Tax Increase Prevention and Reconciliation Act of 2005
PL 109-222 (H.R.4297), enacted 05/17/2006

120 STAT. 345
PUBLIC LAW 109–222—MAY 17, 2006
Public Law 109–222
109th Congress
An Act
To provide for reconciliation pursuant to section 201(b) of the concurrent resolution
on the budget for fiscal year 2006.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Tax Increase
Prevention and Reconciliation Act of 2005’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed
in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section
or other provision of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for this Act
is as follows:
Sec. 1. Short title, etc.
TITLE I—EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS
Sec. 101. Increased expensing for small business.
Sec. 102. Capital gains and dividends rates.
Sec. 103. Controlled foreign corporations.
TITLE II—OTHER PROVISIONS
Sec. 201. Clarification of taxation of certain settlement funds.
Sec. 202. Modification of active business definition under section 355.
Sec. 203. Veterans’ mortgage bonds.
Sec. 204. Capital gains treatment for certain self-created musical works.
Sec. 205. Vessel tonnage limit.
Sec. 206. Modification of special arbitrage rule for certain funds.
Sec. 207. Amortization of expenses incurred in creating or acquiring music or music
copyrights.
Sec. 208. Modification of effective date of disregard of certain capital expenditures
for purposes of qualified small issue bonds.
Sec. 209. Modification of treatment of loans to qualified continuing care facilities.
TITLE III—ALTERNATIVE MINIMUM TAX RELIEF
Sec. 301. Increase in alternative minimum tax exemption amount for 2006.
Sec. 302. Allowance of nonrefundable personal credits against regular and alter-
native minimum tax liability.
TITLE IV—CORPORATE ESTIMATED TAX PROVISIONS
Sec. 401. Time for payment of corporate estimated taxes.
TITLE V—REVENUE OFFSET PROVISIONS
Sec. 501. Application of earnings stripping rules to partners which are corpora-
tions.
Sec. 502. Reporting of interest on tax-exempt bonds.
Sec. 503. 5-year amortization of geological and geophysical expenditures for certain
major integrated oil companies.
Sec. 504. Application of FIRPTA to regulated investment companies.
26 USC 1 et. seq.
26 USC 1 note.
Tax Increase
Prevention and
Reconciliation
Act of 2005.
May 17, 2006
[H.R. 4297]
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00343
Fmt 6580
Sfmt 6582
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 346
PUBLIC LAW 109–222—MAY 17, 2006
Sec. 505. Treatment of distributions attributable to FIRPTA gains.
Sec. 506. Prevention of avoidance of tax on investments of foreign persons in
United States real property through wash sale transactions.
Sec. 507. Section 355 not to apply to distributions involving disqualified investment
companies.
Sec. 508. Loan and redemption requirements on pooled financing requirements.
Sec. 509. Partial payments required with submission of offers-in-compromise.
Sec. 510. Increase in age of minor children whose unearned income is taxed as if
parent’s income.
Sec. 511. Imposition of withholding on certain payments made by government enti-
ties.
Sec. 512. Conversions to Roth IRAs.
Sec. 513. Repeal of FSC/ETI binding contract relief.
Sec. 514. Only wages attributable to domestic production taken into account in de-
termining deduction for domestic production.
Sec. 515. Modification of exclusion for citizens living abroad.
Sec. 516. Tax involvement of accommodation parties in tax shelter transactions.
TITLE I—EXTENSION AND MODIFICA-
TION OF CERTAIN PROVISIONS
SEC. 101. INCREASED EXPENSING FOR SMALL BUSINESS.
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 ‘‘2008’’ and inserting ‘‘2010’’.
SEC. 102. CAPITAL GAINS AND DIVIDENDS RATES.
Section 303 of the Jobs and Growth Tax Relief Reconciliation
Act of 2003 is amended by striking ‘‘December 31, 2008’’ and
inserting ‘‘December 31, 2010’’.
SEC. 103. CONTROLLED FOREIGN CORPORATIONS.
(a) SUBPART F EXCEPTION FOR ACTIVE FINANCING.—
(1) EXEMPT INSURANCE INCOME.—Paragraph (10) of section
953(e) (relating to application) is amended—
(A) by striking ‘‘January 1, 2007’’ and inserting
‘‘January 1, 2009’’, and
(B) by striking ‘‘December 31, 2006’’ and inserting
‘‘December 31, 2008’’.
(2) EXCEPTION
TO
TREATMENT
AS
FOREIGN
PERSONAL
HOLDING COMPANY INCOME.—Paragraph (9) of section 954(h)
(relating to application) is amended by striking ‘‘January 1,
2007’’ and inserting ‘‘January 1, 2009’’.
(b) LOOK-THROUGH
TREATMENT
OF
PAYMENTS
BETWEEN
RELATED CONTROLLED FOREIGN CORPORATIONS UNDER THE FOREIGN
PERSONAL HOLDING COMPANY RULES.—
(1) IN GENERAL.—Subsection (c) of section 954 (relating
to foreign personal holding company income) is amended by
adding at the end the following new paragraph:
‘‘(6) LOOK-THRU RULE FOR RELATED CONTROLLED FOREIGN
CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this subsection, divi-
dends, interest, rents, and royalties received or accrued
from a controlled foreign corporation which is a related
person shall not be treated as foreign personal holding
company income to the extent attributable or properly allo-
cable (determined under rules similar to the rules of sub-
paragraphs (C) and (D) of section 904(d)(3)) to income
of the related person which is not subpart F income. For
26 USC 1 note.
26 USC 179.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00344
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 347
PUBLIC LAW 109–222—MAY 17, 2006
purposes of this subparagraph, interest shall include fac-
toring income which is treated as income equivalent to
interest for purposes of paragraph (1)(E). The Secretary
shall prescribe such regulations as may be appropriate
to prevent the abuse of the purposes of this paragraph.
‘‘(B) APPLICATION.—Subparagraph (A) shall apply to
taxable years of foreign corporations beginning after
December 31, 2005, and before January 1, 2009, and to
taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.’’.
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to taxable years of foreign corporations
beginning after December 31, 2005, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
TITLE II—OTHER PROVISIONS
SEC. 201. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT
FUNDS.
(a) IN GENERAL.—Subsection (g) of section 468B (relating to
clarification of taxation of certain funds) is amended to read as
follows:
‘‘(g) CLARIFICATION OF TAXATION OF CERTAIN FUNDS.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
nothing in any provision of law shall be construed as providing
that an escrow account, settlement fund, or similar fund is
not subject to current income tax. The Secretary shall prescribe
regulations providing for the taxation of any such account or
fund whether as a grantor trust or otherwise.
‘‘(2) EXEMPTION
FROM
TAX
FOR
CERTAIN
SETTLEMENT
FUNDS.—An escrow account, settlement fund, or similar fund
shall be treated as beneficially owned by the United States
and shall be exempt from taxation under this subtitle if—
‘‘(A) it is established pursuant to a consent decree
entered by a judge of a United States District Court,
‘‘(B) it is created for the receipt of settlement payments
as directed by a government entity for the sole purpose
of resolving or satisfying one or more claims asserting
liability 
under 
the 
Comprehensive 
Environmental
Response, Compensation, and Liability Act of 1980,
‘‘(C) the authority and control over the expenditure
of funds therein (including the expenditure of contributions
thereto and any net earnings thereon) is with such govern-
ment entity, and
‘‘(D) upon termination, any remaining funds will be
disbursed to such government entity for use in accordance
with applicable law.
For purposes of this paragraph, the term ‘government entity’
means the United States, any State or political subdivision
thereof, the District of Columbia, any possession of the United
States, and any agency or instrumentality of any of the fore-
going.
‘‘(3) TERMINATION.—Paragraph (2) shall not apply to
accounts and funds established after December 31, 2010.’’.
Regulations.
26 USC 468B.
26 USC 954 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00345
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 348
PUBLIC LAW 109–222—MAY 17, 2006
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to accounts and funds established after the date of
the enactment of this Act.
SEC. 202. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER
SECTION 355.
Subsection (b) of section 355 (defining active conduct of a trade
or business) is amended by adding at the end the following new
paragraph:
‘‘(3) SPECIAL RULE RELATING TO ACTIVE BUSINESS REQUIRE-
MENT.—
‘‘(A) IN GENERAL.—In the case of any distribution made
after the date of the enactment of this paragraph and
on or before December 31, 2010, a corporation shall be
treated as meeting the requirement of paragraph (2)(A)
if and only if such corporation is engaged in the active
conduct of a trade or business.
‘‘(B) 
AFFILIATED
GROUP
RULE.—For 
purposes 
of
subparagraph (A), all members of such corporation’s sepa-
rate affiliated group shall be treated as one corporation.
For purposes of the preceding sentence, a corporation’s
separate affiliated group is the affiliated group which would
be determined under section 1504(a) if such corporation
were the common parent and section 1504(b) did not apply.
‘‘(C) TRANSITION
RULE.—Subparagraph (A) shall not
apply to any distribution pursuant to a transaction which
is—
‘‘(i) made pursuant to an agreement which was
binding on the date of the enactment of this paragraph
and at all times thereafter,
‘‘(ii) described in a ruling request submitted to
the Internal Revenue Service on or before such date,
or
‘‘(iii) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
The preceding sentence shall not apply if the distributing
corporation elects not to have such sentence apply to dis-
tributions of such corporation. Any such election, once
made, shall be irrevocable.
‘‘(D) SPECIAL RULE FOR CERTAIN PRE-ENACTMENT DIS-
TRIBUTIONS.—For purposes of determining the continued
qualification under paragraph (2)(A) of distributions made
on or before the date of the enactment of this paragraph
as a result of an acquisition, disposition, or other restruc-
turing after such date and on or before December 31,
2010, such distribution shall be treated as made on the
date of such acquisition, disposition, or restructuring for
purposes of applying subparagraphs (A) through (C) of
this paragraph.’’.
SEC. 203. VETERANS’ MORTGAGE BONDS.
(a) EXPANSION OF DEFINITION OF VETERANS ELIGIBLE FOR STATE
HOME LOAN PROGRAMS FUNDED BY QUALIFIED VETERANS’ MORT-
GAGE BONDS.—
(1) IN GENERAL.—Paragraph (4) of section 143(l) (defining
qualified veteran) is amended to read as follows:
26 USC 355.
26 USC 468B
note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00346
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 349
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(4) QUALIFIED VETERAN.—For purposes of this subsection,
the term ‘qualified veteran’ means—
‘‘(A) in the case of the States of Alaska, Oregon, and
Wisconsin, any veteran—
‘‘(i) who served on active duty, and
‘‘(ii) who applied for the financing before the date
25 years after the last date on which such veteran
left active service, and
‘‘(B) in the case of any other State, any veteran—
‘‘(i) who served on active duty at some time before
January 1, 1977, and
‘‘(ii) who applied for the financing before the later
of—
‘‘(I) the date 30 years after the last date on
which such veteran left active service, or
‘‘(II) January 31, 1985.’’.
(2) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to bonds issued on or after the date of
the enactment of this Act.
(b) REVISION OF STATE VETERANS LIMIT.—
(1) IN
GENERAL.—Subparagraph (B) of section 143(l)(3)
(relating to volume limitation) is amended—
(A) by redesignating clauses (i) and (ii) as subclauses
(I) and (II), respectively, and moving such clauses 2 ems
to the right,
(B) by amending the matter preceding subclause (I),
as designated by subparagraph (A), to read as follows:
‘‘(B) STATE VETERANS LIMIT.—
‘‘(i) IN GENERAL.—In the case of any State to which
clause (ii) does not apply, the State veterans limit
for any calendar year is the amount equal to—’’, and
(C) by adding at the end the following new clauses:
‘‘(ii) ALASKA, OREGON, AND WISCONSIN.—In the case
of the following States, the State veterans limit for
any calendar year is the amount equal to—
‘‘(I) $25,000,000 for the State of Alaska,
‘‘(II) $25,000,000 for the State of Oregon, and
‘‘(III) $25,000,000 for the State of Wisconsin.
‘‘(iii) PHASEIN.—In the case of calendar years
beginning before 2010, clause (ii) shall be applied by
substituting for each of the dollar amounts therein
an amount equal to the applicable percentage of such
dollar amount. For purposes of the preceding sentence,
the applicable percentage shall be determined in
accordance with the following table:
‘‘For Calendar Year:
Applicable percentage
is:
2006 ..............................................................
20 percent
2007 ..............................................................
40 percent
2008 ..............................................................
60 percent
2009 ..............................................................
80 percent.
‘‘(iv) TERMINATION.—The State veterans limit for
the States specified in clause (ii) for any calendar
year after 2010 is zero.’’.
Applicability.
26 USC 143.
26 USC 143 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00347
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 350
PUBLIC LAW 109–222—MAY 17, 2006
(2) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to allocations of State volume limit after
April 5, 2006.
SEC. 204. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED
MUSICAL WORKS.
(a) IN GENERAL.—Subsection (b) of section 1221 (relating to
capital asset defined) is amended by redesignating paragraph (3)
as paragraph (4) and by inserting after paragraph (2) the following
new paragraph:
‘‘(3) SALE
OR
EXCHANGE
OF
SELF-CREATED
MUSICAL
WORKS.—At the election of the taxpayer, paragraphs (1) and
(3) of subsection (a) shall not apply to musical compositions
or copyrights in musical works sold or exchanged before
January 1, 2011, by a taxpayer described in subsection (a)(3).’’.
(b) LIMITATION
ON
CHARITABLE
CONTRIBUTIONS.—Subpara-
graph (A) of section 170(e)(1) is amended by inserting ‘‘(determined
without regard to section 1221(b)(3))’’ after ‘‘long-term capital gain’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales and exchanges in taxable years beginning
after the date of the enactment of this Act.
SEC. 205. VESSEL TONNAGE LIMIT.
(a) IN GENERAL.—Paragraph (4) of section 1355(a) (relating
to qualifying vessel) is amended by inserting ‘‘(6,000, in the case
of taxable years beginning after December 31, 2005, and ending
before January 1, 2011)’’ after ‘‘10,000’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2005.
SEC. 206. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN
FUNDS.
In the case of bonds issued after the date of the enactment
of this Act and before August 31, 2009—
(1) the requirement of paragraph (1) of section 648 of
the Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated
as met with respect to the securities or obligations referred
to in such section if such securities or obligations are held
in a fund the annual distributions from which cannot exceed
7 percent of the average fair market value of the assets held
in such fund except to the extent distributions are necessary
to pay debt service on the bond issue, and
(2) paragraph (3) of such section shall be applied by sub-
stituting ‘‘distributions from’’ for ‘‘the investment earnings of’’
both places it appears.
SEC. 207. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR
ACQUIRING MUSIC OR MUSIC COPYRIGHTS.
(a) IN GENERAL.—Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the
following new paragraph:
‘‘(8) SPECIAL RULES FOR CERTAIN MUSICAL WORKS AND COPY-
RIGHTS.—
‘‘(A) IN
GENERAL.—If an election is in effect under
this paragraph for any taxable year, then, notwithstanding
paragraph (1), any expense which—
Applicability.
26 USC 1355
note.
26 USC 170 note.
26 USC 1221.
26 USC 143 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00348
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 351
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(i) is paid or incurred by the taxpayer in creating
or acquiring any applicable musical property placed
in service during the taxable year, and
‘‘(ii) is otherwise properly chargeable to capital
account,
shall be amortized ratably over the 5-year period beginning
with the month in which the property was placed in service.
The preceding sentence shall not apply to any expense
which, without regard to this paragraph, would not be
allowable as a deduction.
‘‘(B) EXCLUSIVE METHOD.—Except as provided in this
paragraph, no depreciation or amortization deduction shall
be allowed with respect to any expense to which subpara-
graph (A) applies.
‘‘(C) APPLICABLE MUSICAL PROPERTY.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—The term ‘applicable musical
property’ means any musical composition (including
any accompanying words), or any copyright with
respect to a musical composition, which is property
to which this subsection applies without regard to this
paragraph.
‘‘(ii) EXCEPTIONS.—Such term shall not include any
property—
‘‘(I) with respect to which expenses are treated
as qualified creative expenses to which section
263A(h) applies,
‘‘(II) to which a simplified procedure estab-
lished under section 263A(j)(2) applies, or
‘‘(III) which is an amortizable section 197
intangible (as defined in section 197(c)).
‘‘(D) ELECTION.—An election under this paragraph
shall be made at such time and in such form as the Sec-
retary may prescribe and shall apply to all applicable
musical property placed in service during the taxable year
for which the election applies.
‘‘(E) TERMINATION.—An election may not be made
under this paragraph for any taxable year beginning after
December 31, 2010.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to expenses paid or incurred with respect to property
placed in service in taxable years beginning after December 31,
2005.
SEC. 208. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CER-
TAIN CAPITAL EXPENDITURES FOR PURPOSES OF QUALI-
FIED SMALL ISSUE BONDS.
(a) IN GENERAL.—Section 144(a)(4)(G) is amended by striking
‘‘September 30, 2009’’ and inserting ‘‘December 31, 2006’’.
(b) CONFORMING AMENDMENT.—Section 144(a)(4)(F) is amended
by striking ‘‘September 30, 2009’’ and inserting ‘‘December 31,
2006’’.
SEC. 209. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED
CONTINUING CARE FACILITIES.
(a) IN GENERAL.—Section 7872 is amended by redesignating
subsection (h) as subsection (i) and inserting after subsection (g)
the following new subsection:
26 USC 167 note.
Applicability.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00349
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 352
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(h) EXCEPTION FOR LOANS TO QUALIFIED CONTINUING CARE
FACILITIES.—
‘‘(1) IN
GENERAL.—This section shall not apply for any
calendar year to any below-market loan owed by a facility
which on the last day of such year is a qualified continuing
care facility, if such loan was made pursuant to a continuing
care contract and if the lender (or the lender’s spouse) attains
age 62 before the close of such year.
‘‘(2) CONTINUING
CARE
CONTRACT.—For purposes of this
section, the term ‘continuing care contract’ means a written
contract between an individual and a qualified continuing care
facility under which—
‘‘(A) the individual or individual’s spouse may use a
qualified continuing care facility for their life or lives,
‘‘(B) the individual or individual’s spouse will be pro-
vided with housing, as appropriate for the health of such
individual or individual’s spouse—
‘‘(i) in an independent living unit (which has addi-
tional available facilities outside such unit for the
provision of meals and other personal care), and
‘‘(ii) in an assisted living facility or a nursing
facility, as is available in the continuing care facility,
and
‘‘(C) the individual or individual’s spouse will be pro-
vided assisted living or nursing care as the health of such
individual or individual’s spouse requires, and as is avail-
able in the continuing care facility.
The Secretary shall issue guidance which limits such term
to contracts which provide only facilities, care, and services
described in this paragraph.
‘‘(3) QUALIFIED CONTINUING CARE FACILITY.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘qualified continuing care facility’ means 1 or more
facilities—
‘‘(i) which are designed to provide services under
continuing care contracts,
‘‘(ii) which include an independent living unit, plus
an assisted living or nursing facility, or both, and
‘‘(iii) substantially all of the independent living
unit residents of which are covered by continuing care
contracts.
‘‘(B) NURSING HOMES EXCLUDED.—The term ‘qualified
continuing care facility’ shall not include any facility which
is of a type which is traditionally considered a nursing
home.
‘‘(4) TERMINATION.—This subsection shall not apply to any
calendar year after 2010.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 7872(g) is amended by adding at the end the
following new paragraph:
‘‘(6) SUSPENSION OF APPLICATION.—Paragraph (1) shall not
apply for any calendar year to which subsection (h) applies.’’.
(2) Section 142(d)(2)(B) is amended by striking ‘‘Section
7872(g)’’ and inserting ‘‘Subsections (g) and (h) of section 7872’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to calendar years beginning after December 31, 2005,
with respect to loans made before, on, or after such date.
26 USC 142 note.
26 USC 7872.
Guidelines.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00350
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 353
PUBLIC LAW 109–222—MAY 17, 2006
TITLE III—ALTERNATIVE MINIMUM TAX
RELIEF
SEC. 301. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION
AMOUNT FOR 2006.
(a) IN
GENERAL.—Section 55(d)(1) (relating to exemption
amount for taxpayers other than corporations) is amended—
(1) by striking ‘‘$58,000’’ and all that follows through ‘‘2005’’
in subparagraph (A) and inserting ‘‘$62,550 in the case of
taxable years beginning in 2006’’, and
(2) by striking ‘‘$40,250’’ and all that follows through ‘‘2005’’
in subparagraph (B) and inserting ‘‘$42,500 in the case of
taxable years beginning in 2006’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005.
SEC. 302. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS
AGAINST REGULAR AND ALTERNATIVE MINIMUM TAX
LIABILITY.
(a) IN GENERAL.—Paragraph (2) of section 26(a) is amended—
(1) by striking ‘‘2005’’ in the heading thereof and inserting
‘‘2006’’, and
(2) by striking ‘‘or 2005’’ and inserting ‘‘2005, or 2006’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005.
TITLE IV—CORPORATE ESTIMATED TAX
PROVISIONS
SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code
of 1986—
(1) in the case of a corporation with assets of not less
than $1,000,000,000 (determined as of the end of the preceding
taxable year)—
(A) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August,
or September of 2006 shall be 105 percent of such amount,
(B) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August,
or September of 2012 shall be 106.25 percent of such
amount,
(C) the amount of any required installment of corporate
estimated tax which is otherwise due in July, August,
or September of 2013 shall be 100.75 percent of such
amount, and
(D) the amount of the next required installment after
an installment referred to in subparagraph (A), (B), or
(C) shall be appropriately reduced to reflect the amount
of the increase by reason of such subparagraph,
(2) 20.5 percent of the amount of any required installment
of corporate estimated tax which is otherwise due in September
2010 shall not be due until October 1, 2010, and
26 USC 6655
note.
26 USC 26 note.
26 USC 55 note.
26 USC 55.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00351
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 354
PUBLIC LAW 109–222—MAY 17, 2006
(3) 27.5 percent of the amount of any required installment
of corporate estimated tax which is otherwise due in September
2011 shall not be due until October 1, 2011.
TITLE V—REVENUE OFFSET
PROVISIONS
SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS
WHICH ARE CORPORATIONS.
(a) IN GENERAL.—Section 163(j) (relating to limitation on deduc-
tion for interest on certain indebtedness) is amended by redesig-
nating paragraph (8) as paragraph (9) and by inserting after para-
graph (7) the following new paragraph:
‘‘(8) TREATMENT OF CORPORATE PARTNERS.—Except to the
extent provided by regulations, in applying this subsection to
a corporation which owns (directly or indirectly) an interest
in a partnership—
‘‘(A) such corporation’s distributive share of interest
income paid or accrued to such partnership shall be treated
as interest income paid or accrued to such corporation,
‘‘(B) such corporation’s distributive share of interest
paid or accrued by such partnership shall be treated as
interest paid or accrued by such corporation, and
‘‘(C) such corporation’s share of the liabilities of such
partnership shall be treated as liabilities of such corpora-
tion.’’.
(b) ADDITIONAL
REGULATORY
AUTHORITY.—Section 163(j)(9)
(relating to regulations), as redesignated by subsection (a), is
amended by striking ‘‘and’’ at the end of subparagraph (B), by
striking the period at the end of subparagraph (C) and inserting
‘‘, and’’, and by adding at the end the following new subparagraph:
‘‘(D) regulations providing for the reallocation of shares
of partnership indebtedness, or distributive shares of the
partnership’s interest income or interest expense.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning on or after the date of
the enactment of this Act.
SEC. 502. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.
(a) IN GENERAL.—Section 6049(b)(2) (relating to exceptions)
is amended by striking subparagraph (B) and by redesignating
subparagraphs (C) and (D) as subparagraphs (B) and (C), respec-
tively.
(b) 
CONFORMING
AMENDMENT.—Section 
6049(b)(2)(C), 
as
redesignated by subsection (a), is amended by striking ‘‘subpara-
graph (C)’’ and inserting ‘‘subparagraph (B)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to interest paid after December 31, 2005.
SEC. 503. 5-YEAR AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL
EXPENDITURES FOR CERTAIN MAJOR INTEGRATED OIL
COMPANIES.
(a) IN GENERAL.—Section 167(h) (relating to amortization of
geological and geophysical expenditures) is amended by adding
at the end the following new paragraph:
26 USC 6049
note.
26 USC 163 note.
26 USC 163.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00352
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 355
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(5) SPECIAL
RULE
FOR
MAJOR
INTEGRATED
OIL
COMPA-
NIES.—
‘‘(A) IN GENERAL.—In the case of a major integrated
oil company, paragraphs (1) and (4) shall be applied by
substituting ‘5-year’ for ‘24 month’.
‘‘(B) MAJOR INTEGRATED OIL COMPANY.—For purposes
of this paragraph, the term ‘major integrated oil company’
means, with respect to any taxable year, a producer of
crude oil—
‘‘(i) which has an average daily worldwide produc-
tion of crude oil of at least 500,000 barrels for the
taxable year,
‘‘(ii) which had gross receipts in excess of
$1,000,000,000 for its last taxable year ending during
calendar year 2005, and
‘‘(iii) to which subsection (c) of section 613A does
not apply by reason of paragraph (4) of section 613A(d),
determined—
‘‘(I) by substituting ‘15 percent’ for ‘5 percent’
each place it occurs in paragraph (3) of section
613A(d), and
‘‘(II) without regard to whether subsection (c)
of section 613A does not apply by reason of para-
graph (2) of section 613A(d).
For purposes of clauses (i) and (ii), all persons treated
as a single employer under subsections (a) and (b) of section
52 shall be treated as 1 person and, in case of a short
taxable year, the rule under section 448(c)(3)(B) shall
apply.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to amounts paid or incurred after the date of the
enactment of this Act.
SEC. 504. APPLICATION OF FIRPTA TO REGULATED INVESTMENT
COMPANIES.
(a) IN
GENERAL.—Subclause (II) of section 897(h)(4)(A)(i)
(defining qualified investment entity) is amended by inserting
‘‘which is a United States real property holding corporation or
which would be a United States real property holding corporation
if the exceptions provided in subsections (c)(3) and (h)(2) did not
apply to interests in any real estate investment trust or regulated
investment company’’ after ‘‘regulated investment company’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the provisions of section 411
of the American Jobs Creation Act of 2004 to which it relates.
SEC. 505. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA
GAINS.
(a) QUALIFIED INVESTMENT ENTITY.—
(1) IN GENERAL.—Section 897(h)(1) is amended—
(A) by striking ‘‘a nonresident alien individual or a
foreign corporation’’ in the first sentence and inserting
‘‘a nonresident alien individual, a foreign corporation, or
other qualified investment entity’’,
(B) by striking ‘‘such nonresident alien individual or
foreign corporation’’ in the first sentence and inserting
‘‘such nonresident alien individual, foreign corporation, or
other qualified investment entity’’, and
26 USC 897 note.
26 USC 897.
26 USC 167 note.
Applicability.
Applicability.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00353
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 356
PUBLIC LAW 109–222—MAY 17, 2006
(C) by striking the second sentence and inserting the
following new sentence: ‘‘Notwithstanding the preceding
sentence, any distribution by a qualified investment entity
to a nonresident alien individual or a foreign corporation
with respect to any class of stock which is regularly traded
on an established securities market located in the United
States shall not be treated as gain recognized from the
sale or exchange of a United States real property interest
if such individual or corporation did not own more than
5 percent of such class of stock at any time during the
1-year period ending on the date of such distribution.’’.
(2) EXCEPTION TO TERMINATION OF APPLICATION OF SECTION
897 RULES TO REGULATED INVESTMENT COMPANIES.—Clause (ii)
of section 897(h)(4)(A) is amended by adding at the end the
following new sentence: ‘‘Notwithstanding the preceding sen-
tence, an entity described in clause (i)(II) shall be treated
as a qualified investment entity for purposes of applying para-
graphs (1) and (5) and section 1445 with respect to any distribu-
tion by the entity to a nonresident alien individual or a foreign
corporation which is attributable directly or indirectly to a
distribution to the entity from a real estate investment trust.’’.
(b) WITHHOLDING ON DISTRIBUTIONS TREATED AS GAIN FROM
UNITED
STATES
REAL
PROPERTY
INTERESTS.—Section 1445(e)
(relating to special rules for distributions, etc. by corporations,
partnerships, trusts, or estates) is amended by redesignating para-
graph (6) as paragraph (7) and by inserting after paragraph (5)
the following new paragraph:
‘‘(6) DISTRIBUTIONS BY REGULATED INVESTMENT COMPANIES
AND REAL ESTATE INVESTMENT TRUSTS.—If any portion of a
distribution from a qualified investment entity (as defined in
section 897(h)(4)) to a nonresident alien individual or a foreign
corporation is treated under section 897(h)(1) as gain realized
by such individual or corporation from the sale or exchange
of a United States real property interest, the qualified invest-
ment entity shall deduct and withhold under subsection (a)
a tax equal to 35 percent (or, to the extent provided in regula-
tions, 15 percent (20 percent in the case of taxable years begin-
ning after December 31, 2010)) of the amount so treated.’’.
(c) TREATMENT
OF CERTAIN DISTRIBUTIONS
AS DIVIDENDS.—
(1) IN
GENERAL.—Section 852(b)(3) (relating to capital
gains) is amended by adding at the end the following new
subparagraph:
‘‘(E) CERTAIN DISTRIBUTIONS.—In the case of a distribu-
tion to which section 897 does not apply by reason of
the second sentence of section 897(h)(1), the amount of
such distribution which would be included in computing
long-term capital gains for the shareholder under subpara-
graph (B) or (D) (without regard to this subparagraph)—
‘‘(i) shall not be included in computing such share-
holder’s long-term capital gains, and
‘‘(ii) shall be included in such shareholder’s gross
income as a dividend from the regulated investment
company.’’.
(2) CONFORMING AMENDMENT.—Section 871(k)(2) (relating
to short-term capital gain dividends) is amended by adding
at the end the following new subparagraph:
26 USC 897.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00354
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 357
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(E) CERTAIN DISTRIBUTIONS.—In the case of a distribu-
tion to which section 897 does not apply by reason of
the second sentence of section 897(h)(1), the amount which
would be treated as a short-term capital gain dividend
to the shareholder (without regard to this subparagraph)—
‘‘(i) shall not be treated as a short-term capital
gain dividend, and
‘‘(ii) shall be included in such shareholder’s gross
income as a dividend from the regulated investment
company.’’.
(d) EFFECTIVE DATES.—The amendments made by this section
shall apply to taxable years of qualified investment entities begin-
ning after December 31, 2005, except that no amount shall be
required to be withheld under section 1441, 1442, or 1445 of the
Internal Revenue Code of 1986 with respect to any distribution
before the date of the enactment of this Act if such amount was
not otherwise required to be withheld under any such section as
in effect before such amendments.
SEC. 506. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF
FOREIGN PERSONS IN UNITED STATES REAL PROPERTY
THROUGH WASH SALE TRANSACTIONS.
(a) IN GENERAL.—Section 897(h) (relating to special rules for
certain investment entities) is amended by adding at the end the
following new paragraph:
‘‘(5) TREATMENT OF CERTAIN WASH SALE TRANSACTIONS.—
‘‘(A) IN GENERAL.—If an interest in a domestically con-
trolled qualified investment entity is disposed of in an
applicable wash sale transaction, the taxpayer shall, for
purposes of this section, be treated as having gain from
the sale or exchange of a United States real property
interest in an amount equal to the portion of the distribu-
tion described in subparagraph (B) with respect to such
interest which, but for the disposition, would have been
treated by the taxpayer as gain from the sale or exchange
of a United States real property interest under paragraph
(1).
‘‘(B) APPLICABLE WASH SALES TRANSACTION.—For pur-
poses of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applicable wash sales
transaction’ means any transaction (or series of trans-
actions) under which a nonresident alien individual,
foreign corporation, or qualified investment entity—
‘‘(I) disposes of an interest in a domestically
controlled qualified investment entity during the
30-day period preceding the ex-dividend date of
a distribution which is to be made with respect
to the interest and any portion of which, but for
the disposition, would have been treated by the
taxpayer as gain from the sale or exchange of
a United States real property interest under para-
graph (1), and
‘‘(II) acquires, or enters into a contract or
option to acquire, a substantially identical interest
in such entity during the 61-day period beginning
with the 1st day of the 30-day period described
in subclause (I).
26 USC 897.
26 USC 852 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00355
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 358
PUBLIC LAW 109–222—MAY 17, 2006
For purposes of subclause (II), a nonresident alien
individual, foreign corporation, or qualified investment
entity shall be treated as having acquired any interest
acquired by a person related (within the meaning of
section 267(b) or 707(b)(1)) to the individual, corpora-
tion, or entity, and any interest which such person
has entered into any contract or option to acquire.
‘‘(ii) APPLICATION
TO
SUBSTITUTE
DIVIDEND
AND
SIMILAR PAYMENTS.—Subparagraph (A) shall apply to—
‘‘(I) any substitute dividend payment (within
the meaning of section 861), or
‘‘(II) any other similar payment specified in
regulations which the Secretary determines nec-
essary to prevent avoidance of the purposes of
this paragraph.
The portion of any such payment treated by the tax-
payer as gain from the sale or exchange of a United
States real property interest under subparagraph (A)
by reason of this clause shall be equal to the portion
of the distribution such payment is in lieu of which
would have been so treated but for the transaction
giving rise to such payment.
‘‘(iii) EXCEPTION
WHERE
DISTRIBUTION
ACTUALLY
RECEIVED.—A transaction shall not be treated as an
applicable wash sales transaction if the nonresident
alien individual, foreign corporation, or qualified
investment entity receives the distribution described
in clause (i)(I) with respect to either the interest which
was disposed of, or acquired, in the transaction.
‘‘(iv) EXCEPTION
FOR
CERTAIN
PUBLICLY
TRADED
STOCK.—A transaction shall not be treated as an
applicable wash sales transaction if it involves the
disposition of any class of stock in a qualified invest-
ment entity which is regularly traded on an established
securities market within the United States but only
if the nonresident alien individual, foreign corporation,
or qualified investment entity did not own more than
5 percent of such class of stock at any time during
the 1-year period ending on the date of the distribution
described in clause (i)(I).’’.
(b) NO WITHHOLDING REQUIRED.—Section 1445(b) (relating to
exemptions) is amended by adding at the end the following new
paragraph:
‘‘(8) APPLICABLE WASH SALES TRANSACTIONS.—No person
shall be required to deduct and withhold any amount under
subsection (a) with respect to a disposition which is treated
as a disposition of a United States real property interest solely
by reason of section 897(h)(5).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005,
except that such amendments shall not apply to any distribution,
or substitute dividend payment, occurring before the date that
is 30 days after the date of the enactment of this Act.
SEC. 507. SECTION 355 NOT TO APPLY TO DISTRIBUTIONS INVOLVING
DISQUALIFIED INVESTMENT COMPANIES.
(a) IN GENERAL.—
26 USC 897 note.
26 USC 1445.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00356
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 359
PUBLIC LAW 109–222—MAY 17, 2006
Section 355 (relating to distributions of stock and securities
of a controlled corporation) is amended by adding at the end
the following new subsection:
‘‘(g) SECTION NOT TO APPLY TO DISTRIBUTIONS INVOLVING DIS-
QUALIFIED INVESTMENT CORPORATIONS.—
‘‘(1) IN GENERAL.—This section (and so much of section
356 as relates to this section) shall not apply to any distribution
which is part of a transaction if—
‘‘(A) either the distributing corporation or controlled
corporation is, immediately after the transaction, a dis-
qualified investment corporation, and
‘‘(B) any person holds, immediately after the trans-
action, a 50-percent or greater interest in any disqualified
investment corporation, but only if such person did not
hold such an interest in such corporation immediately
before the transaction.
‘‘(2) DISQUALIFIED
INVESTMENT
CORPORATION.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘disqualified investment
corporation’ means any distributing or controlled corpora-
tion if the fair market value of the investment assets
of the corporation is—
‘‘(i) in the case of distributions after the end of
the 1-year period beginning on the date of the enact-
ment of this subsection, 2⁄3 or more of the fair market
value of all assets of the corporation, and
‘‘(ii) in the case of distributions during such 1-
year period, 3⁄4 or more of the fair market value of
all assets of the corporation.
‘‘(B) INVESTMENT ASSETS.—
‘‘(i) IN
GENERAL.—Except as otherwise provided
in this subparagraph, the term ‘investment assets’
means—
‘‘(I) cash,
‘‘(II) any stock or securities in a corporation,
‘‘(III) any interest in a partnership,
‘‘(IV) any debt instrument or other evidence
of indebtedness,
‘‘(V) any option, forward or futures contract,
notional principal contract, or derivative,
‘‘(VI) foreign currency, or
‘‘(VII) any similar asset.
‘‘(ii) EXCEPTION FOR ASSETS USED IN ACTIVE CON-
DUCT OF CERTAIN FINANCIAL TRADES OR BUSINESSES.—
Such term shall not include any asset which is held
for use in the active and regular conduct of—
‘‘(I) a lending or finance business (within the
meaning of section 954(h)(4)),
‘‘(II) a banking business through a bank (as
defined in section 581), a domestic building and
loan association (within the meaning of section
7701(a)(19)), or any similar institution specified
by the Secretary, or
‘‘(III) an insurance business if the conduct of
the business is licensed, authorized, or regulated
by an applicable insurance regulatory body.
26 USC 355.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00357
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 360
PUBLIC LAW 109–222—MAY 17, 2006
This clause shall only apply with respect to any busi-
ness if substantially all of the income of the business
is derived from persons who are not related (within
the meaning of section 267(b) or 707(b)(1)) to the person
conducting the business.
‘‘(iii) EXCEPTION
FOR
SECURITIES
MARKED
TO
MARKET.—Such term shall not include any security
(as defined in section 475(c)(2)) which is held by a
dealer in securities and to which section 475(a) applies.
‘‘(iv) STOCK OR SECURITIES IN A 20-PERCENT CON-
TROLLED ENTITY.—
‘‘(I) IN GENERAL.—Such term shall not include
any stock and securities in, or any asset described
in subclause (IV) or (V) of clause (i) issued by,
a corporation which is a 20-percent controlled
entity with respect to the distributing or controlled
corporation.
‘‘(II) LOOK-THRU
RULE.—The distributing or
controlled corporation shall, for purposes of
applying this subsection, be treated as owning its
ratable share of the assets of any 20-percent con-
trolled entity.
‘‘(III) 20-PERCENT
CONTROLLED
ENTITY.—For
purposes of this clause, the term ‘20-percent con-
trolled entity’ means, with respect to any distrib-
uting or controlled corporation, any corporation
with respect to which the distributing or controlled
corporation owns directly or indirectly stock
meeting the requirements of section 1504(a)(2),
except that such section shall be applied by sub-
stituting ‘20 percent’ for ‘80 percent’ and without
regard to stock described in section 1504(a)(4).
‘‘(v) INTERESTS IN CERTAIN PARTNERSHIPS.—
‘‘(I) IN GENERAL.—Such term shall not include
any interest in a partnership, or any debt
instrument or other evidence of indebtedness,
issued by the partnership, if 1 or more of the
trades or businesses of the partnership are (or,
without regard to the 5-year requirement under
subsection (b)(2)(B), would be) taken into account
by the distributing or controlled corporation, as
the case may be, in determining whether the
requirements of subsection (b) are met with respect
to the distribution.
‘‘(II) LOOK-THRU
RULE.—The distributing or
controlled corporation shall, for purposes of
applying this subsection, be treated as owning its
ratable share of the assets of any partnership
described in subclause (I).
‘‘(3) 50-PERCENT OR GREATER INTEREST.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘50-percent or greater
interest’ has the meaning given such term by subsection
(d)(4).
‘‘(B) ATTRIBUTION
RULES.—The rules of section 318
shall apply for purposes of determining ownership of stock
for purposes of this paragraph.
Applicability.
Applicability.
Applicability.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00358
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 361
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(4) TRANSACTION.—For purposes of this subsection, the
term ‘transaction’ includes a series of transactions.
‘‘(5) REGULATIONS.—The Secretary shall prescribe such
regulations as may be necessary to carry out, or prevent the
avoidance of, the purposes of this subsection, including
regulations—
‘‘(A) to carry out, or prevent the avoidance of, the
purposes of this subsection in cases involving—
‘‘(i) the use of related persons, intermediaries,
pass-thru entities, options, or other arrangements, and
‘‘(ii) the treatment of assets unrelated to the trade
or business of a corporation as investment assets if,
prior to the distribution, investment assets were used
to acquire such unrelated assets,
‘‘(B) which in appropriate cases exclude from the
application of this subsection a distribution which does
not have the character of a redemption which would be
treated as a sale or exchange under section 302, and
‘‘(C) which modify the application of the attribution
rules applied for purposes of this subsection.’’.
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to distributions after the date of the enactment
of this Act.
(2) TRANSITION RULE.—The amendments made by this sec-
tion shall not apply to any distribution pursuant to a trans-
action which is—
(A) made pursuant to an agreement which was binding
on such date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
SEC. 508. LOAN AND REDEMPTION REQUIREMENTS ON POOLED
FINANCING REQUIREMENTS.
(a) STRENGTHENED REASONABLE EXPECTATION REQUIREMENT.—
Subparagraph (A) of section 149(f)(2) (relating to reasonable
expectation requirement) is amended to read as follows:
‘‘(A) IN GENERAL.—The requirements of this paragraph
are met with respect to an issue if the issuer reasonably
expects that—
‘‘(i) as of the close of the 1-year period beginning
on the date of issuance of the issue, at least 30 percent
of the net proceeds of the issue (as of the close of
such period) will have been used directly or indirectly
to make or finance loans to ultimate borrowers, and
‘‘(ii) as of the close of the 3-year period beginning
on such date of issuance, at least 95 percent of the
net proceeds of the issue (as of the close of such period)
will have been so used.’’.
(b) WRITTEN LOAN COMMITMENT AND REDEMPTION REQUIRE-
MENTS.—Section 149(f) (relating to treatment of certain pooled
financing bonds) is amended by redesignating paragraphs (4) and
(5) as paragraphs (6) and (7), respectively, and by inserting after
paragraph (3) the following new paragraphs:
26 USC 149.
26 USC 355 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00359
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 362
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(4) WRITTEN LOAN COMMITMENT REQUIREMENT.—
‘‘(A) IN GENERAL.—The requirement of this paragraph
is met with respect to an issue if the issuer receives prior
to issuance written loan commitments identifying the ulti-
mate potential borrowers of at least 30 percent of the
net proceeds of such issue.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
with respect to any issuer which—
‘‘(i) is a State (or an integral part of a State)
issuing pooled financing bonds to make or finance loans
to subordinate governmental units of such State, or
‘‘(ii) is a State-created entity providing financing
for water-infrastructure projects through the federally-
sponsored State revolving fund program.
‘‘(5) REDEMPTION REQUIREMENT.—The requirement of this
paragraph is met if to the extent that less than the percentage
of the proceeds of an issue required to be used under clause
(i) or (ii) of paragraph (2)(A) is used by the close of the period
identified in such clause, the issuer uses an amount of proceeds
equal to the excess of—
‘‘(A) the amount required to be used under such clause,
over
‘‘(B) the amount actually used by the close of such
period,
to redeem outstanding bonds within 90 days after the end
of such period.’’.
(c) ELIMINATION OF DISREGARD OF POOLED BONDS IN DETER-
MINING ELIGIBILITY FOR SMALL ISSUER EXCEPTION TO ARBITRAGE
REBATE.—Section 148(f)(4)(D)(ii) (relating to aggregation of issuers)
is amended by striking subclause (II) and by redesignating sub-
clauses (III) and (IV) as subclauses (II) and (III), respectively.
(d) CONFORMING AMENDMENTS.—
(1) Section 149(f)(1) is amended by striking ‘‘paragraphs
(2) and (3)’’ and inserting ‘‘paragraphs (2), (3), (4), and (5)’’.
(2) Section 149(f)(7)(B), as redesignated by subsection (b),
is amended by striking ‘‘paragraph (4)(A)’’ and inserting ‘‘para-
graph (6)(A)’’.
(3) Section 54(l)(2) is amended by striking ‘‘section
149(f)(4)(A)’’ and inserting ‘‘section 149(f)(6)(A)’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to bonds issued after the date of the enactment of
this Act.
SEC. 509. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF
OFFERS-IN-COMPROMISE.
(a) IN GENERAL.—Section 7122 (relating to compromises) is
amended by redesignating subsections (c) and (d) as subsections
(d) and (e), respectively, and by inserting after subsection (b) the
following new subsection:
‘‘(c) RULES FOR SUBMISSION OF OFFERS-IN-COMPROMISE.—
‘‘(1) PARTIAL PAYMENT REQUIRED WITH SUBMISSION.—
‘‘(A) LUMP-SUM OFFERS.—
‘‘(i) IN GENERAL.—The submission of any lump-
sum offer-in-compromise shall be accompanied by the
payment of 20 percent of the amount of such offer.
26 USC 54 note.
26 USC 148.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00360
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 363
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(ii) LUMP-SUM
OFFER-IN-COMPROMISE.—For pur-
poses of this section, the term ‘lump-sum offer-in-com-
promise’ means any offer of payments made in 5 or
fewer installments.
‘‘(B) PERIODIC PAYMENT OFFERS.—
‘‘(i) IN GENERAL.—The submission of any periodic
payment offer-in-compromise shall be accompanied by
the payment of the amount of the first proposed install-
ment.
‘‘(ii) FAILURE TO MAKE INSTALLMENT DURING PEND-
ENCY OF OFFER.—Any failure to make an installment
(other than the first installment) due under such offer-
in-compromise during the period such offer is being
evaluated by the Secretary may be treated by the
Secretary as a withdrawal of such offer-in-compromise.
‘‘(2) RULES OF APPLICATION.—
‘‘(A) USE OF PAYMENT.—The application of any payment
made under this subsection to the assessed tax or other
amounts imposed under this title with respect to such
tax may be specified by the taxpayer.
‘‘(B) APPLICATION OF USER FEE.—In the case of any
assessed tax or other amounts imposed under this title
with respect to such tax which is the subject of an offer-
in-compromise to which this subsection applies, such tax
or other amounts shall be reduced by any user fee imposed
under this title with respect to such offer-in-compromise.
‘‘(C) WAIVER
AUTHORITY.—The Secretary may issue
regulations waiving any payment required under para-
graph (1) in a manner consistent with the practices estab-
lished in accordance with the requirements under sub-
section (d)(3).’’.
(b) ADDITIONAL RULES RELATING TO TREATMENT OF OFFERS.—
(1) UNPROCESSABLE OFFER IF PAYMENT REQUIREMENTS ARE
NOT MET.—Paragraph (3) of section 7122(d) (relating to stand-
ards for evaluation of offers), as redesignated by subsection
(a), is amended by striking ‘‘; and’’ at the end of subparagraph
(A) and inserting a comma, by striking the period at the end
of subparagraph (B) and inserting ‘‘, and’’, and by adding at
the end the following new subparagraph:
‘‘(C) any offer-in-compromise which does not meet the
requirements of subparagraph (A)(i) or (B)(i), as the case
may be, of subsection (c)(1) may be returned to the taxpayer
as unprocessable.’’.
(2) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN
CERTAIN PERIOD.—Section 7122, as amended by subsection (a),
is amended by adding at the end the following new subsection:
‘‘(f) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN
CERTAIN PERIOD.—Any offer-in-compromise submitted under this
section shall be deemed to be accepted by the Secretary if such
offer is not rejected by the Secretary before the date which is
24 months after the date of the submission of such offer. For
purposes of the preceding sentence, any period during which any
tax liability which is the subject of such offer-in-compromise is
in dispute in any judicial proceeding shall not be taken into account
in determining the expiration of the 24-month period.’’.
(c) CONFORMING AMENDMENT.—Section 6159(f) is amended by
striking ‘‘section 7122(d)’’ and inserting ‘‘section 7122(e)’’.
26 USC 7122.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00361
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 364
PUBLIC LAW 109–222—MAY 17, 2006
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to offers-in-compromise submitted on and after the
date which is 60 days after the date of the enactment of this
Act.
SEC. 510. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED
INCOME IS TAXED AS IF PARENT’S INCOME.
(a) IN GENERAL.—Section 1(g)(2)(A) (relating to child to whom
subsection applies) is amended by striking ‘‘age 14’’ and inserting
‘‘age 18’’.
(b) TREATMENT OF DISTRIBUTIONS FROM QUALIFIED DISABILITY
TRUSTS.—Section 1(g)(4) (relating to net unearned income) is
amended by adding at the end the following new subparagraph:
‘‘(C) TREATMENT
OF
DISTRIBUTIONS
FROM
QUALIFIED
DISABILITY
TRUSTS.—For purposes of this subsection, in
the case of any child who is a beneficiary of a qualified
disability trust (as defined in section 642(b)(2)(C)(ii)), any
amount included in the income of such child under sections
652 and 662 during a taxable year shall be considered
earned income of such child for such taxable year.’’.
(c) CONFORMING AMENDMENT.—Section 1(g)(2) is amended by
striking ‘‘and’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting ‘‘, and’’, and
by inserting after subparagraph (B) the following new subpara-
graph:
‘‘(C) such child does not file a joint return for the
taxable year.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005.
SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS
MADE BY GOVERNMENT ENTITIES.
(a) IN GENERAL.—Section 3402 is amended by adding at the
end the following new subsection:
‘‘(t) EXTENSION OF WITHHOLDING TO CERTAIN PAYMENTS MADE
BY GOVERNMENT ENTITIES.—
‘‘(1) GENERAL RULE.—The Government of the United States,
every State, every political subdivision thereof, and every
instrumentality of the foregoing (including multi-State agen-
cies) making any payment to any person providing any property
or services (including any payment made in connection with
a government voucher or certificate program which functions
as a payment for property or services) shall deduct and withhold
from such payment a tax in an amount equal to 3 percent
of such payment.
‘‘(2) PROPERTY AND SERVICES SUBJECT TO WITHHOLDING.—
Paragraph (1) shall not apply to any payment—
‘‘(A) except as provided in subparagraph (B), which
is subject to withholding under any other provision of this
chapter or chapter 3,
‘‘(B) which is subject to withholding under section 3406
and from which amounts are being withheld under such
section,
‘‘(C) of interest,
‘‘(D) for real property,
‘‘(E) to any governmental entity subject to the require-
ments of paragraph (1), any tax-exempt entity, or any
foreign government,
26 USC 1 note.
26 USC 1.
26 USC 6159
note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00362
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 365
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(F) made pursuant to a classified or confidential con-
tract described in section 6050M(e)(3),
‘‘(G) made by a political subdivision of a State (or
any instrumentality thereof) which makes less than
$100,000,000 of such payments annually,
‘‘(H) which is in connection with a public assistance
or public welfare program for which eligibility is deter-
mined by a needs or income test, and
‘‘(I) to any government employee not otherwise exclud-
able with respect to their services as an employee.
‘‘(3) COORDINATION WITH OTHER SECTIONS.—For purposes
of sections 3403 and 3404 and for purposes of so much of
subtitle F (except section 7205) as relates to this chapter,
payments to any person for property or services which are
subject to withholding shall be treated as if such payments
were wages paid by an employer to an employee.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to payments made after December 31, 2010.
SEC. 512. CONVERSIONS TO ROTH IRAS.
(a) REPEAL OF INCOME LIMITATIONS.—
(1) IN GENERAL.—Paragraph (3) of section 408A(c) (relating
to limits based on modified adjusted gross income) is amended
by striking subparagraph (B) and redesignating subparagraphs
(C) and (D) as subparagraphs (B) and (C), respectively.
(2) CONFORMING
AMENDMENT.—Clause (i) of section
408A(c)(3)(B) (as redesignated by paragraph (1)) is amended
by striking ‘‘except that—’’ and all that follows and inserting
‘‘except that any amount included in gross income under sub-
section (d)(3) shall not be taken into account, and’’.
(b) ROLLOVERS TO A ROTH IRA FROM AN IRA OTHER THAN
A ROTH IRA.—
(1) IN
GENERAL.—Clause (iii) of section 408A(d)(3)(A)
(relating to rollovers from an IRA other than a Roth IRA)
is amended to read as follows:
‘‘(iii) unless the taxpayer elects not to have this
clause apply, any amount required to be included in
gross income for any taxable year beginning in 2010
by reason of this paragraph shall be so included ratably
over the 2-taxable-year period beginning with the first
taxable year beginning in 2011.’’.
(2) CONFORMING AMENDMENTS.—
(A) Clause (i) of section 408A(d)(3)(E) is amended to
read as follows:
‘‘(i) ACCELERATION OF INCLUSION.—
‘‘(I) IN
GENERAL.—The amount otherwise
required to be included in gross income for any
taxable year beginning in 2010 or the first taxable
year in the 2-year period under subparagraph
(A)(iii) shall be increased by the aggregate distribu-
tions from Roth IRAs for such taxable year which
are allocable under paragraph (4) to the portion
of such qualified rollover contribution required to
be included in gross income under subparagraph
(A)(i).
‘‘(II) LIMITATION
ON
AGGREGATE
AMOUNT
INCLUDED.—The amount required to be included
26 USC 408A.
26 USC 3402
note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00363
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 366
PUBLIC LAW 109–222—MAY 17, 2006
in gross income for any taxable year under
subparagraph (A)(iii) shall not exceed the aggre-
gate amount required to be included in gross
income under subparagraph (A)(iii) for all taxable
years in the 2-year period (without regard to sub-
clause (I)) reduced by amounts included for all
preceding taxable years.’’.
(B) The heading for section 408A(d)(3)(E) is amended
by striking ‘‘4-YEAR’’ and inserting ‘‘2-YEAR’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2009.
SEC. 513. REPEAL OF FSC/ETI BINDING CONTRACT RELIEF.
(a) FSC PROVISIONS.—Paragraph (1) of section 5(c) of the FSC
Repeal and Extraterritorial Income Exclusion Act of 2000 is
amended by striking ‘‘which occurs—’’ and all that follows and
inserting ‘‘which occurs before January 1, 2002.’’.
(b) ETI PROVISIONS.—Section 101 of the American Jobs Cre-
ation Act of 2004 is amended by striking subsection (f).
(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. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION
TAKEN INTO ACCOUNT IN DETERMINING DEDUCTION
FOR DOMESTIC PRODUCTION.
(a) IN GENERAL.—Paragraph (2) of section 199(b) (relating to
W-2 wages) is amended to read as follows:
‘‘(2) W-2 WAGES.—For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘W-2 wages’ means, with
respect to any person for any taxable year of such person,
the sum of the amounts described in paragraphs (3) and
(8) of section 6051(a) paid by such person with respect
to employment of employees by such person during the
calendar year ending during such taxable year.
‘‘(B) LIMITATION TO WAGES ATTRIBUTABLE TO DOMESTIC
PRODUCTION.—Such term shall not include any amount
which is not properly allocable to domestic production gross
receipts for purposes of subsection (c)(1).
‘‘(C) RETURN
REQUIREMENT.—Such term shall not
include any amount which is not properly included in a
return filed with the Social Security Administration on
or before the 60th day after the due date (including exten-
sions) for such return.’’.
(b) SIMPLIFICATION OF RULES FOR DETERMINING W-2 WAGES
OF PARTNERS AND S CORPORATION SHAREHOLDERS.—
(1) IN
GENERAL.—Clause (iii) of section 199(d)(1)(A) is
amended to read as follows:
‘‘(iii) each partner or shareholder shall be treated
for purposes of subsection (b) as having W-2 wages
for the taxable year in an amount equal to such per-
son’s allocable share of the W-2 wages of the partner-
ship or S corporation for the taxable year (as deter-
mined under regulations prescribed by the Secretary).’’.
(2) CONFORMING
AMENDMENT.—Paragraph (2) of section
199(a) is amended by striking ‘‘and subsection (d)(1)’’.
26 USC 56 note.
26 USC 114 note.
26 USC 56 note.
26 USC 408A
note.
26 USC 408A.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00364
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 367
PUBLIC LAW 109–222—MAY 17, 2006
(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. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING
ABROAD.
(a) INFLATION
ADJUSTMENT
OF
FOREIGN
EARNED
INCOME
LIMITATION.—Clause (ii) of section 911(b)(2)(D) (relating to inflation
adjustment) is amended—
(1) by striking ‘‘2007’’ and inserting ‘‘2005’’, and
(2) by striking ‘‘2006’’ in subclause (II) and inserting ‘‘2004’’.
(b) MODIFICATION OF HOUSING COST AMOUNT.—
(1) MODIFICATION OF HOUSING COST FLOOR.—Clause (i) of
section 911(c)(1)(B) is amended to read as follows:
‘‘(i) 16 percent of the amount (computed on a daily
basis) in effect under subsection (b)(2)(D) for the cal-
endar year in which such taxable year begins, multi-
plied by’’.
(2) MAXIMUM AMOUNT OF EXCLUSION.—
(A) IN GENERAL.—Subparagraph (A) of section 911(c)(1)
is amended by inserting ‘‘to the extent such expenses do
not exceed the amount determined under paragraph (2)’’
after ‘‘the taxable year’’.
(B) LIMITATION.—Subsection (c) of section 911 is
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount determined under this
paragraph is an amount equal to the product of—
‘‘(i) 30 percent (adjusted as may be provided under
subparagraph (B)) of the amount (computed on a daily
basis) in effect under subsection (b)(2)(D) for the cal-
endar year in which the taxable year of the individual
begins, multiplied by
‘‘(ii) the number of days of such taxable year within
the applicable period described in subparagraph (A)
or (B) of subsection (d)(1).
‘‘(B) REGULATIONS.—The Secretary may issue regula-
tions or other guidance providing for the adjustment of
the percentage under subparagraph (A)(i) on the basis of
geographic differences in housing costs relative to housing
costs in the United States.’’.
(C) CONFORMING AMENDMENTS.—
(i) Section 911(d)(4) is amended by striking ‘‘and
(c)(1)(B)(ii)’’ 
and 
inserting 
‘‘, 
(c)(1)(B)(ii), 
and
(c)(2)(A)(ii)’’.
(ii) Section 911(d)(7) is amended by striking ‘‘sub-
section (c)(3)’’ and inserting ‘‘subsection (c)(4)’’.
(c) RATES
OF TAX APPLICABLE
TO NONEXCLUDED INCOME.—
Section 911 (relating to exclusion of certain income of citizens
and residents of the United States living abroad) is amended by
redesignating subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
‘‘(f) DETERMINATION
OF
TAX
LIABILITY
ON
NONEXCLUDED
AMOUNTS.—For purposes of this chapter, if any amount is excluded
26 USC 911.
26 USC 199 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00365
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 368
PUBLIC LAW 109–222—MAY 17, 2006
from the gross income of a taxpayer under subsection (a) for any
taxable year, then, notwithstanding section 1 or 55—
‘‘(1) the tax imposed by section 1 on the taxpayer for
such taxable year shall be equal to the excess (if any) of—
‘‘(A) the tax which would be imposed by section 1
for the taxable year if the taxpayer’s taxable income were
increased by the amount excluded under subsection (a)
for the taxable year, over
‘‘(B) the tax which would be imposed by section 1
for the taxable year if the taxpayer’s taxable income were
equal to the amount excluded under subsection (a) for
the taxable year, and
‘‘(2) the tentative minimum tax under section 55 for such
taxable year shall be equal to the excess (if any) of—
‘‘(A) the amount which would be such tentative min-
imum tax for the taxable year if the taxpayer’s taxable
excess were increased by the amount excluded under sub-
section (a) for the taxable year, over
‘‘(B) the amount which would be such tentative min-
imum tax for the taxable year if the taxpayer’s taxable
excess were equal to the amount excluded under subsection
(a) for the taxable year.
For purposes of this subsection, the amount excluded under sub-
section (a) shall be reduced by the aggregate amount of any deduc-
tions or exclusions disallowed under subsection (d)(6) with respect
to such excluded amount.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005.
SEC. 516. TAX INVOLVEMENT OF ACCOMMODATION PARTIES IN TAX
SHELTER TRANSACTIONS.
(a) IMPOSITION OF EXCISE TAX.—
(1) IN GENERAL.—Chapter 42 (relating to private founda-
tions and certain other tax-exempt organizations) is amended
by adding at the end the following new subchapter:
‘‘Subchapter F—Tax Shelter Transactions
‘‘Sec. 4965. Excise tax on certain tax-exempt entities entering into prohibited tax
shelter transactions.
‘‘SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING
INTO PROHIBITED TAX SHELTER TRANSACTIONS.
‘‘(a) BEING A PARTY TO AND APPROVAL OF PROHIBITED TRANS-
ACTIONS.—
‘‘(1) TAX-EXEMPT ENTITY.—
‘‘(A) IN GENERAL.—If a transaction is a prohibited tax
shelter transaction at the time any tax-exempt entity
described in paragraph (1), (2), or (3) of subsection (c)
becomes a party to the transaction, such entity shall pay
a tax for the taxable year in which the entity becomes
such a party and any subsequent taxable year in the
amount determined under subsection (b)(1).
‘‘(B) POST-TRANSACTION DETERMINATION.—If any tax-
exempt entity described in paragraph (1), (2), or (3) of
subsection (c) is a party to a subsequently listed transaction
at any time during a taxable year, such entity shall pay
26 USC 911 note.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00366
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 369
PUBLIC LAW 109–222—MAY 17, 2006
a tax for such taxable year in the amount determined
under subsection (b)(1).
‘‘(2) ENTITY MANAGER.—If any entity manager of a tax-
exempt entity approves such entity as (or otherwise causes
such entity to be) a party to a prohibited tax shelter transaction
at any time during the taxable year and knows or has reason
to know that the transaction is a prohibited tax shelter trans-
action, such manager shall pay a tax for such taxable year
in the amount determined under subsection (b)(2).
‘‘(b) AMOUNT OF TAX.—
‘‘(1) ENTITY.—In the case of a tax-exempt entity—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), the amount of the tax imposed under subsection (a)(1)
with respect to any transaction for a taxable year shall
be an amount equal to the product of the highest rate
of tax under section 11, and the greater of—
‘‘(i) the entity’s net income (after taking into
account any tax imposed by this subtitle (other than
by this section) with respect to such transaction) for
such taxable year which—
‘‘(I) in the case of a prohibited tax shelter
transaction (other than a subsequently listed
transaction), is attributable to such transaction,
or
‘‘(II) in the case of a subsequently listed trans-
action, is attributable to such transaction and
which is properly allocable to the period beginning
on the later of the date such transaction is identi-
fied by guidance as a listed transaction by the
Secretary or the first day of the taxable year,
or
‘‘(ii) 75 percent of the proceeds received by the
entity for the taxable year which—
‘‘(I) in the case of a prohibited tax shelter
transaction (other than a subsequently listed
transaction), are attributable to such transaction,
or
‘‘(II) in the case of a subsequently listed trans-
action, are attributable to such transaction and
which are properly allocable to the period begin-
ning on the later of the date such transaction
is identified by guidance as a listed transaction
by the Secretary or the first day of the taxable
year.
‘‘(B) INCREASE IN TAX FOR CERTAIN KNOWING TRANS-
ACTIONS.—In the case of a tax-exempt entity which knew,
or had reason to know, a transaction was a prohibited
tax shelter transaction at the time the entity became a
party to the transaction, the amount of the tax imposed
under subsection (a)(1)(A) with respect to any transaction
for a taxable year shall be the greater of—
‘‘(i) 100 percent of the entity’s net income (after
taking into account any tax imposed by this subtitle
(other than by this section) with respect to the prohib-
ited tax shelter transaction) for such taxable year
which is attributable to the prohibited tax shelter
transaction, or
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00367
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 370
PUBLIC LAW 109–222—MAY 17, 2006
‘‘(ii) 75 percent of the proceeds received by the
entity for the taxable year which are attributable to
the prohibited tax shelter transaction.
This subparagraph shall not apply to any prohibited tax
shelter transaction to which a tax-exempt entity became
a party on or before the date of the enactment of this
section.
‘‘(2) ENTITY MANAGER.—In the case of each entity manager,
the amount of the tax imposed under subsection (a)(2) shall
be $20,000 for each approval (or other act causing participation)
described in subsection (a)(2).
‘‘(c) TAX-EXEMPT ENTITY.—For purposes of this section, the
term ‘tax-exempt entity’ means an entity which is—
‘‘(1) described in section 501(c) or 501(d),
‘‘(2) described in section 170(c) (other than the United
States),
‘‘(3) an Indian tribal government (within the meaning of
section 7701(a)(40)),
‘‘(4) described in paragraph (1), (2), or (3) of section 4979(e),
‘‘(5) a program described in section 529,
‘‘(6) an eligible deferred compensation plan described in
section 457(b) which is maintained by an employer described
in section 4457(e)(1)(A), or
‘‘(7) an arrangement described in section 4973(a).
‘‘(d) ENTITY MANAGER.—For purposes of this section, the term
‘entity manager’ means—
‘‘(1) in the case of an entity described in paragraph (1),
(2), or (3) of subsection (c)—
‘‘(A) the person with authority or responsibility similar
to that exercised by an officer, director, or trustee of an
organization, and
‘‘(B) with respect to any act, the person having
authority or responsibility with respect to such act, and
‘‘(2) in the case of an entity described in paragraph (4),
(5), (6), or (7) of subsection (c), the person who approves or
otherwise causes the entity to be a party to the prohibited
tax shelter transaction.
‘‘(e) PROHIBITED TAX SHELTER TRANSACTION; SUBSEQUENTLY
LISTED TRANSACTION.—For purposes of this section—
‘‘(1) PROHIBITED TAX SHELTER TRANSACTION.—
‘‘(A) IN
GENERAL.—The term ‘prohibited tax shelter
transaction’ means—
‘‘(i) any listed transaction, and
‘‘(ii) any prohibited reportable transaction.
‘‘(B) LISTED
TRANSACTION.—The term ‘listed trans-
action’ has the meaning given such term by section
6707A(c)(2).
‘‘(C) PROHIBITED REPORTABLE TRANSACTION.—The term
‘prohibited reportable transaction’ means any confidential
transaction or any transaction with contractual protection
(as defined under regulations prescribed by the Secretary)
which is a reportable transaction (as defined in section
6707A(c)(1)).
‘‘(2) SUBSEQUENTLY LISTED TRANSACTION.—The term ‘subse-
quently listed transaction’ means any transaction to which
a tax-exempt entity is a party and which is determined by
the Secretary to be a listed transaction at any time after
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00368
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 371
PUBLIC LAW 109–222—MAY 17, 2006
the entity has become a party to the transaction. Such term
shall not include a transaction which is a prohibited reportable
transaction at the time the entity became a party to the trans-
action.
‘‘(f) REGULATORY AUTHORITY.—The Secretary is authorized to
promulgate regulations which provide guidance regarding the deter-
mination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods,
including before and after the listing of the transaction or the
date which is 90 days after the date of the enactment of this
section.
‘‘(g) COORDINATION WITH OTHER TAXES AND PENALTIES.—The
tax imposed by this section is in addition to any other tax, addition
to tax, or penalty imposed under this title.’’.
(2) CONFORMING AMENDMENT.—The table of subchapters
for chapter 42 is amended by adding at the end the following
new item:
‘‘SUBCHAPTER F. TAX SHELTER TRANSACTIONS.’’.
(b) DISCLOSURE REQUIREMENTS.—
(1) DISCLOSURE
BY
ENTITY
TO
THE
INTERNAL
REVENUE
SERVICE.—
(A) IN GENERAL.—Section 6033(a) (relating to organiza-
tions required to file) is amended by redesignating para-
graph (2) as paragraph (3) and by inserting after paragraph
(1) the following new paragraph:
‘‘(2) BEING
A
PARTY
TO
CERTAIN
REPORTABLE
TRANS-
ACTIONS.—Every tax-exempt entity described in section 4965(c)
shall file (in such form and manner and at such time as
determined by the Secretary) a disclosure of—
‘‘(A) such entity’s being a party to any prohibited tax
shelter transaction (as defined in section 4965(e)), and
‘‘(B) the identity of any other party to such transaction
which is known by such tax-exempt entity.’’.
(B) CONFORMING
AMENDMENT.—Section 6033(a)(1) is
amended by striking ‘‘paragraph (2)’’ and inserting ‘‘para-
graph (3)’’.
(2) DISCLOSURE BY OTHER TAXPAYERS TO THE TAX-EXEMPT
ENTITY.—Section 6011 (relating to general requirement of
return, statement, or list) is amended by redesignating sub-
section (g) as subsection (h) and by inserting after subsection
(f) the following new subsection:
‘‘(g) DISCLOSURE OF REPORTABLE TRANSACTION TO TAX-EXEMPT
ENTITY.—Any taxable party to a prohibited tax shelter transaction
(as defined in section 4965(e)(1)) shall by statement disclose to
any tax-exempt entity (as defined in section 4965(c)) which is a
party to such transaction that such transaction is such a prohibited
tax shelter transaction.’’.
(c) PENALTY FOR NONDISCLOSURE.—
(1) IN GENERAL.—Section 6652(c) (relating to returns by
exempt organizations and by certain trusts) is amended by
redesignating paragraphs (3) and (4) as paragraphs (4) and
(5), respectively, and by inserting after paragraph (2) the fol-
lowing new paragraph:
‘‘(3) DISCLOSURE UNDER SECTION 6033(a)(2).—
‘‘(A) PENALTY ON ENTITIES.—In the case of a failure
to file a disclosure required under section 6033(a)(2), there
shall be paid by the tax-exempt entity (the entity manager
26 USC 6033.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00369
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 372
PUBLIC LAW 109–222—MAY 17, 2006
in the case of a tax-exempt entity described in paragraph
(4), (5), (6), or (7) of section 4965(c)) $100 for each day
during which such failure continues. The maximum penalty
under this subparagraph on failures with respect to any
1 disclosure shall not exceed $50,000.
‘‘(B) WRITTEN DEMAND.—
‘‘(i) IN GENERAL.—The Secretary may make a writ-
ten demand on any entity or manager subject to pen-
alty under subparagraph (A) specifying therein a
reasonable future date by which the disclosure shall
be filed for purposes of this subparagraph.
‘‘(ii) FAILURE TO COMPLY WITH DEMAND.—If any
entity or manager fails to comply with any demand
under clause (i) on or before the date specified in
such demand, there shall be paid by such entity or
manager failing to so comply $100 for each day after
the expiration of the time specified in such demand
during which such failure continues. The maximum
penalty imposed under this subparagraph on all enti-
ties and managers for failures with respect to any
1 disclosure shall not exceed $10,000.
‘‘(C) DEFINITIONS.—Any term used in this section which
is also used in section 4965 shall have the meaning given
such term under section 4965.’’.
(2) CONFORMING
AMENDMENT.—Paragraph (1) of section
6652(c) is amended by striking ‘‘6033’’ each place it appears
in the text and heading thereof and inserting ‘‘6033(a)(1)’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after the date of the enactment of this Act, with respect
to transactions before, on, or after such date, except that no
tax under section 4965(a) of the Internal Revenue Code of
1986 (as added by this section) shall apply with respect to
income or proceeds that are properly allocable to any period
ending on or before the date which is 90 days after such
date of enactment.
26 USC 4965
note.
26 USC 6652.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00370
Fmt 6580
Sfmt 6581
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001
120 STAT. 373
PUBLIC LAW 109–222—MAY 17, 2006
LEGISLATIVE HISTORY—H.R. 4297 (S. 2020):
HOUSE REPORTS: Nos. 109–304 (Comm. on Ways and Means) and 109–455
(Comm. of Conference).
CONGRESSIONAL RECORD:
Vol. 151 (2005): Dec. 8, considered and passed House.
Vol. 152 (2006): Feb. 1, 2, considered and passed Senate, amended.
May 10, House agreed to conference report.
May 11, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 42 (2006):
May 17, Presidential remarks.
(2) DISCLOSURE.—The amendments made by subsections
(b) and (c) shall apply to disclosures the due date for which
are after the date of the enactment of this Act.
Approved May 17, 2006.
VerDate 14-DEC-2004
10:20 Jul 12, 2007
Jkt 059194
PO 00001
Frm 00371
Fmt 6580
Sfmt 6580
E:\PUBLAW\PUBL001.109
APPS06
PsN: PUBL001