H. R. 2206—87
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. 8233. 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. 8234. 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 
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
H. R. 2206—88
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. 8235. 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. 8236. 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 2—REVENUE PROVISIONS 
SEC. 8241. INCREASE IN AGE OF 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 
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) CONFORMING AMENDMENT.—Subsection (g) of section 1 is 
amended by striking ‘‘MINOR’’ in the heading thereof. 
(c) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
H. R. 2206—89
SEC. 8242. 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. 8243. 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. 8244. PERMANENT EXTENSION OF IRS USER FEES. 
Section 7528 (relating to Internal Revenue Service user fees) 
is amended by striking subsection (c). 
SEC. 8245. 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. 
SEC. 8246. 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—
H. R. 2206—90
(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—
(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—