), the term ‘applicable 
fraction’ means— 
‘‘(i) in the case of any taxable year 
beginning in 2008 or 2009, a fraction (not 
in excess of 1) equal to the sum of— 
‘‘(I) 1⁄3, plus 
‘‘(II) 1⁄30 for each $1,000 (or 
fraction thereof) by which the tax-
payer’s adjusted gross income exceeds 
$250,000 ($500,000 in the case of a 
joint return or a surviving spouse (as 
defined in section 2(a)), and 
‘‘(ii) in the case of any taxable year 
beginning in 2010, a fraction (not in ex-
cess of 1) equal to 1⁄20 for each $1,000 (or 
fraction thereof) by which the taxpayer’s 
adjusted gross income exceeds $250,000 
($500,000 in the case of a joint return or 
a surviving spouse (as defined in section 
2(a)).’’. 
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(b) PHASEOUT OF DEDUCTIONS FOR PERSONAL EX-
EMPTIONS.—Paragraph (3) of section 151(d) is amended 
by striking subparagraphs (E) and (F) and inserting the 
following new subparagraphs: 
‘‘(E) REDUCTION OF PHASEOUT.—In the 
case of a taxpayer whose adjusted gross income 
is not more than $250,000 ($500,000 in the 
case of a joint return or a surviving spouse (as 
defined in section 2(a))— 
‘‘(i) in the case of any taxable year 
beginning in 2008 or 2009, the reduction 
under subparagraph (A) shall be equal to 
1⁄3 of the amount which would (but for this 
subparagraph) be the amount of such re-
duction, and 
‘‘(ii) in the case of any taxable year 
beginning after 2009, subparagraph (A) 
shall not apply. 
‘‘(F) PHASEOUT BASED ON INCOME.—In 
the case of a taxpayer whose adjusted gross in-
come is more than $250,000 ($500,000 in the 
case of a joint return or a surviving spouse (as 
defined in section 2(a)), the reduction under 
subparagraph (A) shall be equal to the applica-
ble fraction of the amount which would (but for 
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this subparagraph) be the amount of such re-
duction. 
‘‘(G) APPLICABLE
FRACTION.—For pur-
poses of subparagraph (F), the term ‘applicable 
fraction’ means— 
‘‘(i) in the case of any taxable year 
beginning in 2008 or 2009, the fraction 
(not in excess of 1) equal to the sum of— 
‘‘(I) 1⁄3, plus 
‘‘(II) 1⁄30 for each $1,000 (or 
fraction thereof) by which the tax-
payer’s adjusted gross income exceeds 
$250,000 ($500,000 in the case of a 
joint return or a surviving spouse (as 
defined in section 2(a)), and 
‘‘(ii) in the case of any taxable year 
beginning in 2010, the fraction (not in ex-
cess of 1) equal to 1⁄20 for each $1,000 (or 
fraction thereof) by which the taxpayer’s 
adjusted gross income exceeds $250,000 
($500,000 in the case of a joint return or 
a surviving spouse (as defined in section 
2(a)).’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 1024. MODIFICATION OF 2-PERCENT FLOOR ON MIS-
CELLANEOUS ITEMIZED DEDUCTIONS. 
(a) IN GENERAL.—Subsection (a) of section 67 is 
amended by striking ‘‘exceeds’’ and all that follows and 
inserting ‘‘exceeds the sum of— 
‘‘(1) 2 percent of so much of modified adjusted 
gross income (as defined in section 55A(c)) as does 
not exceed the initial threshold amount applicable to 
the taxpayer under section 55A, plus 
‘‘(2) 5 percent of so much of modified adjusted 
gross income (as so defined) as exceeds such initial 
threshold amount.’’. 
(b) CONFORMING AMENDMENT.— 
(1) The heading for section 67 is amended by 
striking 
‘‘2-PERCENT
FLOOR’’ 
and 
inserting 
‘‘FLOOR’’. 
(2) The item in the table of sections for part 
I of subchapter B of chapter 1 relating to section 67 
is amended by striking ‘‘2-percent floor’’ and insert-
ing ‘‘Floor’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
Subpart C—Conforming Amendments 
SEC. 1031. CONFORMING AMENDMENTS, ETC. 
(a) CONFORMING AMENDMENTS RELATED TO RE-
PEAL
OF ALTERNATIVE MINIMUM TAX
ON INDIVID-
UALS.— 
(1) Subparagraph (B) of section 1(g)(7) is 
amended by adding ‘‘and’’ at the end of clause (i), 
by striking ‘‘, and’’ at the end of clause (ii) and in-
serting a period, and by striking clause (iii). 
(2) Section 2(d) is amended by striking ‘‘taxes 
imposed by sections 1 and 55’’ and inserting ‘‘tax 
imposed by section 1’’. 
(3) Section 5(a) is amended by striking para-
graph (4). 
(4) Section 23 is amended— 
(A) by striking subsection (b)(4), and 
(B) by amending subsection (c) by striking 
paragraphs (1) and (2), by redesignating para-
graph (3) as paragraph (2) and inserting before 
paragraph (2) (as so redesignated) the fol-
lowing: 
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‘‘(1) IN
GENERAL.—If the credit allowable 
under subsection (a) for any taxable year exceeds 
the limitation imposed by section 26(a) for such tax-
able year reduced by the sum of the credits allowable 
under this subpart (other than this section and sec-
tions 25D and 1400C), such excess shall be carried 
to the next succeeding taxable year and added to the 
credit allowable under subsection (a) for such suc-
ceeding taxable year.’’. 
(5) Section 24(b) is amended by striking para-
graph (3). 
(6) Section 24(d)(1) is amended— 
(A) by striking ‘‘section 26(a)(2) or sub-
section (b)(3), as the case may be’’ in subpara-
graph (A) and inserting ‘‘section 26(a)’’, and 
(B) by striking ‘‘section 26(a)(2) or sub-
section (b)(3), as the case may be,’’ in subpara-
graph (B) and inserting ‘‘section 26(a)’’. 
(7) Section 25(e)(1)(C) is amended to read as 
follows: 
‘‘(C) APPLICABLE TAX LIMIT.—For pur-
poses of this paragraph, the term ‘applicable 
tax limit’ means the limitation imposed by sec-
tion 26(a) for the taxable year reduced by the 
sum of the credits allowable under this subpart 
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(other than this section and sections 23, 25D, 
and 1400C).’’. 
(8) Section 25B is amended by striking sub-
section (g). 
(9) Section 25D(c) is amended to read as fol-
lows: 
‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) for any taxable year 
exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable 
under this subpart (other than this section), such excess 
shall be carried to the next succeeding taxable year and 
added to the credit allowable under subsection (a) for such 
succeeding taxable year.’’. 
(10) Section 26 is amended— 
(A) by striking subsection (c), and 
(B) by amending subsection (a) to read as 
follows: 
‘‘(a) IN GENERAL.—The aggregate amount of credits 
allowable by this subpart for the taxable year shall not 
exceed the taxpayer’s regular tax liability for the taxable 
year.’’. 
(11) Sections 30B(g)(2) and 30C(d)(2) are 
each amended to read as follows: 
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‘‘(2) PERSONAL
CREDIT.—The credit allowed 
under subsection (a) (after the application of para-
graph (1)) shall be treated as a credit allowable 
under subpart A.’’. 
(12) Subsection (c) of section 38 is amended by 
inserting at the end the following new paragraph: 
‘‘(6) TENTATIVE MINIMUM TAX.—For purposes 
of this part, the term ‘tentative minimum tax’ has 
the meaning given to such term by section 55.’’. 
(13) Section 53 is amended— 
(A) by striking ‘‘adjusted net minimum 
tax’’ in subsection (b)(1) and inserting ‘‘tax im-
posed by section 55’’, 
(B) by striking subsection (d), and 
(C) by inserting at the end of subsection 
(b) the following flush sentence: 
‘‘For purposes of paragraph (1), the tax imposed by sec-
tion 55 for taxable years beginning before January 1, 
2008, shall be the adjusted net minimum tax (as defined 
in section 53(d), as in effect before its repeal).’’. 
(14)(A) Subsection (b) of section 55 (relating 
to alternative minimum tax imposed) is amended to 
read as follows: 
‘‘(b) TENTATIVE MINIMUM TAX.—For purposes of 
this part— 
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‘‘(1) AMOUNT OF TENTATIVE TAX.—The ten-
tative minimum tax for the taxable year is— 
‘‘(A) 20 percent of so much of the alter-
native minimum taxable income for the taxable 
year as exceeds the exemption amount, reduced 
by 
‘‘(B) the alternative minimum tax foreign 
tax credit for the taxable year. 
‘‘(2) ALTERNATIVE
MINIMUM
TAXABLE
IN-
COME.—The term ‘alternative minimum taxable in-
come’ means the taxable income of the taxpayer for 
the taxable year— 
‘‘(A) determined with the adjustments pro-
vided in section 56, and 
‘‘(B) increased by the amount of the items 
of tax preference described in section 57. 
If a taxpayer is subject to the regular tax, such tax-
payer shall be subject to the tax imposed by this sec-
tion (and, if the regular tax is determined by ref-
erence to an amount other than taxable income, such 
amount shall be treated as the taxable income of 
such taxpayer for purposes of the preceding sen-
tence).’’. 
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(B) Subsection (c) of section 55 is amended by 
striking all that follows paragraph (1) and inserting 
the following: 
‘‘(2) CROSS REFERENCE.—For provision pro-
viding that portions of the general business credit 
are not allowable against the tax imposed by this 
section, see section 38(c).’’. 
(C) Subsection (d) of section 55 is amended to 
read as follows: 
‘‘(d) EXEMPTION AMOUNT.—For purposes of this 
section, the term ‘exemption amount’ means $40,000 re-
duced (but not below zero) by an amount equal to 25 per-
cent of the amount by which the alternative minimum tax-
able income of the taxpayer exceeds $150,000.’’. 
(15)(A) Paragraph (6) of section 56(a) is 
amended to read as follows: 
‘‘(6) ADJUSTED BASIS.—The adjusted basis of 
any property to which paragraph (1) or (5) applies 
(or with respect to which there are any expenditures 
to which paragraph (2) applies) shall be determined 
on the basis of the treatment prescribed in para-
graph (1), (2), or (5), whichever applies.’’. 
(B) Section 56 is amended by striking sub-
section (b). 
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market value at the time of the distribution. For 
purposes of this paragraph, the term ‘appreciated 
property’ means any property with respect to which 
gain would be determined if sold as described in the 
preceding sentence. 
‘‘(5) APPLICATION OF SECTION 751.—In apply-
ing section 751(a), an investment services partner-
ship interest shall be treated as an inventory item. 
‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER-
EST.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘investment serv-
ices partnership interest’ means any interest in a 
partnership which is held by any person if such per-
son provides (directly or indirectly) a substantial 
quantity of any of the following services with respect 
to the assets of the partnership in the conduct of the 
trade or business of providing such services: 
‘‘(A) Advising as to the advisability of in-
vesting in, purchasing, or selling any specified 
asset. 
‘‘(B) Managing, acquiring, or disposing of 
any specified asset. 
‘‘(C) Arranging financing with respect to 
acquiring specified assets. 
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‘‘(D) Any activity in support of any service 
described in subparagraphs (A) through (C). 
For purposes of this paragraph, the term ‘specified 
asset’ means securities (as defined in section 
475(c)(2) without regard to the last sentence there-
of), real estate, commodities (as defined in section 
475(e)(2))), or options or derivative contracts with 
respect to securities (as so defined), real estate, or 
commodities (as so defined). 
‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER-
ESTS.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) a portion of an investment serv-
ices partnership interest is acquired on ac-
count of a contribution of invested capital, 
and 
‘‘(ii) the partnership makes a reason-
able allocation of partnership items be-
tween the portion of the distributive share 
that is with respect to invested capital and 
the portion of such distributive share that 
is not with respect to invested capital, 
then subsection (a) shall not apply to the por-
tion of the distributive share that is with re-
spect to invested capital. An allocation will not 
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be treated as reasonable for purposes of this 
subparagraph if such allocation would result in 
the partnership allocating a greater portion of 
income to invested capital than any other part-
ner not providing services would have been allo-
cated with respect to the same amount of in-
vested capital. 
‘‘(B) SPECIAL RULE FOR DISPOSITIONS.— 
In any case to which subparagraph (A) applies, 
subsection (b) shall not apply to any gain or 
loss allocable to invested capital. The portion of 
any gain or loss attributable to invested capital 
is the proportion of such gain or loss which is 
based on the distributive share of gain or loss 
that would have been allocable to invested cap-
ital under subparagraph (A) if the partnership 
sold all of its assets immediately before the dis-
position. 
‘‘(C) INVESTED
CAPITAL.—For purposes 
of this paragraph, the term ‘invested capital’ 
means, the fair market value at the time of con-
tribution of any money or other property con-
tributed to the partnership. 
‘‘(D) TREATMENT OF CERTAIN LOANS.— 
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‘‘(i) 
PROCEEDS
OF
PARTNERSHIP 
LOANS NOT TREATED AS INVESTED CAP-
ITAL OF SERVICE PROVIDING PARTNERS.— 
For purposes of this paragraph, an invest-
ment services partnership interest shall not 
be treated as acquired on account of a con-
tribution of invested capital to the extent 
that such capital is attributable to the pro-
ceeds of any loan or other advance made or 
guaranteed, directly or indirectly, by any 
partner or the partnership. 
‘‘(ii) LOANS FROM NONSERVICE PRO-
VIDING PARTNERS TO THE PARTNERSHIP 
TREATED
AS
INVESTED
CAPITAL.—For 
purposes of this paragraph, any loan or 
other advance to the partnership made or 
guaranteed, directly or indirectly, by a 
partner not providing services to the part-
nership shall be treated as invested capital 
of such partner and amounts of income 
and loss treated as allocable to invested 
capital shall be adjusted accordingly. 
‘‘(d) OTHER INCOME
AND GAIN
IN CONNECTION 
WITH INVESTMENT MANAGEMENT SERVICES.— 
‘‘(1) IN GENERAL.—If— 
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‘‘(A) a person performs (directly or indi-
rectly) investment management services for any 
entity, 
‘‘(B) such person holds a disqualified in-
terest with respect to such entity, and 
‘‘(C) the value of such interest (or pay-
ments thereunder) is substantially related to 
the amount of income or gain (whether or not 
realized) from the assets with respect to which 
the investment management services are per-
formed, 
any income or gain with respect to such interest 
shall be treated as ordinary income for the perform-
ance of services. Rules similar to the rules of sub-
section (c)(2) shall apply where such interest was ac-
quired on account of invested capital in such entity. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) DISQUALIFIED INTEREST.—The term 
‘disqualified interest’ means, with respect to 
any entity— 
‘‘(i) any interest in such entity other 
than indebtedness, 
‘‘(ii) convertible or contingent debt of 
such entity, 
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‘‘(iii) any option or other right to ac-
quire property described in clause (i) or 
(ii), and 
‘‘(iv) any derivative instrument en-
tered into (directly or indirectly) with such 
entity or any investor in such entity. 
Such term shall not include a partnership inter-
est and shall not include stock in a taxable cor-
poration. 
‘‘(B) TAXABLE CORPORATION.—The term 
‘taxable corporation’ means— 
‘‘(i) a domestic C corporation, or 
‘‘(ii) a foreign corporation subject to a 
comprehensive foreign income tax (as de-
fined in section 457A(d)(4)). 
‘‘(C) INVESTMENT
MANAGEMENT
SERV-
ICES.—The term ‘investment management serv-
ices’ means a substantial quantity of any of the 
services described in subsection (c)(1) which are 
provided in the conduct of the trade or business 
of providing such services. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations as are necessary or appropriate to carry 
out the purposes of this section, including regulations to— 
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