187 
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. 7233. SPECIAL RULE FOR BANK REQUIRED TO 
CHANGE FROM THE RESERVE METHOD OF 
ACCOUNTING ON BECOMING S CORPORA-
TION. 
(a) IN GENERAL.—Section 1361, as amended by this 
division, 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 CORPORATION.—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 tax-
able year for which an election under section 1362(a) is 
in effect, the bank may elect to take into account any ad-
justments 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.
188 
SEC. 7234. 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 quali-
fied 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 corpora-
tion which is a qualified subchapter S sub-
sidiary, 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 per-
centage 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
189 
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. 7235. ELIMINATION OF ALL EARNINGS AND PROFITS 
ATTRIBUTABLE TO PRE-1983 YEARS FOR CER-
TAIN CORPORATIONS. 
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 division) shall be reduced 
by an amount equal to the portion (if any) of such accu-
mulated earnings and profits which were accumulated in 
any taxable year beginning before January 1, 1983, for 
which such corporation was an electing small business cor-
poration under subchapter S of the Internal Revenue Code 
of 1986.
190 
SEC. 7236. DEDUCTIBILITY OF INTEREST EXPENSE ON IN-
DEBTEDNESS INCURRED BY AN ELECTING 
SMALL BUSINESS TRUST TO ACQUIRE S COR-
PORATION STOCK. 
(a) IN GENERAL.—Subparagraph (C) of section 
641(c)(2) (relating to modifications) is amended by insert-
ing after clause (iii) the following new clause: 
‘‘(iv) Any interest expense paid or ac-
crued on indebtedness incurred to acquire 
stock in an S corporation.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
PART 2—REVENUE PROVISIONS 
SEC. 7241. INCREASE IN AGE OF CHILDREN WHOSE UN-
EARNED 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) (deter-
191 
mined 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 mean-
ing of section 152(c)(1)(D) after the appli-
cation of section 152(f)(5) (without regard 
to subparagraph (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 enactment of this division. 
SEC. 7242. SUSPENSION OF CERTAIN PENALTIES AND IN-
TEREST. 
(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 Sec-
retary of the Treasury, or his delegate, after the date
192 
which is 6 months after the date of the enactment of this 
division. 
SEC. 7243. MODIFICATION OF COLLECTION DUE PROCESS 
PROCEDURES FOR EMPLOYMENT TAX LI-
ABILITIES. 
(a) IN GENERAL.—Section 6330(f) (relating to jeop-
ardy 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 fol-
lowing new paragraph: 
‘‘(3) the Secretary has served a disqualified em-
ployment tax levy,’’. 
(b) DISQUALIFIED EMPLOYMENT TAX LEVY.—Sec-
tion 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 employ-
ment taxes for any taxable period if the person subject 
to the levy (or any predecessor thereof) requested a hear-
ing under this section with respect to unpaid employment