(C) by striking the period at the end of the 
first sentence and inserting ‘‘; or’’; and 
(D) by inserting after subparagraph (A)(ii) 
(as so redesignated) the following: 
‘‘(B) the issue meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A).’’
(3) 
STATEMENT
OF
GROUNDS.—Section 
6330(b)(1) is amended by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under 
subsection (a)(3)(B) and states the grounds for the 
requested hearing’’. 
(c) TREATMENT
OF FRIVOLOUS REQUESTS
FOR 
HEARINGS UPON FILING OF NOTICE OF LIEN.—Section 
6320 is amended—
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under 
subsection (a)(3)(B) and states the grounds for the 
requested hearing’’, and 
(2) in subsection (c), by striking ‘‘and (e)’’ and 
inserting ‘‘(e), and (g)’’. 
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR 
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end 
the following new subsection:
‘‘(e) 
FRIVOLOUS
SUBMISSIONS, 
ETC.—Notwith-
standing any other provision of this section, if the Sec-
retary determines that any portion of an application for 
an offer-in-compromise or installment agreement sub-
mitted under this section or section 6159 meets the re-
quirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were 
never submitted and such portion shall not be subject to 
any further administrative or judicial review.’’
(e) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter B of chapter 68 is amended by 
striking the item relating to section 6702 and inserting 
the following new item:
‘‘Sec. 6702. Frivolous tax submissions.’’
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to submissions made and issues 
raised after the date on which the Secretary first pre-
scribes a list under section 6702(c) of the Internal Rev-
enue Code of 1986, as amended by subsection (a). 
SEC. 214. REGULATION OF INDIVIDUALS PRACTICING BE-
FORE THE DEPARTMENT OF TREASURY. 
(a) CENSURE; IMPOSITION OF PENALTY.—
(1) IN GENERAL.—Section 330(b) of title 31, 
United States Code, is amended—
(A) by inserting ‘‘, or censure,’’ after ‘‘De-
partment’’, and
(B) by adding at the end the following new 
flush sentence: 
‘‘The Secretary may impose a monetary penalty on any 
representative described in the preceding sentence. If the 
representative was acting on behalf of an employer or any 
firm or other entity in connection with the conduct giving 
rise to such penalty, the Secretary may impose a monetary 
penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such pen-
alty shall not exceed the gross income derived (or to be 
derived) from the conduct giving rise to the penalty and 
may be in addition to, or in lieu of, any suspension, disbar-
ment, or censure.’’
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to actions taken after 
the date of the enactment of this Act. 
(b) TAX SHELTER OPINIONS, ETC.—Section 330 of 
such title 31 is amended by adding at the end the fol-
lowing new subsection: 
‘‘(d) Nothing in this section or in any other provision 
of law shall be construed to limit the authority of the Sec-
retary of the Treasury to impose standards applicable to 
the rendering of written advice with respect to any entity, 
transaction plan or arrangement, or other plan or arrange-
ment, which is of a type which the Secretary determines 
as having a potential for tax avoidance or evasion.’’
SEC. 215. PENALTY ON PROMOTERS OF TAX SHELTERS. 
(a) PENALTY ON PROMOTING ABUSIVE TAX SHEL-
TERS.—Section 6700(a) is amended by adding at the end 
the following new sentence: ‘‘Notwithstanding the first 
sentence, if an activity with respect to which a penalty 
imposed under this subsection involves a statement de-
scribed in paragraph (2)(A), the amount of the penalty 
shall be equal to 50 percent of the gross income derived 
(or to be derived) from such activity by the person on 
which the penalty is imposed.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to activities after the date of the 
enactment of this Act. 
SEC. 216. STATUTE OF LIMITATIONS FOR TAXABLE YEARS 
FOR WHICH LISTED TRANSACTIONS NOT RE-
PORTED. 
(a) IN GENERAL.—Section 6501(e)(1) (relating to 
substantial omission of items for income taxes) is amended 
by adding at the end the following new subparagraph: 
‘‘(C) LISTED
TRANSACTIONS.—If a tax-
payer fails to include on any return or state-
ment for any taxable year any information with 
respect to a listed transaction (as defined in
section 6707A(c)(2)) which is required under 
section 6011 to be included with such return or 
statement, the tax for such taxable year may be 
assessed, or a proceeding in court for collection 
of such tax may be begun without assessment, 
at any time within 6 years after the time the 
return is filed. This subparagraph shall not 
apply to any taxable year if the time for assess-
ment or beginning the proceeding in court has 
expired before the time a transaction is treated 
as a listed transaction under section 6011.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to transactions after the date of 
the enactment of this Act in taxable years ending after 
such date. 
SEC. 217. DENIAL OF DEDUCTION FOR INTEREST ON UN-
DERPAYMENTS ATTRIBUTABLE TO NONDIS-
CLOSED REPORTABLE AND NONECONOMIC 
SUBSTANCE TRANSACTIONS. 
(a) IN GENERAL.—Section 163 (relating to deduction 
for interest) is amended by redesignating subsection (m) 
as subsection (n) and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE 
TO NONDISCLOSED REPORTABLE TRANSACTIONS
AND
NONECONOMIC SUBSTANCE TRANSACTIONS.—No deduc-
tion shall be allowed under this chapter for any interest 
paid or accrued under section 6601 on any underpayment 
of tax which is attributable to—
‘‘(1) the portion of any reportable transaction 
understatement (as defined in section 6662A(b)) 
with respect to which the requirement of section 
6664(d)(2)(A) is not met, or 
‘‘(2) any noneconomic substance transaction 
understatement (as defined in section 6662B(c)).’’
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after the date of 
the enactment of this Act in taxable years ending after 
such date. 
Subtitle B—Other Provisions 
SEC. 221. LIMITATION ON TRANSFER OR IMPORTATION OF 
BUILT-IN LOSSES. 
(a) IN GENERAL.—Section 362 (relating to basis to 
corporations) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) LIMITATIONS ON BUILT-IN LOSSES.—
‘‘(1) LIMITATION ON IMPORTATION OF BUILT-
IN LOSSES.—
‘‘(A) IN GENERAL.—If in any transaction 
described in subsection (a) or (b) there would
(but for this subsection) be an importation of a 
net built-in loss, the basis of each property de-
scribed in subparagraph (B) which is acquired 
in such transaction shall (notwithstanding sub-
sections (a) and (b)) be its fair market value 
immediately after such transaction. 
‘‘(B) PROPERTY
DESCRIBED.—For pur-
poses of subparagraph (A), property is de-
scribed in this paragraph if—
‘‘(i) gain or loss with respect to such 
property is not subject to tax under this 
subtitle in the hands of the transferor im-
mediately before the transfer, and 
‘‘(ii) gain or loss with respect to such 
property is subject to such tax in the 
hands of the transferee immediately after 
such transfer. 
In any case in which the transferor is a part-
nership, the preceding sentence shall be applied 
by treating each partner in such partnership as 
holding such partner’s proportionate share of 
the property of such partnership. 
‘‘(C) IMPORTATION
OF
NET
BUILT-IN 
LOSS.—For purposes of subparagraph (A), 
there is an importation of a net built-in loss in
a transaction if the transferee’s aggregate ad-
justed bases of property described in subpara-
graph (B) which is transferred in such trans-
action would (but for this paragraph) exceed 
the fair market value of such property imme-
diately after such transaction. 
‘‘(2) LIMITATION ON TRANSFER OF BUILT-IN 
LOSSES IN SECTION 351 TRANSACTIONS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) property is transferred in any 
transaction which is described in sub-
section (a) and which is not described in 
paragraph (1) of this subsection, and 
‘‘(ii) the transferee’s aggregate ad-
justed bases of the property so transferred 
would (but for this paragraph) exceed the 
fair market value of such property imme-
diately after such transaction, 
then, notwithstanding subsection (a), the trans-
feree’s aggregate adjusted bases of the property 
so transferred shall not exceed the fair market 
value of such property immediately after such 
transaction. 
‘‘(B) ALLOCATION
OF
BASIS
REDUC-
TION.—The aggregate reduction in basis by
reason of subparagraph (A) shall be allocated 
among the property so transferred in proportion 
to their respective built-in losses immediately 
before the transaction. 
‘‘(C) EXCEPTION FOR TRANSFERS WITHIN 
AFFILIATED
GROUP.—Subparagraph (A) shall 
not apply to any transaction if the transferor 
owns stock in the transferee meeting the re-
quirements of section 1504(a)(2). In the case of 
property to which subparagraph (A) does not 
apply by reason of the preceding sentence, the 
transferor’s basis in the stock received for such 
property shall not exceed its fair market value 
immediately after the transfer.’’ 
(b) COMPARABLE TREATMENT WHERE LIQUIDA-
TION.—Paragraph (1) of section 334(b) (relating to liq-
uidation of subsidiary) is amended to read as follows: 
‘‘(1) IN GENERAL.—If property is received by a 
corporate distributee in a distribution in a complete 
liquidation to which section 332 applies (or in a 
transfer described in section 337(b)(1)), the basis of 
such property in the hands of such distributee shall 
be the same as it would be in the hands of the trans-
feror; except that the basis of such property in the 
hands of such distributee shall be the fair market
value of the property at the time of the distribu-
tion—
‘‘(A) in any case in which gain or loss is 
recognized by the liquidating corporation with 
respect to such property, or 
‘‘(B) in any case in which the liquidating 
corporation is a foreign corporation, the cor-
porate distributee is a domestic corporation, 
and the corporate distributee’s aggregate ad-
justed bases of property described in section 
362(e)(1)(B) which is distributed in such liq-
uidation would (but for this subparagraph) ex-
ceed the fair market value of such property im-
mediately after such liquidation.’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after the date of 
the enactment of this Act. 
SEC. 222. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS 
TRANSFERS. 
(a) TREATMENT OF CONTRIBUTED PROPERTY WITH 
BUILT-IN LOSS.—Paragraph (1) of section 704(c) 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:
‘‘(C) if any property so contributed has a 
built-in loss—
‘‘(i) such built-in loss shall be taken 
into account only in determining the 
amount of items allocated to the contrib-
uting partner, and 
‘‘(ii) except as provided in regulations, 
in determining the amount of items allo-
cated to other partners, the basis of the 
contributed property in the hands of the 
partnership shall be treated as being equal 
to its fair market value immediately after 
the contribution. 
For purposes of subparagraph (C), the term ‘built-
in loss’ means the excess of the adjusted basis of the 
property (determined without regard to subpara-
graph (C)(ii)) over its fair market value immediately 
after the contribution.’’
(b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROP-
ERTY
ON TRANSFER
OF PARTNERSHIP INTEREST
IF 
THERE IS SUBSTANTIAL BUILT-IN LOSS.—
(1) ADJUSTMENT
REQUIRED.—Subsection (a) 
of section 743 (relating to optional adjustment to 
basis of partnership property) is amended by insert-
ing before the period ‘‘or unless the partnership has
a substantial built-in loss immediately after such 
transfer’’. 
(2) ADJUSTMENT.—Subsection (b) of section 
743 is amended by inserting ‘‘or with respect to 
which there is a substantial built-in loss immediately 
after such transfer’’ after ‘‘section 754 is in effect’’. 
(3) SUBSTANTIAL BUILT-IN LOSS.—Section 743 
is amended by adding at the end the following new 
subsection: 
‘‘(d) SUBSTANTIAL BUILT-IN LOSS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, a partnership has a substantial built-in loss 
with respect to a transfer of an interest in a part-
nership if the transferee partner’s proportionate 
share of the adjusted basis of the partnership prop-
erty exceeds by more than $250,000 the basis of 
such partner’s interest in the partnership. 
‘‘(2) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to 
carry out the purposes of paragraph (1) and section 
734(d), including regulations aggregating related 
partnerships and disregarding property acquired by 
the partnership in an attempt to avoid such pur-
poses.’’
(4) CLERICAL AMENDMENTS.—
(A) The section heading for section 743 is 
amended to read as follows: 
‘‘SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROP-
ERTY WHERE SECTION 754 ELECTION OR 
SUBSTANTIAL BUILT-IN LOSS.’’
(B) The table of sections for subpart C of 
part II of subchapter K of chapter 1 is amend-
ed by striking the item relating to section 743 
and inserting the following new item:
‘‘Sec. 743. Adjustment to basis of partnership property where sec-
tion 754 election or substantial built-in loss.’’
(c) ADJUSTMENT
TO BASIS
OF UNDISTRIBUTED 
PARTNERSHIP PROPERTY
IF THERE IS SUBSTANTIAL 
BASIS REDUCTION.—
(1) ADJUSTMENT
REQUIRED.—Subsection (a) 
of section 734 (relating to optional adjustment to 
basis of undistributed partnership property) is 
amended by inserting before the period ‘‘or unless 
there is a substantial basis reduction’’. 
(2) ADJUSTMENT.—Subsection (b) of section 
734 is amended by inserting ‘‘or unless there is a 
substantial basis reduction’’ after ‘‘section 754 is in 
effect’’. 
(3) SUBSTANTIAL BASIS REDUCTION.—Section 
734 is amended by adding at the end the following 
new subsection:
‘‘(d) SUBSTANTIAL BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, there is a substantial basis reduction with re-
spect to a distribution if the sum of the amounts de-
scribed in subparagraphs (A) and (B) of subsection 
(b)(2) exceeds $250,000. 
‘‘(2) REGULATIONS.—
‘‘For regulations to carry out this subsection, see 
section 743(d)(2).’’
(4) CLERICAL AMENDMENTS.—
(A) The section heading for section 734 is 
amended to read as follows: 
‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED 
PARTNERSHIP PROPERTY WHERE SECTION 
754 ELECTION OR SUBSTANTIAL BASIS RE-
DUCTION.’’
(B) The table of sections for subpart B of 
part II of subchapter K of chapter 1 is amend-
ed by striking the item relating to section 734 
and inserting the following new item:
‘‘Sec. 734. Adjustment to basis of undistributed partnership prop-
erty where section 754 election or substantial basis 
reduction.’’
(d) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made 
by subsection (a) shall apply to contributions made 
after the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to transfers after the 
date of the enactment of this Act. 
(3) SUBSECTION (c).—The amendments made 
by subsection (c) shall apply to distributions after 
the date of the enactment of this Act. 
SEC. 223. NO REDUCTION OF BASIS UNDER SECTION 734 IN 
STOCK HELD BY PARTNERSHIP IN COR-
PORATE PARTNER. 
(a) IN GENERAL.—Section 755 is amended by adding 
at the end the following new subsection: 
‘‘(c) NO ALLOCATION
OF BASIS DECREASE
TO 
STOCK OF CORPORATE PARTNER.—In making an alloca-
tion under subsection (a) of any decrease in the adjusted 
basis of partnership property under section 734(b)—
‘‘(1) no allocation may be made to stock in a 
corporation which is a partner in the partnership, 
and 
‘‘(2) any amount not allocable to stock by rea-
son of paragraph (1) shall be allocated under sub-
section (a) to other partnership property. 
Gain shall be recognized to the partnership to the extent 
that the amount required to be allocated under paragraph 
(2) to other partnership property exceeds the aggregate
adjusted basis of such other property immediately before 
the allocation required by paragraph (2).’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions after the date of 
the enactment of this Act. 
SEC. 224. REPEAL OF SPECIAL RULES FOR FASITS. 
(a) IN GENERAL.—Part V of subchapter M of chap-
ter 1 (relating to financial asset securitization investment 
trusts) is hereby repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 56(g) is amended 
by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 
REMIC’’. 
(2) Clause (ii) of section 382(l)(4)(B) is amend-
ed by striking ‘‘a REMIC to which part IV of sub-
chapter M applies, or a FASIT to which part V of 
subchapter M applies,’’ and inserting ‘‘or a REMIC 
to which part IV of subchapter M applies,’’. 
(3) Paragraph (1) of section 582(c) is amended 
by striking ‘‘, and any regular interest in a 
FASIT,’’. 
(4) Subparagraph (E) of section 856(c)(5) is 
amended by striking the last sentence. 
(5) Paragraph (5) of section 860G(a) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (B),
by striking ‘‘, and’’ at the end of subparagraph (C) 
and inserting a period, and by striking subparagraph 
(D). 
(6) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’. 
(7) Subparagraph (C) of section 7701(a)(19) is 
amended by adding ‘‘and’’ at the end of clause (ix), 
by striking ‘‘, and’’ at the end of clause (x) and in-
serting a period, and by striking clause (xi). 
(8) The table of parts for subchapter M of 
chapter 1 is amended by striking the item relating 
to part V. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after Decem-
ber 31, 2003. 
(2) EXCEPTION FOR EXISTING FASITS.—
(A) IN GENERAL.—Paragraph (1) shall not 
apply to any FASIT in existence on the date of 
the enactment of this Act. 
(B) TRANSFER
OF
ADDITIONAL
ASSETS 
NOT PERMITTED.—Except as provided in regu-
lations prescribed by the Secretary of the
Treasury or the Secretary’s delegate, subpara-
graph (A) shall cease to apply as of the earliest 
date after the date of the enactment of this Act 
that any property is transferred to the FASIT. 
SEC. 225. EXPANDED DISALLOWANCE OF DEDUCTION FOR 
INTEREST ON CONVERTIBLE DEBT. 
(a) IN GENERAL.—Paragraph (2) of section 163(l) 
is amended by striking ‘‘or a related party’’ and inserting 
‘‘or equity held by the issuer (or any related party) in any 
other person’’. 
(b) CONFORMING AMENDMENT.—Paragraph (3) of 
section 163(l) is amended by striking ‘‘or a related party’’ 
in the material preceding subparagraph (A) and inserting 
‘‘or any other person’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to debt instruments issued after 
the date of the enactment of this Act. 
SEC. 226. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269. 
(a) IN GENERAL.—Subsection (a) of section 269 (re-
lating to acquisitions made to evade or avoid income tax) 
is amended to read as follows: 
‘‘(a) IN GENERAL.—If—
‘‘(1)(A) any person acquires stock in a corpora-
tion, or
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis 
of such property, in the hands of the acquiring cor-
poration, is determined by reference to the basis in 
the hands of the transferor corporation, and 
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal 
income tax by securing the benefit of a deduction, 
credit, or other allowance, 
then the Secretary may disallow such deduction, credit, 
or other allowance.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to stock and property acquired 
after December 31, 2003. 
SEC. 227. MODIFICATIONS OF CERTAIN RULES RELATING 
TO CONTROLLED FOREIGN CORPORATIONS. 
(a) LIMITATION ON EXCEPTION FROM PFIC RULES 
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED 
FOREIGN
CORPORATIONS.—Paragraph (2) of section 
1297(e) (relating to passive investment company) is 
amended by adding at the end the following flush sen-
tence: 
‘‘Such term shall not include any period if there is 
only a remote likelihood of an inclusion in gross in-
come under section 951(a)(1)(A)(i) of subpart F in-
come of such corporation for such period.’’
(b) DETERMINATION OF PRO RATA SHARE OF SUB-
PART F INCOME.—Subsection (a) of section 951 (relating 
to amounts included in gross income of United States 
shareholders) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) SPECIAL RULES FOR DETERMINING PRO 
RATA SHARE OF SUBPART F INCOME.—The pro rata 
share under paragraph (2) shall be determined by 
disregarding—
‘‘(A) any rights lacking substantial eco-
nomic effect, and 
‘‘(B) stock owned by a shareholder who is 
a tax-indifferent party (as defined in section 
7701(m)(3)) if the amount which would (but 
for this paragraph) be allocated to such share-
holder does not reflect such shareholder’s eco-
nomic share of the earnings and profits of the 
corporation.’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years on controlled for-
eign corporation beginning after December 31, 2003, and 
to taxable years of United States shareholder in which or
with which such taxable years of controlled foreign cor-
porations end. 
SEC. 228. BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVI-
DENDS. 
(a) IN GENERAL.—Section 1059 (relating to cor-
porate shareholder’s basis in stock reduced by nontaxed 
portion of extraordinary dividends) is amended by redesig-
nating subsection (g) as subsection (h) and by inserting 
after subsection (f) the following new subsection: 
‘‘(g) BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVIDENDS.—The 
basis of stock in a corporation (for purposes of deter-
mining loss) shall be reduced by the nontaxed portion of 
any dividend received with respect to such stock if this 
section does not otherwise apply to such dividend.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to dividends received after the date 
of the enactment of this Act. 
SEC. 229. AFFIRMATION OF CONSOLIDATED RETURN REGU-
LATION AUTHORITY. 
(a) IN GENERAL.—Section 1502 (relating to consoli-
dated return regulations) is amended by adding at the end 
the following new sentence: ‘‘In prescribing such regula-
tions, the Secretary may prescribe rules applicable to cor-
porations filing consolidated returns under section 1501 
that are different from other provisions of this title that 
would apply if such corporations filed separate returns.’’
(b) RESULT NOT OVERTURNED.—Notwithstanding 
subsection (a), the Internal Revenue Code of 1986 shall 
be construed by treating Treasury regulation § 1.1502–
20(c)(1)(iii) (as in effect on January 1, 2001) as being 
inapplicable to the type of factual situation in 255 F.3d 
1357 (Fed. Cir. 2001). 
(c) EFFECTIVE DATE.—The provisions of this section 
shall apply to taxable years beginning before, on, or after 
the date of the enactment of this Act. 
TITLE III—OTHER REVENUE 
OFFSETS 
SEC. 301. MODIFICATION OF INDIVIDUAL INCOME TAX 
BRACKETS AND RATES. 
(a) IN GENERAL.—So much of section 1 as precedes 
subsection (f) is amended to read as follows: 
‘‘SECTION 1. TAX IMPOSED. 
‘‘(a) MARRIED INDIVIDUALS FILING JOINT RETURNS 
AND SURVIVING SPOUSES.—There is hereby imposed on 
the taxable income of—
‘‘(1) every married individual (as defined in sec-
tion 7703) who makes a single return jointly with 
his spouse under section 6013, and
‘‘(2) every surviving spouse (as defined in sec-
tion 2(a)), a tax determined in accordance with the 
following table:
If taxable income is: 
The tax is: 
Not over $12,000 ..........................
10% of taxable income 
Over 
$12,000 
but 
not 
over 
$47,450.
$1,200, plus 15% of the excess over 
$12,000
Over 
$47,450 
but 
not 
over 
$114,650.
$6,517.50, plus 25% of the excess 
over $47,450
Over 
$114,650 
but 
not 
over 
$122,080.
$23,317.50, plus 28% of the excess 
over $114,650
Over 
$122,080 
but 
not 
over 
$311,950.
$25,397.90, plus 36% of the excess 
over $122,080
Over $311,950 ...............................
$93,751.10, plus 39.6% of the excess 
over $311,950
‘‘(b) HEADS OF HOUSEHOLDS.—There is hereby im-
posed on the taxable income of every head of a household 
(as defined in section 2(b)) a tax determined in accordance 
with the following table:
If taxable income is: 
The tax is: 
Not over $10,00 ............................
10% of taxable income 
Over 
$10,000 
but 
not 
over 
$38,050.
$1,000, plus 15% of the excess over 
$10,000
Over 
$38,050 
but 
not 
over 
$98,250.
$5,207.50, plus 25% of the excess 
over $38,050
Over 
$98,250 
but 
not 
over 
$111,370.
$20,257.50, plus 28% of the excess 
over $98,250
Over 
$111,370 
but 
not 
over 
$311,950.
$23,931.10, plus 36% of the excess 
over $111,370
Over $311,950 ...............................
$96,139.90, plus 39.6% of the excess 
over $311,950 
‘‘(c) UNMARRIED
INDIVIDUALS
FILING
(OTHER 
THAN SURVIVING SPOUSES
AND HEADS
OF HOUSE-
HOLDS).—There is hereby imposed on the taxable income 
of every individual (other than a surviving spouse as de-
fined in section 2(a) or the head of a household as defined 
in section 2(b)) who is not a married individual (as defined
If taxable income is: 
The tax is: 
Not over $1,900 ............................
15% of taxable income 
Over $1,900 but not over $4,500 ..
$285, plus 25% of the excess over 
$4,500
Over $4,500 but not over $6,850 ..
$935, plus 28% of the excess over 
$6,850
Over $6,850 but not over $9,350 ..
$1,593, plus 36% of the excess over 
$6,850
Over $9,350 ...................................
$2,493, plus 39.6% of the excess over 
$9,350.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 1(f)(3)(B) is amended—
(A) by striking ‘‘For purposes’’ and insert-
ing ‘‘In the case of calendar years beginning 
after 2003, for purposes’’, 
(B) in subparagraph (B) by striking 
‘‘1992’’ and inserting ‘‘2002’’, and 
(C) by adding at the end the following 
flush sentence: ‘‘In the case of a reference to 
the preceding provisions of this paragraph by 
any other provision of law, subparagraph (B) 
shall be applied by substituting ‘1992’ for 
‘2002’.’’. 
(2) Section 1(f) is amended by striking para-
graph (7). 
(3) Section 1(i)(1)(C)(iii) is amended by strik-
ing ‘‘1992’’ and inserting ‘‘2002’’. 
(4) Section 1(i) is amended by striking para-
graph (2).
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 302. REPEAL OF REMOVAL OF LIMITATIONS ON 
ITEMIZED 
DEDUCTIONS 
AND 
EXEMPTION 
AMOUNT. 
(a) ITEMIZED DEDUCTIONS.—Section 68 of the In-
ternal Revenue Code of 1986 (relating to overall limitation 
on itemized deductions) is amended by striking sub-
sections (f) and (g). 
(b) EXEMPTION AMOUNT.—Paragraph (3) of section 
151(d) (relating to phaseout) is amended by striking sub-
paragraphs (E) and (F). 
SEC. 303. INDIVIDUAL CAPITAL GAINS AND DIVIDENDS 
TREATED AS ORDINARY INCOME. 
(a) IN GENERAL.—Section 1 of the Internal Revenue 
Code of 1986 (relating to tax imposed) is amended by 
striking subsection (h). 
(b) ALTERNATIVE MINIMUM TAX.—Section 55(b) 
(relating to tentative minimum tax) is amended by strik-
ing paragraph (3). 
(c) CONFORMING AMENDMENTS.—
(1) Section 57(a)(7) is amended by striking 
‘‘(determined with the application of the last sen-
tence of section 1(h)(2)(B))’’.
(2) Section 453A(c)(3) is amended by striking 
‘‘section 1(h) or 1201 (whichever is appropriate)’’ 
and inserting ‘‘section 1201’’. 
(3) Section 641(c)(2)(A) is amended by striking 
‘‘Except as provided in section 1(h), the’’ and insert-
ing ‘‘The’’. 
(4) Section 904(b)(2)(C) is amended by striking 
‘‘1(h) or’’. 
(5) Section 904(b)(3)(D) is amended by strik-
ing ‘‘if—’’ and all that follows and inserting ‘‘if, in 
the case of a corporation, any rate of tax imposed 
by section 11, 511, or 831(a) or (b) (whichever ap-
plies) exceeds the alternative rate of tax under sec-
tion 1201(a) (determined without regard to the last 
sentence of section 11(b)(1)).’’. 
(6) Section 904(b)(3)(E)(iii) is amended by 
striking ‘‘means—’’ and all that follows and insert-
ing ‘‘means, in the case of a corporation, the alter-
native rate of tax under section 1201(a).’’. 
(7) Section 1260(a) is amended by striking 
‘‘gain—’’ and all that follows and inserting ‘‘gain, 
such gain shall be treated as ordinary income to the
extent that such gain exceeds the net underlying 
long-term capital gain.’’.
(8) Section 7518 is amended by striking ‘‘1(h) 
or’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 304. RESTORATION AND MODIFICATIONS OF ESTATE 
TAX; REPEAL OF CARRYOVER BASIS. 
(a) RESTORATION.—
(1) IN GENERAL.—Subtitles A and E of title V 
of the Economic Growth and Tax Relief Reconcili-
ation Act of 2001, and the amendments made by 
such subtitles, are hereby repealed; and the Internal 
Revenue Code of 1986 shall be applied as if such 
subtitles, and amendments, had never been enacted. 
(2) SUNSET NOT TO APPLY.—
(A) Subsection (a) of section 901 of the 
Economic Growth and Tax Relief Reconciliation 
Act of 2001 is amended by striking ‘‘this Act’’ 
and all that follows and inserting ‘‘this Act 
(other than title V) shall not apply to taxable, 
plan, or limitation years beginning after Decem-
ber 31, 2010.’’. 
(B) Subsection (b) of such section 901 is 
amended by striking ‘‘, estates, gifts, and trans-
fers’’.
(3) CONFORMING
AMENDMENTS.—Subsections 
(d) and (e) of section 511 of the Economic Growth 
and Tax Relief Reconciliation Act of 2001, and the 
amendments made by such subsections, are hereby 
repealed; and the Internal Revenue Code of 1986 
shall be applied as if such subsections, and amend-
ments, had never been enacted. 
(b) MODIFICATIONS TO ESTATE TAX.—
(1) INCREASE IN EXCLUSION EQUIVALENT OF 
UNIFIED CREDIT TO $2,000,000.—Subsection (c) of 
section 2010 of the Internal Revenue Code of 1986 
(relating to applicable credit amount) is amended by 
striking all that follows ‘‘the applicable exclusion 
amount’’ and inserting ‘‘. For purposes of the pre-
ceding sentence, the applicable exclusion amount is 
$2,000,000.’’. 
(2) RESTORATION OF RATE SCHEDULE.—The 
table in section 2001(c) is amended by striking the 
last item and inserting the following:
‘‘Over $2,500,000 but not over 
$3,000,000.
$1,025,800, plus 53% of the excess 
over $2,500,000
Over $3,000,000 ............................
$1,290,800, plus 55% of the excess 
over $3,000,000’’.
(3) RESTORATION
OF
PHASEOUT
OF
GRAD-
UATED
RATES
AND
UNIFIED
CREDIT.—Paragraph 
(2) of section 2001(c) is amended to read as follows: