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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. 
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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-
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HR 2206 PCS 
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 
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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 
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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 
division. 
SEC. 7244. PERMANENT EXTENSION OF IRS USER FEES. 
Section 7528 (relating to Internal Revenue Service 
user fees) is amended by striking subsection (c). 
SEC. 7245. 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 division. 
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SEC. 7246. 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 in-
come tax preparer) is amended— 
(A) by striking ‘‘income’’ each place it ap-
pears in the heading and the text, and 
(B) in subparagraph (A), by striking ‘‘sub-
title 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
PRE-
PARERS’’. 
(ii) Section 6060(a) is amended— 
(I) by striking ‘‘an income tax return 
preparer’’ each place it appears and insert-
ing ‘‘a tax return preparer’’, 
(II) by striking ‘‘each income tax re-
turn preparer’’ and inserting ‘‘each tax re-
turn preparer’’, and 
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(III) by striking ‘‘another income tax 
return preparer’’ 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 preparers’’ and in-
serting ‘‘tax return preparers’’. 
(iv) Subpart F of part III of subchapter A 
of chapter 61 is amended by striking ‘‘Income 
Tax Return Preparers’’ in the heading 
and inserting ‘‘Tax Return Preparers’’. 
(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 pre-
parer’’ each place it appears and inserting 
‘‘tax return preparer’’, and 
(ii) by striking ‘‘income tax return 
preparers’’ each place it appears and in-
serting ‘‘tax return preparers’’. 
(C)(i) Section 6107 is amended— 
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(I) by striking ‘‘INCOME
TAX
RE-
TURN PREPARER’’ in the heading and in-
serting ‘‘TAX RETURN PREPARER’’, 
(II) by striking ‘‘an income tax return 
preparer’’ each place it appears in sub-
sections (a) and (b) and inserting ‘‘a tax 
return preparer’’, 
(III) by striking ‘‘INCOME TAX RE-
TURN PREPARER’’ in the heading for sub-
section (b) and inserting ‘‘TAX RETURN 
PREPARER’’, and 
(IV) in subsection (c), by striking ‘‘in-
come tax return preparers’’ and inserting 
‘‘tax return preparers’’. 
(ii) The item relating to section 6107 in 
the table of sections for subchapter B of chap-
ter 61 is amended by striking ‘‘Income tax re-
turn preparer’’ and inserting ‘‘Tax return pre-
parer’’. 
(D) Section 6109(a)(4) is amended— 
(i) by striking ‘‘an income tax return 
preparer’’ and inserting ‘‘a tax return pre-
parer’’, and 
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HR 2206 PCS 
(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 in-
serting ‘‘Tax return preparers’’. 
(F)(i) Section 6694 is amended— 
(I) by striking ‘‘INCOME
TAX
RE-
TURN PREPARER’’ in the heading and in-
serting ‘‘TAX RETURN PREPARER’’, 
(II) by striking ‘‘an income tax return 
preparer’’ each place it appears and insert-
ing ‘‘a tax return preparer’’, 
(III) in subsection (c)(2), by striking 
‘‘the income tax return preparer’’ and in-
serting ‘‘the tax return preparer’’, 
(IV) in subsection (e), by striking 
‘‘subtitle A’’ and inserting ‘‘this title’’, and 
(V) in subsection (f), by striking ‘‘in-
come 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 
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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 insert-
ing ‘‘a tax return preparer’’. 
(ii) Section 6695(f) is amended— 
(I) by striking ‘‘subtitle A’’ and in-
serting ‘‘this title’’, and 
(II) by striking ‘‘the income tax re-
turn preparer’’ and inserting ‘‘the tax re-
turn 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 strik-
ing ‘‘subtitle A’’ each place it appears and in-
serting ‘‘this title’’. 
(I)(i) Section 7407 is amended— 
(I) by striking ‘‘INCOME
TAX
RE-
TURN PREPARERS’’ in the heading and 
inserting ‘‘TAX RETURN PREPARERS’’, 
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(II) by striking ‘‘an income tax return 
preparer’’ each place it appears and insert-
ing ‘‘a tax return preparer’’, 
(III) by striking ‘‘income tax pre-
parer’’ 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 re-
turn’’. 
(ii) The item relating to section 7407 in 
the table of sections for subchapter A of chap-
ter 76 is amended by striking ‘‘income tax re-
turn preparers’’ and inserting ‘‘tax return pre-
parers’’. 
(J)(i) Section 7427 is amended— 
(I) by striking ‘‘INCOME
TAX
RE-
TURN PREPARERS’’ in the heading and 
inserting ‘‘TAX
RETURN
PREPARERS’’, 
and 
(II) by striking ‘‘an income tax return 
preparer’’ and inserting ‘‘a tax return pre-
parer’’. 
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(ii) The item relating to section 7427 in 
the table of sections for subchapter B of chap-
ter 76 is amended to read as follows: 
‘‘Sec. 7427. Tax return preparers.’’. 
(b) MODIFICATION OF PENALTY FOR UNDERSTATE-
MENT OF TAXPAYER’S LIABILITY BY TAX RETURN PRE-
PARER.—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 re-
spect to which any part of an understatement of li-
ability is due to a position described in paragraph 
(2) shall pay a penalty with respect to each such re-
turn 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 rea-
sonably should have known) of the position, 
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‘‘(B) there was not a reasonable belief that 
the position would more likely than not be sus-
tained 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 un-
derstatement and the tax return preparer acted in 
good faith. 
‘‘(b) UNDERSTATEMENT
DUE
TO
WILLFUL
OR 
RECKLESS CONDUCT.— 
‘‘(1) IN
GENERAL.—Any tax return preparer 
who prepares any return or claim for refund with re-
spect to which any part of an understatement of li-
ability is due to a conduct described in paragraph 
(2) shall pay a penalty with respect to each such re-
turn 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. 
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‘‘(2) WILLFUL OR RECKLESS CONDUCT.—Con-
duct 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. 
‘‘(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 division. 
SEC. 7247. PENALTY FOR FILING ERRONEOUS REFUND 
CLAIMS. 
(a) IN GENERAL.—Part I of subchapter B of chapter 
68 (relating to assessable penalties) is amended by insert-
ing 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 
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32) is made for an excessive amount, unless it is shown 
that the claim for such excessive 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 sec-
tion, 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 sec-
tions 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 division. 
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