H. R. 1591—80
‘‘(ii) during the 5-year periods 1990 through 1994 
and 1995 through 1999 had a net population loss.’’. 
(2) CONFORMING AMENDMENT.—Subparagraph (D) of sec-
tion 51(d)(1) is amended to read as follows: 
‘‘(D) a designated community resident,’’. 
(c) CLARIFICATION OF TREATMENT OF INDIVIDUALS UNDER INDI-
VIDUAL
WORK
PLANS.—Subparagraph (B) of section 51(d)(6) 
(relating to vocational rehabilitation referral) is amended by striking 
‘‘or’’ at the end of clause (i), by striking the period at the end 
of clause (ii) and inserting ‘‘, or’’, and by adding at the end the 
following new clause: 
‘‘(iii) an individual work plan developed and imple-
mented by an employment network pursuant to sub-
section (g) of section 1148 of the Social Security Act 
with respect to which the requirements of such sub-
section are met.’’. 
(d) TREATMENT
OF DISABLED VETERANS UNDER
THE WORK 
OPPORTUNITY TAX CREDIT.—
(1) DISABLED VETERANS TREATED AS MEMBERS OF TARGETED 
GROUP.—
(A) IN GENERAL.—Subparagraph (A) of section 51(d)(3) 
(relating to qualified veteran) is amended by striking 
‘‘agency as being a member of a family’’ and all that follows 
and inserting ‘‘agency as—
‘‘(i) being a member of a family receiving assistance 
under a food stamp program under the Food Stamp 
Act of 1977 for at least a 3-month period ending during 
the 12-month period ending on the hiring date, or 
‘‘(ii) entitled to compensation for a service-con-
nected disability, and—
‘‘(I) having a hiring date which is not more 
that 1 year after having been discharged or 
released from active duty in the Armed Forces 
of the United States, or 
‘‘(II) having aggregate periods of unemploy-
ment during the 1-year period ending on the hiring 
date which equal or exceed 6 months.’’. 
(B) DEFINITIONS.—Paragraph (3) of section 51(d) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(C) OTHER
DEFINITIONS.—For purposes of subpara-
graph (A), the terms ‘compensation’ and ‘service-connected’ 
have the meanings given such terms under section 101 
of title 38, United States Code.’’. 
(2) INCREASE IN AMOUNT OF WAGES TAKEN INTO ACCOUNT 
FOR
DISABLED
VETERANS.—Paragraph (3) of section 51(b) is 
amended—
(A) by inserting ‘‘($12,000 per year in the case of any 
individual who is a qualified veteran by reason of sub-
section (d)(3)(A)(ii))’’ before the period at the end, and 
(B) by striking ‘‘ONLY FIRST $6,000 OF’’ in the heading 
and inserting ‘‘LIMITATION ON’’. 
(e) EFFECTIVE DATE.—The amendments made by this section 
shall apply to individuals who begin work for the employer after 
the date of the enactment of this Act.
H. R. 1591—81
SEC. 7512. EXTENSION AND INCREASE OF EXPENSING FOR SMALL 
BUSINESS. 
(a) EXTENSION.—Subsections (b)(1), (b)(2), (b)(5), (c)(2), and 
(d)(1)(A)(ii) of section 179 (relating to election to expense certain 
depreciable business assets) are each amended by striking ‘‘2010’’ 
and inserting ‘‘2011’’. 
(b) INCREASE IN LIMITATIONS.—Subsection (b) of section 179 
is amended—
(1) by striking ‘‘$100,000 in the case of taxable years begin-
ning after 2002’’ in paragraph (1) and inserting ‘‘$125,000 in 
the case of taxable years beginning after 2006’’, and 
(2) by striking ‘‘$400,000 in the case of taxable years begin-
ning after 2002’’ in paragraph (2) and inserting ‘‘$500,000 in 
the case of taxable years beginning after 2006’’. 
(c) INFLATION
ADJUSTMENT.—Subparagraph (A) of section 
179(b)(5) is amended—
(1) by striking ‘‘2003’’ and inserting ‘‘2007’’, 
(2) by striking ‘‘$100,000 and $400,000’’ and inserting 
‘‘$125,000 and $500,000’’, and 
(3) by striking ‘‘2002’’ in clause (ii) and inserting ‘‘2006’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 7513. DETERMINATION OF CREDIT FOR CERTAIN TAXES PAID 
WITH RESPECT TO EMPLOYEE CASH TIPS. 
(a) IN GENERAL.—Subparagraph (B) of section 45B(b)(1) is 
amended by inserting ‘‘as in effect on January 1, 2007, and’’ before 
‘‘determined without regard to’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to tips received for services performed after December 
31, 2006. 
SEC. 7514. WAIVER OF INDIVIDUAL AND CORPORATE ALTERNATIVE 
MINIMUM TAX LIMITS ON WORK OPPORTUNITY CREDIT 
AND CREDIT FOR TAXES PAID WITH RESPECT TO 
EMPLOYEE CASH TIPS. 
(a) ALLOWANCE
AGAINST
ALTERNATIVE
MINIMUM
TAX.—
Subparagraph (B) of section 38(c)(4) is amended by striking ‘‘and’’ 
at the end of clause (i), by inserting a comma at the end of clause 
(ii), and by adding at the end the following new clauses: 
‘‘(iii) the credit determined under section 45B, and 
‘‘(iv) the credit determined under section 51.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to credits determined under sections 45B and 51 of 
the Internal Revenue Code of 1986 in taxable years beginning 
after December 31, 2006, and to carrybacks of such credits. 
SEC. 7515. FAMILY BUSINESS TAX SIMPLIFICATION. 
(a) IN GENERAL.—Section 761 (defining terms for purposes of 
partnerships) is amended by redesignating subsection (f) as sub-
section (g) and by inserting after subsection (e) the following new 
subsection: 
‘‘(f) QUALIFIED JOINT VENTURE.—
‘‘(1) IN GENERAL.—In the case of a qualified joint venture 
conducted by a husband and wife who file a joint return for 
the taxable year, for purposes of this title—
‘‘(A) such joint venture shall not be treated as a part-
nership,
H. R. 1591—82
‘‘(B) all items of income, gain, loss, deduction, and 
credit shall be divided between the spouses in accordance 
with their respective interests in the venture, and 
‘‘(C) each spouse shall take into account such spouse’s 
respective share of such items as if they were attributable 
to a trade or business conducted by such spouse as a 
sole proprietor. 
‘‘(2) QUALIFIED JOINT VENTURE.—For purposes of paragraph 
(1), the term ‘qualified joint venture’ means any joint venture 
involving the conduct of a trade or business if—
‘‘(A) the only members of such joint venture are a 
husband and wife, 
‘‘(B) both spouses materially participate (within the 
meaning of section 469(h) without regard to paragraph 
(5) thereof) in such trade or business, and 
‘‘(C) both spouses elect the application of this sub-
section.’’. 
(b) NET EARNINGS FROM SELF-EMPLOYMENT.—
(1) Subsection (a) of section 1402 (defining net earnings 
from self-employment) is amended by striking ‘‘, and’’ at the 
end of paragraph (15) and inserting a semicolon, by striking 
the period at the end of paragraph (16) and inserting ‘‘; and’’, 
and by inserting after paragraph (16) the following new para-
graph: 
‘‘(17) notwithstanding the preceding provisions of this sub-
section, each spouse’s share of income or loss from a qualified 
joint venture shall be taken into account as provided in section 
761(f) in determining net earnings from self-employment of 
such spouse.’’. 
(2) Subsection (a) of section 211 of the Social Security 
Act (defining net earnings from self-employment) is amended 
by striking ‘‘and’’ at the end of paragraph (14), by striking 
the period at the end of paragraph (15) and inserting ‘‘; and’’, 
and by inserting after paragraph (15) the following new para-
graph: 
‘‘(16) Notwithstanding the preceding provisions of this sub-
section, each spouse’s share of income or loss from a qualified 
joint venture shall be taken into account as provided in section 
761(f) of the Internal Revenue Code of 1986 in determining 
net earnings from self-employment of such spouse.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
Subpart B—Gulf Opportunity Zone Tax Incentives 
SEC. 7521. EXTENSION OF INCREASED EXPENSING FOR QUALIFIED 
SECTION 179 GULF OPPORTUNITY ZONE PROPERTY. 
Paragraph (2) of section 1400N(e) (relating to qualified section 
179 Gulf Opportunity Zone property) is amended—
(1) by striking ‘‘this subsection, the term’’ and inserting 
‘‘this subsection—
‘‘(A) IN GENERAL.—The term’’, and 
(2) by adding at the end the following new subparagraph: 
‘‘(B) EXTENSION FOR CERTAIN PROPERTY.—In the case 
of property substantially all of the use of which is in 
one or more specified portions of the GO Zone (as defined 
by subsection (d)(6)), such term shall include section 179
H. R. 1591—83
property (as so defined) which is described in subsection 
(d)(2), determined—
‘‘(i) without regard to subsection (d)(6), and 
‘‘(ii) by substituting ‘2008’ for ‘2007’ in subpara-
graph (A)(v) thereof.’’. 
SEC. 7522. EXTENSION AND EXPANSION OF LOW-INCOME HOUSING 
CREDIT RULES FOR BUILDINGS IN THE GO ZONES. 
(a) TIME FOR MAKING LOW-INCOME HOUSING CREDIT ALLOCA-
TIONS.—Subsection (c) of section 1400N (relating to low-income 
housing credit) is amended by redesignating paragraph (5) as para-
graph (6) and by inserting after paragraph (4) the following new 
paragraph: 
‘‘(5) TIME
FOR
MAKING
LOW-INCOME
HOUSING
CREDIT 
ALLOCATIONS.—Section 42(h)(1)(B) shall not apply to an alloca-
tion of housing credit dollar amount to a building located in 
the Gulf Opportunity Zone, the Rita GO Zone, or the Wilma 
GO Zone, if such allocation is made in 2006, 2007, or 2008, 
and such building is placed in service before January 1, 2011.’’. 
(b) EXTENSION OF PERIOD FOR TREATING GO ZONES AS DIF-
FICULT DEVELOPMENT AREAS.—
(1) IN GENERAL.—Subparagraph (A) of section 1400N(c)(3) 
is amended by striking ‘‘2006, 2007, or 2008’’ and inserting 
‘‘the period beginning on January 1, 2006, and ending on 
December 31, 2010’’. 
(2) CONFORMING
AMENDMENT.—Clause (ii) of section 
1400N(c)(3)(B) is amended by striking ‘‘such period’’ and 
inserting ‘‘the period described in subparagraph (A)’’. 
(c) COMMUNITY DEVELOPMENT BLOCK GRANTS NOT TAKEN INTO 
ACCOUNT
IN DETERMINING
IF BUILDINGS ARE FEDERALLY SUB-
SIDIZED.—Subsection (c) of section 1400N (relating to low-income 
housing credit), as amended by this Act, is amended by redesig-
nating paragraph (6) as paragraph (7) and by inserting after para-
graph (5) the following new paragraph: 
‘‘(6) COMMUNITY DEVELOPMENT BLOCK GRANTS NOT TAKEN 
INTO ACCOUNT IN DETERMINING IF BUILDINGS ARE FEDERALLY 
SUBSIDIZED.—For purpose of applying section 42(i)(2)(D) to any 
building which is placed in service in the Gulf Opportunity 
Zone, the Rita GO Zone, or the Wilma GO Zone during the 
period beginning on January 1, 2006, and ending on December 
31, 2010, a loan shall not be treated as a below market Federal 
loan solely by reason of any assistance provided under section 
106, 107, or 108 of the Housing and Community Development 
Act of 1974 by reason of section 122 of such Act or any provision 
of the Department of Defense Appropriations Act, 2006, or 
the Emergency Supplemental Appropriations Act for Defense, 
the Global War on Terror, and Hurricane Recovery, 2006.’’. 
SEC. 7523. SPECIAL TAX-EXEMPT BOND FINANCING RULE FOR REPAIRS 
AND RECONSTRUCTIONS OF RESIDENCES IN THE GO 
ZONES. 
Subsection (a) of section 1400N (relating to tax-exempt bond 
financing) is amended by adding at the end the following new 
paragraph: 
‘‘(7) SPECIAL RULE FOR REPAIRS AND RECONSTRUCTIONS.—
‘‘(A) IN GENERAL.—For purposes of section 143 and 
this subsection, any qualified GO Zone repair or reconstruc-
tion shall be treated as a qualified rehabilitation.
H. R. 1591—84
‘‘(B) QUALIFIED GO ZONE REPAIR OR RECONSTRUCTION.—
For purposes of subparagraph (A), the term ‘qualified GO 
Zone repair or reconstruction’ means any repair of damage 
caused by Hurricane Katrina, Hurricane Rita, or Hurricane 
Wilma to a building located in the Gulf Opportunity Zone, 
the Rita GO Zone, or the Wilma GO Zone (or reconstruction 
of such building in the case of damage constituting destruc-
tion) if the expenditures for such repair or reconstruction 
are 25 percent or more of the mortgagor’s adjusted basis 
in the residence. For purposes of the preceding sentence, 
the mortgagor’s adjusted basis shall be determined as of 
the completion of the repair or reconstruction or, if later, 
the date on which the mortgagor acquires the residence. 
‘‘(C) TERMINATION.—This paragraph shall apply only 
to owner-financing provided after the date of the enactment 
of this paragraph and before January 1, 2011.’’. 
SEC. 7524. GAO STUDY OF PRACTICES EMPLOYED BY STATE AND 
LOCAL GOVERNMENTS IN ALLOCATING AND UTILIZING 
TAX INCENTIVES PROVIDED PURSUANT TO THE GULF 
OPPORTUNITY ZONE ACT OF 2005. 
(a) IN GENERAL.—The Comptroller General of the United States 
shall conduct a study of the practices employed by State and local 
governments, and subdivisions thereof, in allocating and utilizing 
tax incentives provided pursuant to the Gulf Opportunity Zone 
Act of 2005 and this Act. 
(b) SUBMISSION
OF REPORT.—Not later than one year after 
the date of the enactment of this Act, the Comptroller General 
shall submit a report on the findings of the study conducted under 
subsection (a) and shall include therein recommendations (if any) 
relating to such findings. The report shall be submitted to the 
Committee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate. 
(c) CONGRESSIONAL HEARINGS.—In the case that the report 
submitted under this section includes findings of significant fraud, 
waste or abuse, each Committee specified in subsection (b) shall, 
within 60 days after the date the report is submitted under sub-
section (b), hold a public hearing to review such findings. 
Subpart C—Subchapter S Provisions 
SEC. 7531. CAPITAL GAIN OF S CORPORATION NOT TREATED AS PAS-
SIVE INVESTMENT INCOME. 
(a) IN GENERAL.—Section 1362(d)(3) is amended by striking 
subparagraphs (B), (C), (D), (E), and (F) and inserting the following 
new subparagraph: 
‘‘(B) PASSIVE INVESTMENT INCOME DEFINED.—
‘‘(i) IN
GENERAL.—Except as otherwise provided 
in this subparagraph, the term ‘passive investment 
income’ means gross receipts derived from royalties, 
rents, dividends, interest, and annuities. 
‘‘(ii) EXCEPTION
FOR
INTEREST
ON
NOTES
FROM 
SALES OF INVENTORY.—The term ‘passive investment 
income’ shall not include interest on any obligation 
acquired in the ordinary course of the corporation’s 
trade or business from its sale of property described 
in section 1221(a)(1).
H. R. 1591—85
‘‘(iii) TREATMENT OF CERTAIN LENDING OR FINANCE 
COMPANIES.—If the S corporation meets the require-
ments of section 542(c)(6) for the taxable year, the 
term ‘passive investment income’ shall not include 
gross receipts for the taxable year which are derived 
directly from the active and regular conduct of a 
lending or finance business (as defined in section 
542(d)(1)). 
‘‘(iv) TREATMENT OF CERTAIN DIVIDENDS.—If an S 
corporation holds stock in a C corporation meeting 
the requirements of section 1504(a)(2), the term ‘pas-
sive investment income’ shall not include dividends 
from such C corporation to the extent such dividends 
are attributable to the earnings and profits of such 
C corporation derived from the active conduct of a 
trade or business. 
‘‘(v) EXCEPTION FOR BANKS, ETC.—In the case of 
a bank (as defined in section 581) or a depository 
institution holding company (as defined in section 
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(w)(1)), the term ‘passive investment income’ shall 
not include—
‘‘(I) interest income earned by such bank or 
company, or 
‘‘(II) dividends on assets required to be held 
by such bank or company, including stock in the 
Federal Reserve Bank, the Federal Home Loan 
Bank, or the Federal Agricultural Mortgage Bank 
or participation certificates issued by a Federal 
Intermediate Credit Bank.’’. 
(b) 
CONFORMING
AMENDMENT.—Clause 
(i) 
of 
section 
1042(c)(4)(A) is amended by striking ‘‘section 1362(d)(3)(C)’’ and 
inserting ‘‘section 1362(d)(3)(B)’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
SEC. 7532. TREATMENT OF BANK DIRECTOR SHARES. 
(a) IN GENERAL.—Section 1361 (defining S corporation) is 
amended by adding at the end the following new subsection: 
‘‘(f) RESTRICTED BANK DIRECTOR STOCK.—
‘‘(1) IN GENERAL.—Restricted bank director stock shall not 
be taken into account as outstanding stock of the S corporation 
in applying this subchapter (other than section 1368(f)). 
‘‘(2) RESTRICTED BANK DIRECTOR STOCK.—For purposes of 
this subsection, the term ‘restricted bank director stock’ means 
stock in a bank (as defined in section 581) or a depository 
institution holding company (as defined in section 3(w)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1)), if 
such stock—
‘‘(A) is required to be held by an individual under 
applicable Federal or State law in order to permit such 
individual to serve as a director, and 
‘‘(B) is subject to an agreement with such bank or 
company (or a corporation which controls (within the 
meaning of section 368(c)) such bank or company) pursuant 
to which the holder is required to sell back such stock
H. R. 1591—86
(at the same price as the individual acquired such stock) 
upon ceasing to hold the office of director. 
‘‘(3) CROSS REFERENCE.—
‘‘For treatment of certain distributions with respect to restricted bank director stock, 
see section 1368(f)’’.
(b) DISTRIBUTIONS.—Section 1368 (relating to distributions) is 
amended by adding at the end the following new subsection: 
‘‘(f) RESTRICTED BANK DIRECTOR STOCK.—If a director receives 
a distribution (not in part or full payment in exchange for stock) 
from an S corporation with respect to any restricted bank director 
stock (as defined in section 1361(f)), the amount of such distribu-
tion—
‘‘(1) shall be includible in gross income of the director, 
and 
‘‘(2) shall be deductible by the corporation for the taxable 
year of such corporation in which or with which ends the 
taxable year in which such amount in included in the gross 
income of the director.’’. 
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
(2) SPECIAL RULE FOR TREATMENT AS SECOND CLASS OF 
STOCK.—In the case of any taxable year beginning after 
December 31, 1996, restricted bank director stock (as defined 
in section 1361(f) of the Internal Revenue Code of 1986, as 
added by this section) shall not be taken into account in deter-
mining whether an S corporation has more than 1 class of 
stock. 
SEC. 7533. SPECIAL RULE FOR BANK REQUIRED TO CHANGE FROM 
THE RESERVE METHOD OF ACCOUNTING ON BECOMING 
S CORPORATION. 
(a) IN GENERAL.—Section 1361, as amended by this Act, is 
amended by adding at the end the following new subsection: 
‘‘(g) SPECIAL RULE
FOR BANK REQUIRED TO CHANGE FROM 
THE RESERVE METHOD OF ACCOUNTING ON BECOMING S CORPORA-
TION.—In the case of a bank which changes from the reserve method 
of accounting for bad debts described in section 585 or 593 for 
its first taxable year for which an election under section 1362(a) 
is in effect, the bank may elect to take into account any adjustments 
under section 481 by reason of such change for the taxable year 
immediately preceding such first taxable year.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 7534. TREATMENT OF THE SALE OF INTEREST IN A QUALIFIED 
SUBCHAPTER S SUBSIDIARY. 
(a) IN
GENERAL.—Subparagraph (C) of section 1361(b)(3) 
(relating to treatment of terminations of qualified subchapter S 
subsidiary status) is amended—
(1) by striking ‘‘For purposes of this title,’’ and inserting 
the following: 
‘‘(i) IN GENERAL.—For purposes of this title,’’, and 
(2) by inserting at the end the following new clause: 
‘‘(ii) TERMINATION BY REASON OF SALE OF STOCK.—
If the failure to meet the requirements of subparagraph 
(B) is by reason of the sale of stock of a corporation
H. R. 1591—87
which is a qualified subchapter S subsidiary, the sale 
of such stock shall be treated as if—
‘‘(I) the sale were a sale of an undivided 
interest in the assets of such corporation (based 
on the percentage of the corporation’s stock sold), 
and 
‘‘(II) the sale were followed by an acquisition 
by such corporation of all of its assets (and the 
assumption by such corporation of all of its liabil-
ities) in a transaction to which section 351 
applies.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 7535. ELIMINATION OF ALL EARNINGS AND PROFITS ATTRIB-
UTABLE TO PRE-1983 YEARS FOR CERTAIN CORPORA-
TIONS. 
In the case of a corporation which is—
(1) described in section 1311(a)(1) of the Small Business 
Job Protection Act of 1996, and 
(2) not described in section 1311(a)(2) of such Act, 
the amount of such corporation’s accumulated earnings and profits 
(for the first taxable year beginning after the date of the enactment 
of this Act) shall be reduced by an amount equal to the portion 
(if any) of such accumulated earnings and profits which were 
accumulated in any taxable year beginning before January 1, 1983, 
for which such corporation was an electing small business corpora-
tion under subchapter S of the Internal Revenue Code of 1986. 
SEC. 7536. DEDUCTIBILITY OF INTEREST EXPENSE ON INDEBTEDNESS 
INCURRED BY AN ELECTING SMALL BUSINESS TRUST TO 
ACQUIRE S CORPORATION STOCK. 
(a) IN
GENERAL.—Subparagraph (C) of section 641(c)(2) 
(relating to modifications) is amended by inserting after clause 
(iii) the following new clause: 
‘‘(iv) Any interest expense paid or accrued on 
indebtedness incurred to acquire stock in an S corpora-
tion.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 2006. 
PART II—REVENUE PROVISIONS 
SEC. 7541. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
INCOME IS TAXED AS IF PARENT’S INCOME. 
(a) IN GENERAL.—Subparagraph (A) of section 1(g)(2) (relating 
to child to whom subsection applies) is amended to read as follows: 
‘‘(A) such child—
‘‘(i) has not attained age 18 before the close of 
the taxable year, or 
‘‘(ii)(I) has attained age 18 before the close of the 
taxable year and meets the age requirements of section 
152(c)(3) (determined without regard to subparagraph 
(B) thereof), and 
‘‘(II) whose earned income (as defined in section 
911(d)(2)) for such taxable year does not exceed one-
half of the amount of the individual’s support (within
H. R. 1591—88
the meaning of section 152(c)(1)(D) after the applica-
tion of section 152(f)(5) (without regard to subpara-
graph (A) thereof)) for such taxable year,’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act. 
SEC. 7542. SUSPENSION OF CERTAIN PENALTIES AND INTEREST. 
(a) IN GENERAL.—Paragraphs (1)(A) and (3)(A) of section 
6404(g) are each amended by striking ‘‘18-month period’’ and 
inserting ‘‘36-month period’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to notices provided by the Secretary of the Treasury, 
or his delegate, after the date which is 6 months after the date 
of the enactment of this Act. 
SEC. 7543. MODIFICATION OF COLLECTION DUE PROCESS PROCE-
DURES FOR EMPLOYMENT TAX LIABILITIES. 
(a) IN GENERAL.—Section 6330(f) (relating to jeopardy and State 
refund collection) is amended—
(1) by striking ‘‘; or’’ at the end of paragraph (1) and 
inserting a comma, 
(2) by adding ‘‘or’’ at the end of paragraph (2), and 
(3) by inserting after paragraph (2) the following new para-
graph: 
‘‘(3) the Secretary has served a disqualified employment 
tax levy,’’. 
(b) DISQUALIFIED EMPLOYMENT TAX LEVY.—Section 6330 of 
such Code (relating to notice and opportunity for hearing before 
levy) is amended by adding at the end the following new subsection: 
‘‘(h) DISQUALIFIED EMPLOYMENT TAX LEVY.—For purposes of 
subsection (f), a disqualified employment tax levy is any levy in 
connection with the collection of employment taxes for any taxable 
period if the person subject to the levy (or any predecessor thereof) 
requested a hearing under this section with respect to unpaid 
employment taxes arising in the most recent 2-year period before 
the beginning of the taxable period with respect to which the 
levy is served. For purposes of the preceding sentence, the term 
‘employment taxes’ means any taxes under chapter 21, 22, 23, 
or 24.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to levies served on or after the date that is 120 days 
after the date of the enactment of this Act. 
SEC. 7544. PERMANENT EXTENSION OF IRS USER FEES. 
Section 7528 (relating to Internal Revenue Service user fees) 
is amended by striking subsection (c). 
SEC. 7545. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
ORDERS. 
(a) IN GENERAL.—Section 6657 (relating to bad checks) is 
amended—
(1) by striking ‘‘$750’’ and inserting ‘‘$1,250’’, and 
(2) by striking ‘‘$15’’ and inserting ‘‘$25’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
apply to checks or money orders received after the date of the 
enactment of this Act.
H. R. 1591—89
SEC. 7546. UNDERSTATEMENT OF TAXPAYER LIABILITY BY RETURN 
PREPARERS. 
(a) APPLICATION OF RETURN PREPARER PENALTIES TO ALL TAX 
RETURNS.—
(1) DEFINITION OF TAX RETURN PREPARER.—Paragraph (36) 
of section 7701(a) (relating to income tax preparer) is 
amended—
(A) by striking ‘‘income’’ each place it appears in the 
heading and the text, and 
(B) in subparagraph (A), by striking ‘‘subtitle A’’ each 
place it appears and inserting ‘‘this title’’. 
(2) CONFORMING AMENDMENTS.—
(A)(i) Section 6060 is amended by striking ‘‘INCOME 
TAX RETURN PREPARERS’’ in the heading and inserting 
‘‘TAX RETURN PREPARERS’’. 
(ii) Section 6060(a) is amended—
(I) by striking ‘‘an income tax return preparer’’ 
each place it appears and inserting ‘‘a tax return pre-
parer’’, 
(II) by striking ‘‘each income tax return preparer’’ 
and inserting ‘‘each tax return preparer’’, and 
(III) by striking ‘‘another income tax return pre-
parer’’ and inserting ‘‘another tax return preparer’’. 
(iii) The item relating to section 6060 in the table 
of sections for subpart F of part III of subchapter A of 
chapter 61 is amended by striking ‘‘income tax return pre-
parers’’ and inserting ‘‘tax return preparers’’. 
(iv) Subpart F of part III of subchapter A of chapter 
61 is amended by striking ‘‘Income Tax Return Pre-
parers’’ in the heading and inserting ‘‘Tax Return Pre-
parers’’. 
(v) The item relating to subpart F in the table of 
subparts for part III of subchapter A of chapter 61 is 
amended by striking ‘‘income tax return preparers’’ and 
inserting ‘‘tax return preparers’’. 
(B) Section 6103(k)(5) is amended—
(i) by striking ‘‘income tax return preparer’’ each 
place it appears and inserting ‘‘tax return preparer’’, 
and 
(ii) by striking ‘‘income tax return preparers’’ each 
place it appears and inserting ‘‘tax return preparers’’. 
(C)(i) Section 6107 is amended—
(I) by striking ‘‘INCOME TAX RETURN PREPARER’’ 
in the heading and inserting ‘‘TAX RETURN PREPARER’’, 
(II) by striking ‘‘an income tax return preparer’’ 
each place it appears in subsections (a) and (b) and 
inserting ‘‘a tax return preparer’’, 
(III) by striking ‘‘INCOME TAX RETURN PREPARER’’ 
in the heading for subsection (b) and inserting ‘‘TAX 
RETURN PREPARER’’, and 
(IV) in subsection (c), by striking ‘‘income tax 
return preparers’’ and inserting ‘‘tax return preparers’’. 
(ii) The item relating to section 6107 in the table 
of sections for subchapter B of chapter 61 is amended 
by striking ‘‘Income tax return preparer’’ and inserting 
‘‘Tax return preparer’’. 
(D) Section 6109(a)(4) is amended—
H. R. 1591—90
(i) by striking ‘‘an income tax return preparer’’ 
and inserting ‘‘a tax return preparer’’, and 
(ii) by striking ‘‘INCOME RETURN PREPARER’’ in the 
heading and inserting ‘‘TAX RETURN PREPARER’’. 
(E) Section 6503(k)(4) is amended by striking ‘‘Income 
tax return preparers’’ and inserting ‘‘Tax return preparers’’. 
(F)(i) Section 6694 is amended—
(I) by striking ‘‘INCOME TAX RETURN PREPARER’’ 
in the heading and inserting ‘‘TAX RETURN PREPARER’’, 
(II) by striking ‘‘an income tax return preparer’’ 
each place it appears and inserting ‘‘a tax return pre-
parer’’, 
(III) in subsection (c)(2), by striking ‘‘the income 
tax return preparer’’ and inserting ‘‘the tax return 
preparer’’, 
(IV) in subsection (e), by striking ‘‘subtitle A’’ and 
inserting ‘‘this title’’, and 
(V) in subsection (f), by striking ‘‘income tax return 
preparer’’ and inserting ‘‘tax return preparer’’. 
(ii) The item relating to section 6694 in the table 
of sections for part I of subchapter B of chapter 68 is 
amended by striking ‘‘income tax return preparer’’ and 
inserting ‘‘tax return preparer’’. 
(G)(i) Section 6695 is amended—
(I) by striking ‘‘INCOME’’ in the heading, and 
(II) by striking ‘‘an income tax return preparer’’ 
each place it appears and inserting ‘‘a tax return pre-
parer’’. 
(ii) Section 6695(f) is amended—
(I) by striking ‘‘subtitle A’’ and inserting ‘‘this 
title’’, and 
(II) by striking ‘‘the income tax return preparer’’ 
and inserting ‘‘the tax return preparer’’. 
(iii) The item relating to section 6695 in the table 
of sections for part I of subchapter B of chapter 68 is 
amended by striking ‘‘income’’. 
(H) Section 6696(e) is amended by striking ‘‘subtitle 
A’’ each place it appears and inserting ‘‘this title’’. 
(I)(i) Section 7407 is amended—
(I) by striking ‘‘INCOME TAX RETURN PREPARERS’’ 
in the heading and inserting ‘‘TAX
RETURN
PRE-
PARERS’’, 
(II) by striking ‘‘an income tax return preparer’’ 
each place it appears and inserting ‘‘a tax return pre-
parer’’, 
(III) by striking ‘‘income tax preparer’’ both places 
it appears in subsection (a) and inserting ‘‘tax return 
preparer’’, and 
(IV) by striking ‘‘income tax return’’ in subsection 
(a) and inserting ‘‘tax return’’. 
(ii) The item relating to section 7407 in the table 
of sections for subchapter A of chapter 76 is amended 
by striking ‘‘income tax return preparers’’ and inserting 
‘‘tax return preparers’’. 
(J)(i) Section 7427 is amended—
H. R. 1591—91
(I) by striking ‘‘INCOME TAX RETURN PREPARERS’’ 
in the heading and inserting ‘‘TAX
RETURN
PRE-
PARERS’’, and 
(II) by striking ‘‘an income tax return preparer’’ 
and inserting ‘‘a tax return preparer’’. 
(ii) The item relating to section 7427 in the table 
of sections for subchapter B of chapter 76 is amended 
to read as follows:
‘‘Sec. 7427. Tax return preparers.’’.
(b) MODIFICATION OF PENALTY FOR UNDERSTATEMENT OF TAX-
PAYER’S LIABILITY BY TAX RETURN PREPARER.—Subsections (a) and 
(b) of section 6694 are amended to read as follows: 
‘‘(a) UNDERSTATEMENT DUE
TO UNREASONABLE POSITIONS.—
‘‘(1) IN GENERAL.—Any tax return preparer who prepares 
any return or claim for refund with respect to which any 
part of an understatement of liability is due to a position 
described in paragraph (2) shall pay a penalty with respect 
to each such return or claim in an amount equal to the greater 
of—
‘‘(A) $1,000, or 
‘‘(B) 50 percent of the income derived (or to be derived) 
by the tax return preparer with respect to the return 
or claim. 
‘‘(2) UNREASONABLE POSITION.—A position is described in 
this paragraph if—
‘‘(A) the tax return preparer knew (or reasonably 
should have known) of the position, 
‘‘(B) there was not a reasonable belief that the position 
would more likely than not be sustained on its merits, 
and 
‘‘(C)(i) the position was not disclosed as provided in 
section 6662(d)(2)(B)(ii), or 
‘‘(ii) there was no reasonable basis for the position. 
‘‘(3) REASONABLE CAUSE EXCEPTION.—No penalty shall be 
imposed under this subsection if it is shown that there is 
reasonable cause for the understatement and the tax return 
preparer acted in good faith. 
‘‘(b) UNDERSTATEMENT DUE TO WILLFUL OR RECKLESS CON-
DUCT.—
‘‘(1) IN GENERAL.—Any tax return preparer who prepares 
any return or claim for refund with respect to which any 
part of an understatement of liability is due to a conduct 
described in paragraph (2) shall pay a penalty with respect 
to each such return or claim in an amount equal to the greater 
of—
‘‘(A) $5,000, or 
‘‘(B) 50 percent of the income derived (or to be derived) 
by the tax return preparer with respect to the return 
or claim. 
‘‘(2) WILLFUL OR RECKLESS CONDUCT.—Conduct described 
in this paragraph is conduct by the tax return preparer which 
is—
‘‘(A) a willful attempt in any manner to understate 
the liability for tax on the return or claim, or 
‘‘(B) a reckless or intentional disregard of rules or 
regulations.
H. R. 1591—92
‘‘(3) REDUCTION IN PENALTY.—The amount of any penalty 
payable by any person by reason of this subsection for any 
return or claim for refund shall be reduced by the amount 
of the penalty paid by such person by reason of subsection 
(a).’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to returns prepared after the date of the enactment 
of this Act. 
SEC. 7547. PENALTY FOR FILING ERRONEOUS REFUND CLAIMS. 
(a) IN GENERAL.—Part I of subchapter B of chapter 68 (relating 
to assessable penalties) is amended by inserting after section 6675 
the following new section: 
‘‘SEC. 6676. ERRONEOUS CLAIM FOR REFUND OR CREDIT. 
‘‘(a) CIVIL PENALTY.—If a claim for refund or credit with respect 
to income tax (other than a claim for a refund or credit relating 
to the earned income credit under section 32) is made for an 
excessive amount, unless it is shown that the claim for such exces-
sive amount has a reasonable basis, the person making such claim 
shall be liable for a penalty in an amount equal to 20 percent 
of the excessive amount. 
‘‘(b) EXCESSIVE AMOUNT.—For purposes of this section, the term 
‘excessive amount’ means in the case of any person the amount 
by which the amount of the claim for refund or credit for any 
taxable year exceeds the amount of such claim allowable under 
this title for such taxable year. 
‘‘(c) COORDINATION WITH OTHER PENALTIES.—This section shall 
not apply to any portion of the excessive amount of a claim for 
refund or credit which is subject to a penalty imposed under part 
II of subchapter A of chapter 68.’’. 
(b) CONFORMING AMENDMENT.—The table of sections for part 
I of subchapter B of chapter 68 is amended by inserting after 
the item relating to section 6675 the following new item:
‘‘Sec. 6676. Erroneous claim for refund or credit.’’.
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any claim filed or submitted after the date of the 
enactment of this Act. 
SEC. 7548. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 
Subparagraph (B) of section 401(1) of the Tax Increase Preven-
tion and Reconciliation Act of 2005 is amended by striking ‘‘106.25 
percent’’ and inserting ‘‘114.25 percent’’.
H. R. 1591—93
This Act may be cited as the ‘‘U.S. Troop Readiness, Veterans’ 
Care, Katrina Recovery, and Iraq Accountability Appropriations 
Act, 2007’’.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.