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(17) TREBLE
DAMAGE
PAYMENTS
UNDER
THE
ANTITRUST
LAW.—Section 162(g) is amended by
striking the last sentence.
(18) STATE
LEGISLATORS’ TRAVEL
EXPENSES
AWAY FROM HOME.—Paragraph (4) of section 162(h)
is amended by striking ‘‘For taxable years beginning
after December 31, 1980, this’’ and inserting ‘‘This’’.
(19) HEALTH INSURANCE COSTS OF SELF-EM-
PLOYED
INDIVIDUALS.—Paragraph (1) of section
162(l) is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of
an individual who is an employee within the mean-
ing of section 401(c)(1), there shall be allowed as a
deduction under this section an amount equal to 100
percent of the amount paid during the taxable year
for insurance which constitutes medical care for the
taxpayer and the taxpayer’s spouse and dependents.’’.
(20) INTEREST.—
(A) Section 163 is amended by striking
paragraph (6) of subsection (d) and paragraph
(5) (relating to phase-in of limitation) of sub-
section (h).
(B) Section 56(b)(1)(C) is amended by
striking clause (ii) and by redesignating clauses
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(iii), (iv), and (v) as clauses (ii), (iii), and (iv),
respectively.
(21) CHARITABLE, ETC., CONTRIBUTIONS
AND
GIFTS.—Section 170 is amended by striking sub-
section (k).
(22) AMORTIZABLE BOND PREMIUM.—Subpara-
graph (B) of section 171(b)(1) is amended to read as
follows:
‘‘(B)(i) in the case of a bond described in
subsection (a)(2), with reference to the amount
payable on maturity or earlier call date, and
‘‘(ii) in the case of a bond described in sub-
section (a)(1), with reference to the amount pay-
able on maturity (or if it results in a smaller
amortizable bond premium attributable to the
period of earlier call date, with reference to the
amount payable on earlier call date), and’’.
(23) NET
OPERATING
LOSS
CARRYBACKS
AND
CARRYOVERS.—
(A) Section 172 is amended—
(i) by striking subparagraph (D) of
subsection (b)(1) and by redesignating sub-
paragraphs (E), (F), (G), and (H) as sub-
paragraphs (D), (E), (F), and (G), respec-
tively,
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(ii) by striking ‘‘ending after August 2,
1989’’ in subsection (b)(1)(D)(i)(II) (as re-
designated by clause (i)),
(iii) by striking ‘‘subparagraph (F)’’
in subsection (b)(1)(G) (as redesignated by
clause (i)) and inserting ‘‘subparagraph
(E)’’,
(iv) by striking subsection (g), and
(v) by striking subparagraph (F) of
subsection (h)(2).
(B) Section 172(h)(4) is amended by strik-
ing ‘‘subsection (b)(1)(E)’’ each place it appears
and inserting ‘‘subsection (b)(1)(D)’’.
(C) Section 172(i)(3) is amended by strik-
ing ‘‘subsection (b)(1)(G)’’ each place it appears
and inserting ‘‘subsection (b)(1)(F)’’.
(D) Section 172(j) is amended by striking
‘‘subsection (b)(1)(H)’’ each place it appears and
inserting ‘‘subsection (b)(1)(G)’’.
(E) Section 172, as amended by subpara-
graphs (A) through (D) of this paragraph, is
amended—
(i) by redesignating subsections (h),
(i), and (j) as subsections (g), (h), and (i),
respectively,
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(ii) by striking ‘‘subsection (h)’’ each
place it appears and inserting ‘‘subsection
(g)’’, and
(iii) by striking ‘‘subsection (i)’’ each
place it appears and inserting ‘‘subsection
(h)’’.
(24) RESEARCH AND EXPERIMENTAL EXPENDI-
TURES.—Subparagraph (A) of section 174(a)(2) is
amended to read as follows:
‘‘(A) 
WITHOUT
CONSENT.—A 
taxpayer
may, without the consent of the Secretary, adopt
the method provided in this subsection for his
first taxable year for which expenditures de-
scribed in paragraph (1) are paid or incurred.’’.
(25) AMORTIZATION OF CERTAIN RESEARCH AND
EXPERIMENTAL
EXPENDITURES.—Paragraph (2) of
section 174(b)(2) is amended by striking ‘‘beginning
after December 31, 1953’’.
(26) SOIL AND WATER CONSERVATION EXPENDI-
TURES.—Paragraph (1) of section 175(d) is amended
to read as follows:
‘‘(1) WITHOUT
CONSENT.—A taxpayer may,
without the consent of the Secretary, adopt the method
provided in this section for his first taxable year for
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which expenditures described in subsection (a) are
paid or incurred.’’.
(27) ACTIVITIES NOT ENGAGED IN FOR PROF-
IT.—Section 183(e)(1) is amended by striking the last
sentence.
(28) DIVIDENDS
RECEIVED
ON
CERTAIN
PRE-
FERRED STOCK; AND DIVIDENDS PAID ON CERTAIN
PREFERRED STOCK OF PUBLIC UTILITIES.—
(A) Sections 244 and 247 are hereby re-
pealed and the table of sections for part VIII of
subchapter B of chapter 1 is amended by strik-
ing the items relating to sections 244 and 247.
(B) Paragraph (5) of section 172(d) is
amended to read as follows:
‘‘(5) COMPUTATION
OF
DEDUCTION
FOR
DIVI-
DENDS RECEIVED.—The deductions allowed by section
243 (relating to dividends received by corporations)
and 245 (relating to dividends received from certain
foreign corporations) shall be computed without re-
gard to section 246(b) (relating to limitation on ag-
gregate amount of deductions).’’.
(C) Paragraph (1) of section 243(c) is
amended to read as follows:
‘‘(1) IN GENERAL.—In the case of any dividend
received from a 20-percent owned corporation, sub-
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section (a)(1) shall be applied by substituting ‘80 per-
cent’ for ‘70 percent’.’’.
(D) Section 243(d) is amended by striking
paragraph (4).
(E) Section 246 is amended—
(i) by striking ‘‘, 244,’’ in subsection
(a)(1),
(ii) in subsection (b)(1)—
(I) 
by 
striking 
‘‘sections
243(a)(1), and 244(a),’’ the first place
it appears and inserting ‘‘section
243(a)(1),’’,
(II) by striking ‘‘244(a),’’ the sec-
ond place it appears therein, and
(III) by striking ‘‘subsection (a)
or (b) of section 245, and 247,’’ and
inserting ‘‘and subsection (a) or (b) of
section 245,’’, and
(iii) by striking ‘‘, 244,’’ in subsection
(c)(1).
(F) Section 246A is amended by striking ‘‘,
244,’’ both places it appears in subsections (a)
and (e).
(G) 
Sections 
263(g)(2)(B)(iii), 
277(a),
301(e)(2), 
469(e)(4), 
512(a)(3)(A), 
subpara-
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graphs (A), (C), and (D) of section 805(a)(4),
805(b)(5), 
812(e)(2)(A), 
815(c)(2)(A)(iii),
832(b)(5), 
833(b)(3)(E), 
1059(b)(2)(B), 
and
1244(c)(2)(C) are each amended by striking ‘‘,
244,’’ each place it appears.
(H) Section 805(a)(4)(B) is amended by
striking ‘‘, 244(a),’’ each place it appears.
(I) Section 810(c)(2)(B) is amended by
striking ‘‘244 (relating to dividends on certain
preferred stock of public utilities),’’.
(29) ORGANIZATION EXPENSES.—Section 248(c)
is amended by striking ‘‘beginning after December 31,
1953,’’ and by striking the last sentence.
(30) BOND
REPURCHASE
PREMIUM.—Section
249(b)(1) is amended by striking ‘‘, in the case of
bonds or other evidences of indebtedness issued after
February 28, 1913,’’.
(31) AMOUNT OF GAIN WHERE LOSS PREVIOUSLY
DISALLOWED.—Section 267(d) is amended by striking
‘‘(or by reason of section 24(b) of the Internal Rev-
enue Code of 1939)’’ in paragraph (1), by striking
‘‘after December 31, 1953,’’ in paragraph (2), by
striking the second sentence, and by striking ‘‘or by
reason of section 118 of the Internal Revenue Code of
1939’’ in the last sentence.
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(32) ACQUISITIONS MADE TO EVADE OR AVOID
INCOME
TAX.—Paragraphs (1) and (2) of section
269(a) are each amended by striking ‘‘or acquired on
or after October 8, 1940,’’.
(33) INTEREST ON INDEBTEDNESS INCURRED BY
CORPORATIONS TO ACQUIRE STOCK OR ASSETS OF AN-
OTHER CORPORATION.—Section 279 is amended—
(A) by striking ‘‘after December 31, 1967,’’
in subsection (a)(2),
(B) by striking ‘‘after October 9, 1969,’’ in
subsection (b),
(C) by striking ‘‘after October 9, 1969, and’’
in subsection (d)(5), and
(D) by striking subsection (i) and by redes-
ignating subsection (j) as subsection (i).
(34) SPECIAL RULES RELATING TO CORPORATE
PREFERENCE
ITEMS.—Paragraph (4) of section
291(a) is amended by striking ‘‘In the case of taxable
years beginning after December 31, 1984, section’’
and inserting ‘‘Section’’.
(35) QUALIFICATIONS
FOR
TAX
CREDIT
EM-
PLOYEE
STOCK
OWNERSHIP
PLAN.—Section 409 is
amended by striking subsections (a), (g), and (q).
(36) FUNDING STANDARDS.—Section 412(m)(4)
is amended—
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(A) by striking ‘‘the applicable percentage’’
in subparagraph (A) and inserting ‘‘25 percent’’,
and
(B) by striking subparagraph (C) and by
redesignating subparagraph (D) as subpara-
graph (C).
(37) RETIREE HEALTH ACCOUNTS.—Section 420
is amended—
(A) by striking paragraph (4) in subsection
(b) and by redesignating paragraph (5) as para-
graph (4), and
(B) by amending paragraph (2) of sub-
section (c) to read as follows:
‘‘(2) REQUIREMENTS
RELATING
TO
PENSION
BENEFITS
ACCRUING
BEFORE
TRANSFER.—The re-
quirements of this paragraph are met if the plan pro-
vides that the accrued pension benefits of any partici-
pant or beneficiary under the plan become nonforfeit-
able in the same manner which would be required if
the plan had terminated immediately before the quali-
fied transfer (or in the case of a participant who sep-
arated during the 1-year period ending on the date of
the transfer, immediately before such separation).’’.
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(38) EMPLOYEE STOCK PURCHASE PLANS.—Sec-
tion 423(a) is amended by striking ‘‘after December
31, 1963,’’.
(39) LIMITATION ON DEDUCTIONS FOR CERTAIN
FARMING.—Section 464 is amended—
(A) by striking ‘‘any farming syndicate (as
defined in subsection (c))’’ both places it appears
in subsections (a) and (b) and inserting ‘‘any
taxpayer to whom subsection (f) applies’’, and
(B) by striking subsection (g).
(40) DEDUCTIONS
LIMITED
TO
AMOUNT
AT
RISK.—
(A) Paragraph (3) of section 465(c) is
amended by striking ‘‘In the case of taxable
years beginning after December 31, 1978, this’’
and inserting ‘‘This’’.
(B) Paragraph (2) of section 465(e)(2)(A) is
amended by striking ‘‘beginning after December
31, 1978’’.
(41) NUCLEAR DECOMMISSIONING COSTS.—Sec-
tion 468A(e)(2) is amended—
(A) by striking ‘‘at the rate set forth in sub-
paragraph (B)’’ in subparagraph (A) and insert-
ing ‘‘at a rate of 20 percent’’, and
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(B) by striking subparagraph (B) and by
redesignating subparagraphs (C) and (D) as sub-
paragraphs (B) and (C), respectively.
(42) PASSIVE
ACTIVITY
LOSSES
AND
CREDITS
LIMITED.—
(A) Section 469 is amended by striking sub-
section (m).
(B) Subsection (b) of section 58 is amended
by adding ‘‘and’’ at the end of paragraph (1), by
striking paragraph (2), and by redesignating
paragraph (3) as paragraph (2).
(43) ADJUSTMENTS REQUIRED BY CHANGES IN
METHOD
OF
ACCOUNTING.—Section 481(b)(3) is
amended by striking subparagraph (C).
(44) EXEMPTION FROM TAX ON CORPORATIONS,
CERTAIN TRUSTS, ETC.—Section 501 is amended by
striking subsection (q).
(45) REQUIREMENTS FOR EXEMPTION.—
(A) Section 503(a)(1) is amended to read as
follows:
‘‘(1) GENERAL
RULE.—An organization de-
scribed in paragraph (17) or (18) of section 501(c) or
described in section 401(a) and referred to in section
4975(g)(2) or (3) shall not be exempt from taxation
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HR 1528 EAS
under section 501(a) if it has engaged in a prohibited
transaction.’’.
(B) Paragraph (2) of section 503(a) is
amended by striking ‘‘described in section
501(c)(17) or (18) or paragraph (a)(1)(B)’’ and
inserting ‘‘described in paragraph (1)’’.
(C) Subsection (c) of section 503 is amended
by striking ‘‘described in section 501(c)(17) or
(18) or subsection (a)(1)(B)’’ and inserting ‘‘de-
scribed in subsection (a)(1)’’.
(46) AMOUNTS RECEIVED BY SURVIVING ANNU-
ITANT UNDER JOINT AND SURVIVOR ANNUITY CON-
TRACT.—Subparagraph (A) of section 691(d)(1) is
amended by striking ‘‘after December 31, 1953, and’’.
(47) INCOME
TAXES
OF
MEMBERS
OF
ARMED
FORCES ON DEATH.—Section 692(a)(1) is amended
by striking ‘‘after June 24, 1950’’.
(48) INSURANCE COMPANY TAXABLE INCOME.—
(A) Section 832(e) is amended by striking
‘‘of taxable years beginning after December 31,
1966,’’.
(B) Section 832(e)(6) is amended by strik-
ing ‘‘In the case of any taxable year beginning
after December 31, 1970, the’’ and by inserting
‘‘The’’.
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(49) TAX
ON
NONRESIDENT
ALIEN
INDIVID-
UALS.—Subparagraph (B) of section 871(a)(1) is
amended to read as follows:
‘‘(B) gains described in subsection (b) or (c)
of section 631,’’.
(50) PROPERTY ON WHICH LESSEE HAS MADE
IMPROVEMENTS.—Section 1019 is amended by strik-
ing the last sentence.
(51) INVOLUNTARY CONVERSION.—Section 1033
is amended by striking subsection (j) and by redesig-
nating subsection (k) as subsection (j).
(52) PROPERTY
ACQUIRED
DURING
AFFILI-
ATION.—Section 1051 is repealed and the table of sec-
tions for part IV of subchapter O of chapter 1 is
amended by striking the item relating to section 1051.
(53) HOLDING PERIOD OF PROPERTY.—
(A) Paragraph (5) of section 1223 is
amended by striking ‘‘(or under so much of sec-
tion 1052(c) as refers to section 113(a)(23) of the
Internal Revenue Code of 1939)’’.
(B) Paragraph (7) of section 1223 is
amended by striking the last sentence.
(C) Paragraph (9) of section 1223 is re-
pealed.
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(54) PROPERTY USED IN THE TRADE OR BUSI-
NESS
AND
INVOLUNTARY
CONVERSIONS.—Subpara-
graph (A) of section 1231(c)(2) is amended by strik-
ing ‘‘beginning after December 31, 1981’’.
(55) SALE OR EXCHANGE OF PATENTS.—Section
1235 is amended—
(A) by striking subsection (c) and by redes-
ignating subsections (d) and (e) as (c) and (d),
respectively, and
(B) by striking ‘‘(d)’’ in subsection (b) and
inserting ‘‘(c)’’.
(56) DEALERS IN SECURITIES.—Subsection (b)
of section 1236 is amended by striking ‘‘after Novem-
ber 19, 1951,’’.
(57) SALE OF PATENTS.—Subsection (a) of sec-
tion 1249 is amended by striking ‘‘after December 31,
1962,’’.
(58) GAIN FROM DISPOSITION OF FARM LAND.—
Paragraph (1) of section 1252(a) is amended by strik-
ing ‘‘after December 31, 1969,’’ both places it ap-
pears.
(59) TREATMENT OF AMOUNTS RECEIVED ON RE-
TIREMENT OR SALE OR EXCHANGE OF DEBT INSTRU-
MENTS.—Subsection (c) of section 1271 is amended to
read as follows:
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‘‘(c) SPECIAL RULE FOR CERTAIN OBLIGATIONS WITH
RESPECT TO WHICH ORIGINAL ISSUE DISCOUNT NOT CUR-
RENTLY INCLUDIBLE.—
‘‘(1) IN GENERAL.—On the sale or exchange of
debt instruments issued by a government or political
subdivision thereof after December 31, 1954, and be-
fore July 2, 1982, or by a corporation after December
31, 1954, and on or before May 27, 1969, any gain
realized which does not exceed—
‘‘(A) an amount equal to the original issue
discount, or
‘‘(B) if at the time of original issue there
was no intention to call the debt instrument be-
fore maturity, an amount which bears the same
ratio to the original issue discount as the num-
ber of complete months that the debt instrument
was held by the taxpayer bears to the number of
complete months from the date of original issue
to the date of maturity,
shall be considered as ordinary income.
‘‘(2) SUBSECTION (a)(2)(A) NOT TO APPLY.—Sub-
section (a)(2)(A) shall not apply to any debt instru-
ment referred to in subparagraph (A) of this para-
graph.
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‘‘(3) CROSS REFERENCE.—
‘‘For current inclusion of original issue discount,
see section 1272.’’.
(60) AMOUNT AND METHOD OF ADJUSTMENT.—
Section 1314 is amended by striking subsection (d)
and by redesignating subsection (e) as subsection (d).
(61) ELECTION; REVOCATION; TERMINATION.—
Clause (iii) of section 1362(d)(3) is amended by strik-
ing ‘‘unless’’ and all that follows and inserting ‘‘un-
less the corporation was an S corporation for such
taxable year.’’.
(62) OLD-AGE, SURVIVORS, AND DISABILITY IN-
SURANCE.—Subsection (a) of section 1401 is amended
by striking ‘‘the following percent’’ and all that fol-
lows and inserting ‘‘12.4 percent of the amount of the
self-employment income for such taxable year.’’.
(63) HOSPITAL INSURANCE.—Subsection (b) of
section 1401 is amended by striking ‘‘the following
percent’’ and all that follows and inserting ‘‘2.9 per-
cent of the amount of the self-employment income for
such taxable year.’’.
(64) MINISTERS, MEMBERS OF RELIGIOUS OR-
DERS, AND
CHRISTIAN
SCIENCE
PRACTITIONERS.—
Paragraph (3) of section 1402(e) is amended by strik-
ing ‘‘whichever of the following dates is later: (A)’’
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and by striking ‘‘; or (B)’’ and all that follows and
by inserting a period.
(65) WITHHOLDING
OF
TAX
ON
NONRESIDENT
ALIENS.—The first sentence of subsection (b) of sec-
tion 1441 and the first sentence of paragraph (5) of
section 1441(c) are each amended by striking ‘‘gains
subject to tax’’ and all that follows through ‘‘October
4, 1966’’ and inserting ‘‘and gains subject to tax
under section 871(a)(1)(D)’’.
(66) AFFILIATED
GROUP
DEFINED.—Subpara-
graph (A) of section 1504(a)(3) is amended by strik-
ing ‘‘for a taxable year which includes any period
after December 31, 1984’’ in clause (i) and by strik-
ing ‘‘in a taxable year beginning after December 31,
1984’’ in clause (ii).
(67) DISALLOWANCE OF THE BENEFITS OF THE
GRADUATED CORPORATE RATES AND ACCUMULATED
EARNINGS CREDIT.—
(A) Subsection (a) of section 1551 is
amended by striking paragraph (1) and by re-
designating paragraphs (2) and (3) as para-
graphs (1) and (2), respectively.
(B) Section 1551(b) is amended—
(i) by striking ‘‘or (2)’’ in paragraph
(1), and
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(ii) by striking ‘‘(a)(3)’’ in paragraph
(2) and inserting ‘‘(a)(2)’’.
(68) DEFINITION OF WAGES.—Section 3121(b) is
amended by striking paragraph (17).
(69) CREDITS AGAINST TAX.—
(A) Paragraph (4) of section 3302(f) is
amended by striking ‘‘subsection—’’ and all that
follows through ‘‘(A) IN GENERAL.—’’, by strik-
ing subparagraph (B), by redesignating clauses
(i) and (ii) as subparagraphs (A) and (B), re-
spectively, and by moving the text of such sub-
paragraphs (as so redesignated) 2 ems to the left.
(B) Paragraph (5) of section 3302(f) is
amended by striking subparagraphs (D) and by
redesignating subparagraph (E) as subpara-
graph (D).
(70) DOMESTIC SERVICE EMPLOYMENT TAXES.—
Section 3510(b) is amended by striking paragraph
(4).
(71) TAX ON FUEL USED IN COMMERCIAL TRANS-
PORTATION
ON
INLAND
WATERWAYS.—Section
4042(b)(2)(A) is amended to read as follows:
‘‘(A) The Inland Waterways Trust Fund fi-
nancing rate is 20 cents per gallon.’’.
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(72) TRANSPORTATION BY AIR.—Section 4261(e)
is amended—
(A) in paragraph (1) by striking subpara-
graph (C), and
(B) by striking paragraph (5).
(73) TAXES
ON
FAILURE
TO
DISTRIBUTE
IN-
COME.—Section 4942 is amended—
(A) by striking subsection (f)(2)(D),
(B) in subsection (g)(2)(A) by striking ‘‘For
all taxable years beginning on or after January
1, 1975, subject’’ and inserting ‘‘Subject’’,
(C) in subsection (g) by striking paragraph
(4), and
(D) in subsection (i)(2) by striking ‘‘begin-
ning after December 31, 1969, and’’.
(74) TAXES ON TAXABLE EXPENDITURES.—Sec-
tion 4945(f) is amended by striking ‘‘(excluding there-
from any preceding taxable year which begins before
January 1, 1970)’’.
(75) RETURNS.—Subsection (a) of section 6039D
is amended by striking ‘‘beginning after December 31,
1984,’’.
(76) INFORMATION RETURNS.—Subsection (c) of
section 6060 is amended by striking ‘‘year’’ and all
that follows and inserting ‘‘year.’’.
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(77) ABATEMENTS.—Section 6404(f) is amended
by striking paragraph (3).
(78) FAILURE BY CORPORATION TO PAY ESTI-
MATED
INCOME
TAX.—Clause 
(i) 
of 
section
6655(g)(4)(A) is amended by striking ‘‘(or the cor-
responding provisions of prior law)’’.
(79) RETIREMENT.—Section 7447(i)(3)(B)(ii) is
amended by striking ‘‘at 4 percent per annum to De-
cember 31, 1947, and at 3 percent per annum there-
after’’, and inserting ‘‘at 3 percent per annum’’.
(80) ANNUITIES TO SURVIVING SPOUSES AND DE-
PENDENT CHILDREN OF JUDGES.—
(A) Paragraph (2) of section 7448(a) is
amended by striking ‘‘or under section 1106 of
the Internal Revenue Code of 1939’’ and by
striking ‘‘or pursuant to section 1106(d) of the
Internal Revenue Code of 1939’’.
(B) Subsection (g) of section 7448 is
amended by striking ‘‘or other than pursuant to
section 1106 of the Internal Revenue Code of
1939’’.
(C) Subsections (g), (j)(1), and (j)(2) of sec-
tion 7448 are each amended by striking ‘‘at 4
percent per annum to December 31, 1947, and at
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HR 1528 EAS
3 percent per annum thereafter’’ and inserting
‘‘at 3 percent per annum’’.
(81) MERCHANT MARINE CAPITAL CONSTRUCTION
FUNDS.—Paragraph (4) of section 7518(g) is amend-
ed by striking ‘‘any nonqualified withdrawal’’ and all
that follows through ‘‘shall be determined’’ and insert-
ing ‘‘any nonqualified withdrawal shall be deter-
mined’’.
(82) VALUATION TABLES.—Paragraph (3) of sec-
tion 7520(c) is amended—
(A) by striking ‘‘Not later than December
31, 1989, the’’ and inserting ‘‘The’’, and
(B) by striking ‘‘thereafter’’ in the last sen-
tence thereof.
(83) ADMINISTRATION
AND
COLLECTION
OF
TAXES IN POSSESSIONS.—Section 7651 is amended by
striking paragraph (4) and by redesignating para-
graph (5) as paragraph (4).
(84) DEFINITION
OF
EMPLOYEE.—(A) Section
7701(a)(20) is amended by striking ‘‘chapter 21’’ and
all that follows and inserting ‘‘chapter 21.’’.
(b) EFFECTIVE DATE.—
(1) GENERAL RULE.—Except as otherwise pro-
vided in paragraph (2), the amendments made by
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subsection (a) shall take effect on the date of enact-
ment of this Act.
(2) SAVINGS PROVISION.—If—
(A) any provision amended or repealed by
subsection (a) applied to—
(i) any transaction occurring before
the date of the enactment of this Act,
(ii) any property acquired before such
date of enactment, or
(iii) any item of income, loss, deduc-
tion, or credit taken into account before
such date of enactment, and
(B) the treatment of such transaction, prop-
erty, or item under such provision would (with-
out regard to the amendments made by sub-
section (a)) affect the liability for tax for periods
ending after such date of enactment,
nothing in the amendments made by subsection (a)
shall be construed to affect the treatment of such
transaction, property, or item for purposes of deter-
mining liability for tax for periods ending after such
date of enactment.
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TITLE VI—REVENUE
PROVISIONS
Subtitle A—Provisions Designed To
Curtail Tax Shelters
SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORT-
ABLE TRANSACTION.
(a) IN GENERAL.—Part I of subchapter B of chapter
68 (relating to assessable penalties) is amended by inserting
after section 6707 the following new section:
‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT-
ABLE TRANSACTION INFORMATION WITH RE-
TURN OR STATEMENT.
‘‘(a) IMPOSITION OF PENALTY.—Any person who fails
to include on any return or statement any information with
respect to a reportable transaction which is required under
section 6011 to be included with such return or statement
shall pay a penalty in the amount determined under sub-
section (b).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amount of the penalty under
subsection (a) shall be $50,000.
‘‘(2) LISTED TRANSACTION.—The amount of the
penalty under subsection (a) with respect to a listed
transaction shall be $100,000.
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‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES
AND HIGH NET WORTH INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of a failure
under subsection (a) by—
‘‘(i) a large entity, or
‘‘(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be
twice the amount determined without regard to
this paragraph.
‘‘(B) LARGE ENTITY.—For purposes of sub-
paragraph (A), the term ‘large entity’ means,
with respect to any taxable year, a person (other
than a natural person) with gross receipts in ex-
cess of $10,000,000 for the taxable year in which
the reportable transaction occurs or the pre-
ceding taxable year. Rules similar to the rules of
paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall
apply for purposes of this subparagraph.
‘‘(C) HIGH NET WORTH INDIVIDUAL.—For
purposes of subparagraph (A), the term ‘high net
worth individual’ means, with respect to a re-
portable transaction, a natural person whose net
worth exceeds $2,000,000 immediately before the
transaction.
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‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) REPORTABLE TRANSACTION.—The term ‘re-
portable transaction’ means any transaction with re-
spect to which information is required to be included
with a return or statement because, as determined
under regulations prescribed under section 6011, such
transaction is of a type which the Secretary deter-
mines as having a potential for tax avoidance or eva-
sion.
‘‘(2) LISTED TRANSACTION.—Except as provided
in regulations, the term ‘listed transaction’ means a
reportable transaction which is the same as, or sub-
stantially similar to, a transaction specifically identi-
fied by the Secretary as a tax avoidance transaction
for purposes of section 6011.
‘‘(d) AUTHORITY TO RESCIND PENALTY.—
‘‘(1) IN GENERAL.—The Commissioner of Inter-
nal Revenue may rescind all or any portion of any
penalty imposed by this section with respect to any
violation if—
‘‘(A) the violation is with respect to a re-
portable transaction other than a listed trans-
action,
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‘‘(B) the person on whom the penalty is im-
posed has a history of complying with the re-
quirements of this title,
‘‘(C) it is shown that the violation is due to
an unintentional mistake of fact;
‘‘(D) imposing the penalty would be against
equity and good conscience, and
‘‘(E) rescinding the penalty would promote
compliance with the requirements of this title
and effective tax administration.
‘‘(2) DISCRETION.—The exercise of authority
under paragraph (1) shall be at the sole discretion of
the Commissioner and may be delegated only to the
head of the Office of Tax Shelter Analysis. The Com-
missioner, in the Commissioner’s sole discretion, may
establish a procedure to determine if a penalty should
be referred to the Commissioner or the head of such
Office for a determination under paragraph (1).
‘‘(3) NO
APPEAL.—Notwithstanding any other
provision of law, any determination under this sub-
section may not be reviewed in any administrative or
judicial proceeding.
‘‘(4) RECORDS.—If a penalty is rescinded under
paragraph (1), the Commissioner shall place in the
file in the Office of the Commissioner the opinion of
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the Commissioner or the head of the Office of Tax
Shelter Analysis with respect to the determination,
including—
‘‘(A) the facts and circumstances of the
transaction,
‘‘(B) the reasons for the rescission, and
‘‘(C) the amount of the penalty rescinded.
‘‘(5) REPORT.—The Commissioner shall each
year report to the Committee on Ways and Means of
the House of Representatives and the Committee on
Finance of the Senate—
‘‘(A) a summary of the total number and
aggregate amount of penalties imposed, and re-
scinded, under this section, and
‘‘(B) a description of each penalty rescinded
under this subsection and the reasons therefor.
‘‘(e) PENALTY REPORTED TO SEC.—In the case of a
person—
‘‘(1) which is required to file periodic reports
under section 13 or 15(d) of the Securities Exchange
Act of 1934 or is required to be consolidated with an-
other person for purposes of such reports, and
‘‘(2) which—
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‘‘(A) is required to pay a penalty under
this section with respect to a listed transaction,
or
‘‘(B) is required to pay a penalty under sec-
tion 6662A with respect to any reportable trans-
action at a rate prescribed under section
6662A(c),
the requirement to pay such penalty shall be disclosed in
such reports filed by such person for such periods as the
Secretary shall specify. Failure to make a disclosure in ac-
cordance with the preceding sentence shall be treated as a
failure to which the penalty under subsection (b)(2) applies.
‘‘(f) COORDINATION WITH OTHER PENALTIES.—The
penalty imposed by this section is in addition to any pen-
alty imposed under this title.’’.
(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 6707 the fol-
lowing:
‘‘Sec. 6707A. Penalty for failure to include reportable transaction
information with return or statement.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns and statements the due date
for which is after the date of the enactment of this Act.
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SEC. 
602. 
ACCURACY-RELATED 
PENALTY 
FOR 
LISTED
TRANSACTIONS AND OTHER REPORTABLE
TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) IN GENERAL.—Subchapter A of chapter 68 is
amended by inserting after section 6662 the following new
section:
‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY
ON UNDERSTATEMENTS WITH RESPECT TO
REPORTABLE TRANSACTIONS.
‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a
reportable transaction understatement for any taxable year,
there shall be added to the tax an amount equal to 20 per-
cent of the amount of such understatement.
‘‘(b) 
REPORTABLE
TRANSACTION
UNDERSTATE-
MENT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘reportable trans-
action understatement’ means the sum of—
‘‘(A) the product of—
‘‘(i) the amount of the increase (if any)
in taxable income which results from a dif-
ference between the proper tax treatment of
an item to which this section applies and
the taxpayer’s treatment of such item (as
shown on the taxpayer’s return of tax), and
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‘‘(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a tax-
payer which is a corporation), and
‘‘(B) the amount of the decrease (if any) in
the aggregate amount of credits determined
under subtitle A which results from a difference
between the taxpayer’s treatment of an item to
which this section applies (as shown on the tax-
payer’s return of tax) and the proper tax treat-
ment of such item.
For purposes of subparagraph (A), any reduction of
the excess of deductions allowed for the taxable year
over gross income for such year, and any reduction
in the amount of capital losses which would (without
regard to section 1211) be allowed for such year, shall
be treated as an increase in taxable income.
‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This
section shall apply to any item which is attributable
to—
‘‘(A) any listed transaction, and
‘‘(B) any reportable transaction (other than
a listed transaction) if a significant purpose of
such transaction is the avoidance or evasion of
Federal income tax.
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‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED
AND OTHER AVOIDANCE TRANSACTIONS.—
‘‘(1) IN GENERAL.—Subsection (a) shall be ap-
plied by substituting ‘30 percent’ for ‘20 percent’ with
respect to the portion of any reportable transaction
understatement with respect to which the requirement
of section 6664(d)(2)(A) is not met.
‘‘(2) RULES
APPLICABLE
TO
ASSERTION
AND
COMPROMISE OF PENALTY.—
‘‘(A) IN
GENERAL.—Only upon the ap-
proval by the Chief Counsel for the Internal Rev-
enue Service or the Chief Counsel’s delegate at
the national office of the Internal Revenue Serv-
ice may a penalty to which paragraph (1) ap-
plies be included in a 1st letter of proposed defi-
ciency which allows the taxpayer an opportunity
for administrative review in the Internal Rev-
enue Service Office of Appeals. If such a letter is
provided to the taxpayer, only the Commissioner
of Internal Revenue may compromise all or any
portion of such penalty.
‘‘(B) APPLICABLE
RULES.—The rules of
paragraphs (2), (3), (4), and (5) of section
6707A(d) shall apply for purposes of subpara-
graph (A).
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‘‘(d) DEFINITIONS
OF
REPORTABLE
AND
LISTED
TRANSACTIONS.—For purposes of this section, the terms ‘re-
portable transaction’ and ‘listed transaction’ have the re-
spective meanings given to such terms by section 6707A(c).
‘‘(e) SPECIAL RULES.—
‘‘(1) COORDINATION WITH PENALTIES, ETC., ON
OTHER UNDERSTATEMENTS.—In the case of an under-
statement (as defined in section 6662(d)(2))—
‘‘(A) the amount of such understatement
(determined without regard to this paragraph)
shall be increased by the aggregate amount of re-
portable transaction understatements for pur-
poses of determining whether such understate-
ment is a substantial understatement under sec-
tion 6662(d)(1), and
‘‘(B) the addition to tax under section
6662(a) shall apply only to the excess of the
amount of the substantial understatement (if
any) after the application of subparagraph (A)
over the aggregate amount of reportable trans-
action understatements.
‘‘(2) COORDINATION WITH OTHER PENALTIES.—
‘‘(A) APPLICATION OF FRAUD PENALTY.—
References to an underpayment in section 6663
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shall be treated as including references to a re-
portable transaction understatement.
‘‘(B) NO DOUBLE PENALTY.—This section
shall not apply to any portion of an understate-
ment on which a penalty is imposed under sec-
tion 6663.
‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—
Except as provided in regulations, in no event shall
any tax treatment included with an amendment or
supplement to a return of tax be taken into account
in determining the amount of any reportable trans-
action understatement if the amendment or supple-
ment is filed after the earlier of the date the taxpayer
is first contacted by the Secretary regarding the ex-
amination of the return or such other date as is speci-
fied by the Secretary.
‘‘(4) CROSS REFERENCE.—
‘‘For reporting of section 6662A(c) penalty to the
Securities and Exchange Commission, see section
6707A(e).’’.
(b) 
DETERMINATION
OF
OTHER
UNDERSTATE-
MENTS.—Subparagraph (A) of section 6662(d)(2) is
amended by adding at the end the following flush sentence:
‘‘The excess under the preceding sentence shall be
determined without regard to items to which sec-
tion 6662A applies.’’.
(c) REASONABLE CAUSE EXCEPTION.—
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(1) IN GENERAL.—Section 6664 is amended by
adding at the end the following new subsection:
‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORT-
ABLE TRANSACTION UNDERSTATEMENTS.—
‘‘(1) IN GENERAL.—No penalty shall be imposed
under section 6662A with respect to any portion of a
reportable transaction understatement if it is shown
that there was a reasonable cause for such portion
and that the taxpayer acted in good faith with respect
to such portion.
‘‘(2) SPECIAL RULES.—Paragraph (1) shall not
apply to any reportable transaction understatement
unless—
‘‘(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
‘‘(B) there is or was substantial authority
for such treatment, and
‘‘(C) the taxpayer reasonably believed that
such treatment was more likely than not the
proper treatment.
A taxpayer failing to adequately disclose in accord-
ance with section 6011 shall be treated as meeting the
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requirements of subparagraph (A) if the penalty for
such failure was rescinded under section 6707A(d).
‘‘(3) RULES
RELATING
TO
REASONABLE
BE-
LIEF.—For purposes of paragraph (2)(C)—
‘‘(A) IN
GENERAL.—A taxpayer shall be
treated as having a reasonable belief with respect
to the tax treatment of an item only if such
belief—
‘‘(i) is based on the facts and law that
exist at the time the return of tax which in-
cludes such tax treatment is filed, and
‘‘(ii) relates solely to the taxpayer’s
chances of success on the merits of such
treatment and does not take into account
the possibility that a return will not be au-
dited, such treatment will not be raised on
audit, or such treatment will be resolved
through settlement if it is raised.
‘‘(B) CERTAIN OPINIONS MAY NOT BE RE-
LIED UPON.—
‘‘(i) IN
GENERAL.—An opinion of a
tax advisor may not be relied upon to estab-
lish the reasonable belief of a taxpayer if—
‘‘(I) the tax advisor is described
in clause (ii), or
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‘‘(II) the opinion is described in
clause (iii).
‘‘(ii) DISQUALIFIED TAX ADVISORS.—A
tax advisor is described in this clause if the
tax advisor—
‘‘(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization, man-
agement, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so par-
ticipates,
‘‘(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
‘‘(III) has a fee arrangement with
respect to the transaction which is con-
tingent on all or part of the intended
tax benefits from the transaction being
sustained, or
‘‘(IV) as determined under regula-
tions prescribed by the Secretary, has a
disqualifying financial interest with
respect to the transaction.
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‘‘(iii) DISQUALIFIED
OPINIONS.—For
purposes of clause (i), an opinion is dis-
qualified if the opinion—
‘‘(I) is based on unreasonable fac-
tual or legal assumptions (including
assumptions as to future events),
‘‘(II) unreasonably relies on rep-
resentations, statements, findings, or
agreements of the taxpayer or any
other person,
‘‘(III) does not identify and con-
sider all relevant facts, or
‘‘(IV) fails to meet any other re-
quirement as the Secretary may pre-
scribe.’’.
(2) CONFORMING AMENDMENT.—The heading for
subsection (c) of section 6664 is amended by inserting
‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’.
(d) CONFORMING AMENDMENTS.—
(1) Subparagraph (C) of section 461(i)(3) is
amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ and
inserting ‘‘section 1274(b)(3)(C)’’.
(2) Paragraph (3) of section 1274(b) is
amended—
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(A) by striking ‘‘(as defined in section
6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
‘‘(C) TAX SHELTER.—For purposes of sub-
paragraph (B), the term ‘tax shelter’ means—
‘‘(i) a partnership or other entity,
‘‘(ii) any investment plan or arrange-
ment, or
‘‘(iii) any other plan or arrangement,
if a significant purpose of such partnership, en-
tity, plan, or arrangement is the avoidance or
evasion of Federal income tax.’’.
(3) Section 6662(d)(2) is amended by striking
subparagraphs (C) and (D).
(4) Section 6664(c)(1) is amended by striking
‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.
(5) Subsection (b) of section 7525 is amended by
striking ‘‘section 6662(d)(2)(C)(iii)’’ and inserting
‘‘section 1274(b)(3)(C)’’.
(6)(A) The heading for section 6662 is amended
to read as follows:
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‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY
ON UNDERPAYMENTS.’’.
(B) The table of sections for part II of sub-
chapter A of chapter 68 is amended by striking the
item relating to section 6662 and inserting the fol-
lowing new items:
‘‘Sec. 6662. Imposition of accuracy-related penalty on underpay-
ments.
‘‘Sec. 6662A. Imposition of accuracy-related penalty on understate-
ments with respect to reportable transactions.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE-
MENT 
PENALTY 
FOR 
NONREPORTABLE
TRANSACTIONS.
(a) SUBSTANTIAL UNDERSTATEMENT
OF CORPORA-
TIONS.—Section 6662(d)(1)(B) (relating to special rule for
corporations) is amended to read as follows:
‘‘(B) SPECIAL RULE FOR CORPORATIONS.—
In the case of a corporation other than an S cor-
poration or a personal holding company (as de-
fined in section 542), there is a substantial un-
derstatement of income tax for any taxable year
if the amount of the understatement for the tax-
able year exceeds the lesser of—
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‘‘(i) 10 percent of the tax required to
be shown on the return for the taxable year
(or, if greater, $10,000), or
‘‘(ii) $10,000,000.’’.
(b) REDUCTION FOR UNDERSTATEMENT OF TAXPAYER
DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.—
(1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re-
lating to substantial authority) is amended to read as
follows:
‘‘(i) the tax treatment of any item by
the taxpayer if the taxpayer had reasonable
belief that the tax treatment was more likely
than not the proper treatment, or’’.
(2) CONFORMING AMENDMENT.—Section 6662(d)
is amended by adding at the end the following new
paragraph:
‘‘(3) SECRETARIAL LIST.—For purposes of this
subsection, section 6664(d)(2), and section 6694(a)(1),
the Secretary may prescribe a list of positions for
which the Secretary believes there is not substantial
authority or there is no reasonable belief that the tax
treatment is more likely than not the proper tax
treatment. Such list (and any revisions thereof) shall
be published in the Federal Register or the Internal
Revenue Bulletin.’’.
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(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. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY
PRIVILEGES RELATING TO TAXPAYER COM-
MUNICATIONS.
(a) IN GENERAL.—Section 7525(b) (relating to section
not to apply to communications regarding corporate tax
shelters) is amended to read as follows:
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS
REGARDING TAX SHELTERS.—The privilege under sub-
section (a) shall not apply to any written communication
which is—
‘‘(1) between a federally authorized tax practi-
tioner and—
‘‘(A) any person,
‘‘(B) any director, officer, employee, agent,
or representative of the person, or
‘‘(C) any other person holding a capital or
profits interest in the person, and
‘‘(2) in connection with the promotion of the di-
rect or indirect participation of the person in any tax
shelter (as defined in section 1274(b)(3)(C)).’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to communications made on or after the
date of the enactment of this Act.
SEC. 605. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended to read as follows:
‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
‘‘(a) IN GENERAL.—Each material advisor with re-
spect to any reportable transaction shall make a return (in
such form as the Secretary may prescribe) setting forth—
‘‘(1) information identifying and describing the
transaction,
‘‘(2) information describing any potential tax
benefits expected to result from the transaction, and
‘‘(3) such other information as the Secretary
may prescribe.
Such return shall be filed not later than the date specified
by the Secretary.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) MATERIAL ADVISOR.—
‘‘(A) IN GENERAL.—The term ‘material ad-
visor’ means any person—
‘‘(i) who provides any material aid,
assistance, or advice with respect to orga-
nizing, managing, promoting, selling, im-
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years with respect to which
the period for assessing a deficiency did not expire before
the date of the enactment of this Act.
SEC. 613. DENIAL OF DEDUCTION FOR INTEREST ON UN-
DERPAYMENTS ATTRIBUTABLE TO TAX-MOTI-
VATED TRANSACTIONS.
(a) IN GENERAL.—Section 163 (relating to deduction
for interest) is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the fol-
lowing new subsection:
‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE TO
NONDISCLOSED REPORTABLE TRANSACTIONS.—No deduc-
tion shall be allowed under this chapter for any interest
paid or accrued under section 6601 on any underpayment
of tax which is attributable to the portion of any reportable
transaction 
understatement 
(as 
defined 
in 
section
6662A(b)) with respect to which the requirement of section
6664(d)(2)(A) is not met.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions in taxable years begin-
ning after the date of the enactment of this Act.