828 
‘‘(ii) in any case in which the donee 
has not, during the period beginning on 
the date of the initial fractional contribu-
tion and ending on the date described in 
clause (i)— 
‘‘(I) had substantial physical pos-
session of the property, and 
‘‘(II) used the property in a use 
which is related to a purpose or func-
tion constituting the basis for the or-
ganizations’ exemption under section 
501. 
‘‘(B) ADDITION TO TAX.—The tax imposed 
under this chapter for any taxable year for 
which there is a recapture under subparagraph 
(A) shall be increased by 10 percent of the 
amount so recaptured. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means any chari-
table contribution by the taxpayer of any inter-
est in property with respect to which the tax-
payer has previously made an initial fractional 
contribution. 
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ccoleman on PROD1PC71 with BILLS
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‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any taxpayer, the first 
charitable contribution of an undivided portion 
of the taxpayer’s entire interest in any tangible 
personal property.’’. 
(b) ESTATE TAX.—Section 2055 (relating to trans-
fers for public, charitable, and religious uses) is amended 
by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection: 
‘‘(g) VALUATION OF SUBSEQUENT GIFTS.— 
‘‘(1) IN GENERAL.—In the case of any addi-
tional contribution, the fair market value of such 
contribution shall be determined by using the lesser 
of— 
‘‘(A) the fair market value of the property 
at the time of the initial fractional contribution, 
or 
‘‘(B) the fair market value of the property 
at the time of the additional contribution. 
‘‘(2) DEFINITIONS.—For purposes of this para-
graph— 
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means a bequest, 
legacy, devise, or transfer described in sub-
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ccoleman on PROD1PC71 with BILLS
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section (a) of any interest in a property with re-
spect to which the decedent had previously 
made an initial fractional contribution. 
‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any decedent, any chari-
table contribution of an undivided portion of 
the decedent’s entire interest in any tangible 
personal property for which a deduction was al-
lowed under section 170.’’. 
(c) GIFT TAX.—Section 2522 (relating to charitable 
and similar gifts) is amended by redesignating subsection 
(e) as subsection (f) and by inserting after subsection (d) 
the following new subsection: 
‘‘(e) SPECIAL RULES FOR FRACTIONAL GIFTS.— 
‘‘(1) DENIAL
OF
DEDUCTION
IN
CERTAIN 
CASES.— 
‘‘(A) IN GENERAL.—No deduction shall be 
allowed for a contribution of an undivided por-
tion of a taxpayer’s entire interest in tangible 
personal property unless all interest in the 
property is held immediately before such con-
tribution by— 
‘‘(i) the taxpayer, or 
‘‘(ii) the taxpayer and the donee. 
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‘‘(B) EXCEPTIONS.—The Secretary may, 
by regulation, provide for exceptions to sub-
paragraph (A) in cases where all persons who 
hold an interest in the property make propor-
tional contributions of an undivided portion of 
the entire interest held by such persons. 
‘‘(2) VALUATION OF SUBSEQUENT GIFTS.—In 
the case of any additional contribution, the fair mar-
ket value of such contribution shall be determined by 
using the lesser of— 
‘‘(A) the fair market value of the property 
at the time of the initial fractional contribution, 
or 
‘‘(B) the fair market value of the property 
at the time of the additional contribution. 
‘‘(3) RECAPTURE OF DEDUCTION IN CERTAIN 
CASES; ADDITION TO TAX.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
provide for the recapture of an amount equal to 
any deduction allowed under this section (plus 
interest) with respect to any contribution of an 
undivided portion of a taxpayer’s entire interest 
in tangible personal property— 
‘‘(i) in any case in which the donor 
does not contribute all of the remaining in-
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terest in such property to the donee (or, if 
such donee is no longer in existence, to any 
person described in section 170(c)) before 
the earlier of— 
‘‘(I) the date that is 10 years 
after the date of the initial fractional 
contribution, or 
‘‘(II) the date of the death of the 
donor, and 
‘‘(ii) in any case in which the donee 
has not, during the period beginning on 
the date of the initial fractional contribu-
tion and ending on the date described in 
clause (i)— 
‘‘(I) had substantial physical pos-
session of the property, and 
‘‘(II) used the property in a use 
which is related to a purpose or func-
tion constituting the basis for the or-
ganizations’ exemption under section 
501. 
‘‘(B) ADDITION TO TAX.—The tax imposed 
under this chapter for any taxable year for 
which there is a recapture under subparagraph 
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(A) shall be increased by 10 percent of the 
amount so recaptured. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) ADDITIONAL
CONTRIBUTION.—The 
term ‘additional contribution’ means any gift 
for which a deduction is allowed under sub-
section (a) or (b) of any interest in a property 
with respect to which the donor has previously 
made an initial fractional contribution. 
‘‘(B) 
INITIAL
FRACTIONAL
CONTRIBU-
TION.—The term ‘initial fractional contribution’ 
means, with respect to any donor, the first gift 
of an undivided portion of the donor’s entire in-
terest in any tangible personal property for 
which a deduction is allowed under subsection 
(a) or (b).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions, bequests, and 
gifts made after the date of the enactment of this Act. 
SEC. 1219. PROVISIONS RELATING TO SUBSTANTIAL AND 
GROSS OVERSTATEMENTS OF VALUATIONS. 
(a) MODIFICATION OF THRESHOLDS FOR SUBSTAN-
TIAL AND GROSS VALUATION MISSTATEMENTS.— 
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(1) 
SUBSTANTIAL
VALUATION 
MISSTATEMENT.— 
(A) INCOME TAXES.—Subparagraph (A) of 
section 6662(e)(1) (relating to substantial valu-
ation misstatement under chapter 1) is amend-
ed by striking ‘‘200 percent’’ and inserting 
‘‘150 percent’’. 
(B) ESTATE AND GIFT TAXES.—Paragraph 
(1) of section 6662(g) is amended by striking 
‘‘50 percent’’ and inserting ‘‘65 percent’’. 
(2) GROSS VALUATION MISSTATEMENT.— 
(A) INCOME TAXES.—Clauses (i) and (ii) 
of section 6662(h)(2)(A) (relating to increase in 
penalty 
in 
case 
of 
gross 
valuation 
misstatements) are amended to read as follows: 
‘‘(i) in paragraph (1)(A), ‘200 per-
cent’ for ‘150 percent’, 
‘‘(ii) in paragraph (1)(B)(i)— 
‘‘(I) ‘400 percent’ for ‘200 per-
cent’, and 
‘‘(II) ‘25 percent’ for ‘50 per-
cent’, and’’. 
(B) ESTATE AND GIFT TAXES.—Subpara-
graph (C) of section 6662(h)(2) is amended by 
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ccoleman on PROD1PC71 with BILLS
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striking ‘‘ ‘25 percent’ for ‘50 percent’ ’’ and in-
serting ‘‘ ‘40 percent’ for ‘65 percent’ ’’. 
(3) ELIMINATION OF REASONABLE CAUSE EX-
CEPTION
FOR
GROSS
MISSTATEMENTS.—Section 
6664(c)(2) (relating to reasonable cause exception 
for underpayments) is amended by striking ‘‘para-
graph (1) shall not apply unless’’ and inserting 
‘‘paragraph (1) shall not apply. The preceding sen-
tence shall not apply to a substantial valuation over-
statement under chapter 1 if’’. 
(b) PENALTY ON APPRAISERS WHOSE APPRAISALS 
RESULT
IN
SUBSTANTIAL
OR
GROSS
VALUATION 
MISSTATEMENTS.— 
(1) IN GENERAL.—Part I of subchapter B of 
chapter 68 (relating to assessable penalties) is 
amended by inserting after section 6695 the fol-
lowing new section: 
‘‘SEC. 
6695A. 
SUBSTANTIAL 
AND 
GROSS 
VALUATION 
MISSTATEMENTS ATTRIBUTABLE TO INCOR-
RECT APPRAISALS. 
‘‘(a) IMPOSITION OF PENALTY.—If— 
‘‘(1) a person prepares an appraisal of the 
value of property and such person knows, or reason-
ably should have known, that the appraisal would be 
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ccoleman on PROD1PC71 with BILLS
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used in connection with a return or a claim for re-
fund, and 
‘‘(2) the claimed value of the property on a re-
turn or claim for refund which is based on such ap-
praisal 
results 
in 
a 
substantial 
valuation 
misstatement under chapter 1 (within the meaning 
of 
section 
6662(e)), 
or 
a 
gross 
valuation 
misstatement (within the meaning of section 
6662(h)), with respect to such property, then such 
person shall pay a penalty in the amount determined 
under subsection (b). 
‘‘(b) AMOUNT OF PENALTY.—The amount of the 
penalty imposed under subsection (a) on any person with 
respect to an appraisal shall be equal to the lesser of— 
‘‘(1) the greater of— 
‘‘(A) 10 percent of the amount of the un-
derpayment (as defined in section 6664(a)) at-
tributable to the misstatement described in sub-
section (a)(2), or 
‘‘(B) $1,000, or 
‘‘(2) 125 percent of the gross income received 
by the person described in subsection (a)(1) from 
the preparation of the appraisal. 
‘‘(c) EXCEPTION.—No penalty shall be imposed 
under subsection (a) if the person establishes to the satis-
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ccoleman on PROD1PC71 with BILLS
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faction of the Secretary that the value established in the 
appraisal was more likely than not the proper value.’’. 
(2) RULES APPLICABLE TO PENALTY.—Section 
6696 (relating to rules applicable with respect to 
sections 6694 and 6695) is amended— 
(A) by striking ‘‘6694 and 6695’’ each 
place it appears in the text and heading thereof 
and inserting ‘‘6694, 6695, and 6695A’’, and 
(B) by striking ‘‘6694 or 6695’’ each place 
it appears in the text and inserting ‘‘6694, 
6695, or 6695A’’. 
(3) CONFORMING AMENDMENT.—The table of 
sections for part I of subchapter B of chapter 68 is 
amended by striking the item relating to section 
6696 and inserting the following new items: 
‘‘Sec. 6695A. Substantial and gross valuation misstatements attributable to in-
correct appraisals. 
‘‘Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 6695A.’’. 
(c) QUALIFIED APPRAISERS AND APPRAISALS.— 
(1) IN GENERAL.—Subparagraph (E) of section 
170(f)(11) is amended to read as follows: 
‘‘(E) QUALIFIED
APPRAISAL
AND
AP-
PRAISER.—For purposes of this paragraph— 
‘‘(i) 
QUALIFIED
APPRAISAL.—The 
term ‘qualified appraisal’ means, with re-
spect to any property, an appraisal of such 
property which— 
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‘‘(I) is treated for purposes of 
this paragraph as a qualified ap-
praisal under regulations or other 
guidance prescribed by the Secretary, 
and 
‘‘(II) is conducted by a qualified 
appraiser in accordance with generally 
accepted appraisal standards and any 
regulations or other guidance pre-
scribed under subclause (I). 
‘‘(ii) QUALIFIED APPRAISER.—Except 
as provided in clause (iii), the term ‘quali-
fied appraiser’ means an individual who— 
‘‘(I) has earned an appraisal des-
ignation from a recognized profes-
sional appraiser organization or has 
otherwise met minimum education 
and experience requirements set forth 
in regulations prescribed by the Sec-
retary, 
‘‘(II) regularly performs apprais-
als for which the individual receives 
compensation, and 
‘‘(III) meets such other require-
ments as may be prescribed by the 
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ccoleman on PROD1PC71 with BILLS
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Secretary in regulations or other guid-
ance. 
‘‘(iii) SPECIFIC APPRAISALS.—An in-
dividual shall not be treated as a qualified 
appraiser with respect to any specific ap-
praisal unless— 
‘‘(I) the individual demonstrates 
verifiable education and experience in 
valuing the type of property subject to 
the appraisal, and 
‘‘(II) the individual has not been 
prohibited from practicing before the 
Internal Revenue Service by the Sec-
retary under section 330(c) of title 
31, United States Code, at any time 
during the 3-year period ending on 
the date of the appraisal.’’. 
(2) REASONABLE
CAUSE
EXCEPTION.—Sub-
paragraphs (B) and (C) of section 6664(c)(3) are 
amended to read as follows: 
‘‘(B) QUALIFIED
APPRAISAL.—The term 
‘qualified appraisal’ has the meaning given such 
term by section 170(f)(11)(E)(i). 
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ccoleman on PROD1PC71 with BILLS
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‘‘(C) QUALIFIED
APPRAISER.—The term 
‘qualified appraiser’ has the meaning given such 
term by section 170(f)(11)(E)(ii).’’. 
(d) DISCIPLINARY ACTIONS AGAINST APPRAISERS.— 
Section 330(c) of title 31, United States Code, is amended 
by striking ‘‘with respect to whom a penalty has been as-
sessed under section 6701(a) of the Internal Revenue 
Code of 1986’’. 
(e) EFFECTIVE DATES.— 
(1) MISSTATEMENT
PENALTIES.—Except as 
provided in paragraph (3), the amendments made by 
subsection (a) shall apply to returns filed after the 
date of the enactment of this Act. 
(2) APPRAISER
PROVISIONS.—Except as pro-
vided in paragraph (3), the amendments made by 
subsections (b), (c), and (d) shall apply to appraisals 
prepared with respect to returns or submissions filed 
after the date of the enactment of this Act. 
(3) 
SPECIAL
RULE
FOR
CERTAIN
EASE-
MENTS.—In the case of a contribution of a qualified 
real property interest which is a restriction with re-
spect to the exterior of a building described in sec-
tion 170(h)(4)(C)(ii) of the Internal Revenue Code 
of 1986, and an appraisal with respect to the con-
tribution, the amendments made by subsections (a) 
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and (b) shall apply to returns filed after July 25, 
2006. 
SEC. 1220. ADDITIONAL STANDARDS FOR CREDIT COUN-
SELING ORGANIZATIONS. 
(a) IN GENERAL.—Section 501 (relating to exemp-
tion from tax on corporations, certain trusts, etc.) is 
amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new 
subsection: 
‘‘(q) SPECIAL RULES FOR CREDIT COUNSELING OR-
GANIZATIONS.— 
‘‘(1) IN GENERAL.—An organization with re-
spect to which the provision of credit counseling 
services is a substantial purpose shall not be exempt 
from tax under subsection (a) unless such organiza-
tion is described in paragraph (3) or (4) of sub-
section (c) and such organization is organized and 
operated in accordance with the following require-
ments: 
‘‘(A) The organization— 
‘‘(i) provides credit counseling services 
tailored to the specific needs and cir-
cumstances of consumers, 
‘‘(ii) makes no loans to debtors (other 
than loans with no fees or interest) and 
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does not negotiate the making of loans on 
behalf of debtors, 
‘‘(iii) provides services for the purpose 
of improving a consumer’s credit record, 
credit history, or credit rating only to the 
extent that such services are incidental to 
providing credit counseling services, and 
‘‘(iv) does not charge any separately 
stated fee for services for the purpose of 
improving any consumer’s credit record, 
credit history, or credit rating. 
‘‘(B) The organization does not refuse to 
provide credit counseling services to a consumer 
due to the inability of the consumer to pay, the 
ineligibility of the consumer for debt manage-
ment plan enrollment, or the unwillingness of 
the consumer to enroll in a debt management 
plan. 
‘‘(C) The organization establishes and im-
plements a fee policy which— 
‘‘(i) requires that any fees charged to 
a consumer for services are reasonable, 
‘‘(ii) allows for the waiver of fees if 
the consumer is unable to pay, and 
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‘‘(iii) except to the extent allowed by 
State law, prohibits charging any fee based 
in whole or in part on a percentage of the 
consumer’s debt, the consumer’s payments 
to be made pursuant to a debt manage-
ment plan, or the projected or actual sav-
ings to the consumer resulting from enroll-
ing in a debt management plan. 
‘‘(D) At all times the organization has a 
board of directors or other governing body— 
‘‘(i) which is controlled by persons 
who represent the broad interests of the 
public, such as public officials acting in 
their capacities as such, persons having 
special knowledge or expertise in credit or 
financial education, and community lead-
ers, 
‘‘(ii) not more than 20 percent of the 
voting power of which is vested in persons 
who are employed by the organization or 
who will benefit financially, directly or in-
directly, from the organization’s activities 
(other than through the receipt of reason-
able directors’ fees or the repayment of 
consumer debt to creditors other than the 
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ccoleman on PROD1PC71 with BILLS
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credit counseling organization or its affili-
ates), and 
‘‘(iii) not more than 49 percent of the 
voting power of which is vested in persons 
who are employed by the organization or 
who will benefit financially, directly or in-
directly, from the organization’s activities 
(other than through the receipt of reason-
able directors’ fees). 
‘‘(E) The organization does not own more 
than 35 percent of— 
‘‘(i) the total combined voting power 
of any corporation (other than a corpora-
tion which is an organization described in 
subsection (c)(3) and exempt from tax 
under subsection (a)) which is in the trade 
or business of lending money, repairing 
credit, or providing debt management plan 
services, payment processing, or similar 
services, 
‘‘(ii) the profits interest of any part-
nership (other than a partnership which is 
an organization described in subsection 
(c)(3) and exempt from tax under sub-
section (a)) which is in the trade or busi-
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ccoleman on PROD1PC71 with BILLS
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ness of lending money, repairing credit, or 
providing debt management plan services, 
payment processing, or similar services, 
and 
‘‘(iii) the beneficial interest of any 
trust or estate (other than a trust which is 
an organization described in subsection 
(c)(3) and exempt from tax under sub-
section (a)) which is in the trade or busi-
ness of lending money, repairing credit, or 
providing debt management plan services, 
payment processing, or similar services. 
‘‘(F) The organization receives no amount 
for providing referrals to others for debt man-
agement plan services, and pays no amount to 
others for obtaining referrals of consumers. 
‘‘(2) ADDITIONAL REQUIREMENTS FOR ORGANI-
ZATIONS DESCRIBED IN SUBSECTION (c)(3).— 
‘‘(A) IN GENERAL.—In addition to the re-
quirements under paragraph (1), an organiza-
tion with respect to which the provision of cred-
it counseling services is a substantial purpose 
and which is described in paragraph (3) of sub-
section (c) shall not be exempt from tax under 
subsection (a) unless such organization is orga-
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ccoleman on PROD1PC71 with BILLS
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nized and operated in accordance with the fol-
lowing requirements: 
‘‘(i) The organization does not solicit 
contributions from consumers during the 
initial counseling process or while the con-
sumer is receiving services from the orga-
nization. 
‘‘(ii) The aggregate revenues of the 
organization which are from payments of 
creditors of consumers of the organization 
and which are attributable to debt manage-
ment plan services do not exceed the appli-
cable percentage of the total revenues of 
the organization. 
‘‘(B) APPLICABLE PERCENTAGE.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A)(ii), the applicable per-
centage is 50 percent. 
‘‘(ii) TRANSITION
RULE.—Notwith-
standing clause (i), in the case of an orga-
nization with respect to which the provi-
sion of credit counseling services is a sub-
stantial purpose and which is described in 
paragraph (3) of subsection (c) and ex-
empt from tax under subsection (a) on the 
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ccoleman on PROD1PC71 with BILLS
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date of the enactment of this subsection, 
the applicable percentage is— 
‘‘(I) 80 percent for the first tax-
able year of such organization begin-
ning after the date which is 1 year 
after the date of the enactment of this 
subsection, and 
‘‘(II) 70 percent for the second 
such taxable year beginning after such 
date, and 
‘‘(III) 60 percent for the third 
such taxable year beginning after such 
date. 
‘‘(3) ADDITIONAL REQUIREMENT FOR ORGANI-
ZATIONS DESCRIBED IN SUBSECTION (c)(4).—In ad-
dition to the requirements under paragraph (1), an 
organization with respect to which the provision of 
credit counseling services is a substantial purpose 
and which is described in paragraph (4) of sub-
section (c) shall not be exempt from tax under sub-
section (a) unless such organization notifies the Sec-
retary, in such manner as the Secretary may by reg-
ulations prescribe, that it is applying for recognition 
as a credit counseling organization. 
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‘‘(4) CREDIT
COUNSELING
SERVICES; DEBT 
MANAGEMENT
PLAN
SERVICES.—For purposes of 
this subsection— 
‘‘(A) CREDIT
COUNSELING
SERVICES.— 
The term ‘credit counseling services’ means— 
‘‘(i) the providing of educational infor-
mation to the general public on budgeting, 
personal finance, financial literacy, saving 
and spending practices, and the sound use 
of consumer credit, 
‘‘(ii) the assisting of individuals and 
families with financial problems by pro-
viding them with counseling, or 
‘‘(iii) a combination of the activities 
described in clauses (i) and (ii). 
‘‘(B) DEBT
MANAGEMENT
PLAN
SERV-
ICES.—The term ‘debt management plan serv-
ices’ means services related to the repayment, 
consolidation, or restructuring of a consumer’s 
debt, and includes the negotiation with creditors 
of lower interest rates, the waiver or reduction 
of fees, and the marketing and processing of 
debt management plans.’’. 
(b) DEBT MANAGEMENT PLAN SERVICES TREATED 
AS AN UNRELATED BUSINESS.—Section 513 (relating to 
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ccoleman on PROD1PC71 with BILLS
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unrelated trade or business) is amended by adding at the 
end the following: 
‘‘(j) DEBT MANAGEMENT PLAN SERVICES.—The 
term ‘unrelated trade or business’ includes the provision 
of debt management plan services (as defined in section 
501(q)(4)(B)) by any organization other than an organiza-
tion which meets the requirements of section 501(q).’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after the date 
of the enactment of this Act. 
(2) TRANSITION RULE FOR EXISTING ORGANI-
ZATIONS.—In the case of any organization described 
in paragraph (3) or (4) section 501(c) of the Inter-
nal Revenue Code of 1986 and with respect to which 
the provision of credit counseling services is a sub-
stantial purpose on the date of the enactment of this 
Act, the amendments made by this section shall 
apply to taxable years beginning after the date 
which is 1 year after the date of the enactment of 
this Act. 
SEC. 1221. EXPANSION OF THE BASE OF TAX ON PRIVATE 
FOUNDATION NET INVESTMENT INCOME. 
(a) GROSS INVESTMENT INCOME.— 
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(1) IN
GENERAL.—Paragraph (2) of section 
4940(c) (relating to gross investment income) is 
amended by adding at the end the following new 
sentence: ‘‘Such term shall also include income from 
sources similar to those in the preceding sentence.’’. 
(2) CONFORMING AMENDMENT.—Subsection (e) 
of section 509 (relating to gross investment income) 
is amended by adding at the end the following new 
sentence: ‘‘Such term shall also include income from 
sources similar to those in the preceding sentence.’’. 
(b) CAPITAL GAIN NET INCOME.—Paragraph (4) of 
section 4940(c) (relating to capital gains and losses) is 
amended— 
(1) in subparagraph (A), by striking ‘‘used for 
the production of interest, dividends, rents, and roy-
alties’’ and inserting ‘‘used for the production of 
gross investment income (as defined in paragraph 
(2))’’, 
(2) in subparagraph (C), by inserting ‘‘or 
carrybacks’’ after ‘‘carryovers’’, and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(D) Except to the extent provided by reg-
ulation, under rules similar to the rules of sec-
tion 1031 (including the exception under sub-
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section (a)(2) thereof), no gain or loss shall be 
taken into account with respect to any portion 
of property used for a period of not less than 
1 year for a purpose or function constituting 
the basis of the private foundation’s exemption 
if the entire property is exchanged immediately 
following such period solely for property of like 
kind which is to be used primarily for a purpose 
or function constituting the basis for such foun-
dation’s exemption.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 1222. DEFINITION OF CONVENTION OR ASSOCIATION 
OF CHURCHES. 
Section 7701 (relating to definitions) is amended by 
redesignating subsection (o) as subsection (p) and by in-
serting after subsection (n) the following new subsection: 
‘‘(o) CONVENTION
OR ASSOCIATION
OF CHURCH-
ES.—For purposes of this title, any organization which is 
otherwise a convention or association of churches shall not 
fail to so qualify merely because the membership of such 
organization includes individuals as well as churches or be-
cause individuals have voting rights in such organiza-
tion.’’. 
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SEC. 1223. NOTIFICATION REQUIREMENT FOR ENTITIES 
NOT CURRENTLY REQUIRED TO FILE. 
(a) IN GENERAL.—Section 6033 (relating to returns 
by exempt organizations), as amended by this Act, is 
amended by redesignating subsection (i) as subsection (j) 
and by inserting after subsection (h) the following new 
subsection: 
‘‘(i) ADDITIONAL NOTIFICATION REQUIREMENTS.— 
Any organization the gross receipts of which in any tax-
able year result in such organization being referred to in 
subsection (a)(3)(A)(ii) or (a)(3)(B)— 
‘‘(1) shall furnish annually, in electronic form, 
and at such time and in such manner as the Sec-
retary may by regulations prescribe, information set-
ting forth— 
‘‘(A) the legal name of the organization, 
‘‘(B) any name under which such organiza-
tion operates or does business, 
‘‘(C) the organization’s mailing address 
and Internet web site address (if any), 
‘‘(D) the organization’s taxpayer identifica-
tion number, 
‘‘(E) the name and address of a principal 
officer, and 
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‘‘(F) evidence of the continuing basis for 
the organization’s exemption from the filing re-
quirements under subsection (a)(1), and 
‘‘(2) upon the termination of the existence of 
the organization, shall furnish notice of such termi-
nation.’’. 
(b) LOSS OF EXEMPT STATUS FOR FAILURE TO FILE 
RETURN OR NOTICE.—Section 6033 (relating to returns 
by exempt organizations), as amended by subsection (a), 
is amended by redesignating subsection (j) as subsection 
(k) and by inserting after subsection (i) the following new 
subsection: 
‘‘(j) LOSS OF EXEMPT STATUS FOR FAILURE TO 
FILE RETURN OR NOTICE.— 
‘‘(1) IN
GENERAL.—If an organization de-
scribed in subsection (a)(1) or (i) fails to file an an-
nual return or notice required under either sub-
section for 3 consecutive years, such organization’s 
status as an organization exempt from tax under 
section 501(a) shall be considered revoked on and 
after the date set by the Secretary for the filing of 
the third annual return or notice. The Secretary 
shall publish and maintain a list of any organization 
the status of which is so revoked. 
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‘‘(2) APPLICATION NECESSARY FOR REINSTATE-
MENT.—Any organization the tax-exempt status of 
which is revoked under paragraph (1) must apply in 
order to obtain reinstatement of such status regard-
less of whether such organization was originally re-
quired to make such an application. 
‘‘(3) RETROACTIVE
REINSTATEMENT
IF
REA-
SONABLE CAUSE SHOWN FOR FAILURE.—If, upon 
application for reinstatement of status as an organi-
zation exempt from tax under section 501(a), an or-
ganization described in paragraph (1) can show to 
the satisfaction of the Secretary evidence of reason-
able cause for the failure described in such para-
graph, the organization’s exempt status may, in the 
discretion of the Secretary, be reinstated effective 
from the date of the revocation under such para-
graph.’’. 
(c) NO DECLARATORY JUDGMENT RELIEF.—Section 
7428(b) (relating to limitations) is amended by adding at 
the end the following new paragraph: 
‘‘(4) NONAPPLICATION FOR CERTAIN REVOCA-
TIONS.—No action may be brought under this sec-
tion with respect to any revocation of status de-
scribed in section 6033(j)(1).’’. 
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(d) NO MONETARY PENALTY FOR FAILURE TO NO-
TIFY.—Section 6652(c)(1) (relating to annual returns 
under section 6033 or 6012(a)(6)) is amended by adding 
at the end the following new subparagraph: 
‘‘(E) NO PENALTY FOR CERTAIN ANNUAL 
NOTICES.—This paragraph shall not apply with 
respect to any notice required under section 
6033(i).’’. 
(e) SECRETARIAL OUTREACH REQUIREMENTS.— 
(1) NOTICE REQUIREMENT.—The Secretary of 
the Treasury shall notify in a timely manner every 
organization described in section 6033(i) of the In-
ternal Revenue Code of 1986 (as added by this sec-
tion) of the requirement under such section 6033(i) 
and of the penalty established under section 6033(j) 
of such Code— 
(A) by mail, in the case of any organiza-
tion the identity and address of which is in-
cluded in the list of exempt organizations main-
tained by the Secretary, and 
(B) by Internet or other means of out-
reach, in the case of any other organization. 
(2) LOSS OF STATUS PENALTY FOR FAILURE TO 
FILE RETURN.—The Secretary of the Treasury shall 
publicize, in a timely manner in appropriate forms 
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and instructions and through other appropriate 
means, the penalty established under section 6033(j) 
of such Code for the failure to file a return under 
subsection (a)(1) or (i) of section 6033 of such 
Code. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to notices and returns with respect 
to annual periods beginning after 2006. 
SEC. 1224. DISCLOSURE TO STATE OFFICIALS RELATING TO 
EXEMPT ORGANIZATIONS. 
(a) IN GENERAL.—Subsection (c) of section 6104 is 
amended by striking paragraph (2) and inserting the fol-
lowing new paragraphs: 
‘‘(2) DISCLOSURE OF PROPOSED ACTIONS RE-
LATED TO CHARITABLE ORGANIZATIONS.— 
‘‘(A) SPECIFIC
NOTIFICATIONS.—In the 
case of an organization to which paragraph (1) 
applies, the Secretary may disclose to the ap-
propriate State officer— 
‘‘(i) a notice of proposed refusal to 
recognize such organization as an organi-
zation described in section 501(c)(3) or a 
notice of proposed revocation of such orga-
nization’s recognition as an organization 
exempt from taxation, 
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‘‘(ii) the issuance of a letter of pro-
posed deficiency of tax imposed under sec-
tion 507 or chapter 41 or 42, and 
‘‘(iii) the names, addresses, and tax-
payer identification numbers of organiza-
tions which have applied for recognition as 
organizations 
described 
in 
section 
501(c)(3). 
‘‘(B) ADDITIONAL DISCLOSURES.—Returns 
and return information of organizations with 
respect to which information is disclosed under 
subparagraph (A) may be made available for in-
spection by or disclosed to an appropriate State 
officer. 
‘‘(C) PROCEDURES FOR DISCLOSURE.—In-
formation may be inspected or disclosed under 
subparagraph (A) or (B) only— 
‘‘(i) upon written request by an ap-
propriate State officer, and 
‘‘(ii) for the purpose of, and only to 
the extent necessary in, the administration 
of State laws regulating such organiza-
tions. 
Such information may only be inspected by or 
disclosed to a person other than the appropriate 
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State officer if such person is an officer or em-
ployee of the State and is designated by the ap-
propriate State officer to receive the returns or 
return information under this paragraph on be-
half of the appropriate State officer. 
‘‘(D) DISCLOSURES OTHER THAN BY RE-
QUEST.—The Secretary may make available for 
inspection or disclose returns and return infor-
mation of an organization to which paragraph 
(1) applies to an appropriate State officer of 
any State if the Secretary determines that such 
returns or return information may constitute 
evidence of noncompliance under the laws with-
in the jurisdiction of the appropriate State offi-
cer. 
‘‘(3) DISCLOSURE WITH RESPECT TO CERTAIN 
OTHER EXEMPT ORGANIZATIONS.—Upon written re-
quest by an appropriate State officer, the Secretary 
may make available for inspection or disclosure re-
turns and return information of any organization de-
scribed in section 501(c) (other than organizations 
described in paragraph (1) or (3) thereof) for the 
purpose of, and only to the extent necessary in, the 
administration of State laws regulating the solicita-
tion or administration of the charitable funds or 
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