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subsection as if it were a lien imposed by section
6324A.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS
RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS
FROM EXPATRIATES.—Section 102 (relating to gifts, etc.
not included in gross income) is amended by adding at the
end the following new subsection:
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—
‘‘(1) IN GENERAL.—Subsection (a) shall not ex-
clude from gross income the value of any property ac-
quired by gift, bequest, devise, or inheritance from a
covered expatriate after the expatriation date. For
purposes of this subsection, any term used in this sub-
section which is also used in section 877A shall have
the same meaning as when used in section 877A.
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE
SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1)
shall not apply to any property if either—
‘‘(A) the gift, bequest, devise, or inheritance
is—
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‘‘(i) shown on a timely filed return of
tax imposed by chapter 12 as a taxable gift
by the covered expatriate, or
‘‘(ii) included in the gross estate 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, or
‘‘(B) no such return was timely filed but no
such return would have been required to be filed
even if the covered expatriate were a citizen or
long-term resident of the United States.’’.
(c) DEFINITION OF TERMINATION OF UNITED STATES
CITIZENSHIP.—Section 7701(a) is amended by adding at
the end the following new paragraph:
‘‘(48) TERMINATION OF UNITED STATES CITIZEN-
SHIP.—
‘‘(A) IN GENERAL.—An individual shall not
cease to be treated as a United States citizen be-
fore the date on which the individual’s citizen-
ship is treated as relinquished under section
877A(e)(3).
‘‘(B) DUAL
CITIZENS.—Under regulations
prescribed by the Secretary, subparagraph (A)
shall not apply to an individual who became at
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birth a citizen of the United States and a citizen
of another country.’’.
(d) INELIGIBILITY
FOR
VISA
OR
ADMISSION
TO
UNITED STATES.—
(1) IN GENERAL.—Section 212(a)(10)(E) of the
Immigration 
and 
Nationality 
Act 
(8 
U.S.C.
1182(a)(10)(E)) is amended to read as follows:
‘‘(E) FORMER
CITIZENS
NOT
IN
COMPLI-
ANCE
WITH
EXPATRIATION
REVENUE
PROVI-
SIONS.—Any alien who is a former citizen of the
United States who relinquishes United States
citizenship (within the meaning of section
877A(e)(3) of the Internal Revenue Code of 1986)
and who is not in compliance with section 877A
of such Code (relating to expatriation).’’.
(2) AVAILABILITY OF INFORMATION.—
(A) IN GENERAL.—Section 6103(l) (relating
to disclosure of returns and return information
for purposes other than tax administration) is
amended by adding at the end the following new
paragraph:
‘‘(19) DISCLOSURE TO DENY VISA OR ADMISSION
TO CERTAIN EXPATRIATES.—Upon written request of
the Attorney General or the Attorney General’s dele-
gate, the Secretary shall disclose whether an indi-
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vidual is in compliance with section 877A (and if not
in compliance, any items of noncompliance) to offi-
cers and employees of the Federal agency responsible
for administering section 212(a)(10)(E) of the Immi-
gration and Nationality Act solely for the purpose of,
and to the extent necessary in, administering such
section 212(a)(10)(E).’’.
(B) SAFEGUARDS.—
(i) TECHNICAL
AMENDMENTS.—Para-
graph (4) of section 6103(p) of the Internal
Revenue Code of 1986, as amended by sec-
tion 202(b)(2)(B) of the Trade Act of 2002
(Public Law 107–210; 116 Stat. 961), is
amended by striking ‘‘or (17)’’ after ‘‘any
other person described in subsection (l)(16)’’
each place it appears and inserting ‘‘or
(18)’’.
(ii) CONFORMING AMENDMENTS.—Sec-
tion 6103(p)(4) (relating to safeguards), as
amended by clause (i), is amended by strik-
ing ‘‘or (18)’’ after ‘‘any other person de-
scribed in subsection (l)(16)’’ each place it
appears and inserting ‘‘(18), or (19)’’.
(3) EFFECTIVE DATES.—
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(A) IN GENERAL.—Except as provided in
subparagraph (B), the amendments made by this
subsection shall apply to individuals who relin-
quish United States citizenship on or after the
date of the enactment of this Act.
(B) 
TECHNICAL
AMENDMENTS.—The
amendments made by paragraph (2)(B)(i) shall
take effect as if included in the amendments
made by section 202(b)(2)(B) of the Trade Act of
2002 (Public Law 107–210; 116 Stat. 961).
(e) CONFORMING AMENDMENTS.—
(1) Section 877 is amended by adding at the end
the following new subsection:
‘‘(g) APPLICATION.—This section shall not apply to an
expatriate (as defined in section 877A(e)) whose expatria-
tion date (as so defined) occurs on or after January 1,
2004.’’.
(2) Section 2107 is amended by adding at the
end the following new subsection:
‘‘(f) APPLICATION.—This section shall not apply to
any expatriate subject to section 877A.’’.
(3) Section 2501(a)(3) is amended by adding at
the end the following new subparagraph:
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‘‘(F) APPLICATION.—This paragraph shall
not apply to any expatriate subject to section
877A.’’.
(4)(A) Paragraph (1) of section 6039G(d) is
amended by inserting ‘‘or 877A’’ after ‘‘section 877’’.
(B) The second sentence of section 6039G(e) is
amended by inserting ‘‘or who relinquishes United
States citizenship (within the meaning of section
877A(e)(3))’’ after ‘‘877(a))’’.
(C) Section 6039G(f) is amended by inserting
‘‘or 877A(e)(2)(B)’’ after ‘‘877(e)(1)’’.
(f) CLERICAL AMENDMENT.—The table of sections for
subpart A of part II of subchapter N of chapter 1 is amend-
ed by inserting after the item relating to section 877 the
following new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section shall
apply to expatriates (within the meaning of section
877A(e) of the Internal Revenue Code of 1986, as
added by this section) whose expatriation date (as so
defined) occurs on or after January 1, 2004.
(2) GIFTS AND BEQUESTS.—Section 102(d) of
the Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to gifts and bequests received
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on or after January 1, 2004, from an individual or
the estate of an individual whose expatriation date
(as so defined) occurs after such date.
(3) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(2) of the Internal Revenue
Code of 1986, as added by this section, shall in no
event occur before the 90th day after the date of the
enactment of this Act.
SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSID-
ERS IN INVERTED CORPORATIONS.
(a) IN GENERAL.—Subtitle D is amended by adding
at the end the following new chapter:
‘‘CHAPTER 48—STOCK COMPENSATION OF
INSIDERS IN INVERTED CORPORATIONS
‘‘Sec. 5000A. Stock compensation of insiders in inverted corpora-
tions entities.
‘‘SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN IN-
VERTED CORPORATIONS.
‘‘(a) IMPOSITION OF TAX.—In the case of an indi-
vidual who is a disqualified individual with respect to any
inverted corporation, there is hereby imposed on such per-
son a tax equal to 20 percent of the value (determined under
subsection (b)) of the specified stock compensation held (di-
rectly or indirectly) by or for the benefit of such individual
or a member of such individual’s family (as defined in sec-
tion 267) at any time during the 12-month period begin-
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ning on the date which is 6 months before the inversion
date.
‘‘(b) VALUE.—For purposes of subsection (a)—
‘‘(1) IN GENERAL.—The value of specified stock
compensation shall be—
‘‘(A) in the case of a stock option (or other
similar right) or any stock appreciation right,
the fair value of such option or right, and
‘‘(B) in any other case, the fair market
value of such compensation.
‘‘(2) DATE FOR DETERMINING VALUE.—The de-
termination of value shall be made—
‘‘(A) in the case of specified stock compensa-
tion held on the inversion date, on such date,
‘‘(B) in the case of such compensation which
is canceled during the 6 months before the inver-
sion date, on the day before such cancellation,
and
‘‘(C) in the case of such compensation which
is granted after the inversion date, on the date
such compensation is granted.
‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN
RECOGNIZED.—Subsection (a) shall apply to any disquali-
fied individual with respect to an inverted corporation only
if gain (if any) on any stock in such corporation is recog-
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nized in whole or part by any shareholder by reason of the
acquisition referred to in section 7874(a)(2)(A) (determined
by substituting ‘July 10, 2002’ for ‘March 20, 2002’) with
respect to such corporation.
‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED ON COM-
PENSATION.—Subsection (a) shall not apply to—
‘‘(1) any stock option which is exercised on the
inversion date or during the 6-month period before
such date and to the stock acquired in such exercise,
if income is recognized under section 83 on or before
the inversion date with respect to the stock acquired
pursuant to such exercise, and
‘‘(2) any specified stock compensation which is
exercised, sold, exchanged, distributed, cashed out, or
otherwise paid during such period in a transaction in
which gain or loss is recognized in full.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) DISQUALIFIED INDIVIDUAL.—The term ‘dis-
qualified individual’ means, with respect to a cor-
poration, any individual who, at any time during the
12-month period beginning on the date which is 6
months before the inversion date—
‘‘(A) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934
with respect to such corporation, or
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‘‘(B) would be subject to such requirements
if such corporation were an issuer of equity secu-
rities referred to in such section.
‘‘(2) 
INVERTED
CORPORATION; 
INVERSION
DATE.—
‘‘(A) INVERTED
CORPORATION.—The term
‘inverted corporation’ means any corporation to
which subsection (a) or (b) of section 7874 ap-
plies determined—
‘‘(i) by substituting ‘July 10, 2002’ for
‘March 20, 2002’ in section 7874(a)(2)(A),
and
‘‘(ii) without regard to subsection
(b)(1)(A).
Such term includes any predecessor or successor
of such a corporation.
‘‘(B) INVERSION
DATE.—The term ‘inver-
sion date’ means, with respect to a corporation,
the date on which the corporation first becomes
an inverted corporation.
‘‘(3) SPECIFIED STOCK COMPENSATION.—
‘‘(A) IN
GENERAL.—The term ‘specified
stock compensation’ means payment (or right to
payment) granted by the inverted corporation
(or by any member of the expanded affiliated
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group which includes such corporation) to any
person in connection with the performance of
services by a disqualified individual for such cor-
poration or member if the value of such payment
or right is based on (or determined by reference
to) the value (or change in value) of stock in
such corporation (or any such member).
‘‘(B) EXCEPTIONS.—Such term shall not
include—
‘‘(i) any option to which part II of
subchapter D of chapter 1 applies, or
‘‘(ii) any payment or right to payment
from 
a 
plan 
referred 
to 
in 
section
280G(b)(6).
‘‘(4) EXPANDED AFFILIATED GROUP.—The term
‘expanded affiliated group’ means an affiliated group
(as defined in section 1504(a) without regard to sec-
tion 1504(b)(3)); except that section 1504(a) shall be
applied by substituting ‘more than 50 percent’ for ‘at
least 80 percent’ each place it appears.
‘‘(f) SPECIAL RULES.—For purposes of this section—
‘‘(1) CANCELLATION OF RESTRICTION.—The can-
cellation of a restriction which by its terms will never
lapse shall be treated as a grant.
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‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY
CORPORATION TREATED AS SPECIFIED STOCK COM-
PENSATION.—Any payment of the tax imposed by this
section directly or indirectly by the inverted corpora-
tion or by any member of the expanded affiliated
group which includes such corporation—
‘‘(A) shall be treated as specified stock com-
pensation, and
‘‘(B) shall not be allowed as a deduction
under any provision of chapter 1.
‘‘(3) CERTAIN RESTRICTIONS IGNORED.—Wheth-
er there is specified stock compensation, and the value
thereof, shall be determined without regard to any re-
striction other than a restriction which by its terms
will never lapse.
‘‘(4) PROPERTY
TRANSFERS.—Any transfer of
property shall be treated as a payment and any right
to a transfer of property shall be treated as a right
to a payment.
‘‘(5) OTHER ADMINISTRATIVE PROVISIONS.—For
purposes of subtitle F, any tax imposed by this sec-
tion shall be treated as a tax imposed by subtitle A.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
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(b) DENIAL OF DEDUCTION.—
(1) IN
GENERAL.—Paragraph (6) of section
275(a) is amended by inserting ‘‘48,’’ after ‘‘46,’’.
(2) $1,000,000 LIMIT
ON
DEDUCTIBLE
COM-
PENSATION REDUCED BY PAYMENT OF EXCISE TAX ON
SPECIFIED STOCK COMPENSATION.—Paragraph (4) of
section 162(m) is amended by adding at the end the
following new subparagraph:
‘‘(G) COORDINATION WITH EXCISE TAX ON
SPECIFIED
STOCK
COMPENSATION.—The dollar
limitation contained in paragraph (1) with re-
spect to any covered employee shall be reduced
(but not below zero) by the amount of any pay-
ment (with respect to such employee) of the tax
imposed by section 5000A directly or indirectly
by the inverted corporation (as defined in such
section) or by any member of the expanded affili-
ated group (as defined in such section) which in-
cludes such corporation.’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 3121(v)(2)(A) is
amended by inserting before the period ‘‘or to any
specified stock compensation (as defined in section
5000A) on which tax is imposed by section 5000A’’.
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(2) The table of chapters for subtitle D is amend-
ed by adding at the end the following new item:
‘‘Chapter 48. Stock compensation of insiders in inverted corpora-
tions.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on July 11, 2002; except that periods
before such date shall not be taken into account in applying
the periods in subsections (a) and (e)(1) of section 5000A
of the Internal Revenue Code of 1986, as added by this sec-
tion.
SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOR-
EIGN JURISDICTIONS.
(a) IN GENERAL.—Section 845(a) (relating to alloca-
tion in case of reinsurance agreement involving tax avoid-
ance or evasion) is amended by striking ‘‘source and char-
acter’’ and inserting ‘‘amount, source, or character’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to any risk reinsured after April 11,
2002.
SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISI-
TIONS.
(a) IN GENERAL.—Subpart B of part III of subchapter
A of chapter 61 is amended by inserting after section 6043
the following new section:
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‘‘SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.
‘‘(a) IN GENERAL.—The acquiring corporation in any
taxable acquisition shall make a return (according to the
forms or regulations prescribed by the Secretary) setting
forth—
‘‘(1) a description of the acquisition,
‘‘(2) the name and address of each shareholder of
the acquired corporation who is required to recognize
gain (if any) as a result of the acquisition,
‘‘(3) the amount of money and the fair market
value of other property transferred to each such share-
holder as part of such acquisition, and
‘‘(4) such other information as the Secretary
may prescribe.
To the extent provided by the Secretary, the requirements
of this section applicable to the acquiring corporation shall
be applicable to the acquired corporation and not to the
acquiring corporation.
‘‘(b) NOMINEE REPORTING.—Any person who holds
stock as a nominee for another person shall furnish in the
manner prescribed by the Secretary to such other person
the information provided by the corporation under sub-
section (d).
‘‘(c) TAXABLE ACQUISITION.—For purposes of this sec-
tion, the term ‘taxable acquisition’ means any acquisition
by a corporation of stock in or property of another corpora-
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tion if any shareholder of the acquired corporation is re-
quired to recognize gain (if any) as a result of such acquisi-
tion.
‘‘(d) STATEMENTS TO BE FURNISHED TO SHARE-
HOLDERS.—Every person required to make a return under
subsection (a) shall furnish to each shareholder whose name
is required to be set forth in such return a written statement
showing—
‘‘(1) the name, address, and phone number of the
information contact of the person required to make
such return,
‘‘(2) the information required to be shown on
such return with respect to such shareholder, and
‘‘(3) such other information as the Secretary
may prescribe.
The written statement required under the preceding sen-
tence shall be furnished to the shareholder on or before Jan-
uary 31 of the year following the calendar year during
which the taxable acquisition occurred.’’.
(b) ASSESSABLE PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1) (de-
fining information return) is amended by redesig-
nating clauses (ii) through (xviii) as clauses (iii)
through (xix), respectively, and by inserting after
clause (i) the following new clause:
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‘‘(ii) section 6043A(a) (relating to re-
turns relating to taxable mergers and acqui-
sitions),’’.
(2) Paragraph (2) of section 6724(d) (relating to
definitions) is amended by redesignating subpara-
graphs (F) through (BB) as subparagraphs (G)
through (CC), respectively, and by inserting after sub-
paragraph (E) the following new subparagraph:
‘‘(F) subsections (b) and (d) of section
6043A (relating to returns relating to taxable
mergers and acquisitions).’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subpart B of part III of subchapter A of chapter 61 is
amended by inserting after the item relating to section 6043
the following new item:
‘‘Sec. 6043A. Returns relating to taxable mergers and acquisi-
tions.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to acquisitions after the date of the en-
actment of this Act.
Subtitle E—International Tax
SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PUR-
POSES OF DETERMINING INVESTMENT OF
EARNINGS IN UNITED STATES PROPERTY.
(a) IN
GENERAL.—Subparagraph (A) of section
956(c)(2) is amended to read as follows:
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‘‘(A) obligations of the United States,
money, or deposits with persons described in
paragraph (4);’’.
(b) ELIGIBLE PERSONS.—Section 956(c) (relating to
exceptions to definition of United States property) is
amended by adding at the end the following new paragraph:
‘‘(4) FINANCIAL SERVICES PROVIDERS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2)(A), a person is described in this para-
graph if at least 80 percent of the person’s in-
come 
is 
income 
described 
in 
section
904(d)(2)(C)(ii) (and the regulations thereunder)
which is derived from persons who are not re-
lated persons.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all related persons shall be treated
as 1 person in applying the 80-percent test,
and
‘‘(ii) there shall be disregarded any
item of income or gain from a transaction
or series of transactions a principal purpose
of which is the qualification of a person as
a person described in this paragraph.
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‘‘(C) RELATED PERSON.—For purposes of
this paragraph, the term ‘related person’ has the
meaning given such term by section 954(d)(3).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN
THROUGH 
COMPLETE 
LIQUIDATION 
OF
HOLDING COMPANY.
(a) IN GENERAL.—Section 332 is amended by adding
at the end the following new subsection:
‘‘(d) RECOGNITION OF GAIN ON LIQUIDATION OF CER-
TAIN HOLDING COMPANIES.—
‘‘(1) IN GENERAL.—In the case of any distribu-
tion to a foreign corporation in complete liquidation
of an applicable holding company—
‘‘(A) subsection (a) and section 331 shall
not apply to such distribution, and
‘‘(B) such distribution shall be treated as a
distribution to which section 301 applies.
‘‘(2) APPLICABLE HOLDING COMPANY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘applicable
holding 
company’ 
means 
any 
domestic
corporation—
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‘‘(i) which is a common parent of an
affiliated group,
‘‘(ii) stock of which is directly owned
by the distributee foreign corporation,
‘‘(iii) substantially all of the assets of
which consist of stock in other members of
such affiliated group, and
‘‘(iv) which has not been in existence
at all times during the 5 years immediately
preceding the date of the liquidation.
‘‘(B) AFFILIATED GROUP.—For purposes of
this subsection, the term ‘affiliated group’ has the
meaning given such term by section 1504(a)
(without regard to paragraphs (2) and (4) 0f
section 1504(b)).
‘‘(3) COORDINATION WITH SUBPART F.—If the
distributee of a distribution described in paragraph
(1) is a controlled foreign corporation (as defined in
section 957), then notwithstanding paragraph (1) or
subsection (a), such distribution shall be treated as a
distribution to which section 331 applies.
‘‘(4) REGULATIONS.—The Secretary shall pro-
vide such regulations as appropriate to prevent the
abuse of this subsection, including regulations which
provide, for the purposes of clause (iv) of paragraph
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(2)(A), that a corporation is not in existence for any
period unless it is engaged in the active conduct of a
trade or business or owns a significant ownership in-
terest in another corporation so engaged.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to distributions in complete liquidation
occurring on or after the date of the enactment of this Act.
SEC. 453. PREVENTION OF MISMATCHING OF INTEREST
AND ORIGINAL ISSUE DISCOUNT DEDUC-
TIONS AND INCOME INCLUSIONS IN TRANS-
ACTIONS WITH RELATED FOREIGN PERSONS.
(a) ORIGINAL ISSUE DISCOUNT.—Section 163(e)(3)
(relating to special rule for original issue discount on obli-
gation held by related foreign person) is amended by redes-
ignating subparagraph (B) as subparagraph (C) and by in-
serting after subparagraph (A) the following new subpara-
graph:
‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN
ENTITIES.—
‘‘(i) IN GENERAL.—In the case of any
debt instrument having original issue dis-
count which is held by a related foreign per-
son which is a foreign personal holding
company (as defined in section 552), a con-
trolled foreign corporation (as defined in
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section 957), or a passive foreign investment
company (as defined in section 1297), a de-
duction shall be allowable to the issuer with
respect to such original issue discount for
any taxable year before the taxable year in
which paid only to the extent such original
issue discount (reduced by properly allow-
able deductions and qualified deficits under
section 952(c)(1)(B)) is includible during
such prior taxable year in the gross income
of a United States person who owns (within
the meaning of section 958(a)) stock in such
corporation.
‘‘(ii) SECRETARIAL
AUTHORITY.—The
Secretary may by regulation exempt trans-
actions from the application of clause (i),
including any transaction which is entered
into by a payor in the ordinary course of
a trade or business in which the payor is
predominantly engaged.’’.
(b) INTEREST AND OTHER DEDUCTIBLE AMOUNTS.—
Section 267(a)(3) is amended—
(1) by striking ‘‘The Secretary’’ and inserting:
‘‘(A) IN GENERAL.—The Secretary’’, and
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(2) by adding at the end the following new sub-
paragraph:
‘‘(B) SPECIAL RULE FOR CERTAIN FOREIGN
ENTITIES.—
‘‘(i) IN
GENERAL.—Notwithstanding
subparagraph (A), in the case of any item
payable to a foreign personal holding com-
pany (as defined in section 552), a con-
trolled foreign corporation (as defined in
section 957), or a passive foreign investment
company (as defined in section 1297), a de-
duction shall be allowable to the payor with
respect to such amount for any taxable year
before the taxable year in which paid only
to the extent that an amount attributable to
such item (reduced by properly allowable
deductions and qualified deficits under sec-
tion 952(c)(1)(B)) is includible during such
prior taxable year in the gross income of a
United States person who owns (within the
meaning of section 958(a)) stock in such
corporation.
‘‘(ii) SECRETARIAL
AUTHORITY.—The
Secretary may by regulation exempt trans-
actions from the application of clause (i),
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including any transaction which is entered
into by a payor in the ordinary course of
a trade or business in which the payor is
predominantly engaged and in which the
payment of the accrued amounts occurs
within 81⁄2 months after accrual or within
such other period as the Secretary may pre-
scribe.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments accrued on or after the date
of the enactment of this Act.
SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE
CERTAIN FOREIGN SOURCE INCOME.
(a) IN GENERAL.—Section 864(c)(4)(B) (relating to
treatment of income from sources without the United States
as effectively connected income) is amended by adding at
the end the following new flush sentence:
‘‘Any income or gain which is equivalent to any
item of income or gain described in clause (i),
(ii), or (iii) shall be treated in the same manner
as such item for purposes of this subparagraph.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON
SALE OF CONTROLLED FOREIGN CORPORA-
TION.
(a) IN GENERAL.—Section 904(f)(3) (relating to dis-
positions) is amending by adding at the end the following
new subparagraph:
‘‘(D) APPLICATION
TO
CERTAIN
DISPOSI-
TIONS OF STOCK IN CONTROLLED FOREIGN COR-
PORATION.—
‘‘(i) IN
GENERAL.—This paragraph
shall apply to an applicable disposition in
the same manner as if it were a disposition
of property described in subparagraph (A),
except that the exception contained in sub-
paragraph (C)(i) shall not apply.
‘‘(ii) APPLICABLE
DISPOSITION.—For
purposes of clause (i), the term ‘applicable
disposition’ means any disposition of any
share of stock in a controlled foreign cor-
poration in a transaction or series of trans-
actions if, immediately before such trans-
action or series of transactions, the tax-
payer owned more than 50 percent (by vote
or value) of the stock of the controlled for-
eign corporation.
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‘‘(iii) EXCEPTION.—A disposition shall
not be treated as an applicable disposition
under clause (ii) if it is part of a trans-
action or series of transactions—
‘‘(I) to which section 351 or 721
applies, or under which the transferor
receives stock in a foreign corporation
in exchange for the stock in the con-
trolled foreign corporation and the
stock received is exchanged basis prop-
erty 
(as 
defined 
in 
section
7701(a)(44)), and
‘‘(II) immediately after which, the
transferor owns (by vote or value) at
least the same percentage of stock in
the controlled foreign corporation (or,
if the controlled foreign corporation is
not in existence after such transaction
or series of transactions, in another
foreign corporation stock in which was
received by the transferor in exchange
for stock in the controlled foreign cor-
poration) as the percentage of stock in
the 
controlled 
foreign 
corporation
which the taxpayer owned immediately
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before such transaction or series of
transactions.
Clause (i) shall apply to any gain recog-
nized on any disposition to which this
clause applies.
‘‘(iv) CONTROLLED FOREIGN CORPORA-
TION.—For purposes of this subparagraph,
the term ‘controlled foreign corporation’ has
the meaning given such term by section 957.
‘‘(v) STOCK
OWNERSHIP.—For pur-
poses of this subparagraph, ownership of
stock shall be determined under the rules of
subsections (a) and (b) of section 958.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to dispositions after the date of the en-
actment of this Act.
SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX
CREDIT ON WITHHOLDING TAXES ON INCOME
OTHER THAN DIVIDENDS.
(a) IN GENERAL.—Section 901 is amended by redesig-
nating subsection (l) as subsection (m) and by inserting
after subsection (k) the following new subsection:
‘‘(l) MINIMUM HOLDING PERIOD FOR WITHHOLDING
TAXES ON GAIN AND INCOME OTHER THAN DIVIDENDS
ETC.—
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‘‘(1) IN GENERAL.—In no event shall a credit be
allowed under subsection (a) for any withholding tax
(as defined in subsection (k)) on any item of income
or gain with respect to any property if—
‘‘(A) such property is held by the recipient
of the item for 15 days or less during the 30-day
period beginning on the date which is 15 days
before the date on which the right to receive pay-
ment of such item arises, or
‘‘(B) to the extent that the recipient of the
item is under an obligation (whether pursuant to
a short sale or otherwise) to make related pay-
ments with respect to positions in substantially
similar or related property.
This paragraph shall not apply to any dividend to
which subsection (k) applies.
‘‘(2) EXCEPTION
FOR
TAXES
PAID
BY
DEAL-
ERS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any qualified tax with respect to
any property held in the active conduct in a for-
eign country of a business as a dealer in such
property.
‘‘(B) QUALIFIED TAX.—For purposes of sub-
paragraph (A), the term ‘qualified tax’ means a
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tax paid to a foreign country (other than the for-
eign country referred to in subparagraph (A))
if—
‘‘(i) the item to which such tax is at-
tributable is subject to taxation on a net
basis by the country referred to in subpara-
graph (A), and
‘‘(ii) such country allows a credit
against its net basis tax for the full amount
of the tax paid to such other foreign coun-
try.
‘‘(C) DEALER.—For purposes of subpara-
graph (A), the term ‘dealer’ means—
‘‘(i) with respect to a security, any
person to whom paragraphs (1) and (2) of
subsection (k) would not apply by reason of
paragraph (4) thereof if such security were
stock, and
‘‘(ii) with respect to any other prop-
erty, any person with respect to whom such
property is described in section 1221(a)(1).
‘‘(D) REGULATIONS.—The Secretary may
prescribe such regulations as may be appropriate
to carry out this paragraph, including regula-
tions to prevent the abuse of the exception pro-
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vided by this paragraph and to treat other taxes
as qualified taxes.
‘‘(3) EXCEPTIONS.—The Secretary may by regu-
lation provide that paragraph (1) shall not apply to
property where the Secretary determines that the ap-
plication of paragraph (1) to such property is not
necessary to carry out the purposes of this subsection.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (5), (6), and (7) of sub-
section (k) shall apply for purposes of this subsection.
‘‘(5) DETERMINATION
OF
HOLDING
PERIOD.—
Holding periods shall be determined for purposes of
this subsection without regard to section 1235 or any
similar rule.’’.
(b) CONFORMING AMENDMENT.—The heading of sub-
section (k) of section 901 is amended by inserting ‘‘ON DIVI-
DENDS’’ after ‘‘TAXES’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or accrued more than
30 days after the date of the enactment of this Act.
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Subtitle F—Other Revenue
Provisions
PART I—FINANCIAL INSTRUMENTS
SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND
AND PREFERRED STOCK FUNDS, ETC.
(a) IN GENERAL.—Section 1286 (relating to tax treat-
ment of stripped bonds) is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) TREATMENT OF STRIPPED INTERESTS IN BOND
AND PREFERRED STOCK FUNDS, ETC.—In the case of an
account or entity substantially all of the assets of which
consist of bonds, preferred stock, or a combination thereof,
the Secretary may by regulations provide that rules similar
to the rules of this section and 305(e), as appropriate, shall
apply to interests in such account or entity to which (but
for this subsection) this section or section 305(e), as the case
may be, would not apply.’’.
(b) CROSS REFERENCE.—Subsection (e) of section 305
is amended by adding at the end the following new para-
graph:
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‘‘(7) CROSS REFERENCE.—
‘‘For treatment of stripped interests in certain ac-
counts or entities holding preferred stock, see section
1286(f).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to purchases and dispositions after the
date of the enactment of this Act.
SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO
PARTNERS WHICH ARE C CORPORATIONS.
(a) IN GENERAL.—Section 163(j) (relating to limita-
tion on deduction for interest on certain indebtedness) is
amended by redesignating paragraph (8) as paragraph (9)
and by inserting after paragraph (7) the following new
paragraph:
‘‘(8) ALLOCATIONS
TO
CERTAIN
CORPORATE
PARTNERS.—If a C corporation is a partner in a
partnership—
‘‘(A) the corporation’s allocable share of in-
debtedness and interest income of the partnership
shall be taken into account in applying this sub-
section to the corporation, and
‘‘(B) if a deduction is not disallowed under
this subsection with respect to any interest ex-
pense of the partnership, this subsection shall be
applied separately in determining whether a de-
duction is allowable to the corporation with re-
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spect to the corporation’s allocable share of such
interest expense.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTED-
NESS INCOME REALIZED ON SATISFACTION
OF DEBT WITH PARTNERSHIP INTEREST.
(a) IN GENERAL.—Paragraph (8) of section 108(e) (re-
lating to general rules for discharge of indebtedness (includ-
ing discharges not in title 11 cases or insolvency)) is
amended to read as follows:
‘‘(8) INDEBTEDNESS SATISFIED BY CORPORATE
STOCK OR PARTNERSHIP INTEREST.—For purposes of
determining income of a debtor from discharge of in-
debtedness, if—
‘‘(A) a debtor corporation transfers stock, or
‘‘(B) a debtor partnership transfers a cap-
ital or profits interest in such partnership,
to a creditor in satisfaction of its recourse or non-
recourse indebtedness, such corporation or partnership
shall be treated as having satisfied the indebtedness
with an amount of money equal to the fair market
value of the stock or interest. In the case of any part-
nership, any discharge of indebtedness income recog-
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nized under this paragraph shall be included in the
distributive shares of taxpayers which were the part-
ners in the partnership immediately before such dis-
charge.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply with respect to cancellations of indebted-
ness occurring on or after the date of the enactment of this
Act.
SEC. 464. MODIFICATION OF STRADDLE RULES.
(a) RULES RELATING TO IDENTIFIED STRADDLES.—
(1) IN GENERAL.—Subparagraph (A) of section
1092(a)(2) (relating to special rule for identified
straddles) is amended to read as follows:
‘‘(A) IN
GENERAL.—In the case of any
straddle which is an identified straddle—
‘‘(i) paragraph (1) shall not apply
with respect to identified positions com-
prising the identified straddle,
‘‘(ii) if there is any loss with respect to
any identified position of the identified
straddle, the basis of each of the identified
offsetting positions in the identified straddle
shall be increased by an amount which
bears the same ratio to the loss as the unrec-
ognized gain with respect to such offsetting
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position bears to the aggregate unrecognized
gain with respect to all such offsetting posi-
tions, and
‘‘(iii) any loss described in clause (ii)
shall not otherwise be taken into account for
purposes of this title.’’.
(2) 
IDENTIFIED
STRADDLE.—Section
1092(a)(2)(B) 
(defining 
identified 
straddle) 
is
amended—
(A) by striking clause (ii) and inserting the
following:
‘‘(ii) to the extent provided by regula-
tions, the value of each position of which (in
the hands of the taxpayer immediately be-
fore the creation of the straddle) is not less
than the basis of such position in the hands
of the taxpayer at the time the straddle is
created, and’’, and
(B) by adding at the end the following new
flush sentence:
‘‘The Secretary shall prescribe regulations which
specify the proper methods for clearly identifying
a straddle as an identified straddle (and the po-
sitions comprising such straddle), which specify
the rules for the application of this section for a
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taxpayer which fails to properly identify the po-
sitions of an identified straddle, and which
specify the ordering rules in cases where a tax-
payer disposes of less than an entire position
which is part of an identified straddle.’’.
(3) UNRECOGNIZED
GAIN.—Section 1092(a)(3)
(defining unrecognized gain) is amended by redesig-
nating subparagraph (B) as subparagraph (C) and
by inserting after subparagraph (A) the following new
subparagraph:
‘‘(B) 
SPECIAL
RULE
FOR
IDENTIFIED
STRADDLES.—For 
purposes 
of 
paragraph
(2)(A)(ii), the unrecognized gain with respect to
any identified offsetting position shall be the ex-
cess of the fair market value of the position at
the time of the determination over the fair mar-
ket value of the position at the time the taxpayer
identified the position as a position in an identi-
fied straddle.’’.
(4) 
CONFORMING
AMENDMENT.—Section
1092(c)(2) is amended by striking subparagraph (B)
and by redesignating subparagraph (C) as subpara-
graph (B).
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(b) 
PHYSICALLY
SETTLED
POSITIONS.—Section
1092(d) (relating to definitions and special rules) is amend-
ed by adding at the end the following new paragraph:
‘‘(8) SPECIAL RULES FOR PHYSICALLY SETTLED
POSITIONS.—For purposes of subsection (a), if a tax-
payer settles a position which is part of a straddle by
delivering property to which the position relates (and
such position, if terminated, would result in a real-
ization of a loss), then such taxpayer shall be treated
as if such taxpayer—
‘‘(A) terminated the position for its fair
market value immediately before the settlement,
and
‘‘(B) sold the property so delivered by the
taxpayer at its fair market value.’’.
(c) REPEAL OF STOCK EXCEPTION.—
(1) IN
GENERAL.—Paragraph (3) of section
1092(d) (relating to definitions and special rules) is
amended to read as follows:
‘‘(3) SPECIAL RULES FOR STOCK.—For purposes
of paragraph (1)—
‘‘(A) IN
GENERAL.—The term ‘personal
property’ includes—
‘‘(i) any stock which is a part of a
straddle at least 1 of the offsetting positions
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of which is a position with respect to such
stock or substantially similar or related
property, or
‘‘(ii) any stock of a corporation formed
or availed of to take positions in personal
property which offset positions taken by any
shareholder.
‘‘(B) RULE
FOR
APPLICATION.—For pur-
poses of determining whether subsection (e) ap-
plies to any transaction with respect to stock de-
scribed in subparagraph (A)(ii), all includible
corporations of an affiliated group (within the
meaning of section 1504(a)) shall be treated as
1 taxpayer.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1258(d)(1) is amended by striking ‘‘; except that the
term ‘personal property’ shall include stock’’.
(d) MODIFICATIONS OF QUALIFIED COVERED CALL
EXCEPTION.—
(1) MARKETS ON WHICH OPTIONS MAY BE TRAD-
ED.—
(A) IN GENERAL.—Section 1092(c)(4)(B)(i)
is amended by striking ‘‘or other market which
the Secretary determines has rules adequate to
carry out the purposes of this paragraph’’.
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(B) REGULATIONS.—Section 1092(c)(4)(H)
is amended by adding at the end the following
new sentence: ‘‘Such regulations shall not add
any exchange or market not described in sub-
paragraph (B)(i) to the exchanges or markets on
which qualified covered call options may be trad-
ed.’’
(2) HOLDING
PERIOD
FOR
DIVIDEND
EXCLU-
SION.—The last sentence of section 246(c) is amended
by inserting: ‘‘, other than a qualified covered call op-
tion to which section 1092(f) applies’’ before the pe-
riod at the end.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to positions established on or after the
date of the enactment of this Act.
SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR
ALL READILY TRADEABLE DEBT.
(a) IN GENERAL.—Section 453(f)(4)(B) (relating to
purchaser evidences of indebtedness payable on demand or
readily tradeable) is amended by striking ‘‘is issued by a
corporation or a government or political subdivision thereof
and’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to sales occurring on or after the date
of the enactment of this Act.
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PART II—CORPORATIONS AND PARTNERSHIPS
SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS
TO CREDITORS IN DIVISIVE REORGANIZA-
TIONS.
(a) IN GENERAL.—Section 361(b)(3) (relating to treat-
ment of transfers to creditors) is amended by adding at the
end the following new sentence: ‘‘In the case of a reorganiza-
tion described in section 368(a)(1)(D) with respect to which
stock or securities of the corporation to which the assets are
transferred are distributed in a transaction which qualifies
under section 355, this paragraph shall apply only to the
extent that the sum of the money and the fair market value
of other property transferred to such creditors does not ex-
ceed the adjusted bases of such assets transferred.’’.
(b) LIABILITIES
IN
EXCESS
OF
BASIS.—Section
357(c)(1)(B) is amended by inserting ‘‘with respect to
which stock or securities of the corporation to which the as-
sets are transferred are distributed in a transaction which
qualifies under section 355’’ after ‘‘section 368(a)(1)(D)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers of money or other property,
or liabilities assumed, in connection with a reorganization
occurring on or after the date of the enactment of this Act.
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SEC. 
467. 
CLARIFICATION 
OF 
DEFINITION 
OF 
NON-
QUALIFIED PREFERRED STOCK.
(a) IN GENERAL.—Section 351(g)(3)(A) is amended
by adding at the end the following: ‘‘Stock shall not be treat-
ed as participating in corporate growth to any significant
extent unless there is a real and meaningful likelihood of
the shareholder actually participating in the earnings and
growth of the corporation.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to transactions after May 14, 2003.
SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED
GROUP OF CORPORATIONS.
(a) IN GENERAL.—Section 1563(a)(2) (relating to
brother-sister controlled group) is amended by striking
‘‘possessing—’’ and all that follows through ‘‘(B)’’ and in-
serting ‘‘possessing’’.
(b) APPLICATION
OF EXISTING RULES
TO OTHER
CODE PROVISIONS.—Section 1563(f) (relating to other defi-
nitions and rules) is amended by adding at the end the
following new paragraph:
‘‘(5) BROTHER-SISTER CONTROLLED GROUP DEF-
INITION FOR PROVISIONS OTHER THAN THIS PART.—
‘‘(A) IN GENERAL.—Except as specifically
provided in an applicable provision, subsection
(a)(2) shall be applied to an applicable provision
as if it read as follows:
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‘‘‘(2) BROTHER-SISTER CONTROLLED GROUP.—
Two or more corporations if 5 or fewer persons who
are individuals, estates, or trusts own (within the
meaning of subsection (d)(2) stock possessing—
‘‘‘(A) at least 80 percent of the total com-
bined voting power of all classes of stock entitled
to vote, or at least 80 percent of the total value
of shares of all classes of stock, of each corpora-
tion, and
‘‘‘(B) more than 50 percent of the total com-
bined voting power of all classes of stock entitled
to vote or more than 50 percent of the total value
of shares of all classes of stock of each corpora-
tion, taking into account the stock ownership of
each such person only to the extent such stock
ownership is identical with respect to each such
corporation.’
‘‘(B) APPLICABLE
PROVISION.—For pur-
poses of this paragraph, an applicable provision
is any provision of law (other than this part)
which incorporates the definition of controlled
group of corporations under subsection (a).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNEC-
TION WITH PARTNERSHIP DISTRIBUTIONS
AND TRANSFERS OF PARTNERSHIP INTER-
ESTS.
(a) IN GENERAL.—Section 754 is repealed.
(b) ADJUSTMENT TO BASIS OF UNDISTRIBUTED PART-
NERSHIP PROPERTY.—Section 734 is amended—
(1) by striking ‘‘, with respect to which the elec-
tion provided in section 754 is in effect,’’ in the mat-
ter preceding paragraph (1) of subsection (b),
(2) by striking ‘‘(as adjusted by section 732(d))’’
both places it appears in subsection (b),
(3) by striking the last sentence of subsection (b),
(4) by striking subsection (a) and by redesig-
nating subsections (b) and (c) as subsections (a) and
(b), respectively, and
(5) by striking ‘‘OPTIONAL’’ in the heading.
(c) ADJUSTMENT TO BASIS OF PARTNERSHIP PROP-
ERTY.—Section 743 is amended—
(1) by striking ‘‘with respect to which the elec-
tion provided in section 754 is in effect’’ in the mat-
ter preceding paragraph (1) of subsection (b),
(2) by striking subsection (a) and by redesig-
nating subsections (b) and (c) as subsections (a) and
(b), respectively,
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(3) by adding at the end the following new sub-
section:
‘‘(c) ELECTION TO ADJUST BASIS FOR TRANSFERS
UPON DEATH
OF PARTNER.—Subsection (a) shall not
apply and no adjustments shall be made in the case of any
transfer of an interest in a partnership upon the death of
a partner unless an election to do so is made by the partner-
ship. Such an election shall apply with respect to all such
transfers of interests in the partnership. Any election under
section 754 in effect on the date of the enactment of this
subsection shall constitute an election made under this sub-
section. Such election may be revoked by the partnership,
subject to such limitations as may be provided by regula-
tions prescribed by the Secretary.’’, and
(4) by striking ‘‘OPTIONAL’’ in the heading.
(d) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 732 is repealed.
(2) Section 755(a) is amended—
(A) by striking ‘‘section 734(b) (relating to
the optional adjustment’’ and inserting ‘‘section
734(a) (relating to the adjustment’’, and
(B) by striking ‘‘section 743(b) (relating to
the optional adjustment’’ and inserting ‘‘section
743(a) (relating to the adjustment’’.
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(3) Section 755(c), as added by this Act, is
amended by striking ‘‘section 734(b)’’ and inserting
‘‘section 734(a)’’.
(4) Section 761(e)(2) is amended by striking
‘‘optional’’.
(5) Section 774(a) is amended by striking
‘‘743(b)’’ both places it appears and inserting
‘‘743(a)’’.
(6) The item relating to section 734 in the table
of sections for subpart B of part II of subchapter K
of chapter 1 is amended by striking ‘‘Optional’’.
(7) The item relating to section 743 in the table
of sections for subpart C of part II of subchapter K
of chapter 1 is amended by striking ‘‘Optional’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to transfers and distributions made after the
date of the enactment of this Act.
(2) REPEAL OF SECTION 732(d).—The amend-
ments made by subsections (b)(2) and (d)(1) shall
apply to—
(A) except as provided in subparagraph
(B), transfers made after the date of the enact-
ment of this Act, and
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(B) in the case of any transfer made on or
before such date to which section 732(d) applies,
distributions made after the date which is 2
years after such date of enactment.
PART III—DEPRECIATION AND AMORTIZATION
SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES
TO SPORTS FRANCHISES.
(a) IN GENERAL.—Section 197(e) (relating to excep-
tions to definition of section 197 intangible) is amended
by striking paragraph (6) and by redesignating paragraphs
(7) and (8) as paragraphs (6) and (7), respectively.
(b) CONFORMING AMENDMENTS.—
(1)(A) Section 1056 (relating to basis limitation
for player contracts transferred in connection with
the sale of a franchise) is repealed.
(B) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the
item relating to section 1056.
(2) Section 1245(a) (relating to gain from dis-
position of certain depreciable property) is amended
by striking paragraph (4).
(3) Section 1253 (relating to transfers of fran-
chises, trademarks, and trade names) is amended by
striking subsection (e).
(c) EFFECTIVE DATES.—
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(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to property acquired after the date of the enact-
ment of this Act.
(2) SECTION
1245.—The amendment made by
subsection (b)(2) shall apply to franchises acquired
after the date of the enactment of this Act.
SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) GAS UTILITY PROPERTY.—Section 168(e)(3)(E)
(defining 15-year property) is amended by striking ‘‘and’’
at the end of clause (ii), by striking the period at the end
of clause (iii) and inserting ‘‘, and’’, and by adding at the
end the following new clause:
‘‘(iv) initial clearing and grading land
improvements with respect to gas utility
property.’’.
(b) ELECTRIC UTILITY PROPERTY.—Section 168(e)(3)
is amended by adding at the end the following new subpara-
graph:
‘‘(F) 20-YEAR
PROPERTY.—The term ‘20-
year property’ means initial clearing and grad-
ing land improvements with respect to any elec-
tric 
utility 
transmission 
and 
distribution
plant.’’.
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(c) CONFORMING AMENDMENTS.—The table contained
in section 168(g)(3)(B) is amended—
(1) by inserting ‘‘or (E)(iv)’’ after ‘‘(E)(iii)’’,
and
(2) by adding at the end the following new item:
‘‘(F) .................................................................................................
25’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION
OF CERTAIN PASSENGER AUTOMOBILES.
(a) IN GENERAL.—Section 179(b) of the Internal Rev-
enue Code of 1986 (relating to limitations) is amended by
adding at the end the following new paragraph:
‘‘(6) LIMITATION ON COST TAKEN INTO ACCOUNT
FOR CERTAIN PASSENGER VEHICLES.—
‘‘(A) IN GENERAL.—The cost of any sport
utility vehicle for any taxable year which may
be taken into account under this section shall not
exceed $25,000.
‘‘(B) SPORT UTILITY VEHICLE.—For pur-
poses of subparagraph (A)—
‘‘(i) IN
GENERAL.—The term ‘sport
utility 
vehicle’ 
means 
any 
4-wheeled
vehicle—
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‘‘(I) which is primarily designed
or which can be used to carry pas-
sengers over public streets, roads, or
highways (except any vehicle operated
exclusively on a rail or rails),
‘‘(II) which is not subject to sec-
tion 280F, and
‘‘(III) which is rated at not more
than 14,000 pounds gross vehicle
weight.
‘‘(ii) CERTAIN VEHICLES EXCLUDED.—
Such term does not include any vehicle
which—
‘‘(I) is designed to have a seating
capacity of more than 9 persons behind
the driver’s seat,
‘‘(II) is equipped with a cargo
area of at least 6 feet in interior length
which is an open area or is designed
for use as an open area but is enclosed
by a cap and is not readily accessible
directly from the passenger compart-
ment, or
‘‘(III) has an integral enclosure,
fully enclosing the driver compartment
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and load carrying device, does not have
seating rearward of the driver’s seat,
and has no body section protruding
more than 30 inches ahead of the lead-
ing edge of the windshield.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR IN-
TANGIBLES.
(a) START-UP EXPENDITURES.—
(1) ALLOWANCE OF DEDUCTION.—Paragraph (1)
of section 195(b) (relating to start-up expenditures) is
amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer
elects the application of this subsection with respect to
any start-up expenditures—
‘‘(A) the taxpayer shall be allowed a deduc-
tion for the taxable year in which the active
trade or business begins in an amount equal to
the lesser of—
‘‘(i) the amount of start-up expendi-
tures with respect to the active trade or
business, or
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‘‘(ii) $5,000, reduced (but not below
zero) by the amount by which such start-up
expenditures exceed $50,000, and
‘‘(B) the remainder of such start-up expend-
itures shall be allowed as a deduction ratably
over the 180-month period beginning with the
month in which the active trade or business be-
gins.’’.
(2) CONFORMING
AMENDMENT.—Subsection (b)
of section 195 is amended by striking ‘‘AMORTIZE’’
and inserting ‘‘DEDUCT’’ in the heading.
(b) ORGANIZATIONAL EXPENDITURES.—Subsection (a)
of section 248 (relating to organizational expenditures) is
amended to read as follows:
‘‘(a) ELECTION TO DEDUCT.—If a corporation elects
the application of this subsection (in accordance with regu-
lations prescribed by the Secretary) with respect to any or-
ganizational expenditures—
‘‘(1) the corporation shall be allowed a deduction
for the taxable year in which the corporation begins
business in an amount equal to the lesser of—
‘‘(A) the amount of organizational expendi-
tures with respect to the taxpayer, or
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‘‘(B) $5,000, reduced (but not below zero) by
the amount by which such organizational ex-
penditures exceed $50,000, and
‘‘(2) the remainder of such organizational ex-
penditures shall be allowed as a deduction ratably
over the 180-month period beginning with the month
in which the corporation begins business.’’.
(c) TREATMENT OF ORGANIZATIONAL AND SYNDICA-
TION FEES OR PARTNERSHIPS.—
(1) IN
GENERAL.—Section 709(b) (relating to
amortization of organization fees) is amended by re-
designating paragraph (2) as paragraph (3) and by
amending paragraph (1) to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—If a taxpayer
elects the application of this subsection (in accordance
with regulations prescribed by the Secretary) with re-
spect to any organizational expenses—
‘‘(A) the taxpayer shall be allowed a deduc-
tion for the taxable year in which the partner-
ship begins business in an amount equal to the
lesser of—
‘‘(i) the amount of organizational ex-
penses with respect to the partnership, or
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‘‘(ii) $5,000, reduced (but not below
zero) by the amount by which such organi-
zational expenses exceed $50,000, and
‘‘(B) the remainder of such organizational
expenses shall be allowed as a deduction ratably
over the 180-month period beginning with the
month in which the partnership begins business.
‘‘(2) DISPOSITIONS BEFORE CLOSE OF AMORTI-
ZATION PERIOD.—In any case in which a partnership
is liquidated before the end of the period to which
paragraph (1)(B) applies, any deferred expenses at-
tributable to the partnership which were not allowed
as a deduction by reason of this section may be de-
ducted to the extent allowable under section 165.’’.
(2) CONFORMING
AMENDMENT.—Subsection (b)
of section 709 is amended by striking ‘‘AMORTIZA-
TION’’ and inserting ‘‘DEDUCTION’’ in the heading.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred after the
date of the enactment of this Act.
SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPER-
ATIONS.
(a) CLARIFICATION OF RECOVERY PERIOD FOR TAX-
EXEMPT USE PROPERTY SUBJECT TO LEASE.—Subpara-
graph (A) of section 168(g)(3) (relating to special rules for
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determining class life) is amended by inserting ‘‘(notwith-
standing any other subparagraph of this paragraph)’’ after
‘‘shall’’.
(b) LIMITATION ON DEPRECIATION PERIOD FOR SOFT-
WARE LEASED TO TAX-EXEMPT ENTITY.—Paragraph (1)
of section 167(f) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(C) TAX-EXEMPT USE PROPERTY SUBJECT
TO
LEASE.—In the case of computer software
which would be tax-exempt use property as de-
fined in subsection (h) of section 168 if such sec-
tion applied to computer software, the useful life
under subparagraph (A) shall not be less than
125 percent of the lease term (within the mean-
ing of section 168(i)(3)).’’
(c) LEASE TERM TO INCLUDE RELATED SERVICE
CONTRACTS.—Subparagraph (A) of section 168(i)(3) (relat-
ing to lease term) is amended 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) the term of a lease shall include
the term of any service contract or similar
arrangement (whether or not treated as a
lease under section 7701(e))—
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‘‘(I) which is part of the same
transaction (or series of related trans-
actions) which includes the lease, and
‘‘(II) which is with respect to the
property subject to the lease or substan-
tially similar property, and’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to leases entered into after December 31,
2003.
SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO
PROPERTY 
USED 
BY 
GOVERNMENTS 
OR
OTHER TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—Subpart C of part II of subchapter
E of chapter 1 (relating to taxable year for which deduc-
tions taken) is amended by adding at the end the following
new section:
‘‘SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE
PROPERTY.
‘‘(a) LIMITATION ON LOSSES.—Except as otherwise
provided in this section, a tax-exempt use loss for any tax-
able year shall not be allowed.
‘‘(b) DISALLOWED LOSS CARRIED TO NEXT YEAR.—
Any tax-exempt use loss with respect to any tax-exempt use
property which is disallowed under subsection (a) for any
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taxable year shall be treated as a deduction with respect
to such property in the next taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) TAX-EXEMPT USE LOSS.—The term ‘tax-ex-
empt use loss’ means, with respect to any taxable
year, the amount (if any) by which—
‘‘(A) the sum of—
‘‘(i) the aggregate deductions (other
than interest) directly allocable to a tax-ex-
empt use property, plus
‘‘(ii) the aggregate deductions for inter-
est properly allocable to such property, ex-
ceed
‘‘(B) the aggregate income from such prop-
erty.
‘‘(2) TAX-EXEMPT
USE
PROPERTY.—The term
‘tax-exempt use property’ has the meaning given to
such term by section 168(h) (without regard to para-
graph (1)(C) or (3) thereof and determined as if
property described in section 167(f)(1)(B) were tan-
gible property). Such term shall not include property
with respect to which the credit under section 42 is
allowed and which, but for this sentence, would be
tax-exempt property solely by reason of section
168(h)(6).
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‘‘(d) EXCEPTION FOR CERTAIN LEASES.—This section
shall not apply to any lease of property which meets the
requirements of all of the following paragraphs:
‘‘(1) PROPERTY
NOT
FINANCED
WITH
TAX-EX-
EMPT BONDS OR FEDERAL FUNDS.—A lease of prop-
erty meets the requirements of this paragraph if no
part of the property was financed (directly or indi-
rectly) from—
‘‘(A) the proceeds of an obligation the inter-
est on which is exempt from tax under section
103(a) and which (or any refunding bond of
which) is outstanding when the lease is entered
into, or
‘‘(B) Federal funds.
The Secretary may by regulations provide for a de
minimis exception from this paragraph.
‘‘(2) AVAILABILITY OF FUNDS.—
‘‘(A) IN
GENERAL.—A lease of property
meets the requirements of this paragraph if (at
any time during the lease term) not more than
an allowable amount of funds are—
‘‘(i) subject to any arrangement re-
ferred to in subparagraph (B), or
‘‘(ii) set aside or expected to be set
aside,
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to or for the benefit of the lessor or a lender, or
to or for the benefit of the lessee to satisfy the les-
see’s obligations or options under the lease.
Funds shall be treated as described in clause (ii)
only if a reasonable person would conclude,
based on the facts and circumstances, that such
funds are so described.
‘‘(B) ARRANGEMENTS.—The arrangements
referred to in this subparagraph are—
‘‘(i) a defeasance arrangement, a loan
by the lessee to the lessor or a lender, a de-
posit arrangement, a letter of credit
collateralized with cash or cash equivalents,
a payment undertaking agreement, a lease
prepayment, a sinking fund arrangement,
or any similar arrangement (whether or not
such arrangement provides credit support),
and
‘‘(ii) any other arrangement identified
by the Secretary in regulations.
‘‘(C) ALLOWABLE AMOUNT.—
‘‘(i) IN GENERAL.—Except as otherwise
provided in this subparagraph, the term ‘al-
lowable amount’ means an amount equal to
20 percent of the lessor’s adjusted basis in
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the property at the time the lease is entered
into.
‘‘(ii) HIGHER AMOUNT PERMITTED IN
CERTAIN CASES.—To the extent provided in
regulations, a higher percentage shall be
permitted under clause (i) where necessary
because of the credit-worthiness of the lessee.
In no event may such regulations permit a
percentage of more than 50 percent.
‘‘(iii) 
OPTION
TO
PURCHASE.—If
under the lease the lessee has the option to
purchase the property for a fixed price or
for other than the fair market value of the
property (determined at the time of exer-
cise), the allowable amount at the time such
option may be exercised may not exceed 50
percent of the price at which such option
may be exercised.
‘‘(iv) NO
ALLOWABLE
AMOUNT
FOR
CERTAIN
ARRANGEMENTS.—The allowable
amount shall be zero in the case of any ar-
rangement which involves—
‘‘(I) a loan from the lessee to the
lessor or a lender,
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‘‘(II) any deposit, letter of credit,
or payment undertaking agreement in-
volving a lender, or
‘‘(III) any credit support made
available to the lessor in which a lend-
er (if any) does not have a claim which
is senior to the lessor.
For purposes of subclause (I), the term
‘loan’ shall not include any amount treated
as a loan under section 467 with respect to
a section 467 rental agreement.
‘‘(3) LESSOR MUST MAKE SUBSTANTIAL EQUITY
INVESTMENT.—A lease of property meets the require-
ments of this paragraph if—
‘‘(A) the lessor—
‘‘(i) has at the time the lease is entered
into an unconditional at-risk equity invest-
ment (as determined by the Secretary) in
the property of at least 20 percent of the les-
sor’s adjusted basis in the property as of
that time, and
‘‘(ii) 
maintains 
such 
investment
throughout the term of the lease, and
‘‘(B) the fair market value of the property
at the end of the lease term is reasonably ex-
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pected to be equal to at least 20 percent of such
basis.
Subparagraphs (A)(ii) and (B) shall not apply if the
lease term is described in section 168(h)(1)(C)(ii), or
in the case of qualified technological equipment, is de-
scribed in section 168(h)(3). For purposes of subpara-
graph (B), the fair market value at the end of the
lease term shall be reduced to the extent that a person
other than the lessor bears a risk of loss in the value
of the property.
‘‘(4) LESSEE MAY NOT BEAR MORE THAN MINI-
MAL RISK OF LOSS.—
‘‘(A) IN
GENERAL.—A lease of property
meets the requirements of this paragraph if there
is no arrangement under which more than a
minimal risk of loss (as determined under regu-
lations) in the value of the property is borne by
the lessee.
‘‘(B) CERTAIN
ARRANGEMENTS
FAIL
RE-
QUIREMENT.—In no event will the requirements
of this paragraph be met if there is any arrange-
ment under which the lessee bears—
‘‘(i) any portion of the loss that would
occur if the fair market value of the leased
property were 25 percent less than its rea-
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sonably expected fair market value at the
time the lease is terminated, or
‘‘(ii) more than 50 percent of the loss
that would occur if the fair market value of
the leased property at the time the lease is
terminated were zero.
‘‘(5) PROPERTY WITH MORE THAN 7-YEAR CLASS
LIFE.—In the case of a lease—
‘‘(A) of property with a class life (as de-
fined in section 168(i)(1)) of more than 7 years,
and
‘‘(B) under which the lessee has the option
to purchase the property,
the lease meets the requirements of this paragraph
only if the purchase price under the option equals the
fair market value of the property (determined at the
time of exercise).
‘‘(6) REGULATORY REQUIREMENTS.—A lease of
property meets the requirements of this paragraph if
such lease of property meets such requirements as the
Secretary may prescribe by regulations.
‘‘(e) SPECIAL RULES.—
‘‘(1) TREATMENT OF FORMER TAX-EXEMPT USE
PROPERTY.—
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‘‘(A) IN
GENERAL.—In the case of any
former tax-exempt use property—
‘‘(i) any deduction allowable under
subsection (b) with respect to such property
for any taxable year shall be allowed only
to the extent of any net income (without re-
gard to such deduction) from such property
for such taxable year, and
‘‘(ii) any portion of such unused de-
duction remaining after application of
clause (i) shall be treated as allowable
under subsection (b) with respect to such
property in the next taxable year.
‘‘(B) FORMER
TAX-EXEMPT
USE
PROP-
ERTY.—For purposes of this subsection, the term
‘former tax-exempt use property’ means any
property which—
‘‘(i) is not tax-exempt use property for
the taxable year, but
‘‘(ii) was tax-exempt use property for
any prior taxable year.
‘‘(2) DISPOSITION
OF
ENTIRE
INTEREST
IN
PROPERTY.—If during the taxable year a taxpayer
disposes of the taxpayer’s entire interest in tax-ex-
empt use property (or former tax-exempt use prop-
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erty), rules similar to the rules of section 469(g) shall
apply for purposes of this section.
‘‘(3) COORDINATION
WITH
SECTION
469.—This
section shall be applied before the application of sec-
tion 469.
‘‘(f) OTHER
DEFINITIONS.—For purposes of this
section—
‘‘(1) RELATED PARTIES.—The terms ‘lessor’, ‘les-
see’, and ‘lender’ include any related party (within
the meaning of section 197(f)(9)(C)(i)).
‘‘(2) LEASE TERM.—The term ‘lease term’ has
the meaning given to such term by section 168(i)(3).
‘‘(3) LENDER.—The term ‘lender’ means, with
respect to any lease, a person that makes a loan to
the lessor which is secured (or economically similar to
being secured) by the lease or the leased property.
‘‘(4) LOAN.—The term ‘loan’ includes any simi-
lar arrangement.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regulation
which—
‘‘(1) allow in appropriate cases the aggregation
of property subject to the same lease, and
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‘‘(2) provide for the determination of the alloca-
tion of interest expense for purposes of this section.’’
(b) CONFORMING AMENDMENT.—The table of sections
for subpart C of part II of subchapter E of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 470. Limitations on losses from tax-exempt use property.’’
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to leases entered into after No-
vember 18, 2003.
(2) LEASES TO FOREIGN ENTITIES.—In the case
of tax-exempt use property leased to a tax-exempt en-
tity which is a foreign person or entity, the amend-
ments made by this section shall apply to taxable
years beginning after January 31, 2004, with respect
to leases entered into on or before November 18, 2003.
PART IV—ADMINISTRATIVE PROVISIONS
SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTI-
MATED TAX FOR CERTAIN DEEMED ASSET
SALES.
(a) IN GENERAL.—Paragraph (13) of section 338(h)
(relating to tax on deemed sale not taken into account for
estimated tax purposes) is amended by adding at the end
the following: ‘‘The preceding sentence shall not apply with
respect to a qualified stock purchase for which an election
is made under paragraph (10).’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to transactions occurring after the
date of the enactment of this Act.
SEC. 482. EXTENSION OF IRS USER FEES.
(a) IN GENERAL.—Section 7528(c) (relating to termi-
nation) is amended by striking ‘‘December 31, 2004’’ and
inserting ‘‘September 30, 2013’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to requests after the date of the enact-
ment of this Act.
SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND
INTEREST ON UNDERPAYMENTS RELATED TO
CERTAIN OFFSHORE FINANCIAL ARRANGE-
MENT.
(a) DETERMINATION OF PENALTY.—
(1) IN
GENERAL.—Notwithstanding any other
provision of law, in the case of an applicable
taxpayer—
(A) the determination as to whether any in-
terest or applicable penalty is to be imposed with
respect to any arrangement to which any initia-
tive described in paragraph (2) applied, or to
any underpayment of Federal income tax attrib-
utable to items arising in connection with any
arrangement described in paragraph (2), shall be
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made without regard to section 6664 of the Inter-
nal Revenue Code of 1986, and
(B) if any such interest or applicable pen-
alty is imposed, the amount of such interest or
penalty shall be equal to twice that determined
without regard to this section.
(2) APPLICABLE
TAXPAYER.—For purposes of
this subsection, the term ‘‘applicable taxpayer’’ means
a taxpayer eligible to participate in—
(A) the Department of the Treasury’s Off-
shore Voluntary Compliance Initiative, or
(B) the Department of the Treasury’s vol-
untary disclosure initiative which applies to the
taxpayer by reason of the taxpayer’s under-
reporting of United States income tax liability
through financial arrangements which rely on
the use of offshore arrangements which were the
subject of the initiative described in subpara-
graph (A).
(b) DEFINITIONS AND RULES.—For purposes of this
section—
(1) APPLICABLE PENALTY.—The term ‘‘applica-
ble penalty’’ means any penalty, addition to tax, or
fine imposed under chapter 68 of the Internal Rev-
enue Code of 1986.
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(2) VOLUNTARY OFFSHORE COMPLIANCE INITIA-
TIVE.—The term ‘‘Voluntary Offshore Compliance
Initiative’’ means the program established by the De-
partment of the Treasury in January of 2003 under
which any taxpayer was eligible to voluntarily dis-
close previously undisclosed income on assets placed
in offshore accounts and accessed through credit card
and other financial arrangements.
(3) PARTICIPATION.—A taxpayer shall be treated
as having participated in the Voluntary Offshore
Compliance Initiative if the taxpayer submitted the
request in a timely manner and all information re-
quested by the Secretary of the Treasury or his dele-
gate within a reasonable period of time following the
request.
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to interest, penalties, additions to tax, and fines
with respect to any taxable year if as of the date of the
enactment of this Act, the assessment of any tax, penalty,
or interest with respect to such taxable year is not prevented
by the operation of any law or rule of law.
SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL-
MENT AGREEMENTS.
(a) IN GENERAL.—
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(1) Section 6159(a) (relating to authorization of
agreements) is amended—
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, and
(B) by inserting ‘‘full or partial’’ after ‘‘fa-
cilitate’’.
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in certain
cases) is amended in the matter preceding paragraph
(1) by inserting ‘‘full’’ before ‘‘payment’’.
(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT
AGREEMENTS
EVERY
TWO
YEARS.—Section 6159, as
amended by this Act, is amended by redesignating sub-
sections (d), (e), and (f) as subsections (e), (f), and (g), re-
spectively, and inserting after subsection (c) the following
new subsection:
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO
YEARS.—In the case of an agreement entered into by the
Secretary under subsection (a) for partial collection of a
tax liability, the Secretary shall review the agreement at
least once every 2 years.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to agreements entered into on or after
the date of the enactment of this Act.
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SEC. 485. EXTENSION OF CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is
amended by striking ‘‘March 1, 2005’’ and inserting ‘‘Sep-
tember 30, 2013’’.
SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS.
(a) IN GENERAL.—Subchapter A of chapter 67 (relat-
ing to interest on underpayments) is amended by adding
at the end the following new section:
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS,
ETC.
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN
AS PAYMENT OF TAX.—A taxpayer may make a cash de-
posit with the Secretary which may be used by the Sec-
retary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed at
the time of the deposit. Such a deposit shall be made in
such manner as the Secretary shall prescribe.
‘‘(b) NO INTEREST IMPOSED.—To the extent that such
deposit is used by the Secretary to pay tax, for purposes
of section 6601 (relating to interest on underpayments), the
tax shall be treated as paid when the deposit is made.
‘‘(c) RETURN OF DEPOSIT.—Except in a case where
the Secretary determines that collection of tax is in jeop-
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ardy, the Secretary shall return to the taxpayer any
amount of the deposit (to the extent not used for a payment
of tax) which the taxpayer requests in writing.
‘‘(d) PAYMENT OF INTEREST.—
‘‘(1) IN GENERAL.—For purposes of section 6611
(relating to interest on overpayments), a deposit
which is returned to a taxpayer shall be treated as a
payment of tax for any period to the extent (and only
to the extent) attributable to a disputable tax for such
period. Under regulations prescribed by the Secretary,
rules similar to the rules of section 6611(b)(2) shall
apply.
‘‘(2) DISPUTABLE TAX.—
‘‘(A) IN
GENERAL.—For purposes of this
section, the term ‘disputable tax’ means the
amount of tax specified at the time of the deposit
as the taxpayer’s reasonable estimate of the max-
imum amount of any tax attributable to disput-
able items.
‘‘(B) SAFE HARBOR BASED ON 30-DAY LET-
TER.—In the case of a taxpayer who has been
issued a 30-day letter, the maximum amount of
tax under subparagraph (A) shall not be less
than the amount of the proposed deficiency speci-
fied in such letter.
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‘‘(3) OTHER
DEFINITIONS.—For purposes of
paragraph (2)—
‘‘(A) DISPUTABLE ITEM.—The term ‘disput-
able item’ means any item of income, gain, loss,
deduction, or credit if the taxpayer—
‘‘(i) has a reasonable basis for its
treatment of such item, and
‘‘(ii) reasonably believes that the Sec-
retary also has a reasonable basis for dis-
allowing the taxpayer’s treatment of such
item.
‘‘(B) 30-DAY
LETTER.—The term ‘30-day
letter’ means the first letter of proposed defi-
ciency which allows the taxpayer an opportunity
for administrative review in the Internal Rev-
enue Service Office of Appeals.
‘‘(4) RATE OF INTEREST.—The rate of interest
allowable under this subsection shall be the Federal
short-term rate determined under section 6621(b),
compounded daily.
‘‘(e) USE OF DEPOSITS.—
‘‘(1) PAYMENT
OF
TAX.—Except as otherwise
provided by the taxpayer, deposits shall be treated as
used for the payment of tax in the order deposited.
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‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be
treated as returned to the taxpayer on a last-in, first-
out basis.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
subchapter A of chapter 67 is amended by adding at the
end the following new item:
‘‘Sec. 6603. Deposits made to suspend running of interest on poten-
tial underpayments, etc.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to deposits made after the
date of the enactment of this Act.
(2) COORDINATION WITH DEPOSITS MADE UNDER
REVENUE
PROCEDURE
84–58.—In the case of an
amount held by the Secretary of the Treasury or his
delegate on the date of the enactment of this Act as
a deposit in the nature of a cash bond deposit pursu-
ant to Revenue Procedure 84–58, the date that the
taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue
Code (as added by this Act) shall be treated as the
date such amount is deposited for purposes of such
section 6603.
SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.
(a) CONTRACT REQUIREMENTS.—
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(1) IN GENERAL.—Subchapter A of chapter 64
(relating to collection) is amended by adding at the
end the following new section:
‘‘SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
‘‘(a) IN GENERAL.—Nothing in any provision of law
shall be construed to prevent the Secretary from entering
into a qualified tax collection contract.
‘‘(b) QUALIFIED TAX COLLECTION CONTRACT.—For
purposes of this section, the term ‘qualified tax collection
contract’ means any contract which—
‘‘(1) is for the services of any person (other than
an officer or employee of the Treasury Department)—
‘‘(A) to locate and contact any taxpayer
specified by the Secretary,
‘‘(B) to request full payment from such tax-
payer of an amount of Federal tax specified by
the Secretary and, if such request cannot be met
by the taxpayer, to offer the taxpayer an install-
ment agreement providing for full payment of
such amount during a period not to exceed 3
years, and
‘‘(C) to obtain financial information speci-
fied by the Secretary with respect to such tax-
payer,
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‘‘(2) prohibits each person providing such serv-
ices under such contract from committing any act or
omission which employees of the Internal Revenue
Service are prohibited from committing in the per-
formance of similar services,
‘‘(3) prohibits subcontractors from—
‘‘(A) having contacts with taxpayers,
‘‘(B) providing quality assurance services,
and
‘‘(C) composing debt collection notices, and
‘‘(4) permits subcontractors to perform other
services only with the approval of the Secretary.
‘‘(c) FEES AND EXPENSES.—The Secretary may retain
and use—
‘‘(1) an amount not in excess of 25 percent of the
amount collected under any qualified tax collection
contract for the costs of services performed under such
contract, and
‘‘(2) an amount not in excess of 25 percent of
such amount collected for collection enforcement ac-
tivities of the Internal Revenue Service.
The Secretary shall keep adequate records regarding
amounts so retained and used. The amount credited as paid
by any taxpayer shall be determined without regard to this
subsection.
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‘‘(d) NO FEDERAL LIABILITY.—The United States
shall not be liable for any act or omission of any person
performing services under a qualified tax collection con-
tract.
‘‘(e) APPLICATION OF FAIR DEBT COLLECTION PRAC-
TICES ACT.—The provisions of the Fair Debt Collection
Practices Act (15 U.S.C. 1692 et seq.) shall apply to any
qualified tax collection contract, except to the extent super-
seded by section 6304, section 7602(c), or by any other pro-
vision of this title.
‘‘(f) APPLICATION OF SECTION.—In no event may the
term of any qualified tax collection contract extend beyond
the date which is 5 years after the date of the enactment
of this section.
‘‘(g) CROSS REFERENCES.—
‘‘(1) For damages for certain unauthorized col-
lection actions by persons performing services under
a qualified tax collection contract, see section 7433A.
‘‘(2) For application of Taxpayer Assistance Or-
ders to persons performing services under a qualified
tax collection contract, see section 7811(a)(4).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 7809(a) is amended by insert-
ing ‘‘6306,’’ before ‘‘7651’’.
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(B) The table of sections for subchapter A of
chapter 64 is amended by adding at the end the
following new item:
‘‘Sec. 6306. Qualified Tax Collection Contracts.’’.
(b) CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED
COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES
UNDER QUALIFIED TAX COLLECTION CONTRACTS.—
(1) IN GENERAL.—Subchapter B of chapter 76
(relating to proceedings by taxpayers and third par-
ties) is amended by inserting after section 7433 the
following new section:
‘‘SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED
COLLECTION ACTIONS BY PERSONS PER-
FORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
‘‘(a) IN GENERAL.—Subject to the modifications pro-
vided by subsection (b), section 7433 shall apply to the acts
and omissions of any person performing services under a
qualified tax collection contract (as defined in section
6306(b)) to the same extent and in the same manner as
if such person were an employee of the Internal Revenue
Service.
‘‘(b) MODIFICATIONS.—For purposes of subsection
(a)—
‘‘(1) Any civil action brought under section 7433
by reason of this section shall be brought against the
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person who entered into the qualified tax collection
contract with the Secretary and shall not be brought
against the United States.
‘‘(2) Such person and not the United States shall
be liable for any damages and costs determined in
such civil action.
‘‘(3) Such civil action shall not be an exclusive
remedy with respect to such person.
‘‘(4) Subsections (c), (d)(1), and (e) of section
7433 shall not apply.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for subchapter B of chapter 76 is amended by
inserting after the item relating to section 7433 the
following new item:
‘‘Sec. 7433A. Civil damages for certain unauthorized collection ac-
tions by persons performing services under a quali-
fied tax collection contract.’’.
(c) APPLICATION OF TAXPAYER ASSISTANCE ORDERS
TO PERSONS PERFORMING SERVICES UNDER A QUALIFIED
TAX COLLECTION CONTRACT.—Section 7811 (relating to
taxpayer assistance orders) is amended by adding at the
end the following new subsection:
‘‘(g) APPLICATION TO PERSONS PERFORMING SERV-
ICES UNDER A QUALIFIED TAX COLLECTION CONTRACT.—
Any order issued or action taken by the National Taxpayer
Advocate pursuant to this section shall apply to persons
performing services under a qualified tax collection contract
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(as defined in section 6306(b)) to the same extent and in
the same manner as such order or action applies to the Sec-
retary.’’.
(d) INELIGIBILITY OF INDIVIDUALS WHO COMMIT MIS-
CONDUCT TO PERFORM UNDER CONTRACT.—Section 1203
of the Internal Revenue Service Restructuring Act of 1998
(relating to termination of employment for misconduct) is
amended by adding at the end the following new subsection:
‘‘(e) INDIVIDUALS PERFORMING SERVICES UNDER A
QUALIFIED TAX COLLECTION CONTRACT.—An individual
shall cease to be permitted to perform any services under
any qualified tax collection contract (as defined in section
6306(b) of the Internal Revenue Code of 1986) if there is
a final determination by the Secretary of the Treasury
under such contract that such individual committed any
act or omission described under subsection (b) in connection
with the performance of such services.’’.
(e) BIENNIAL REPORT.—The Secretary of the Treasury
shall biennially submit (beginning in 2005) to the Com-
mittee on Finance of the Senate and the Committee on
Ways and Means of the House of Representatives a report
with respect to qualified tax collection contracts under sec-
tion 6306 of the Internal Revenue Code of 1986 (as added
by this section) which includes—
(1) a complete cost benefit analysis,
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(2) the impact of such contracts on collection en-
forcement staff levels in the Internal Revenue Service,
(3) the amounts collected and the collection costs
incurred (directly and indirectly),
(4) an evaluation of contractor performance,
(5) a disclosure safeguard report in a form simi-
lar to that required under section 6103(p)(5) of such
Code, and
(6) a measurement plan which includes a com-
parison of the best practices used by the private col-
lectors with the Internal Revenue Service’s own collec-
tion techniques) and mechanisms to identify and cap-
ture information on successful collection techniques
used by the contractors which could be adopted by the
Internal Revenue Service.
(f) EFFECTIVE DATE.—The amendments made to this
section shall take effect on the date of the enactment of this
Act.
SEC. 488. WHISTLEBLOWER REFORMS.
(a) IN GENERAL.—Section 7623 (relating to expenses
of detection of underpayments and fraud, etc.) is
amended—
(1) by striking ‘‘The Secretary’’ and inserting
‘‘(a) IN GENERAL.—The Secretary’’,
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(2) by striking ‘‘and’’ at the end of paragraph
(1) and inserting ‘‘or’’,
(3) by striking ‘‘(other than interest)’’, and
(4) by adding at the end the following new sub-
sections:
‘‘(b) AWARDS TO WHISTLEBLOWERS.—
‘‘(1) IN
GENERAL.—If the Secretary proceeds
with any administrative or judicial action described
in subsection (a) based on information brought to the
Secretary’s attention by an individual, such indi-
vidual shall, subject to paragraph (2), receive as an
award at least 15 percent but not more than 30 per-
cent of the collected proceeds (including penalties, in-
terest, additions to tax, and additional amounts) re-
sulting from the action (including any related ac-
tions) or from any settlement in response to such ac-
tion. The determination of the amount of such award
by the Whistleblower Office shall depend upon the ex-
tent to which the individual substantially contributed
to such action.
‘‘(2) AWARD
IN
CASE
OF
LESS
SUBSTANTIAL
CONTRIBUTION.—
‘‘(A) IN GENERAL.—In the event the action
described in paragraph (1) is one which the
Whistleblower Office determines to be based prin-
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cipally on disclosures of specific allegations
(other than information provided by the indi-
vidual described in paragraph (1)) resulting
from a judicial or administrative hearing, from
a governmental report, hearing, audit, or inves-
tigation, or from the news media, the Whistle-
blower Office may award such sums as it con-
siders appropriate, but in no case more than 10
percent of the collected proceeds (including pen-
alties, interest, additions to tax, and additional
amounts) resulting from the action (including
any related actions) or from any settlement in
response to such action, taking into account the
significance of the individual’s information and
the role of such individual and any legal rep-
resentative of such individual in contributing to
such action.
‘‘(B) 
NONAPPLICATION
OF
PARAGRAPH
WHERE INDIVIDUAL IS ORIGINAL SOURCE OF IN-
FORMATION.—Subparagraph (A) shall not apply
if the information resulting in the initiation of
the action described in paragraph (1) was origi-
nally provided by the individual described in
paragraph (1).
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‘‘(3) APPEAL OF AWARD DETERMINATION.—Any
determination regarding an award under paragraph
(1) or (2) shall be subject to the filing by the indi-
vidual described in such paragraph of a petition for
review with the Tax Court under rules similar to the
rules under section 7463 (without regard to the
amount in dispute) and such review shall be subject
to the rules under section 7461(b)(1).
‘‘(4) APPLICATION OF THIS SUBSECTION.—This
subsection shall apply with respect to any action—
‘‘(A) against any taxpayer, but in the case
of any individual, only if such individual’s gross
income exceeds $200,000 for any taxable year
subject to such action, and
‘‘(B) if the tax, penalties, interest, additions
to tax, and additional amounts in dispute exceed
$20,000.
‘‘(5) ADDITIONAL RULES.—
‘‘(A) NO CONTRACT NECESSARY.—No con-
tract with the Internal Revenue Service is nec-
essary for any individual to receive an award
under this subsection.
‘‘(B) REPRESENTATION.—Any individual
described in paragraph (1) or (2) may be rep-
resented by counsel.
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‘‘plus’’ at the end of paragraph (16), by striking the period
at the end of paragraph (17) and inserting ‘‘, plus’’, and
by adding at the end the following:
‘‘(18) the rural investment credit determined
under section 42A(a).’’.
(c) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 (relating to carryback and carryforward of un-
used credits), as amended by this Act, is amended by adding
at the end the following:
‘‘(12) NO
CARRYBACK
OF
RURAL
INVESTMENT
CREDIT BEFORE EFFECTIVE DATE.—No portion of the
unused business credit for any taxable year which is
attributable to the rural investment credit determined
under section 42A may be carried back to a taxable
year beginning before the date of the enactment of the
Jumpstart Our Business Strength (JOBS) Act.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 55(c)(1) is amended by inserting ‘‘or
subsection (i) or (j) of section 42A’’ after ‘‘section 42’’.
(2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and
(k)(1) of section 469 are each amended by inserting
‘‘or 42A’’ after ‘‘section 42’’.
(3) Section 772(a) is amended by striking ‘‘and’’
at the end of paragraph (10), by redesignating para-